Jonathan Masur Cited by Eighth Circuit on Patent Licenses

Medtronic, Inc. & Consolidated Subsidiaries Appellee, v. Commissioner of Internal Revenue Appellant

For example, take lump sum payments. As one academic has noted, "courts generally frown upon the use of one type of license—for instance, a lump sum license—to calculate a different type of license, such as a running royalty in which the defendant pays per unit sold over time." Jonathan S. Masur, The Use and Misuse of Patent Licenses, 110 Nw. U. L. Rev. 115, 124 (2015). Indeed, the Federal Circuit has held that "certain fundamental differences exist between lump-sum agreements and running-royalty agreements." Wordtech Sys., Inc v. Integrated Networks Solutions, Inc., 609 F.3d 1308, 1320 (Fed. Cir. 2010) (internal quotation marks omitted) (rejecting comparison between lump-sum and royalty licenses and remanding for new trial on damages). Here, as Judge Wollman's opinion notes, the Pacesetter-Medtronic agreement contained a $75 million lump-sum payment whereas the Medtronic US-Medtronic Puerto Rico agreement was a royalty-only one. The tax court failed to grapple with this difference.

Read more at United States Court of Appeals, Eighth Circuit