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Comment by derekp7 | Hacker News Reader

When a patent gets overturned, can those who already paid license royalties typically sue the patent holder to get their money back? (I know that the entity can file bankruptcy, so the chance of getting money is slim). Or do the license agreements typically include a clause that money is not refundable if the patent is invalidated?

Or, even worse, do license agreements typically include language that says the licensee agrees to continue to pay royalties even if the patent is later found to be invalid? I can see someone being strong armed into signing an agreement like that.

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It's only tangentially related, but it's a good story:

Apparently at some point an American producer licensed the patent for a mouthwash for a percentage of sale – I think it was Listerine, but can't find this story on Wikipedia right now. A decade or two later, the patent ran out. Anybody could now copy the formula without royalties. Except: the original licensor sued his american licensee for continued royalty payments. They won, because the initial contract never specified an end to the arrangement when the patent expired.

That case, Warner-Lambert Pharmaceutical v. John J. Reynolds, actually hinged on the fact that there was no patent license involved. Listerine's formula was a secret, and Jordan Lambert offered its creator royalties if he would share it with him. Later, the formula became widely known and Warner-Lambert wanted out of the deal since they were no longer getting any advantage from it. They sued to get out of their contract and recover past payments, citing patent cases as support for the idea that they should be set free of their obligations. The judge ruled that with patents, there is an understanding from the outset that they are paying for access to a time-limited monopoly, while the contract in this case was pretty clear about not having a termination date other than "whenever they stop making Listerine".

Source: http://law.justia.com/cases/federal/district-courts/FSupp/17...

Thank you – had trade secrets and patents mixed up in memory.

The current precedent in the United States is that a patent holder cannot collect royalties past the expiration of the patent, and license agreements requiring payments beyond expiration are unenforceable.

This doctrine is being challenged at the Supreme Court currently, in Kimble v. Marvel:

http://www.scotusblog.com/case-files/cases/kimble-v-marvel-e...

One wrinkle -- even under current case law, payments can still validly be collected for non-patent IP (most often trade secrets). Thus, the best practice from the licensor's is to delineate what portion of the royalty rate is attributable to the patent, the trade secret, the trademark, etc., and stop collecting each portion once the corresponding IP expires or is (finally, unappealably) held invalid.

A good license would probably say royalties are nonrefundable, and this makes sense -- if you threaten to sue me for $1 million and I settle for $25K, I've essentially paid to make the suit go away. So long as you don't sue me, I've got the benefit I bargained for. If it later turns out that the suit wouldn't have been valid, great, but it doesn't matter to me since I've already bought peace.

To your other question, though, no, a license that tried to force continued payments despite invalidation would be very atypical. In fact, to do so is currently per se unenforceable. (Note, though, that the Supreme Court might allow for some gray area in this rule in the coming months).

I am not sure if you're correct. In the This American Life episode on patents they interview someone discussing this precise issue, who is still on the hook for licensing fees despite someone else subsequently winning a patent action against the counterparty.

But what are they going to sue based on? If you have a contract of fees for patent use, and it becomes fees for nothing, it's no longer a contract, by definition.

If the only remaining thing is a fee to not sue for something they objectively have no rights to, that doesn't sounds like a proper exchange to me. But of course I'm not a lawyer.

Did the other person win a case about their use, or did they actually get the patent thrown out? Could make a big difference when it comes to others.

Interesting. I tracked down the transcript (http://www.thisamericanlife.org/radio-archives/episode/496/t...) and found the section I think you're remembering:

     And for the 16 companies that did settle, the verdict may not change anything. In most cases, these licensing agreements have language that makes them nearly impossible to get out of, no matter what happens with the patent later on. This week, we heard back from a spokesman from one of the companies that chose to settle.

     The spokesman wrote in an email, quote, "We were hit hard by this lawsuit. Infringement on our part seemed completely bogus, but we could not afford to fight it. Even with the settlement, we were forced to lay off employees. We are still--" and "still" is in all caps-- "still paying out on the settlement agreement. We were unaware that the patent had been invalidated. We will be contacting our attorney to see what recourse we may have."

It looks like in this case, it was more due to the licensee's inattention than a winning legal argument. (Unfortunately, this is an all-too-common occurrence, no matter what the law says.) I'd be curious to know what happened once they did contact their lawyer.

You aren't on the hook for future royalties for invalidated patents. But you don't get back royalties you already paid.

And typically you get a royalty for that company's entire portfolio of patents. So even if a few are invalid there are bunch more.

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