Terminating a License Agreement Precludes Recovering Post-Judgment Royalties Under the Agreement

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A patent license agreement typically permits a licensee to avoid patent infringement liability in exchange for a payment under the license agreement. If a licensee breaches its agreement with a licensor, the licensor can choose one of two remedies: (1) terminate the agreement and sue for patent infringement, or instead, (2) keep the agreement in force and sue for payments due under the agreement.

Electing to proceed by terminating the agreement opens the door to patent infringement damages for past infringement as well as damages for infringement that occurs in the future after the court renders judgment. However, terminating the license agreement — which may be a prerequisite for a finding of infringement — will bar post-termination royalties based on the royalty obligations in license agreement itself. The United States Court of Appeals for the Tenth Circuit recently addressed the issue of post-judgment royalties based on terminated licensing agreements in Lab. Corp. of America Holdings v. Metabolite Labs., Inc., No. 10-1194 (10th Cir. Feb. 2, 2011).

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