Monday, February 9, 2015

Intellectual Property Law: Florida Supreme Court Interprets IP Licenses

By Dineen Pashoukos Wasylik

It’s not often that the Florida Supreme Court weighs in on issues affecting intellectual property cases. However, this summer, the court answered an important certified question from the Eleventh Circuit regarding patent licenses in a decision likely to affect not only patent licensing but also copyright and trademark licensing. The certified question was: “Does Florida recognize a ‘bright-line rule’ to distinguish an assignment of a license agreement from a sublicense?” MDS (Canada) Inc. v. Rad Source Technologies, Inc., 143 So. 3d 881, 882 (Fla. 2014). The court answered the question in the negative and instead held the interpretation of a license to be a mixed question of law and fact that depends on the language of the license agreement, the substance of the interest actually transferred, and whether the licensee retained any substantial rights in the license agreement.

Assignment Versus Sublicense – Why Does It Matter?

The case in federal court arose from a dispute between a patent owner and its licensee.  The license contract prohibited the licensee from assigning the patent license to a third party without the owner’s written consent but allowed the licensee to grant sublicenses without consent. The licensee sold off the portion of its business that used the patent to a third party, but the owner refused to consent to assignment, so the licensee and its buyer entered into a “sublicense agreement” granting the buyer all of the rights under the license agreement, minus one day. When the three parties later had a dispute about a related product, the licensee sued for breach of the license’s non-compete clause, and the owner counterclaimed that the “sublicense” breached the assignment clause of the contract, invalidating the non-compete.

The federal district court ruled the buyer had entered into a prohibited assignment, and the Eleventh Circuit certified the contract interpretation question. Citing Florida contract law governing real property transactions from the 1930s, the Eleventh Circuit reasoned that the form of an assignment is immaterial and that the court should instead determine its legal effect. MDS (Canada) Inc., 143 So. 3d at 885. The dissent argued in favor of a bright line rule that distinguished an assignment from a sublicense when the licensee transfers less than the entire interest, even by one day.

The State Law Contract Analysis

The Florida Supreme Court cautioned against relying on precedent in the real property context, pointing out that the physical limitations of subleases in real property do not apply to intellectual property, where rights can be simultaneously licensed to numerous parties. The court instead embraced the reasoning set out by the U.S. Supreme Court and Federal Circuit in other patent cases and held that courts interpreting patent licenses have to discern the meaning of the license based upon its plain language and the parties’ intent.

This case-by-case analysis is likely to apply to license agreements in all intellectual property fields. In interpreting licenses, the courts will use state contract law principles to determine the scope and meaning.