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  1. Kama Thuo, PLLC | News & Insights
  2. Patent Law
  3. Patent Licensing

Case Analysis: Proving Lost Profits in Patent Licensing Deals, McAlister v. Loeb & Loeb, LLP (Ariz., 2025)

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Category: Patent Licensing
  • Patent Licensing

In a significant 2025 decision, the Arizona Supreme Court provided critical guidance on the evidence required to claim lost profits from a failed patent licensing deal. The case, McAlister v. Loeb & Loeb, LLP, No. CV-24-0048-PR (Ariz. Sup. Ct. July 17, 2025) underscores a crucial lesson for inventors, patent owners, and potential licensees: without proof of an agreement on all material terms, a claim for lost profits is likely to fail for being too speculative. The opinion clarifies the high bar plaintiffs must clear to demonstrate damages with "reasonable certainty," especially for new business ventures.


Factual Background

The case involved inventor Roy McAlister, who held patents on clean fuel technologies through his company, McAlister Technologies, L.L.C. ("MT"). MT entered into a license agreement with Advanced Green Technologies, L.L.C. ("AGT") to commercialize the patents. AGT, in turn, retained the law firm Loeb & Loeb, LLP for its patent matters.

A dispute arose, leading McAlister to terminate the license agreement with AGT. Subsequently, McAlister alleged that Loeb & Loeb improperly filed paperwork with the USPTO and WIPO, creating a "cloud" on the title of his patents. This, he claimed, thwarted several prospective licensing deals with other parties, leading him to sue Loeb & Loeb for, among other things, the profits he lost from those failed deals.

The core of the damages claim centered on a prospective deal with an investor named Donal O'Flynn. McAlister claimed over $100 million in total lost profits, but the case ultimately hinged on whether he could prove with "reasonable certainty" that he would have received an initial $5 million payment from O'Flynn had Loeb & Loeb not allegedly interfered.

The Court's Analysis: "Reasonable Certainty" is Key

The Arizona Supreme Court reversed the Court of Appeals and affirmed the trial court's summary judgment against McAlister on the lost profits claim. The Court's decision rested on the long-standing principle that while a new business can recover lost profits, it must prove them with reasonable certainty, not speculation or conjecture.

⚠ Warning: Open Terms Kill Lost‑Profits Claims Open economic terms (up‑front fee, royalty %, timing) made the claim speculative. Lock them down.

Core Legal Takeaways:

 
Issue
Court's Analysis
Practical Consequence
Burden of proof for lost profits The claimant must establish both (i) that the deal would likely have closed (agreement on all material terms) and (ii) the amount of lost profits with “reasonable certainty.” Mere negotiation ranges or aspirational numbers are insufficient; definitive term sheets, LOIs, or executed contracts are critical.
“New‑business” skepticism Courts apply heightened scrutiny when the venture is nascent or unproven, demanding concrete market, financial, and operational evidence. Start‑ups must marshal robust third‑party data, comparable‑company metrics, and expert models grounded in reality.
Speculation vs. evidence The parties never fixed key terms: initial payment ($5 M vs. $20 M), annual royalty (‑$15 M vs. +$20 M), and payment timing. The Court deemed any profit projection “speculative.” Document every concession and draft to avoid the “open terms” problem.
Expert methodology The plaintiff’s expert assumed a $400 M+/year enterprise without business plans, cost models, or market analysis; the trial court excluded the opinion as unreliable, and the Supreme Court agreed. Experts must model both revenues and expenses, apply grounded discount rates, and incorporate venture‑specific risks.
Appellate clarification The Court vacated the court of appeals’ attempt to salvage a $5 M “up‑front” claim, reiterating that even that figure lacked an agreed framework. Parties cannot rely on isolated testimony divorced from finalized deal economics.

 

Practice Tips

For Patent Owners (potential plaintiffs)
  1. Lock Down Material Terms Early: Use signed term sheets or memoranda of understanding that specify up‑front fees, running royalties, payment timing, performance milestones, and termination triggers.
  2. Substantiate the Financial Model: Provide market studies, pro‑forma financials, and cost estimates. Courts disfavor “hockey‑stick” projections unmoored from data.
  3. Document Negotiation History: Keep contemporaneous emails, version‑controlled drafts, and meeting minutes to prove consensus on deal terms.
  4. Select & Prepare Experts Carefully: Choose valuation experts who can reconcile technical uncertainty, scale‑up costs, and comparable‑license benchmarks.
  5. Plead Alternative Damages: Always plead reasonable‑royalty or unjust‑enrichment theories as fallbacks in case lost profits prove too speculative.
For Law Firms Alleged to Have Disrupted Licensing (potential defendants)
  1. Conflict & Scope Management: Clearly define representation scope and conflicts, especially when multiple parties in a venture interact.
  2. Meticulous Recordkeeping: Maintain PTO filings, correspondence, and billing records to rebut fiduciary‑breach or interference claims.
  3. Target the Expert Early: File Daubert / Rule 702 motions where the expert’s methodology glosses over risk, expenses, or missing deal terms.
  4. Highlight Open Terms: Show that key economic provisions remained unsettled to undermine “reasonable certainty.”
General Tips For Licensing Counsel & Patent Owners
  1. Treat Licenses as State‑Law Contracts: Ensure agreements comply with governing state statutes (e.g., choice‑of‑law, UCC Article 2A for technology licensing, where applicable).
  2. Integrate Business & Legal Teams: Align technical feasibility studies with contractual performance obligations.
  3. Plan Exit & Enforcement Paths: Draft audit, milestone, and termination clauses that reduce future proof problems.
  4. Maintain Flexibility: Consider step‑in rights, milestone‑based payments, or staged royalties to accommodate commercialization risk.

 

ℹ Federal vs. State Law Note Patent validity/infringement are federal, but licensing is state contract law. Arizona principles governed damages here.

 

About the Author and Firm

This analysis is provided by Kama Thuo, PLLC, an engineering & technology law firm focused on patents, AI, and wireless telecom law. Roque Thuo is a patent attorney registered to practice before the U.S. Patent and Trademark Office and is licensed in Arizona and California. He is also a licensed Professional Engineer (Electrical) in Arizona, bringing a deep technical understanding to complex patent matters.

Whether you are an inventor seeking to license your technology or a company navigating an IP dispute, our firm has the technical and legal expertise to protect your interests. Contact us to learn how we can help you at www.kthlaw.com/patents.

Premature termination of patent rights

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Category: Patent Licensing
  • Patent Enforcement
  • Patent Licensing

Patents, unlike copyrights, do not have a statutory reversion or termination of rights scheme.

For example, under Copyright law, the reversion right, also known as termination of transfer rights, allows authors or their heirs to reclaim the rights to their works that were previously transferred or assigned to another party. This provision is designed to give authors a second chance to benefit from their works after a period of time, acknowledging that the true value of a work may not be fully realized at the time of the initial transfer (a way to help out the formerly starving artist that might have executed a terrible assignment in the early days of their career).

Conditions under which patent rights might prematurely terminate (i.e., terminate before the end of the full term of the patent):

Failure to Pay Maintenance Fees:

  • In the United States, maintenance fees must be paid at 3.5, 7.5, and 11.5 years after the patent is granted to keep the patent in force. If these fees are not paid within the required time frame, including any grace period, the patent will lapse and become unenforceable.

Invalidation or Revocation:

  • A patent can be invalidated or revoked by a court or patent office if it is challenged and found to be invalid. Reasons for invalidation can include lack of novelty, obviousness, insufficient disclosure, or fraud during the patent application process.
  • Post-grant review processes, such as inter partes review (IPR) or ex parte reexamination, can also lead to invalidation of a patent.

Unenforceability due to inequitable conduct

  • If the patent applicant or their representative engages in misconduct during the patent prosecution process, such as intentionally misleading the patent office or withholding material information, the patent can be deemed unenforceable. This is known as "inequitable conduct."
  • Although patent is not deemed invalid, it is unenforceable and thereby de-facto "useless."
  • Note that a Court could hold a patent unenforceable generally, or unenforceable against a particular party such as where the patent holder has unclean hands with respect to the party (e.g., due to litigation misconduct).
    • An example of the latter is the May 9th, 2024 decision by U.S. District Judge Rodney Gilstrap of the Eastern District of Texas who found that Staton Techiya LLC's patents were unenforceable against Samsung due to Techiya's unclean hands. In this case, a Samsung employee had shared internal attorney-client privileged communication (including analysis of patents-in-suit before and during litigation) with a litigation agent run by former head of Samsung's IP department. See Staton Techiya, LLC v. Samsung Elecs. Co., 2:21-cv-00413-JRG-RSP (E.D. Tex.)

Note that under Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015), a patent holder cannot continue to collect royalties after the patent expires.

The above provides a few examples where patent rights might terminate prior to the expiration of the patent. Unlike the case for post-expiry royalties, whether pre-expiry royalties on invalid or unenforceable patents continue to apply might depend on specific contract provisions. Also keep in mind that not all patents in a patent family might be subject to the pre-expiry termination (some patents might not be held to be invalid or unenforceable). Generally, a licensee is allowed to challenge patents subject to the licensing agreement per U.S. Supreme Court precedence in Lear, Inc. v. Adkins, 395 U.S. 653 (1969).

 


 

Kimble v. Marvel Entertainment (2015)

In Kimble, the Supreme Court held that the patent exhaustion doctrine does not permit a patentee to continue receiving royalties for sales made after the patent expires. It reaffirmed the longstanding precedent set in Brulotte v. Thys Co. (1964), which held that post-expiration royalties are unenforceable as they improperly extend the patent monopoly beyond its intended term.

The Court acknowledged criticisms of Brulotte but declined to overturn it, stating that the doctrine was well-established and any changes should be left to Congress. The Court also emphasized that parties can still structure agreements to avoid this issue by adjusting royalty rates or providing for post-expiration payments unrelated to the patent itself.

Practical Implications of Kimble:

  • Patent holders and licensees must be aware that royalty agreements cannot extend beyond the life of the patent.
  • Parties entering into patent licensing agreements need to structure their contracts to comply with this principle, potentially using alternative payment structures to achieve their financial goals within the patent term lest the license becomes unenforceable for patent misuse once the patent expires.
  • Parties are allowed to defer compensation for the pre-expiration use of a patent beyond the patent's expiration date without implicating patent misuse. However, patentees must carefully structure the license agreement to avoid being accused of improperly attempting to extend the patent monopoly, contrary to the limited duration of patents under the Patent Act. For example, payments spread over time (past patent's expiration) cannot be tied to the post-expiration use of the invention.

 

See recent 7th Circuit opinion (Zimmer Biomet v. Insall) holding that  based on the parties' license agreement and its amendments, the royalty payments in question were not grounded in any patent rights and, thus, did not offend Brulotte and Kimble. The agreement between Zimmer and Insall had been amended to provide that royalties "shall be paid at the rate of 1% of net sales price on all sales of the NexGen Knee and all subsequently developed articles, devices or components marketed by Zimmer as part of the NexGen Knee family of knee components." Thus, rather than the royalties being based on the sale of products containing the patented technology, the agreement had been amended to base royalties on the sale of items marketed under the "NexGen Knee" family of products. 


 

Lear v. Adkins (1969)

In this landmark Supreme Court case, the Court overturned the long-standing doctrine of licensee estoppel. Previously, a licensee who had agreed to pay royalties for the use of a patented invention was barred from challenging the validity of that patent. However, the Court in Lear held that licensees have a right to challenge the validity of patents they are licensing, even if they have agreed to pay royalties.

The Court reasoned that allowing licensees to challenge patent validity promotes competition and innovation by preventing invalid patents from stifling technological progress. It also recognized that licensees are often in the best position to challenge patents, as they have a financial incentive to do so if the patent is invalid. The Court concluded that the equities of the licensor under contract law were outbalanced by “the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain.”

Key Points in Lear v. Adkins:

  • Licensee Estoppel Doctrine: Prior to this decision, the doctrine of "licensee estoppel" prevented a licensee from challenging the validity of a patent while continuing to benefit from the license. The Court in Lear rejected this doctrine.
  • Encouraging Patent Validity Challenges: The Court emphasized the importance of ensuring that only valid patents are enforced. It encouraged licensees to challenge patents they believe to be invalid, which aligns with the public interest in eliminating unjustified monopolies.
  • Royalties During Challenges: While Lear, Inc. v. Adkins does not directly answer the question of whether a licensee must pay royalties while challenging a patent, the Court's reasoning and policy considerations suggest that such payments may not be required. However, the specific terms of the licensing agreement and any relevant state laws will ultimately determine the licensee's obligations in this regard.

This decision has had a significant impact on patent law, making it easier for licensees to challenge patents and potentially invalidate them if they are found to be invalid. 

 


 

Key Points about Copyright Reversion Rights in the United States:

  1. Eligibility: The reversion right is available to authors or their statutory heirs.

  2. Timing:

    • The right to terminate the transfer can generally be exercised after 35 years for works transferred on or after January 1, 1978. If the grant includes the right of publication, termination can occur 35 years from publication or 40 years from the grant date, whichever is earlier.
    • For works transferred before January 1, 1978, the termination can generally be exercised 56 years after the copyright was originally secured. If the termination right is not exercised at that time, an additional window opens 75 years after the original copyright was secured.
  3. Notice Requirement:

    • To exercise the termination right, the author or their heirs must provide written notice to the current rights holder. This notice must be served no less than two years and no more than ten years before the effective date of termination.
    • The notice must also be recorded with the U.S. Copyright Office.
  4. Effect of Termination:

    • Once the termination is effective, all rights under the copyright that were previously transferred revert to the author or their heirs. This does not affect derivative works prepared under the authority of the grant before its termination, allowing those works to continue to be exploited.
  5. Exceptions:

    • Works made for hire are not eligible for termination of transfer rights.
    • The termination right cannot be waived or transferred in advance.

 

Duration of patent rights (vs other IP rights)

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Category: Patent Licensing
  • Patent Enforcement
  • Patent Licensing

Patents

  • Utility Patents: Generally last for 20 years from the filing date of the earliest U.S. application to which priority is claimed, provided that maintenance fees are paid.
  • Design Patents: Last for 15 years from the date of grant if filed on or after May 13, 2015. For design patents filed before this date, the term is 14 years from the date of grant.
  • Plant Patents: Last for 20 years from the filing date of the application.

Trademarks

  • Initial Term: A trademark can last indefinitely as long as it continues to be used in commerce and maintains its distinctiveness.
  • Renewal: In the United States, trademarks must be renewed every 10 years. The first renewal must be filed between the 5th and 6th year after the registration date, and subsequent renewals must be filed every 10 years thereafter. There is also a requirement to file a declaration of use (or excusable non-use) between the 9th and 10th years following registration.

Copyrights

In the United States, the duration of a copyright depends on several factors, primarily the date of creation and the nature of the authorship. Here are the general rules:

  • Works Created on or after January 1, 1978:

    • Single Author: The copyright lasts for the life of the author plus 70 years.
    • Joint Authors: The copyright lasts for the life of the last surviving author plus 70 years.
    • Works Made for Hire, Anonymous, or Pseudonymous Works: The copyright lasts for 95 years from the year of its first publication or 120 years from the year of its creation, whichever expires first.
  • Works Created and Published or Registered before January 1, 1978:

    • These works were originally protected for a term of 28 years and could be renewed for an additional 67 years, making a total of 95 years of protection. If the renewal was not filed, the work fell into the public domain after the initial 28 years.
  • Works Created but Not Published or Registered before January 1, 1978:

    • These works received protection under the new law, with a minimum term of protection through December 31, 2002. If the work was published before that date, it received the life of the author plus 70 years or until December 31, 2047, whichever is longer.

Note that, unlike Patents that do not have automatic reversion or termination rights for patent assignments, copyrights have termination of transfer rights that allow authors or their heirs to reclaim the rights to their works that were previously assigned to another party - not eligible for copyright works made for hire. 

Trade Secrets

  • Duration: Trade secrets can last indefinitely as long as the information remains secret and continues to provide a competitive advantage. The protection ends if the trade secret becomes publicly known or if it is independently discovered or reverse-engineered by others.
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