By François deVilliers, Chief IP Counsel, Plantronics, Inc.
When negotiating a patent license, the family of patents may not have matured fully yet. The “Licensed Patents” are thus normally expressly defined to be “anything related” to the original patents (typically continuing applications and foreign counterparts) and are listed in an exhibit that may be updated during the term of the agreement as additional patents issue or are filed. The term of the license agreement is then usually defined as ending upon “the expiry date of the last to expire of the Licensed Patents.”
There may only be one or two relevant patents but the Licensee is typically amenable to a broader definition of Licensed Patents because this could reduce the likelihood that the Licensor will come knocking again and there is a perception that more licensed patents equals more value. If the license is fully paid up then there is no real problem – a broader definition of Licensed Patents may in fact be better and the expiry date is irrelevant except perhaps for amortization by the accountants.
If there are ongoing royalties then there are a number of concerns.
Firstly, if there is no defined end date when the contract details are entered into the relevant legal and financial systems, there might be no flag to cease royalty payments when the license finally expires. Don’t expect the licensor to notify the licensee of the end date either when it becomes determinable or when it arrives. Do an audit right now of patent license agreements and payments, determine the expiry dates if possible or docket a reminder if not possible and investigate whether any post-expiry license payments have been made and if they can be recovered.
Secondly, licensors have been known to add later-expiring, irrelevant but ostensibly “related” patents to updates of their exhibits. While the US twenty year patent term has alleviated this problem somewhat, all it takes is one “related” patent with a significant patent term adjustment for a licensee to be on the hook for another year or two. Review any updates to exhibits and reject any that add later-expiring irrelevant patents. Be mindful though of the language of the agreement – there may be a risk of a breach of contract claim.
Thirdly, foreign counterparts may expire a year later than their local counterparts. A first-filed US patent without a term extension will expire twenty years from its filing date, while a corresponding UK patent filed up to a year later claiming priority from the US filing will expire twenty years from its filing date. If the license agreement does not comprehend geographic differences in the royalties due, the licensor may end up paying post-expiration royalties in its biggest market as a result of the existence of a later-expiring patent in an irrelevant market.
Of course the best time to deal with these issues is at the time the agreement is negotiated. If at all possible, specify or negotiate a specific date when the license terminates based on the expiry date of a representative and relevant patent. Provide that the license becomes fully paid up on this expiry date with respect to all related or “Licensed Patents” to avoid the possibility of a post-expiry claim based on an extended or later-expiring related patent. If it is not possible to specify an explicit expiry date, include “relevant” in the definition of related patents and require that the licensor motivate any update to the exhibit listing the Licensed Patents. Alternatively (or in addition), provide for breach-free rejection of an updated schedule by the licensor even if the added patent(s) fall within the strict definition of “related patents.” Further, make sure that patents in lesser jurisdictions don’t extend payments in the most important jurisdictions. Finally, the recent Kimble v. Marvel Entertainment ruling reaffirming the bar on post-expiry royalties may be of assistance in any negotiation.