Licensing Lessons from ALM Holding v. Zydex
Can you license your technology to another company and accidentally lose your right to sue copycats? According to a recent decision by the Federal Circuit Court of Appeals (CAFC), the answer depends entirely on how carefully you draft your contract.
In ALM Holding Company & Ergon Asphalt & Emulsions, Inc. v. Zydex Industries, the CAFC reversed a district court’s dismissal of a patent infringement suit, delivering a crucial reminder to businesses about the fine print of intellectual property licensing.
The Case: A Question of Standing
The plaintiffs brought a patent infringement lawsuit against Zydex, but the district court threw the case out before it could even begin. Why? The court determined that the plaintiffs lacked constitutional standing to sue.
The district court reasoned that because the plaintiffs had granted an exclusive license for the subject patents to a third party, they no longer suffered a direct “injury-in-fact” from infringement. Even though the plaintiffs had retained certain rights, the lower court believed they had signed away too much control to seek legal redress.
However, the plaintiffs had been careful to retain three specific powers in their licensing agreement:
- The right to sue for infringement.
- The right to approve all sublicenses.
- The right to approve any assignment of rights by the licensee.
The CAFC Decision: Keeping a “Non-Illusory” Interest
The CAFC reversed the dismissal and sent the case back to the district court.
The appellate court found that because the plaintiffs had retained the right to sue and control sublicenses, they kept a sufficient exclusionary interest in the patents. In short: they retained enough skin in the game to maintain standing for an infringement action.
The Takeaway for Businesses
A patent owner’s core power is the right to exclude others from making, using, selling, or offering to sell their invention. When entering into exclusive license agreements, licensors must be incredibly strategic. If you do not carefully retain specific enforcement and approval rights, you risk accidentally stripping your business of the legal standing required to defend your own technology.
Guard Your Innovations with Expert Counsel
Capitalizing on innovative developments is critical to your organization’s growth—but protecting those assets requires foresight.
The Law Office of Kathleen Lynch PLLC is designed to help businesses like yours stay ahead of the game and navigate complex IP landscapes. Don’t leave your licensing agreements to chance.
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