Appendix — SAP AG v. Sky Technologies LLC

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Appendix A

Sky Technologies LLC v. SAP AG,

576 F.3d 1374 (Fed. Cir. 2009)

United States Court of Appeals,

Federal Circuit.

SKY TECHNOLOGIES LLC, Plaintiff-Appellee,

v.

SAP AG and SAP America, Inc., Defendant-

Appellant.

No. 2008-1606.

Aug. 20, 2009.

Rehearing and Rehearing En Banc Denied Oct. 28,

2009.

*1376 Alexandra G. White, Susman Godfrey

L.L.P., of Houston, TX, argued for plaintiff-appellee.

With her on the brief were Brian D. Melton, Max L.

Tribble, Jr. and Anne Mullins.

Paul S. Grewal, Howrey LLP, Cupertino, CA,

argued for defendant-appellant. With him on the

brief were Lloyd R. Day, Jr., Robert M. Galvin and

Renee DuBord Brown. Of counsel was Sriranga

Veeraraghaven.

Before MICHEL, Chief Judge, BRYSON,

Circuit Judge, and SPENCER, Chief District.

SPENCER, Chief District Judge.”

Appellants SAP AG and SAP America, Inc.

(“SAP”) filed an interlocutory appeal from the

judgment of the United States District Court for the

Eastern District of Texas finding that Sky

Technologies LLC has standing to bring a patent

infringement suit in the district court. Because the

district court correctly relied on the holding in

Akazawa v. Link New Technology International, Inc.,

520 F.3d 1354 (Fed. Cir. 2008), to determine that

patent ownership was properly transferred by

operation of state foreclosure law, giving Appellee

clear title to the patents-in-suit and therefore

standing in the underlying case, we affirm.

" The Honorable James R. Spencer, Chief Judge, United States

District Court for the Eastern District of Virginia, sitting by

designation.

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I. BACKGROUND

Jeffrey Conklin (“Conklin”) founded

TradeAccess, Inc. (“TradeAccess”) in 1996. Conklin,

along with other inventors, obtained a portfolio of

patents, which are the subject of this suit.! Conklin

and the other inventors assigned all of their “right{s],

title[s], and interest together with the benefits and

privileges in and to said inventions and discoveries”

to TradeAccess. These assignments were recorded

with the United States Patent and Trademark Office

(“PTO”). ‘TradeAccess later changed its name to

Ozro, Inc. (“Ozro”).

On April 2, 2001, Ozro, the Grantor, executed

an Intellectual Property Security Agreement with

Silicon Valley Bank (“SVB”) (“SVB Agreement”),

granting SVB a “security interest in all of Grantor’s

right, title, and interest, whether presently existing

or hereafter acquired in, to and under all of the

Collateral.” The Collateral included the patents-in-

suit.2 The SVB Agreement was filed with the PTO

on April 2, 2001. On April 3, 2001, Ozro executed a

similar security agreement with *1377 Cross

1 U.S. Patent Nos. 6,141,653; 6,336,105; 6,338,050; 7,162,458;

and 7,149,724.

2 Specifically, the Agreement gave SVB

“a first priority security interest in all of Grantor's

right, title, and interest throughout the world in ... (d)

fa]ll inventions, rights to apply for patents, patents,

patent applications, and like protections ... including

without limitation the patents and patent applications

set forth” in the Agreement.

4a

Atlantic Capital Partners, Inc. (““XACP”) (“XACP

Agreement”), for the benefit of the XACP Entities.

The XACP Agreement contained virtually identical

language as the SVB Agreement. Ozro used both

Agreements to secure loans, and, in the event of

default by Ozro, both parties had “the right to

exercise all the remedies of a secured party upon

such default under the Massachusetts UCC,”

including the right

(i) to take possession of all or any

portion of the Intellectual Property

Collateral, (ii) to sell, lease, or otherwise

dispose of any or all of the Intellectual

Property Collateral...and (iii) to

exercise all or any of the rights,

remedies, powers, privileges and

discretions under all or any of the

documents relating to the Secured

Obligations.

Moreover, in the event of default, Ozro would

be required to “assemble the Intellectual Property

Collateral and any tangible property in which [SVB

or XACP] has a security interest and to make it

available to [SVB or XACP].” The XACP Agreement

also contained a specific provision providing for

disposition of the Intellectual Property Collateral at

a public or private sale, should default occur, and

3 At all times, XACP acted as an agent for Cross Atlantic

Technology Fund, L.P., The Co-Investment 2000 Fund, L.P.,

and 3i Technology Partners L.P. Within the Agreements, these

parties are referred to as the “XACP Entities.” For purposes of

this Opinion, “XACP” refers to all of these entities.

5a

permitted XACP to purchase the Collateral at the

public sale, should it wish to do so.

In December 2002, SVB assigned its security

interest to XACP through a é§ Non-Recourse

Assignment, giving XACP all of the “right, title, and

interest” formerly held by SVB. This Assignment

was recorded with the PTO; at that point, XACP held

the security interest in all of the patents-in-suit.

Ozro defaulted on its loan obligations and

XACP foreclosed on the patents. On February 18,

2003, XACP issued a foreclosure notice (“Notice”) to

all of Ozro’s creditors, inventors, and counsel. The

Notice identified the patents-in-suit as those to be

sold at public auction.

In the meantime, Conklin started a new

company, Whitelight Technology, later known as Sky

Technologies LLC (“Sky”). Conklin entered into

negotiations with XACP to transfer ownership of the

patents-in-suit to Sky. On June 4, 2003, XACP and

Conklin signed a Settlement Agreement stating that

XACP:

shali use [its] best efforts to obtain title

to the Intellectual Property [including

the patents-in-suit] for purposes of a

transfer from [XACP] to [Sky] by selling

all of [XACP]’s rights in and to the

Secured Intellectual Property by Public

Auction within sixty (60) days after the

Effective Date.... At the Public

Auction, [XACP] will credit bid up to

$4,031,844 as may be required to

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purchase the Intellectual Property,

including but not limited to the right to

sue for past infringement’ or

misappropriation of the Patents,

covered by security interest held by

[XACP].

To the extent that portions of the Intellectual

Property are not subject to the security interests held

by [XACP]. . . XACP] and Conklin agree to use their

best efforts to acquire such assets from Ozro to be

held by [Sky] without further consideration payable

by Conklin or XACP.4

*1378 Both XACP and Jeffrey Conklin, as an

individual, signed the Settlement Agreement.

Conklin also signed the document as Manager of

Whitelight Technology.

On July 14, 2003, XACP foreclosed on its

security interests at public auction. The security

interest formerly held by SVB and subsequently

assigned to XACP was sold first, and then XACP

foreclosed on its own security interest. XACP was

the only bidder for both sales and purchased all of

4 The terms of the Settlement Agreement were previously

drafted in a Term Sheet. However, the Term Sheet was never

presented to the district court and, therefore, is an improper

part of the appellate record. Fed. R. App. P. 10(a)(1) (stating

the record on appeal contains “the original papers and exhibits

filed in the district court”); see also Moore U.S.A., Inc. v.

Standard Register Co., 229 F.3d 1091, 1116 (Fed. Cir. 2000)

(‘[T]Jhe record on appeal is generally limited to that which is

before the district court.”).

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the assets. On July 22, 2003, pursuant to the

Settlement Agreement, XACP assigned all of its

“‘right[s], title, and interest in” the patents-in-suit to

Sky by a written assignment (“Sky Assignment”). At

no point after foreclosure did Ozro execute a written

agreement assigning all of its rights, title, or

interests in the patents to XACP.

On October 17, 2006, Sky filed a patent

infringement suit against SAP in the United States

District Court for the Eastern District of Texas. On

January 4, 2008, SAP moved to dismiss Sky’s

Complaint for lack of standing. On March 20, 2008,

the district court requested supplemental briefings

from the parties to discuss whether the SVB and

XACP Agreements alone granted substantial rights,

or whether the security agreements transferred title

upon default of the debtor.

On June 4, 2008, the district court, relying on

this court’s opinion in Akazawa, held the patents-in-

suit were transferred from Ozro to XACP through

the July 14, 2003 foreclosure proceedings. Because

XACP properly complied with the Massachusetts

Uniform Commercial Code (“UCC”) foreclosure

requirements by placing the patent collateral up for

sale at a public auction and notifying Ozro of the

sale, the district court held title was transferred on

July 14, 2003, the date of the foreclosure. For this

reason, when XACP assigned the patents-in-suit to

Sky on July 22, 2003, Sky became vested with all

rights, title, and interest in the patents. Thus, the

chain-of-title had not been broken from Ozro to Sky,

and Sky was declared the proper title-holder of the

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patents-in-suit, giving Sky standing to bring the

patent infringement suit.

SAP filed a Motion for Reconsideration and/or

Certification of Question for Interlocutory Appeal on

July 15, 2008. The district court denied the Motion

for Reconsideration because SAP failed to raise any

new argument or present new evidence. However,

the district court found that “substantial grounds for

difference of opinion exist regarding the question of

whether a transfer of title through operation of law

without a written assignment may apply in

situations that do not involve heirs or probate law.”

The district court granted SAPs Motion for

Certification of Question for Interlocutory Appeal.

This appeal followed. We have jurisdiction pursuant

to 28 U.S.C. § 1292(b).

iil. DISCUSSION

A. Standard of Review

An Article III standing challenge is a question

of law, which this court reviews de novo. Akazawa,

520 F.3d at 1355 (citing Prima Tek II, L.L.C. v. A-

Roo Co., 222 F.3d 1372, 1376 (Fed. Cir. 2000)). As

this matter is before the court on an interlocutory

appeal, our jurisdiction “applies to the order certified

to the court of appeals, and is not tied to the

particular question formulated by the district court.”

*1379 Yamaha Motor Corp. v. Calhoun, 516 U.S.

199, 205, 116 S.Ct. 619, 133 L.Ed.2d 578 (1996)

9a

(finding that the court is limited by the certified

order, but may consider all issues discussed within

that order) (emphasis omitted).

B. Valid Transfer of Patent Title through Operation

of Law

In order to seek damages for infringement of a

patent, a party must have standing at the inception

of the lawsuit. Arachnid, Inc. v. Merit Indus., Inc.,

939 F.2d 1574, 1579 (Fed. Cir. 1991). A party that

has been granted all substantial mghts under the

patent, “regardless of how the parties characterize

the transaction that conveyed those rights,” is

considered to have legal title, and therefore standing.

Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1249-

50 (Fed. Cir. 2000). Thus, it is the “substance of

what was granted” that determines the rights in the

patent, not the form. Id. at 1250; Vaupel

Textilmaschinen KG v. Meccanica Euro Italia SPA,

944 F.2d 870, 873-76 (Fed. Cir. 1991). In the present

case, the central question is whether XACP had legal

right, title, and interest in the patents-in-suit to

transfer all of those rights to Sky, thereby providing

Sky with standing to bring the _ underlying

infringement claim. Appellants contend that

because no writing exists transferring the patents-in-

sult to XACP, Sky did not obtain legal title from

XACP, and therefore does not have standing in this

matter. Appellee disagrees, and argues that

Akazawa permits transfers of patent ownership by

operation of law without a writing, and because the

patents-in-suit were foreclosed upon in accordance

with Massachusetts law, XACP became the owner of

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the patents on July 14, 2003, after the foreclosure

proceedings. Accordingly, Appellee contends that

XACP’s assignment to Sky vested Sky with full legal

title and standing in the underlying case. We agree.

1. Akazawa Controls

We have previously held that patent

ownership is determined by state, not federal law.

Akazawa, 520 F.3d at 1357 (citing Jim Arnold Corp.

v. Hydrotech Sys., Inc., 109 F.3d 1567, 1572 (Fed.

Cir. 1997) (“[T]he question of who owns the patent

rights and on what terms typically is a question

exclusively for state courts.”)). However, “the

question of whether a patent assignment clause

creates an automatic assignment or merely an

obligation to assign is intimately bound up with the

question of standing in p#ient cases,” and therefore

we have “treated it as a matter of federal law.” DDB

Techs., L.L.C. v. MLB Advanced Media, L.P., 517

F.3d 1284, 1290 (Fed. Cir. 2008). Usually, federal

law is used to determine the validity and terms of an

assignment, but state law controls any transfer of

patent ownership by operation of law not deemed an

assignment.

The Federal Patent Act requires that all

assignments of patent interest be in writing. 35

U.S.C. § 261 (2006). This requirement dates back to

the 1881 Supreme Court decision in Ager v. Murray,

which held that a debtor’s interest in a patent that

would be used to satisfy a judgment against him was

property, “assignable by him, and .. .[could not] be

taken on execution at law.” 105 U.S. 126, 131-32, 26

L.Ed. 942 (1881). The Court held that the patentee

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was required to execute a writing to assign title, or a

trustee would be appointed to execute an

assignment, “if the patentee should not himself

execute one as directed.” Jd. at 126, 132. This

decision was based on the idea that a creditor cannot

reach incorporeal property, such as a patent, due to

its intangible nature; the transfer (either voluntary

or involuntary) to a purchaser must be done by

written assignment “in order to vest [the purchaser]

with a complete title *1380 to the property.” Jd. at

130 (citing Stephens v. Cady, 55 U.S. (14 How.) 528,

531, 14 L.Ed. 528 (1852)).

Even though a transfer of patent ownership, if

through an assignment, must be in writing, this

court has held, “[T]here is nothing that limits

assignment as the only means for transferring patent

ownership.... [O]wnership of a patent may be

changed by operation of law.” Akazawa, 520 F.3d at

1356. In Akazawa, the defendant challenged the

plaintiffs standing to sue for infringement based on

an alleged defect in the assignor’s claim of ownership

in the patent. Jd. at 1355. Akazawa, the inventor of

a patent, died intestate, after which his wife and

daughters agreed that all of Akazawa’s rights would

be transferred to his wife, who then transferred her

rights to the plaintiff. Jd. at 1355. The district court

held that the plaintiff lacked standing to enforce the

patent because no writing had been issued from the

inventor to his wife granting her all of his rights to

the patent. Jd. We reversed the district court’s

decision and held that passage of title through

intestacy is not an assignment, and therefore did not

require a writing. /d. at 1358. Further, we stated

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that if the controlling state or foreign intestacy law

passed title of the patent to the wife and daughters

upon the inventor’s death, then all subsequent

transfers were valid. Id.

We find that Akazawa controls in the instant

case, and that the district court’s reliance on its

reasoning was appropriate because transfer of patent

ownership by operation of law is permissible without

a writing. Akazawa says nothing about permitting

assignments without a writing; rather, this court

made it clear that if assignment is the method of

transfer of patent ownership, it must be done in

writing, pursuant to § 261. See Akazawa, 520 F.3d

at 1356. However, assignment is not the only

method by which to transfer patent ownership. As

noted below, foreclosure under state law may

transfer patent ownership. Here, XACP’s foreclosure

on its security interest was in accordance with

Massachusetts law; therefore, Sky received full title

and ownership of the patents from XACP providing it

with standing in the underlying case.

2. Transfer of Title under Massachusetts Law

In vhe instant case the controlling state law is

the Massachusetts UCC. Massachusetts UCC § 9-610

permits a secured party to sell the collateral after

default, in a commercially reasonable manner, and

that same party may purchase the collateral at a

public disposition. Section 9-617 of the UCC states

that once a secured party disposes of collateral after

default, the transferee for value takes all of the

debtor’s rights in the collateral. Mass. Gen. Laws ch.

106, § 9-617(a)(1) (2009). Because XACP foreclosed

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on the patents-in-suit in conformity with these

provisions, XACP obtained title to the patents on

July 14, 2003.

In the XACP Security Agreement, Ozro gave

XACP a security interest in the patents-in-suit as

collateral security. Upon default, XACP could

exercise all rights pursuant to the Massachusetts

UCC and “sell, lease, or otherwise dispose” of the

Collateral. The XACP Agreement also contained a

provision dictating the sale of the Collateral,

including a clause permitting XACP to purchase the

Collateral at a public sale. In accordance with the

Security Agreement and the Massachusetts UCC,

XACP gave Ozro at least seven days’ notice of the

sale, disposed of the Collateral through a public

auction, and purchased the Collateral at the same

auction. Therefore, consistent with sections 9-610

and 9-617, XACP received all of Ozro’s rights in the

Collateral, making *1381 XACP the title-holder of

the patents-in-suit after foreclosure.

Despite this clear authority, Appellants make

much of 35 U.S.C. § 154, which controls the content

and term of a patent. Section 154(a)(1) states, “Every

patent shall contain a short title of the invention and

a grant to the patentee, his heirs or assigns, of the

right to exclude others from making, using, offering

for sale, or selling the invention. ...” 35 U.S.C. §

154(a)(1) (2006). Accordingly, Appellants contend

that patents can only be owned by three categories of

individuals—the patentee, his heirs, or his assigns.

Appellants assert the holding in Akazawa was

correct, but is not controlling because the class of

persons receiving ownership through operation of

l4a

law in Akazawa were heirs—a class within §

154(a)(1)—but no heirs or assigns exist in the

present case. We find this argument unpersuasive.

Section 154 does not restrict patent ownership to

these three classes of individuals, and moreover, this

language fails to specifically address transfers of

patent ownership.

Appellants also claim that, regardless of

sections 9-610 and 9-617, a writing requirement

exists in the Massachusetts UCC. To find such a

requirement, Appellants suggest section 9-619

requires a writing where there is a transfer of any

patent collateral, whether the transfer is by

assignment or operation of law. We find this

argument lacking. Section 9-619 permits parties to

prepare a Transfer Statement, which creates “a

simple mechanism for obtaining record or legal title,

for use primarily when other law does not provide

one.” Mass. Gen. Laws ch. 106, § 9-619 cmt. 2 (2009).

This document “entitles the transferee to... all

rights of the debtor in the collateral.” Jd. § 9-619(b).

According to comment two in section 9-619, the

purpose of a Transfer Statement is to make title

clear in circumstances where title is transferred to a

third party after a secured party has exercised its

rights, and to provide potential buyers of collateral

subject to a registration system a writing reflecting

ownership. Nothing in the language of section 9-619

evinces the requirement that a writing must exist to

transfer patent rights through operation of law, only

that such a writing is recognized under the

Massachusetts UCC. Based on the plain language of

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the provision, such a writing is permissible, not

mandatory.

C. No Preemption of State Law

Appellants claim if Massachusetts law is

found to allow transfers of patent ownership without

a writing, then federal preemption must occur

pursuant to 35 U.S.C. § 261; however, Appellants are

incorrect. Section 261 speaks only to assignments of

patents; there exists no federal statute requiring a

writing for all conveyances of patent ownership.

Therefore, no federal law preempts the use of the

Massachusetts UCC foreclosure provisions to

transfer patent ownership by operation of law.

Consequently, Appellants’ preemption argument

lacks merit.

D. Public Policy Justifications

The policy justifications for permitting

transfers of patent ownership through operation of

law without a writing also support our holding.

First, if foreclosure on security interests secured by

patent collateral could not transfer ownership to the

secured creditor, a large number of patent titles

presently subject to security interests may be

invalidated. Any secured creditor who maintained

an interest in patent collateral would be in danger of

losing its rights in such collateral. Second, by

restricting transfer of patent ownership only to

assignments, the value of patents could significantly

diminish because patent owners would be limited in

their ability to use patents as collateral or pledged

security. Lastly, it would be impractical to require

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*1382 secured parties to seek out written

assignments following foreclosure from businesses

that may have ceased to exist.

We need not address the pre or post-default

documents submitted by Appellee to determine if a

writing exists which transferred title to XACP. By

following proper foreclosure procedures, XACP

became the owner of the patents-in-suit. Therefore,

XACP’s assignment to Sky of all of its rights, title,

and interest in the patents-in-suit made Sky the

owner of the same, and the proper party to bring the

underlying infringement action.

Iii. CONCLUSION

For the aforementioned reasons, we affirm.

AFFIRMED.

COSTS No costs.

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Appendix B

Sky Technologies LLC v. SAP AG,

296 Fed. Appx. 10, 2008 WL 4491894

(Fed. Cir. 2008)

United States Court of Appeals,

Federal Circuit.

SKY TECHNOLOGIES LLC, Plaintiff-Respondent,

v.

SAP AG and SAP AMERICA, INC., Defendants-

Petitioners.

Misc. No. 879.

Sept. 10, 2008.

*10 On Petition for Permission to Appeal

pursuant to 28 U.S.C. § 1292(b) from the United

States District Court for the Eastern District of

Texas in case no. 2:06-CV-440, Judge David Folsom.

Before RADER, Circuit Judge, FRIEDMAN,

Senior Circuit Judge, and SCHALL, Circuit Judge.

ORDER

SCHALL, Circuit Judge.

**1] SAP AG and SAP America, Inc. (SAP)

petition for permission to appeal an order certified by

the United States District Court for the Eastern

District of Texas as one involving a controlling issue

of law as to which there is substantial ground for

difference of opinion and for which an immediate

18a

appeal may materially advance the _ ultimate

termination of the litigation. SAP also moves to stay

proceedings in the Texas district court, pending

disposition of this petition by this court. Sky

Technologies LLC opposes.

Sky filed this patent infringement suit against

SAP in the Eastern District of Texas. SAP moved to

dismiss the suit and alleged that Sky lacked

standing. SAP alleged that there was no written

assignment agreement to Cross Atlantic Capital

Partners (XACP) when XACP purchased patents in a

foreclosure sale involving patents owned by Ozro,

Inc., and thus XACP could not in turn ultimately

assign its interests to Sky. Citing this court’s recent

decision in *11 Akazawa v. Link New Technology

International, Inc., 520 F.3d 1354 (Fed. Cir. 2008),

the Texas district court denied the motion to dismiss

and held that under state law title of the patent

transferred by operation of law and no written

assignment was needed. Meanwhile, in the United

States District Court for the District of

Massachusetts, SAP sued the entities that owned the

patent before the foreclosure sale, seeking a

declaratory judgment concerning who owns the

patents and declaratory judgments of

noninfringement, invalidity, and unenforceability.

The Massachusetts district court denied a motion to

transfer that case to the Texas district court.

The Texas district court subsequently certified

for permissive appeal its order denying SAP’s motion

to dismiss, stating that a substantial ground for

difference of opinion may exist concerning whether a

transfer of title through operation of law may apply

19a

in situations that do not involve heirs or probate law.

In Akazawa v. New Link Tech. Int7, Inc., 520 F.3d

1354 (Fed. Cir. 2008), we held ownership of a patent

may be changed by operation of probate law. In

Akazawa, we remanded for the district court to

determine whether under Japanese law a patent was

transferred to the estate, noting that pursuant to

statute a patent may be granted to “the patentee, his

heirs, or assigns.” See 35 U.S.C. 154(a)(1). We noted

that “there is nothing that limits assignment as the

only means for transferring patent ownership.

Indeed, the case law illustrates that ownership of a

patent may be changed by operation of law.”

Akazawa, 520 F.3d at 1356. In contrast, 35 U.S.C. §

261 requires that all assignments be in writing.

Ultimately, this court must exercise its own

discretion in deciding whether it will grant

permission to appeal interlocutory orders certified by

a trial court. See In re Convertible Rowing Exerciser

Patent Litigation, 903 F.2d 822 (Fed. Cir. 1990); 28

U.S.C. § 1292(d)(2) (“the Federal Circuit may, in its

discretion, permit an appeal to be taken from such

order”). We determine that granting the petition in

these circumstances is warranted.

**2 Concerning SAP’s_ request to. stay

proceedings in the Texas district court, we note that

the Texas district court stated that if this court

grants the petition for permission to appeal, it would

consider staying its proceedings. We deem the better

course is for the Texas district court to consider that

issue in the first instance.

Accordingly,

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IT IS ORDERED THAT:

(1) The petition for permission to appeal is

pranted.

(2) The request to stay proceedings in the

Texas district court is denied without prejudice.

Z2la

Appendix C

Sky Technologies LLC v. SAP AG,

2008 WL 2775487 (E.D. Tex. 2008)

United States District Court,

Eastern District of Texas,

Marshall Division.

SKY TECHNOLOGIES LLC, Plaintiff,

Vv.

SAP AG, SAP America, Inc. and Oracle Corporation,

Defendants.

Civil Action No. 2:06-CV-440 (DF).

July 15, 2008.

ORDER

DAVID FOLSOM, District Judge.

*] Currently before the Court is SAP AG and

SAP America, Inc’s Motion for Reconsideration Or,

In the Alternative, Certification of Question for

Interlocutory Appeal (Dkt. No. 214). A hearing on

this matter was held on July 9, 2008. Having

considered the arguments and briefing on this

matter the Court finds that the motion should be

GRANTED-IN-PART and DENIED-IN-PART.

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I. BACKGROUND

After several rounds of briefing (Dkt. Nos. 132,

147, 155, 171, 186, 189, 198, 200, 204, and 206)

regarding Defendants’ Rule 12(b) (1) Motion to

Dismiss for Lack of Standing (Dkt. No. 132), the

Court issued an order on June 4, 2008 (hereinafter

“June Order”) (Dkt. No. 212) finding that Sky

Technologies LLC (“Sky”) held title to the patents-in-

suit. The June Order found that title was

transferred by operation of Massachusetts state law

after a foreclosure sale despite the lack of an

assignment in writing. Dkt. No. 212 at 19.! The

June Order also denied Ozro’s intervention as moot.”

In the meantime, on April 11, 2008,

Defendants filed a declaratory judgment action

against Ozro in Massachusetts for non-infringement,

invalidity, unenforceability and ownership of the

same patents-in-suit. Ozro moved to transfer venue

from Massachusetts to the Eastern District of Texas,

but this motion was denied on June 3, 2008. A

scheduling order was entered and Judge Young set a

trial date of March 2009.

On June 13, 2008, Defendants brought this

motion to reconsider, citing that the June Order

conflicts with the assignment provision of 35 U.S.C. §

1 All pages numbers reference the docket header page numbers.

2 Ozro is the party that Defendants contend holds title to the

patents. Defendants contend that because standing must exist

at inception of the litigation, the intervention of Ozro would not

resolve the problem of standing.

23a

261 and case law from the Supreme Court and

Federal Circuit. Dkt. No. 214 at 5. Alternatively,

Defendants seek certification for interlocutory

appeal. Id. at 6.

IL RECONSIDERATION

A. Parties’ Position

Defendants argue that the June Order is

manifestly erroneous. Dkt. No. 214 at 7. Defendant’s

state that the June Order contradicts Ager uv.

Murray, 105 U.S. 126, 131, 26 L.Ed. 942 (1881) and

Akazawa v. Link New Technology Int'l, Inc., 520 F.3d

1354 (Fed. Cir. 2008). Dkt. No. 214 at 7. Defendants

contend that the Federal Circuit’s decision in

Akazawa only applies to “heirs” under 35 U.S.C. §

154(a)(1) and not “assigns” who must secure legal

title through a writing under 35 U.S.C. § 261. Dkt.

No. 214 at 4. Defendants alternatively argue that

there are “substantial grounds for a difference of

opinion regarding whether the foreclosure provisions

of the Massachusetts UCC can or do vest legal title

in a patent upon foreclosure without a written

assignment.” Jd. at 10 (citing Mass. Gen. Laws ch.

106, §§ 9-610, 9-617, 9-619).

Plaintiff responds that a motion for

reconsideration is used _ sparingly and only

appropriate where the moving party can point to

controlling law or evidence that would alter the

conclusion of the court. Dkt. No. 225 at 3 (citing

Templet v. HydroChem Inc., 367 F.3d 473, 479 (5th

Cir. 2004); Applera Corp. v. MJ Research, Inc., 404 F.

24a

Supp. 2d 422, 423-24 (D. Conn. 2005)). Plaintiff

argues that Defendants do not raise new issues,

uncover new evidence, or demonstrate a “manifest

error of law or fact.” Dkt. No. 225 at 3-4.

B. Discussion

*2 The Court has already considered two

rounds of briefing, sought clarification of the issues

from the parties, and issued two orders evaluating

the same cases that Defendants raise in their motion

to reconsider. The Fifth Circuit described the

standard for a motion to reconsider:

A Rule 59(e) motion “calls into question the

correctness of a judgment.” in re Transtexas Gas

Corp., 303 F.3d 571, 581 (5th Cir. 2002). This Court

has held that such a motion is not the proper vehicle

for rehashing evidence, legal theories, or arguments

that could have been offered or raised before the

entry of judgment. Simon v. United States, 891 F.3d

1154, 1159 (5th Cir. 1990). Rather, Rule 59(e)

“serves the narrow purpose of allowing a party to

correct manifest errors of law or fact or to present

newly discovered evidence.” Walman v. Intl Paper

Co., 875 F.2d 468, 473 (5th Cir. 1989) (internal

quotations omitted). Reconsideration of a judgment

after its entry is an extraordinary remedy that

should be used sparingly. Clancy v. Employers

Health Ins. Co., 101 F. Supp. 2d 463, 465 (E.D. La.

2000) (citing 11 Charles A. Wright, Arthur R. Miller

& Mary Kay Kane, Federal Practice & Procedure §

2810.1, at 124 (2d ed. 1995)).

25a

Templet v. Hydrochem Inc., 367 F.3d 473, 478-

79 (5th Cir. 2004).

The Court finds that Defendants have not

raised any new issue or presented new evidence.

Therefore, this Court does not find that the findings

in the June Order warrants reconsideration and

DENIES the request for reconsideration.

Il, INTERLOCUTORY APPEAL

A. Parties’ Positions

Defendants alternatively argue that if the

Federal Circuit agrees with Defendants this Court

could avoid a needless trial involving the wrong

parties. Dkt. No. 214 at 14.

Plaintiff contends that Defendants are seeking

interlocutory appeal as a tactical maneuver. Dkt.

No. 225 at 2. Plaintiff notes that it filed a

declaratory judgment action in Massachusetts and is

merely seeking to delay the trial here so that it may

proceed in Defendants’ chosen forum. Jd. Plaintiff

argues that an interlocutory appeal under 28 U.S.C.

§ 1292(b) is a “departure from the normal rule that

only final judgment are appealable, and therefore

must be construed narrowly.” /d. at 5 (quoting

James v. Price Stern Sloan, Inc., 283 F.3d 1064, 1068

(9th Cir. 2002)). Citing Cybor Corp. v. FAS

Technologies Inc., 138 F.3d 1448, 1479 (Fed. Cir.

1998) for the proposition that the Federal Circuit has

refused every request for interlocutory appeal of

claims construction orders, Plaintiff argues that “no

federal court rejects requests for interlocutory appeal

26a

more frequently than the Federal Circuit.” Dkt. No.

225 at 6.

Defendants explain that there is no

“samesmanship” in filing in Massachusetts. Dkt. No.

232 at 7. Defendants contend that it filed its

declaratory judgment only after Ozro threatened to

sue defendants. Jd. at 8 (citing Sky’s Cur-Reply [sic]

to SAP’s Motion to Dismiss, Dkt. No. 171 at 3).

Defendants state that they could not bring the action

in the Eastern District of Texas because Ozro and co-

defendant XACP are not subject to personal

jurisdiction and venue here. Jd. Defendants state

that the “Federal Circuit has accepted interlocutory

appeals in many cases involving jurisdictional

defects, including standing.” Id. at 11 (citing Jnt7

Gamco, Inc. v. Multimedia Games, Inc., 206 Fed.

Appx. 978 (Fed. Cir. 2006); Air Measurement

Technologies, Inc. v. Akin Gump Strauss Hauer &

Feld, L.L.P., 504 F.3d 1262, 1267 (Fed. Cir. 2007);

Voda v. Cordis Corp., 476 F.3d 887, 889-90 (Fed. Cir.

2007); U.S. Philips Corp. v. Sears Roebuck & Co., 55

F.3d 592, 593, 597 (Fed. Cir. 1995); Bath Iron Works

Corp. v. U.S., 20 F.3d 1567, 1570 n. 1 (Fed. Cir.

1994); Exxon Chemical Patents, Inc. v. Lubrizol

Corp., 935 F.2d 1263, 1265-66 (Fed. Cir. 1991);

Johns-Manville Corp. v. U.S., 855 F.2d 1556, 1557

(Fed. Cir. 1988); U.S. v. Connolly, 716 F.2d 882, 883

(Fed. Cir. 1983)). Defendants further cited a Fifth

Circuit decision for the proposition that interlocutory

appeal was an appropriate remedy even on the eve of

trial. Id. (quoting Edwards v. Cass County, 919 F.2d

273, 276 (5th Cir. 1990)).

27a

B. Discussion

*3 Title 28 § 1292(b) provides a means of

appealing from interlocutory orders that are

otherwise not appealable:

When a district judge, in making in a civil

action an order not otherwise appealable under this

section, shall be of the opinion that such order

involves a controlling question of law as to which

there is substantial ground for difference of opinion

and that an immediate appeal from the order may

materially advance the ultimate termination of the

litigation, he shall so state in writing in such order.

The Court of Appeals...may thereupon, in its

discretion, permit an appeal to be taken from such

order, if application is made to it within ten days

after the entry of the order.

28 U.S.C. § 1292(b). This section “provides for

review of an order rather than review of a particular

question, [so the Circuit Court of Appeals] is not

restricted to the questions specified by the district

court but ‘may address any issue fairly included

within the certified order.” Brabham v. A.G.

Edwards & Sons Inc., 376 F.3d 377, 380 (5th Cir.

2004) (quoting Yamaha Motor Corp., USA v.

Calhoun, 516 U.S. 199, 205, 116 S.Ct. 619, 133

L.Ed.2d 578 (1996)).

Certification “is not available as a means to

review ... for incorrect evaluation of proper factors.”

A. Olinick & Sons v. Dempster Bros., Inc., 365 F.2d

439, 443 (2d Cir. 1966); see also Humble Oil & Ref.

Co. v. Bell Marine Serv., Inc., 321 F.2d 53, 57 (5th

28a

Cir. 1963). “A question which requires a factual as

well as legal decision is not suitable for interlocutory

review.” Speizman Knitting Mach. Co. v. Terrot

Strickmaschinen GmBH, 505 F. Supp. 200, 202

(D.N.C. 1981). “{A]ppellate jurisdiction under §

1292(b) extends only to interlocutory orders

involving a controlling question of law.” Withhart v.

Otto Candies, L.L.C., 431 F.3d 840, 841 (5th Cir.

2005) (citations and quotations omitted). Section

1292(b) is meant to be applied sparingly in that only

“exceptional circumstances [will] justify a departure

from the basic policy of postponing appellate review

until after the entry of a final judgment.” Coopers &

Lybrand v. Livesay, 437 U.S. 463, 475, 98 S.Ct. 2454,

57 L.Ed.2d 351 (1978).

The Court finds that substantial grounds for

difference of opinion exist regarding the question of

whether a transfer of title through operation of law

without a written assignment may apply in

situations that do not involve heirs or probate law.

The Court notes that the certification by the Federal

Circuit would create efficiencies for not only this

court but for Judge Young as well. In addressing

Plaintiffs concern that Defendants are seeking to

escape this forum in a _ tactical maneuver,

Defendants’ counsel sent a letter to the Court

stating:

During today’s hearing, the Court asked

whether, upon this Court’s certification

for interlocutory appeal of its June 4,

2008 Order, SAP would agree to seek a

stay of its related declaratory judgment

action in the District of Massachusetts.

29a

I have now consulted with my client,

and the answer to your question is yes.

*4 Letter from Paul S. Grewal to David

Folsom (July 9, 2008).

The Court notes that 28 U.S.C. § 1292(b)

states that the Court of Appeals may permit an

appeal “Provided, however, That application for an

appeal hereunder shall not stay proceedings in the

district court unless the district judge or the Court of

Appeal or a judge thereof shall so order.” (emphasis

in original). At this time, the Court will not stay the

proceedings. The parties are obligated to meet all

scheduling deadlines. The Defendants are not

required to request a stay of proceedings in Judge

Young’s action. The Court will reassess a stay of the

proceedings in this action should the Federal Circuit

grant the request for interlocutory appeal. If the

Court grants a stay in this action, the Defendants

will then be obligated to request a stay in the

Massachusetts action, though the Court is mindful

that it is in Judge Young’s discretion whether to

grant the request for stay. Therefore, because the

Court finds that the resolution of this issue would

materially advance the ultimate termination of this

litigation, the Court GRANTS this portion of

Defendants’ motion.

Iv. CONCLUSION

Therefore, for the foregoing reasons the Court

DENIES-IN-PART SAP AG and SAP America, Inc’s

Motion for Reconsideration and GRANTS-IN-PART

30a

Defendants’ Motion for Certification of Question for

Interlocutory Appeal (Dkt. No. 214).

The Court’s Order of June 4, 2008 (Dkt. No.

212) is hereby CERTIFIED for interlocutory appeal

pursuant to 28 U.S.C. § 1292(b).

Itis so ORDERED.

dla

Appendix D

Sky Technologies LLC v. SAP AG,

2008 WL 5234644 (E.D. Tex. 2008)

United States District Court,

Eastern District of Texas,

Marshall Division.

SKY TECHNOLOGIES LLC, Plaintiff,

Vv.

SAP AG, SAP America, Inc. and Oracle Corporation,

Defendants.

Civil Action No. 2:06-CV-440 (DF).

June 4, 2008.

ORDER

DAVID FOLSOM, District Judge.

*1 Currently before the Court is Defendants’

Rule 12(b)(1) Motion to Dismiss for Lack of Standing

(Dkt. No. 132) and related briefing (Dkt. Nos. 147,

155, 171, 186, 189). The Court held a hearing

regarding this matter on February 28, 2008. Dkt. No.

187. In a March 20, 2008 Order (the “March Order”),

the Court requested additional briefing on this

matter. Dkt. No. 193 at 19. Thus, currently before

the Court is Sky’s supplemental brief (Dkt. No. 198)

and related briefing (Dkt. Nos. 200, 204, and 206).

After considering the arguments and the briefing,

32a

the Court DENIES Defendants’ Rule 12(b)(1) Motion

to Dismiss for Lack of Standing (Dkt. No. 132).

I. BACKGROUND

A. Factual Background!

On October 17, 2006, Plaintiff Sky filed a

claim for infringement of U.S. Patent Nos. 6,141,653

(the “653 Patent”), 6,336,105 (the “105 Patent”), and

6,338,050 (the “050 Patent”). Complaint, Dkt. No. 1.

Jeffrey Conklin (“Conklin”), David Foucher, and

Daniel Foucher are the named inventors of these

patents. United States Patent Nos. 7,162,458 (the

“458 Patent”) and 7,149,724 (the “724 Patent”) were

later added. Second Amended Complaint, Dkt. No.

44. Conklin, David Foucher, Daniel Foucher, and

William J. Flanagan are listed as the inventors of

these two patents.

The inventors of all the above five patents-in-

suit assigned their rights to TradeAccess, Inc.

(“TradeAccess”). Dkt. No. 132 at 7? (citing Dkt. No.

132, Exhibits B-F); Dkt. No. 147 (citing Dkt. No. 152,

Exhibits B-F). Each of these assignments was filed

in the United States Patent & Trademark Office

(“USPTO”). Dkt. No. 132 at 8. TradeAccess was

formed by Conklin. Dkt. No. 132 at 8; Dkt. No. 147 at

2. On April 2, 2001, an Intellectual Property

| This background was taken from this Court’s previous March

20, 2008 Order. Dkt. No. 193 at 1-4.

2 All page numbers refer to the document header page

numbers.

33a

Security Agreement was made between TradeAccess

and Silicon Valley Bank where a loan was secured

interests to TradeAccess’s intellectual property. Dkt.

No. 132 at 8 (citing Dkt. No. 132, Exh. G (the “SVB

Agreement”); Dkt. No. 147 (citing Dkt. No. 132, Exh.

G). The agreement contained a clause stating that

the IP Agreement would be “governed by and

construed in accordance with the laws of the

Commonwealth of Massachusetts.” SVB Agreement

at 7. On April 3, 2001, an Intellectual Property

Security Agreement was made between TradeAccess

and Cross Atlantic Capital Partners, Inc. (“XACP”),

as agent for Cross Atlantic Technology Fund, L.P.

(“XATF”’), The Co-Investment 2000 Fund, L.P. (“CI

2000”), and 3i Technology Partners L.P. (“31”). Dkt

No. 13% at 8; Dkt. No. 147 at 3; Dkt. No. 132, Exh. H

(the “X.iCP Agreement”). XATF, CI 2000 and 3i

received first priority in TradeAccess’s intellectual

property, except as to liens and security interests

granted to SVB. Dkt. No. 132, Exh. H at 2. This

second agreement also had a Massachusetts choice of

law clause. XACP Agreement at 8. These documents

were filed with the USPTO. Dkt. No. 132 at 8.

TradeAccess changed its name to Ozro on May

3, 2001 by filing papers with the State of Delaware

Office of the Secretary of State. Dkt. No. 132 at 8

(citing Dkt. No. 132, Exh. L). On December 5, 2002,

XATF and CI 2000 “entered into a Purchase

Agreement with 3i, wherein 3i assigned all mghts in

its agreements with Ozro, including the Intellectual

Property Security Agreement. Dkt. No. 147 at 3. On

December 18, 2002, Silicon Valley Bank entered into

a Non-Recourse Assignment with XATF and CI 2000,

34a

as tenants in common with 2/3 undivided interest to

XATF and 1/3 undivided interest to CI 2000, wherein

Silicon Valley Bank transferred its rights to the

secured loan agreement with Ozro. Dkt. No. 147

(citing Dkt. No. 132, Exh. I at 1). Thus, at this point,

the interest was consolidated to XATF and CI 2000.

*2 Under a Settlement Agreement, effective as

of June 4, 2003, XACP, CI 2000, and XATF sought to

sell to Conklin “certain intellectual property and

assets of Ozro, Inc. (f/k/a/ Trade Access, Inc.).” Dkt.

No. 132 at 8; Dkt. No. 147 at 4; Dkt. No. 132, Exh. M.

The Agreement specified that the Intellectual

Property would be purchased by the new entity

“Newco” created by Conklin. Dkt. No. 132, Exh. M at

7. The Agreement stated:

Public Auction. The XACP Entities

[XACP, CI 2000, and XATF] shall use

their best efforts to obtain title to the

Intellectual Property for purposes of a

transfer from the XACP Entities to

Newco, by selling all of the XACP

Entities’ rights in and to the Secured

Intellectual Property by Public Auction

within sixty (60) days after the Effective

Date. The XACP Entities shall provide

Conklin with the opportunity to review

and approve the terms and notices

relating to the Public Auction prior to

their release. At the Public Auction, the

XACP entities, or their designee, will

credit bid up to $4,031,844, as may be

required to purchase the Intellectual

Property, including but not limited to

35a

the right to sue for past infringement or

misappropriation of the Patents,

covered by security interests held by the

XACP Entities... .

Dkt. No. 132, Exh. M at 7-8. The $4,031,844

was the “amount owed by Ozro to XACP.” Dkt. No.

132 at 8.

On July 14, 2003, a public auction was held

regarding the Ozro Intellectual Property. According

to the auctioneer:

The intellectual property assets were

offered for sale in two offerings. The

first sale was to foreclose on the security

interest originally held by Silicon Valley

Bank that was subsequently assigned to

Cross’ Atlantic. Cross Atlantic

foreclosed on this first priority security

interest as assignee of this interest.

The second sale was to foreclose on the

security interest originally held by

Cross Atlantic. Cross Atlantic was the

only bidder and it, through its

representative Craig Vaughn,

purchased the assets for $100,000.

Dkt. No. 132, Exh. N (letter from Atlantic

Auctions to counsel for Ozro).

36a

Therefore, XACP foreclosed on both of the

security interests. Defendants state that despite this

sale, there was no written instrument assigning the

Ozro patents to XACP. Dkt. No. 132 at 9. On July

23, 2003 a written assignment was made by XACP to

Whitelight Technology, LLC, a predecessor to Sky,

for the rights to multiple patents, including the ‘653

Patent, the ‘050 Patent, the ‘105 Patent, as well as,

U.S. Application No. 09/702,128, which would later

become the ‘458 Patent, and U.S. Application No.

09/702,062, which would later become the ‘724

Patent. Dkt. No. 132, Exh. O at 1. This assignment

had a choice of law clause for the assignment to be

construed pursuant to the laws of the

Commonwealth of Pennsylvania. Jd. at 3. On

November 1, 2007, Ozro, Inc. submitted a Certificate

of Dissolution to the State of Delaware, which was

authorized on April 24, 2007 by Conklin. Dkt. No.

132, Ex. P.

B. Procedural Background

*3 Now before the Court, Defendants contest

the assignment made on July 22, 2003 from XACP to

Whitelight Technology, LLP as improper because

Defendants aver that Ozro never assigned the

patents-in-suit to XACP in any instrument in writing

after the July 14, 2003 foreclosure. Sky argues that

the security agreements and their subsequent

recording in the USPTO served as assignments. Ozro

has filed a motion to intervene (Dkt. No. 146) in

order to resolve the standing issue.

The primary disagreement between Sky and

the Defendants was whether the April 2001 Security

37a

Agreements, which were recorded and _ later

foreclosed, were sufficient to satisfy Section 261.

Defendants had argued that Ozro was obligated to

transfer title, after the July 14, 2003 foreclosure,

through a written assignment pursuant to Section

261. See Dkt. No. 132 at 9. The Court distinguished

conflicting cases proffered by the parties. Sky relied

on the Supreme Court decision in Waterman uv.

Mackenzie for the proposition that the recording of a

security interest “operates as delivery of title to

satisfy § 261.” Dkt. No. 147 at 5. Defendants relied

on In re Cybernetic for the proposition that security

interests do not qualify as assignments under

Section 261.” Dkt. No. 132 at 12. In the previous

March Order, this Court held that the Ninth Circuit

in In re Cybernetic merely held that Section 261 only

requires the recording of ownership interests in a

patent and that Waterman does not broadly stand for

the proposition that a security interest recorded with

the USPTO effectively transfers title to the secured

lender under Section 261. Dkt. No. 193 at 14-17.

The Court requested further briefing, asking

the parties to address: (1) the effect of any evidence

after the foreclosure; (2) whether the provisions of

the Security Agreement granted substantial rights

as to effect a transfer of title; and (3) the effect of a

security agreement that contains provisions to

transfer of title but is not effective unless defaulted

upon. Dkt. No. 193 at 18.

Hi. LEGAL PRINCIPLES

“The burden of demonstrating standing falls to

[Plaintiff], as ‘{i]t is well established . . . that before a

38a

federal court can consider the merits of a legal cleim,

the person seeking to invoke the jurisdiction of the

court must establish the requisite standing to sue.”

Ortho Pharm. Corp. v. Genetics I:st., Inc., 52 F.3d

1026 (Fed. Cir. 1995) (quoting Whitmore vu. Arkansas,

495 U.S. 149, 154, 110 S.Ct. 1717, 109 L.Ed.2d 135

(1990); citing Sicom Sys., Ltd. v. Agilent Tech., Inc.,

427 F.3d 971, 975-76 (Fed. Cir. 2005)).

One seeking damages for infringement of a

patent must hold legal title to that patent. See, e.g.,

Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538 (Fed.

Cir. 1995); Speedplay, Inc. v. Bebop, 211 F.3d 1245,

1249-50 (Fed. Cir. 2000) (citing 35 U.S.C. §§ 100(d),

261, 281). Under Section 261:

Applications for patent, patents, or any

interest therein, shall be assignable in

law by an instrument in writing. The

applicant, patentee, or his assigns or

legal representatives may in like

manner grant and convey an exclusive

right under his application for patent,

or patents, to the whole or any specified

part of the United States....

*4 An assignment, grant or conveyance shall

be void as against any subsequent purchaser or

mortgagee for a valuable consideration, without

notice, unless it is recorded in the Patent and

Trademark Office within three months from its date

or prior to the date of such subsequent purchase or

mortgage.

39a

A party without title has no standing to bring

suit. Filmtec Corp. v. Allied-Signal Inc., 939 F.2d

1568 (Fed. Cir. 1991); Abbott Labs. v. Diamedix

Corp., 47 F.3d 1128, 1131 (Fed. Cir. 1995) (“The right

to sue for infringement is ordinarily an incident of

legal title to the patent.”). “Further, all co-owners

must, ordinarily, consent to join as plaintiffs in an

infringement suit.” DDB Techs., LLC v. MLB

Advanced Media, LP, 465 F. Supp. 2d 657, 661 (W.D.

Tex. 2006). Legal title, which confers standing, must

be held at the inception of the lawsuit. Paradise

Creations, 315 F.3d at 1308 (citing Lujan ov.

Defenders of Wildlife, 504 U.S. 555, 570 n. 5, 112

S.Ct. 2130, 119 L.Ed.2d 351 (1992) (plurality

opinion)); Gaia Technologies, 93 F.3d at 777. “The

party asserting that it has all substaniial mghts in

the patent ‘must produce...written instruments

documenting the transfer of proprietary rights.”

Mentor H/S, Inc., 240 F.3d at 1017 (quoting

Speedplay, 211 F.3d at 1250). Section 100(d) provides

that a “patentee’ includes not only the patentee to

whom the patent was issued but also the successor in

title to the patentee.” Therefore, the chain of title

must be followed in order to determine the party

holding legal title to the patent. See Enzo, 134 F.3d

at 1093; Gaia Technologies, 93 F.3d at 777.

“In examining a Rule 12(b)(1) motion, the

Court is empowered to consider matters of fact which

may be in dispute.” Jd. A court may not grant

dismissal “unless it appears certain that the

plaintiffs cannot prove any set of facts in support of

their claim which would entitle them to relief,” and a

court “must take as true all of the allegations of the

40a

complaint and the facts as set out by the [plaintiffs}.”

Saraw Partnership v. U.S., 67 F.3d 567, 569 (5th Cir.

1995).

Ill, MOTION TO DISMISS

Sky has offered several theories in defense

against the motion to dismiss. Sky initially argued

that a security interest that is recorded in the PTO

effects transfer of title. Dkt. No. 147 at 1. Sky

stated that the Agreements transferred a title and

the rights were slowly consolidated through various

assignment agreements. Jd. at 3. However, as

explained above, the Court rejected this argument,

stating that the Waterman case cited by Sky related

to a dispute regarding a subsequent purchase or

mortgagee. March Order at 17.

Sky now argues that transfer of title to the

patents does not require a written assignment. Dkt.

No. 204 at 1. Moreover, Sky states that if a written

assignment was required, the Security Agreements

are written assignments that are actually conditional

assignments that become effective upon default.

Dkt. No. 198 at 3. Therefore, Sky argues that the

transfer of title occurred at the foreclosure. Jd. at 5.

*§5 The first issue the Court addresses is

whether a transfer may be effected through an

operation of law.

4la

A. Transfer by Operation of Law and Choice of

Law

1. Parties’ Positions

Defendants cite to a recently issued Federal

Circuit authority, Akazawa v. New Link Technology

International, Inc., 520 F.3d 1354 (Fed. Cir. 2008),

arguing that the Federal Circuit affirmed the

“requirement that transfer by assignment under §

261 ‘be in writing.” Dkt. No. 200 at 14 n. 46.

Defendants state that the question of automatic

assignment is a matter of federal and not state law.

Dkt. No. 200 at 14 (citing DDB Techs. L.L.C. v. MLB

Advanced Media, L.P., 517 F.3d 1284, 1290 (Fed. Cir.

2008)). Defendants further argue that a debtor must

“convey written -itle or written title must be ordered

conveyed by a duly-authorized court.” Jd. at 14

(citing Ager v. Murray, 105 U.S. 126, 131, 26 L.Ed.

942 (1881)).

Sky argues that mew Federal Circuit

authority, Akazawa, provides that title to patents

can pass by operation of lew and no written

assignment under § 261 is necessary. Dkt. No. 204

at 1 (citing Akazawa, 520 F.3d at 1356-57). Sky

contends that Defendants argue that federal law

applies in order to advance Ager. Dkt. No. 204 at 4.

Sky believes that Ager is inapplicable and

distinguishable because Ager was decided before the

creation and adoption of the Uniform Commercial

Code (“UCC”). Id. at 4-5.

Defendants reply that Section 261 requires

that assignments be in writing. Dkt. No. 206 at 8.

42a

Defendants contend that courts have long recognized

that state probate law automatically vests legal title

in a patentee’s heirs and interprets the holding in

Akazawa to be limited to extending those decisions to

allow the probate law of another nation to similarly

vest legal title in an heir without a _ written

assignment. /d. at 8 (citing Akazawa, 520 F.3d at

1357-58; H.M. Stickle v. Heublein, Inc., 716 F.2d

1550, 1558 (Fed. Cir. 1983); Winkler v. Studebaker

Bros. Mfg. Co., 105 F. 190, 190-91 (C.C.S.D.N.Y.

1900)). Defendants clarify that they do “not contend,

as Sky represents, ‘that the only means by which

title to patents transfers is an assignment in writing

or court Order compelling assignment” rather that

“where-as here following XACP’s__ purported

foreclosure on Ozro’s patents-no state law operates to

vest legal title to the patents, a plaintiff must obtain

a written assignment pursuant to Section 261 in

order to establish its legal title and therefore

standing to pursue any claim (for patent

infringement.” /d. at 8-9.

2. Analysis

Defendants and Sky fundamentally agree on

the general holding of Akazawa that “there is

nothing that limits assignment as the only means for

transferring patent ownership. Indeed, the case law

illustrates that ownership of a patent may be

changed by operation of law.” Akazawa, 520 F.3d at

1356. The primary difference between Defendants

and Sky’s argument is that Defendants presume that

there is no state law that operates to vest legal title

to the patents and Defendants conclude that legal

43a

title must therefore be established through a written

assignment pursuant to Section 261 or a Court order.

See Dkt. No. 206 at 9.

*6 In Akazawa, the defendant challenged the

standing of the plaintiff. The inventor of the patent

in interest, U.S. Patent No. 5,615,761 (“the ‘716

patent”), had died intestate, and the heirs, the

inventors’ wife and two daughters, consolidated their

rights to a single daughter through an “Inheritance

Agreement,” and the daughter in turn assigned the

rights under the patent to the plaintiff. Akazawa,

520 F.3d at 1355. The defendant argued that Section

261 “mandates a writing where there is a transfer

upon death in order for there to be a proper

assignment between two entities.” Jd. Like in this

case, the defendant stated that the plaintiff did not

own the patent because “there was never a writing

transferring the ‘716 patent from the estate of [the

inventor] to [the inventors’ heirs], the inheritance

agreement between [the inventors’ heirs] and the

assignment between [the daughter] and _ [the

plaintiff] notwithstanding.” Jd. The Federal Circuit

held that “ownership of a patent may be changed by

operation of law.” Jd. at 1356.

Likewise, the Court determines’ that

ownership of a patent may be changed by operation

of law, and thus, the Court must determine whether

the Security Agreement and subsequent foreclosure

transferred the patent by operation of law.

Defendants argue that federal law, not state

law, applies in automatic assignments, and argue

that because there was no written assignment,

44a

federal law, as posited by Ager, requires a Court

order. See Dkt. No. 200 at 14. Defendants rely on

DDB Technologies for the proposition that federal

law would apply in this case. Jd. In DDB

Technologies, the defendant had obtained a license to

the patents-in-suit from the former employer of one

of the inventors, who helped to form the plaintiff

company. DDB Technologies, 517 F.3d at 1288. The

district court had to evaluate whether, under the

employment agreement between the former employer

and the employee/inventor, there was an automatic

assignment of the inventor's rights. /d. The Federal

Circuit first determined that “[a]lthough state law

governs the interpretation of contracts generally, the

question of whether a patent assignment clause

creates an automatic assignment or merely an

obligation to assign is intimately bound up with the

question of standing in patent cases” and concluded

that this was a matter of federal law. Id. at 1289-90.

On the other hand, Judge Newman’s dissent

stated that the panel majority was overreaching and

contrary to law and precedent and Judge Newman

narrowly stated the majority's holding as relating to

“interpretation of employment contracts, including

clauses establishing employer-employee obligations

with respect to inventions and patents.” Jd. at 1296.

Here, there is not an employment contract, but

rather a security agreemen’.. As explained above, the

Akazawa case addressed the analogous question of

whether there was a break in the chain of title due to

the lack of written assignment pursuant to Section

261. In Akazawa, the Federal Circuit held that the

“case law is clear that state law, not federal law,

45a

typically governs patent ownership.” Akazawa, 520

F.3d at 1357 (citing Jim Arnold Corp. v. Hydrotech

Sys., Inc., 109 F.3d 1567, 1572 (Fed. Cir. 1997). The

Federal Circuit determined that resolution of the

issues required an interpretation of Japanese

intestacy law. Jd. at 1358.

*7 The Court determines that state law, not

federal law, should govern this case. Here, both

Security Agreements stated that Massachusetts

choice of law would apply. SVB Agreement at 7;

XACP Agreement at 8. Therefore, the Court applies

Massachusetts law, specifically the Massachusetts

UCC (i.e. Mass. Ann. Laws ch. 106 Art. 9), to

determine whether there was a transfer of title by

operation of law.

B. Transfer of Title

1. Parties’ Positions

Sky argues that “numerous courts have

observed the passing of title to intellectual property

upon a debtor’s default.” Dkt. No. 198 at 4 (citing

Haymaker Sports, Inc. v. Turian, 581 F.2d 257, 261

(C.C.P.A. 1978); Health Discovery Corp. v. Ciphergen

Biosystems, Inc., No. 2:06-cv-260, 2007 WL 128283,

at *1 (E.D. Tex. Jan. 11, 2007); digiGan, Inc. v.

iValidate, Inc., No. 02 Civ. 420, 2004 WL 203010, at

*3 (S.D.N.Y. Feb. 3, 2004)). Sky contends that “full

title to the patents-in-suit passed to XACP when

Ozro defaulted and XACP foreclosed.” Jd. at 5. Sky

states that both Security Agreements provide that

the lenders had all “rights and remedies of a secured

creditor under the Massachusetts Uniform

46a

Commercial Code.” Jd. at 6 (citing SVB Agreement

at 6; XACP Agreement at 6-7). Sky avers that under

Massachusetts UCC a default transfers all of the

debtor’s rights in the collateral, including the rights

to sell, lease, license, or dispose of the property. Jd.

(citing MASS. GEN. LAWS ch. 106 at §§ 9-617 & 9-

610). Sky emphasizes that under Massachusetts

law, “a secured creditor is not required to bring an

action to compel assignment to foreclose on

intellectual property interests or execute any

additional instrument upon foreclosure,” citing that

Massachusetts UCC does not contain a provision

requiring additional action after foreclosure on

intellectual property. Jd. at 9 (citing MASS. GEN.

LAWS ch. 106 at Art. 9). Sky argues that the

Security Agreements were conditional assignments

that were duly recorded with the PTO, thus fulfilling

Section 261. Id. at 7.

Defendants respond that the security interests

are not “conditional assignments.” Dkt. No. 200 at 6.

Defendants reiterate that an assignment must

transfer all substantial rights while a_ security

interest is an agreement for a future assignment and

not a “present ownership right in the patent.” Jd. at

8-9 (citing Aspex Eyewear, Inc. v. Miracle Optics,

Inc., 434 F.3d 1336, 1341 (Fed. Cir. 2006); Trimarchi

v. Together Dev. Corp., 255 B.R. 606, 611 (D. Mass.

2000); quoting City Bank and Trust Co. v. Otto

Fabric, Inc., 83 B.R. 780, 782 (D. Kan. 1988)).

Defendants note that the language of the contract

does not provide for an automatic assignment, but

rather, the grant clause and other provisions

repeatedly provides for a security interest. Jd. at 10

47a

12 (citing SVB Agreement Ff 1, 3c), 3(D, 3(k), 6(a),

8; XACP Agreement FJ 1, 3(c), 3(h), 3), 3(k), 6a);

DDB Tech., 517 F.3d at 1290).

*8 Defendants state that a security interest

does not convey title and is not an assignment. Dkt.

No. 200 at 11-12 (citing Holt v. United States, 13

U.C.C. Rep. Servs. 336, 1973 WL 614, at *1 (D.D.C.

1973)). Defendants note that the article that Sky

relies upon for its assignment theory recognizes a

security interest to be a “lesser interest in the

collateral.” Jd. (citing Thomas L. Bahrick, Security

Interests in Intellectual Property, 15 A.L.P.L.A. Q.J.

30, 40 (1987)).

Defendants further provide that the default

did not transfer substantial rights. Dkt. No. 200 at

14. Defendants argue that federal law should apply

and that “[e]ven where the language in the

underlying loan documents provides the creditor ‘an

entitlement to an immediate assignment of all right,

title, and interests to the patents, with the right and

power to execute and record an assignment of the

patents as attorney-in-fact on behalf of the debtor

after notice of default,’ courts have held that ‘no

actual assignment of the patents occurred.” Id. at 15

(quoting In re Tower Tech, Inc., 67 Fed. Appx. 521,

524 (10th Cir. 2003)).

Defendants alternatively argue that even if

Massachusetts law applied, the courts are “clear that

‘an event of default does not automatically transfer

possession to the creditor.” Dkt. No. 200 at 15

(quoting McDonald v. Rockland Trust Co., 59 Mass.

App. Ct. 836, 798 N.E.2d 323, 327 (Mass. App.

48a

2003)). Defendants cite that Massachusetts states

that after foreclosure, if the debtor refuses to sign a

written transfer of title, the creditor may file a

“transfer statement.” Jd. at 15-16, 798 N.E.2d 323

(M.G.L.A. 106 § 9-619 Comment 2). Defendants

assert that a creditor may alternatively seek a court

order compelling a written assignment or appointing

a receiver to issue a written assignment, which Ozro

failed to do in its transfer to XACP. Id. at 16, 798

N.E.2d 323 (citing Barton v. White, 144 Mass. 281,

284, 10 N.E. 840 (Mass. 1887); Wilson v. Martin-

Wilson Automatic Fire-Alarm Co., 151 Mass. 515, 24

N.E. 784 (Mass. 1890); McCann v. Randall, 147

Mass. 81, 17 N.E. 75 (Mass. 1888)).

Sky responds that the McDonaid case cited by

Defendants is correct in stating that “an event of

default does not automatically transfer possession to

the creditor, [but] McDonald does not stand for the

broader principle that title cannot pass by operation

of law.” Dkt. No. 204 at 5. Sky states that a creditor

has several options, including forbearing the

enforcement of its security. agreement, and in this

situation “XACP elected to fcreclose and purchase

the patents.” Jd. Sky contends that, contrary to

Defendants’ assertion, § 9-619 does not require that

XACP execute a “transfer statement,” which is a non-

mandatory statement that is used “to address

procedural problems that can arise when a secured

party effects a non-volitional transfer, and the

‘transfer statement’ assists the secured party in

recording its interest.” Jd. at 6 (citing MASS. GEN.

LAWS ch. 106 § 9-619 Author’s Note).

49a

*9 Defendants counter that “unless state law

specifically vests legal title to a patent, a written

assignment is required to vest legal title.” Dkt. No.

206 at 9 (citing Ager v. Murray, 105 U.S. 126, 131, 26

L.Ed. 942 (1881)). Defendants contend that

Massachusetts law does not operate to vest legal title

to patents following a default. Jd. at 10. Defendants

argue that in Jn re Roman Cleanser Co., 43 B.R. 940,

948 n. 4 (Bank. Mich. 1984), aff'd 802 F.2d 207 (6th

Cir. 1986), the court held that a security interest in a

trademark was not an assignment upon default, and

even after a creditor enforces the security interest,

the creditor was still required to comply with the

written assignment provision of the Lanham Act. : Jd.

at 10 n. 17. Otherwise, Defendants assert a court of

equity could appoint a trustee to make the

assignment, and in this situation Defendants argue

that XACP could have executed a written assignment

to itself as it was Ozro’s “attorney in fact.” Id. at 10

(citing Wilson v. Martin-Wilson Automatic Fire-

Alarm Co., 151 Mass. 515, 516-17, 519-20, 24 N.E.

784 (Mass. 1890); XACP Agreement at 6).

Defendants distinguish the probate cases cited

in Akazawa and argue that unlike those cases,

Massachusetts UCC § 9-610 “does not provide that

legal title to a patent ‘shall vest immediately’ or

‘vests by operation of law’ in a creditor upon default

or foreclosure.” Dkt. No. 206 at 11 (citing H.M.

Stickle, 716 F.2d at 1558; Winkler, 105 F. at 190-91).

Defendants reiterate that the Tenth Circuit in In re

Tower Tech rejected an automatic transfer of title.

Id. Regarding the “transfer statement,” Defendants

aver that it is not required but is one mechanism to

50a

obtain title after default without a court order;

however, Defendants note that this mechanism

would not be needed if title to the patent vested

automatically as Sky claims. /d. at 11-12 (citing

Thomas M. Ward, Intellectual Property in Commerce

§ 3:70 (2007)). Defendants state that the cases cited

by Sky support Defendants’ position that an

affirmative act had to be made after foreclosure. I/d.

at 12 (citing Health Discovery, 2007 WL 128283, at

* 1; digiGan, 2005 WL 2254464, at *3).

2. Analysis

From the briefing, the Defendants and Sky

appear to agree on two preliminary issues of law.

Defendants have conceded that a patent may pass by

operation of law and a written assignment is not the

only method to transfer a patent. Defendants’ Sur-

Reply, Dkt. No. 206 at 8. Likewise, Sky has conceded

that a default of a security interest does not

automatically transfer possession to the creditor.

Sky’s Reply, Dkt. No. 204 at 5 (citing McDonald, 798

N.E.2d at 327 (stating “an event of default does not

automatically transfer possession to the creditor”’)).

Defendants assert that there is no state law that

automatically vests legal title upon foreclosure,

whereas Sky argues that it is the foreclosure and

purchase of the patents that effected the transfer.

See Dkt. No. 206 at 9; Dkt. No. 204 at 5. Therefore,

the point of contention between the parties, and the

issue that the Court must resolve, is whether there

was a transfer of the patents from Ozro to XACP

through an operation of law, specifically whether a

foreclosure sale and purchase, under Massachusetts

bla

UCC, is sufficient to transfer title by operation of

law.

*10 The Security Agreements provide the

following remedies upon a default:

8. Remedies. Upon the occurrence and

continuance of an Event of Default,

Lender shall have the right to exercise

all the remedies of a secured party

under the Massachusetts Uniform

Commercial Code, including without

limitation the right to require Grantor

to assemble the Intellectual Property

Collateral and any tangible property in

which Lender has a security interest

and to make it available to Lender at a

place reasonably designated by

Lender ....

SVB Agreement at 6.

8. Remedies. (a) Upon the occurrence

and continuance of an Event of Default,

Agent shall have the right to exercise

all the remedies of a secured party upon

such default under the Massachusetts

Uniform Commercial Code (the “UCC”)

(or other applicable Federal or other

law), in addition to which, Agent shall

have the following rights and remedies:

(Tl to take possession of all or any

portion of the Intellectual Property

Collateral, (i) to sell, lease, or otherwise

dispose of any or all of the Intellectual

52a

Property Collateral, in its’ then

condition or following such preparation

or processing as the Agent deems

advisable and with or without the

taking of possession of any of the

Intellectual Property Collateral, and

(ii) to exercise all or any of the rights,

remedies, powers, privileges, and

discretions under all or any of the

documents relating to the Secured

Obligations.

XACP Agreement at 6-7.

Sky argues that the mere foreclosure results

in the transfer of title. Defendants rely significantly

on In re Tower Tech, an unpublished Tenth Circuit

opinion that found that a notice of default did not

provide for an actual assignment of secured patents,

even though the promissory note contained the

provision that, in the event of default, the lender

“shall receive an immediate assignment of all right,

title and interest to the patents specified as

collateral.”3 In re Tower Tech., 67 Fed. Appx. at 523-

24. The Court notes that unlike the foreclosure sale

that occurred here, in Tower Tech, the debtor only

gave a notice of default and acted no further. Jn re

Tower Tech., 67 Fed. Appx. at 524. Defendants cite to

3 This is consistent with the Federal Circuit case cited by

Defendants, [pVenture, Inc. v. Prostar Computer, Inc., 503 F.3d

1324, 1327 (Fed. Cir. 2007), holding that an agreement stating

“agree to assign” was a future assignment, not a present

assignment.

53a

the treatise Intellectual Property in Commerce for

the proposition that there is a need for a “post-

default document that reflects transfer of ownership

out of the debtor.” Dkt. No. 206 at 11 (citing Thomas

J. Ward, Intellectual Property in Commerce § 3:70).

Specificaily the treatise stated:

Because the federal forms of intellectual

property are subject to a system of “title” registration

or recording, it is important for the secure party to be

able to have a recordable post-default document that

reflects transfer of ownership out of the debtor. The

record transferee might be the foreclosure sale buyer,

assignee or exclusive licensee. The record transferee

might also be the secured party, either permanently,

in the case of a strict foreclosure, or temporarily, in

anticipation of disposition to a subsequent party.

The security agreement can be supplemented by the

attachment of such a recordable ownership document

elong with the debtor’s power of attorney authorizing

the secured party’s nominee to complete and execute

the form on default. If such a document is not

provided for in advance, and the debtor is not willing

to cooperate after default, the secure party can go to

court to either force the debtor to execute the

necessary papers or to obtain a recordable document

prepared by the court itself.

*11 Thomas J. Ward, Intellectual Property ia

Commerce § 3:70

In support of this proposition, the treatise

cites to Tower Tech, stating:

54a

Although the court in Tower Tech does not

expressly say that the lender could have taken good

title to the patent collateral on default without

following the provisions for either “acceptance of

collateral” or “disposition” in Article Nine, it seems to

suggest as much. While a secure party should be

entitled to execute the necessary post-default

transfer documents under a_ proper power-of-

attorney, these documents must be executed in

furtherance of an otherwise reasonable disposition of

the collateral (U.C.C. [Revised] §$ 9-610 to 9-617) or

a properly proposed “acceptance in satisfaction”

(U.C.C. [Revised] §§ 9-620 to 9-621).

Thomas J. Ward, Intellectual Property in Commerce

§ 3:70 n. 1.

Taking these two sections together, the Court

first notes that the treatise presumes a need for a

“post-default document that reflects transfer of

ownership,” presumably out of the writing

assignment requirements of the various intellectual

property acts. See 35 U.S.C. § 261 (patent); 15

U.S.C. § 1060 (trademark); 17 U.S.C. § 204

(copyright). However, as already explained above,

the Federal Circuit held in Akazawa that a writing is

not required to transfer title, rather, title may pass

by operation of law. Akazawa, 520 F.3d at 1356.

This finding is also consistent with Tower Tech and

other Michigan cases finding that a mere default or

notice of default was insufficient to transfer title.

The treatise suggests that a subsequent action was

required, either through a disposition under UCC §

9-610 or an acceptance in satisfaction under UCC §

9-620, dealing with a_ strict foreclosure.

55a

Alternatively, a court order or a transfer statement

pursuant to UCC § 9-619 would be acceptable.

Massachusetts Annotated Laws ch. 106 § 9-

610(a) provides: “After default, a secured party may

sell, lease, license, or otherwise dispose of any or all

of the collateral in its present condition or following

any commercially reasonable preparation or

processing.” Massachusetts Annotated Laws ch. 106

§ 9-610(c) provides: “A secured party may purchase

collateral: (1) at a public disposition; or (2) at a

private disposition only if the collateral is of a kind

that is customarily sold on a recognized market or

the subject of widely distributed standard price

quotations.” Further, as explained in Massachusetts

Annotated Laws ch. 106 § 9-617(a) a “secured party’s

disposition of collateral after default: (1) transfers to

a transferee for value all of the debtor’s rights in the

collateral,” and comment 2 states “Title Taken by

Good-Faith Transferee. Subsection(a) sets forth the

rights acquired by persons who qualify under

subsection (b)-transferees who act in good faith.

Such a person is a ‘transferee,’ inasmuch as a buyer

at a foreclosure sale does not meet the definition of

‘purchaser’ in Section 1-201... .”

*12 Here, the patents were placed at a “public”

auction. XACP foreclosed on both of the security

interests and Ozro was later notified of the sale. See

Dkt. No. 132, Exh. N. Thus, unlike the debtor in

Tower Tech, XACP acted beyond merely noticing the

default and actively foreclosed on the property,

pursuant to §§ 9-610 and 9-617. Therefore, the point

at which title transferred was on the date of the

foreclosure, July 14, 2003. The transfer to

56a

Whitelight Technologies, predecessor to Sky,

occurred on July 22, 2003. Dkt. No. 132, Exh. O.

Thus, the chain-of-title was not broken and Sky has

proper title to the patents-in-suit. Moreover,

Defendants had previously stated that Ozro had

executed Terminal Disclaimers on June 4 and 5,

2001 and June 3, 2003 as well as a license on

November 19, 2001. See Dkt. No. 198 at 8. However,

the transfer of title on July 22, 2003 is consistent

with Ozro’s actions prior to this time, as it held title

while the other entities merely held a _ security

interest.

Ill, CONCLUSION

For the foregoing reasons, the Court DENIES

Defendants’ Rule 12(b)(1) Motion to Dismiss for Lack

of Standing (Dkt. No. 132).

Accordingly, the Court DISMISSES Ozro’s

Motion to Intervene (Dkt. No. 146) as MOOT.

It is so ORDERED.

57a

Appendix E

Sky Technologies LLC v. SAP AG,

Order (E.D. Tex. March 20, 2008)

United States District Court,

Eastern District of Texas,

Marshall Division

SKY TECHNOLOGIES LLC, Plaintiff,

Vv.

SAP AG, SAP America, Inc. and Oracle Corporation,

Defendants.

Civil Action No. 2:06-CV-440 (DF)

Docket No. 193 (March 20, 2008)

ORDER

Currently before the Court is Defendants’ Rule

12(b)() Motion to Dismiss for Lack of Standing (Dkt.

No. 132) and related briefing (Dkt. Nos. 147, 155,

171, 186, 189). The Court held a hearing regarding

this matter on February 28, 2008. Dkt. No. 187. The

Court is of the opinion that additional briefing is

required.

I. BACKGROUND

On October 17, 2006, Plaintiff Sky filed a

claim for infringement of U.S. Patent Nos. 6,141,653

(the “653 Patent”), 6,336,105 (the “105 Patent”), and

6,338,050 (the “050 Patent”). Complaint, Dkt. No. 1.

Jeffrey Conklin (“Conklin”), David Foucher, and

Daniel Foucher are the named inventors of these

patents. United States Patent Nos. 7,162,458 (the

“458 Patent”) and 7,149,724 (the “724 Patent”) were

later added. Second Amended Complaint, Dkt. No.

44. Conklin, David Foucher, Daniel Foucher, and

William J. Flanagan are listed as the inventors of

these two patents.

The inventors of all the above five patents-in-

suit assigned their rights to TradeAccess, Inc.

(“TradeAccess”). Dkt. No. 132 at 7 (citing Dkt. No.

132, Exhibits B-F); Dkt. No. 147 (citing Dkt. No. 132,

Exhibits B-F). Each of these assignments was filed

in the United States Patent & Trademark Office

(“USPTO”). Dkt. No. 132 at 8. TradeAccess was

formed by Conklin. Dkt. No. 132 at 8; Dkt. No. 147

at 2. On April 2, 2001, an Intellectual Property

Security Agreement was made between TradeAccess

and Silicon Valley Bank where a loan was secured by

interests in TradeAccess’s intellectual property. Dkt.

No. 132 at 8 (citing Dkt. No. 132, Exhibits G); Dkt.

No. 147 (citing Dkt. No. 132, Exh. G). The

agreement contained a clause stating that the IP

Agreement would be “governed by and construed in

accordance with the laws of the Commonwealth of

Massachusetts.” Dkt. No. 132, Exh. G at 7. On April

3, 2001, an Intellectual Property Security Agreement

was made between TradeAccess and Cross Atlantic

Capital Partners, Inc. (““CACP”), as agent for Cross

Atlantic Technology Fund, L.P. (“XATF”), The Co-

Investment 2000 Fund, L.P. (“CI 2000”), and 3i

Technology Partners L.P. (“31”) (collectively “XACP”).

Dkt No. 132 at 8; Dkt. No. 147 at 3; Dkt. No. 132,

Exh. H. This second agreement also had a

Massachusetts choice of law clause. Dkt. No. 132,

Exh. H at 8. These documents were filed with the

USPTO. Dkt. No. 132 at 8.

TradeAccess changed its name to Ozro on May

3, 2001 by filing papers with the State of Delaware

Office of the Secretary of State. Dkt. No. 132 at 8

(citing Dkt. No. 132, Exh. L). On December 5, 2002,

XATF and Cl 2000 (collectively, the “XACP Entities”)

“entered into a Purchase Agreement with 3i, wherein

3i assigned all rights in its agreements with Ozro,

including the _ Intellectual Property Security

Agreement. Dkt. No. 147 at 3. On December 18,

2002, Silicon Valley Bank entered into a Non-

Recourse Assignment with the XACP Entities,

wherein Silicon Valley Bank transferred its rights to

the secured loan agreement with Ozro. Dkt. No. 147

(citing Dkt. No. 132, Exh. I at 1).

Under a Settlement Agreement, effective as of

June 4, 2003, the XACP Entities sought to sell to

Conklin “certain intellectual property and assets of

Ozro, Inc. (f/k/a Trade Access, Inc.).”. Dkt. No. 132 at

8; Dkt. No. 147 at 4; Dkt. No: 132, Exh M. The

Agreement specified that the Intellectual Property

would be purchased by the new entity “Newco”

created by Conklin. Dkt. No. 132, Exh. M at 7. The

Agreement stated:

Public Auction. The XACP Entities

shall use their best efforts to obtain title

to the Intellectual Property for purposes

of a transfer from the XACP Entities to

Newco, by selling all of the XACP

Entities’ rights in and to the Secured

Intellectual Property by Public Auction

60a

within sixty (60) days after the Effective

Date. The XACP Entities shall provide

Conklin with the opportunity to review

and approve the terms and notices

relating to the Public Auction prior to

their release. At the Public Auction, the

XACP entities, or their designee, will

credit bid up to $4,031,844, as may be

required to purchase the Intellectual

Property, including but not limited to

the right to sue for past infringement or

misappropriation of the Patents,

covered by security interests held by the

XACP Entities. . . .

Dkt. No. 182, Exh. M at 7-8. The $4,031,844

was the “amount owed by Ozro to XACP.” Dkt. No.

132 at 8.

On July 14, 2003, a public auction was held

regarding the Ozro Intellectual Property. According

to the auctioneer:

The intellectual property assets were

offered for sale in two offerings. The

first sale was to foreclose on the

security interest originally held by

Silicon Valley Bank that was

subsequently assigned to Cross

Atlantic. Cross Atlantic foreclosed on

this first priority security interest as

assignee of this interest. The second

sale was to foreclose on the security

interest originally held by Cross

Atlantic. Cross Atlantic was the only

6la

bidder and it, through its representative

Craig Vaughn, purchased the assets for —

$100,000.

Dkt. No. 132, Exh. N (letter from Atlantic

Auctions to counsel for Ozro).

Defendants state that despite this sale, there

was no written instrument assigning the Ozro

patents to XACP. Dkt. No. 132 at 9. On July 23,

2003 a written assignment was made by XACP to

Whitelight Technology, LLC, a predecessor to Sky,

for the rights to multiple patents, including the ‘653

Patent, the ‘050 Patent, the ‘105 Patent, as well as,

U.S. Application No. 09/702,128, which would later

become the ‘458 Patent, and U.S. Application No.

09/702,062, which would later become the ‘724

Patent. Dkt. No. 132, Exh. O at 1. This assignment

had a choice of law clause for the assignment to be

construed pursuant to the laws of the

Commonwealth of Pennsylvania. Jd. at 3. On

November 1, 2007, Ozro, Inc. submitted a Certificate

of Dissolution to the State of Delaware, which was

authorized on April 24, 2007 by Conklin. Dkt. No.

132, Ex. P.

Now before the Court, Defendants contest the

assignment made on July 22, 2003 from XACP to

Whitelight Technology, LLP as improper because

Defendants aver that Ozro never assigned the

patents-in-suit to XACP in any instrument in writing

after the July 14, 2003 foreclosure. Sky argues that

the security agreements and their subsequent

recording in the USPTO served as assignments.

62a

Ozro seeks to intervene in order to resolve the

standing issue.

T. MOTION TO DISMISS

A. PARTIES’ POSITIONS

Defendants argue _ that Sky cannot

demonstrate that it held legal title or was an

exclusive licensee at the inception of the lawsuit.

Dkt. No. 132 at 9-10 (citing Enzo APA & Son, Inc. v.

Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998);

Reid v. Gen. Motors Corp., 489 F. Supp. 2d 614, 616

(E.D. Tex. 2007)). Defendants state that Sky

acknowledges that the chain-of-title ending with its

July 22, 2003 acquisition from XACP depends from

XACP’s auction acquisition. Dkt. No. 132 at 10

(citing In re Novon Int, Inc., 2000 WL 432848, at *5

(W.D.N.Y. Mar. 31, 2000); Sanofi S.A. v. Med-Tech

Veterinarian Prods., Inc., 565 F. Supp. 931, 939

(D.N.J. 1983)). Defendants state that 35 U.S.C. §

261 (“Section 261”) requires that an assignment be in

writing and there are no exceptions. Jd. at 10-11

(citing United States v. Solomon, 825 F.2d 1292, 1296

(9th Cir. 1987); Gaia Techs., Inc. v. Reconversion

Techs., Inc., 93 F.3d 774, 777 (Fed. Cir. 1996), reh’g

granted in part & opinion amended, 104 F.3d 1296

(Fed. Cir. 1996); Waymark Corp. v. Porta Sys. Corp.,

334 F.3d 1358, 1364 (Fed. Cir. 2003); Univ. Patents,

Inc. v. Kligman, 762 F. Supp. 1212, 1219 (E.D. Pa.

1991)).

Defendants aver that the act of foreclosure

itself does not satisfy the requirement of a writing

conveying title. Jd. at 11 (citing Ager v. Murray, 105

63a

U.S. 126, 131 (1881)). Defendants reject Sky’s

assertion that the documents surrounding the

foreclosure constitute the assignment. Jd. at 11 n.26.

Defendants state that an entitlement to the rights to

a patent, such as after a notice of default, does not

constitute an actual assignment. I/d. at 12 (citing Jn

re Tower Tech., Inc., 67 Fed. Appx. 521, 524 (10th

Cir. 2003)). Defendants add that security interests

are also not adequate written assignments. Id.

(citing Moldo v. Matsco, Inc. (In re Cybernetic Servs.),

252 F.3d 1039, 1052 (9th Cir. 2001), cert. denied, 534

U.S. 1130, 122 S.Ct. 1069, 151 L. Ed. 2d 972 (2002)).

Defendants note that the “June 4, 2003 agreement

between XACP and Mr. Conklin sets forth only a

pledge by XACP to use its best efforts to secure

Ozro’s intellectual property by foreclosure... . [but]

did not set forth any assignment from Ozro to

XACP.” Id.

Defendants argue that under the governing

law of Massachusetts, XACP had two options to

acquire title if Ozro was unable or unwilling to

assign the patents. Id. at 13. Defendants state that

XACP could have sought a court order compelling

assignment or sought the appointment of a receiver

to issue the written assignment. Jd. (citing Barton v.

White, 144 Mass. (1 Allen) 281, 284 (Mass. 1887);

McCann v. Randall, 147 Mass. 81, 17 NE 75, 88

(Mass. 1888)). Defendants conclude that since XACP

failed to do either, it and its successor, Sky, did not

take title to any of the patents-in-suit. Jd.

Defendants state that Sky cannot “disregard

corporate structures and formalities.” Dkt. No. 132

at 13. Defendants argue that although Conklin

64a

founded TradeAccess, Ozro, and Sky, by electing to

have the “benefit of an independent corporate

structure for Sky, without any of the obligations

owed by TradeAccess and Ozro to their shareholders

and creditors, Sky cannot now ignore that

independence.” Id. at 14 (citing Boise Cascade Corp.

v. Wheeler, 419 F. Supp. 98, 102 (S.D.N.Y. 1976)).

Defendants emphasize that corporations are

“separate and distinct from that of its owners” and a

similar argument of “reverse piercing” the corporate

veil was rejected by the court in Lans v. Gateway

2000. Dkt. No. 132 at 14 (citing Wheeler, 419 F.

Supp. at 102; Lans v. Gateway 2000, Inc., 84 F. Supp.

2d 112, 123 n.10, affd Lans v. Digital Equip. Corp.,

252 F.3d 1320 (Fed. Cir. 2001)).

Defendants argue that Sky cannot cure its

lack of standing by joining Ozro because legal title

must exist at the inception of the lawsuit. Dkt. No.

132 at 14 (citing MyMail, Ltd. v. America Online,

Inc., 476 F.3d 1372, 1375 (Fed. Cir. 2007)).

Defendants add that Ozro was previously dissolved

and has not paid franchise taxes that would be

necessary for Ozro to maintain a corporate charter.

Id. at 15 (citing Dkt. No. 132, Exh. T & P; 8 Del.

Code. Ann. tit. 8 §§ 510, 122 (2005)). Defendants

state that Sky may not cure by securing a retroactive

assignment in writing. Id. at 14-15 (citing Paradise

Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304,

1309-10 (Fed. Cir. 2003)).

Sky responds that “[a]ccording to clear

Supreme Court authority, ‘a federally recorded

security agreement grants title to the secured lender’

under § 261.” Dkt. No. 147 at 5 (citing City Bank

Ne 8 Ee ee eee eee eee =

65a

and Trust Co. v. Otto Fabric, Inc., 83 B.R. 780, 783

(D. Kan. 1988)). Sky cites to Waterman v. Mackenzie

for the proposition that the recording of a security

interest of a patent with the PTO “operates as

delivery of title to satisfy § 261.” Id. (citing

Waterman v. Mackenzie, 138 U.S. 252, 257 (1891)).

Sky concludes that title was transferred when Silicon

Valley Bank and XACP recorded their security

interests with the USPTO and when Silicon Valley

Bank assigned its interests to XACP by written

assignment. Id. at 5-6.

Sky asserts that the facts in this case go

beyond Waterman because a “security interest and

concomitant foreclosure is sufficient to transfer title.”

Dkt. No. 147 at 6 (citing Digigan, Inc. v. iValidate,

Inc., 2004 WL 203010, at *3 (S.D.N.Y. Feb. 3, 2004);

cf. Bordener v. Herrinton, 2005 WL 3506594, at *4

(Mich. App. Dec. 22, 2005)). Sky also states that the

authority cited by Defendants, Ager v. Murray, is

inapposite because “Ager does not apply to loans

secured by patent rights. Instead, Ager addresses

the proper procedure to pass title when a loan is not

secured by patent rights.” Id. at 7. Sky

distinguishes Ager by arguing that Ozro secured its

loan with patent rights and that Ozro’s situation is

controlled by Waterman. Id. at 7-8.

Sky also urges the Court to grant Ozro’s

Motion to Intervene and avoid this issue altogether

by rendering the standing argument moot. Dkt. No.

147 at 8. Sky responds that Ozro does not owe

Delaware franchise taxes as asserted by Defendants

because Ozro was dissolved on November 1, 2007

and Ozro paid its outstanding taxes on or about that

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date. Id. at 9 (citing Conklin Affidavit, Dkt. No. 147,

Exh. C; Delaware Status Report dated January 10,

2008, Dkt. No. 147, Exh. D).

Defendants reply that the Intellectual

Property Security Agreements entered in April 2001

did not transfer title of the patents to XACP. Dkt.

No. 155 at 8. Defendants state that the Ninth

Circuit’s decision in In re Cybernetic is the only

federal appellate court to consider whether security

interests qualify as written assignment under

Section 261, and it held that security interests were

outside the scope of Section 261. Dkt. No. 155 at 9

(quoting Jn re Cybernetic, 252 F.3d at 1056).

Defendants note a creditor holding a UCC Article 9

security interest, unlike a creditor holding a

mortgage, does not hold title to the patents but is

rather a “hypothetical lien creditor.” Jd. (citing Jn re

Cybernetic, 252 F.3d at 1053-55). Defendants

conclude that under the Uniform Commercial Code,

“the security interests kept title to the patents in the

debtor, while giving the creditors only the right to

foreclose upon the failure to pay the debt.” Jd. at 10.

Defendants argue that Ozro could have secured its

debts with a Waterman-type mortgage but chose to

secure them with a security interest. Jd. at 11.

Defendants cite to other evidence that title

had not passed. Defendants state that after the

April 2001 date that the security interests were

granted, Ozro’s counsel filed terminal disclaimers

declaring TradeAccess was the owner of the patents-

in-suit. Jd. Defendants state that only the owner

may file a terminal disclaimer, and the terminal

disclaimers that were filed would otherwise be

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invalid. Jd. (citing Sygenta Seeds, Inc. v. Monsanto

Company, 2004 WL 2790499, at *3 (D. Del. Nov. 19,

2004), affd 231 Fed. Appx. 954 (Fed. Cir. 2007);

Group One Ltd. v. Hallmark Cards, Inc., 407 F.3d

1297, 1306 (Fed. Cir. 2005)). Defendants also note

that “Ozro granted a non-exclusive license to the

patents-in-suit to I-many, Inc. on November 19,

2001, something Ozro would not have standing to do

if, by April 3, 2001, the security agreements had in

fact transferred ‘all right, title and interest to the

patented technology’ from Ozro to its creditors.” Id.

at 11-12 (citing Sicom Sys. v. Agilent Techs. Inc., 427

F.3d 971, 974 (Fed. Cir. 2005)).

Defendants respond to Sky’s request to

intervene under Federal Rule of Civil Procedure

(“Rule”) 24 by arguing that standing must be present

at the inception of the lawsuit and may not be cured

by the addition of a party with standing. Dkt. No.

155 at 12. Defendants note that both the Federal

Circuit and Fifth Circuit have held that a

jurisdictional defect cannot be later remedied. Jd. at

12-13 (citing Schreiber Foods, Inc. v. Beatrice Cheese,

Inc., 402 F.3d 1198, 1203 (Fed. Cir. 2005); Interstate

Commerce Commission v. Souther R. Co., 380 F.

Supp. 386, 394-95 (M.D. Ga. 1974), affd in relevant

part, 543 F.2d 534 (5th Cir. 1976); Bhandari v.

Cadence Design Sys., 485 F. Supp. 2d 747, 750 (E.D.

Tex. 2007)).

Sky replies that the Security Agreements

indicate that the patents were granted as “collateral

security.” Dkt. No. 171 at 1 (citing Dkt. No. 132,

Exh. G at 2; Dkt. No. 132, Exh. H at 2). Specifically,

Sky argues that the Security Agreements provide for

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the reassignment to Ozro upon repayment of the

debt. Jd. at 1-2. Sky implies that this provision

would not have been necessary if there had been no

assignment. Dkt. No. 171 at 2. Sky also notes that

the Agreement provided for its recording at the

USPTO. Id. at 171. Regarding Jn re Cybernetic, Sky

notes that the Ninth Circuit held that “a security

interest in a patent that does not involve a transfer

of ownership is a ‘mere license’ and is not an

‘assignment, grant or conveyance’,” and Sky reasons

that, by inference, a security interest that “does

involve a transfer of ownership is an assignment

under § 261.” Dkt. No. 171 at 3 (quoting Jn re

Cybernetic, 252 F.3d at 1052).

Sky urges the Court to allow Ozro to intervene

in the interest of judicial economy because if this

case were dismissed Ozro would immediately file the

“same lawsuit, against the same parties, before the

same Court.” Dkt. No. 171 at 3. Sky acknowledges

that a prerequisite of an intervention is that an

existing suit is within the Court’s jurisdiction. Jd.

(citing In re Greyhound Securities Litigation, 1997

WL 531317, at *3 (N.D. Tex. Aug. 15, 1997)).

However, Sky argues that it falls within a recognized

exception that “intervenors with an independent

basis for jurisdiction may be treated as stating a

wholly separate claim.” Jd. at 4 (citing In re

Greyhound, 1997 WL 531317, at *3). Sky avers that

the exception allows the court to avoid senseless

delay, and the Court may consider an intervenor’s

claim even if the court lacks jurisdiction over the

original action. Id. (citing Fuller v. Volk, 351 F.2d

323, 329 (8d Cir. 1965); Arkoma Assocs. v. Carden,

69a

904 F.2d 5, 7 (5th Cir. 1990); Charles Alan Wright et

al., 7C Federal Practice and Procedure § 1917 (3d ed.

2007); Miller & Miller Auctioneers, Inc. v. G. W.

Murphy Indus., Inc., 472 F.2d 893, 895-96 (10th Cir.

1973)). Sky notes that Defendants’ citation to

Bhandari is inapposite because that case related to a

denial under a Rule 15 motion to amend complaint,

not a motion to intervene under Rule 24, as in this

case. Id.

B. LEGAL PRINCIPLES

“The burden of demonstrating standing falls to

[Plaintiff], as ‘[i]t is well established .. . that before a

federal court can consider the merits of a legal claim,

the person seeking to invoke the jurisdiction of the

court must establish the requisite standing to sue.”

Ortho Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d

1026 (Fed. Cir. 1995) (quoting Whitmore v. Arkansas,

495 U.S. 149, 154 (1990); citing Sicom Sys., Ltd uv.

Agilent Tech., Inc., 427 F.3d 971, 975-76 (Fed. Cir.

2005)).

One seeking damages for infringement of a

patent must hold legal title to that patent. See, e.g.,

Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538 (Fed.

Cir. 1995); Speedplay, Inc. v. Bebop, 211 F.3d 1245,

1249-50 (Fed. Cir. 2000) (citing 35 U.S.C. §§ 100(d),

261, 281). Under Section 261:

Applications for patent, patents, or any

interest therein, shall be assignable in

law by an instrument in writing. The

applicant, patentee, or his assigns or

legal representatives may in like

70a

manner grant and convey an exclusive

right under his application for patent,

or patents, to the whole or any specified

part of the United States... .

An assignment, grant or conveyance

shall be void as against any subsequent

purchaser or mortgagee for a valuable

consideration, without notice, unless it

is recorded in the Patent and

Trademark Office within three months

from its date or prior to the date of such

subsequent purchase or mortgage.

A party without title has no standing to bring

suit. Filmtec Corp. v. Allied-Signal Inc., 939 F.2d

1568 (Fed. Cir. 1991); Abbott Labs. v. Diamedix

Corp., 47 F.3d 1128, 1131 (Fed. Cir. 1995) (“The right

to sue for infringement is ordinarily an incident of

legal title to the patent.”). “Further, all co-owners

must, ordinarily, consent to join as plaintiffs in an

infringement suit.” DDB Techs., LLC v. MLB

Advanced Media, LP, 465 F. Supp. 2d 657, 661 (W.D.

Tex. 2006). Legal title, which confers standing, must

be held at the inception of the lawsuit. Paradise

Creations, 315 F.3d at 1308 (citing Lujan ov.

Defenders of Wildlife, 504 U.S. 555, 570 n.5, 119 L.

Ed. 2d 351, 112 S. Ct. 2130 (1992) (plurality

opinion)); Gaia Technologies, 93 F.3d at 777. “The

party asserting that it has all substantial nghts in

the patent ‘must produce... written instruments

documenting the transfer of proprietary rights.”

Mentor H/S, Inc., 240 F.3d at 1017 (quoting

Speedplay, 211 F.3d at 1250). Section 100(d)

provides that a “patentee’ includes not only the

Tla

patentee to whom the patent was issued but also the

successor in title to the patentee.” Therefore, the

chain of title must be followed in order to determine

the party holding legal title to the patent. See Enzo,

134 F.3d at 1093; Gaia Technologies, 93 F.3d at 777.

“In examining a Rule 12(b)(1) motion, the

Court is empowered to consider matters of fact which

may be in dispute.” Jd. A court may not grant

dismissal “unless it appears certain that the

plaintiffs cannot prove any set of facts in support of

their claim which would entitle them to relief,” and a

court “must take as true all of the allegations of the

complaint and the facts as set out by the [plaintiffs].”

Saraw Partnership v. U.S., 67 F.3d 567, 569 (5th Cir.

1995).

C. DISCUSSION

Sky and the Defendants propose a conflicting

chain-of-title regarding the patents. The alleged

point of transfer breaking the chain occurs between

Ozro and XACP. According to Sky, the April 2001

Security Agreements transferred title to the patents

from Ozro and these agreements were recorded in

the USPTO in May 2001. Dkt. No. 147 at 3. Sky

argues that these mghts to the title were

consolidated into the XACP entities, which later

foreclosed on the security interests on July 14, 2003.

Id. at 4. However, Sky argues that the recording of

the security interest was sufficient to satisfy Section

261. Dkt. No. 147 at 5. Thus, Sky places the

moment of transfer to XACP in April, with the

recording in May 2001 satisfying Section 261,

asserting that “when Silicon Valley Bank and XACP

72a

recorded their security interests in the patents-in-

suit with the PTO, they obtained title to the patents

by written assignment, consistent with § 261.” Jd. at

5. On the other hand, Defendants assert that the

security agreement, the recording of the security

agreement, and the foreclosure did not transfer title.

Specifically, Defendants note that at the point where

Ozro was obligated to transfer title, after the July 14,

2003 foreclosure, there is no evidence as to any

written assignment to satisfy Section 261. See Dkt.

No. 132 at 9. Therefore, the first question the Court

must answer is whether the recording of a security

interest is sufficient to serve as an assignment of the

patent rights.

The Court notes that the recording of the

security interest, in and of itself, does not indicate an

assignment. As the Federal Circuit explained in

Gaia Technologies, “the mere fact that an

assignment was recorded in the PTO does not,

without more, prove that a valid assignment actually

took place.” 93 F.3d at 778 n.3 (citing 37 C.F.R. §

3.54 (1995) (“The recording of a document .. . is not a

determination by the [USPTO] of the validity of the

document or the effect the document has on the title

to an application, a patent, or a registration.”)). The

Federal Circuit clarified that Section 261 “provides

that (1) a patent .. . assignment must be in writing;

and (2) the recording of an assignment is necessary

only to protect the assignee from subsequent bona

fide purchasers without notice.” Jd. at 777.

Sky relies on the Supreme Court decision in

Waterman v. Mackenzie for the proposition that the

recording of a security interest “operates as delivery

73a

of title to satisfy § 261.” Dkt. No. 147 at 5. In

Waterman, the Supreme Court had to determine the

effect of a deed by which Waterman assigned to Asa

L. Shipman’s Sons her rights to a patent. Waterman,

138 U.S. at 257. A provision stated that “the

assignment should be null and void if [Mrs.

Waterman] and her husband, or either of them,

should pay at maturity a certain promissory note of

the same date made by them and payable to the

grantees.” /d. at 257-58. The Watermans assigned

their “title under the mortgage, and the promissory

note thereby secured,” which was recorded in the

USPTO. Id. at 258. The Supreme Court explained:

A patent mght is incorporeal property,

not susceptible of actual delivery or

possession; and the recording of a

mortgage thereof in the Patent Office,

in accordance with the act of Congress,

is equivalent to a delivery of possession,

and makes the title of the mortgagee

complete towards all other persons, as

well as against the mortgagor.

Id. at 260. The Supreme Court concluded that

“Shipman, being the present owner of the whole title

in the patent under a mortgage duly executed and

recorded, was the person, and the only person,

entitled to maintain such a bill as this.” /d. at 261.

Defendants, on the other hand, rely on In re

Cybernetic for the proposition that security interests

do not qualify as assignments under Section 261.”

Dkt. No. 132 at 12. In In re Cybernetic, the Ninth

Circuit addressed whether Section 261 or Article 9 of

74a

the Uniform Commercial Code (UCC) “requires the

holder of a security interest in a patent to record that

interest with the federal Patent and Trademark

Office (PTO) in order to perfect the interest as

against a subsequent lien creditor.” Jn re Cybernetic,

252 F.3d at 1044. The Court recognizes that the

Ninth Circuit’s holding should be read in light of the

arguments of the Trustee that were addressed in the

opinion:

First, the Trustee contends that the

Patent Act preempts Article 9’s filing

requirements. Second, the Trustee

argues that Article 9 itself provides that

a security interest in a patent can be

perfected only by filing it with the PTO.

In re Cybernetic, 252 F.3d at 1045. The

Trustee argued that Section 261 requires the holder

of a security interest to record to perfect as to a

subsequent lien creditor. Jd. at 1046. The Ninth

Circuit determined that the Patent Act would

preempt state law only if Section 261 “required

Petitioners to record their interest with the PTO.”

Id. at 1048. The Ninth Circuit then addressed

whether Section 261 required parties to record the

security interest at issue. Jd. The Ninth Circuit first

held that the phrase “assignment,' grant or

! The Ninth Circuit found that an “assignment” concerned the

transfer of specific rights in the patent, particularly a transfer

of title. In re Cybernetic, 252 F.3d at 1049 (citing Oliver v.

Rumford Chem. Works, 109 U.S. 75, 82-83, 3 S. Ct. 61, 27 L.Ed.

862 (1883); Waterman, 138 U.S. at 255; 2 William C. Robinson,

The Law of Patents § 762, at 517 (1890)).

75a

conveyance” in Section 261 concerns transfers of

ownership interests only. Jd. at 1051. The Ninth

Circuit reviewed Waterman and held “the statute’s

text, context, and structure, when read in the light of

Supreme Court precedent, compel the conclusion

that a security interest in a patent that does not

involve a transfer of the rights of ownership is a

‘mere license’ and is not an ‘assignment, grant or

conveyance’ within the meaning of 35 U.S.C. § 261.”

In re Cybernetic, 252 F.3d at 1052. The Ninth

Circuit noted that “the parties do not dispute that

the transaction that gave Petitioners their interest in

the patent did not involve a transfer of an ownership

interest in the patent. Petitioners held a ‘mere

license,’ which did not have to be recorded with the

PTO.” Id. at 1052.

The Ninth Circuit also found that PTO

regulations supported the reasoning that Section 261

only required the recording of ownership interests in

a patent. In re Cybernetic, 252 F.3d at 1056-57. The

Ninth Circuit interpreted 37 C.F.R. § 3.11 as

showing “that the PTO does not consider security

interests to be ‘assignments, grants or conveyances.”

Id. at 1057. Under Section 261, documents that

transfer an ownership interest “must be recorded to

be effective as against a subsequent purchase or

mortgagee.” Jd. (emphasis in original). The Ninth

Circuit reasoned that “[i]f security interests were

‘assignments, grants or conveyance, then they would

have to be filed to provide constructive notice to a

subsequent purchaser or mortgagee, consistent with

the Patent Act.” Jd. Citing to 37 C.F.R. § 3.11 and

Section 313 of the Manual of Patent Examining

76a

Procedure (7th ed. 1998), the Ninth Circuit noted

that the Commissioner of the USPTO had discretion

to record other documents affecting title, wherein

“other documents” iacluded “agreements which

convey a security interest.” In re Cybernetic, 252

F.3d at 1056. The Ninth Circuit’s analysis

culminated in the conclusion that “Because the

Patent Act does not cover security interests or lien

creditors at all, there is no conflict between 35 U.S.C.

§ 261 and Article 9. Petitioners did not have to file

with the PTO to perfect their security interest as toa

subsequent lien creditor.” Jd. at 1057-58.

The Ninth Circuit stated that “a transaction

that grants a party a security interest in a patent but

does not effect a transfer of title is not the type of

‘assignment, grant or conveyance’ that is referred to

in 35 U.S.C. § 261.” In re Cybernetic, 252 F.3d at

1058. The Ninth Circuit then reiterated that the

“transaction in this case did not transfer an

ownership interest,” thus § 9302(3)(a) of the

California Commercial Code did not require “that

Petitioners record their security interest with the

PTO.” Id. Sky would reason that the Ninth Circuit’s

holding that “a security interest in a patent that does

not involve a transfer of the rights of ownership is a

‘mere license,” implies that a security interest in a

patent that does involve a transfer would constitute

an assignment.

The Court finds that, contrary to Defendants’

assertions, In re Cybernetic does not broadly preclude

a security interest from effecting a transfer in title.

The Ninth Circuit merely held that Section 261 only

requires the recording of ownership interests in a

T7Ta

patent. Whether a security interest may effect a

transfer in title was not at issue in Jn re Cybernetic,

rather the parties had agreed that the security

interest in question did not effect a transfer in title.

However, a security agreement that grants

substantial rights to a patent may still effect a

transfer of title to constitute a written assignment.

Likewise, the Court finds that, contrary to Sky’s

assertion, Waterman does not broadly stand for the

proposition that a security interest recorded with the

USPTO effectively transfers title to the secured

lender under Section 261. Rather, Waterman related

to the assignment of a patent through a mortgage

which was subsequently recorded with the USPTO.

Waterman, 138 U.S. at 257-58. The Court agrees

with the Ninth Circuit’s analysis of Waterman which

explained that a “security interest that does not

transfer ownership is not an ‘assignment, grant or

conveyance, but also because he is not a subsequent

‘purchase or mortgagee.” Jn re Cybernetic, 252 F.3d

at 1053. The Ninth Circuit distinguished between a

mortgage and a security interest, i.e. a “pledge,”

explaining:

Historically, a “mortgagee” was

someone who obtained title to property

used to secure a debt. See James

Schouler, Personal property § 416, at

622 (5th ed. 1918) (noting that

“[(mjortgages of chattels, then, are to be

distinguished at common law from liens

and pledges in this sort of out-and-out

transfer of the title conditionally which

is carried by the original transaction”).

78a

A “mortgage” must be differentiated

from a “pledge” . . . . Professor Gilmore,

in his treatise, Security Interests in

Personal Property § 1.1, at 8, notes that

the historical distinction between a

pledge and a mortgage was that “the

mortgagee got title or an estate whereas

the pledgee got merely possession with

a right to foreclose on default.”

Similarly, Judge Learned Hand wrote,

in 1922, that it “is everything agreed

that the significant distinction between

a pledge and a mortgage is that in the

first the creditor gets no title, . . . while

in the second he does.” Ex parte

Crombie & La Mothe, Inc. (In re

German Publ’n Soc’y), 289 F. 509, 509

(S.D.N.Y. 1922)....

In re Cybernetic, 252 F.3d at 1053.

Ultimately, the Court focuses on the Supreme

Court’s explanation in Waterman that “[w]hether a

transfer of a particular right or interest under a

patent is an assignment or a license does not depend

upon the name which it calls itself, but upon the

legal effect of its provisions.” Waterman, 138 U.S. at

256. The issue of the recording of the Security

Agreement, at least in relation to Section 261, would

only be relevant as to a dispute regarding a

subsequent purchase or mortgagee. Thus, the Court

rejects Sky’s reasoning that the recording of the

Security Agreement fulfills the written assignment

provision of Section 261. Here, the issue is whether

there was a written assignment necessary to satisfy

79a

Section 261. If the Security Agreement transferred

substantial rights to the patent, then, unlike the

security interest in In re Cybernetic, it would

constitute a security interest that does transfer

ownership.

Therefore, the Court must undertake an

analysis of the Security Agreement to determine if

the provisions of the Security Agreement granted

substantial rights as to effect a transfer of title.

However, while the parties mentioned various

provisions of the Security Agreements, the parties

did not fully address whether these provisions

transferred substantial rights in the patents. The

Court will require further briefing to make a

determination on whether they effected a transfer.

In addition, as explained by the only section in

the patent rules that refers to security interests:

Security Interest. A security interest

does not involve an _ obligation to

transfer rights in the invention for the

purposes of paragraphs (a)(1) through

(a)(3) of this section unless the security

interest is defaulted upon.

37 C.F.R. § 1.37(a)(5). Therefore, the Court

recognizes that an alternative method that a security

interest may have independently conferred title is

through a default. The foreclosure letter indicates

that Cross Atlantic purchased the assets. Dkt. No.

132, Exh. N at 2. However, the mere explanation

that a sale was made does not rise to the level of an

actual written assignment under Section 261. For

80a

example, as the Federal Circuit explained in Enzo,

though a license itself may be written, verbal, or

implied, if it is “to be considered a virtual assignment

to assert standing, it must be in writing.” Enzo, 134

F.3d at 1093. Therefore, parties may also address

whether there is independent evidence of a written

assignment after the foreclosure. Finally, the parties

may brief the effect, if any, of a security agreement

that contains the provisions to transfer title but is

not effective unless defaulted upon.

Ill, CONCLUSION

For all of the foregoing reasons, the Court

ORDERS further briefing on the issue of whether

the Security Agreements effected a transfer of

substantial rights in the patent to constitute an

assignment.

Sky is given ten (10) days to submit a brief of

no more than fifteen (15) pages. Defendants shall

have ten (10) days to respond of no more than

fifteen (15) pages. Sky shall have three (3) days

to file a reply of no more than ten (10) pages.

Defendants shall have three (3) days to file a sur-

reply of no more than ten (10) pages. When

briefing has been completed, the parties are to

inform the Court by letter and the Court will set a

hearing in due course.

It is so ORDERED.

SIGNED this 20‘ day of March, 2008.

8la

DAVID FOLSOM

UNITED STATES DISTRICT

JUDGE

82a

Appendix F

Sky Technologies LLC v. SAP AG,

Order (Fed. Cir. Oct. 28, 2009)

UNITED STATES COURT OF APPEALS FOR

THE FEDERAL CIRCUIT

2008-1606

SKY TECHNOLOGIES LLC,

Plaintiff-Appellee,

Vv

SAP AG and SAP AMERICA, INC.,

Defendants-Appellants.

Appeal from the United States District Court for the

Eastern District of Texas in case no. 2:06-CV-440,

Judge David Folsom.

ORDER

NOTE: This order is nonprecedential.

UNITED STATES COURT OF APPEALS FOR

THE FEDERAL CIRCUIT

ORDER

A combined petition for panel rehearing and

for rehearing en banc having been filed by the

Appellants, and a response thereto having been

invited by the court and filed by the Appellee, and

the petition for rehearing and response, having been

referred to the panel that heard the appeal, and

83a

thereafter the petition for rehearing en banc and

response having been referred to the circuit judges

who are in regular active service,

UPON CONSIDERATION THEREOF, it is

ORDERED that the petition for panel

rehearing be, and the same hereby is, DENIED and

it is further

ORDERED that the petition for rehearing en

banc be, and the same hereby is, DENIED.

The mandate of the court will issue on

November 4, 2009.

Circuit Judge Moore did not participate in the

vote.

FOR THE COURT,

Jan Horbaly

Clerk

Dated: 10/28/2009

cc: Paul S. Grewal

Max L. Tribble, Jr.

" Amicus Curiae, Lorin Brennan, was granted leave to file a

brief in support of the Appellants’ combined petition for

rehearing and rehearing en banc.

SKY TECHNOLOGIES V SAP AG, 2008-1606

(DCT — 2:06-CV-440)

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Appendix G

Historical Patent Acts

EXCERPTS FROM THE PATENT ACT OF 1790,

Ch. 7, 1 Stat. 109-112 (April 10, 1790)

An Act to Promote the Progress of Useful Arts.

Sec. 1. Be it enacted by the Senate and House

of Representatives of the United States of America in

Congress Assembled, that upon the petition of any

person or persons to the Secretary of State, the

Secretary for the department of War, and the

Attorney General of the United States, setting forth,

that he, she, or they, hath or have invented or

discovered any useful Art, Manufacture, Engine,

Machine, or Device, or any improvement therein not

before known or used, and praying that a patent may

be granted therefor, it shall and may be lawful to

and for the said Secretary of State, the Secretary for

the Department of War, and the Attorney General, or

any two of them, if they shall deem the invention or

discovery sufficiently useful and important, to cause

Letters Patent to be made out in the name of the

United States, to bear teste by the President of the

United States, reciting the allegations and

suggestions of the said petition, and describing the

said invention or discovery clearly, truly, and fully,

and thereupon granting to such petitioner or

petitioners, his, her, or their Heirs, Administrators

or assigns for any term not exceeding fourteen Years,

the sole and exclusive right and liberty of making,

constructing, using and vending to others to be used

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the said Invention or Discovery; which Letters-

patent shall be delivered to the Attorney General of

the United States to be examined, who shall, within

fifteen days next after the delivery to him, if he shall

find the same conformable to this Act, certify it to be

so at the foot thereof, and present the Letters Patent

so certified to the President, who shall cause the Seal

of the United States to be thereto affixed, and the

same shall be good and available to the Grantee or

Grantees by force of this Act, to all and every intent

and purpose herein contained, and shall be recorded

in a book to be kept for that purpose in the Office of

the Secretary of State, and delivered to the Patentee,

or his Agent, and the delivery thereof shall be

entered on the Record and endorsed on the Patent by

the said Secretary at the time of granting the same.

Sec. 4. And be it further enacted, that if any

person or persons shall devise, make, construct, use,

employ, or vend within these United States, any Art,

Manufacture, Engine, Machine or Device, or any

Invention or improvement upon, or in any Art,

Manufacture, Engine, Machine, or Device, the sole

and exclusive right of which shall be so as aforesaid

granted by Patent to any person or persons, by

Virtue and in pursuance of this Act, without the

Consent of the Patentee or Patentees, their

Executors, Administrators or Assigns first had and

obtained in Writing, every person so offending shall

forfeit and pay to the said Patentee or Patentees, his,

her or their Executors, Administrators or Assigns,

such damages as shall be assessed by a jury, and

moreover shall forfeit to the person aggrieved the

thing or things so devised, made, constructed, used,

employed or vended, contrary to the true intent of

this Act, which may be recovered in an Action on the

Case founded on this Act

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EXCERPTS FROM THE PATENT ACT OF 1836,

Ch. 357, 5 Stat. 117 (July 4, 1836)

An Act to promote the progress of the useful arts, and

to repeal all acts and parts of acts heretofore made for

that purpose.

Sec. 1. Be it enacted by the Senate and House

of Representatives of the United States of America in

Congress assembled, that there shall be established

and attached to the Department of State an office to

be denominated the Patent Office; the chief officer of

which shall be called the Commissioner of Patents, to

be appointed by the President, by and with advice

and consent of the Senate, whose duty it shall be,

under the direction of the Secretary of State, to

superintend, execute, and perform all such acts and

things touching and respecting the granting and

issuing of patents for new and useful discoveries,

inventions, and improvements, as are herein

provided for or shall hereafter be, by law, directed to

be done and performed, and shall have the charge

and custody of all the books, records, papers, models,

machines, and all other things belonging to said

office. And said Commissioner shall receive the

same compensation as is allowed by law to the

Commissioner of the Indian Department, and shall

be entitled to send and receive letters and packages

by mail, relating to the business of the office, free of

postage.

Sec. 5. And be it further enacted, that all

patents issued from said office shall be issued in the

name of the United States, and under the seal of said

office, and be signed by the Secretary of State, and

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countersigned by the Commissioner of the said office,

and shall be recorded, together with the descriptions,

specifications, and drawings, in the said office, in

books to be kept for that purpose. Every such patent

shall contain a short description or title of the

invention or discovery, correctly indicating its nature

and design, and in its terms grant to the applicant or

applicants, his or their heirs, administrators,

executors, or assigns, for a term not exceeding

fourteen years, the full and exclusive mght and

liberty of making, using, and vending to others to be

used, the said invention or discovery, referring to the

specifications for the particulars thereof, a copy of

which shall be annexed to the patent specifying what

the patentee claims as his invention or discovery.

Sec. 11. And be it further enacted, that every

patent shall be assignable in law, either as to the

whole interest, or any undivided part thereof, by any

instrument in writing; which assignment, and also

every grant and conveyance of the exclusive right,

under any patent, to muke and use, and to grant to

others to make and use the thing patented within

and throughout any specified part or portion of the

United States, shall be recorded in the Patent Office

within three months from the execution thereof, for

which the assignee or grantee shall pay to the

Commissioner the sum of three dollars.

Sec. 14. And be it further enacted, that

whenever, in any action for damages for making,

using, or selling the thing whereof the exclusive right

is secured by any patent heretofore granted, or by

any patent which may hereafter be granted, a verdict

shall be rendered for the plaintiff in such action, it

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shall be in the power of the Court to render judgment

for any sum above the amount found by such verdict

as the actual damages sustained by the plaintiff, not

exceeding three times the amount thereof, according

to the circumstances of the case, with costs; and such

damages may be recovered by action on the case, in

any Court of competent jurisdiction, to be brought in

the name or names of the person or persons

interested, whether as patentees, assignees, or as

grantees of the exclusive right within and

throughout a specified part of the United States.

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EXCERPTS FROM THE PATENT ACT OF 1870,

Ch. 230, 16 Stat. 198-217 (July 8, 1870)

Sec. 22. And be it further enacted, That every

patent shall contain a short title or description of the

invention or discovery, correctly indicating its nature

and design, and a grant to the patentee, his heirs or

assigns, for the term of seventeen years, of the

exclusive right to make, use and vend the said

invention or discovery throughout the United States

and the Territories thereof, referring to the

specification for the particulars thereof; and a copy of

said specifications and of the drawings shall be

annexed to the patent and be a part thereof. [R.S. §

4884]

Sec. 34. And be it further enacted, That when

any person, having made any new invention or

discovery for which a patent might have been

granted, dies before a patent is granted, the right of

applying for and obtaining the patent shall devolve

on his executor or administrator, in trust for the

heirs at law of the deceased, in case he shall have

died intestate; or if he shall have left a_ will,

disposing of the same, then in trust for his devisees,

in as full manner and on the same terms and

conditions as the same might have been claimed or

enjoyed by him in his lifetime; and when the

application shall be made _ by = such iegal

representatives, the oath or affirmation required to

be made shall be so varied in form that it can be

made by them. [R.S. § 4896]

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Sec. 36. And be it further enacted, That every

patent or any interest therein shall be assignable in

law, by an instrument in writing; and the patentee or

his assigns or legal representatives may, in lke

manner, grant and convey an exclusive right under

his patent to the whole or any specified part of the

United States; and said assignment, grant, or

conveyance shall be void as against any subsequent

purchaser or mortgagee for a valuable consideration,

without notice, unless it is recorded in the patent

office within three months from the date thereof.

[R.S..§ 4898]

Sec. 59. And be it further enacted, That

damages for the infringement of any patent may be

recovered by action on the case in any circuit court of

the United States, or district court exercising the

jurisdiction of a circuit court, or in the supreme court

of the District of Columbia, or of any Territory, in the

name of the party interested, either as patentee,

assignee, or grantee. And whenever in any such

action a verdict shall be rendered for the plaintiff,

the court may enter judgment thereon for any sum

above the amount found by the verdict as the actual

damages sustained, according to the circumstances

of the case, not exceeding three times the amount of

such verdict, together with the costs. [R.S. § 4919]