Nonexclusive Licensee Has Implicit “Have-Made” Rights

Posted on | August 28, 2008 | 4 Comments

2008-1502 Corebrace v. Star Seismic
D/UT 08-cv-11
Judge Dale Kimball

Corebrace appeals from Judge Dale Kimball’s grant of a motion to dismiss finding that Star did not breach its license of Corebrace’s 7,188,452 patent, and therefore there was no claim for breach of contract or patent infringement.  The patent relates to a restraining brace used in steel-framed buildings–the alleged breach was Star having a third-party contractor manufacture the licensed brace and the issue turned on whether Star’s license permitted it to "have-made" the licensed item.

Both parties were once non-exclusive licensees of the ‘452 patent via separate licenses with the inventor.  Star’s license expressly stated that it did not have the right to sub-license.

Corebrace eventually obtained ownership of the ‘452 from the inventor and, in January 2008, purported to terminate Star’s license because Star had the patented restraining braces manufactured for it by another party.  Such an activity is termed "have made," and Corebrace reasoned that the prohibition against sub-licensing coupled with silence as to "have made" rights meant that Star did not have such rights.  After termination Corebrace filed suit for breach of the license, breach of a settlement agreement (between the two parties from 2003), and for patent infringement.

On a motion to dismiss, the court found that, as a matter of law, the license did provide Star with "have made" rights.  Thus, there is no breach and the license is still in effect–and therefore provides a complete defense to the infringement claim.

The court looked at Carey v. United States, 326 F.2d 975 (Ct. Cl. 1964), Intel v. ITC, 946 F.2d 821, and several other cases to conclude that the right to "make" under the license includes the right to "have made."  The court distinguished cases where the third party was making the license product and selling/using it on its own or under its own name-the court termed such activity as "foundry rights" and concluded that there is a difference between allowing a third party to make and sell for itself and where the third party makes the product solely for the licensee.  The court wrote:

The court concludes that nothing in the License precludes “have-made” rights. As part of Star Seismic’s rights to “make” the licensed product under the License, Star Seismic had the right to have a third-party manufacture the licensed product for it. Accordingly, there is no basis for a breach of license claim.

The court also addressed whether Corebrace had given a proper termination notice under the license–the license requires a notice of breach with a 30-day opportunity to cure before termination, something Corebrace did not do.  It argued that the notice process need not be followed when a cure is impossible–such as here where it would be impossible to remove the accused braces from completed structures within the 30-days.  The court however found that the "cure" would be to stop using the third-party for future braces or obtain a license for the third-party.  Since these activities were not futile, Corebrace’s purported termination without notice was not proper (and, of course, was ineffective because there was no breach).

More reading:

Order

Counsel:

Corebrace: Workman Nydegger, Salt Lake City (Charles L. Roberts, L. David Griffin, Matthew A. Barlow).
Star Seismic: Trask Britt, Salt Lake City (H. Dickson Burton, Brick G. Power).

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