Facts
- Garrett P. Kelley held a patent covering a “dockboard,” equipment used to move merchandise between a truck bed and a loading dock.
- Kelley Company, Inc. (Kelley) manufactured and sold dockboards as its main product.
- Kelley sued Unarco Industries, Inc. (Unarco) in federal court for patent infringement after learning Unarco was marketing and selling a dockboard Kelley believed infringed the patent.
- The infringement litigation became lengthy and costly, and the parties settled by executing a written nonexclusive patent license.
- The license permitted Unarco to manufacture and sell a limited number of dockboards per year without paying royalties.
- The written license did not address assignability (it neither permitted nor barred assignment).
- Overhead Door Corporation (Overhead Door) tried to enter the dockboard market by acquiring or merging with Kelley, but negotiations failed.
- Overhead Door then contracted with Unarco to obtain the right to sell dockboards for a five-year period.
- Kelley’s counsel informed Overhead Door that the patent license ran only to Unarco and that Overhead Door had no rights under the license.
- Unarco and Overhead Door filed a federal declaratory-judgment action seeking a ruling that Unarco’s patent license was assignable to Overhead Door.
- The district court, applying state law, ruled that the license was assignable and entered judgment for Unarco and Overhead Door; Kelley appealed to the Seventh Circuit.
Issues
- Whether a nonexclusive patent license that is silent on assignability may be assigned to a third party without the patent owner’s consent.
- Whether the assignability of a nonexclusive patent license is governed by state contract law or by federal law tied to patent rights.
Decision
- The Seventh Circuit reversed the district court.
- The court held that the nonexclusive patent license was not assignable without the licensor’s consent.
- The court treated assignability as a question controlled by federal law, not state contract law, because the license concerned federally created patent rights.
- Because the license was personal to Unarco and contained no grant of transfer rights, Overhead Door did not obtain license rights in Kelley’s patent through its agreement with Unarco.
Legal Principles
- A nonexclusive patent license is generally a personal privilege of the named licensee and cannot be transferred to another party without the patent owner’s consent.
- Federal law governs whether rights under a patent license may be assigned, even when the license is embodied in a contract.
- Silence in a nonexclusive patent license on the topic of assignment does not create a right to assign; absent consent (or an express authorization to transfer), the license remains nontransferable.
Conclusion
The Seventh Circuit held that Unarco’s nonexclusive license to practice Kelley’s dockboard patent, which did not speak to assignment, could not be transferred to Overhead Door without Kelley’s consent, and it reversed the district court’s declaratory judgment that had allowed the assignment under state law.