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Unraveling The Conundrums Of Running Royalties In Cross-Border Patent License Agreements

By Mizuki Hashiguchi

Adjacent to the glorious and delicate stained glass of Sainte-Chapelle stands the magnificent “Palace of Justice,” currently housing the Court of Appeal of Paris.1 The court encountered an enigma involving patent royalties and European competition law. A license agreement licensed three patents. One patent was subsequently revoked. The other two patents were later found not to be infringed by the licensee. Yet, the license agreement imposed an obligation on the licensee to pay running royalties throughout the contractual term. Is the imposition of this obligation permitted under Article 101 of the Treaty on the Functioning of the European Union?

The Court of Appeal of Paris referred this question to the Court of Justice of the European Union. On July 7, 2016, the Court of Justice of the European Union issued a judgment answering the question in the affirmative.

Analyzing the judgment in comparison with legal precedent in the United States such as Kimble v. Marvel Entertainment evinces differing judicial approaches to interpreting license agreements and discerning the parties’ commercial intent when royalty payments and patent monopoly are at issue. Similar cases in the United States, France, and Japan provide practical guidance concerning the licensees’ obligation to pay royalties and whether licensees are entitled to a refund when the licensed patents are ultimately invalidated.

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