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How long do royalties last?

Inventors and creators in Minnesota are legally entitled to royalties for their intellectual property such as products, inventions and artistic creations. However, this right does not last into perpetuity.

Patent laws attempt to strike a balance between encouraging innovation and ensuring public access to discoveries. The federal government issues patents that protect this intellectual property for a limited time, 20 years. During the patent's duration, the patentee has exclusive rights to the patented article and may sell or license the property for royalty payments. After 20 years and the rights to profit from the product pass to the public.

The U.S. Supreme Court has repeatedly invalidated state laws and private contracts that restrict access to products once the patents have expired. This is often undesirable because a more extended payment period for royalties at a lower rate, even beyond the end of the patent period, may allow the patent holder to negotiate a better price or better allocate the risks and rewards related to commercializing innovations.

However, a patent licensee may defer payments for pre-expiration use of a patent into a post-expiration time period. This does not conflict with the Court's rulings barring the royalties for using an invention after it moved into the public domain. Royalties can continue when licensing agreements cover multiple patents or additional non-patent rights. Joint ventures allow parties to share the risks and rewards of the inventions.

Congress has repeatedly declined to change this precedent. In June, the Supreme Court also rejected arguments to abandon its earlier rulings.

The Court reviewed a case where Marvel Entertainment's corporate predecessor agreed to purchase a creator's patent for a Spider-Man toy in return for a lump sum payment plus three percent royalties. However, the agreement had no end date for royalties and Marvel Entertainment sought a court ruling allowing it to continue to could continue to pay royalties after the 20-year patent term expired.

The Court rejected this argument and found that its precedent worked well. It also declined to address the economic arguments seeking reversal. Congress, not the courts, should address arguments that technological innovation and the consequences of a patent term require reversal.

Intellectual property disputes and losing the value of innovation may be avoided when there is proper planning. Legal assistance may assist innovators and businesses obtain the most profitability from commercial products.

Source: Supreme Court of the United States Blog, "Kimble v. Marvel Entertainment, LLC, __U.S.__ (No. 13-720, June 22, 2015," Assessed July 13, 2015

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Rochester, MN 55904

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