Tuesday, June 2, 2009

Federal Circuit Decides that “Have Made” Rights are Implied, Unless Expressly Omitted

When a patent license grants the rights to “make, use and sell” a patented product, and reserves “all rights not expressly granted to [a licensee],” does the licensee have the right to have the licensed product made by another on its behalf? That question was answered in Corebrace LLC v. Star Seismic LCC, Fed. Cir. 2008-1502 (May 22, 2009)(www.cafc.uscourts.gov/opinions/08-1502.pdf) which held that: “A grant of a right to ‘make, use, and sell’ a product, without more, inherently includes the right to have a third party make the product. A clear intent shown in a contract to exclude ‘have made’ rights can negate what would otherwise be inherent.” Simply stated, “have made” rights are in, unless they are expressly carved out of the license.

Corebrace makes it clear that this implied “have made” right is not a “sublicense” right (which was expressly prohibited in the license granted to Star Seismic). Instead, this implied right emanates from a Court of Claims decision which stated that “[a license to make, use, and sell] is not restricted to the production by the licensee personally or use by him personal or sales by him personally. It permits him to employ others to assist him in the production and in the use and in the sale of the invention.” Carey v. United States, 326 F.2d 975, 979 (Ct. Cl. 1964).


As a patentee, if you do not want to extend “have made” rights, the license grant should include unambiguous language that explicitly preclude such rights.

As a licensee, despite the clear holding in Corebrace, it is still good practice to expressly include “have made” rights in the license grant. Patent licenses are contractual rights that are evaluated under state law. In Corebrace, the governing law was Utah. Since the Supreme Court of Utah was silent on this issue, the Federal Circuit looked to its own precedent to decide this issue. A case originating from a different state could end up with a different result.

What about the third-party supplier? In Corebrace, the action was between the patentee and the licensee. The third-party manufacturer supplying Star Seismic was not a party to the action. Although Star Seismic was conferred implied “have made” rights, it is not clear (at least to me) that this implied right would extend upstream and protect the third-party manufacturer who is making the product. Authorized sales by the licensee clearly “exhaust” patent rights with respect to downstream purchasers, but does an authorized purchase have the same effect upstream? If the purchase is authorized, does that imply that the sale is also authorized? Those are questions for another day...please let me know your thoughts on this.

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