NextEngine Inc. v. NextEngine, Inc.

— 1 — — 2 — — 3 — — 4 — — 5 — — 6 — — 7 — 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA — 10 — NextEngine Inc., Case No. 2:19-CV-00249-AB (MAA) — 11 — Plaintiff, 12 FINDINGS OF FACT AND 13 v. CONCLUSIONS OF LAW TRIAL DATE: STIPULATED 14 NextEngine, Inc., et al., and Mark S. FACTS TRIAL Knighton, — 15 — Defendants. — 16 — — 17 — This matter was submitted to this Court, sitting without a jury, on April 9, 2021. — 18 — Marc Reich of Reich Radcliffe and Hoover LLP and Peter Moroh of Peter K. — 19 — Moroh Law Offices represented Plaintiff NextEngine Inc. (“Plaintiff”). Johnny Kim — 20 — of J. Kim, APLC represented Defendants NextEngine, Inc. and Mark S. Knighton — 21 — (“Defendants”). — 22 — Plaintiff has asserted claims for direct, indirect, and contributory patent and — 23 — trademark infringement, as well as unfair competition. The dispositive issue is the — 24 — effect of several agreements on ownership of the subject intellectual property. The — 25 — parties waived jury trial, agreed that the material facts were undisputed, and elected to — 26 — proceed with a bench trial in order for the Court to determine the legal effect of the — 27 — stipulated facts. The parties filed Joint Stipulated Facts for Stipulated Jury Trial (Dkt. — 28 — 1 No. 80), along with trial briefs (Dkt. Nos. 81–82) and proposed findings of fact and 2 conclusions of law (Dkt. Nos. 86–87). Given the parties’ stipulation, the foregoing are 3 the only materials the Court considered in resolving this case. The Court makes the 4 following findings of fact and conclusions of law pursuant to Federal Rule of Civil 5 Procedure 52. 6 FINDINGS OF FACT 7 The Parties and Related Entities and Individuals 8 1. Plaintiff is a New York based corporation. Joint Stipulated Facts 9 (“JSF”), ¶ 1 (Dkt. No. 80). 10 2. Defendants are a California based corporation and an individual who is a 11 chief agent of that corporation. JSF, ¶ 2. The individual, Defendant Marc S. 12 Knighton (“Knighton”), is the Founder, Chairman, Chief Executive Officer, and 13 largest shareholder of Defendant NextEngine (“Defendant”).1 JSF, ¶ 3. 14 3. Bigfoot Ventures Ltd. (“Bigfoot”) is a foreign company formed in the 15 British Virgin Islands and based in Hong Kong, S.A.R. JSF, ¶ 4. 16 4. NextPat Ltd. (“NextPat”) is a foreign company formed and also based in 17 Hong Kong. JSF, ¶ 5. Upon NextPat’s formation, Bigfoot owned 51 of Nextpat’s 100 18 shares and Defendant owned the other 49. JSF, ¶ 5. 19 5. Michael Gleissner is one of the Defendant’s largest shareholders a nd is 20 the owner and operator of Plaintiff, Bigfoot, and NextPat. JSF, ¶ 6. 21 The Intellectual Property-In-Suit 22 6. Defendant is involved in research, development, manufacturing, and sale 23 of three-dimensional laser scanners. JSF, ¶ 7. 24 7. In the course of its business, Defendant obtained numerous patent and 25 trademark registrations (“NextEngine IP”, or “the IP”), listing Knighton as an — 26 — — 27 — 1 Henceforth, Defendant will refer specifically to Defendant NextEngine unless 28 otherwise stated. 1 inventor, in order to protect the technology, character mark, and logos of Defendant’s 2 flag shift product (the “3D Ultra HD” laser scanner, or “the Scanner”). JSF, ¶¶ 7–9. — 3 — 4 The 2008 Secured Loan and its Subsequent Restructuring 5 8. Between 2002 and 2005, Bigfoot made a series of loans to Defendant in 6 secured promissory notes and security agreements, wherein Defendant pledged the IP 7 to Bigfoot as collateral. JSF, ¶ 10. 8 9. On June 2, 2008, Defendant and Bigfoot agreed to restructure the 9 security loan pursuant to six agreements concurrently prepared and executed, which 10 collectively constituted one secured loan and security agreement (collectively, the 11 “2008 Loan Agreements”). This agreement included (i) a 2008 Promissory Note 12 (“2008 Note”), (ii) an Assignment and License Agreement, (iii) a Share Mortgage 13 Agreement, (iv) a Shareholders Agreement, (v) a Mutual Release Agreement, and (vi) 14 the Pledge Agreement. (Id.) 15 10. The restructuring did not disturb Bigfoot’s first place security interest in 16 the IP, rather, it simply required that the collateral be assigned to and held by a third 17 party custodian or escrow entity (NextPat), which was created by Defendant and 18 Bigfoot solely for that purpose. JSF, ¶ 12. 19 i. The Promissory Note 20 11. The Promissory Note required Defendant to assign its IP to NextPat via 21 the Assignment and License Agreement. JSF, ¶ 13(a). 22 12. It defines “Collateral” as “all of NextPat’s right, title, and interest in and 23 to” all of the IP Rights, and that “[IP] Rights” shall have the meaning set forth in 24 section 1 of the Assignment and License Agreement. JSF, ¶ 13(b–c). 25 ii. The Assignment and License Agreement 26 13. The Assignment and License Agreement (“A&L Agreement”) reflected 27 that “[i]n order [to] facilitate the [Promissory] Note restructuring NextEngine and 28 NextPat each desire that NextPat receive ownership of all of the [IP] Rights currently 1 held by [Defendant] and that [Defendant] receive an exclusive license back to such 2 [IP] Rights.” JSF, ¶ 14. 3 14. Section 1 of the A&L Agreement assigned NextPat “all of [Defendant’s] 4 rights, title and interest in and to the [IP] Rights,” including the IP. JSF, ¶ 15. 5 15. Section 2(a) of the A&L Agreement granted Defendant an exclusive 6 license (the “License”) to freely use the IP Rights “subject to certain revocation rights, 7 including if Defendant defaulted under the Promissory Note.” JSF, ¶ 16. Section 2(b) 8 provides that, notwithstanding an event of default, the License would remain 9 irrevocable if Defendant paid the monthly interest and quarterly fees. JSF, ¶ 17. The 10 irrevocable license would prohibit NextPat from selling the IP or attaching any other 11 encumbrances to it. (Id.) Section 2(c) provides that if the License becomes revocable, 12 “NextPat may, upon written Notice to [Defendant], terminate the license” granted by 13 the A&L Agreement. JSF, ¶ 18. 14 16. Section 4 of the A&L Agreement limits each party’s total liability to the 15 other party, relating to this agreement, to fifty dollars. JSF, ¶ 19. This limitation is 16 applicable even if any remedy provided in the agreement is found to have failed its 17 essential purpose. (Id.) 18 iii. The Share Mortgage Agreement 19 17. For the Share Mortgage Agreement (“SM Agreement”), Defendan t 20 deposited share certificates with Bigfoot, evidencing Defendant’s 49 shares in NextPat 21 as security for BigFoot’s loan ( “Mortgaged Shares”). JSF, ¶ 20. 22 18. The SM agreement provided that, if Defendant defaulted under the 2008 23 Note, “the security would become enforceable.” JSF, ¶ 21. However, if Defendant 24 paid the monthly interest and certain quarterly fees, Bigfoot and its affiliates 25 (including NextPat) retained all of the Mortgaged Shares, with NextPat retaining the 26 IP collateral assigned by Defendant. (Id.) In the absence of default, Bigfoot also 27 agreed to defer any sale, solicitation for sale, or other disposition or encumbrance of 28 the IP. (Id.) 1 19. The SM Agreement states that, subject to the conditions above (in ¶ 18) 2 and the rest of the agreement, if a default occurs, “Bigfoot could exercise any rights 3 with respect to the Mortgaged Shares and the [IP] Rights, including without 4 limitation, (i) the transfer to, and retention by, Bigfoot of the Mortgages Shares, (ii) 5 the sale, disposition or licensing of the [IP] Rights, or (iii) the sale of the Mortgaged 6 Shares ([citing SM] Agreement, p. 8, ¶ 10). JSF, ¶ 22. 7 20. Paragraph 11 of the SM Agreement states that, “for the avoidance of 8 doubt, in the event of a permitted sale of the NextPat shares of IP, the proceeds must 9 be applied towards the satisfaction or partial satisfaction of the Note without prejudice 10 to [Bigfoot’s right] to sue for any deficiency of the Note.” JSF, ¶ 23. 11 21. Once all obligations have been paid, Bigfoot’s security interest would be 12 “discharged and extinguished.” JSF, ¶ 24. 13 iv. The Shareholders Agreement 14 22. Under the Shareholders (the “SH”) Agreement, as long as Defendant’s 15 License remained irrevocable, Bigfoot and its affiliates (including NextPat and its 16 officers or shareholders) were prohibited from allowing NextPat to: “(a) engage in any 17 transactions or activities other than being a holding company for the IP collateral; (b) 18 create or otherwise suffer any liens on the IP collateral, or (c) sell, transfer, or 19 otherwise encumber” any NextPat shares held by Bigfoot or Plaintiff. JSF, ¶ 2 5(a). 20 23. If Defendant’s License became revocable, however, Bigfoot could sell or 21 dispose of any part of the IP collateral or NextPat shares in order to satisfy the debt. 22 JSF, ¶ 25(b). 23 24. If any of the IP collateral was to be sold by public auction, Bigfoot would 24 be required to notify Defendant and allow Defendant a reasonable opportunity to 25 purchase the IP at a higher bid. JSF, ¶ 25(c). 26 25. If any of the NextPat shares or the IP collateral was to be sold by private 27 sale, Bigfoot would be required to notify Defendant and allow it five days from 28 receipt of notice to offer a higher bid. JSF, ¶ 25(d). 1 26. If a permitted sale of any NextPat shares or the IP Collateral occurred, 2 the sale proceeds were to be applied toward satisfying the Note. JSF, ¶ 25 (e). 3 27. It also provided that “Bigfoot and/or NextPat may for convenience accept 4 bids pertaining to the sale of any part of the NextPat shares or any part of the 5 Collateral from Michael Gleissner, Bigfoot, or any other entity materially affiliated 6 with or controlled by Gleissner (each, an ‘Affiliated Buyer’); provided however, that 7 the Affiliated Buyer shall remain subject to all of the covenants herein.” JSF, ¶ 25(f). 8 28. The SH Agreement also reads: “[N]otwithstanding any default, if any 9 part of the IP Collateral or NextPat shares is owned or controlled by any entity 10 materially affiliated with or controlled by Michael Gleissner, Defendant [] is entitled 11 to redeem or repurchase such IP or NextPat shares . . . by repaying the amount then 12 owed under the Note including all accrued interest and any due but unpaid quarterly 13 fees; provided however, if only a portion of the NextPat Shares or IP Collateral is 14 repurchased by Defendant [], the price shall be mutually agreed at some pro-rata 15 portion of the amount owed under the Note.” JSF, ¶ 25(g). 16 State Court Action I 17 29. In December 2009, after the loan was restructured pursuant to the 2008 18 Agreement, Bigfoot brought a state court action against Defendant for an alleged 19 breach of the 2008 Note (“State Court Action I”). JSF, ¶ 26. Defendant prevai led at 20 trial by jury in the Los Angeles Superior Court. (Id.). 21 30. The jury verdict yielded a judgment in Defendant’s favor, and against 22 Bigfoot, regarding: (i) “Bigfoot’s claim for breach of the Note”, which expressly 23 “confirms that the collateral for the Note is the IP rights of Defendant,” and (ii) 24 Defendant’s cross claims under the UCC Art. IX (Secured Transactions) for Bigfoot’s 25 treatment of the IP pledged as collateral by Defendant (to which it awarded Defendant 26 $4.5 million in damages against Bigfoot (“State Judgment I”)). JSF, ¶ 27. 27 Bigfoot’s Appeal — 28 — 1 31. Bigfoot unsuccessfully appealed State Judgment I, which was affirmed in 2 its entirety via a written decision issued by the California Court of Appeal. JSF, ¶ 28. 3 32. In affirming the prior judgment, the appellate court expressly stated the 4 following: 5 a. “As defined in the 2008 Secured Promissory Note, the collateral for the 6 restructured loan was the intellectual property rights held by NextPat 7 Ltd., a Hong Kong company that was formed by Bigfoot and NextEngine 8 solely for the purpose of holding that collateral.” JSF, ¶ 29(a). 9 b. “Under the [A&L] Agreement, NextEngine assigned to NextPat all of its 10 rights, title, and interest in NextEngine’s [IP], including its patents, 11 copyrights, trademarks, and trade secrets, and NextPat granted to 12 [Defendant] an exclusive perpetual license to use the [IP] rights. 13 Notwithstanding an event of default under the restructured loan, the 14 license would remain irrevocable for so long as [Defendant] paid in full 15 to Bigfoot (i) each monthly interest payment that was due by the end of 16 each calendar month pursuant to the 2008 Secured Promissory Note and 17 (ii) each quarterly fee payment that was due pursuant to the Mutual 18 Release Agreement. For so long as the license remained irrevocable, 19 NextPat agreed to retain all of the intellectual property rights assig ned by 20 [Defendant], and to defer any sale, solicitation for sale, or other 21 disposition or encumbrance of the [IP] rights. In the event the license 22 became revocable, NextPat could terminate the license upon written 23 notice to NextEngine.” JSF, ¶ 29(b). 24 c. “Under the [SM] Agreement, NextPat had 100 shares of authorized 25 capital of which 51 shares were issued to Bigfoot and 49 shares were 26 issued to Next Engine . . . Upon the occurrence of an event of default 27 under the loan, [Defendant]’s 49 shares in NextPat automatically would 28 transfer to Bigfoot . . . If all payments due under the restructured loan 1 were fully paid by [Defendant] NextEngine, Bigfoot would transfer 49 2 mortgaged shares in NextPat back to NextEngine. However, if an event 3 of default continued to occur and NextEngine failed to make any monthly 4 interest payment or any quarterly fee payment when due, Bigfoot could 5 thereafter solicit for sale and sell any part of the NextPat shares or any 6 part of the intellectual property rights.” JSF, ¶ 29(c). 7 d. “Under the [SH] Agreement, if Bigfoot intended to sell any part of the IP 8 collateral through a public auction, Bigfoot was required to notify 9 [Defendant] NextEngine of such auction and allow NextEngine a 10 reasonable opportunity to purchase the IP at a higher bid. If Bigfoot 11 intended to sell any part of the NextPat shares or the IP collateral through 12 a private sale, Bigfoot was required to notify NextEngine of such pending 13 sale and allow NextEngine five business days after receipt of the notice 14 to offer a higher bid. In the event of a permitted sale of any of the 15 NextPat shares or the [IP] rights, the proceeds from the sale would be 16 applied towards the satisfaction of the 2008 Secured Promissory Note. ” 17 JSF, ¶ 28(d). 18 33. The appellate court also expressly stated, “Bigfoot is not precluded from 19 seeking to enforce its right to recover the payments owed by [Defendant] NextE ngine 20 under the 2008 Loan Agreement, provided however, that any future enforcement 21 action taken by Bigfoot must comply with the terms of the parties’ agreement and the 22 relevant provisions of the UCC.” JSF, ¶ 30. 23 Defendant Next Engine’s Default and Bigfoot’s Resulting Judgment 24 34. On January 16, 2015, Bigfoot (holder of the Promissory Note) provided 25 written notice of its demand for payment to Defendant; Defendant subsequently 26 defaulted. JSF, ¶ 31. — 27 — — 28 — 1 35. On February 20, 2015, in response to Defendant’s default, Bigfoot filed a 2 Complaint for the money due under the Note against Defendant in the Los Angeles 3 County division of the California Superior Court. JSF, ¶ 32. 4 36. On October 21, 2016, Bigfoot won on summary judgment and, on March 5 16, 2017, received a final judgment of $8,223,486 (“Bigfoot’s Judgment”). JSF, ¶ 33. 6 37. Pursuant to Defendant’s default (and the terms of the Note and SM 7 Agreement), Defendant’s Mortgaged Shares in NextPat were transferred to Bigfoot, 8 making Bigfoot the sole owner of NextPat’s 100 shares. JSF, ¶ 34. 9 38. Following entry of BigFoot’s Judgment, Bigfoot became entitled to sell 10 the IP in a commercially reasonable manner to satisfy Bigfoot’s Judgment. JSF, ¶ 35. 11 NextPat’s Termination of Defendant NextEngine’s License 12 39. On January 20, 2017, NextPat gave Defendant written notice that it was 13 terminating the License under Section 2(c) of the A&L Agreement because of 14 Defendant’s default on the 2008 Note and failure to pay monthly interest and 15 Quarterly Fee Payments. JSF, ¶ 36. Additionally, NextPat demanded that Defendant 16 immediately cease using any of the IP Rights (“IP Rights”), including use of the IP at 17 issue in this suit. (Id.) 18 40. On March 31, 2017, NextPat mailed a second letter to Defendants again 19 demanding that Defendant NextEngine cease its continued use of the IP Rights and 20 properties, pursuant to NextPat’s License termination notice. JSF, ¶ 37. 21 41. Despite NextPat’s termination of Defendant’s License, and NexPat’s 22 repeated demands, Defendant did not discontinue using the IP Rights or stop selling 23 the Scanner and supporting goods, be it temporarily or otherwise. JSF, ¶ 38. 24 42. Accordingly, between January 20, 2017 and June 8, 2020, Defendant 25 derived aggregate revenues of approximately $2,450,000 from continued sale of the 26 Scanner and/or other goods utilizing the IP at Issue. JSF, ¶ 39. Despite these 27 revenues, Defendant has yet to pay Bigfoot anything towards satisfaction of Bigfoot’s 28 Judgment, which currently totals approximately $11.4 million including interest. (Id.) 1 Plaintiff is Incorporated in New York 2 43. On or about March 31, 2017, after entry of Bigfoot’s money judgment, 3 Plaintiff was incorporated in the state of New York. JSF, ¶ 40. 4 NextPat’s Assignment of Registered Patents and Marks to Plaintiff 5 44. On December 6, 2017, NextPat and Plaintiff entered into a Trademark 6 Assignment Agreement (the “TM Assignment”) wherein NextPat assigned to Plaintiff 7 “all right, title, and interest” in the Trademarks, including “all income, royalties, and 8 damages hereafter due and payable to [NextPat] with respect to the [Registered] 9 Trademarks, including without limitation, damages, and payments for past, present 10 and/or future infringements and misappropriations of the [Registered] Trademarks,” 11 along with “all rights to commence legal proceedings for past, present and/or future 12 infringements or misappropriations of the [Registered] Trademarks.” JSF, ¶ 41. 13 45. In consideration of NextPat’s assignment to Plaintiff, Plaintiff agreed to 14 pay a total of ten dollars ($10.00). JSF, ¶ 42. 15 46. Gliessner signed the TM Assignment both as NextPat’s President 16 (“Assignor”) and as Plaintiff’s President (“Assignee”). JSF, ¶ 43. 17 47. Neither entity provided Defendant notice that NextPat’s assigned the 18 Trademarks to Plaintiff. JSF, ¶ 44. NextPat did not apply the sale proceeds toward 19 satisfying the Note or conduct a valuation of the Trademarks. (Id.) NextPat di d not 20 credit any value of the assigned Trademarks toward satisfying the Note either. (Id.) 21 48. On December 11, 2017, NextPat and Plaintiff entered into a Patent 22 Assignment Agreement (the “Patent Assignment”) wherein NextPat assigned to 23 Plaintiff all right, title, and interest in and to the Registered Patents, including “all 24 income, royalties, and damages hereafter due and payable to [NextPat] with respect to 25 the [Registered] Patents, including without limitation, damages, and payments for 26 past, present and/or future infringements and misappropriations of the [Registered] 27 Patents,” along with “all rights to commence legal proceedings for past, present and/or 28 future infringements or misappropriations of the [Registered] Patents.” JSF, ¶ 45. 1 49. In consideration of NextPat’s assignment of the Patents, Plaintiff agreed 2 to pay ten dollars ($10.00). JSF, ¶ 46. 3 50. Gliessner signed the Patent Assignment as President for both NextPat (as 4 “Assignor”) and Plaintiff (as “Assignee”). JSF, ¶ 47. 5 51. NextPat did not provide Defendant with any notice of the assignment, or 6 apply its proceeds towards satisfying the Note, or conduct valuation of the Patents, or 7 credit its valuation toward satisfying the Note. JSF, ¶48. 8 Plaintiff Initiates the Instant Action 9 52. On or about December 14, 2017, three days after NextPat and Plaintiff 10 consummated the 2017 Patent and TM Assignments, Plaintiff initiated the instant 11 action against Defendants in the Southern District of New York, proposing that, as a 12 result of the purported Trademark and Patent Assignments, Plaintiff had become the 13 beneficial owner of all rights, title, and interest in and to the IP. JSF, ¶ 49. 14 Plaintiff’s Renewal of the Registered Trademarks 15 53. On or about October 19, 2018, Plaintiff had its attorney, Roman A. 16 Popov, record a “Combined Declaration of Use/Application for Renewal of a Mark 17 and Specimen of Use in Commerce” with the USPTO to renew the registrations of the 18 marks-in-suit. JSF, ¶ 50. Popov was Plaintiff’s counsel of record at the beginning of 19 this suit, before being substituted out by current counsel. (Id.) Defendant’s we bsite 20 was the only specimen provided with the declaration to establish Plaintiff’s use of the 21 Trademarks in commerce in order to satisfy the §§8-9 Trademark Act renewal 22 requirement. (Id.) 23 Plaintiff’s Assignment of the Registered Patents Back to NextPat 24 54. While the instant action was pending, on or about February 27, 2020, 25 Plaintiff assigned “all of its purported rights, title, and interest in and to all of the 26 Patents back to NextPat pursuant to another ‘Patent Assignment Agreement’ by and 27 between [P]laintiff as ‘Assignor’, and NextPat, as ‘Assignee’ (hereinafter the “2020 — 28 — 1 Patent Assignment []’).” JSF, ¶ 51. In consideration of NextPat’s assignment of the 2 Patents, Plaintiff agreed to pay a total of ten dollars. (Id.) (emphasis in original). 3 55. Gleissner signed the agreement as the President of both NextPat (as 4 “Assignor”) and Plaintiff (as “Assignee”). JSF, ¶ 52. 5 Amendment of Bigfoot’s Judgment to Add Defendant Knighton 6 56. On July 8, 2020, on Bigfoot’s motion, and following NextEngine’s 7 unsuccessful appeal of Bigfoot’s Judgment, the court amended Bigfoot’s Judgment to 8 add Defendant Knighton, individually, as a judgment debtor based on the court’s 9 finding that Knighton is the alter ego of Defendant NextEngine. JSF, ¶ 53. 10 57. The court also amended Bigfoot’s Judgment to add ShapeTools LLC as a 11 judgment debtor based on the court’s finding that ShapeTools existed only to shield 12 Defendant from its debt to Bigfoot. JSF, ¶ 54. 13 CONCLUSIONS OF LAW 14 I. JURISDICTION 15 The parties have asserted that the Court has Federal Question jurisdiction over 16 this matter pursuant to 35 U.S.C. § 271 (a) and (b), which provides that a patent owner 17 may seek an infringement action against anyone who uses, offers to sell, or sells any 18 patented invention (an “infringer”) within the United States. Due to the nature of the 19 claims in this case, however, it is debatable whether a Federal Question exists. 20 Nonetheless, the Court will not further address this point because it obviously has 21 Diversity Jurisdiction pursuant to 28 U.S.C. § 1332 (a)(1). 22 Whether Plaintiff has standing is also in issue, but because standing is entwined 23 with the merits of the case, the Court addresses this issue below. 24 II. DISCUSSION 25 “Whoever invents or discovers any new and useful process, machine, 26 manufacture, or composition of matter, or any new and useful improvement thereof, 27 may obtain a patent therefore, subject to the conditions and requirements of this title.” — 28 — 35 U.S.C. § 101 . Anyone who “makes, uses, offers to sell, or sells any patented 1 invention” without authority to do so within the United States “during the term of the 2 patent therefor, infringes the patent.” 35 U.S.C. § 271 (a). Anyone who “actively 3 induces infringement of a patent shall be liable as an infringer.” 35 U.S.C. § 271 (b). 4 “To prevail on [a] trademark infringement claim, [a Plaintiff] must show that: 5 (1) it has a valid, protectable trademark, and (2) that [the Defendant’s] use of the mark 6 is likely to cause confusion.” Applied Info. Sciences Corp. v. eBAY, Inc., 511 F.3d 7 966, 969 (9th Cir. 2007) (citing Brookfield Commc’ns, Inc. v. W. Coast Entm’t Corp., — 8 — 174 F.3d 1036, 1047, 1053 (9th Cir. 1999)). “The standard for Lanham Act unfair 9 competition is the same as for Lanham trademark infringement.” Novalogic, Inc. v. 10 Activision Blizzard, 41 F.Supp.3d. 885, 904 (C.D. Cal. 2013) (quoting Glow 11 Industries, Inc. v. Lopez, 252 F.Supp.2d 962 , 975 n. 90 (C.D. Cal. 2002)) (citing 12 Brookfield, 174 F.3d at 1045 ). 13 The crux of this case rests on the answer to two questions: (1) whether the 2008 14 Loan Agreements transferred ownership of the IP2 from Defendant to NextPat and, (2) 15 if so, whether NextPat’s assignment of the IP to Plaintiff successfully transferred 16 ownership of that IP to Plaintiff.3 If either of these assignments have not essentially — 17 — 2 Henceforth, Plaintiff’s Patent, Trademark, and Unfair Competition claims will 18 collectively be referred to as “the IP Claims” because the three claims are not particularly helpful towards resolving the contentions raised by Plaintiff and 19 Defendant. This dispute critically depends on whether the 2008 Loan Agreeme nts 20 truly dictate what Plaintiff purports to be so. Since the case was filed as a patent infringement suit, the Court will heavily cite patent law, but it should be noted that the 21 underlying (and governing) law here is based in state contract law. See Court’s Order Denying Defendant’s Motion to Dismiss (“MTD Denial”), Dkt. No. 78, at 2 (“[T]his — 22 — case really sounds in contract and not in patent or trademark, as Defendant admits 23 using the [IP] in issue . . . and the dispute is simply over ownership of that property.”); see also Order Remanding Action, NextPat, Ltd. v. NextEngine, Inc., CV 17-04329 24 (Dkt. No. 32) (declining removal of similar claims involving the parties, for declaratory and injunctive relief, because they were mainly contract based rather than 25 based in patent or trademark law). Thus, for the sake of judicial economy, the Court will avoid heavy reference to the respective trademark and unfair competition laws. — 26 — 27 3 Plaintiff argues that “the only real question for the Court is to determine the appropriate remedy for [these claims], and whether it should include both economic 28 damages and injunctive relief,” but Defendant’s Trial Brief strongly disagrees. 1 occurred, then Plaintiff cannot assert standing to support its cause of action. For the 2 reasons stated below, Plaintiff’s claims FAIL to establish standing. 3 A. Standing to Assert Patent Infringement 4 Plaintiff asserts that, because of the December 2017 assignments of the IP 5 Rights from NextPat to Defendant, it was “therefore a patentee and owner” of the IP 6 and had “statutory and constitutional standing to sue.” Plaintiff’s Memo, at 3 (citing 7 MTD Denial).4 Defendant contends that, based on the stipulated facts, “Plaintiff did 8 not receive any substantive rights or interest in the IP and thus has no right or standing 9 to pursue any of its infringement claims against Defendants.” Defendants’ Brief, at 3, 10 14, 24. The Court addresses this issue below. 11 “The federal courts are under an independent obligation to examine their own 12 jurisdiction, and standing is perhaps the most important of the jurisdictional 13 doctrines.” United States v. Hays, 515 U.S. 737, 742 (1995) (citations and quotations 14 omitted). “Whether a party has constitutional standing to ‘assert the jurisdiction of a 15 federal court is a question of federal law, and standing is to be determined as of the — 16 — 17 Plaintiff’s Memo of Points and Authorities (“Plaintiff’s Memo”), Dkt. 81, at 2; Defendants’ Trial Brief (“Defendants’ Brief”), Dkt. 82. Defendant contends that it 18 originally held the IP and only assigned it to NextPat “to be held as collateral”, thereby retaining “Defendant’s redemption rights [and] rights to all residual equity or 19 value in the IP it pledged as collateral.” Defendants’ Brief, 2–3. Thus, the Cou rt must 20 address the dispute as to ownership and transfer before deciding whether Plaintiff’s pursued remedy is warranted under the circumstances. — 21 — 4Earlier in this suit, the Court denied Defendants’ challenge of Plaintiff’s statutory and — 22 — constitutional standing to maintain the patent claims. See MTD Denial. In short, the 23 Court held that Plaintiff did not convey its right to sue for infringement simply because it transferred the IP Rights back to NextPat after initiating this suit and that 24 Plaintiff’s prior status as “a patentee” remained thereafter. Id. at 7–9. The standard for that motion, a motion to dismiss, however, is much lower than that required to 25 prove infringement, here, in a stipulated facts trial. See Rivera v. Remington Designs, LLC, No. 16-4676, 2018 WL 8693814 , at *7 (C.D. Cal. August 28, 2018) (“Plaintiff — 26 — bears the burden to prove patent infringement by a preponderance of the evidence.”) 27 (citing Novartis Corp. v. Ben Venue laboratories, Inc., 271 F.3d. 1043 , 1046–1049 (Fed. Cir. 2001)). Thus, the Court must revisit this question in light of the appropriate 28 standard and burden that is now applicable. 1 commencement of suit.’” Parallax Grp. Int'l, LLC v. Incstores.com, LLC, No. 162 0929, 2017 WL 3017059 , at *1 (C.D. Cal. Jan. 25, 2017) (citing Paradise Creations, 3 Inc. v. UV Sales, Inc., 315 F.3d 1304, 1309 (Fed. Cir. 2003)) (quoting Lujan v. 4 Defenders of Wildflife, 504 U.S. 555 , 570 n. 5 (1992)) (internal quotations omitted). 5 “Standing to sue for infringement stems from the Patent Act, which provides: 6 ‘[a] patentee shall have remedy by civil action for infringement of his patent.’” 7 Parallax Grp. Int’l, LLC, WL 3017059, at *1 (quoting 35 U.S.C. § 281 ). “As defined 8 in § 100(d), ‘patentee’ includes not only the patentee to whom the patent was issued 9 but also ‘the successors in title to the patentee.’” Id. (quoting 35 U.S.C. § 100 (d)). 10 “An assignment of patent rights operates to transfer title to the patent, while a 11 license leaves title in the patent owner.” Agarwal v. Buchanan, No. 17-2182, 2017 12 WL 5125752 , at *2 (C.D. Cal. June 22, 2017) (quoting Minco, Inc. v. Combustion 13 Eng’g, Inc., 95 F.3d 1109, 1116 (Fed. Cir. 1996))). “To create an assignment, an 14 instrument in writing must transfer ‘(1) the entire exclusive patent right, (2) an 15 undivided interest in the patent rights, or (3) the exclusive right within any 16 geographical region of the United States.’” Id. (citing Minco, 95 F.3d at 1117 ) 17 (quoting Waterman v. Mackenzie, 138 U.S. 252, 255 (1891)). “An agreement that 18 does not transfer one of these three interests is merely a license[,]” and “[a] licensee 19 cannot establish standing unless it holds ‘all substantial rights’ under the patent .” Id. 20 (citing Prima Tek II, LLC v. A-Roo, Co., 222 F.3d 1372, 1376 (Fed. Cir. 2000)). “ In 21 summation, an exclusive licensee with all substantial rights has standing to sue in his 22 own name, an exclusive licensee can sue only as a co-plaintiff with the patentee, and a 23 holder of a bare license has no standing to sue for patent infringement whatsoever.” 24 Propat Int'l Corp. v. Rpost, Inc., No. 03-1011, 2005 WL 6233792 , at *2 (C.D. Cal. 25 Nov. 28, 2005). 26 Plaintiff can therefore only establish standing to sue for infringement if (a) 27 Plaintiff has established the 2008 Loan Agreements created an assignment of 28 Defendant’s initial IP rights or, (b) Defendant provided Plaintiff an exclusive license 1 (by way of the secured transaction agreement) that sufficiently evidences that the 2 agreements granted substantial rights to the IP in a manner sufficient enough to grant 3 Plaintiff standing to sue for infringement of the IP Rights themselves (rather than 4 suing to collect on the loan default amount or any of the limited rights granted by way 5 of the transaction). See JSF, ¶¶ 10–11. 6 B. Did the 2008 Agreement Assign the IP from Defendant to NextPat? 7 Plaintiff argues that the facts prove Defendants are liable for patent 8 infringement because “[i]t is undisputed that Defendant NextEngine used, offered for 9 sale, and sold the 3D Scanner and associated products utilizing Plaintiff’s patents after 10 termination of the license and while Plaintiff was a patentee.” Plaintiff’s Memo, at 3 11 (emphasis in original).5 Defendant counters that NextPat was merely a nominal 12 custodian to the IP that it assigned to Plaintiff—making Plaintiff, at best, a nominal 13 custodian—and that the manner in which Plaintiff received the IP (as collateral) was 14 done in bad faith. See Defendants’ Brief, 2–3. Accordingly, Defendant states, 15 “Plaintiff did not and could not have received substantive rights or interests in the IP 16 and thus has no right or standing to pursue any of its infringement claims against 17 Defendants.” Id. at 3 . 18 “To determine whether an agreement constitutes a bare license, an exclusive 19 license or a transfer of all substantial rights, the Court must ascertain the intent ion of 20 the parties and examine the substance of what was granted by the agreement.” Propat 21 Int’l Corp., 2005 WL 6233792 , at *3 (citing Mentor H/S, Inc. v. Medical Device 22 Alliance, Inc., 240 F.3d 1016, 1017 (Fed.Cir.2001); Ortho Pharm. Corp. v. Genetics — 23 — 24 5 Plaintiff also argues that Defendant Knighton, as Founder, Chairman, Chief Executive Officer, Director, and largest shareholder of Defendant NextEngine, is the 25 alter ego of Defendant NextEngine and “knowingly aided and abetted” Defendant’s continued sale of the Products after receiving notice of the license termination. — 26 — Plaintiff’s Memo, 3–4. Since this claim, and the other related claims against 27 Knighton, are all based on Plaintiff’s Direct infringement theory against Defendant, the Court will reserve any additional analysis towards Knighton until the underlying 28 assignment issues are resolved. 1 Institute, Inc., 52 F.3d 1026 , 1033(1995)). “The use of the word ‘exclusive’ is not 2 controlling; rather, the Court must examine the substance of the arrangement.” Id. 3 (citing Textile Prod., Inc. v. Mead Corp., 134 F.3d 1481, 1484 (Fed. Cir. 1998)). “In 4 analyzing the agreement and intention of the parties it is helpful to look at what rights 5 were retained by the grantor and what rights were transferred to the grantee.” Id. 6 (citing Intell. Prop. v. TCI Cablevision, 248 F.3d 1333, 1342 (Fed. Cir. 2001)). “The 7 nature and scope of any rights retained by the transferor may be used to determine 8 whether the transferee has received sufficient rights to be deemed the effective 9 patentee.” Agarwal, 2017 WL 5125751 , at *2 (citing Vaupel Textilmaschinen KG v. 10 Meccanica Euro Italia SPA, 944 F.2d 870, 875 (Fed. Cir. 1991)). “Federal Circuit 11 case law provides a nonexclusive list of rights that should be examined; the most 12 important considerations are the exclusive right to make, use, and sell patented 13 products/services and the right to sue alleged infringers.” Id. (citing Diamond 14 Coating Techs., LLC v. Hyundai Motor Am., 823 F.3d 615, 619 (Fed. Cir. 2016)). 15 “Under California law, the interpretation of contract language is a question of 16 law.” Great Minds v. Off. Depot, Inc., 945 F.3d 1106, 1110 (9th Cir. 2019) (internal 17 citation omitted). “[T]he terms of a contract must be construed in a manner that takes 18 into account the context of the language and is consistent with the contract as a 19 whole.” Id. (citing Cal. Civ. Code § 1641 ) (citations omitted). “The courts’ 20 superseding objective when interpreting a contract is to ‘give effect to the mutual 21 intention of the parties as it existed at the time of contracting.’” Int'l Brotherhood. of 22 Teamsters v. NASA Servs., Inc., 957 F.3d 1038, 1042 (9th Cir. 2020) (quoting Cal. 23 Civ. Code § 1636)). “[M]ost importantly, [though], ‘[t]he whole of a contract is to be 24 taken together, so as to give effect to every part, if reasonably practicable, each clause 25 helping to interpret the other.’” Id. (quoting Cal. Civ. Code § 1641 ). “California case 26 law consistently reaffirms the primacy of this principle[.]” Id. (citations omitted). 27 The Court finds that the 2008 Loan Agreements did not constitute an 28 assignment of the IP Rights and that, when fully viewed in context, the limited rights 1 that the agreement did grant NextPat—which were arguably too minimal to be 2 categorized as a license either—were not “sufficient rights” to deem Plaintiff “the 3 effective patentee.” See Agarwal, 2017 WL 5125751 , at *2. Here, it is undisputed 4 that NextPat received all of Defendant’s IP “rights, title, and interest”—in exchange 5 for an exclusive license “back to such [IP] rights”—in order “to facilitate the [2008 6 Note] restructuring.” See JSF, ¶ 14. However, the prior sections of the agreement 7 reveal that the parties agreed Defendant pledged its IP “to Bigfoot as collateral” for a 8 series of loans that Bigfoot had made to Defendant using “secured promissory notes 9 and security agreements.” See JSF, ¶ 10 (emphasis added). In June 2008, the parties 10 then restructured the security loan to require the collateral be assigned and held by 11 third party custodian, NextPat, also “solely for that purpose.” See JSF, ¶¶ 10–12 12 (emphasis added). When viewing the contract as a whole, and acknowledging the 13 stipulated fact that NextPat became a nominal custodian once Defendant defaulted, the 14 contract supports the inference that NextPat did gain some of Defendant’s IP Rights, 15 but that the rights granted were still subject to NextPat’s duties as a secured creditor 16 and Defendant’s rights in the IP as debtor. In essence, the contract clearly granted a 17 security interest. See Cal. Com. Code § 1201 (35) (West) (“‘Security interest’ means 18 an interest in personal property or fixtures which secures payment or performance of 19 an obligation.”). The Court was unable to find any law, nor has either party off ered 20 any, to definitively establish that pledging a patent as security for a loan—thereby 21 giving NextPat a security interest in the patent—effectively equates to an assignment 22 of the ownership of the patent itself. While it is clear that NextPat was entitled to the 23 repayment of the money provided to Defendant, and that it held title to the IP in the 24 context of its security interest, Plaintiff has offered entirely no support for the 25 inference that NextPat’s security interest equates to full ownership of the patent. 26 Thus, the Court declines to entertain such a strong inference. 27 In addition to the contract provisions explicitly stating that the IP is being 28 pledged as collateral, there is also plain language that supports a finding that the few 1 powers NextPat did hold—as the IP custodian—were far smaller in scope than what 2 Plaintiff now alleges before the Court. Pursuant to the A&L Agreement, as long as no 3 default occurred, NextPat was prohibited from selling the IP rights and needed to 4 defer any solicitation for sale or other encumbrance on the IP. See JSF, 17. If a 5 default did occur, NextPat could then exercise “certain revocation rights” and take 6 back the exclusive license that it had granted Defendant, but only to the extent that 7 doing so assisted in “facilitat[ing] the Note restructuring.” See JSF, ¶¶ 14, 16–18. 8 Under the Mortgaged Shares (“MS”) Agreement, NextPat was instructed what options 9 it had, and what specific steps it needed to take in order to utilize those options, in 10 order to satisfy its outstanding interest. These facts further establish that Defendant 11 did not intend to grant NextPat complete ownership of the IP Rights or Properties. 12 The MS agreement states that “[i]f any part of the IP collateral is to be sold by public 13 auction,” then Bigfoot must first “notify Defendant . . . and allow Defendant . . . a 14 reasonable opportunity to purchase the IP at a higher bid.” JSF 25(c). Indeed, it is 15 undisputed that Bigfoot (using NextPat) could exercise one of its numerous rights, and 16 that those included: transferring the Mortgaged shares to Bigfoot, selling or licensing 17 the IP rights, or selling the Mortgaged shares. JSF, ¶ 22. Be that as it may, it was also 18 explicitly stated that “for the avoidance of doubt”, the proceeds of such a sale “must 19 be applied toward the satisfaction or partial satisfaction of the Note.” JSF, ¶¶ 2 2–23. 20 Once all obligations are paid, Bigfoot’s security interest would then be discharged and 21 extinguished. JSF, ¶ 24. Thus, the context of this agreement suggests that, once 22 Defendant fully repaid the loan, any remaining rights to own the IP (or keep 23 Defendant from using the IP) would then extinguish. Again, Plaintiff has provided no 24 arguments via its briefs , nor any contract excerpts or other evidence, to establish a 25 finding that NextPat received anything more than a security interest from the 2008 26 Loan Agreements. 27 Accordingly, Plaintiff has not provided any proof to establish that Defendant 28 provided any substantial rights beyond NextPat’s ability to relinquish Defendant’s 1 | exclusive license to use the IP (until the loan was repaid) and its ability to sell the IP if 2 | Plaintiff desired to satisfy the Note using that method. Plaintiff has failed to prove, by 3 | a preponderance of evidence, that such rights equate to “an exclusive license with all 4 | substantial rights” sufficient enough to provide NextPat (and, by extension, Plaintiff) 5 || with standing to sue for patent infringement based on the 2008 Loan Agreements. See 6 | Agarwal, 2017 WL 5125752 , at *2. Plaintiff's contentions have half-heartedly raised 7 | the aforementioned patent infringement issues, at best, and have completely neglected 8 || to inform the discussion, as required, in order to sustain such a claim. Thus, 9 | Plaintiff's patent claims fail as a matter of law. 10 C. Plaintiff's Remaining Claims 11 Whereas the Court has found that the 2008 Loan Agreements did not grant any 12 | rights beyond that of a secured creditor, at best, that is dispositive of all of Plaintiffs 13 || claims. Thus, the Court declines to further consider Plaintiff’s trademark 14 | infringement and unfair competition claims. 15 | I. CONCLUSION 16 Plaintiff has failed to establish standing for any of its claims, and consequently 17 || the Court finds in favor of Defendants. Plaintiff's request for relief is DENIED. 18 Defendants are ORDERED to file a Proposed Judgment within 5 days of the 19 | issuance of this Order, to which Plaintiff shall have 5 days to object. 20 | SO ORDERED. 97 || Dated: September 3, 2021 23 HONORABLE ANDRE BIROTTEJR. UNITED STATES DISTRICT COURT JUDGE — 25 — — 26 — — 27 — — 28 — IY0.