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Category: Patent Licensing

• Patent Enforcement

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).

 

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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. 

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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. 

 

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