Friday, June 26, 2015

Trade secrets as a solution to the Brulotte issue?

Note How a trade secret could have saved a running royalty from a nearly invincible law

Amazingly, both parties later professed that they knew not of the seminal Brulotte case when they entered into the agreement. But Marvel ultimately “stumbled across” it, and thus ensued a DJ action that Marvel could cease paying upon conclusion of the patent’s story-arc.


Easier is the situation where there are trade secrets involved in the transaction, and know-how, show-how and who-doesn’t-know-what-how is so very often part of the deal. The so-called hybrid license. As Justice Kagan put it, “[t]hat means, for example, that a license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone).”

Frankly, that is a bit too much of a simplistic example, as the allocation between patent and trade secrets has implications, such as the impact on other just pure patent royalty deals to be had and valuation of the patent rights, just to name two. Further, savvy licensees are not likely to accept a deal that leaves the trade secret part of the arrangement running forever. But it can happen.


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