In Go Medical v. Inmed Corp, the Federal Circuit reviewed the decision of the US District Court for the Northern District of Georgia concerning patent invalidity, trademark infringement and damages awards related to licensing of a patented catheter. The urinary catheter had been licensed to Medical Marketing Group (MMG) by Go Medical. The Federal Circuit, affirming the lower courts findings that the patent was invalid and trademark infringement and damages, reversed the lower court’s award of contract damages, citing misapplication of the Lear doctrine.
In Lear Inc. v. Adkins, 395 U.S. 653 (1969), the Supreme Court held that a licensee was not estopped from challenging the validity of the licensor’s patent. Under the Lear doctrine, as applied by the Federal Circuit in Studiengesellschaft Kohle, MBH v. Shell Oil Co., 112 F.3d 1561 (Fed. Cir. 1997), a licensee will not be relieved from paying royalties until the date the licensee first challenges the validity of the patent. The licensee must first i) actually cease payment of royalties, and ii) provide notice to the licensor that the reason for ceasing payment of royalties is because it has deemed the relevant claims of the patent to be invalid.
The Federal Circuit, in reviewing the district courts opinion, held that the lower court had failed to properly apply this standard. During the course of the agreement between Go Medical and MMG as licensee, Go Medical sued a third party (Bard) for infringement of the patent. The patent was found invalid. Several months after this decision, MMG notified Go Medical that they believed they no longer had a contract because the district court had found the ‘259 patent invalid, and began placing royalty payments “in an escrow account, until such time as the appeal [was] decided.” The district court held that MMG was relieved of the obligation to pay any royalties– not after the date of the letter– but immediately following the finding of patent invalidy during Go’s litigation with the third party. The Federal Circuit held that this application of Lear was in error, and remanded for a recalculation of the contract damages.
The Federal Circuit accused MMG of “trying to have it both ways,” in urging Go Medical to sue Bard from infringement, then benefiting from the later reversal of invalidity. Tthe Federal Circuit also found it significant that while MMG urged Go Medical to sue the third party, MMG failed to file its own declaratory judgment suit to challenge the patent’s validity. Further, Federal Circuit noted that the letter itself failed to state that the reason for ceasing payment of royalties was that the MMG deemed the ‘259 patent invalid. The Court held that, even if the letter had been sufficient to consitutue the requisitre notice under Lear, the district court still erred in finding that Lear relieved MMG from all royalty payments immediately following the judgment of invalidity in the action involving the patent holder and a third party, prior to the letter sent by MMG.
Thus, Go Medical makes clear that a licensor cannot merely look towards litigation with a third party in ceasing royalty payments to a licensor, assuming that a finding of invalidity relieves the duty to pay under a license. Rather, as set forth by Kohle and Go Medical, a licensee is relieved of the royalty payments under Lear only if payment of royalties is actually ceased, and clear notice is given to the licensor stating that the relevant claims are believed invalid. Only from this date can a licensee be relieved of paying royalties under a license.
