Key Takeaway: A recent Ninth Circuit
decision in C.R. Bard v. Atrium reinforces the long-standing
Brulotte rule against post-expiration patent royalties but
clarifies that courts should assess this strictly as a legal
question, not based on intent or negotiation history. This decision
underscores the importance of clearly drafted licensing terms,
particularly in industries like life sciences where regulatory
timelines may interact unpredictably with patent expiration.
I. Introduction and Background: Brulotte and
Kimble
Patent rights are typically limited to a term of
twenty-years, creating a limit on a patent holder's exclusive
rights.1 Patent holders who create an anticompetitive
effect by improperly extending the scope of this limited term may
commit patent misuse.2 Patent misuse is an affirmative
defense to patent infringement, and can arise when a patent holder
seeks royalties on a patent past its expiration
date.3
Patent-licensing agreements that include post-expiration royalties can constitute patent misuse, which has both long-withstanding precedential roots and modern interpretive support.4 The seminal patent misuse case, Brulotte v. Thys Co., established a bright-line rule prohibiting post-expiration royalties.5 Here, a patent-licensing agreement that sought royalty payments after the expiration of patents directed to hop-picking machines was deemed unlawful (and thus unenforceable).6
Fifty years later, this principle arose again at the Supreme Court.7 In Kimble v. Marvel Ent., LLC, the Court affirmed the Brulotte rule, but also recognized that contracting parties can work "around" this prohibition, e.g., through use of a payment deferral.8 The Court clarified the application of Brulotte—noting that "[a] court need only ask whether a licensing agreement provides royalties for post-expiration use of a patent. If not, no problem; if so, no dice."9
II. Modern Interpretation and Case Study: C.R. Bard,
Inc. v. Atrium Medical Corp.
a. Factual Background and District Court
Decision
In 2024, nearly a decade after Kimble, the Ninth
Circuit reconsidered Brulotte's prohibitive rule in
C.R. Bard, Inc. v. Atrium Medical Corp.10 Bard
held two patents related to vascular grafts—one in the U.S.
and one in Canada. Bard initially sued Atrium for patent
infringement; the parties ultimately settled in 2011 via a
licensing agreement whose terms included per-unit royalty and
minimum royalty provisions.11 The per-unit provisions
stated that Atrium would pay Bard (1) a 15% per-unit royalty on
U.S. sales until the U.S. patent's expiration in 2019, and (2)
a 15% per-unit royalty on Canadian sales until the Canadian
patent's expiration in 2024.12 The minimum royalty
provision provided that such royalties would not be less than $15
million per year.13
Atrium's "iCast" stent was initially exempt from these provisions, as it was used only in patients' airways, as approved by The Food and Drug Administration ("FDA").14 Simultaneously, and during agreement drafting, Atrium sought FDA approval for vascular uses of iCast, anticipating an increase in sales.15 As a result, the licensing agreement provided that, once FDA approval for vascular use was granted, iCast sales would become subject to the 15% per-unit royalty, and the minimum royalty provision would end.16
Annual sales for iCast never rose above $15 million, so Atrium was required to pay the minimum royalty under the agreement until the expiration of the U.S. patent in 2019, when Atrium ceased making payments based on U.S. sales.17 Atrium then made only per-unit royalty payments based on Canadian sales, which were much lower than what the payments would have been under the minimum royalty provision.18 Atrium ceased payments altogether in 2021 when Bard filed suit for breach of contract, alleging that Atrium had failed to make payments under the minimum royalty provision of the agreement.19 Notably, the FDA approved the iCast stent for vascular use in 2023—long after the U.S. patent's 2019 expiration and the onset of the dispute, but, importantly, before the Canadian patent expired.20
The district court ultimately ruled, after hearing testimony largely related to Bard and Atrium's licensing agreement negotiations, that the minimum royalty provision constituted patent misuse under Brulotte, based on the provision's "purpose."21
b. Ninth Circuit Decision
On appeal, the Ninth Circuit reversed the district court
decision, and found that Bard's minimum royalty provision did
not rise to patent misuse under Brulotte.22
This decision clarifies that the Brulotte rule is a
question of law—and that the parties' motivations do not
matter.23
The Ninth Circuit established a modified, two-step patent misuse analysis: courts must first (1) determine the parties' contractual obligations under state law, then (2) determine whether these obligations run afoul of Brulotte (i.e., does the contract provide royalties after a patent's expiration?).24 This latter step is not a fact inquiry (as the district court seemed to reason), and thus courts should not rely on the parties' subjective motivations, negotiation history, or respective contractual consideration.25
As for the agreement in question, the per-unit royalty provision unambiguously provides royalty payments "on each respective patent only until that patent expires,"—meeting the second, Brulotte-compliance analytical prong.26 The minimum royalty provision similarly meets this test.27 The agreement language stated that this provision would terminate only when the FDA approves vascular use or otherwise rescinds approval—neither of which occurred until 2023 (four years after Atrium stopped making such minimum payments for both U.S. and Canadian patents).28 Since both provisions complied with Brulotte, patent misuse was found in error by the district court.29
III. Practical Implications and Guidance
Bard highlights the importance of careful
contract drafting and diligence. When preparing patent license
agreements, exercising clarity and precision is standard. However,
less obvious is the need to consider potential outcomes
related to royalty provisions (and triggering events therein),
which can be especially important in the life sciences sector,
where regulatory approvals can be unpredictable and product
commercialization often occurs close to an underlying patent's
expiration. The two-step Bard analysis affirms the
Brulotte principle and clarifies its proper
application—offering a modern perspective on a decades-long
doctrine.
*Article written by Benjamin Bafumi, a law clerk at Baker Botts
Footnotes
1 35 U.S.C. § 154. Patent Term can be extended in certain circumstances through Patent Term Extension and/or Patent Term Adjustment. See Paul Ragusa, Maximizing Patent Term in the United States: Patent Term Adjustment, Patent Term Extension, and the Evolving Law of Obviousness-Type Double Patenting, Baker Botts (Mar. 3, 2025), https://www.bakerbotts.com/Thought-Leadership/Publications/2025/January/Maximizing-Patent-Term-in-the-United-States.
2 See, e.g., Virginia Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868 (Fed. Cir. 1997); Monsanto Co. v. McFarling, 363 F.3d 1336, 1341 (Fed. Cir. 2004); 35 U.S.C. § 271(d)(5).
3 Id.
4 E.g., Brulotte v. Thys Co., 379 U.S. 29, 85 S. Ct. 176, 13 L. Ed. 2d 99 (1964).
5 Id. at 32-33.
6 Id. at 31 (license agreement was invalidated because "it allow[ed] royalties to be collected which accrued after the last of the patents incorporated into the machines had expired.").
7 Kimble v. Marvel Ent., LLC, 576 U.S. 446, 135 S. Ct. 2401, 192 L. Ed. 2d 463 (2015) (discussing licensing agreements related to Spider-Man toys that shoot foam-string webs).
8 Id. at 453-454.
9 Id. at 459. Emphasis added.
10 C.R. Bard, Inc. v. Atrium Med. Corp., 112 F.4th 1182, 1188 (9th Cir. 2024).
11 Id.
12 Id.
13 Id.
14 Id.
15 Id.
16 Id. (the agreement also provided that minimum royalty payments would similarly end if the FDA were to rescind previous approval of other uses).
17 Id.
18 Id.
19 Id. at 1188.
20 Id.
21 Id. (finding patent misuse where the "clear and primary purpose of the minimum royalty provision was to compensate Bard for iCast sales").
22 Id.
23 Id. at 1191.
24 Id. at 1186.
25 Id. at 1191.
26 Id. at 1192.
27 Id.
28 Id. at 1192-1193.
29 Id. at 1193 (noting Brulotte "does not prohibit royalties that are, by their terms, royalties for something other than use of the expired U.S. patent.").
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