Bankrupt Patentee Loses Standing to Pursue Infringement Action

A recent decision by Judge Spencer in the Eastern District of Virginia points out that patentees which file for bankruptcy during the pendency of an action must act promptly to preserve standing.Qimonda AG v. LSI Corp., Case No. 3:08CV 735, 2012 U.S. Dist. LEXIS 30559 (E.D.Va. March 7, 2012) (Spencer, J.) (found here).

German semiconductor manufacturer Qimonda AG filed a patent infringement suit against LSI Corporation in November, 2008. While the case was stayed pending a § 337 action before the ITC, Qimonda filed insolvency proceedings in Germany. Qimonda’s German insolvency administrator, Michael Jaffe’ filed a petition for recognition of a foreign proceeding, and the EDVA bankruptcy court recognized him as the sole and exclusive representative of Qimonda in the U.S. in 2009. The ITC action subsequently concluded, and the stay of the infringement action was lifted on November 1, 2011.

Once the stay was lifted, LSI moved to dismiss the case for lack of standing. In granting the motion, Judge Spencer ruled:

• Where a party claims that the Court loses jurisdiction during the pendency of an action, the issue is not one of standing, which is determined at the outset of a case, but is rather an issue of mootness. “The requisite personal interest that must exist at the commencement of the litigation (standing) must continue through its existence (mootness).”
• Properly characterized, LSI’s motion was one of mootness, i.e., when Jaffe’ was appointed insolvency administrator, Qimonda lost standing to sue and the case became moot.
• The opening of Qimonda’s insolvency proceedings had the effect of transferring all substantial rights from Qimonda to its insolvency administrator, Jaffe’. There was no dispute that Jaffe’ possessed both the right to sue on the patents and the right to exclude others from practicing the patented invention, and so Qimonda no longer had a legally cognizable interest in the outcome.
• Qimonda could not join Jaffe’ as the real party in interest under Fed. R. Civ. P. 17(a)(3) because Rule 17(a) governs substitution of a proper plaintiff at the commencement of the lawsuit.
• While Fed. R. Civ. P. 25(c) allowed substitution of Jaffe’, he would only step into Qimonda’s shoes, and at the time of the motion, Qimonda lacked standing to sue.

Ultimately, the situation may just present a timing issue. Judge Spencer noted that the Federal Circuit has held that a temporary loss of standing can be cured if the jurisdictional challenge occurs after the party holding all substantial rights has been joined. Thus, Judge Spencer implies that if Qimonda had simply acted quickly and added Jaffe’ as a plaintiff before LSI moved to dismiss, Jaffe could have been substituted as the plaintiff and the case would have continued.

Moreover, LSI gained only a temporary victory. After LSI moved to dismiss, Jaffe’ filed a separate action against LSI and several other defendants, which is now pending.