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Patent Licensee Has Standing to Pursue Patent Infringement Claim Against Patent Licensor/Owner Where Patent Agreement Granted Exclusive License And Did Not Carve Out Patent Owner’s Products

Diamondback is the assignee and owner of U.S. Patent No. 9,810,035, entitled “Disposable Setting Tool” (the ‘035 Patent). Diamondback has been selling its patented setting tools and those setting tools practice and embody one or more claims of the ’035 Patent. Repeat Precision approached Diamondback about obtaining a license to the ’035 Patent, and ultimately Diamondback and Repeat Precision entered in to a Patent License Agreement (“Patent License”).

Diamondback filed a motion to dismiss Repeat Precision’s patent infringement claim for lack of subject matter jurisdiction based on the Patent License, asserting that the license grant in the Patent License was restricted and carved out Diamondback’s sales of its patented setting tools.

As explained by the district court, Diamondback’s sales of its patented setting tools began in 2017, and Diamondback contended that those sales continued without objection and with Repeat Precision’s knowledge after the parties executed the Patent License. Diamondback contended that it already had patented setting tools in inventory and that it fully intended to continue selling those tools, and that Repeat Precision was aware of these intentions. Diamondback also contended that Repeat Precision never suggested that Diamondback should discontinue its sales or otherwise destroy its existing inventory. Diamondback also argued that Repeat Precision failed to provide the “prompt written notice” of any alleged patent infringement that was required under the Patent License and that it continued to continue to make sales with the implied consent of Repeat Precision.

Repeat Precision responded that the Patent License granted Repeat Precision exclusive rights to the “electric wireline setting tool,” which is the invention covered by the ’035 Patent. Repeat Precision also asserted that Diamondback did not ever reserve the right to practice the ’035 Patent.

After reviewing the relevant case law, the district court analyzed whether the Patent License granted Repeat Precision exclusive rights to the ‘035 Patent in order to confer standing to sue.
The district court

“carefully reviewed the Patent License to determine if the Parties agreed either implicitly or explicitly that Diamondback retained any rights to practice the ‘035 Patent. The Court finds that the reliance by Diamondback on the definition of ‘Licensed Products’ is, at best, without merit. The definition of Licensed Products cannot reasonably be read to reserve any rights to Diamondback. At the hearing on Diamondback’s motion, the Court explored this issue in great detail. At the hearing, Diamondback was totally unable to proffer any language from the Agreement that would support such a finding of a reservation beyond the limitation in this first Agreement that Licensed Products would be limited in scope to a ‘bridge plug that is coupled with the Company or its Affiliates’ isolation tool used for well completions and any other products that may be agreed upon.’ Patent License at § 1. To the extent that any facts are relevant—and the Court is highly dubious of that—the Court notes that although Diamondback had previously made frac plugs, it had sold that line of business in 2017 and did not intend to re-enter that business.”

The district court also concluded that “Diamondback granted Repeat Precision ‘an exclusive right and license under the Licensed patents to make…or export Licensed Products in the Territory.’ Patent License at ¶ 2. The Parties mutually agreed on the definition of Licensed Patents and Licensed Products in Paragraph 1. In the same paragraph, the Parties defined ‘Territory’ to include the United States. The Court finds that Repeat Precision has established that Diamondback granted Repeat Precision the exclusive license under the ‘035 Patent within the licensed territory, and that the license covers its right to enforce the patent against potential infringers, including Diamondback.”

Accordingly, the district court concluded that Repeat Precision had standing to sue Diamondback for Diamondback’s own patent.

Diamondback Industries, Inc. v. Repeat Precision, LLC, et al., Case No. 6:19-CV-00034-ADA (W.D. Tex. Sept. 11, 2019)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or