Last month, the Federal Circuit issued its opinion in A.L.M. Holding Co. v. Zydex Industries Private Ltd., a patent case we have been following because it attracted an amicus brief. In this case, A.L.M. Holding appealed a district court’s conclusion that it lacked Article III standing. In an opinion authored by Judge Chen and joined by Judges Cunningham and Stark, the panel reversed and remanded. This is our summary of the panel’s opinion.
Judge Chen began by outlining the factual and procedural background:
A.L.M. and Ergon are joint owners of the six patents in-suit, which relate to warm-mix asphalt paving methods and compositions. On January 1, 2008, Plaintiff entered into an agreement (the Agreement) licensing certain rights in the Asserted Patents to MeadWestvaco Corporation (MWV), a manufacturer and seller of asphalt additives. In 2015, after a corporate merger and reformation, Ingevity Corporation (Ingevity) replaced MWV as the licensee.
Under the Agreement, Plaintiff granted Ingevity an ‘exclusive,’ ‘royalty-bearing, worldwide license’ to ‘manufacture, have manufactured, import, use, sell, offer to sell and otherwise commercialize Licensed Products.’ If Ingevity fails to pay Plaintiff guaranteed ‘minimum annual royalty amounts,’ then the ‘license shall become non-exclusive.’ . . .
Notwithstanding Ingevity’s exclusive license and right to sublicense, Plaintiff retained a royalty-free right to (a) make, import, and use licensed products and paving mixtures under the patents for research and development purposes, and (b) to make, import, use, sell and offer to sell paving mixtures containing licensed products purchased from Ingevity. Plaintiff retained the royalty-free right to sublicense to their affiliates . . .
In addition, Plaintiff maintains control of any continuing patent prosecution and assumed the obligation to pay maintenance fees on the patents-in-suit. . . .
Upon reviewing the different provisions of the Agreement, the district court concluded that Plaintiff lacked constitutional standing to pursue the infringement suit and granted Defendant’s motion to dismiss. The district court first determined that Plaintiff’s reserved usage rights and ability to review sublicensing terms under the Agreement . . . were not exclusionary rights. Similarly, it concluded that Plaintiff’s royalty rights did not confer constitutional standing.
After providing this background, Judge Chen explained that, for “patent infringement lawsuits, in general, the question for the constitutional injury-in-fact inquiry is ‘whether a party has an exclusionary right.'” By default, he said, a “patent owner has exclusionary rights as a baseline matter unless it has transferred all exclusionary rights away.” These exclusionary rights satisfy the requirements of the Constitution, Judge Chen continued, because “a plaintiff may have constitutional standing without satisfying the additional statutory requirement of possessing ‘all substantial rights.'”
Judge Chen went on to note that a “patent owner’s retained right to sue is a strong indicator of an exclusionary right.” Additionally, he said, a “right to royalties, while not itself an exclusionary right, can further evidence an exclusionary right, particularly when paired with other provisions that ‘involve the ability to exclude others from practicing an invention.'” Moreover, he continued, “a patent owner’s sublicensing veto rights, even if not to be unreasonably withheld, reflect ‘substantial ongoing control’ such that the licensee cannot sublicense free of the owner’s interests.” Judge Chen indicated that, “[t]aken together, these rights satisfy constitutional standing.”
Applied here, Judge Chen explained, “Plaintiff retains a sublicensing veto that (while it must be reasonably exercised) prevents Ingevity from granting sublicenses absent Plaintiff’s consent or free of Plaintiff’s royalty interest.” The plaintiff’s “right to sue, right to veto sublicenses, and royalty interests,” he continued, “confirm that Plaintiff retains an exclusionary right, establishing that Plaintiff retains a concrete stake in excluding unauthorized practice of the patents and a mechanism to enforce that interest.”
Judge Chen then addressed a case where the “Plaintiff’s retained rights mirror those” found here. In that case, he explained, “standing was not defeated even when it granted to the licensee the exclusive rights to use, make, and sell the patented invention; the first right to sue; and the right to sublicense.” Judge Chen concluded that “Defendant and the district court erred in treating [that case] as limited to statutory standing.”
Finally, Judge Chen addressed another case the defendant and district court relied heavily on. Judge Chen reasoned that, while that case held “the plaintiff’s right to sue for infringement was not . . . an exclusionary right sufficient for constitutional standing,” the scenario here is different. “[U]nlike the Plaintiff here, the plaintiff” in the prior case, he explained, “did not own the patent; its right to sue was contractually separated from patent ownership and all other underlying patent rights—the rights to make, use, or sell the patented invention, to license and sublicense the patent, and collect royalties from it—which were held by a different party.”
As a result of Judge Chen’s analysis, the panel reversed the judgment and remanded the case.