When the Supreme Court declined to review Intellectual Tech LLC v. Zebra Technologies Corp. last year, important questions remained regarding how a patent owner could retain Article III standing after licensing significant patent rights to another party. Two recent Federal Circuit decisions—A.L.M. Holding Co. v. Zydex Industries Private Ltd. and Recor Medical, Inc. v. Medtronic Ireland Manufacturing Unlimited Co.—provide additional guidance. Together, these decisions explain how retained enforcement rights, royalty interests, and sublicensing controls may preserve patent owner standing even after an exclusive license has been granted.
For patent owners and licensees alike, the decisions provide a useful framework for evaluating whether a patent license agreement preserves a sufficient exclusionary interest to support future patent infringement claims.
Can a Patent Owner Still Sue After Granting an Exclusive License?
According to the Federal Circuit, the answer may be yes.
Article III standing requires the plaintiff to establish the "irreducible constitutional minimum of standing": (1) injury-in-fact; (2) causation; and (3) redressability. In patent cases, this inquiry generally turns on a constitutional injury-in-fact question: whether the plaintiff retains an exclusionary interest in the patent. By comparison, constitutional standing is distinct from the separate statutory inquiry, under 35 U.S.C. § 281, whether a party possesses "all substantial rights" to the patent.
The key question is whether the patent owner has retained a meaningful, non-illusory right to exclude others from practicing the invention and to enforce that right.
What Happened in A.L.M. Holding Co. v. Zydex?
In A.L.M., the patent owners granted an exclusive license covering substantial rights under the asserted patents. After the lawsuit was filed the district court dismissed the action, concluding that the patent owners no longer possessed Article III standing.
The Federal Circuit reversed.
The Court held that the patent owners retained sufficient exclusionary rights because they maintained a right to sue for infringement, authority to approve sublicenses, and ongoing royalty interests. Critically, the licensee could not unilaterally extinguish those interests through royalty-free sublicensing or other actions. As a result, the patent owners retained a concrete injury sufficient to satisfy Article III standing.
What Happened in Recor Medical v. Medtronic Ireland?
Recor involved a similar dispute. The patent owner granted an exclusive license but retained a secondary right to sue, royalty interests, and approval rights over sublicensing and assignment.
The district court dismissed the patent owner's infringement counterclaims for lack of standing. Again, the Federal Circuit reversed.
Relying heavily on A.L.M., the Court concluded that the retained rights were materially similar to the ALM facts and preserved a sufficient exclusionary interest. That the patent owner's right to sue was secondary, rather than primary, did not defeat constitutional standing because the retained enforcement rights remained meaningful and enforceable.
Why Do A.L.M. and Recor Matter Beyond Their Facts?
Beyond their specific holdings, A.L.M. and Recor also clarified Federal Circuit standing authority. The Federal Circuit's standing jurisprudence has not always clearly distinguished between constitutional standing under Article III and statutory standing under 35 U.S.C. § 281. Those two requirements are legally distinct. Article III requires that the plaintiff suffered a constitutionally cognizable injury; that requirement is an insurmountable jurisdictional hurdle. Section 281, by contrast, asks whether the plaintiff qualifies as a "patentee" entitled to sue, typically because it possesses "all substantial rights" in the asserted patents. Any defects may be cured by joinder.
Despite being different, the two standing inquiries may turn on the same facts—i.e., the same license terms. Prior cases seemed to conflate the two standing inquiries when analyzing the same underlying facts. Recognizing this potential confusion, the Court relied upon its prior statutory standing decision in Alfred E. Mann Foundation for Scientific Research v. Cochlear Corp. to inform its Article III analysis. In doing so, the Court clarified that although Article III standing and statutory standing involve different legal standards, the same retained rights under a patent license agreement may inform both analyses.
What Rights Help Preserve Patent Standing?
Taken together, A.L.M. and Recor suggest that patent owners are more likely to retain Article III standing when a patent license agreement preserves:
- A right to sue for patent infringement
- Royalty interests in the licensed patents
- Approval or veto authority over sublicenses
- Restrictions preventing a licensee from unilaterally eliminating enforcement rights and
- Meaningful participation in patent enforcement and settlement decisions
Notably, these decisions focus less on formal labels and more on whether the patent owner's retained rights have real practical effect.
What Should Companies Review in Their Patent License Agreements?
For those patents that may be asserted against a would-be infringer, patent owners and licensees should review the underlying license agreements with a keen eye to potential standing challenges.
In particular, companies should evaluate (1) whether the patent owner has retained meaningful enforcement rights, (2) whether sublicensing provisions could undermine those rights, and (3) whether royalty structures and consent requirements preserve a continuing exclusionary interest.
Looking Ahead
Although questions regarding patent standing are likely to continue, A.L.M. and Recor provide additional clarity following Zebra Technologies. The decisions suggest that a patent owner need not retain all substantial rights to satisfy Article III. Instead, the focus is whether the patent owner retains a genuine and enforceable exclusionary interest that cannot be rendered meaningless by the licensee's unilateral actions.
For companies that rely on patent licensing arrangements, these decisions are a useful roadmap for structuring agreements that preserve standing, while still allowing significant rights to be licensed to others.