Introduction

Before a patent owner can pursue an infringement lawsuit, it must clear a threshold that has tripped up more than a few plaintiffs: Article III standing. As the Federal Circuit explained in Morrow v. Microsoft Corp. (2007), Article III of the Constitution limits the courts to resolving actual “cases” and “controversies,” and the standing inquiry enforces that limit. If standing is absent at the start of litigation, dismissal is mandatory and that defect cannot be cured. The wasted litigation costs and lost tactical advantages that follow make the issue far more than an academic one.

The question grows more complicated when a patent owner has licensed its rights to someone else. On May 19, the Federal Circuit issued two decisions, one precedential, one not, that clarify when rights a licensor retains in an exclusive license agreement (ELA) are sufficient to preserve Article III standing. Both decisions offer practical guidance for anyone drafting or negotiating a patent license.

The A.L.M. Decision: Clearing Up a Longstanding Confusion

In A.L.M. Holding Co. v. Zydex Indus. Pvt. Ltd., the plaintiffs jointly owned six patents covering asphalt paving methods and compositions and had licensed them to Ingevity Corporation under an ELA. Ingevity received a broad worldwide license to manufacture, sell, and commercialize licensed products. But the patent owners retained meaningful rights: a shared right to pursue infringement litigation, veto authority over any sublicensing by Ingevity, and a royalty interest on any sublicensee sales. When the plaintiffs sued Zydex for infringement, the district court dismissed the case, finding those retained rights insufficient for standing. The Federal Circuit reversed.

On appeal, the court acknowledged candidly that its own “standing jurisprudence has not always been clear.” Courts had long conflated two distinct concepts: Article III (constitutional) standing and statutory standing under 35 U.S.C. § 281, creating real confusion for litigants and district courts alike. The Federal Circuit used A.L.M. to draw a clear line between them.

Constitutional standing requires a concrete injury in fact, causation, and redressability. Statutory standing asks whether the plaintiff is a “patentee” who holds “all substantial rights” in the asserted patent. The distinction is critical in practice: a constitutional standing defect is jurisdictional and incurable, while a statutory standing defect can be fixed by joining the necessary parties. A plaintiff can satisfy Article III without satisfying the stricter “all substantial rights” test.

The Federal Circuit also clarified that even though the two inquiries are distinct, the same facts that bear on statutory standing can inform the constitutional analysis, specifically, whether the patent owner’s retained enforcement rights are genuine or effectively illusory. A right to sue is illusory, the court explained by example, when a licensee can unilaterally grant a royalty-free sublicense to an accused infringer without the patent owner’s consent, thereby extinguishing the owner’s practical ability to enforce.

Applying those principles, the Federal Circuit identified three rights that, taken together, confirmed the plaintiffs had Article III standing: a retained right to sue, sublicensing veto authority (even if that veto could not be unreasonably withheld), and a royalty interest tied to sublicensee sales. Because Ingevity could not sublicense the patents without the plaintiffs’ consent, their right to enforce remained real and enforceable, not illusory. The dismissal was reversed.

The Recor Decision: Secondary Enforcement Rights Are Enough

In Recor Med., Inc. v. Medtronic Ireland Mfg. Unlimited Co., the Federal Circuit reached the same conclusion on materially similar facts, though with one notable wrinkle.

Medtronic Ireland owns two patents relating to kidney treatment devices and had licensed rights in those patents to Medtronic Galway under an April 2023 ELA. Medtronic Galway received the first right to pursue infringement litigation. Medtronic Ireland retained a secondary right to sue if Medtronic Galway declined to act, along with royalty interests and veto authority over sublicensing and assignments. When Recor Medical challenged Medtronic Ireland’s standing to bring an infringement counterclaim, the district court sided with Recor. The Federal Circuit reversed.

Unlike A.L.M., Medtronic Ireland did not hold the primary right to initiate infringement suits. The Federal Circuit held that this was not dispositive. Once Medtronic Galway chose not to pursue a claim, Medtronic Ireland’s right to sue became fully operative and unfettered, giving it complete control over the litigation. That secondary-but-unconditional right, paired with royalty interests and sublicensing veto authority, was enough.

The Recor decision also highlighted an unusual ELA provision: Medtronic Galway could only hold exclusionary rights over products that Medtronic Ireland had specifically designated as “Products” under the agreement. That gatekeeping authority, the court observed, gave Medtronic Ireland ongoing control over the scope of the license itself, further confirming that its retained rights were substantive rather than nominal.

What This Means for Patent License Drafting

A.L.M. relaxes, and clarifies, the standards for establishing Article III standing in patent infringement cases. By permitting the facts underlying the statutory “all substantial rights” analysis to inform the constitutional inquiry, the court gives patent owner-licensors a clearer roadmap: retain a genuine right to sue, a meaningful veto over sublicensing, and a royalty interest tied to downstream sales.

These decisions do not ease the burden of satisfying statutory standing, but that matters less given that a statutory defect can be cured through joinder. In Recor, Medtronic Ireland had moved to join Medtronic Galway as a necessary party, and the Federal Circuit directed the district court to take up that motion on remand.

For patent owners entering into exclusive license agreements, the lesson is straightforward. Licensing is not an all-or-nothing proposition, and the rights you retain define your ability to enforce. Drafting those provisions carefully, and with these decisions in mind, can be the difference between a lawsuit that proceeds and one that is dismissed before it begins.