In the world of patents, the stakes can be very high where awards can reach into the hundreds of millions of dollars and sometimes billions of dollars. When a license is given, royalties are paid on products covered by the patents being licensed. It might seem to be easy to determine whether royalty should be paid or not on a given product. However, it is often not that easy.
Frolow, the patentee extended a license to Wilson Sporting Goods for technology related to tennis rackets. The technology required the tennis racket to have a certain moment of inertia which could change based on the way the racket was tested with strings, the way the racket was strung, etc.
Wilson filed a summary judgement motion requesting the court to dismiss the case because the case is so weak that no jury would ever find in favor of Frolow even if all of the facts were in his favor. Here, Frolow provided evidence that Wilson marked at least some of the rackets with the patent numbers of the patents licensed by Frolow over the course of the patent until it had expired. However, Wilson did not pay royalties on those rackets. The district court dismissed the case on summary judgement but the Federal Circuit held that Wilson’s conduct of marking the rackets with the licensed patents constituted evidence that should be considered as to whether there is a breach of the license between Frolow and Wilson.
Frolow wanted the instances of patent marking to operate as marking estoppel. This simply means that Frolow wanted to the court to prevent Wilson from asserting that the rackets are not within the scope of the licensed patent because they had intentionally marked the rackets with the licensed patents. This would be considered an “admission” in the sight of the law. Hence, Wilson should not be able to deny this admission at trial. Also, Wilson should pay royalties on the rackets. Some circuits would impose marking estoppel whereas other circuits would not. The federal circuit has spoken and has rejected the doctrine of marking estoppel.
Wilson’s position is that the instances of patent marking was inadvertent and a mistake. The Federal Circuit held that summary judgment is improper because of Wilson’s marking of the rackets with the patent numbers. However, the Federal Circuit warns us that if it was beyond dispute that the accused product was mis-marked, summary judgment would have been appropriate. It seems here that the Federal Circuit looked at the continuous conduct of Wilson’s marking program and deemed that it would be inherently unfair for Wilson to get off on summary judgment without having to go through discovery and trial.
Based on this case, it is important to make a determination of whether a product is covered by a patent or not before marking the product with a patent number and before paying royalties. Sometimes, clients will pay the royalty fee when there is enough profit because clients don’t want to bother with litigation and negotiation. It is simpler just to pay the royalty. However, if the product becomes very successful or profit margins are reduced, you may be stuck with paying royalties into the foreseeable future.
I invite you to contact me with your patent questions at (949) 433-0900 or [email protected]. Please feel free to forward this article to your friends. As an Orange County Patent Lawyer, I serve Orange County, Irvine, Los Angeles, San Diego and surrounding cities.