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

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.