Ares Trading SA v. Dyax Corp

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_______________

No. 23-1487

_______________

ARES TRADING S.A.,

Appellant

v.

DYAX CORP.

_______________

On Appeal from the United States District Court

for the District of Delaware

(D.C. No. 1-19-cv-02300)

District Judge: Honorable Evan J. Wallach *

_______________

Argued: March 5, 2024

Before: KRAUSE, PORTER, and CHUNG, Circuit Judges

(Filed: August 14, 2024)

*

Senior United States Circuit Judge, United States Court of

Appeals for the Federal Circuit, sitting by designation pursuant

to 28 U.S.C. § 294(d).

Kevin J. Culligan

John P. Hanish

John M. Hintz

MAYNARD NEXSEN

551 Fifth Avenue

Suite 1600

New York, NY 10176

Thomas G. Saunders [Argued]

Seth P. Waxman

WILMER CUTLER PICKERING HALE & DORR

2100 Pennsylvania Avenue NW

Washington, DC 20037

Counsel for Appellant

Ginger D. Anders

MUNGER TOLLES & OLSON

601 Massachusetts Avenue NW

Suite 500e

Washington, DC 20001

Kelly E. Farnan

RICHARD LAYTON & FINGER

920 N King Street

One Rodney Square

Wilmington, DE 19801

2

Chelsea A. Loughran [Argued]

Michael N. Rader

Suresh Rav

Stuart D. Smith

WOLF GREENFIELD & SACKS

600 Atlantic Avenue

Boston, MA 02210

Counsel for Appellee

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OPINION OF THE COURT

_______________

PORTER, Circuit Judge.

Dyax Corporation performed research for Ares Trading

S.A. It also licensed patents to Ares, including some held by

Cambridge Antibody Technology (the “CAT Patents”). Ares

used the fruits of Dyax’s research to commercialize a cancer

drug. In exchange, Ares agreed to pay royalties to Dyax based

on the drug’s sales. Under the parties’ agreement, Ares’ royalty

obligation to Dyax has outlasted the lifespan of the CAT

Patents.

The District Court held that Ares’ royalty obligation is not

unenforceable under Brulotte v. Thys Co., in which the

Supreme Court declared unenforceable a royalty obligation

because it conflicted with federal policy favoring limited

patent duration. 379 U.S. 29, 30 (1964). We will affirm. Under

Brulotte, a patent licensee’s royalty obligation is unenforceable

only if it is calculated based on activity requiring use of inven-

tions after their patents expire. Ares’ obligation is not calcu-

lated based on activity requiring use of inventions covered by

3

the CAT Patents after their expiration, so it does not improp-

erly prolong the CAT Patents’ duration and thus does not

implicate Brulotte.

I. FACTS AND PROCEDURAL BACKGROUND

A. Phage Display

The research that Dyax performed for Ares involved

“phage display,” a laboratory process used to develop medica-

tions. The process begins with the identification of a “target”

that contributes to disease. The target is screened against a

phage display “library,” which is a large collection of antibody

fragments. During this screening process, some fragments in

the library may “bind” with the target. The fragments that bind

best with the target are then developed with the ultimate goal

of formulating medications that neutralize the target in the

human body.

Take the development of Bavencio, the cancer drug at issue

in this case. Bavencio’s development began with Ares identi-

fying a target molecule known as PD-L1. PD-L1 prevents the

immune system from attacking cells to which it is attached.

When PD-L1 is attached to cancer cells, it shields them from

attack. Ares delivered PD-L1 to Dyax as a target for phage dis-

play, seeking “an antibody that would . . . inhibit it.” Opening

Br. 8. Dyax performed phage display and identified 167 anti-

body fragments that bind to PD-L1. Ares used one of those

fragments to develop Bavencio.

B. Dyax-CAT Contracts

Dyax is a biotechnology company that specializes in phage

display. It obtained many patents in the phage display field,

4

covering both phage display libraries and methods of using

those libraries. But there were (and are) other players in the

phage display field who obtained their own patents. See App.

3167 (describing phage display as a “patent minefield”). To

achieve “freedom to operate” while performing phage display,

Dyax obtained licenses for these other phage display patents. 1

As relevant to this dispute, Dyax obtained licenses for

phage display patents owned by CAT. Like Dyax, CAT

obtained patents covering both phage display libraries and

methods of using those libraries. Under one of Dyax’s agree-

ments with CAT, signed in 2003, Dyax is entitled to obtain

“product licenses” for specific targets and “practice” the inven-

tions covered by the CAT Patents in relation to those targets. 2

1

“Freedom to operate” means that a “firm can employ the

patented technology without having to be concerned about

being sued for infringement.” Jonathan S. Masur & Lisa

Larrimore Ouellette, Patent Law: Cases, Problems, and

Materials 530 (3d ed. 2023).

2

Here, we must briefly define the term “practice.” A patent is

a “right to exclude others from making, using, offering for sale,

or selling [an] invention.” 35 U.S.C. § 154(a)(1). So if some-

one “makes, uses, offers to sell, or sells [an] invention” without

the patent holder’s authorization, he “infringes the patent.” Id.

§ 271(a). We understand the term “practice” to denote acts that

would constitute infringement of a valid patent if unauthorized.

Compare id., with Practice, Black’s Law Dictionary (9th ed.

2009) (“To make and use (a patented invention)[.]”). Whether

someone practices a patented invention depends on the inven-

tion’s scope, which is defined by the patent’s “claims.” See

5

Once it obtains a product license, Dyax is free to commercially

“exploit” the target-related antibodies discovered while prac-

ticing the inventions covered by the CAT Patents (or allow a

sublicensee to do the same). App. 4305 (capitalization altered).

In exchange, it owes royalties to CAT based on that commer-

cialization. Under the Product License for PD-L1, for example,

Dyax owes CAT a percentage of Bavencio’s sales.

For each product license, Dyax must continue paying roy-

alties to CAT “until the last Valid Claim expires or ten (10)

years from the date of First Commercial Sale” of the product

derived from the target-related antibody, “whichever occurs

later.” App. 4316. A “Valid Claim” is a claim covered by

CAT’s “Antibody Phage Display Patents,” which are the same

CAT Patents that Dyax licensed to Ares. App. 4296. This

means that Dyax’s royalty obligations to CAT may extend

beyond the lifespan of the CAT Patents: Bavencio was first

sold in 2017, so Dyax’s royalty obligation to CAT on

Masur & Ouellette, supra, at 24 (“The claims are the fence

posts that mark out the metes and bounds of a patent owner’s

intellectual property.”). Each claim is divided into “claim ele-

ments.” Id. at 27. So a claim may be composed of elements A,

B, C, and D. See id. (using the example of the Swiffer Mop,

which includes “a handle, a mop head, a liquid delivery system,

and a disposable cleaning pad”). Someone practices this

claimed subject matter if he makes, uses, or sells a product that

includes these elements. So if he makes a product that includes

elements A, B, C, D, and E, he practices the invention (and

infringes the patent if he lacks the patent holder’s authoriza-

tion). Id. at 27–28. But if he makes a product that includes

elements A, B, C, and F, but not element D, he does not prac-

tice the invention. Id.

6

Bavencio’s sales will last into 2027, but the last of the CAT

Patents expired in 2018.

C. Ares-Dyax Contracts

Because of its licenses with companies like CAT, Dyax has

freedom to operate in the phage display field. Dyax used its

freedom to perform phage display for Ares under the Amended

and Restated Collaboration and License Agreement (“CLA”),

which Dyax and Ares signed in 2006. Massachusetts law gov-

erns the CLA.

1. Dyax’s Obligations, Ares’ Benefits

Under the CLA, Dyax’s primary obligation was to use

phage display to screen targets and provide the resulting anti-

body fragments to Ares. See App. 4159 (“Dyax shall use com-

mercially reasonable efforts to identify Dyax Antibodies that

bind to the Licensee Targets provided to Dyax under the terms

of the Research Plan for each Research Campaign.”); see also

App. 4190 (identifying PD-L1 as a target in the first Research

Campaign under the CLA). Ares never performed phage dis-

play in connection with the development of Bavencio. Instead,

Ares provided targets and Dyax performed phage display.

There is no dispute that Dyax performed the work required of

it under the CLA.

Despite never performing phage display, Ares negotiated

for and received licenses to certain phage display patents under

the CLA. First, Dyax granted Ares a research license to the

“Dyax Patent Rights.” The CLA defines “Dyax Patent Rights”

as any “patent application and patent . . . related to the use of

the Dyax Libraries to conduct antibody phage display.” App.

4153. It is undisputed that this phrase covers some patents that

7

will not expire until after Ares’ royalty obligation on sales of

Bavencio terminates.

Second, Dyax granted Ares a research sublicense to the

“CAT Patent Rights.” This phrase covers the same CAT

Patents that are covered in the 2003 Dyax-CAT agreement.

Ares admits that it did not practice the inventions covered by

the CAT Patents while developing Bavencio. In its opening

brief, Ares suggests that it practiced those inventions while

performing certain Bavencio-related work. But Ares provides

no evidence to support this suggestion, and the District Court

did not clearly err in adopting Ares’ admission “that the man-

ufacture and sale of Bavencio[] does not practice subject matter

claimed in the CAT Patents.” Ares Trading S.A. v. Dyax Corp.,

No. 19-cv-02300, 2023 U.S. Dist. LEXIS 40484, at *41 (D.

Del. Mar. 10, 2023) (internal quotation marks and citation

omitted).

Dyax’s phage display work for Ares under the CLA impli-

cated Dyax’s upstream obligations to CAT under the 2003

Dyax-CAT agreement. Before Dyax could identify (and Ares

could commercialize) the antibody fragments that bound to

PD-L1, Dyax was required under the 2003 Dyax-CAT agree-

ment and the CLA to obtain a Product License from CAT. To

obtain a Product License, Dyax was required to submit PD-L1

to CAT for a “gatekeeping” procedure (“CAT Gatekeeping”).

PD-L1 passed successfully through CAT Gatekeeping, so

Dyax received a Product License. Dyax then transferred its

rights under the Product License to Ares in a Product

Sublicense, as required under the CLA. Under the Product

Sublicense, Ares is entitled to sell products derived from PD-

L1 binders that Dyax identified through phage display, such as

Bavencio.

8

Along with the right to develop and sell Bavencio, the

Product Sublicense conferred additional patent rights on Ares.

Recall that under the CLA, Ares received “research licenses”

to the Dyax and CAT Patents. This meant that Ares could use

the inventions covered by the Dyax and CAT Patents to per-

form phage display. Under the Product Sublicense, Ares

received “commercial licenses” to the Dyax and CAT Patents.

A commercial license covers the “commercialization of an

antibody,” which a research license does not. Ares, 2023 U.S.

Dist. LEXIS 40484, at *24.

2. Ares’ Obligations, Dyax’s Benefits

In exchange for these benefits, Ares agreed to compensate

Dyax in a variety of ways under the CLA, including making

payments upon Dyax’s achievement of research milestones.

Ares also agreed to pay royalties to Dyax, calculated based on

a percentage of “Net Sales for Therapeutic Antibody Products

commercialized by” Ares. App. 4172. The CLA defines a

“Therapeutic Antibody Product” as “any preparation which is

intended . . . for the treatment or prevention of disease, infec-

tion or other condition in humans, which contains, comprises,

or the process of development or manufacture of which utilizes

a Dyax Antibody.” App. 4158. “Dyax Antibody” refers to

antibody fragments that Dyax “identifie[s]” using phage dis-

play and “deliver[s]” to Ares. App. 4153. Under these defini-

tions, Bavencio qualifies as a Therapeutic Antibody Product

because Ares developed it from an antibody fragment that

Dyax discovered using phage display. Ares agreed to pay roy-

alties for Therapeutic Antibody Products like Bavencio:

on a country-by-country and Product-by-Product

basis for a period commencing with the First

Commercial Sale in the relevant country and

9

ending ten (10) years after First Commercial

Sale; provided, however, in the event that such

ten (10) year period for a Product in a particular

country ends prior to the expiration of the last

CAT Valid Claim in such country, then royalties

shall be payable in such country until the expira-

tion of last CAT Valid Claim.

App. 4172–73 (emphasis omitted).

It is crucial to notice that the duration of Ares’ obligation

to Dyax mirrors the duration of the royalty that Dyax owes

upstream to CAT. And both obligations are triggered by the

same condition—sales of Bavencio. When Ares sells

Bavencio, it owes a percentage of Bavencio’s sales to Dyax,

and Dyax owes a smaller percentage of Bavencio’s sales

upstream to CAT. As previously mentioned, the last CAT

Patent expired in 2018, but the first commercial sale of

Bavencio occurred in 2017. Thus, the two royalty obligations

on Bavencio’s sales will last until 2027, long after the CAT

Patents’ expiration.

D. Negotiations Regarding Brulotte

Ares first learned of Brulotte in 2013, well after the parties

signed the CLA and agreed to Ares’ royalty obligation. In

2017, Ares attempted to use Brulotte as a “negotiating tool” to

reduce its royalty obligation to Dyax. Ares, 2023 U.S. Dist.

LEXIS 40484, at *48. Dyax responded in an email, arguing

that Brulotte did not apply. In this same email, Dyax ques-

tioned the inventorship of U.S. Patent No. 9,624,298 (the “’298

Patent”). “The ’298 Patent covers Bavencio, . . . meaning that

Ares Trading practices the ’298 Patent” when it sells Bavencio.

Id. at *40. Dyax suggested that its scientists should be named

10

Dyax answered, denying Ares’ four claims and bringing six

counterclaims. Dyax’s first counterclaim was for a declaratory

judgment that Brulotte does not apply to Ares’ royalty obliga-

tion. Its second counterclaim was for correction of the ’298

Patent’s inventorship under 35 U.S.C. § 256. Its third counter-

claim was for a declaratory judgment that if Ares’ royalty

obligation is unenforceable under Brulotte, Ares must agree to

amend the CLA to restore its original obligation. Its fourth

counterclaim was for reformation of the CLA to restore the

obligation. Its fifth counterclaim was for breach of the CLA

based on Ares’ potential refusal to pay full royalties. And its

sixth counterclaim was for a declaratory judgment that Ares

violated the implied covenant of good faith and fair dealing

based on the same.

After a bench trial, the District Court found that Ares’ roy-

alty obligation was not unenforceable under Brulotte, denying

Ares’ first claim on the merits and granting Dyax’s first coun-

terclaim. The District Court described Brulotte as prohibiting

“royalties . . . for practicing . . . licensed patents after they have

expired.” Ares, 2023 U.S. Dist. LEXIS 40484, at *65. It con-

cluded that Ares’ royalties are not charged “for post-expiration

use of” the inventions covered by the CAT Patents for three

reasons. Id. at *67. First, Ares conceded that it did not practice

those inventions while developing Bavencio. Second, while

“Dyax did likely use the CAT Patents, that use was entirely

before expiration.” Id. at *69. And third, the District Court

observed that “any use of the CAT Patents by Ares Trading,

before or after their expiration, would not have incurred any

royalty obligation to Dyax under the CLA.” Id. at *70. Instead,

the District Court characterized Ares’ royalty obligation as

deferred compensation for Dyax’s pre-expiration research

involving phage display. In the alternative, the District Court

12

found that Ares’ royalty obligation is not unenforceable

because “[u]nder Brulotte, royalties may run until the latest-

running patent covered in the parties’ agreement expires.”

Kimble v. Marvel Ent., LLC, 576 U.S. 446, 454 (2015). Dyax

licensed patents other than CAT’s to Ares, including one patent

that “will not expire until . . . 2028[,] . . . after the end of Ares

Trading’s ten-year royalty obligation to Dyax on sales of

Bavencio.” Ares, 2023 U.S. Dist. LEXIS 40484, at *72–73.

Because the District Court found that Ares’ royalty obliga-

tion is not unenforceable under Brulotte, it denied as moot

Ares’ second claim and Dyax’s third, fourth, fifth, and sixth

counterclaims. It denied as moot Ares’ fourth claim for a sim-

ilar reason: Ares did not prove that Dyax’s royalty obligation

to CAT is unenforceable under Brulotte. Separately, it denied

on the merits Ares’ claim for a declaratory judgment that Dyax

violated (or would violate) the covenant of good faith and fair

dealing. And it denied on the merits Dyax’s counterclaim

regarding the ’298 Patent’s inventorship.

Ares now appeals the District Court’s denial of its first and

third claims on the merits, arguing that its royalty obligation is

unenforceable under Brulotte and that Dyax has violated the

covenant of good faith and fair dealing. It also asks us to

remand for reconsideration of its second and fourth claims,

which the District Court denied as moot. Dyax did not appeal

from the denial of its counterclaim regarding the ’298 Patent’s

inventorship.

II. JURISDICTION AND STANDARD OF REVIEW

We have a duty to determine whether an appeal falls within

our jurisdiction. So we asked the parties to show cause why

this appeal should not be transferred to the United States Court

13

of Appeals for the Federal Circuit. The Federal Circuit has

“exclusive jurisdiction” over “appeal[s] from a final decision

of a district court . . . in any civil action arising under, or in any

civil action in which a party has asserted a compulsory coun-

terclaim arising under, any Act of Congress relating to

patents.” 28 U.S.C. § 1295(a)(1). After reviewing the parties’

letter briefs, we hold that we have jurisdiction because the par-

ties did not bring any claims or compulsory counterclaims aris-

ing under the federal patent laws.

A. The Parties’ State Law Claims Do Not Raise “Sub-

stantial” Patent Issues.

Nine out of the parties’ ten claims and counterclaims—each

of Ares’ claims, and each of Dyax’s counterclaims except

regarding inventorship of the ’298 Patent—arise from

Massachusetts contract law. 3 Three of Ares’ claims are for

declaratory judgment, “seek[ing] in essence to assert a

defense” to an anticipated lawsuit for failing to pay royalties to

Dyax. Pub. Serv. Comm’n of Utah v. Wycoff Co., 344 U.S. 237,

248 (1952). Dyax’s “threatened cause of action” for Ares’ fail-

ure to pay royalties, which is what counts for determining our

jurisdiction, would be for common-law breach of contract. Id.

Two of Dyax’s counterclaims are also for declaratory judg-

ment, mirroring Ares’ state law claims. Finally, Ares and Dyax

seek reformation of the CLA, and Dyax asserts counterclaims

for breach of contract and breach of the implied covenant of

3

Although not all ten claims and counterclaims are before us,

we must examine all ten here. That is because we lack appellate

jurisdiction “if either basis for the Federal Circuit’s exclusive

jurisdiction was present in the district court, regardless of the

claims brought on appeal.” ABS Glob., Inc. v. Inguran, LLC,

914 F.3d 1054, 1063 (7th Cir. 2019).

14

good faith and fair dealing, which are all “common-law causes

of action.” Dufficy Enters., Inc. v. Berarducci, No.

1784CV03292, 2020 Mass. Super. LEXIS 1629, at *1 (June 7,

2020). Altogether, federal patent law does not create causes of

action for these nine claims and counterclaims. So these claims

and counterclaims “arise” under federal patent law only if the

claimant’s “right to relief necessarily depends on resolution of

a substantial question of federal patent law.” Christianson v.

Colt Indus. Operating Corp., 486 U.S. 800, 809 (1988).

In Gunn v. Minton, 568 U.S. 251 (2013), the Supreme Court

clarified that a patent law question is “substantial” only if it is

“importan[t] . . . to the federal system as a whole.” Id. at 260;

see FTC v. AbbVie Inc., 976 F.3d 327, 349–51 (3d Cir. 2020)

(applying Gunn in determining whether an appeal fell under

§ 1295(a)(1)). The Gunn plaintiff brought a legal malpractice

claim in state court, for which the cause of action was created

by state law. 568 U.S. at 255. His claim arose from a patent

infringement case that he lost. Id. Its resolution required a

“case-within-a-case” patent law analysis because he argued

that he “would have prevailed in his federal patent infringe-

ment case if only [his lawyers] had timely made an

experimental-use argument on his behalf.” Id. at 259, 262. The

Supreme Court held that this patent law issue was not substan-

tial “to the federal system as a whole,” regardless of its

importance to the parties. Id. at 260. “Because of the backward-

looking nature of a legal malpractice claim,” the resolution of

the issue would not affect the validity of any patents, nor would

it alter the judgment in the prior infringement case. Id. at 261;

see AbbVie, 976 F.3d at 349 (considering whether resolving a

patent law issue would “change [a] settlement that resulted”

from infringement lawsuits). And the resolution of the issue

would have no effect on the uniformity of federal patent law

15

because the resolution would bind only the parties, not the fed-

eral courts. Gunn, 568 U.S. at 263.

By this logic, none of the parties’ state law claims or coun-

terclaims raise a “substantial” patent law issue. Some of their

claims and counterclaims depend on the resolution of a patent

law issue: whether Ares’ royalty obligation is unenforceable

under Brulotte because it prolongs the duration of the CAT

Patents. See Kimble, 576 U.S. at 462 (“Brulotte is a patent . . .

case[.]”). To resolve this issue, courts must “ask whether” the

CLA “provides royalties for post-expiration use of” the inven-

tions covered by the CAT Patents. Id. at 459. Ares and Dyax

offer two competing “choices” for interpreting Brulotte “in this

appeal.” AbbVie, 976 F.3d at 350. Regardless of which inter-

pretation we choose, the enforceability of Ares’ royalty obli-

gation under Brulotte is not a “substantial” patent law issue for

both “general and case specific” reasons. Id. at 349.

First, Ares’ interpretation of Brulotte does not require a

case-within-a-case patent law analysis. Ares interprets Brulotte

as applying where (1) a royalty obligation is exchanged for a

patent license, and (2) the obligation continues undiminished

after the licensed patent expires. According to Ares, Brulotte

applies here because (1) Ares’ royalty obligation was

exchanged for licenses to the CAT Patents, and (2) it continued

undiminished after the last CAT Patent expired. This proposed

analysis sounds in contract law, not patent law. It does not

require, for example, construing the CAT Patents’ claims or

determining whether Ares has practiced the CAT Patents.

Instead, it requires only interpreting the CLA’s terms and

determining what Ares’ royalty obligation was exchanged for.

See Opening Br. 28–29 (emphasizing that Ares’ test would not

require a “complicated infringement case that could include

extensive factual development, claim construction, and expert

16

testimony” that could be “the equivalent of a patent infringe-

ment trial”). Thus, resolving this appeal according to Ares’

interpretation would not affect patent rights retroactively or

“undermine the uniformity of federal patent law” prospectively

because it would not require any analysis of the CAT Patents

qua patents. 4 AbbVie, 976 F.3d at 349.

Second, Dyax’s interpretation of Brulotte likewise does not

require a case-within-a-case patent law analysis in this appeal.

According to Dyax, Brulotte prohibits charging royalties that

“arise from practicing” inventions after their patents expire.

Answering Br. 38. So Brulotte is implicated only if Ares’ roy-

alty obligation arises from post-expiration use of the inventions

covered by the CAT Patents. Ares’ obligation arises from sales

of “Therapeutic Antibody Products.” Based only on that

phrase’s definition in the CLA and “the definitions that flow

from it,” Ares, 2023 U.S. Dist. LEXIS 40484, at *28, the

4

The District Court found, in the alternative, that Dyax would

prevail under Ares’ interpretation. Specifically, it found that

Ares’ royalty obligation was exchanged for licenses to both the

CAT and Dyax Patents and that one of the Dyax Patents will

expire after Ares’ royalty obligation terminates. Because “roy-

alties may run until the latest-running patent covered in the par-

ties’ agreement expires,” the District Court concluded that the

royalty obligation was not unenforceable even under Ares’

interpretation. Kimble, 576 U.S. at 454. If we were to address

this alternative argument, it would require only contract law

analysis, not patent law analysis. It would turn on what Ares’

royalty obligation was exchanged for—licenses to only the

CAT Patents, or licenses to both the CAT and Dyax Patents—

not on construing claims or determining the validity of the

Dyax Patents.

17

District Court found that “any use of the CAT Patents by Ares

Trading, before or after their expiration, would not have

incurred any royalty obligation to Dyax under the CLA,” id. at

*70 (emphasis added). Ares does not dispute this finding on

appeal. So if we apply Dyax’s interpretation of Brulotte, we

need not engage in any patent law analysis of the CAT Patents.

It is undisputed that Ares’ royalty obligation does not arise

from its post-expiration use of the inventions covered by the

CAT Patents.

However, Dyax’s interpretation of Brulotte may require

complicated infringement-style analyses in future cases. If par-

ties dispute whether a royalty obligation arises from practicing

an invention, courts may be required “to conduct a burdensome

trial-within-a-trial on infringement of expired patents to deter-

mine whether Brulotte applies.” Reply Br. 10. But that possi-

bility does not affect our jurisdiction over this appeal. We must

determine our jurisdiction only over this appeal, not over every

possible case raising Brulotte issues. See AbbVie, 976 F.3d at

350 (holding “that our decision in this appeal will have limited

effect on the uniformity of patent law” (emphasis added));

Xitronix Corp. v. KLA-Tencor Corp., 882 F.3d 1075, 1078

(Fed. Cir. 2018) (anticipating whether “[p]atent claims will . . .

be invalidated or revived based on the result of this case”

(emphasis added)).

Ultimately, the only patent law issue raised on appeal is

whether Ares’ royalty obligation conflicts with the federal

patent laws under Brulotte. The result of resolving this issue

will be that Ares’ obligation is or is not enforceable, affecting

only the operation of state contract law. Thus, the Brulotte

issue here is not sufficiently important “to the federal [patent]

system as a whole” to trigger the Federal Circuit’s jurisdiction.

Gunn, 568 U.S. at 260. Our resolution will not affect core sub-

18

stantive areas of patent law like patentability, infringement, or

remedies. See Merrell Dow Pharms. Inc. v. Thompson, 478

U.S. 804, 814 n.12 (1986) (suggesting that the “nature of the

federal interest at stake” governs whether a legal question is

important to the federal system as a whole); see also Xitronix

Corp. v. KLA-Tencor Corp., 916 F.3d 429, 441 (5th Cir. 2019)

(observing that Gunn illustrated its concept of “substantial”

federal issues by citing to cases that “put the legality of a fed-

eral action in question,” such as “the validity of a foreclosure

. . . by the IRS” and “the constitutionality of” federal bonds).

So these nine claims and counterclaims, for which the federal

patent laws do not create causes of action, do not divest us of

jurisdiction.

B. Dyax’s Counterclaim Regarding the ’298 Patent Was

Not Compulsory.

Dyax’s counterclaim regarding the ’298 Patent’s inventor-

ship clearly arises under the federal patent laws, which create

the cause of action for this claim. See 35 U.S.C. § 256(b) (“The

court before which such matter is called in question may order

correction of the patent on notice and hearing of all parties con-

cerned[.]”). When a cause of action is created by the federal

patent laws, the claim it supports arises under them. Cf. Gunn,

568 U.S. at 257 (“[A] case arises under federal law when fed-

eral law creates the cause of action asserted.”).

However, this counterclaim does not defeat our jurisdiction

because it was not “compulsory.” 5 28 U.S.C. § 1295(a)(1). A

5

Because we conclude that this counterclaim was not compul-

sory, we need not address Ares’ alternative argument that this

claim was not a true “counterclaim,” insofar as it was brought

19

compulsory counterclaim “arises out of the transaction or

occurrence that is the subject matter of the opposing party’s

claim.” Fed. R. Civ. P. 13(a)(1)(A). We have held that a

defendant’s counterclaim arises out of the same transaction or

occurrence as a plaintiff’s claim if the two have a “logical

relationship.” M.R. v. Ridley Sch. Dist., 744 F.3d 112, 121 (3d

Cir. 2014). We introduced this standard in Great Lakes Rubber

Corp. v. Herbert Cooper Co., stating that “a counterclaim is

logically related to the opposing party’s claim where separate

trials on each of their respective claims would involve a sub-

stantial duplication of effort and time by the parties and the

courts.” 286 F.2d 631, 634 (3d Cir. 1961). This standard is sat-

isfied “[w]here multiple claims involve many of the same fac-

tual issues, or the same factual and legal issues, or where they

are offshoots of the same basic controversy between the par-

ties.” Id.

A separate trial on Dyax’s counterclaim regarding the ’298

Patent would not have required a substantial duplication of

effort and time because it raised different factual and legal

issues than the enforceability of Ares’ obligation under

Brulotte. As Ares noted in its letter brief, Dyax had a legal the-

ory that connected the ’298 Patent to Brulotte. Dyax’s theory

was that the ’298 Patent is “covered” by Section 5.1(e) of the

CLA, which states that Ares “shall own all inventions, discov-

eries and results made by or on behalf of [Ares] in exercising

its rights under this Agreement.” App. 4176. The “Product

Inventions” covered by Section 5.1(e) include “any Dyax

Antibodies,” a Dyax Antibody being “any Antibody or [frag-

against a third party that was not named in Ares’ complaint.

See Fed R. Civ. P. 13(a)(1) (defining a compulsory counter-

claim as one brought against an “opposing party”).

20

ment] that is delivered by Dyax to [Ares] . . . and any variant,

modification or derivative of such Antibody or [fragment] that

is identified or developed by [Ares].” App. 4176, 4153. Dyax

argued that Section 5.1(e) covers the ’298 Patent because the

patent “encompasses” Dyax Antibodies, including both “par-

ent antibodies that Dyax provided Ares” and “the modified

antibody that Ares purports to have derived from the parent

antibodies.” App. 3916. Because the ’298 Patent will not

expire before Ares’ royalty obligation terminates, Dyax con-

cluded that the obligation was not unenforceable under

Brulotte, which “permits royalties to ‘run until the latest-

running patent covered in the parties’ agreement expires.’” Id.

(emphasis added) (quoting Kimble, 576 U.S. at 454).

But Dyax’s theory did not depend on whether a Dyax sci-

entist should have been credited as an inventor of the ’298

Patent. Section 5.1(e) covers “all inventions” made solely “by”

Ares “in exercising its rights under” the CLA, not only inven-

tions made “on behalf of” Ares by Dyax scientists. App. 4176

(emphasis added). So Section 5.1(e) “covers” the ’298 Patent

in Kimble’s sense regardless of its inventorship. Indeed, the

District Court found that “[t]he inventions claimed in [the ’298

Patent] are Product Inventions as defined in Section 5.1(e)”

and that “Dyax granted to Ares Trading an irrevocable assign-

ment of all of its right, title and interest in” the ’298 Patent

thereby, Ares, 2023 U.S. Dist. LEXIS 40484, at *59, despite

concluding that Dyax did not carry its burden of showing that

its scientist should be named as an inventor. Thus, the question

of whether Dyax’s scientist should be named as an inventor

involved wholly different “factual and legal issues” than the

enforceability of Ares’ royalty obligation under Brulotte.

Great Lakes Rubber, 286 F.2d at 634. The former depended on

the minute details of a Dyax scientist’s “choices or inventive

21

acts,” Ares, 2023 U.S. Dist. LEXIS 40484, at *87, and the sig-

nificance of her “contributions . . . when ‘measured against the

dimension of the full invention,’” id. at *88 (quoting Fina Oil

& Chem. Co. v. Ewen, 123 F.3d 1466, 1473 (Fed. Cir. 1997)).

The latter did not depend on these factual and legal issues

because whether Section 5.1(e) “covered” the ’298 Patent in

Kimble’s sense did not depend on Dyax’s contributions to

Bavencio’s invention.

Altogether, there may be a “logical relationship” between

the parties’ Brulotte arguments and the ’298 Patent generally.

But there is no such relationship between their Brulotte argu-

ments and Dyax’s correction-of-inventorship counterclaim.

The factual and legal issues underlying the latter are unrelated

to those underlying the former, such that separate trials would

not have resulted in a “substantial duplication” of the parties’

efforts. Great Lakes Rubber, 286 F.2d at 634. So Dyax’s coun-

terclaim was not “compulsory” and does not divest us of juris-

diction under § 1295(a)(1).

* * *

We therefore have appellate jurisdiction under 28 U.S.C.

§ 1291. 6 We review the District Court’s “determin[ation] [of]

the meaning of . . . contract language” for clear error. In re

Nat’l Collegiate Student Loan Trusts 2003-1, 2004-1, 2004-2,

2005-1, 2005-2, 2005-3, 971 F.3d 433, 443 (3d Cir. 2020). But

6

The District Court, for its part, had jurisdiction over the par-

ties’ state law claims and counterclaims under 28 U.S.C.

§ 1332(a)(2), and over Dyax’s patent law counterclaim under

28 U.S.C. §§ 1331 and 1338(a).

22

we review its “determin[ation] [of] the legal effect and conse-

quences of [the] contractual provisions” de novo. Id.

Under Massachusetts law, which governs the CLA, Ares

bears the burden of proving that its royalty obligation is unen-

forceable. See TAL Fin. Corp. v. CSC Consulting, Inc., 844

N.E.2d 1085, 1092 (Mass. 2006) (“The burden of proof regard-

ing the enforceability of a . . . clause . . . rest[s] squarely on the

party seeking to set it aside.”). Ares must show that its obliga-

tion conflicts with the federal patent laws, such that “enforce-

ment of [its] contract to pay royalties” is preempted. Aronson

v. Quick Point Pencil Co., 440 U.S. 257, 258–59, 262 (1979).

But the Supreme Court has cautioned “that a court should not

find pre-emption too readily in the absence of clear evidence

of a conflict.” Geier v. Am. Honda Motor Co., 529 U.S. 861,

885 (2000).

III. DISCUSSION

A. Brulotte’s “Simple” Rule Does Not Apply to Ares’

Royalty Obligation.

Brulotte was based on federal policy favoring limited dura-

tions for patent monopolies. Royalty obligations that conflict

with this policy—by restricting a patent licensee’s use of

inventions after their licensed patents expire—are unenforcea-

ble due to “obstacle” preemption. If a royalty obligation is cal-

culated based on activity requiring such post-expiration use, it

restricts such use on its face and Brulotte applies. Ares’ royalty

obligation is not calculated based on activity requiring post-

expiration use of inventions covered by the CAT Patents, so

Brulotte does not apply.

23

1. Federal Policy, Obstacle Preemption, and Scott

Paper

The Constitution empowers Congress to “secur[e] for lim-

ited Times to . . . Inventors the exclusive Right to their . . .

Discoveries.” U.S. Const. art. I, § 8, cl. 8. Congress has exer-

cised that power by enacting federal patent laws. Under 35

U.S.C. § 154(a)(1), “[e]very patent shall contain . . . a grant to

the patentee . . . of the right to exclude others from making,

using, offering for sale, or selling [his] invention.” This right

to exclude is limited in important respects. As relevant here,

the right lasts for a limited duration—20 years—after which

the public is free to use the invention. Id. § 154(a)(2). This tem-

poral limitation is critical to federal patent policy. “From their

inception, the federal patent laws have embodied a careful bal-

ance between the need to promote innovation and the recogni-

tion that imitation and refinement through imitation are both

necessary to invention itself and the very lifeblood of a com-

petitive economy.” Bonito Boats, Inc. v. Thunder Craft Boats,

Inc., 489 U.S. 141, 146 (1989). By granting inventors a

monopoly over the use of their inventions, Congress encour-

ages inventors to innovate. By limiting the duration of that

monopoly, Congress allows members of the public to compete

with and improve upon the works of inventors, using formerly

patented inventions “as the building blocks of further innova-

tion.” Id. at 151. Thus, a central objective of the federal patent

laws is “that after the expiration of a federal patent, the subject

matter of the patent passes to the free use of the public.” Id. at

152.

The Supreme Court has declared that a state law is

preempted if it “stands as an obstacle to the accomplishment

and execution of the full purposes and objectives of Congress.”

Hines v. Davidowitz, 312 U.S. 52, 67 (1941). This doctrine of

24

“obstacle” preemption applies to the patent laws, just as it does

“in other fields” of federal law. Aronson, 440 U.S. at 262. Con-

sistent with this doctrine, the Supreme Court has repeatedly

declared unenforceable state law restrictions on the free use of

formerly patented and unpatentable inventions, insofar as they

conflict with congressional objectives like temporally limiting

patent monopolies. See Kimble, 576 U.S. at 451–52 (collecting

cases).

For example, the Supreme Court “carefully guarded [the]

cut-off date” of a patent monopoly, id. at 451, in Scott Paper

Co. v. Marcalus Mfg. Co., 326 U.S. 249 (1945). There, the

assignee of a patent sued its assignor’s company for using a

machine that allegedly infringed the patent. Id. at 250–51. The

assignor’s company responded that its machine was an identi-

cal copy of an invention covered by a different, expired patent,

such that it could not infringe the assigned patent. Id. at 251.

The assignee argued that the assignor’s company was estopped

from raising that defense based on the fact of the assignment.

Id. at 251–52. The Court disagreed, holding that applying the

common-law doctrine of estoppel would “penalize the [com-

pany’s] use of the invention of an expired patent.” Id. at 254.

The Court emphasized that the patent laws are designed such

“that members of the public shall be free to manufacture the

product . . . disclosed by the expired patent” and “that the con-

suming public at large . . . receive[s] the benefits of the unre-

stricted exploitation” of the formerly patented invention. Id. at

255. Thus, the Court concluded that no one can lawfully

“restrict himself, by express contract, or by any action which

would give rise to an ‘estoppel,’ from using the invention of an

expired patent.” Id. at 255–56. Allowing even one member of

the public to restrict himself in this way would “deprive the

public of the benefits of the free use of the invention,” thereby

25

conflicting with “the policy and purpose of the patent laws.”

Id. at 256. Given the strength of the federal policy favoring

limited patent duration, the Court clarified that “any attempted

reservation or continuation in the patentee . . . of the patent

monopoly[] after the patent expires, whatever the legal device

employed,” conflicts with that policy and is unenforceable. Id.

2. Brulotte

The Supreme Court’s decision in Brulotte “was brewed in

the same barrel” as decisions like Scott Paper. Kimble, 576

U.S. at 452. The Brulotte Court declared a royalty obligation

unenforceable because it conflicted with the federal policy

favoring limited patent duration. 379 U.S. at 29–34.

Respondent Thys owned twelve patents, seven of which cov-

ered inventions that were incorporated into a machine for pick-

ing hops. Id. at 29–30. It licensed the twelve patents and the

right to use the machine to farmers. Id. at 29. In exchange, the

farmers agreed to pay an annual royalty, calculated based on

the amount of hops harvested with the machine but subject to

a mandatory minimum. Id. (“Under [the] license there is paya-

ble a minimum royalty of $500 for each hop-picking season or

$3.33 1/3 per 200 pounds of dried hops harvested by the

machine, whichever is greater.”). Before the license and its

royalty obligation terminated, the patents covering the seven

inventions incorporated into the machine expired. Id. at 30. But

one of the five licensed “patent[s] whose mechanism was not

incorporated in the[] machines” had not expired. Id. at 30 n.2.

The Supreme Court held that the royalty obligation was

unenforceable “after expiration of the last of the patents incor-

porated in the machines” because it restricted the farmers’ free

use of those formerly patented inventions. Id. at 33–34. The

Court justified its holding by observing that the Constitution

26

empowers Congress “to secure ‘for limited times’ to inventors

‘the exclusive right’ to their discoveries” and that Congress had

exercised its power by granting patents to inventors for limited

durations. Id. at 30 (quoting U.S. Const. art. I, § 8, cl. 8). After

a patent expires, members of the public are free to use the for-

merly patented invention without restriction. Id. at 31. The

farmers’ royalty obligation conflicted with that policy because

it was calculated based on the “use of a machine . . . after

expiration of the last of the patents incorporated” therein. Id. at

33–34. On its face, the obligation hindered the farmers from

using the incorporated inventions after their patents expired.

Id. at 31 (“The royalty payments due for the post-expiration

period are by their terms for use during that period.” (emphasis

added)).

The Court cited Scott Paper in describing the strength of

the federal policy that inventions “become public property

once” their patents expire. Id. at 31. It described this policy as

so weighty that it conflicts with “attempt[s]” to prolong patent

monopolies, not only royalties that hinder post-expiration use

in practice. Id. (quoting Scott Paper, 326 U.S. at 256). There-

after, the Court twice described the farmers’ royalty obligation

as an “attempt” to extract payments for the post-expiration use

of the inventions incorporated into the hop-picking machine.

Id. at 32, 34.

3. Kimble

Brulotte was “severely . . . criticized” by lower courts.

Scheiber v. Dolby Lab’ys, Inc., 293 F.3d 1014, 1017 (7th Cir.

2002). In Kimble, the Supreme Court granted certiorari solely

to determine whether to overrule Brulotte. 576 U.S. at 449. The

Court upheld Brulotte on stare decisis grounds. Id. In doing so,

it clarified the scope of Brulotte’s rule.

27

Kimble received a patent on a toy that allowed users to

shoot foam string from their hands. Id. He sued Marvel for

patent infringement after it marketed a “Web Blaster” that

allowed users to shoot “webs” from their hands like Spider-

Man. Id. at 450. Kimble and Marvel settled their dispute, with

Kimble selling his patent to Marvel in exchange for a 3% roy-

alty on Marvel’s sales of the Web Blaster and any other prod-

ucts that would infringe the patent. Id. The Ninth Circuit held

that this royalty was unenforceable under Brulotte after the

expiration of Kimble’s patent. Id. at 450–51.

The Kimble Court characterized Brulotte as involving a

conflict between federal patent policy and agreements that

restrict the use of inventions after their patents expire. Under

the patent laws, “[w]hile a patent lasts, the patentee possesses

exclusive rights to the patented article—rights he may sell or

license for royalty payments if he so chooses.” Id. at 451. But

after “the patent expires, the patentee’s prerogatives expire too,

and the right to make or use the article, free from all restriction,

passes to the public.” Id. A corollary of that principle is that a

member of the public cannot agree to limit his use of an inven-

tion after its patent expires. See id. at 453 (noting that “[a]ny

attempt to limit a licensee’s post-expiration use of the inven-

tion” is unenforceable); see also id. (“[E]very person can make

free use of a formerly patented product.”); id. at 458 (“[T]his

Court has continued to draw from [35 U.S.C. § 154] a broad

policy favoring unrestricted use of an invention after its

patent’s expiration.”). According to the Kimble Court, Brulotte

“is simplicity itself to apply.” Id. at 459. “A court need only

ask whether a licensing agreement provides royalties for post-

expiration use of a patent. If not, no problem; if so, no dice.”

Id.

28

4. Three Observations About Brulotte’s Simple Rule

We understand Kimble’s definition of Brulotte’s rule as fol-

lows: (i) “post-expiration use” refers to practicing inventions

after their patents expire—acts that would have infringed the

patents pre-expiration; (ii) to determine whether a royalty is

“provided for” post-expiration use, courts must determine

whether the royalty is calculated based on activity requiring

post-expiration use; and (iii) a royalty may be calculated based

on activity requiring post-expiration use even if the royalty’s

value does not vary with that use. These three observations are

well-supported in Scott Paper, Brulotte, and Kimble.

i. “Post-expiration use” denotes the practice of formerly

patented inventions. As the Brulotte Court noted, “[t]he right

to make, the right to sell, and the right to use” an invention pass

to the public when the invention’s patent expires. 379 U.S. at

31. Collectively, these rights constitute the broader right to

practice an invention—to use it in ways that would have

infringed its patent pre-expiration. See 35 U.S.C. §§ 154(a)(1),

271(a). According to the Kimble Court, Brulotte applies to roy-

alty obligations that restrict this right because such royalties

extend a patent holder’s monopoly beyond the life of the

patent. 576 U.S. at 458 (“Scott Paper—the decision on which

Brulotte primarily relied—remains good law. So too do this

Court’s other decisions refusing to enforce either state laws or

private contracts constraining individuals’ free use of formerly

patented . . . discoveries.”). So when the Court speaks of fed-

eral policy favoring unrestricted “post-expiration use,” it refers

to the practice of inventions after their patents expire.

ii. Royalties are “provided for” post-expiration use when

they are calculated based on activity requiring that use. A

“royalty” is “[a] payment . . . made to an author or inventor for

29

each copy of a work or article sold under a copyright or patent.”

Royalty, Black’s Law Dictionary (9th ed. 2009) (emphasis

added). That is, a royalty is commonly understood as a pay-

ment for the right to engage in the activity on which the pay-

ment is calculated (“often” for the right to “ma[ke], use[], or

s[ell]” an “item”). Id. So to determine whether royalties are

“provided for” post-expiration use, courts must determine

whether payments are calculated based on activity requiring

post-expiration use. This understanding of what royalties are

“provided for” fits the facts in Brulotte, where royalties were

calculated based on the amount of hops harvested with “the

machine,” not based on hops harvested by other means. 379

U.S. at 29. The royalties were therefore calculated based on

activity requiring post-expiration use of the seven inventions

incorporated into the machine. They were calculated based on

the harvesting of hops, which required using the machine,

which in turn required practicing the formerly patented inven-

tions incorporated into the machine.

This understanding of what royalties are “provided for”

also coheres with federal patent policy. Brulotte applies to roy-

alty obligations that “restrict free access to formerly patented

. . . inventions” and conflict with federal policy thereby.

Kimble, 576 U.S. at 451. If a royalty obligation is calculated

based on activity requiring post-expiration use, it restricts post-

expiration use on its face by requiring payment for that use,

conflicting with federal policy favoring unrestricted post-

expiration use and thus implicating Brulotte. Insofar as the roy-

alties in Brulotte were calculated based on hops harvested with

the machine, they restricted use of the seven inventions incor-

porated into the machine “for the post-expiration period.” 379

U.S. at 31. But if royalties are not calculated based on activity

requiring post-expiration use, they do not hinder post-

30

expiration use “on their face” and Brulotte is not implicated.

Id. at 32. 7

iii. A payment may be calculated based on post-expiration

use on its face, even if its value does not vary with that use in

practice. Royalties that are calculated based on activity requir-

ing post-expiration use will typically vary with the extent of

that use in practice. In part, that was the case in Brulotte. If a

farmer used his hop-picking machine more often and picked

more hops, thereby using the inventions incorporated into the

machine more often, his royalty obligation increased. Id. at 29.

7

Dyax would not use the word “calculated” to define

Brulotte’s rule. That is because the farmers’ royalty obligation

was not calculated directly based on their use of the hop-

picking machine. It was calculated indirectly based on that use,

insofar as it was calculated based on the amount of hops they

harvested with their machines. Our description of Brulotte’s

rule captures this distinction, despite using the word “calcu-

lated,” because it turns on whether royalties are calculated

based on activity requiring post-expiration use, regardless of

whether they are calculated directly based on that use. Con-

sider an example that Ares uses in its brief: “a patent owner . . .

say[s] that in exchange for a license to a patent covering tires,

a company has to pay it one dollar for every car sold with wind-

shield wipers for the next 30 years.” Opening Br. 23. Assuming

that the cars sold with windshield wipers require use of an

invention covered by the tire patent, this royalty would fall

under our definition of Brulotte’s rule, even if it would not be

calculated directly based on tire sales. It would be calculated

based on activity requiring patent usage, insofar as the cars sold

with windshield wipers are necessarily sold with the patented

tires.

31

But a payment may also be calculated based on activity

requiring post-expiration use even if its value does not vary

with the extent of that use. That was also the case in Brulotte.

A farmer’s annual payment varied with post-expiration use

only if it exceeded a $500 minimum. Id. For one farmer,

Charvet, the payment obligation for the post-expiration period

consisted entirely of $500 minimums. Id. at 37 n.2 (Harlan, J.,

dissenting) (“Petitioner Charvet was indebted to Thys only to

the extent of the minimums.”). Thus, his obligation did not

vary with his post-expiration use of the inventions incorporated

into the machine.

Nevertheless, Charvet’s payment obligation was calculated

based on post-expiration use. The $500 minimum was

expressly designed to approximate the minimum value of using

the hop-picking machine for one year, regardless of the amount

of hops harvested. See Thys Co. v. Brulotte, 382 P.2d 271, 272

(Wash. 1963) (“[A] minimum royalty of $500 per year was to

be paid for the use of each machine.” (emphasis added)), rev’d,

379 U.S. 29; Brulotte, 379 U.S. at 31 (“The royalty payments

due for the post-expiration period are by their terms for use

during that period, and are not deferred payments for use dur-

ing the pre-expiration period.” (emphasis added)). This under-

standing of the $500 minimums—that they were calculated ex

ante based on the value of using the machine, including in the

post-expiration period—is confirmed by the text of the con-

tract. See Appendix to Petition for Writ of Certiorari at 44a,

Brulotte, 379 U.S. 29 (No. 20). The contract permitted “equi-

table adjustment[s]” to the $500 minimums “if it shall be

impossible . . . to use any such machine during any part of a

particular picking season because of a serious breakdown.” Id.

This provision confirms that the $500 minimums were calcu-

lated based on the value of using the “machines for [each] pick-

32

ing season,” including post-expiration seasons, because the

minimums could be reduced if the machines were unusable. 8

Id.

Thus, the farmers’ contracts were unenforceable “insofar as

[they] allow[ed] royalties to be collected which accrued after

the last of the patents incorporated into the machines ha[d]

expired.” Brulotte, 379 U.S. at 30. Regardless of whether a

farmer’s payment obligation varied based on his post-

expiration use of his machine, it was calculated based on

activity requiring that use. Such obligations are unenforceable

obstacles to federal patent policy because Congress intended

for members of the public to use inventions free of all payment

obligations after their patents expire. Id. at 31 (recognizing that

restrictions on post-expiration use are unenforceable, “what-

ever the legal device employed,” including “attempted”

restrictions (quoting Scott Paper, 326 U.S. at 256)).

8

Ares misunderstands the significance of the $500 minimums

in Brulotte. At oral argument, Ares compared itself to Charvet

because just as he “could have been using [the hop-picking

machine] and paying . . . royalties,” so “tomorrow, could

[Ares] use the CAT patents for something.” Oral Arg. Tr.

62:13–15. The $500 minimums were not unenforceable merely

because post-expiration use of the machine was possible. They

were unenforceable because their value was expressly calcu-

lated based on contemplated post-expiration use. Ares’ royalty

obligation is comparable to Charvet’s only if it is calculated

based on activity requiring post-expiration use of inventions

covered by the CAT Patents.

33

* * *

Combining these observations, Brulotte requires courts to

determine whether patent licensing agreements provide royal-

ties that are calculated based on activity requiring post-

expiration use of inventions covered by the licensed patents.

Here, the CLA is the licensing agreement, Section 4.6 is the

royalty obligation, and (according to Ares) the CAT Patents are

the relevant licensed patents. If Ares’ payments to Dyax are

calculated based on activity requiring post-expiration use of

inventions covered by the CAT Patents—regardless of whether

the payments vary with that use in practice—then Brulotte may

apply. “If not, no problem[.]” Kimble, 576 U.S. at 459.

5. Ares’ Royalty Obligation

Brulotte does not apply here because Ares’ royalty obliga-

tion is not calculated based on activity requiring post-

expiration use of inventions covered by the CAT Patents. Ares’

royalty obligation is calculated based on sales of “Therapeutic

Antibody Products.” App. 4172. That phrase covers “any prep-

aration which is intended . . . for the treatment or prevention of

disease, infection or other condition in humans, which con-

tains, comprises, or the process of development or manufacture

of which utilizes a Dyax Antibody.” App. 4158. “Dyax

Antibody” is defined as “any Antibody or [fragment] that is

delivered by Dyax to [Ares] in connection with the Research

Program.” App. 4153. Combining these definitions, Ares’ roy-

alty obligation is calculated based on sales of drugs that Ares

develops from antibodies that Dyax discovers using phage dis-

play.

Sales of Therapeutic Antibody Products do not require

post-expiration use of the inventions covered by the CAT

34

Patents. The CLA’s definition of “Therapeutic Antibody

Product” does not refer to the CAT Patents, nor do “any of the

definitions that flow from it.” Ares, 2023 U.S. Dist. LEXIS

40484, at *28. Ares’ witness, Jens Eckhardt, conceded as much

at trial. Counsel for Dyax asked Eckhardt to confirm that “the

definition of what products the royalty is owed on . . . does not

depend in any way on using the CAT patents.” App. 2532.

Eckhardt responded “[r]ight,” without qualification. App.

2533. This testimony was consistent with Eckhardt’s deposi-

tion, along with the testimony of other witnesses at trial. See

App. 7083 (responding that it is “correct” that Ares’ “royalties

. . . don’t depend on using the CAT patents”); App. 3224; App.

3619. Eckhardt’s testimony is further corroborated by Ares’

admission that “it never practiced the expired CAT Patents to

develop Bavencio” and the fact that Dyax’s “use [of] the CAT

Patents” under the CLA occurred “entirely before expiration,”

which together confirm that sales of Therapeutic Antibody

Products do not require post-expiration use of inventions cov-

ered by the CAT Patents. 9 Ares, 2023 U.S. Dist. LEXIS 40484,

9

Ares concedes that the manufacture and sale of Bavencio do

not practice the inventions covered by the CAT Patents, so we

need not consider whether Bavencio practices those inventions

merely because it was discovered using phage display. In any

event, we doubt that it does. The Federal Circuit has held that

a “drug product” like Bavencio infringes patents covering

“research processes” like phage display only if the relevant

process is “used directly in the manufacture of the product, and

not merely as a predicate process to identify the product to be

manufactured.” Bayer AG v. Housey Pharms., Inc., 340 F.3d

1367, 1377–78 (Fed. Cir. 2003); see 35 U.S.C. § 271(g). Ares

has not alleged that it uses phage display directly in Bavencio’s

35

at *69. As a result, Ares’ royalty obligation is not calculated

based on activity requiring such post-expiration use and

Brulotte is not implicated. 10

B. Ares’ Counterarguments Fail.

Ares raises several counterarguments to our understanding

of Brulotte, but none is successful.

manufacture, so it is unlikely that Bavencio’s manufacture uses

the inventions covered by the CAT Patents. See Part III.A.4,

supra (defining “use” as “acts that would have infringed the

patents pre-expiration”).

10

Eckhardt’s testimony did not foreclose the possibility that

Ares’ development of a Therapeutic Antibody Product other

than Bavencio could have resulted from post-expiration use of

inventions covered by the CAT Patents. Thus, it seems possible

that Ares’ royalty obligation could have arisen from post-

expiration use of those inventions, even though its obligation

on sales of Bavencio did not result from such use. But even so,

Ares’ royalty obligation does not run afoul of Brulotte because

it does not necessarily result from such use. The royalties in

Brulotte were calculated based on activity that necessitated

post-expiration use of the inventions incorporated into the hop-

picking machines. We are bound to faithfully apply Brulotte,

but we need not expand its sweep, nor do the parties ask us to

do so. And under Brulotte, we do not view a remote possibility

of restricted post-expiration use as constituting “clear evi-

dence” that a royalty obligation conflicts with federal policy

favoring limited patent duration, such that enforcement is

preempted. Geier, 529 U.S. at 885.

36

1. Post-Expiration Use

First, Ares proffers a different interpretation of “use” in

Brulotte and Kimble. It interprets Brulotte as applying when a

royalty obligation that is exchanged for a patent license sur-

vives undiminished into the post-expiration period:

[A] royalty provision that draws no distinction

between the royalty owed before the expiration

of the licensed patents and the royalty payable

after the expiration of the licensed patents is

unlawful regardless of whether the post-

expiration royalty is calculated directly based on

activity within the scope of the patent or indi-

rectly.

Opening Br. 23.

This covers Ares’ royalty obligation because, according to

Ares, the “licensed patents” relevant to its obligation are the

CAT Patents. First, Ares notes that to commercialize a

Therapeutic Antibody Product, it must (through Dyax) com-

plete CAT Gatekeeping, after which it receives a target-related

commercial license to the CAT Patents. Thus, Ares’ royalty

obligation is conditioned on its licensing of the CAT Patents.

Second, the duration of Ares’ royalty obligation is expressly

tied to the lifespan of the CAT Patents. For these reasons, Ares

asserts that its obligation was exchanged for licenses to the

CAT Patents. And because Ares’ obligation is identical before

and after the CAT Patents’ expiration, Ares concludes that it is

unenforceable under Brulotte, regardless of whether it is cal-

culated based on Ares’ use of inventions covered by the CAT

Patents. See Brulotte, 379 U.S. at 32 (focusing on whether con-

tracts “exact the same terms and conditions for the period after

37

the patents have expired as they do for the monopoly period”).

Thus, Ares contends that Kimble uses the phrase “post-

expiration use” “in the sense of the royalty being paid [post-

expiration] in exchange for a license to the patent.” Opening

Br. 24 (emphasis omitted).

We disagree with Ares’ expansive interpretation of

Brulotte, which is inconsistent with Brulotte’s facts and the

federal policy that animated it. 11 Ares’ interpretation is incon-

sistent with Brulotte’s facts because there, the farmers’ royalty

obligations were exchanged for licenses to “various patents for

hop-picking,” including some patents that were not “incorpo-

rated into the [hop-picking] machines.” 379 U.S. at 29–30. One

of the licensed patents had not expired before the royalty obli-

gation terminated. Id. at 30 n.2. Under Ares’ interpretation, this

unexpired patent would qualify as one of the “licensed patents”

relevant to the farmers’ royalty obligation because the latter

was exchanged, in part, for a license to the former. But as we

have previously mentioned, the Supreme Court has clarified

that a royalty obligation “may run until the latest-running

patent covered in the parties’ agreement expires.” Kimble, 576

U.S. at 454. Ares’ interpretation implies that Brulotte was

wrongly decided because the farmers’ royalties were paid “in

exchange for a license to” an unexpired patent. Opening Br.

24. To make sense of Brulotte, it is instead necessary to con-

11

Because we conclude that Brulotte does not apply to Ares’

royalty obligation, we need not address the District Court’s

alternative finding that even under Ares’ interpretation of

Brulotte, its royalty obligation is not unenforceable. We also

need not address whether the District Court correctly described

Ares’ obligation as deferred compensation for Dyax’s pre-

expiration performance of phage display.

38

sider how the farmers’ royalties were calculated: The royalties

were unenforceable because they were calculated based on

activity requiring use of the hop-picking machine, which

incorporated only inventions whose patents expired before the

royalties terminated.

In addition, Ares’ interpretation is a poor fit for the federal

policy on which Brulotte was based—the policy favoring tem-

porally limited patent monopolies. Even if Ares’ royalty obli-

gation was exchanged for licenses to the CAT Patents, it does

not conflict with this policy. It does not prolong the duration of

the CAT Patents because sales of Therapeutic Antibody

Products do not require using inventions covered by the CAT

Patents. “Indeed, any use of the CAT Patents by Ares Trading,

before or after their expiration, would not have incurred any

royalty obligation to Dyax under the CLA.” Ares, 2023 U.S.

Dist. LEXIS 40484, at *70.

Instead, Ares’ real gripe is that its royalty obligation con-

flicts with a different policy embodied in the federal patent

laws—favoring limitations on the substantive “scope” of the

patent monopoly, not only on its duration. At several points in

its briefing, Ares suggests that Dyax leveraged the CAT

Patents “not only beyond [their] expiration date but also

beyond [their] scope.” Opening Br. 17. Ares’ concern is that

Dyax has enlarged the scope of the CAT Patents’ subject mat-

ter by using its leverage to extract royalties on sales of

Bavencio, which do not practice the inventions covered by the

CAT Patents. But Brulotte does not apply to patent misuse

involving the enlargement of a patent’s scope. It deals only

with attempts to prolong a patent’s duration—its “cut-off

date”—not attempts to defy “the patent laws’ subject-matter

limits.” Kimble, 576 U.S. at 451. Other patent misuse doctrines

cover the improper enlargement of a patent’s scope, such as the

39

doctrine of “patent tying agreements.” Id. at 458 n.4; see, e.g.,

Zenith Radio Corp. v. Hazeltine Rsch., Inc., 395 U.S. 100, 134–

38 (1969). 12 As Ares conceded at oral argument, it did not

include any such patent misuse theories in its complaint. See

Oral Arg. Tr. 11:17–23 (responding that it is “[c]orrect” that

“[n]owhere in the complaint does it allege patent misuse on a

physical expansion or expansion of scope of the patent”). So

we must consider only the duration of the CAT Patents under

Brulotte. Because Ares’ royalty obligation is not calculated

based on activity requiring post-expiration use of inventions

covered by the CAT Patents, we conclude that it does not

improperly prolong the CAT Patents’ duration.

2. Kimble’s Facts

Next, Ares contends that our understanding of Brulotte con-

flicts with the facts in Kimble. It argues that the royalties in

Kimble were triggered by sales of Marvel’s Web Blaster,

12

True, Brulotte discusses in general terms the negotiating lev-

erage held by a patent owner. See, e.g., 379 U.S. at 32 (“We

are . . . unable to conjecture what the bargaining position of the

parties might have been and what resultant arrangement might

have emerged had the provision for post-expiration royalties

been divorced from the patent and nowise subject to its lever-

age.”). But we view general concerns about bargaining power

as ancillary to Brulotte’s main policy focus—the unrestricted

post-expiration use of patented inventions. A patent owner no

doubt has the power to “exact [conditions] . . . with the lever-

age of [his] monopoly.” Id. at 33. But Brulotte deals with abuse

of that power only through the extension of patent duration.

Other forms of abuse, including tying, are separate issues. See

Kimble, 576 U.S. at 458 n.4 (“[I]t is far from clear that the old

rule of tying was among Brulotte’s legal underpinnings.”).

40

which did not practice the invention covered by Kimble’s

patent. This implies, according to Ares, that Brulotte accom-

plished more than declaring unenforceable royalties that are

calculated based on activity requiring post-expiration use of

formerly patented inventions.

Ares’ interpretation of Kimble is wrong for two independ-

ent reasons. First, the Supreme Court granted certiorari in

Kimble solely to determine whether Brulotte should be over-

ruled. 576 U.S. at 449. It did not consider whether the Ninth

Circuit correctly applied Brulotte below. Id. Accordingly, we

are not bound by the Ninth Circuit’s interpretation of Brulotte.

Cf. Nkomo v. Att’y Gen., 930 F.3d 129, 134 (3d Cir. 2019) (pre-

suming that “the Supreme Court [does not] ma[ke] . . . dra-

matic . . . change[s] sub silentio”).

Second, the Ninth Circuit’s decision in Kimble is consistent

with our interpretation of Brulotte. See generally Kimble v.

Marvel Enters. Inc., 727 F.3d 856 (9th Cir. 2013), aff’d sub

nom. Kimble, 576 U.S. 446. In that litigation, Kimble originally

argued that the Web Blaster infringed his patent. Id. at 858. The

District Court ruled in Marvel’s favor on infringement. Id.

Then the parties settled after Kimble appealed the adverse

infringement judgment, with Marvel purchasing Kimble’s

patent in exchange for undertaking a royalty obligation. Id.

Marvel’s obligation was calculated based on “product sales

that would infringe the Patent but for the purchase and sale

thereof . . . as well as sales of the Web Blaster product.” Id. at

859 (quoting the agreement). Thus, unlike this case, the royalty

in Kimble was expressly calculated based on sales of infringing

products. Id. Before the Ninth Circuit, Kimble argued “that

both parties now agree that the Web Blaster did not infringe”

his patent. Id. at 864. But because the royalty was expressly

calculated based on sales of infringing products, the Ninth

41

Circuit “presume[d] that the post-expiration royalty payments

[were] for the then-current patent use, which is an improper

extension of the patent monopoly under Brulotte.” Id. at 863–

64 (emphasis added). That is, it presumed that Marvel’s royalty

obligation was calculated based on Marvel’s post-expiration

use of Kimble’s invention. If the Ninth Circuit’s presumption

is credited, then its conclusion is consistent with our interpre-

tation of Brulotte.

3. Policy Considerations

Finally, Ares advances several policy disagreements with

our understanding of Brulotte. But we are required to apply

Supreme Court precedent faithfully. Even if Ares’ policy argu-

ments have merit, they are better addressed to Congress or the

Supreme Court. Cf. Kimble, 576 U.S. at 456 (“Congress can

correct any mistake it sees.”).

Regardless, Ares’ policy arguments are unpersuasive. For

example, it argues that our interpretation of Brulotte will be

difficult to apply in practice. Courts will be required to deter-

mine whether a royalty is calculated based on activity requiring

post-expiration use, which may necessitate a “trial-within-a-

trial” on infringement. Opening Br. 28. Ares may be correct

that Brulotte will be difficult to apply in some cases (although

it remains simple in cases like this one). If so, that difficulty

will be what Brulotte requires. The Supreme Court created a

per se rule that must be rigidly applied even if its application is

difficult. See Kimble, 576 U.S. at 468 (Alito, J., dissenting)

(describing Brulotte as creating a “per se rule[] with . . . dis-

ruptive effects”).

Ares also complains that Dyax’s arguments regarding

Brulotte in this case are inconsistent with its

42

Even if that is true, it is irrelevant to our disposition of this

appeal. We lack the authority to determine the enforceability

of Dyax’s royalty obligations to CAT under Brulotte. If Dyax

returns to court in the future and seeks a declaratory judgment

that its obligations to CAT are unenforceable, the issue may be

litigated then.

C. Dyax Did Not Violate the Implied Covenant.

Separately, Ares challenges the District Court’s judgment

that Dyax did not violate the implied covenant of good faith

and fair dealing. As Ares presents it on appeal, this claim does

not depend on the alleged unenforceability of Ares’ royalty

obligation to Dyax under Brulotte. It depends on the alleged

unenforceability of Dyax’s royalty obligation to CAT under

Brulotte.

Ares’ argument proceeds as follows. Because Dyax’s roy-

alty obligation to CAT was invalid, Dyax’s PD-L1 Product

License terminated when the CAT Patents expired. When

Dyax’s PD-L1 Product License terminated, Ares’ PD-L1

Product Sublicense also terminated. But under the CLA, Dyax

was obligated to grant a PD-L1 Product Sublicense to Ares. So

when the Sublicense terminated, Dyax breached its obligation

under the CLA and had a duty under the implied covenant to

relieve Ares of its royalty obligation.

Even accepting that Dyax’s royalty obligation to CAT is

unenforceable, Ares’ argument fails for two independent rea-

sons. First, Dyax did not breach its obligation to grant a

Product Sublicense to Ares for PD-L1. It granted a PD-L1

Product Sublicense to Ares. This Sublicense may have termi-

nated earlier than expected: when the CAT Patents expired, not

43

ten years after Bavencio was first sold. But the CLA does not

impose an obligation on Dyax to obtain a Product Sublicense

of the latter duration. Moreover, the duration of Ares’ royalty

obligation is not linked to the duration of the PD-L1 Product

Sublicense. Because the CLA does not require a specific dura-

tion for the Product Sublicense, Dyax satisfied its obligations

regardless of whether the Sublicense terminated early, and

Ares cannot identify any other obligation that Dyax violated

under the CLA. 13 The implied covenant “may not . . . be

invoked to create rights and duties not otherwise provided for

in the existing contractual relationship.” Uno Rests., Inc. v.

Bos. Kenmore Realty Corp., 805 N.E.2d 957, 964 (Mass.

2004).

Second, even if Dyax violated a duty under the CLA, the

implied covenant was triggered only if Dyax prevented Ares

from “reap[ing] the benefits prescribed by the terms of the con-

tract.” Id. That did not happen. Ares reaped every possible ben-

efit from the CLA and the PD-L1 Product Sublicense, regard-

less of whether the Sublicense terminated early. Ares was able

13

See Ares, 2023 U.S. Dist. LEXIS 40484, at *80 (“Ares

Trading has not pointed to any existing obligation in the CLA

that Dyax has performed unfairly or without good faith by not

(a) seeking a reduction from CAT of Dyax’s royalty on sales

of Bavencio, (b) sharing such a reduction with Ares Trading,

or (c) simply giving Ares Trading a reduction regardless of

whether Dyax obtains a reduction from CAT.”). We agree with

the District Court that Dyax “treated Ares Trading fairly and

with good faith at every stage of their negotiations,” id. at *81

(capitalization altered), and to the extent Dyax negotiated roy-

alties with CAT regarding differently-situated drugs, Dyax

also offered that opportunity to Ares, and Ares refused.

44

to develop and commercialize Bavencio, a drug that is now

worth hundreds of millions of dollars. And Ares was able to

freely use the inventions covered by the CAT Patents before

and after their expirations. Ares cannot point to any “benefit”

that it lost due to the Product Sublicense’s alleged early termi-

nation. Instead, Ares’ real gripe is with the royalty that it

agreed to pay in exchange for those benefits. Unfortunately for

Ares, the implied covenant does not redress that grievance.

IV. CONCLUSION

Ares’ royalty obligation is not unenforceable under

Brulotte because it is not calculated based on activity requiring

post-expiration use of inventions covered by the CAT Patents.

Ares’ arguments to the contrary fail because they do not cohere

with Brulotte’s facts and the federal policy favoring limited

durations for patent monopolies. Finally, Ares reaped every

promised benefit under the CLA and the PD-L1 Product

Sublicense, so Dyax did not violate the implied covenant of

good faith and fair dealing. For these reasons, we will affirm

the District Court’s judgment in full.

45