I. Background
A. Definitions
1. Assignment - the transfer of the entire right, title, and interest in a patent is an assignment. See Hoffman-La Roche, Inc. v. Teva Pharm. USA, 2011 U.S. Dist. LEXIS 139239, at *12 (D.N.J. 2011) (“Under Federal Circuit precedent, once an inventor assigns all rights and title to a claimed invention to an assignee, the inventor has ‘nothing remaining to assign’ and any subsequent purported assignment is a nullity.”) (citing FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568, 1572, 1508 (Fed. Cir. 1991).
2. License – leave to do a thing which Licensor could prevent. Western Electric Co. v. Pacent Reproducer Corp., C.C.N.Y., 42 F.2d 116,118; a promise to refrain from enforcing the licensor’s rights under certain conditions.
3. Patent license - a transfer of less than the entire right, title, and interest is generally a license. Minco Inc. v. Combustion Eng’g, 95 F.3d 1109, 1116–17, (Fed. Cir. 1996). As used herein, the term, “license” shall be understood to mean “patent license.”
4. License Agreement – the contract that conveys the rights licensed. If all substantial rights are conveyed in the license agreement, it may have the legal effect of an assignment, regardless of recitations to the contrary.
5. Exclusive license - “[A]n exclusive license is a license to practice the patented invention accompanied by the patent owner’s promise that others shall be excluded from practicing it within the field of use wherein the licensee is given leave.” Molon Motor & Coil Corp. v. Nidec Motor Corp., 946 F.3d 1354, 1361 (Fed. Cir. 2020). The grant of the exclusive license prohibits the licensor from again licensing or practicing the patent with respect to the same activity, territory, and period.
6. Nonexclusive license
"A nonexclusive patent license is simply a promise not to sue for infringement." U.S. Philips Corp. v. Int'l Trade Comm'n, 424 F.3d 1179, 1189 (Fed. Cir. 2005).
A nonexclusive license implicitly preserves the licensor’s right to grant similar licenses to other parties. See Molon Motor & Coil Corp. v. Nidec Motor Corp., 946 F.3d 1354, 1360–1361 (Fed. Cir. 2020).
Presumption: A license agreement silent as to whether the license granted is exclusive or nonexclusive is presumed to grant a nonexclusive license. See Crescent Sock Co. v. Yoe, 2016 Tenn. App. LEXIS 359, *13 (Tenn. Ct. App. May 25, 2016).
B. Governing Law
Courts have employed various theories in determining governing law:
Law of the state of contracting. See Specialties Dev. Corp. v. C-O Two Fire Equip. Co., 207 F.2d 753 (3rd Cir. 1953).
Law of the place of performance. See Auten v. Auten, 308 N.Y. 155, 163-64 (1954).
Law expressly or presumably intended by the parties, generally conditioned on a substantial connection with the transaction or subject matter of the agreement. See Applera Corp. MP Biomedicals, LLC, 173 Cal. App. 4th 769, 789-92 (2009).
State vs Federal Law: State Law Applies with Exceptions - The construction of a patent license is generally a matter of state contract law, Lear, Inc. v. Adkins, 395 U.S. 653, 661-62, (1969), except where state law "would be inconsistent with the aims of federal patent policy". Id. at 673.
Exceptions - Assignability is generally a matter of federal law.
Bona Fide Purchaser Defense - The bona fide purchaser defense to patent infringement is a matter of federal law. Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323, 1328 (Fed. Cir. 2002).
C. Florida Construction of Contracts (a license agreement is a contract)
1. Plain Language
Under Florida law, contract interpretation begins with a review of the plain language of the agreement because the contract language is the best evidence of the parties' intent at the time of the execution of the contract. In the absence of an ambiguity on the face of a contract, it is well settled that the actual language used in the contract is the best evidence of the intent of the parties, and the plain meaning of that language controls. See Spungin v. GenSpring Family Offices, LLC, 883 F. Supp. 2d 1193, 1198 (S.D. Fla. 2012).
2. Parol Evidence
If a court determines that the terms of a contract are ambiguous, only then is parol evidence admissible to explain, clarify or elucidate the ambiguous terms. The words should be given their natural, ordinary meaning, and where the language is plain a court should not create confusion by adding hidden meanings, terms, conditions or unexpressed intentions. See Ferox v. Conseal Int'l, Inc., 175 F. Supp. 3d 1363, 1371 (S.D.Fla. 2016).
II. Parties’ Obligations and Rights
A. Rights of Patentee/Licensor
Statutory Right to Limit Territory of License Grant “[P]atents shall have the attributes of personal property… Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.” 35 USC § 261.
Field of Use Limitations – Generally upheld. See General Talking Pictures Corp. v. Western Elec. Co., 304 U.S. 175 (1938).
B. Obligations of Exclusive Licensor
No Licensing - The exclusive licensor impliedly promises not to grant subsequent licenses of the same scope to third parties, in the absence of language to the contrary (which would undermine the contention that the license is exclusive).
Bona Fide Purchaser - Bona Fide Purchaser Doctrine Applies Only to Exclusive Licensees – A subsequent nonexclusive license is ineffective. Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323, 1333 (Fed. Cir. 2002) (en banc).
No Practice - “The patentee has no more right to practice his patent in a field of use where an exclusive license has been given, than does a stranger.” Sanofi, S.A. v. Med-Tech Veterinarian Prods., 565 F. Supp. 931, 937 (Dist. Ct. NJ), citing Littlefield v. Perry, 88 U.S. 205, 223 (1874). “Therefore, if the exclusive license has been violated by the patentee, the patentee may be sued for infringement.” Id., citing Research Frontiers, Incorporated v. Marks Polarized Corporation, 290 F. Supp. 725, 727 (E.D.N.Y. 1968).
C. Obligations of Exclusive Licensee
Implied Best Efforts
Generally Disfavored - “The existence of a best efforts obligation should not be lightly inferred since ‘such an obligation subjects the licensee to significant litigation exposure and deprives him of the fundamental power of determining for himself the reasonableness of his marketing efforts.’" Permanence Corp. v. Kennametal, Inc., 908 F.2d 98, 101 (6th Cir. 1990), citing Kardios Systems Corp., 645 F. Supp. at 509. “Where it is unnecessary to imply such an obligation in order to give effect to the terms of the contract, the obligation will not be implied.” Id., citing Willis Bros., Inc. v. Ocean Scallops, Inc., 356 F. Supp. 1151, 1155 (E.D.N.C. 1972).
Licensor’s Revenue Streams - An obligation to exploit should not be implied where licensor does not depend for its revenue solely upon sales of the licensed devices. Indications of such non-dependence include licensor’s retention of the right to practice, minimum royalties, and licensor’s right to terminate if royalty payments do not satisfy certain milestones. Vacuum Concrete Corp. of Am. v. Am. Mach. & Foundry Co., 321 F. Supp. 771, 773-774 (S.D.N.Y. 1971).
D. Licensee’s Rights
1. Implied Rights Generally Some courts default to a rule of no implied rights. “Any right not specifically granted by the licensor remains with the licensor, and the rights granted in the license cannot expand beyond the boundaries delineated in the agreement.” Cook Inc. v. Boston Sci. Corp., 208 F. Supp. 2d 874, 879 (N.D. Ill. 2002).
2. No Implied Warranty of Quiet Enjoyment. See United States v. National Lead Co., 332 U.S. 319 (1947).
3. “Have Made” Rights The right of a licensee to arrange for the manufacture of a patented good by a third party may be implied. “The right to ‘make, use, and sell’ a product inherently includes the right to have it made by a third party, absent a clear indication of intent to the contrary.” CoreBrace LLC v. Star Seismic LLC, 566 F.3d 1069, 1072-1073 (Fed. Cir. 2009).
4. Implied Licenses
Generally "An implied license signifies a patentee's waiver of the statutory right to exclude others from making, using, selling, offering to sell, or importing, the patented invention." IMX, Inc. v. E-Loan, Inc., 748 F. Supp. 2d 1354, 1360 (SDFL 2010), citing Winbond Elecs. Corp. v. Int'l Trade Com'n, 262 F.3d 1363, 1374 (Fed. Cir.2001). "[I]mplied licenses arise by acquiescence, by conduct, by equitable estoppel . . ., or by legal estoppel.” Id. citing Wang Lab. v. Mitsubishi Elecs. Am., 103 F.3d 1571, 1580 (Fed. Cir. 1997).
Equitable Estoppel An implied license may be found based on equitable estoppel where:
(1) the patentee, through misleading conduct (or silence), led the defendant to reasonably infer that the patentee did not intend to enforce the patent against defendant (e.g., by sufficiently delayed enforcement);
(2) defendant relied on that misleading conduct; and
(3) due to its reliance, defendant would be materially prejudiced if the patentee were allowed to proceed with its claim. See High Point SARL v. Sprint Nextel Corp., 817 F.3d 1325, 1330 (Fed. Cir. 2016).
c. Acquiescense arises where the:
1. Patentee actively represented through an affirmative word or deed that it would not assert a right or claim under the intellectual property;
2. the owner engaged in an inexcusable delay between the representation and the assertion of a right or claim; and
3. defendant was prejudiced by the delay. See Sprint Communs. Co. L.P. v. Cequel Communs., LLC, 2022 U.S. Dist. LEXIS 14903, *8 (D. Del. 2022).
d. Legal Estoppel
1. Licensor is prohibited from acting in derogation of Licensee’s right to practice the invention claimed by the licensed patent. See Wang Labs. v. Mitsubishi Elecs. Am., 103 F.3d 1571 (Fed. Cir. 1997).
2. Legal estoppel provides an implied license to a related, later-issued patent that is broader than and necessary to practice an expressly licensed patent. TransCore, LP v. Elec. Transaction Consultants Corp., 563 F.3d 1271, 1279 (Fed. Cir. 2009).
3. Related Patents An express license to a patent includes an implied license to its continuations, even when the continuation claims are narrower than previously asserted claims, absent a clear indication of mutual intent to the contrary. General Protecht Group, Inc. v. Leviton Mfg. Co., 651 F.3d 1355, 1361 (Fed. Cir. 2011). If patentee does not intend its license to extend to claims presented in continuation patents, it has an obligation to make that clear by specifically carving out continuation patents that it intends to exclude because patentee has the most information about its total patent portfolio. See Cheetah Omni LLC v. AT&T Servs., 949 F.3d 691(Fed. Cir. 2020).
4. Non-Related Patents Where the scope of claims in two non-related patents (not sharing a priority claim) overlapped, but one was not necessary to practice the other, no implied license was found. See Oyster Optics, LLC v. Infinera Corp., 2021 U.S. Dist. LEXIS 54170 (E. Dist. Tx 2021).
E. Assignability
1. Bona Fide Purchaser “An interest that constitutes an assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.” 35 USC § 261.
2. By Licensee
a. Assignability of a patent license silent as to assignability is a question of federal patent law, which provides that such licenses are personal to the licensee and cannot be assigned. Unarco Industries, Inc. v. Kelley Co., 465 F.2d 1303, 1306 (7th Cir. 1972).
b. A licensee’s merger may constitute an assignment, and thus be subject to a nontransferability provision in a license agreement. See PPG Indus. v. Guardian Indus. Corp., 597 F.2d 1090 (6th Cir. 1979).
3. By Licensor Unless the agreement provides for personal obligations of the licensor to the licensee, it would probably not be personal to the licensee, and thus would be freely assignable by the licensor.
III. Warranties
A. No Implied Warranty of Merchantability or Fitness “Many commercial transactions are not governed by Article 2 of the UCC: sale of land or securities, assignment of a contract right, or granting a license under a patent or copyright, to name just a few.” Novamedix, Ltd. v. NDM Acquisition Corp., 166 F.3d 1177, 1182 (Fed.Cir. 1999). Because a settlement agreement was held not to be a contract for sale of goods it was held not to carry the implied warranties of merchantability and fitness of UCC §§ 2-314 and 2-315. Id. at 1184.
B. No Implied Warranty of Validity "Congress has not seen fit to create an implied warranty of validity in license agreements." Cordis Corp. v. Medtronic, Inc., 780 F.2d 991, 996 (Fed. Cir. 1985), citing Troxel Mfg. Co. v. Schwinn Bicycle Co., 465 F.2d 1253, 1260 (6th Cir. 1972). "Absent fraud or misconduct, a patentee should not be held responsible for the issuance of an invalid patent." Id. citing Traxel at 1259.
C. No Implied Warranty of Right to Practice the Patent “As a threshold matter, a patent license agreement is in essence nothing more than a promise by the licensor not to sue the licensee. See, e.g., United States v. Studiengesellschaft Kohle, m.b. H., 216 U.S. App. D.C. 303, 670 F.2d 1122, 1127 (D.C. Cir. 1981). Even if couched in terms of ‘licensee is given the right to make, use, or sell X,’ the agreement cannot convey that absolute right because not even the patentee of X is given that right. His right is merely one to exclude others from making, using or selling X, 35 U.S.C. § 154. Indeed, the patentee of X and his licensee, when making, using, or selling X, can be subject to suit under other patents.” ZapatA Indus. v. W.R. Grace & Co.-Conn., 1999 U.S. Dist. LEXIS 21328, *27 (SDFL 1999), citing Spindelfabrik Suessen-Schurr Stahlecker & Grill GmbH v. Schubert & Salzer Maschinenfabrik Aktiengesellschaft, 829 F.2d 1075 (Fed. Cir. 1987).
IV. Anticompetitive Acts
A. Patent Misuse
1. General Rule: It is patent misuse to "impermissibly broaden the physical or temporal scope of the patent grant with anticompetitive effect." Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed. Cir. 1986).
2. Equitable Defense: Patent misuse is an equitable defense established when the patentee engages in conduct that impermissibly broadens a patent's physical or temporal scope with anticompetitive effect. Virginia Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868 (Fed. Cir. 1997).
3. Effect: A finding of patent misuse renders the patent unenforceable, even as to third parties. See, e.g.,Carbice Corp. of America v. American Patents Development Corp., 283 U.S. 27 (1931), in which the Court held that in the context of a tying agreement, the party that had supplied the nonpatented goods to the patentee's licensees could not be held liable for contributory infringement of the patent.
4. Examples of Patent Misuse
a. Tying – conditioning the grant of a license on the use of a non-patented product The patentee "may not exact as the condition of a license that unpatented materials used in connection with the invention shall be purchased only from the licensor." Carbice Corp. of America v. American Patents Dev. Corp., 283 U.S. 27, 31 (1931).
b. Post-Expiration Royalty Obligations A provision in a patent license agreement providing for accrual of royalties after expiration of the licensed patent is unlawful per se, because it continues the patent monopoly beyond the patent period, and thus conflicts with patent law's policy of establishing the subject matter claimed in the expired patent as being within the public domain. Kimble v. Marvel Entm't, LLC, 576 U.S. 446, 446 (2015), reaffirming Brulotte v. Thys Co., 379 U.S. 29 (1964).
c. Package Licenses, where the court finds an element of coercion (e.g., failure to offer licenses on individual patents). See McCullough Tool Co. v. Well Surveys, Inc., 199 F. Supp. 374 (N.D. Okla. 1963).
d. Price fixing
e. Covenants not to compete
f. Resale price maintenance
g. Grantback licenses. See Princo Corp. v. Int'l Trade Comm'n, 616 F.3d 1318, 1330 (Fed. Cir. 2010), citing legislative history to the 1988 amendment to section 271(d), comments of Representative Kastenmeier, 134 Cong. Rec. 32,295 (1988).
5. Two-Step Analysis of Post-Expiry Royalties
a. Using state law to construe the agreement, what are the parties’ contractual obligations?
b. Does the contract provide for royalties on the use of a patented invention that occurs after the expiration of that patent? That second question is a matter of law that is a formal inquiry that does not depend on the parties' motivations, the course of their negotiations, or the consideration received by either party in exchange for the inclusion of a particular contractual term.
An agreement providing for a 15% royalty on US sales until the expiry of the US patent, a 15% royalty on Canadian sales until the expiry of the Canadian patent, and a fixed flat royalty was held not to violate Brulotte. See C.R. Bard, Inc. v. Atrium Med. Corp., 112 F.4th 1182 (9th Cir. 2024) (request for extension for petition for cert filed).
6. Limitations on the Doctrine of Patent Misuse
a. Statutory Limitations on Misuse “No patent owner otherwise entitled to relief for infringement or contributory infringement of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having done one or more of the following:
(1) derived revenue from acts which if performed by another without his consent would constitute contributory infringement of the patent;
(2) licensed or authorized another to perform acts which if performed without his consent would constitute contributory infringement of the patent;
(3) sought to enforce his patent rights against infringement or contributory infringement;
(4) refused to license or use any rights to the patent; or
(5) conditioned the license of any rights to the patent or the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned.” 35 U.S.C. § 271(d).
b. Judicially Recognized Limitations on Misuse
1. Patented products do not automatically create a presumption of market power. A tying arrangement is not a per se antitrust violation. Power in the relevant market must be proven, rather than presumed. See Illinois Tool Works Inc. v. Independent Ink, Inc., 126 S. Ct. 1281 (2006).
2. “[T]he patentee begins with substantial rights under the patent grant—'includ[ing] the right to suppress the invention while continuing to prevent all others from using it, to license others, or to refuse to license, . . . to charge such royalty as the leverage of the patent monopoly permits,’ and to limit the scope of the license to a particular ‘field of use.’" United States v. Studiengesellschaft Kohle, m.b.H., 670 F.2d 1122, 1127, 1133 (D.C. Cir. 1981).
3. Failure to License a patent not in suit is not patent misuse. Princo Corp. v. Int'l Trade Comm'n, 616 F.3d 1318 (Fed. Cir. 2010).
B. Reverse Payments
1. A settlement agreement of a Hatch-Waxman litigation between branded and generic drug suppliers which provides for payments from the branded to the generic in exchange for delayed market entry of the generic product is subject to a rule of reason analysis for potential antitrust liability. See F.T.C. v. Actavis, Inc., 570 U.S. 136 (2013).
2. The fact that the agreement’s anticompetitive effects may fall within the scope of the exclusionary potential of the patent (where the reverse payments may be recouped by the higher drug prices) does not immunize the parties from potential antitrust liability. Id.
V. Litigation
A. Breach of Contract v. Patent Infringement Where the granting clause is not coextensive with the scope of the patent, what is licensor’s cause of action after licensee exceeds the scope of the limited grant – breach of contract, or patent infringement?
1. Breach of Contract may be found if the court determines that there was an implied negative covenant (a promise to perform in a certain way) in the agreement that Licensee failed to honor.
2. Patent Infringement may be found if the court determines that there was a condition precedent that Licensee failed to satisfy, causing the patent to have never been licensed. See Au New Haven, LLC v. YKK Corp., 2019 U.S. Dist. LEXIS 55973 at *31 (S.D.N.Y. 2019).
B. Who Can Initiate Litigation
1. Procedural Requirements – Article III Standing and Patentee Status under 35 U.S.C. § 281
a. Article III Standing
Lack of standing is a jurisdictional issue, and thus is incurable if absent at initiation of suit, but not waived if not raised in first pleading.
A patent owner may grant an exclusive license to his patents under such terms that the license is tantamount to an assignment of the patents to the exclusive licensee. This happens when the exclusive license transfers “all substantial rights” in the patents. Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 873 74 (Fed. Cir. 1991). When this happens, the exclusive licensee has sole standing to sue those suspected of infringing the patents' claims. Id.
Where an exclusive license transfers less than "all substantial rights" in the patents to the exclusive licensee, the exclusive licensee may still be permitted to bring suit against third party infringers, but the patent owner is an indispensable party under F.R,C.P. Rule 19 who must be joined. See Alfred E. Mann Found. for Sci. Research v. Cochlear Corp., 604 F.3d 1354, 1359 (Fed. Cir. 2010), citing Prima Tek II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1377 (Fed. Cir. 2000).
Rights to be examined by a court in making the determination of Article III standing include the following:
the exclusive right to make, use, and sell products or services under the patent (see Propat Int'l Corp. v. RPost US, Inc., 473 F.3d 1187 at 1193-94 (Fed. Cir. 2007);
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;
the nature of any limits on the licensee's right to assign its interests in the patent. See Intellectual Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1345 (Fed. Cir. 2001); and,
the nature and scope of the rights to bring suit that are transferred to the exclusive licensee, and those that are purportedly retained by the licensor. See AsymmetRx, Inc. v. Biocare Med., LLC, 582 F.3d 1314, 1320-21 (Fed. Cir. 2009). This is the most important factor in determining whether an exclusive license transfers sufficient rights to render the licensee the owner of the patent (Alfred E. Mann at 1361), unless the licensor's right to sue is rendered illusory by the licensee's ability to settle licensor-initiated litigation by granting royalty-free sublicenses to the accused infringers. Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1251 (Fed. Cir. 2000).
License v Assignment – No Bright Line Rule in Florida “[U]nder Florida law, whether an agreement transferring the licensee's interest in the license agreement constitutes an assignment or a sublicense is not determined by the mere application of a ‘bright-line rule.’ Instead, this legal determination depends on a multitude of factors, including the language of the license agreement and its subject matter, the substance of the interest that was actually transferred by the licensee, and whether the licensee retained any substantial rights in the license agreement.” MDS (Can.) Inc. v. Rad Source Techs., Inc., 143 So. 3d 881, 882 (Fla. Sup. Ct. 2014).
b. Patentee Status under 35 U.S.C. § 281
“A patentee shall have remedy by civil action for infringement of his patent.” 35 U.S.C. § 281.
“The word ‘patentee’ includes not only the patentee to whom the patent was issued but also the successors in title to the patentee.” 35 U.S.C. § 100. Similar to the standing analysis, an exclusive licensee may be deemed an assignee if all substantial rights are granted by the license agreement.
§ 281 is not a jurisdictional requirement. See Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., 925 F.3d 1225, 1235 (Fed. Cir. 2019). Thus, a failure to show patentee status may be curable by joinder.
If the party asserting infringement is not the patent's original patentee, "the critical determination regarding a party's ability to sue in its own name is whether an agreement transferring patent rights to that party is, in effect, an assignment or a mere license." AsymmetRx, Inc. v. Biocare Med., LLC, 582 F.3d 1314, 1318-19 (Fed. Cir. 2009).
n making this determination, the court will examine the totality of the agreement to determine whether a party other than the original patentee has established that it obtained all substantial rights in the patent, especially rights that impact the licensee’s use, assertion, sublicensing, or transfer of the covered patents, and whether the transferor retained reversionary rights in or ongoing control over the patents. See Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., 925 F.3d 1225, 1229 (Fed. Cir. 2019).
c. Standing as Exclusive Licensee May Be Limited
“[A] licensee is an exclusive licensee of a patent if it holds any of the exclusionary rights that accompany a patent.
Because an exclusive licensee derives its standing from the exclusionary rights it holds, it follows that its standing will ordinarily be coterminous with those rights. Depending on the scope of its exclusionary rights, an exclusive licensee may have standing to sue some parties and not others. For example, an exclusive licensee lacks standing to sue a party for infringement if that party holds a preexisting license under the patent to engage in the allegedly infringing activity. Similarly, an exclusive licensee lacks standing to sue a party who has the ability to obtain such a license from another party with the right to grant it.” WiAV Solutions LLC v. Motorola, Inc., 631 F.3d 1257, 1266 (Fed. Cir. 2010).
d. Personal Jurisdiction in Florida Because a licensor had established a relationship with its exclusive licensee, which promoted, advertised, and sold the licensed product in Florida, and with which the licensor coordinated cease and desist letters and infringement litigation, the licensor had purposefully availed itself of the benefits and protections of Florida law. Thus, the Florida long-arm statute, Fla. Stat. Ann. § 48.193, permitted the exercise of jurisdiction over the licensor. See Breckenridge Pharm., Inc. v. Metabolite Labs., Inc., 444 F.3d 1356, 1359 (Fed. Cir. 2006).
2. Estoppels to Litigation
a. By Licensee
No Licensee Estoppel - Generally, a licensee is not estopped from challenging the validity of a licensed patent. Lear, Inc. v. Adkins, 395 U.S. 653, 671 (1969), overruling Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 339 U.S. 827, 836 (1950).
Termination Not Required - A licensee is not required, insofar as Article III is concerned, to break or terminate its license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007).
Exceptions cited in Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561, 1567-1568 (Fed. Cir. 1997) - Lear does not bar enforcement of:
a. A settlement agreement and consent decree. See Foster v. Hallco Mfg. Co. 947 F.2d 469, 476-77 (Fed. Cir. 1991).
b. A contract promise to share royalties. See Sun Studs, Inc. v. ATA Equip. Leasing, Inc., 872 F.2d 978, 991-93 (Fed. Cir. 1989).
c. A settlement agreement to pay royalties even if patent later held invalid. See Hemstreet v. Spiegel, Inc., 851 F.2d 348, 350-51 (Fed. Cir. 1988).
(b) By Licensor
1. Assignor Estoppel: An assignor is estopped from urging the invalidity or unenforceability of a patent that he has previously assigned for value, based on the lack of fair dealing in allowing an assignor to make a representation at the time of assignment (that the patent has value), and then to later repudiate it. See Minerva Surgical, Inc. v. Hologic, Inc., 594 U.S. 559, 576 (2021).
2. Exceptions: There is no ground for applying assignor estoppel when the assignor has made neither explicit nor implicit representations in conflict with an invalidity defense. The assignment of specific claims in a patent can carry an implicit assurance of validity. However, the issue of fair dealing does not arise in the context of employment agreements where the employee assigns rights to future inventions, or where there is a post-assignment change in law that affects the validity or enforceability of the patent. Minerva Surgical at 576-577.
3. Patent Exhaustion as a Limitation on Licensor’s Ability to Enforce against Licensee’s Purchasers An unconditional right to sell prevents the patentee from enforcing the patent against a purchaser from the licensee. “If a patentholder promises not to sue an entity for patent infringement when the entity sells items, the doctrine recognizes an inherent promise not to sue downstream users of those items. Quanta, 553 U.S. at 637 (holding that an unconditional covenant not to sue implicates patent exhaustion protections).” Fuel Automation Station, LLC v. Energera Inc., 119 F.4th 1214, 1226 (10th Cir. 2024).
4. Burden on Licensor in Licensee-Initiated Declaratory Judgment Action “When a licensee seeks a declaratory judgment against a patentee that its products do not infringe the licensed patent, the patentee bears the burden of persuasion on the issue of infringement.” Medtronic, Inc. v. Mirowski Family Ventures, LLC, 571 U.S. 191, 192 (2014).
5. Where Licensee Fails to Mark, No Damages until Notice Given
a. “Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word ‘patent’ or the abbreviation ‘pat.’, together with the number of the patent… In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.” 35 U.S.C. § 287(a).
b. "A licensee who makes or sells a patented article does so 'for or under' the patentee, thereby limiting the patentee's damage recovery when the patented article is not marked." Amsted Indus. Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 185 (Fed. Cir. 1994).
c. “[D]isclaimer cannot serve to retroactively dissolve the § 287(a) marking requirement for a patentee to collect pre-notice damages.” Rembrandt Wireless Techs., LP v. Samsung Elecs. Co., 853 F.3d 1370, 1384 (Fed. Cir. 2017).
VI. Relief from Royalty Fees
A. Patent Found to Be Invalid by Third Party A licensee may avoid further royalty payments, regardless of the provisions of his contract, once a third party proves that the patent is invalid. Lear, Inc. v. Adkins, 395 U.S. 653, 667, citing Drackett Chemical Co. v. Chamberlain Co., 63 F.2d 853 (1933).
B. Patent Challenged by Licensee A licensee is entitled to protection from payment during the challenge of validity if it:
"(i) actually ceases payment of royalties, and
(ii) provides notice to the licensor that the reason for ceasing payment of royalties is because it has deemed the relevant claims to be invalid."
Jang v. Boston Sci. Corp., 2015 U.S. Dist. LEXIS 193770, (C.D. Cal 2015), citing Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561, 1568 (Fed Cir 1997).
VII. Discounted Royalty Fees
A. After Expiration of Patent
1. “[P]arties can contract for trade secret payments to extend beyond the life of a patent,” but “there must be some provision that distinguishes between patent royalties and trade secret royalties.” Meehan v. PPG Indus., 802 F.2d 881, 886 (7th Cir. 1986).
2. “[A] license for inseparable patent and non-patent rights involving royalty payments that extends beyond a patent term is unenforceable for the post-expiration period unless the agreement provides a discount for the non-patent rights from the patent-protected rate.” Kimble at 863.
B. Non-Granted Patent Application A royalty provision was held to be enforceable after the pending patent application failed to grant where the license was entered into during the pendency of a patent application, and provided for a reduction in the royalty payment if the application did not grant within a certain period. Aronson v. Quick Point Pencil Co., 440 U.S. 257 (1979).
C. Failed Trade Secret A royalty provision in a trade secret license was held to be enforceable after the trade secret became public knowledge. “[B]ecause the parties' contract clearly stated that plaintiff would pay defendants royalties for so long as plaintiff manufactured and sold products using defendants' secret formula, plaintiff could not escape that obligation simply because the secret was discovered by a third party or by the general public.” Warner-Lambert Pharm. Co. v. John J. Reynolds, Inc., 178 F. Supp. 655, 657 (NYSD 1959).
VIII. Bankruptcy – Debtor’s Election of Assumption vs. Rejection
A. Generally: A debtor may assume or reject the duties of an executory contract subject to the court's approval. See 11 U.S.C. § 365.
B. Ipso Facto clauses (providing that in the case of bankruptcy, the license agreement terminates) are unenforceable. See 11 U.S.C. § 365(e).
C. Test for Executory Contract: The Countryman Test - unless both parties have unperformed obligations that would constitute a material breach if not performed, the contract is not executory. Noted as adopted in Gencor Indus. v. CMI Terex Corp., 298 B.R. 902, 911 (Fla. Mid. Dist. Bankruptcy Ct. 2003).
D. Promise Not to Sue – Material Obligation vs. Condition One consideration is whether a court characterizes the licensor’s duty to refrain from suing the licensee for infringement as a continuing duty of performance, or a condition the failure of which merely excuses the performance of the other party, but is not a material breach of the contract. See Id.
E. Settlement Agreement: A settlement agreement that included a patent license was held to be an executory contract between the parties and therefore rejectable if such rejection benefits the bankruptcy estate under 11 U.S.C. § 365. In re W.B. Care Ctr., LLC, 419 B.R. 62, 74 (S. Fla. Bankruptcy Ct. 2009).
IX. Industry-Specific Topics
A. Technology - Standard Essential Patent Licenses
1. Generally: Standards may be generally beneficial for both consumers and industry participants. However, industry standards also pose a risk of anticompetitive behavior. See, e.g., Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1209 (Fed. Cir. 2014) (explaining two "potential concerns" with standardization). Standards frequently incorporate patented technology, known as standard-essential patents. See id. When a patent becomes essential to an industry standard, other companies face a choice if they want to have a standard-compliant device: They can either attempt to license the patented technology in order to develop their own product, or they can risk a patent infringement action against them. This puts the holder of a standard-essential patent in a powerful position to extract as much money as they want from potential licensees.
2. Prospective Licensees as Third Party Beneficiaries To combat the potential for anticompetitive behavior, standard setting organizations require standard-essential patent holders to commit to licensing their patents on fair, reasonable, and non-discriminatory terms (“FRAND” terms). See id. Companies seeking to license under these terms become third-party beneficiaries of the contract between the standard essential patent holder and the standard setting organization. They are thus enabled to enforce the terms of that contract. See Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 885 (9th Cir. 2012).
3. Determination of FRAND Royalty Rate In a breach of contract case based on an allegation of licensor’s failure to offer licensing terms that were in accordance with the FRAND contract provision, a jury instruction allowing the royalty rate determination to be based on the net sales price of the entire end-user device rather than smallest salable patent-practicing unit was not found to be improper. See HTC Corp. v. Telefonaktiebolaget LM Ericsson, 12 F.4th 476 (5th Cir. 2021).
4. Implied Waiver A standard setting organization member that has a duty to disclose an intellectual property right, but fails to do so, may waive its right to assert an infringement claim against products that practice the standard. See Core Wireless Licensing S.A.R.L. v. Apple Inc., 899 F.3d 1356, 1365 (Fed. Cir. 2018).
B. Consumer Products - Licensor Liability for Product Defect: “A mere licensor is not subject to strict products liability”; it may be necessary to show “some purposeful activity with respect to the design by the licensor as well.” Firestone Steel Prods. Co. v. Barajas, 927 S.W.2d 608, 614 (Tx. Sup. Ct. 1996)
