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The Intellectual Property StrategistFeaturesIntellectual PropertyPatent Licensing and Transactions

Can a Licensor Receive Royalty Payments Beyond the Life of Patent Protection?

By Matthew Golden
October 01, 2024

An axiom of patent licensing is that a patent owner cannot receive royalty payments for post-expiration use of its patented technology. However, in exercising their rights to freedom of contract, parties to an IP license may desire flexibility in how they structure payments for the underlying licensed IP. For example, the parties may be willing to trade upfront payments and higher royalty rates for an extended life of royalty payments at a lower royalty rate. How do you determine if the ongoing royalty obligations that extend beyond the life of underlying patent protection, even if agreed to by the contracting parties, are enforceable? A recent decision by the U.S. Court of Appeals for the Third Circuit shows what types of license arrangements pass the test.

The Ares Case

The dispute in Ares Trading SA v. Dyax Corp., 2023 U.S. Dist. LEXIS 40484, revolves around multiple players involved in a process of drug development, each of whom is trying to get a piece of the ultimate pie:  revenue based on sales of the resulting drug product. In this case, the drug product was an antibody-based cancer therapeutic that was discovered using patented antibody-screening technology owned by Cambridge Antibody Technology (CAT). CAT licensed its patents to companies including Dyax to perform antibody screening in exchange for royalty payments based on the subsequent sale of the developed drug product.

In the transaction at the center of the Ares dispute, Ares had hired Dyax to perform antibody screening for a particular biological target identified by Ares. Ares then developed one of the antibodies Dyax uncovered into the commercial cancer therapeutic. Under its license with CAT, Dyax was required to pay a royalty on any drug product discovered using the CAT-patented technology. Dyax sublicensed its rights under the CAT license to Ares along with its royalty obligation, which required Ares to pay Dyax a royalty for the longer of the life of the CAT patents or 10 years from the first sale of the drug. In this case, Ares did not begin sales of its drug product until 2017, and the CAT patents expired in 2018. Thus, Ares had agreed to pay royalties well beyond the life of the underlying CAT patents.

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