Exclusive patent licenses can create a threshold litigation risk if they transfer substantial control without preserving a sufficient stake for the patent owner.
In a recent precedential decision, the U.S. Court of Appeals for the Federal Circuit confirmed that patent owners who retain meaningful enforcement rights, economic interests, and control over downstream licensing arrangements may still have constitutional standing to pursue infringement claims—underscoring that license structure can directly affect enforcement outcomes.
Constitutional standing in a patent infringement suit turns on whether the plaintiff has suffered a concrete injury sufficient to satisfy Article III, such as harm to an exclusionary or economic interest in the patent. Statutory standing, by contrast, addresses whether the plaintiff is the proper party to sue under the Patent Act, based on the scope of its ownership or license rights. The distinction is critical: constitutional standing is a non-waivable jurisdictional requirement, while statutory standing can often be addressed by joining the appropriate party—making early license structuring decisions pivotal to preserving enforcement flexibility.
In A.L.M. Holding Co. v. Zydex Industries Private Ltd., a recent precedential opinion by Judge Raymond Chen, the Federal Circuit reversed a district court decision dismissing the patentees’ infringement claims for lack of constitutional standing.
The appeal arose from a patent dispute between A.L.M. Holding Co. and Ergon Asphalt & Emulsions Inc., on the one hand, and Zydex Industries Private Ltd., on the other, involving patents related to asphalt paving technology. Before suit was filed, the patent owners had granted a third party an exclusive, worldwide, royalty-bearing license to manufacture, have manufactured, import, use, sell, offer to sell, and otherwise commercialize products covered by the patents, together with the right to grant sublicenses. At the same time, the patent owners retained several important rights, including the right to sue for infringement, a continuing royalty interest, approval rights over sublicense terms and subsequent assignments, and an agreement to share equally in litigation costs and recoveries if they sued jointly with the licensee or retain all damages if any party pursued litigation alone.
The district court dismissed the complaint for lack of constitutional standing, reasoning that the patentees had transferred too many exclusionary rights under the exclusive license to retain the right to sue. In doing so, the court relied principally on Morrow v. Microsoft Corp. and the Southern District of Iowa’s 2023 decision in Deere & Co. v. Kinze Manufacturing, Inc. The court viewed the retained rights—including the right to sue, royalty interests, and control over sublicensing—as insufficient because the exclusive licensee had received the core rights to make, use, and sell under the patents. It also read Alfred E. Mann Foundation for Scientific Research v. Cochlear Corp. narrowly, treating that decision as addressing statutory standing rather than Article III standing as it held that a plaintiff’s contractual right to sue for infringement by itself did not confer an exclusionary right sufficient for constitutional standing.
The Federal Circuit reversed, holding that the patentees’ retained rights—including the right to initiate suit, a continuing royalty interest, and substantial control over sublicensing—were sufficient to establish the exclusionary interest required for constitutional standing. The court further concluded that the alleged infringement caused a concrete injury by diminishing the patentees’ royalty stream and rejected the district court’s narrow reading of Mann.
The Federal Circuit acknowledged that its prior standing case law had not always been clear, creating challenges for district courts. The court explained that this decision is intended to better delineate the boundary between constitutional and statutory standing., The Federal Circuit emphasized that, although constitutional and statutory standing are distinct, both analyses often turn on the same underlying question—what control was granted to the licensee and what control the patent owner retained.
The decision also underscores that different factors carry different weight depending on the type of standing at issue. For constitutional standing, the focus is on whether the patent owner retains a concrete stake in the patent—making ongoing economic interests, enforcement rights, and practical control over licensed rights particularly important. By contrast, statutory standing turns on whether the plaintiff is the proper party to sue under the Patent Act, placing greater emphasis on the overall allocation of control and whether the license transfers “all substantial rights” in the patent. While the same license provisions may inform both analyses, they serve distinct functions: demonstrating injury for constitutional standing and defining legal entitlement for statutory standing.
In a separate nonprecedential decision issued by Judge Chen on the same day, Recor Medical, Inc. v. Medtronic Ireland Manufacturing Unlimited Co., the Federal Circuit reached a consistent result, further reinforcing the principles articulated in A.L.M. Holding. There, the court again considered whether a patent owner that had granted significant control under an exclusive license nonetheless retained a sufficient stake to establish constitutional standing. Applying the same framework, the court held that Medtronic Ireland’s retained rights—materially similar to those at issue in A.L.M. Holding and including the right to initiate suit, a continuing royalty interest, and veto authority over sublicensing—were sufficient to render its enforcement rights non-illusory. These retained exclusionary and economic interests were therefore adequate to establish constitutional standing, consistent with the Federal Circuit’s analysis in A.L.M. Holding.
For licensing and business development teams, these decisions not only clarify court analysis on factors for constitutional and statutory standing, but these decisions also are important reminders that license terms can shape both commercialization strategy and a patent owner’s (or licensor’s) ability to enforce patent and other intellectual property rights. In practical terms, companies negotiating these arrangements should consider the following points:
- Express enforcement rights clearly in the agreement to indicate whether the patent owner or licensor retains a defined ability to pursue third-party infringement.
- Draft a party’s retained intellectual property rights so they operate in practice, with clear procedures and decision paths, rather than as purely formal reservations.
- Maintain a continuing economic interest, such as royalties, milestones, or other payments tied to ongoing commercialization, in the licensed patents or other intellectual property, if enforcement rights are retained.
- Include approval or oversight rights for sublicensing so the patent owner or licensor can manage how control is expanded to downstream partners.
- Use consent rights or transfer restrictions to indicate where control between the parties resides and so as to prevent rights of a respective party from being assigned or moved without the other party’s approval.
- Require exclusivity to performance by making it contingent on minimum payments, commercialization milestones, or other agreed business commitments.
- Review the agreement as a whole to determine whether the licensor should retain meaningful control and has economic participation in the licensed rights.
