Why would you pay a licence royalty if you do not need to?

Published onJanuary 2018

On the 26th of September of 2017, the Court of Appeals of Paris issued the final decision in the case that lead to the decision of the Court of Justice of the European Union of the 7th of July of 2016 that we commented here (Royalty for a patent: what do you really pay for?).

For the Court of Justice, Competition Law did not preclude the imposition on the licensee, under a licence agreement, of a requirement to pay a royalty for the use of a patented technology in the event of the revocation or non-infringement of a licenced patent, provided that the licensee is able freely to terminate that agreement by giving reasonable notice.

In other words, the Court of Justice decides that paying a royalty for the use of a patented technology that in fact you do not use does not breach competition rules.

Of course, the Court of Appeals of Paris followed the judgment issued by the Court of Justice. After the case was reinstated, the Court reviewed the licence agreement and concluded that i) it did not prevent the licensee to contest the validity of the patents (as a matter of fact the licensee had brought cancellation actions against the patents) and that ii) it allowed the licensee to terminate the contractual relationships at any time by giving a two-month notice (which the licensee did actually).

The Court of Appeals of Paris consequently considered that the arbitral decision imposing on the licensee to pay a royalty for a patented technology that it did not use was not contradictory to international public order.

It means that the licensee must regularly assess the strategic, commercial or industrial interest and value of a licence agreement as long as it is in force. If and when the granted IP title or IP right is no longer of interest, one must terminate the licence agreement or at least renegotiate.

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