Updating policies that had been on the books for more than two decades, the U.S. Department of Justice and the Federal Trade Commission recently issued new Antitrust Guidelines for the Licensing of Intellectual Property.
The new Guidelines include several updates that reflect changes in the law since the 1995 guidelines were issued. For example, the new Guidelines now permit intellectual property license agreements to explicitly include provisions on resale price without being per se illegal. (Instead, price restraints in licensing agreements will now be analyzed under the rule of reason). The new Guidelines also contain changes relating to situations where an intellectual property license or transfer will be treated as a merger.
For more details and analysis of the new Antitrust Guidelines, my partner Ted Jobes recently published a summary that is available via this link on the Fox Rothschild website.
A covered business method (CBM) review is a tool that the America Invents Act (AIA) created to allow entities charged with infringement of a CBM patent to challenge the patent’s validity. A recent decision from the Patent Trial and Appeal Board (PTAB) shows that the “charged with infringement” requirement must be satisfied, or the PTAB will deny the petition.
In Ocean Tomo LLC v Patent Ratings LLC, the PTAB considered a CBM petition against a patent that was part of a license agreement to Ocean Tomo. Ocean Tomo filed a declaratory judgment action against the patent holder (Patent Ratings) on several grounds, including a count seeking declaratory judgment of non-breach of the license agreement. Ocean Tomo then filed a petition for CBM review of the patent.
The PTAB denied the petition, noting that Ocean Tomo had not been charged with infringement of the patent, and its declaratory judgment action did not include a count seeking a declaration of non-infringement. Instead, the PTAB found that “[t]he parties’ contract, tort, and related causes of action concern and arise from the fractured employment and business relationship between Petitioner and … Patent Owner, not from charges of infringement of the ’849 patent.” On that basis, the PTAB denied the petition.
In 2014, a group of America’s top technology companies created a unique way to combat the problem of patent assertion entities: the License On Transfer (LOT) Network. Founding members of the LOT Network included Canon, Dropbox, Google, SAP and Ford Motor Company. In September 2015, Enplug Inc., Inductive Automation LLC, and SilverEdge Inc. joined the network.
Members of the LOT Network must sign an agreement to grant the other members a perpetual, royalty-free license to the member’s patents upon the occurrence of a “Triggering Event.” Triggering Events include a transfer of a patent (other than a defined “Non-Assertion Transfer”), or a change of control in which the surviving entity is a non-assertion entity.
As of the time of this post (September 2015), the LOT Network included over 50,000 granted patents and nearly 300,000 patent assets (including patents and pending applications). It serves as a unique, market-based solution that allows members to put their patents on the line when facing the challenge of patent assertion entities.
In a much-anticipated decision, the U.S. Supreme Court has retained the long-standing rule that patent holders cannot charge royalties for use of a patent after its term has expired.
In Kimble v. Marvel Enterprises, Inc., the Court considered an appeal of a case in which the inventors of a toy with Spider-Man-like web-shooting capabilities sold a patent covering the toy to Marvel Enterprises. The agreement imposed a 3% royalty and had no expiration date. After the patent expired , the inventors filed suit for breach of contract. Marvel argued that it was not obligated to pay royalties for sales made after the patent’s expiration. Both the district court and the U.S. Court of Appeals for the Ninth Circuit agreed with Marvel, but the inventors appealed to the Supreme Court.
In the appeal, the inventors argued that the the 50-year-old rule of Brulotte v. Thys Co., which states the “a royalty agreement that projects beyond the expiration date of the patent is unlawful per se,” was “[a] product of a bygone era” and should be overruled.
The Court disagreed. While acknowledging that “[t]he Brulotte rule … prevents some parties from entering into deals they desire,” the Court favored retaining the status quo since overturning the prior decision would “upset expectations” and there was no “superspecial justification” warranting reversal.
In addition, the Court noted that there are many ways for parties to structure deals that provide longer royalty periods without violating Brulotte, including:
- payments for use of an invention during the patent’s term can be deferred into a post-expiration period;
- post-expiration royalties can be tied to a non-patent right (such as a license of trade secrets); and
- other business arrangements (such as joint ventures) can confer benefits long after a patent term has expired.
Patent licensors who want a longer royalty term should carefully draft license agreements to ensure that the royalties fall under these exceptions to the Brulotte rule and are not considered to be merely post-expiration patent royalties.
After a period in which the Court has seemed eager to change a number of fundamental principles of U.S. patent law, the Court’s citation of stare decisis in Kimble v. Marvel Enterprises, Inc. may strike some as surprising. At a minimum, it suggests that the Court isn’t ready to completely abandon predictability in U.S. patent law.
When drafting and negotiating a license agreement, it’s tempting for the parties to simply use definitions and so-called “standard” paragraphs that are taken from previous agreements. This can be risky. Even paragraphs that might be considered boilerplate need to be carefully reviewed to ensure that they are consistent with the parties’ intent
The Licensing Journal recently published my article “Defining ‘Affiliate’: Pay Attention to the Boilerplate“, in which I describe two examples in which boilerplate terms led to unintended consequences. For more details, click the hyperlink above for the full article.
UPDATE: On June 22, 2015, the Supreme Court upheld the Federal Circuit’s decision in this case. For more details, see this IP Spotlight post.
2015 could prove to be a time of change for patent licensing law, as the Supreme Court recently agreed to review the long-standing rule that a patent holder may only receive royalties during the term of a patent, and not after it expires.
In the case that is the subject of the appeal, Kimble v. Marvel Enterprises, Inc., the inventors of a toy with Spider-Man-like web-shooting capabilities sold a patent covering the toy to Marvel Enterprises. The agreement imposed Continue reading
When licensing a patent, software, copyrightable work or other intellectual property, it’s common for the agreement to license the property to a particular entity and its “affiliates.” The agreement may define the term “affiliates.” But are the parties always sure that the definition includes all parties that they actually intend to include?
Following on the heels of a recent, similar decision from United States District Court for the Central District of California, the Court of Appeals of the State of New York held that a license granted to an entity and its “affiliates” is limited to affiliates that were in existence on the effective date of the license agreement, unless the agreement expressly states otherwise.
Although the licensee typically benefits when the agreement contains a broad definition of affiliates, the new case is unique because it shows that a licensor can also benefit from a broader definition in certain situations.
The New York case, Ellington v. EMI Music, Inc., involved the terms of a royalty provision found in a 1961 copyright renewal agreement between the legendary musician Duke Ellington and a group of music publishers, Continue reading