Lear, Inc. v. Adkins

1969-06-16

Headline: Patent licensing tightened: Court allows companies to challenge patents and avoid post-issuance royalties, limits an older rule that blocked licensees from disputing patents, and leaves pre-patent payment rules to state courts.

Holding: The Court held that a licensed company may challenge a patent’s validity, rejected the old rule that barred licensees from disputing patents, and allowed companies to avoid paying royalties after patent issuance if the patent is proved invalid.

Real World Impact:

Allows licensees to challenge patents and stop post-issuance royalty payments.
Overrules an old rule that blocked licensees from disputing patents.
Leaves pre-patent royalty enforcement to state courts on remand.

Topics: patent challenges, license royalties, trade secrets, state contract law

Summary

Background

An inventor working for a manufacturer developed improvements to aircraft gyroscopes and later applied for a patent. He signed a license with the company in 1955, before the patent issued in 1960, and later sued when the company stopped paying royalties. The California Supreme Court enforced the contract and blocked the company from challenging the patent while the license remained in effect.

Reasoning

The high Court reviewed the long history of cases about whether someone who agreed to a license can later challenge the patent behind that license. It concluded that the old rule barring such challenges was no longer sound and should not prevent licensees from testing patent validity. The Court specifically held a licensed company may challenge a patent and said that the company can avoid paying royalties that accrue after the patent issues if it proves the patent is invalid. The Court overruled the prior broad protection that had blocked such challenges.

Real world impact

Companies that pay royalties under licenses can now mount full challenges to patents and, if successful, stop paying royalties that came due after the patent issued. The Court did not decide whether States may enforce agreements that give inventors payment for secret ideas before a patent issues; it left that difficult question to the state courts on remand, so some pre-patent royalty claims may still survive under state law.

Dissents or concurrances

Several Justices wrote separately. One Justice agreed with the result but said the Court should have resolved the state-contract question now and prevented States from enforcing pre-patent payment deals; another urged restraint and leaving more questions to the state courts.