Judge Glasser Rules Patentee’s PTAB Arguments Against Standing Doom Breach of License Action
On June 17, 2020, United States District Judge I. Leo Glasser (E.D.N.Y.) ruled on the parties’ objections to reports and recommendations issued by U.S. Magistrate Judge Stephen M. Gold, and ultimately granted a motion for summary judgment by defendant Mastercard International Inc. (“Mastercard”) on plaintiff Alexsam, Inc.’s (“Alexsam”) breach of patent license claims.
Alexsam sued Mastercard in May 2015, alleging that Mastercard failed to pay royalties owed under a 2005 patent license agreement. The business method claimed by the licensed patents allows prepaid cards—like phone cards, gift cards, and medical cards—to be processed on devices normally used for credit card transactions. In addition to asserting counterclaims, Mastercard petitioned the Patent Trial and Appeal Board (the “PTAB”) for covered business method review of the licensed patents. The PTAB denied Mastercard’s petition, however, agreeing with Alexsam that because the licensing agreement contained Alexsam’s “covenant not to sue,” there was no imminent possibility that Alexsam could bring an infringement action against Mastercard, and therefore Mastercard lacked standing before the PTAB.
Magistrate Judge Gold issued a series of reports and recommendations, including that the court should deny Mastercard’s motion for summary judgment based on the argument that Alexsam was judicially estopped from seeking royalties because of its arguments before the PTAB. Magistrate Judge Gold rejected Mastercard’s argument, finding that Alexsam had argued (and the PTAB held) only that the covenant precluded a suit alleging infringement of the Licensed Patents, not that the covenant precluded its breach of contract claim. Reasoning that Alexsam’s positions before the PTAB and in this suit were not inconsistent, Judge Gold recommended that Mastercard’s summary judgment motion be denied.
Judge Glasser disagreed, holding instead that Alexsam’s arguments before the PTAB—that the agreement’s covenant not to sue stripped Mastercard of standing to seek declaratory relief—meant that Alexsam was judicially estopped from seeking royalty payments. The court agreed with Mastercard that, based on MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), “the refusal to pay royalties under a patent license agreement automatically provides the licensee with standing to pursue a declaration of invalidity,” and thus the “covenant not to sue cannot eliminate standing to seek a declaration of invalidity unless it also precludes the patent holder from bringing a breach of contract claim for royalties.” The court noted that, under 35 U.S.C. § 321, Mastercard could not seek covered business method review from the PTAB unless it “has been charged with infringement,” but held that a demand for royalties pursuant to a license agreement is a “charge for infringement” under the statute. The court reasoned that “when the covenant not to sue eliminated Mastercard’s standing before the PTAB, it also estopped Alexsam’s claim for royalties in this Court.”
Judge Glasser also rejected Alexsam’s argument that claim construction was unnecessary where Mastercard already admitted that it had not paid certain amounts under the agreement. Judge Glasser ruled that because the agreement required payments only for “licensed transactions” covered by the patents, claim construction was a prerequisite for any analysis of breach of the license agreement.
Case: Alexsam, Inc. v. Mastercard Int’l Inc., 15-CV-2799 (ILG) (SMG) (E.D.N.Y. June 17, 2020).