licensing Archives

licensing

The Conversation Continues: Some Post-Patent-Termination Royalties Are Acceptable

by Kathleen Lynch | Sep 12, 2024 | Patents

For the second time in less than two weeks, a circuit court decided an appeal hinging on the Brulotte rule, which holds that patent royalties are impermissible when based on payments for the use of expired patents. Like the US Court of Appeals for the Ninth Circuit, the Fourth Circuit upheld a royalty agreement that purported to require payments after patent expiration. Ares Trading S.A. v. Dyax Corp., Case No. 23-1487 (4th Cir. Aug. 14, 2024) (Krauser, Porter, Chung, JJ.)

Dyax is a biotechnology company engaged in “phage display” research – a laboratory process used to identify antibody fragments for use in developing medications. Dyax holds multiple patents related to phage display, including licenses to patents owned by Cambridge Antibody Technology (CAT). Dyax and Ares entered a licensing agreement. Dyax’s main obligation was to use its phage display technology to identify antibody fragments and then provide those fragments to Ares so that Ares could incorporate them into commercial medications, including one called Bavencio. In exchange, Ares agreed to pay Dyax at various research milestones and pay royalties for identified products, including Bavencio. Although Bavencio was first sold in 2017, the last CAT patent expired in 2018.

After learning of the Brulotte rule, Ares tried to renegotiate its contract obligations. When renegotiation attempts failed, Ares sued Dyax, seeking multiple related declaratory judgments revolving around its argument that its royalty obligations to Dyax were unenforceable under Brulotte. Dyax countersued on six claims, including for declaratory judgment that Brulotte did not apply. The district court found the royalty obligation enforceable and not in violation of Brulotte. Ares appealed.

Ares asked the Fourth Circuit to reconsider the applicability of the Brulotte rule and to relatedly find that Dyax had breached the covenant of good faith and fair dealing. The Fourth Circuit first examined its own jurisdiction in the context of the Federal Circuit’s exclusive jurisdiction over patent appeals. Of the 10 total claims and counterclaims, nine arose under Massachusetts contract law. According to the Fourth Circuit, these were not “substantial” patent law claims and thus regional circuit appellate jurisdiction was appropriate.

The Fourth Circuit next turned to the Brulotte prohibition on post-termination royalties and found no violation because “Ares’ royalty obligation is not calculated based on activity requiring post-expiration use of inventions” covered by Dyax or CAT patents. The Court emphasized the policies underpinning the federal patent regime and the Brulotte rule, particularly the importance of inventions entering the public space once a patent expires to allow continued innovation and general use of the once-patented invention. The Court also explained its understanding of the nuances of Brulotte, as informed by the Supreme Court’s 2015 decision in Kimble v. Marvel. For instance, a court’s inquiry must focus on post-expiration use, so where “royalties are not calculated based on activity requiring post-expiration use, they do not hinder post-expiration use ‘on their face’ and Brulotte is not implicated.” In the present case, this was a key delineation because the Fourth Circuit found that Ares’ [...]

Continue Reading

Some Post-Expiration Patent Royalty Payments May Be OK

by Kathleen Lynch | Sep 5, 2024 | Patents

The US Court of Appeals for the Ninth Circuit reversed a district court’s finding that a contract impermissibly allowed for patent royalties after the patent expired because the post-termination royalty payments were allocated to non-US patents. C.R. Bard, Inc. v. Atrium Med. Corp., Case No. 23-16020 (9th Cir. Aug. 23, 2024) (Friedland, Mendoza, Desai, JJ.) (per curiam).

C.R. Bard held one US and one Canadian patent covering a type of vascular graft. In 2011, Bard and Atrium entered a licensing agreement to settle a patent dispute. Under the terms of the agreement, Atrium agreed to pay Bard a 15% royalty on covered US sales until 2019 (when the US patent expired) and a 15% royalty on covered Canadian sales until 2024 (when the Canadian patent expired). The contract also included a quarterly royalty minimum. Through 2019, as the contract contemplated, Atrium paid royalties on its US and Canadian sales. Because of a US Food and Drug Administration delay, Atrium had lower than expected sales and never exceeded the quarterly minimum royalty.

Atrium eventually refused to continue making royalty payments, which after 2019 covered only Canadian sales (likewise never exceeding the quarterly minimum). Bard sued for breach of contract in 2021. Atrium argued that the royalty provision was unenforceable under Brulotte v. Thys, a 1964 US Supreme Court decision holding that collecting royalties for patent use after a patent’s expiration constitutes patent misuse. The district court determined that the “clear and primary purpose” of the parties’ contractual minimum royalty was to compensate Bard for US sales of the patented product. The district court therefore agreed with Atrium. Bard appealed.

The Ninth Circuit undertook to determine whether the terms of the parties’ contract constituted patent misuse under Brulotte. The Ninth Circuit first explained that in Brulotte, the Supreme Court considered a contract between the owner of multiple patents related to picking hops and farmers who made seasonal license payments to use machines incorporating those patents. The Supreme Court found patent misuse because the license amount did not decrease as patents incorporated into the machines expired, which indicated that the farmers were paying to use expired patents.

Despite pushback, the Supreme Court refused to overturn Brulotte in 2015 when it decided Kimble v. Marvel. That case involved a patent holder’s license allowing Marvel to incorporate patented web-shooting technology into a Spiderman toy. In Kimble, the Ninth Circuit had ruled that the license agreement was invalid under Brulotte because it required Marvel to continue to pay a royalty fee after the patent expired. The Ninth Circuit noted, however, that an ongoing license after the expiration of a patent may be permissible if the license contemplates both patented and non-patented features, as long as the terms of the royalty adjust when the patent expires. For instance, a license covering both a patented invention and a trade secret may continue past the life of the patent, as long as the royalty rate diminishes after the patent expires. This reflects that the royalty is [...]

Continue Reading

Taking the High Road: Ambiguity Regarding “Versions” of Beer Precludes Summary Judgment

by Tessa Kroll | Apr 4, 2024 | Trademarks

The US Court of Appeals for the Second Circuit affirmed a district court’s summary judgment denial and determination that the definition of “beer” (which encompassed “other versions and combinations” of beer and malt beverages) in a trademark licensing agreement was ambiguous. Cerveceria Modelo de Mexico, S. de R.L. de C.V. v. CB Brand Strategies, LLC, Case No. 23-810 (2d Cir. Mar. 25, 2024) (Cabranes, Wesley, Lohier, JJ.) (nonprecedential).

In 2013, Modelo granted Constellation Brands a perpetual sublicense to use Modelo’s trademarks for Corona and Modelo to sell “beer” in the United States. The sublicense defined “beer” as “beer, ale, porter, stout, malt beverages, and any other versions or combinations of the foregoing, including non-alcoholic versions of any of the foregoing.” Several years later, Constellation launched Corona Hard Seltzer and Modelo Ranch Water, both of which are flavored alcoholic seltzers derived from fermented sugar.

Modelo sued Constellation in 2021, alleging that Constellation’s sales of the “Corona” or “Modelo” branded hard seltzers violated the sublicensing agreement because the license for use of the marks on “beer” did not encompass sugar-based hard seltzers. Modelo moved for summary judgment, which the district court denied after determining that the agreement’s definition of “beer” was ambiguous. At trial, the jury found that Modelo had failed to show that the seltzers were not “beer” under the sublicense definition. Modelo appealed.

Modelo asserted that the district court erred in denying summary judgment, arguing that the agreement’s definition of “beer” was unambiguous and challenged the district court’s jury instructions and exclusion of certain evidence at trial.

The Second Circuit agreed that the term “beer” as used in the agreement was ambiguous. The Court noted that a motion for summary judgment in a contract dispute generally may only be granted when the relevant language has a definite meaning and is unambiguous. Modelo argued that the sublicense plainly excluded the hard seltzers because they were not “beer,” “malt beverages,” or versions or combinations of either. Modelo contended that the term “versions” was limited to beverages with characteristics in common with “beer” and “malt beverages” and would not include “malt-free,” “hops-flavorless” hard seltzers.

The Second Circuit assumed for purposes of the opinion that the plain and ordinary meaning of “beer” and “malt beverages” excluded seltzers but reasoned that Corona Hard Seltzer and Modelo Ranch Water could plausibly be understood as a “version” of either. The Court found Modelo’s limited view of the term “versions” unpersuasive, given that the sublicense allowed for “nonalcoholic versions” of beer and malt beverages, even though dictionary definitions uniformly define “beer” as containing alcohol. Because each party’s reading of “versions” was at least plausible, the Court concluded that the relevant contract language was ambiguous and affirmed the district court’s summary judgment denial.

Modelo also argued that the district court failed to instruct the jury that undefined words should be given their plain and ordinary meaning and improperly instructed the jury to ignore dictionary definitions. The Second Circuit rejected this argument, noting that the instructions properly informed the jury [...]

Continue Reading

Back to the Future: Prior Third-Party Settlement Doesn’t Impact Future Trademark Licensees

by Gaylon C. Hollis | Sep 7, 2023 | Trademarks

The US Court of Appeals for the Eleventh Circuit ruled that under certain circumstances a trademark licensee can bring a claim against a third party for unfair competition under the Lanham Act even if the licensing agreement does not expressly authorize it to do so. Overhead Door Company of Kansas City v. OGD Equipment Company, LLC, Case No. 22-10985 (Fed. Cir. Aug. 22, 2023) (Branch, Brasher, JJ.; Winsor, Dist. J., sitting by designation).

This appeal involved three parties: D.H. Pace Company, Overhead Door Corporation and Overhead Garage Door (OGD). All three companies are involved in selling and servicing garage doors. Pace is a licensee of Overhead. Under its license, Pace is permitted to advertise and promote the trade name OVERHEAD DOOR COMPANY. OGD is a competitor of Overhead and Pace. Prior to the current appeal, Overhead and OGD had been involved in litigation involving OGD’s alleged trademark infringement and unfair trade practices, which resulted in a settlement. As a part of the settlement, OGD and Overhead could not bring suits against each other. However, the settlement terms were not expressly binding on any current or future licensees of Overhead.

In the current litigation, Pace filed suit against OGD for unfair competition in violation of § 43(a) of the Lanham Act, deceptive trade practices and various state trademark infringement violations. Pace alleged that OGD was leading consumers to believe that it was the same company as, or was affiliated with, Overhead (Pace’s licensor). In response, OGD moved for summary judgment, which the district court granted. The district court ruled that the licensing agreement between Pace and Overhead was a contractual bar to relief because the agreement did not affirmatively give Pace the right to sue. The district court also ruled that as a non-exclusive licensee, Pace lacked standing to bring its suit. The district court held that because Pace’s trademark rights were derived from a licensing agreement with Overhead, by discharging rights in the prior settlement with OGD, Overhead also discharged Pace’s right to sue.

Through a de novo review, the Eleventh Circuit disagreed with the district court’s grant of summary judgment against Pace. As the district court recognized, under § 43(a) of the Lanham Act, parties other than the owner of the mark can bring suit, but here the district court barred Pace’s claims based on the licensing agreement, Pace’s status as a non-exclusive licensee and the settlement agreement between OGD and Overhead. In reversing, the Eleventh Circuit held that none of these reasons was sufficient to bar Pace’s claims.

According to the Eleventh Circuit, the licensing agreement did not bar Pace from suing since there were no contractual term imposing a bar. While a licensee’s right to sue can be restricted, there was nothing in the licensing agreement at issue that limited Pace’s right to sue. The license agreement did not address trademark enforcement or either party’s ability to sue.

The Eleventh Circuit explained that the district court misread the Eleventh Circuit’s 2019 decision in Kroma Makeup v. Boldface [...]

Continue Reading

Copycat Fight: Office Depot Isn’t ‘Licensee’ of Materials Copied for Customers

by Katie Bukrinsky | Jan 22, 2020 | Copyrights

The US Court of Appeals for the Ninth Circuit affirmed a district court dismissal of a lawsuit brought by a nonprofit licensor of copyrighted math materials against a commercial duplicating company that copied the materials for licensee school districts for a fee. Great Minds v. Office Depot, Inc., Case. No. 18-55331 (9th Cir. Dec. 27, 2019) (Farris, J).

Great Minds publishes a copyrighted math curriculum called Eureka Math, which it licenses royalty-free to schools and school districts for “noncommercial” uses. The licensees are permitted to make copies of the materials for their own use. Great Minds reserves the right to collect royalties when the materials are used for “other than noncommercial” purposes.

(more…)