1 October 2015Jurisdiction reportsPaul Sutton

US: The expired patent royalty ban

This monopoly right arises directly from the patent and copyright clause of article I, section 8, clause 8 of the US Constitution, and underlies what can be considered a ‘bargain’ made between the US government and inventors. In return for making a full disclosure of one’s invention(s) in the form of an issued published patent, a patent owner enjoys what is an exclusive monopoly covering these inventions.

Since June 8, 1995, the term of this monopoly is 20 years, measured from the earliest effective filing date of the patent application on which a patent filed thereafter is based. Once the patent expires, this monopoly right expires such that the invention enters the public domain, with the public able to enjoy practising the invention free and clear of any patent claims.

The importance of the expiration of a patent’s monopoly term cannot be overemphasised. It is an essential element in the ‘bargain’ just described. In general, monopolies are discouraged, and US anti-competition laws have been adopted in order to discourage and make unlawful a party’s effort to create a monopoly. Monopolies give the monopoly-holder the ability to fleece the purchasing public, since there is no free market competition to keep pricing within a reasonable range. The holder of a monopoly covering essential types of goods, such as pharmaceuticals, may be in a position to charge exorbitant amounts from those segments of society least able to afford them.

Exceptions to the rule

While generally the term of a US patent cannot be extended beyond the 20-year term, there are a few exceptions to this law. They include the following: patents that require approval from the US government may result in a period of time during which their owners are unable to sell their product. Medical devices, for example, may require Food and Drug Administration approval, requiring extensive testing over a long period of time before approval is forthcoming.

Similarly, additives used in food preparations fall into this category. Such patents may be eligible for an extension of their terms under the US Hatch-Waxman Act. Yet another basis for the US Patent and Trademark Office (USPTO) granting a patent term adjustment may be because of a delay caused by the USPTO itself during the patent prosecution process due to the backlog of patent applications being examined.

As expected, there will always be those who will seek to circumvent the limitations of the patent monopoly, such as by crafting agreements that avoid these limitations. Licensing agreements that call for royalty payments to continue after the expiration of patent and IP rights are barred under the current state of the law in the US.

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