VDPP v. Volkswagen — Patent Licensees’ Marking Failures Defeat Pre-Suit Damages

Background

VDPP sued Volkswagen for allegedly infringing a patent covering electrically controlled spectacles. It sought damages for conduct before the complaint was filed. Volkswagen moved to dismiss, and VDPP proposed an amended complaint asserting only that it was a non-practicing entity with no products to mark and that all statutory requirements had been met.

The complication was that VDPP had entered eleven settlement agreements licensing the patent. Federal patent law limits pre-suit damages when patented articles are sold without the notice supplied by proper patent marking. That obligation extends to products made or sold by licensees, and the patent owner must make reasonable efforts to ensure licensee compliance.

The district court dismissed the case with prejudice, denied leave to amend as futile, awarded Volkswagen $207,543.60 in attorney fees under 35 U.S.C. § 285, and sanctioned VDPP’s lawyer. VDPP and its lawyer appealed.

The Court’s Holding

The Federal Circuit affirmed the dismissal and fee award. Chief Judge Moore explained that being a non-practicing entity did not end the marking inquiry because VDPP’s licensees also had to comply. The proposed amended complaint alleged no facts showing that any licensee marked products or that VDPP made reasonable efforts to secure compliance. Bare assertions that statutory conditions were satisfied were legal conclusions, not plausible factual allegations.

The court rejected VDPP’s attempt to distinguish settlement licenses from ordinary patent licenses. A covenant not to sue and a license differ in form, not substance, for this purpose. Nor did it matter that licensees had not admitted infringement. One agreement expressly said the licensee had no marking obligation, while VDPP maintained that licensed products practiced the patent. On those facts, further amendment could not plausibly cure the defect.

The panel also upheld the exceptional-case fee award. The district court could consider VDPP’s pursuit of relief on an expired patent, inability to support pre-suit damages, nondisclosure of settlement agreements, repeated errors, false statements, and a broader pattern of low-value settlement demands. Conduct need not independently support Rule 11 sanctions to make a patent case exceptional under § 285. The panel dismissed the challenge to counsel’s sanctions for lack of appellate jurisdiction because counsel did not timely appeal in his own name and VDPP lacked standing to appeal for him.

Key Takeaways

• A patent owner seeking pre-suit damages must address marking by its licensees, even if the owner makes no products itself.
• Settlement agreements granting rights to make, use, or sell patented products can trigger the same marking analysis as conventional licenses.
• An exceptional-case fee award may rest on the totality of unreasonable litigation conduct without a separate Rule 11 violation.

Why It Matters

The decision closes a practical route around the patent-marking statute. Patent owners cannot preserve pre-suit damages simply by calling themselves non-practicing entities while allowing licensees to sell allegedly patented products unmarked. Settlement licenses should therefore address marking obligations expressly, and licensors should document reasonable compliance efforts.

The fee ruling also reinforces that nuisance-value litigation strategies carry substantial risk. Courts may consider repeated weak suits and settlement patterns alongside conduct in the individual case when deciding whether the case stands out enough to shift fees.