Taming Frankenstein’s Monster: Federal Circuit Clarifies Standing Law in A.L.M. v. Zydex

To sue for patent infringement, a plaintiff must have constitutional standing under Article III and statutory standing under 35 U.S.C. § 281. Clearing these hurdles is straightforward for patent owners—that is, unless they exclusively license their patents. Exclusive licenses can deprive patent owners of constitutional standing if the patent owner fails to retain sufficient exclusionary rights.

The Federal Circuit’s guidance on what exclusionary rights are sufficient has long been unclear, leaving district courts to struggle. In Uniloc USA, Inc. v. Motorola Mobility, LLC (“Uniloc”), the court stated “[t]he standing rules in patent law appear to be as much a patchwork as Dr. Frankenstein’s monster, and only marginally more coherent.” 

This week, the Federal Circuit had an opportunity to clarify the law in its opinion in A.L.M. Holding Co. v. Zydex Industries (referred to below as “A.L.M.”), which involved patent owners who had exclusively licensed their patents. The district court dismissed the case for lack of constitutional standing because the patent owners had exclusively licensed too many exclusionary rights, including the right to sublicense to non-affiliates. An amicus brief was filed urging the Federal Circuit to adopt a bright-line rule: that owning a patent is owning an exclusionary right, and should necessarily confer constitutional standing. The Federal Circuit reversed and remanded, finding that the patent owners retained sufficient exclusionary rights to have Article III standing. But it declined to deviate from a case-by-case evaluation of exclusive licenses.

The Federal Circuit acknowledged that its standing precedent has sometimes been unclear. It noted that many of this court’s opinions had improperly melded the constitutional standing inquiry with the § 281 inquiry—often performing a combined analysis of the two simultaneously. And while the opinion took a meaningful step in clarifying the law, it stopped short of creating a clean rule that practitioners and district courts have long sought.

What the CAFC Clarified

Critically, the court clarified the reach of its 2007 decision in Morrow v. Microsoft Corp. In Morrow, a bankruptcy court had divided various patent rights among several trustees, leaving the plaintiff—a party that was neither a patent owner nor an exclusive licensee—with only a bare contractual right to sue for infringement, while all other patent rights (including the rights to make, use, sell, license, sublicense, and collect royalties) remained with a separate party. Despite the plaintiff in Morrow having a partial equitable right to the patent (a future beneficiary interest to whatever assets were held by the patent owner at the time it winds down), the Federal Circuit held that this was an isolated right to sue and did not confer constitutional standing. Among other reasons, the Federal Circuit found the bare right to sue inconsequential because the patent owner could extinguish any lawsuit by granting a royalty-free sublicense to the accused infringer—rendering the plaintiff’s right to sue illusory.

In A.L.M., the Federal Circuit emphasized that Morrow does not directly apply to patent owners and reiterated its previous reasoning from a 2024 decision, Intellectual Technology LLC v. Zebra Technologies Corp. (“Zebra Techs.”), finding that the “licensee-versus-patentee distinction” is critical. A patent owner who retains control over sublicensing, royalty interests, and enforcement mechanisms is fundamentally different from a non-owner holding only a bare contractual right to litigate. To reinforce this principle, the court expressly extended the analytical framework it had developed in Zebra Techs. and solidified the application of Alfred E. Mann Foundation for Scientific Research v. Cochlear Corp. (Fed. Cir. 2010) (“Mann”)—a statutory standing decision—to the constitutional standing inquiry.

In Zebra Techs., the Federal Circuit reversed a district court that had dismissed a patent owner’s infringement suit for lack of constitutional standing. The district court there had relied on the much-criticized Uniloc USA, Inc. v. Motorola Mobility LLC out of the District of Delaware that treated a patent owner’s grant of broad sublicensing rights as divesting the owner of constitutional standing. The Federal Circuit rejected this reasoning, holding that a patent owner retains exclusionary rights “as a baseline matter unless it has transferred all exclusionary rights away,” quoting Zebra Techs. Here in A.L.M., the court emphasized that the question for constitutional standing is whether the plaintiff has “an exclusionary right” and that a “patent owner’s retained right to sue is a strong indicator of an exclusionary right.”

In Mann, the Federal Circuit found that a patent owner that had granted an exclusive license—including the first right to sue and the right to sublicense—nonetheless retained sufficient rights to maintain statutory standing. There, the patent owner retained a secondary right to sue if its licensee declined to pursue infringement, entitlement to royalties from any sublicenses, and veto authority over sublicensing decisions. The Federal Circuit held that these retained rights were sufficient, reasoning that the patent owner’s right to sue was not “illusory” because the licensee could not grant royalty-free sublicenses to accused infringers without the owner’s consent. Although Mann was concerned with what “substantial rights” the patent owner retained for statutory standing, the A.L.M. court confirmed that Mann’s factual reasoning—particularly its analysis of whether a licensee’s powers render the owner’s enforcement right illusory—is equally instructive for constitutional standing purposes.

The A.L.M. opinion also provides helpful guidance on what kinds of retained rights can satisfy the constitutional standing threshold, even while declining to define exactly what constitutes an “exclusionary right.” The court identified several categories of rights that, when retained by a patent owner, can independently support Article III standing. These include the right to receive additional royalties for sublicenses granted by the exclusive licensee, the right to sue for infringement (even if conditioned on giving the licensee notice and the choice to act), and veto power over sublicenses or settlements (even where that veto must be exercised “reasonably” or “not unreasonably withheld”). The court noted that any one of these rights may be sufficient to establish constitutional standing under Article III, though patent owners would be well-advised to retain all of them for the second standing threshold under Section 281.

Lastly, the court addressed the concern that patent owners who grant exclusive licenses may still maintain “meaningful control” over the enforcement of their patent rights even when they do not have the ability to grant licenses to infringers. The court observed that a patent owner can settle lawsuits through means other than granting a license (for example, through monetary payment and an agreement by the accused infringer to cease practicing the patents). This is a useful point for patent owners, as the very definition of an exclusive licensee restricts the patent owner’s ability to grant a license to would-be infringers.

What Potential Confusion Remains

Despite its helpful clarifications, the A.L.M. opinion leaves several significant questions unanswered. Most notably, the court declined to adopt a bright-line rule holding that a patent itself is an exclusionary right where patent ownership alone confers constitutional standing. Patent owners must still demonstrate that they have retained at least one non-illusory exclusionary right, which will continue to require careful analysis of the relevant licensing agreements.

The court also stopped short of defining the full scope of what constitutes an “exclusionary right.” While the opinion offers helpful examples, it states only that a patent owner has constitutional standing when it "retains a concrete stake in excluding unauthorized practice of the patents and a mechanism to enforce that interest" and can "exercise meaningful control over the enforcement mechanism.” These undefined standards, notably “concrete stake” and “meaningful control,” may be applied inconsistently across districts. 

The plaintiffs in A.L.M. also argued that monetary harm (lost royalties) could independently satisfy the constitutional injury-in-fact requirement. Because the court found standing on other grounds, it did not reach this issue. Whether monetary harm alone can establish constitutional standing thus remains an open question. A definitive ruling on this point could have provided patent owners with a more straightforward path to demonstrating Article III standing in future cases without necessitating a detailed contract review.

The opinion also acknowledged that Article III constitutional standing and statutory standing under 35 U.S.C. § 281 are distinct inquiries. But the Federal Circuit noted that the factual analyses underlying each “can overlap.” Specifically, the same evidence about what rights a patent owner retained may be relevant to both questions, which may continue to cause confusion between what standards apply to patent owner plaintiffs versus licensee plaintiffs. Further, the Federal Circuit explicitly stated that it does not hold that any plaintiff with statutory standing necessarily satisfies Article III. As the court noted in footnote 6, the traditional “all substantial rights” test relates to whether a licensee has been transferred enough rights to gain statutory standing—not to what a patent owner must retain. 

Finally, the court confirmed that a patent owner’s retained exclusionary rights cannot be illusory. The opinion provides a concrete example of what would render a right illusory: 

A patent owner’s right to sue would be illusory, for example, when its licensee could effectively extinguish it unilaterally by granting a royalty-free sublicense to an accused infringer, without needing the patent owner’s consent.

This language tracks the facts of Morrow and earlier decisions like Speedplay, Inc. v. Bebop, Inc. (Fed. Cir. 2000) and serves as a warning that license structures permitting unfettered royalty-free sublicensing may deprive patent owners of constitutional standing.

Where We Are Left:

Article III standing requires an “actual or imminent,” “concrete and particularized” “invasion of a legally protected interest.” In the context of patent law, the key test has been whether the plaintiff has “an exclusionary right.” Now, this appears to be modified slightly such that a patent owner needs to show it retained at least one non-illusory exclusionary right. If this fails, the case is over—constitutional standing cannot be cured and the case must end with no opportunity to cure.

• For licensees: Did the license grant any of the statutory rights to prevent others from practicing the patent (i.e., rights to decide who may use, sell, make, have made, etc. patent-practicing products)?

• For patent owners: Did the owner retain any meaningful control over who may practice the patent?

  • This inquiry overlaps with the “substantial rights” test for a licensee to have statutory standing, potentially causing ongoing confusion

  • Courts must still evaluate what specific rights the patent owner retained

Practical Recommendations for Patent Owners Granting Exclusive Licenses

The court suggested that any one of the following may be enough for constitutional standing—but consider retaining all of them:

• A right to sue, even if conditioned on giving the licensee notice or the first opportunity to act

• Pass-through royalties from any sublicenses (reported and paid as if the sublicensee were the original licensee)

• Veto power over sublicenses, even if conditioned (e.g., “not to be unreasonably withheld”)

• Veto power over settlements, even if conditioned (e.g., “not to be unreasonably withheld”)

After A.L.M., the window remains open for continued district court confusion and for future challenges to patent owner standing based on new undefined concepts like “meaningful control” and “concrete stake.” While the Federal Circuit took a meaningful step toward clarifying patent standing law, the opinion stopped short of providing the comprehensive guidance practitioners had hoped for.  A.L.M. is ultimately just another patch in the patchwork Frankenstein of patent standing law, but a helpful one that should somewhat tame the monster. 

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