Tones that Echo from a Past Era of Rigid Jurisprudence: Pre-Challenge Royalties and the Federal Circuit's Shell Test
40 Pages Posted: 30 Oct 2015
Date Written: September 1, 2015
In the 1969 decision Lear v. Adkins, the Supreme Court held that patent licensees were no longer estopped from challenging the validity of licensed patents, citing the “federal patent policy” of incentivizing prompt adjudication of the validity of patents. In the 1997 Shell decision, where the licensed patent was found invalid, the Federal Circuit nevertheless held that a licensee was not relieved of royalty obligations that had accrued prior to the licensee’s validity challenge. The decision as a whole applied Lear in view of its underlying policies and reached the correct result. However, the end of the decision sets forth a one-sentence test which, when applied rigidly, can lead to results contrary to the policies and equitable considerations underlying both the Lear and Shell decisions. Some district courts have applied Shell’s test rigidly, whereas others have taken a more holistic and flexible approach. This article argues that the holistic and flexible approach to Shell is the correct one, comporting better with both Shell’s developmental roots, and the Supreme Court’s current tendency to repudiate rigidity in Federal Circuit jurisprudence. Besides the factors captured in Shell’s one-sentence test, an examination of the Shell opinion and the doctrine as a whole reveals that courts should also consider the structure of the license agreement at issue, as well as the nature of the invalidating prior art, in deciding whether and when a licensee should be relieved of royalty obligations accrued under an invalid patent.
Keywords: patent licensing, lear, federal circuit, rigid jurisprudence
JEL Classification: K11, K12
Suggested Citation: Suggested Citation