Last week, the Federal Circuit heard oral argument in A.L.M. Holding Co. v. Zydex Industries Private Ltd., a patent case we have been tracking because it attracted an amicus brief. In this case, A.L.M. Holding appeals a district court’s conclusion that it lacked Article III standing. Judges Chen, Stark, and Cunningham heard the oral argument. This is our argument recap.
Joseph Diedrich argued on behalf of A.L.M. Holding. He began by suggesting that “never before” has the Federal Circuit “held that a patent owner lacks Article III standing.” And, he continued, the plaintiffs here “are the patent owners.”
Diedrich argued the court could find standing in “one of two ways.” First, he said, the court could hold “an exclusionary right is sufficient, but not necessary,” and that plaintiffs have standing because they “suffered monetary harm, the quintessential injury.” Second, he said, even if an exclusionary right is required, plaintiffs retained “at least one–and in fact, several–exclusionary rights.” He pointed to a right to veto sublicenses.
Judge Chen pressed Diedrich on the scope of that veto power, noting A.L.M. Holding “can’t be unreasonable in denying the sublicense.” Diedrich agreed but argued that limitation “doesn’t mean it’s not exclusionary.” In his view, the reasonableness requirement “just means that there is a class of unreasonable vetoes and a class of reasonable vetoes.” And, because A.L.M. Holding is “the patent owner,” Diedrich contended, if it “can exclude just one party for one reason from practicing the patent, that means” it has “an exclusionary right.” Pressed for examples of a reasonable veto, he pointed to a proposed “royalty free sublicense that would moot a patent infringement lawsuit” or a sublicense to “a direct competitor.”
Judge Chen asked whether in a past case a reasonable veto was “the only right that was the basis for reaching a conclusion of constitutional standing,” or whether it was “really a collection of rights taken together.” Diedrich acknowledged the “substantial control” discussion in the court’s precedent “came after the Article III discussion,” but argued it had tied “the concept of substantial control to whether or not a right . . . is exclusionary.”
Judge Chen suggested the court has had “difficulty” in its “case law in trying” to distinguish “between statutory standing and constitutional standing.” He asked Diedrich to help “parse out the distinctions” between an “exclusionary right” and “all substantial rights.” Diedrich agreed the prior cases are “difficult to understand” and “combine those concepts,” but argued a recent case makes it clear that, “when it’s a patent owner, at least an exclusionary right will do.”
Judge Cunningham asked how “the lack of right to settle litigation” affects the “injury” analysis. Diedrich pushed back on the premise. He suggested here the plaintiffs’ right to file litigation is “primary and shared” with the licensee, and includes the right to “proceed to judgment, including to obtain an injunction, which is a form of excluding somebody else.” He acknowledged the plaintiffs cannot “enter into a forward looking sub-license” without the licensee, but argued “that doesn’t mean” there is a “lack [of] an exclusionary right.”
Edward Tulin argued on behalf of Zydex Industries. He began by disputing Diedrich’s framing of the appeal. He emphasized that “it would be the first time that this court” held that a patentee that “had divested itself of any right to grant licenses or sublicenses to unrelated third parties was held to have standing.”
Tulin invoked a district court opinion written by Judge Stark suggesting “there has never been a case finding constitutional standing for a plaintiff that ultimately cannot settle a lawsuit filed in its name.” Invoking the cited case’s bundle-of-sticks metaphor, he argued the plaintiffs are “left with twigs—non exclusionary twigs” that allow practice of the patents “only for noncommercial purposes.”
Judge Chen pointed out that, here, the patent owner “does have the right to sue” and therefore “the right to forgive” by foregoing suit and, as a result, “permitting someone to practice the technology without liability.” Tulin responded by contending “the bare contractual right to sue” is “insufficient.” That makes “good legal sense,” Tulin argued. No “constitutional standing exists,” he said, just because “a contract says you’ve got constitutional standing.”
With respect to the right to veto, Tulin argued it is “effectively . . . an illusory right.” Turning to entitlement to royalties, Tulin argued that, “just like a sublicensing veto has never been recognized to be an exclusionary right, so too . . . has royalties” never been so recognized. Asked by Judge Cunningham whether any case had held a “sublicense veto cannot be an exclusionary right,” Tulin conceded no court had so held. But, he argued, the veto “does not have the hallmarks of an exclusionary right, particularly because of the ‘unreasonably withheld’ language.”
Judge Chen asked whether the “irreducible constitutional minimum” of injury-in-fact is “something less than” the “all substantial rights” test. Tulin answered by arguing it is not a matter of “greater than or less than,” but “viewing from a different lens—from the lens of ownership and hallmarks of ownership.”
In rebuttal, Diedrich argued the “right to collect royalties” is among the provisions suggesting Article III standing. He suggested recent cases have held the “not to be unreasonably withheld” formulation shows the veto holder “retains substantial control.” That, he argued, is “indicative of an exclusionary right.”
Diedrich closed by warning the panel that “affirming the district court here would essentially mean that a patent owner who grants a standard exclusive license cannot sue for patent infringement.” That “novel rule,” he concluded, “would be as disruptive as it is wrong.”
We will continue monitoring this case and report on developments.