How to Satisfy Constitutional and Statutory Standing Requirements in Patent Infringement Actions

The Federal Circuit’s precedential opinion in Intellectual Tech, LLC. v. Zebra Technologies Corporation is the most recent decision in a series of cases clarifying the requirements for when standing is proper for a patent infringement action. Intell. Tech., LLC. v. Zebra Techs. Corp., 101 F.4th 807 (Fed. Cir. 2024) (Zebra). Specifically, when addressing the standing question, Zebra provides guidance on which rights a patent owner may have granted to third parties without losing its most important right: the right to sue. This clarification is important because many practitioners have confused the distinction between constitutional and statutory standing.

Intellectual Tech, LLC. v. Zebra Technologies Corporation (Fed. Cir. 2024)

Intellectual Tech LLC (IT) brought a patent infringement action against Zebra Technologies Corporation in the Western District of Texas. The basic facts are relatively straightforward. IT was a subsidiary of OnAsset Intelligence, Inc. (OnAsset). In 2017, OnAsset assigned IT the asserted patent. Following that assignment, IT and OnAsset entered into a security agreement with a lender named Main Street Capital Corporation (“Main Street”) . As part of that security agreement, if IT defaulted, Main Street would retain the ability to “sell, assign, pledge, encumber or otherwise dispose of [IT’s] Patents and Trademarks”  . By 2018, both IT and OnAsset had defaulted. Then, in 2019, despite that default, IT asserted the assigned patent against Zebra without OnAsset

Recognizing an imperfect patent rights conveyance issue, Zebra moved to dismiss due to a lack of standing under Rules 12(b)(1) and 12(c). The district denied that motion. Later, Zebra renewed its standing arguments as a summary judgment motion under Rule 56. Of the issues raised, the district court focused on the constitutional standing argument as a renewed Rule 12(b)(1) motion and agreed with Zebra.. The district court found that IT did not have constitutional standing to bring its claim. Even though the security agreement did not automatically divest the title from OnAsset and IT at default, “Main Street’s ability to assign, and Zebra’s theoretical ability to obtain title from such an assignment” meant that IT had been deprived of its exclusionary rights and, in turn, its right to sue Zebra for infringement. Notably, the district court refused to allow IT to “cure” its standing defect by joining Main Street to its claim. Such a cure would have been for a statutory standing defect.

On appeal, the Federal Circuit considered only one question: whether IT demonstrated the irreducible minimum of an injury-in-fact to satisfy constitutional standing under Article III. That question turned on whether IT possessed an exclusionary right. After analyzing the uncontested facts in the appellate record, the Federal Circuit found that IT possessed sufficient constitutional standing because it had not been divested of all of its exclusionary rights by reason of having defaulted under the security agreement. Therefore, the Federal Circuit reversed the district court and remanded for further proceedings. Notably, the Court did not consider whether IT’s legal interest in the asserted patent was sufficient to meet the “patentee” requirement under 35 U.S.C. § 281.. That question may be ripe to raise on remand.

Overview of Two Independent Standing Requirements: Constitutional and Statutory

Constitutional and statutory standings are separate and distinct requirements. Both must be satisfied for a plaintiff to properly assert a patent infringement action. Sometimes a plaintiff may successfully establish one (i.e., constitutional standing), but not the other (i.e., statutory standing). In such a case standing would not be proper. So, before initiating a patent infringement action, practitioners should be mindful of how to satisfy both requirements under Zebra and other controlling authority. See, e.g., Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., 925 F.3d 1225, 1234 (Fed. Cir. 2019).

Constitutional Standing under Article III

The requirements of constitutional, or Article III, standing are threefold: (1) the plaintiff suffered an injury-in-fact, (2) the defendant caused the injury, and (3) the injury is redressable by the court. Zebra, 101 F.4th at 813 (citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (S.Ct. 1992)). For patent infringement cases, the linchpin of constitutional standing is proving that the plaintiff was injured by the alleged infringement. Zebra, 101 F.4th at 813. The Federal Circuit has consistently held that only “those who possess ‘exclusionary rights’ in a patent suffer an injury when their rights are infringed”. Lone Star Silicon Innovations LLC, 925 F.3d at 1234. “Exclusionary rights” are defined as the “ability to exclude others from practicing an invention or to forgive activities that would normally be prohibited under the patent statutes”. Zebra, 101 F.4th at 813. Therefore, to satisfy constitutional standing, a plaintiff must prove that it possesses exclusionary rights in the asserted patent and that it has suffered an injury-in-fact resulting from the infringing act.. Although this requirement may seem relatively straightforward, the question of which party does or does not retain exclusionary rights may become muddled through third-party assignments and licensing activities.

Statutory Standing under 28 U.S.C. § 281

The Patent Act of 1952 created the rights of patent owners and means to protect those rights. Section 281 of the Act creates a legal cause of action for “patentees” whose patents have been infringed. 35 U.S.C. § 281. The Federal Circuit has interpreted this right to protect not just patent owners, but any party that “has a legally protected interest in the patent created by the Patent Act” and thus would suffer a legal injury as a result of infringement. Zebra, 101 F.4th at 813. The court has held that only those who hold “all substantial rights” in a patent have met the statutory requirement for a legally protected interest under the Patent Act. WiAV Sols. LLC v. Motorola Inc., 631 F.3d 1257, 1264 (Fed. Cir. 2010). Although there is no exact definition for what amounts to “all substantial rights,” often considered factors are:

• The scope of the licensee’s right to sublicense;
• The nature of license provisions regarding the reversion of rights to the licensor following breaches of the license agreement;
• The right of the licensor to receive a portion of the recovery in infringement suits brought by the licensee;
• The duration of the license rights granted to the licensee;
• The ability of the licensor to supervise and control the licensee’s activities;
• The obligation of the licensor to continue paying patent maintenance fees; and
• The nature of any limits on the licensee’s right to assign its interests in the patent.

To many practitioners, the case law may appear confusing when the requirements for statutory standing under the Patent Act are explained as being prerequisite for constitutional standing. But those standing requirements are separate and distinct. Univ. of S. Fla. Rsch. Found., Inc. v. Fujifilm Med. Sys., 19 F.4th 1315, 1320 (Fed. Cir. 2021). For example, a court could find that a plaintiff has constitutional standing under Article III, but not statutory standing under Section 281 for the same patent infringement claim. Additionally, unlike for constitutional standing, a defect in statutory standing—i.e., when a plaintiff does not possess all substantial rights in a patent—may be cured by joining the patent owner to the case. (citing Alfred E. Mann Found. For Sci. Rsch. V. Cochlear Corp., 604 F.3d 1354, 1360-61 (Fed. Cir. 2010)). Under constitutional standing requirements, standing defects cannot be cured after the fact. Zebra, 101 F.4th at 814.

Who Has Constitutional Standing to Sue for Patent Infringement?

General Rule

The Federal Circuit has used the “bundle of rights” analogy to illustrate who is able to bring a patent infringement suit in their own name:

“A patent is, in effect, a bundle of rights which may be divided and assigned, or retained in whole or part.…Thus, although all the various rights available under the patent are initially held by the named inventor or inventors, they may…become separated and be held by multiple individuals. When a sufficiently large portion of this bundle of rights is held by one individual, we refer to that individual as the owner of the patent, and that individual is permitted to sue for infringement in his own name. When a plaintiff lacking a sufficiently large portion of rights brings suit, that plaintiff does not have standing to sue on his own…”

Alfred Mann, 604 F.3d at 1360.

Applying that imagery, a patent owner starts with the entire bundle of rights. See Bloomberg Law, Patents and the Federal Circuit 21 (2024). When she licenses to other parties, that owner is granting the licensee a small portion of the bundle: the right to practice the invention with the promise that the licensee will not be sued for their use.. Sometimes the owner will grant a licensee more rights from the bundle, such as the right to license to other parties.. Although she has granted some of her rights to other parties, unless the patent owner gives all of her rights to another party, she still retains her right to exclude others from practicing the invention. Zebra, 101 F.4th 870 at 816. So, who holds exclusionary rights and how the rightsholder has promised to use them are critical questions the court will analyze to assess whether the asserting party has standing to sue for infringement on its own.

Categories of Plaintiffs

Typically, there are three recognized categories of plaintiffs in infringement suits: (1) patent owners, (2) assignees, and (3) licensees. These categories represent parties with interest in a patent who hold varying levels of patent rights. The specific rights a party holds at the time of the infringement determine whether they have standing to sue in court.

I. Assignees

The Federal Circuit has interpreted the Patent Act to allow an assignee, but not a mere licensee, to commence an action for patent infringement in their own name. WiAV, 631 F.3d at 1264. For a transfer of rights to constitute an assignment, instead of a license, the agreement must transfer “all substantial rights to the patent[].” Lone Star, 925 F.3d at 1229. While the Federal Circuit has not established a complete list of the necessary factors to determine whether the parties have transferred all substantial rights, it has reiterated several considerations deemed important in the analysis. USF, 19 F.4th at 1320. The exclusive right to make, use, and sell, as well as the nature and scope of the patentee’s retained right to sue accused infringers, are the most important considerations in determining whether a license agreement transfers sufficient rights to render the licensee the owner of the patent. USF, 19 F.4th at 1317. When an assignee receives all substantial rights to a patent, they are also conferred constitutional and statutory standing to sue on their own, as if they were the original patent owner. Bloomberg Law, Patents and the Federal Circuit 21 (2024).

II. Licensees

Unlike an assignment, patent owners can choose to license their patent, allowing them to keep their title. Diamond, 823 F.3d at 619. As a baseline, when a patent owner licenses a third party, they are making a promise not to sue that third party for using the patented invention. Zebra, 101 F.4th at 815. When an agreement provides this promise and nothing more, the third party is considered a “bare licensee”. WiAV, 631 F.3d at 1264-65. But the patent owner can decide to grant the licensee certain additional rights. For example, if the licensee obtains exclusionary rights in the patent, they are considered an “exclusive licensee”.. In another example, a patent owner can have multiple licensees with varying levels of rights, which can complicate the standing analysis for a plaintiff-licensee. In such a case, to determine if the plaintiff-licensee has the right to sue in a particular instance, the court must assess the rights held by both the plaintiff-licensee and the alleged infringer.. One court has held that when an “accused neither possesses nor can obtain [a] license, the exclusive licensee’s exclusionary rights with respect to that accused party are violated by any act of infringement [that party has] committed, and the injury predicate to constitutional standing is met”.

III. Patent Owners

Patent owners automatically begin with all substantial rights, including exclusionary rights, in their patent. But as patent owners enter into agreements with third parties to transfer some or all of their rights, what is left in their bundle will change. Diamond Coating Techs., LLC v. Hyundai Motor Am., 823 F.3d 615, 618 (Fed. Cir. 2016). The court evaluates the rights left in the patent owner after licensing to a third party to determine if they retain standing. Alfred Mann, 604 F.3d at 1361. Specifically, the court looks for the patent owner to have retained an exclusionary right in the patent to satisfy the standing requirements. USF, 19 F.4th 1315 at 1323. When the patent owner assigns all substantial rights in the patent to another, they lose their standing to sue and confer it solely to the assignee.. This same reasoning was applied in Alfred Mann. 604 F.3d at 1354.

In Alfred Mann the court found that the patent owner had constitutional standing because it retained litigation rights in the patent. Alfred Mann, 604 F.3d at 1354. There, the original patent owner, AMF, transferred rights to a licensee, AB.. So the primary issue was whether AMF had transferred “sufficient rights to [the licensee] to render [the licensee] the owner,” which would have resulted in AMF losing its standing for infringement claims. at 1360. The Alfred Mann court explained that the most important factor in determining standing is whether the agreement allowed the patent owner the right to sue infringers.. The agreement between AMF and AB afforded AB the absolute right to initiate suit against a potential infringer.. Importantly, however, if AB decided not to bring suit, AMF still had the right to initiate litigation on its own.. Thus, the court held that because AMF still held litigation rights they retained constitutional standing, regardless of AB’s exclusive license.

What Did Zebra Add to the Line of Standing Cases?

The Zebra court reversed the district court’s finding that IT lacked constitutional standing. Zebra, 101 F.4th 870 at 810. The court stated that the only question on appeal was “whether IT demonstrated the irreducible constitutional minimum of an injury in fact,” which would be answered in the affirmative if IT “retained at least one exclusionary right” in the patent.. The defendant Zebra raised two arguments to show that IT had lost all of its exclusionary rights and, in turn, its standing to sue: (1) MainStreet’s non-exclusive ability to license to the alleged infringer (i.e., Zebra); and (2) MainStreet’s option to “sell, assign, transfer, pledge, encumber or otherwise dispose of the” patent in question.

In evaluating the first argument, the court stated that “a patent owner has exclusionary rights sufficient to meet the injury-in-fact requirement even where, without more, it grant another party the ability to license”.. This reasoning is distinct from that required for exclusive licensees, because their right to sue fluctuates, depending on who the accused is and whether they are able to receive a license from another party. Id. at 816. In contrast, so long as the patent owner does not transfer all of its exclusionary rights away, it will always retain at least one exclusionary right.

The second argument was similarly rejected. The court explained that “whatever role another entity’s ability to license has in the Article III inquiry for a patent owner, it is clear that assignment must be evaluated based on the actual transfer of rights, not mere ability”... Even though MainStreet possessed the option to assign the patent, it had not exercised that option.. So, when the case was initiated, IT had not been divested of its exclusionary rights. And the court declined to speculate as to any future rights, which it coined as a “hypothetical redistribution at some unspecified point in the future”.

Takeaway

The key takeaway from Zebra is that patent owners and assignees may continue to retain their exclusionary rights—and, more importantly, constitutional standing in patent infringement claims—even when other parties also hold certain rights to a patent. Whether a third party has the ability to grant certain patent rights to an alleged infringer and it has exercised that right are questions courts may likely consider as potentially impacting the rights of the patent owner.

Although Federal Circuit standing authority continues to evolve under tricky assignment and licensing facts, the standing requirements for patent infringement cases may be difficult to parse. It is important to assess first whether the plaintiff has sufficient rights in the patent to succeed under the constitutional standing requirements by holding an exclusionary right and, if so, second, that they have all substantial rights under those statutory requirements. If they are unable to succeed on their own under either threshold, they may need to join with the party that does hold substantial rights in the patent. Recall that this “cure” is available only for statutory standing defects, which is why it is important to evaluate the rights held at the time of infringement before filing the complaint for patent infringement.

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Author: stuartmiles
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