Raffel Systems, LLC (“Raffel”) filed a patent infringement action against Man Wah Holdings (“Man Wah”). Man Wah moved to dismiss the patent claims on the ground that Raffel did not possess title to the patents at the time the lawsuit was filed and therefore lacked standing to sue.
As explained by the district court, Man Wah asserted that Raffel lost title to the patents when Raffel mortgaged its patents to obtain loans with PrivateBank and East West Bank. Man Wah relied on the U.S. Supreme Court case of Waterman v. Mackenzie, 138 U.S. 252 (1891) for its position that because Raffel granted PrivateBank and East West Bank security interests in its patents and the banks recorded their security interests with the USPTO, this transferred title in the patents from Raffel to the banks.
In opposition to the motion, Raffel argued that its agreements with the banks are nothing more than standard security agreements granting the banks a security interest in the patents, not a conveyance of title.
To analyze the security interest issue, the district court noted that “Courts that have addressed this issue have consistently found that the Patent Act does not address perfection of security interests—it addresses assignments of title. In In re Cybernetic Servs., the court explained that "[b]ecause transferring title no longer has significance in creating a security interest in personal property, most security interests created after adoption of the UCC do not involve the transfer of title." 239 B.R. at 921. The court explained that the Patent Office is concerned with the recording of transfers of title only. Id. The Code of Federal Regulations addressing patents speaks only to "assignments" which are defined as "transfers by a party of all or part of its right, title and interest in a patent or patent application." Id. (citing 37 C.F.R. § 3.1). The court noted that neither the term "security interest" nor the term "lien" are found in any of the provisions governing patents and the reason for this is that "'[a] security interest is not an 'assignment, grant or conveyance of a patent.'" Id. (quoting William C. Hillman, Documenting Secured Transaction 2–19 to 2–20 (1998)). The court contrasted the omission of security interests in the Patent Act with the Copyright Act, which specifically includes security interests in the definition of a transfer of ownership. Id. at 921. The court concluded that the failure of the Patent Act to include security interests within its scope means that the Patent Act does not preempt state regulation of security interests in patents. Id. at 922.”
After addressing similar, additional cases, the district court concluded that “[i]n sum, because the Patent Act does not address perfection of security interests, the mere act of the banks recording their security interests in Raffel's patents at the USPTO did not transfer title of the patents to the banks. Nothing in the Intellectual Property Security Agreements states that Raffel is assigning title of the patents to the banks; rather, the agreements specifically state that Raffel is granting a "security interest" in its intellectual property. Thus, Raffel's grant of a security interest in its patents to PrivateBank and East West Bank did not convey title to the banks.”
Accordingly, “[b]ecause Raffel continues to hold title to the patents, it has both constitutional and statutory standing to bring this lawsuit,” the district court denied Man Wah's motion to dismiss.
Raffel Systems, LLC v. Man Wah Holdings LTD, Inc., Case No. 18-CV-1765 (E.D. Wisc. June 15, 2020)
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