2025 Summer Associate Colton Diges contributed to this article.
In the United States, a plaintiff must have standing to bring suit in U.S. courts. For patent cases, this means that for a plaintiff to have constitutional standing,[1] the plaintiff must show that it has “an exclusionary right in a patent that, if violated by another, would cause the party holding the exclusionary right to suffer legal injury.”[2] An exclusionary right is the legal right to exclude others from making, using, selling, offering for sale, or importing into the United States a patented invention.[3] These types of exclusionary rights have great significance, especially in the context of licenses—patentees must be careful in crafting licensing agreements or risk losing the constitutional standing to sue for patent infringement.
A Delaware court addressed a plaintiff’s constitutional standing in A.L.M. Holding Company v. Zydex Industries Private Limited, after the plaintiff licensed certain rights to an exclusive licensee. Upon examining the types of rights retained by the plaintiff after the license agreement, the court found that it did not have the exclusionary rights sufficient to satisfy the constitutional standing to sue.
In A.L.M. Holding, the plaintiff asserted several patents related to asphalt paving mixtures and methods. Prior to filing suit, however, plaintiff A.L.M. exclusively licensed its patents to another company. As a result of the specific terms of the exclusive license, Defendant Zydex challenged A.L.M.’s constitutional standing to sue, arguing that A.L.M. retained only usage rights in the asserted patents, not exclusionary rights. A.L.M. disagreed, contending that the rights it retained were exclusionary rights sufficient to confer constitutional standing, including the right to: (1) exclude others from practicing the patents, (2) practice the patents for research and development purposes, (3) use the products purchased from the licensee, (4) sublicense to corporate affiliates, (5) dictate the terms and conditions to practice under the patent, (6) receive royalties from any authorized use, (7) bring and participate in the control of a lawsuit for patent infringement, (8) collect damages resulting from patent infringement, and (9) terminate the license agreement.[4]
The Delaware court disagreed with A.L.M., concluding that A.L.M. retained only rights to use the patented technology.[5] The court analyzed each of the particular terms of the license agreement A.L.M. conferred to the licensee and ultimately concluded that none of the rights retained were exclusionary rights sufficient for constitutional standing. Most of the court’s analysis rested on whether the terms of the license allowed A.L.M. to exclude others from making, using, selling, offering to sell, or importing the patented invention[6]:
- Right to use and sublicense the patented technology. L.M. argued that the exclusive license nonetheless entitled it to exclude others from practicing the patents. The court disagreed because under the terms of the license agreement the licensee had the exclusive right to make, import, use, sell, offer to sell, or otherwise commercialize products under the license.[7] Therefore, the court concluded that A.L.M. did not have exclusionary rights. Moreover, the right to practice the patents for research and development purposes and to use the licensed product, are usage rights, not exclusionary rights.[8] And the right to sublicense was limited only to A.L.M. corporate affiliates, which did not demonstrate an exclusionary right because A.L.M. could not exclude others via the right to sublicense affiliates.
- Right to dictate terms and conditions.L.M. asserted that its right to review the terms and conditions of sublicenses to licensees was an exclusionary right sufficient for standing. The court dismissed this argument because, while A.L.M. had the right of review of any terms and conditions for any sublicense, reviewing did not amount to excluding others from making, selling, or offering for sale the patented products. Moreover, A.L.M. could not unreasonably withhold approval of sublicense terms and conditions, which meant there was no “restriction of scope” of the licensee’s rights sufficient to confer standing to A.L.M.[9]
- Right to receive royalties. The court determined that A.L.M.’s right to receive royalties from any authorized use of the patented technology as the most relevant to the standing analysis “given that it provides that Plaintiff[] receive royalties from the license.” But the court rejected A.L.M.’s argument because the right to receive royalties from a license “has nothing to do with the making, using, selling, offering to sell, or importing of the patented invention.”[10]
- Right to bring and participate in a lawsuit for patent infringement. A.L.M. argued that the right to bring suit for patent infringement was an exclusionary right that conferred constitutional standing. The court rejected this argument, noting that the right to sue for infringement is distinct from an exclusionary right that confers standing. And under the terms of A.L.M.’s license agreement, the right to exclude was “contractually separated” from the right to sue—the right to sue did not involve the ability to exclude others from making, using, or selling the invention. The court further reasoned that even if the right to participate in or conduct litigation was considered an exclusionary right, under the particular terms of A.L.M.’s agreement with the licensee, “the non-initiating party is not required to provide the necessary rights to enforce the Asserted Patents.”[11] In other words, the exclusive licensee was not required to provide A.L.M. with its exclusive right to make, use, sell, offer for sale, or import the patented products—A.L.M.’s exclusionary rights depend on the licensee’s rights, and therefore the right to sue under the terms of the agreement are not sufficient for standing.[12]
- Right to collect damages resulting from patent infringement. A.L.M. also argued that the right to collect damages resulting from infringement was sufficient to confer constitutional standing. The court, however, disagreed because the right to collect damages is not an exclusionary right.
- Right to terminate the license agreement. Lastly, A.L.M. asserted that the ability to terminate the licensing agreement demonstrated an exclusionary right. The court rejected the argument because the right to terminate was not exclusive to A.L.M.—the licensee could also terminate the agreement.
Takeaways
Potential licensors and licensees alike should learn from A.L.M. Holding: the terms of a license agreement must be carefully crafted to account for potential patent infringement issues that are not limited to the right to sue. Licensors and licensees should keep in mind constitutional standing issues, asking who has the appropriate exclusionary rights to satisfy constitutional standing and who should retain those rights. It is not enough to be able to use the patented technology—licensors and licensees who would like to have constitutional standing to sue must also be able to exclude others from making, using, selling, offering for sale, or importing into the United States the patented technology.
[1] In the United States, there is constitutional standing and statutory standing. Only constitutional standing is discussed here, as statutory standing was not addressed in A.L.M. Holding Co. v. Zydex Indus. Private Ltd., C.A. No. 24-363-JPM, 2024 WL 5276676 (D. Del. Nov. 25, 2024).
[2] A.L.M. Holding, 2024 WL 5276676, at *2 (citing WiAV Sols. LLC v. Motorola, Inc., 631 F.3d 1257, 1265 (Fed. Cir. 2010)).
[3] Id.
[4] Id. at *3.
[5] Id. at *3.
[6] Id. at *4.
[7] Id. at *3–4.
[8] Id. at *4.
[9] Id. at *5 (cleaned up).
[10] Id.
[11] Id. at *6.
[12] Interestingly, the court made distinction between “substantial rights” and exclusive rights—substantial rights are relevant to ownership, but do not implicate standing. Id. at *7. In other words, that A.L.M. retained the right to sue indicated ownership of the patent, as it is a substantial right, but it did not confer constitutional standing.
