How to Avoid a Sticky Situation – Post-Expiration Patent Royalties

The U.S. Supreme Court’s ruling in Kimble v. Marvel Enterprises, Inc. (see prior post) doesn’t necessarily leave patent holders without financial recourse after their patents expire. The Court’s opinion notes several alternatives to circumvent the limitations of the Brulotte rule.

For example, a cash-strapped licensee could defer payments for pre-expiration use of a patent into the post-expiration period. In the case of a licensing agreement that covers multiple patents or additional nonpatent rights, royalties can run until the latest-running patent covered in the agreement expires.

And post-expiration royalties are allowable as long as they’re tied to a nonpatent right — even when closely related to a patent. So, for instance, a license involving both a trade secret and a nonpatent right can set a 5% royalty during the patent period, as compensation for the two combined, and a 4% royalty afterward, as payment for just the trade secret.

Finally, the Court observed, the Brulotte rule poses no bar to business arrangements other than royalties that allow parties to share. Parties could, for example, enter a joint venture that provides for compensation beyond the life of a patent.