22 December 2014

Royalty payments for use of patents post-expiry

The Supreme Court of United States on 12-12-2014,  granted Certiorari and will decide on the question of whether it should overrule Brulotte v. Thys Co., 379 U.S. 29 (1964), which held that a license agreement requiring royalty payments for use of a patented invention after the expiration of the patent term is unlawful per se.

The petitioners negotiated a settlement with a company which was using their (at that time) patent pending idea to make a toy to weave webs like Spiderman. The agreement provided for payment of royalties even post expiration of the patent period. At the time of settlement the parties were not aware of Brulotte and did not differentiate between patent related and non-patent related rights. The petitioner sued the toy company on cessation of payment and the lower court citing Brulotte held that no royalty could be collected for the post patent period. The petitioners then approached the Supreme Court seeking overruling of the judgement which they argue is outdated, does not taken into account economic realities and is anti-competitive. Some of the interesting arguments put forth are that the ‘unlawful per se’ holding is a judge made law capable of being overruled and is based on the wrong premise that having a patent automatically confers market power. Further, if patent holder cannot leverage his monopoly adequately during the period of protection, spread out the royalty over a longer period bringing down costs for the consumers eventually he will be forced to charge higher rates for the period during which protection is available.

The opposing parties and the US government argued against the petition stating that Brulotte was not amended for over half a century despite repeated debates and it only bars payment for use of invention beyond the mandated period of monopoly and parties are free to structure the royalty payments deferring them appropriately.


Browse articles