Effect of expiration of the patents on royalty agreement

The effect of the expiration of any of the patents on the royalty agreement was originally decided by the Supreme Court of the United States of America in Brulotte v. Thys Co. 379 U.S. 29 (1964), where it was held that, an agreement instructing to pay royalties even after the expiry of the patent is nothing but abuse of the patent rights and the same is not enforceable under the Clause of the American Constitution.

Brulotte v. Thys Co.

Facts: Brulotte, a farmer from Washington purchased a hop-picking machinery from Thys Co. (for which he holds certain patents), on a flat rate and entered into a royalty agreement with Thys Co. However, royalty agreement was silent on the tenure of royalty period. Though the patents attached to the above mentioned machinery got lapsed in the year 1957, Thys Co. sued Brulotte for the default of royalty, where Brulotte counterclaimed the misuse of the patents through extension of the license agreements beyond the expiration date of the patents.

The trial court rendered judgment for respondent, and the Supreme Court of Washington affirmed.

Opinion of the Court

While delivering the Opinion of the Court, JUSTICEDOUGLAS, observed that, any attempted reservation or continuation in the patentee or those claiming under him of the patent monopoly, after the patent expires, whatever the legal device employed, runs counter to the policy and purpose of the patent laws [Scott Paper Co. v. Marcalus Co., 326 U.S. 249(1945)].

Thus, the patent rights become public property once the 17-year period expires. However, the Court rejected the claim that the royalty agreement simply extended the payment of royalty over a longer period on the ground that, the royalty is clearly proportioned to the extent of use of the machinery after the expiry of patents attached to it.

Patent vests the right on patent holders to extract royalties as high as they can negotiate with the influence of such dominance. However, in order to use such leverage to project those royalty payments beyond the expiry of patent is analogous to an effort to enlarge the monopoly of the patent by tying the sale or use of the patented article to the purchase or use of unpatented ones. Thus, the Court concluded that a patentee’s use of a royalty agreement which projects beyond the expiration date of the patent is unlawful per se.

However, while dissenting the Opinion of the Court, JUSTICEHARLAN expressed his view that, person may not restrict use of a patented idea once it has fallen into the public domain. But here in this case, Thys sells both a machine and the use of an idea. Thus, Thys should be free to restrict the use of its machine even beyond the expiry of patent life.

Though the decision was widely criticized by the academic community, the Supreme Court refused to accept such criticism and refused to overrule the Brulotte decision in Kimble v. Marvel Entertainment, LLC, 576 U.S. ___ (2015).