Collecting Royalties for Patents After They Expire

Patents usually expire 20 years after the date they were filed.   Why is this important to know?  Good question!  Typically, when the patent expires, the patentee’s rights expire too and it becomes part of the public domain.

On June 22, 2015, the US Supreme Court came to a very important decision in Kimble v. Marvel.  Basically, the Court affirmed the 1964 ruling of Brulotte v. Thys, that royalties cannot be collected on sales after a patent expires.

However, as Justice Kagan notes, there are ways around the Brulotte rule.

According to the opinion (found here) :

“Yet parties can often find ways around Brulotte, enabling them to achieve those same ends.  To start, Brulotte allows a licensee to defer payments for pre-expiration use of a patent into the post-expiration period; all the decision bars are royalties for using an invention after it has moved into the public domain.  See 379 U. S., at 31; Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 136 (1969). A licensee could agree, for example, to pay the licensor a sum equal to 10% of sales during the 20-year patent term, but to amortize that amount over 40 years. That arrangement would at least bring down early outlays, even if it would not do everything the parties might want to allocate risk over a long timeframe. And parties have still more options when a licensing agreement covers either multiple patents or additional non-patent rights. Under Brulotte, royalties may run until the latest-running patent covered in the parties’ agreement expires.  See 379 U. S., at 30.  Too, post-expiration royalties are allowable so long as tied to a non-patent right—even when closely related to a patent.  See, e.g., 3 Milgrim on Licensing §18.07, at 18–16 to 18–17. That means, for example, that a license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone).  Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties—all kinds of joint ventures, for example—that enable parties to share the risks and rewards of commercializing an invention.”

Basically, if the parties enter into an agreement, they need to specify post-expiration royalties.

Although the Court as affirmed the Brulotte decision, they have also allowed for various patent licensing opportunities to spread patent royalty payments after the expiration of patents.