Royalties; Whether plaintiff’s Michigan state-law contract claim arose under federal patent or state contract law; Jurisdiction; Whether the relevant contracts created a royalty that extended beyond the 20-year patent expiration date; Brulotte v Thys Co; Kimble v Marvel Entm’t, LLC

[This appeal was from the ED-MI.] The court held that plaintiff-Lavery’s breach of contract claim sounded in Michigan state law, not federal patent law, and that defendant-Pursuant Health was not required to pay royalties on Lavery’s device past the expiration of his patent. Lavery invented a vision screening device and contracted with Pursuant Health to sell it, transferring the patent in exchange for a percentage of sales in royalites. The contract at issue was a Contribution Agreement. When the 20-year patent expired, Pursuant Health stopped paying. Lavery sued, seeking a declaration that the royalty did not have a time limit, and damages for breach of contract and unjust enrichment. Pursuant Health argued, among other things, that even if the Contribution Agreement had provided for royalties after the patent expired, “the patent’s expiration rendered the royalty agreement void and unenforceable.” The district court granted Pursuant Health summary judgment on this ground. On appeal, Lavery challenged only the ruling on his claim for breach of the Contribution Agreement. The court first held that his claim turned on state, not patent law, requiring that the courts only determine whether the contracts created a royalty that continued beyond the 20-year patent expiration date. While his claim “concerns the value of a patent, it does not turn on its validity, infringement of it, or any other patent-law-centric dispute.” The court further found that “Pursuant Health’s invocation of the 20-year patent bar raises an affirmative defense that does not eliminate our jurisdiction. While Congress vests exclusive jurisdiction in the Federal Circuit over cases with compulsory patent counterclaims, . . . it has not done the same for affirmative defenses.” Thus, the court held that it had jurisdiction over the appeal. Turning to the merits, it cited the cases of Brulotte and Kimble as illustrating the courts’ unwillingness to enforce royalty provisions beyond the patent’s expiration. Considering the terms of the Contribution Agreement, it concluded that by “every measure that counts, Pursuant Health and Lavery agreed to a 1% and 3% royalty for use of Lavery’s patent. Now that Lavery’s patent has ended, he may no longer receive either cut.” Affirmed.