Applicant's "Right" before Issue of Patent
Naoki Matsumoto (My Home Page:

(my report at NYU / MCJ '90-'91) (PDF is here or here.)
Table of Contents

1 Issue 1

1.1 Model-Case 1
1.2 Reason for Manufacturer 1
1.3 Question 1

2 Aronson and Brulotte 2

2.1 Aronson 2
2.2 Brulotte 2

3 Analysis of Aronson and Brulotte 3

3.1 Scope of Brulotte 3
3.2 Brulotte and Model-Case 3
3.3 Scope of Aronson 4
3.4 Tentative Conclusion 4

4 Possible Limitation of Aronson 4

4.1 Distinguish from Trade-Secret Cases 4
4.1.1 Kewanee Oil 4
4.1.2 Aronson as Trade-Secret Case 5
4.2 Relation with Lear 5
4.2.1 Lear 6
4.2.2 Lear as Support of Negative Answer 6
4.2.3 Understanding of Lear 6
4.2.4 Practice in Lear 7

5 Conclusion 7

6 Legislative Proposal 7

6.1 Japanese System 8
6.2 Comparison 8
6.3 Value of Monopoly and Time 9
6.4 Possible Difficulty 9
6.5 Proposal 10

Applicant's "Right" before Issue of Patent
Naoki Matsumoto

Under the Patent Act,1 an applicant obtains exclusive
right to his invention as of the issue of patent by the
Commissioner.2 The duration of a patent starts from the
issue, and ends, in principle, as of the expiration of 17
years.3 Outside the period, whether before or after, the
applicant, or patentee, does not have any valid patent right.
To what extent does this limit the enforceability of the
applicant's possible agreement, especially in the period
before issue?

The answer seems that such a contract is enforceable,
including the part concerning royalty payment before patent is
granted. If so, a patentee may get royalty for a period that
is longer than 17 years, depending on the delay in the patent
application procedure. Is this situation rational?

1 Issue

The theme of this paper is the possibility of obtaining
"royalty," by an agreement entered into under the probability
of patent in the future, accruing for the period before the
patent is granted. Practically, it is to answer to the
following model-case question.

1.1 Model-Case

Suppose a party, Inventor, who developed a new
technology and filed a patent application therefor. After the
application, Inventor publicly demonstrated the new technology
through the process to look for a licensee of the patent that
Inventor believed to obtain shortly. Successfully, Inventor
found another party, Manufacturer. Manufacturer agreed to
enter an agreement with Inventor over the technology. They
agreed that Manufacturer would use the technology and pay to
Inventor 5 % of the sales as "royalty." The agreement did not
regard the fact that the application was still pending: They
agreed that Manufacturer should pay regardless of the fact
that the patent was not issued yet.

1.2 Reason for Manufacturer

This model-case is not ridiculous. While Manufacturer
does not have any need to enter this agreement currently,
Manufacturer notes the probability that Inventor will obtain
the patent shortly. To make investment without risk,
Manufacturer judged to enter the agreement immediately.

1.3 Question

Can Inventor enforce this agreement to collect "royalty"
from Manufacturer without holding any valid patent right?

1 35 U.S.C. Sections 1 - 376 (1988).
2 Id., Section 154.
3 Id.

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Note that the application is still pending. Also note that
Inventor had already lost the possible protection under trade-secret
state law before the agreement. On these assumptions,
Inventor has no protection as against the general public.
Even though, is this agreement enforceable?

2 Aronson and Brulotte

One may conclude that, under Aronson,4 naturally and
obviously the agreement can be enforced as they agreed.
However, we must note that Brulotte5 may also be relevant.

2.1 Aronson

The defendant (= licensor) designed a keyholder, and
filed a patent application therefor. During the application
was pending, the defendant entered into a contract with the
plaintiff. They agreed that in return for the exclusive right
to make and sell the design plaintiff would pay 5 % of the
selling, and that the royalty was to be reduced to 2.5 % if
the patent was not granted within 5 years.

The plaintiff (= licensee) had paid the royalty pursuant
to the contract, of 5 % within 5 years and 2.5 % from then on.
Some 5 years and a half after the contract, the Board of
Patent Appeals issued a final rejection of the application,
and defendant did not appeal. The plaintiff continued to pay
the reduced royalties to the defendant for 14 years after the

The plaintiff claimed a declaratory judgment that the
royalty agreement was unenforceable. It asserted that the
state law which might otherwise make the contract enforceable
was preempted by the federal patent law.

The District Court supported the enforceability of the
agreement, and dismissed the claim. The Court of Appeals
reversed. It held that the parties' reference to a pending
patent application estopped the defendant (= licensor) from
denying that the patent law principles governed the
defendant's contract with the plaintiff.

The Supreme Court held the enforceability of the
contract, which is a commercial agreement governed by state
law, and reversed.

2.2 Brulotte

The plaintiff sold a machine to each of the defendants
for a flat sum, and issued a license for its use. Under that
license, annual payment of royalty was agreed. The licenses
listed 12 patents. Under the agreements, the licenses
continued for terms beyond the expiration of all the 12

The defendants refused to pay the royalty accruing both
before and after the expiration of the patents. The plaintiff
claimed the same. The defendants argued misuse, which the

4 Aronson v. Quick Point Pencil Co., 440 U.S. 257 (1979).
5 Brulotte v. Thys Co., 379 U.S. 29 (1964).

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Naoki Matsumoto
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trial court and the Supreme Court of Washington supported.

The Supreme Court reversed. It said as follows: "A
projection of the patent monopoly after the patent expires is
not enforceable."

3 Analysis of Aronson and Brulotte

Aronson supported the enforceability of an agreement
disregarding the fact that the patent had not been issued. In
this case, however, the plaintiff filed the complaint after
the final rejection of the application by the Patent and
Trademark Office. In the model-case, contrary, the
application is still pending. Because of this difference, it
is possible to distinguish Aronson from the model-case.
Therefore, if we think the scope of Brulotte broadly, the
conclusion in the model-case would be negative.

3.1 Scope of Brulotte

In Brulotte, the Supreme Court denied the "projection"
of patent. The Plaintiff in Brulotte claimed, pursuant to
their agreement that was entered within the patent period,
"royalty" payment for the period after the patent expiration.
The Supreme Court dismissed the claim. The Supreme Court
denied the plaintiff's endeavor to get money for the period in
which the patent was not valid.

It may be possible to understand Brulotte as a denial of
the "royalty" for the period also before a patent is issued,
not only after the expiration as in the case. If so, the
answer to the model-case would be negative.

Further, it may be easier than in Brulotte to reason the
dismissal of the claim in the model-case. It is possible to
understand that the agreement in the model-case lacks the
consideration. While Brulotte was reasoned by the patent
misuse doctrine, more basic reasoning may be possible in the

3.2 Brulotte and Model-Case

To analyze the scope of Brulotte precisely, we should
note the motives on the Manufacturer side to enter into the
agreement in the model-case. On the assumption, Manufacturer
does not have to enter to the agreement to use the technology:
The technology itself is publicly available and no trade-secret
protection or the like exists. Nonetheless, it may be
reasonable for Manufacturer to enter the agreement. Probably
Inventor will obtain the patent soon. Then, if Manufacturer
cannot get the license from Inventor, Manufacturer will not be
able to use the technology at the plant, and will be forced to
incur loss of the investment.

To avoid this risk, in advance, Manufacture should
assure that it can continue the use. For this purpose,
entering into the agreement at this moment may be reasonable.

On this understanding, the similarity between Brulotte
and the model-case is obvious. In both cases, a patentee
tried to use a patent right as a leverage to collect "royalty"
for period for which the patent was not valid. The court in
Brulotte denied such endeavor.

Applicant's "Right" before Issue of Patent
Naoki Matsumoto
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3.3 Scope of Aronson

In Aronson, the court affirmed the claim while the
patent had not been issued. It may be possible to interpret
that Aronson limited the scope of Brulotte, or that partially
denied the same. While in the licensee estoppel context,
which may be different from the point here, Prof. Dreyfuss
says as follows: "This article, by contrast, argues that
Aronson at least partially overruled Brulotte and suggested
policies supporting modification of Lear, . . ."6

However, it may also be possible to distinguish Aronson
from the model-case. In Aronson, the application had been
already rejected. In the model-case, the application is still
pending. This difference might seem to be trivial. However,
the court opinion itself referred, to distinguish the case
from Brulotte, to this point.7

Even considering this wording, we may be possible to say
that Aronson is relevant. In Aronson the plaintiff (=
licensee) had paid, during the application was pending, the
"royalty" for the period before the rejection and such payment
was not repaid. Thus, we may be able to say that Aronson
affirmed the validity of the "royalty" payment agreement for
the period during the application was pending. Even on this
understanding, however, Aronson may be irrelevant since the
situation was different from the model-case at the point that
the payment had been already made in Aronson.

3.4 Tentative Conclusion

Even with the consideration of Brulotte, we should
conclude that Aronson is more relevant to the model-case, and
that the answer is positive.

4 Possible Limitation of Aronson

While Aronson, even with Brulotte, appears to render the
positive answer to the model-case question, it is possible to
interpret Aronson more narrowly referring to other cases.
Nonetheless, the answer is positive.

4.1 Distinguish from Trade-Secret Cases

Of course, if Inventor was under the protection under
state trade-secret law, the agreement would be doubtlessly
enforceable. However, it is different from the model-case.

4.1.1 Kewanee Oil

The Supreme Court in Kewanee Oil8 supported the
enforceability, as against the defendant's argument that the

6 Dreyfuss, Dethroning Lear: Licensee Estoppel And The
Incentive To Innovate, 72 Va.L.Rev. 677, 691 n. 56
7 Aronson v. Quick Point Pencil Co., 440 U.S. 257, 264
8 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974).

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Naoki Matsumoto
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trade-secret protection by state law was preempted by the
federal patent act, of the state trade-secret law. As stated
there, in principle, the protection under state trade-secret
law is valid and enforceable. Therefore, also valid and
enforceable is a license agreement based on, and with the
consideration constituted of, trade-secret protection.

However, the model-case is different. Inventor had lost
the protection under state trade-secret law. Thus, this
argument based on trade-secret is irrelevant.

4.1.2 Aronson as Trade-Secret Case

Aronson may be understood in this context. In Aronson,
at the time of the agreement, the subject design of the
license was still under the protection of state trade-secret
law. Therefore, it may be possible to understand that the
enforceability of the agreement was based upon the trade-secret
protection. While the face of the opinion of Aronson
does not explicitly refer to that, Prof. Altman appears to
take this understanding.9 This understanding is reasonable
since Aronson itself refers to the fact that the design was
not in the public domain before the defendant obtained its
license to manufacture it.10

If we take this understanding, Aronson is not so
relevant. On this understanding, we should distinguish the
model-case from Aronson, even if we do not care the wording
therein about the interpretation of Brulotte, which was
referred to above.

However, such limited understanding does not seem to be
appropriate. Aronson itself does not indicate such
limitation, and most of the writings that refer to Aronson
interpret the same as the negation of the preemption by the
federal patent law of the state contract law.11 The reference
to not-public-domain situation, cited above, followed by the
conclusion that contracts of the category in the context are
generally enforceable.

4.2 Relation with Lear

The principal point in Lear12 was "the death of licensee

9 Altman, Is There An Afterlife? The Effect Of Patent Or
Copyright Expiration On License Agreements, 64
J.Pat.Off.Soc'y, 297, 316 (1982).
10 Aronson v. Quick Point Pencil Co., 440 U.S. 257, 263
11 Dreyfuss, Creative Employee And The Copyright Act Of
1976, 54 U.Chi.L.Rev. 590, 645 (1987); McGarity and
Shapiro, The Trade Secret Status Of Health And Safety
Testing Information: Reforming Agency Disclosure
Policies, 93 Harv.L.Rev. 837, 868 (1980).
12 Lear, Inc. v. Adkins, 395 U.S. 653 (1969).

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Naoki Matsumoto
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estoppel."13 In our context, however, we should note that in
Lear the application was pending for long period. While Lear
works to the direction to deny the claim in the model-case, it
is not decisive.

4.2.1 Lear

The defendant hired the plaintiff to solve gyroscope
development problems. They had agreed that the possible
invention would belong to the plaintiff, and the plaintiff
would license the same to the defendant on a mutually
satisfactory royalty basis.

After the development and an application, before a
patent is granted, the defendant agreed to pay royalty to the
plaintiff notwithstanding the original agreement. The new
agreement also provided that, in case of refusal by the Patent
Office or subsequent invalidation, the defendant could
terminate the agreement. Although the defendant had paid the
royalty for some two years, the defendant stopped it because
the patent had been not granted yet. Later, the patent was
granted. Immediately, the plaintiff claimed the payment. The
defendant's defense was, among others, that the patent is
invalid. The plaintiff argued that the defendant was barred
from questioning the patent by the estoppel due to the
agreement. The California Supreme Court supported the
plaintiff's argument. The Supreme Court vacated the same and
remanded the case denying the estoppel.

4.2.2 Lear as Support of Negative Answer

Lear, after all, denied royalty payment based on an
agreement for a period without patent. This leads to the
negative answer to the model-case.

Of course, it is noteworthy that in Lear the agreement
itself provided that the royalty payment was subject to the
validity of the patent. Even though, however, they agreed
that the defendant should make payment before the patent was
granted. Relying on this point, we may be able to say that
also the estoppel, which was denied by the Supreme Court,
seems have been agreed. Nevertheless, the Court denied the

4.2.3 Understanding of Lear

As shown in the foregoing analysis, in one sense, Lear
denied the possibility for a licensor to obtain better and
more stable position, than originally under the Patent Act,
through contractual arrangement. Further specifically, Lear
permitted the escape from the contractual obligation that may
conflict with the Patent Act. On these points, it is possible
to refer to Lear as support to argue the negative answer to
the model-case.

However, Lear's relevancy to the model-case is not large
enough to reverse the answer.

13 Dreyfuss, Dethroning Lear: Licensee Estoppel And The
Incentive To Innovate, 72 Va.L.Rev. 677, 683 (1986).

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First, as described in Aronson,14 Lear's "holdings relied
on the desirability of encouraging licensees to challenge the
validity of patents," while the model-case lacks this type of
desirability. "Accordingly, neither the holding nor the
rationale of Lear controls when no patent has issued, and no
ideas have been withdrawn from public use."15

Next, the relevancy of Lear to our question also relies
upon the importance of the parties' intention. In other
words, it is possible to understand that in Lear the party's
intention to have the payment conditional to the patent issue
was important, and that, thus, it is irrelevant to the model case.

4.2.4 Practice in Lear

In addition to the court decision, the practice itself
by the parties in Lear is informative to consider the modelcase.
In Lear, while the contract was entered into before the
patent issue after all, at the time of the original agreement
for the development, they agreed that the royalty should be
paid only after a patent is granted. This practice suggests
that the positive answer to the model-case is not so effective
in the actual world.

5 Conclusion

Brulotte, in one sense, denied, or showed a "hostile"
understanding against, the extension of a patent right to the
future beyond patent expiration. This type of interpretation
of Brulotte can be found in the concurring opinion in
Aronson.16 On this understanding, Brulotte does not bar the
enforcement by Inventor.

This understanding, while the court opinion of Aronson
did not take it, goes well with the logic of the court
opinion, as well as the conclusion of the other cases. The
conclusion to the model-case is positive: The payment
agreement is enforceable.17

6 Legislative Proposal

The positive answer means that a patentee may get
royalty for a period longer than 17 years. On this
understanding, additional limitation on the patent duration
may be rational.

14 Aronson v. Quick Point Pencil Co., 440 U.S. 257, 264
15 Id.
16 Id. at 267.
17 Nevertheless, there remains the limited possibility to
argue that the answer to the model-case is negative
solely under state law without conflict with Aronson: It
may be that the agreement in the model-case lacks the
required consideration.

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Naoki Matsumoto
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6.1 Japanese System

The duration of a patent in Japan is principally 15
years from the publication for public examination, which is
called Kohkoku.18 Kohkoku takes place after the examination by
an examiner at the Patent Office, and gives the applicant a
tentative right almost equivalent to the patent right, which
is given later.

The monopoly period is limited additionally: It cannot
exceed 20 years from the application.19 This limitation was
introduced simultaneously with the establishment of the Kohkai
system. Under the Kohkai system, every application is
published 1 year and 6 months after the application was filed
with the Patent Office.20 The position of an applicant after
Kohkai before Kohkoku is ambiguous. It is provided that an
applicant can, after Kohkoku takes place, claim a party who
willfully performs the invention to make payment equivalent to
the royalty for the period after Kohkai.21 However, an
applicant is not entitled to prevent others from performing
the invention before Kohkoku.

The reason for the introduction of the Kohkai system,
accompanied with the ambiguous right of application as well as
with the 20 year limitation, was principally to resolve the
difficulties due to the delay in the examination.22 The delay
is, in one sense, attributable to the system that requires
examination. The introduction of the Kohkai system can be
understood as partial abandon of such examination system:23
Under the Kohkai system, an applicant is given the limited
right upon Kohkai without having been judged by an examiner to
be patentable.

6.2 Comparison

The Japanese system is different from the U.S. one as to
the duration. The Japanese system has two limitations.

This difference may be reasoned by the existence of the
limited right of an applicant after Kohkai. Since Kohkai
takes place automatically 1 year and 6 months after the
application, 20 year-limitation is reasonable to limit the
duration including such post-Kohkai period.

In other words, it is possible to argue that the current
U.S. system is reasonable since a patent applicant in U.S.

18 Patent Law (Law No. 121 of 1959, as amended), Article
67, Section 1.
19 Id.
20 Id., Article 65-2.
21 Id., Article 65-3, Sections 1 and 2.
22 Kohsaku Yoshifuji, Tokkyohou Gaisetsu (8th edition with
supplement), 292 (1988).
23 Id.

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Naoki Matsumoto
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does not have any right before the patent is granted.
However, we should also note that an applicant can get
"royalty" for such period before patent-issue through
contractual arrangement as concluded above.

6.3 Value of Monopoly and Time

The value of monopoly that is given to a patentee varies
as time passes. If every invention loses its value as time
passes, the delay in patent-application procedure is simply
disadvantageous to the applicant while the contractual
possibility of royalty before issue may partly cancel the

However, the way of such variation is various. It may
be that the monopoly is valuable at the beginning and becomes
nothing later; it may also be that it is nothing at the
beginning and becomes priceless later.

In case of an invention which is highly application-oriented,
the former is probable. Contrary, in case of a
basic invention, which is followed by many applications, the
latter is probable: As time passes, the invention becomes more
widely used through various applications, and more valuable.

Generally, the entire value throughout the long period
of a basic invention, including that through applications, is
not attributable solely to the inventor. While such basic
invention is valuable, it is probable that if he had not made
the invention another researcher would have made the same
invention a little later. Most inventions rely on, not only
an inventor's inspiration and perspiration, but also the
general heritage of the society. This understanding seems
especially persuasive in case of a basic invention.

6.4 Possible Difficulty

Recently, an issue of a U.S. patent24 to Mr. Gilbert P.
Hyatt was reported with surprise in Japan.25 This patent is
originally based on his application on November 24, 1969. The
patent is reported to cover virtually all single-chip
microcomputers, while the name of Mr. Hyatt has not been known
widely in the related field of industry for so long period.26
It is also said cynically to have been granted at very "good"
timing since in these days the usage of single-chip
microcomputers is so huge.27

The U.S. system is criticized in this context in Japan.28
Under the current Japanese patent system, a story like this

24 U.S. Patent No. 4,942,516, July 17, 1990, Single chip
integrated circuit computer architecture.
25 Asahi Shimbun Weekly AERA 1991.4.9, 21.
26 Id., at 23.
27 Id.
28 Id.

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cannot take place.29 Mr. Hyatt's invention was a typically
"basic" one, which increases its value as time passes. The
delay in the procedure was, at last, beneficial to the
inventor, and it cost the society. It is also noteworthy that
the first commercial microprocessor Intel 4004 seems to have
been developed independently of Mr. Hyatt's invention.30

6.5 Proposal

It may be possible to say that the difference between
U.S. and Japanese systems is rational. A patent applicant in
U.S. is not entitled to get royalty-equivalent payment as a
Japanese-patent applicant is after Kohkai and before Kohkoku.

However, we should not ignore the possibility of cases
as Mr. Hyatt's mentioned above. It may be proper to legislate
to limit additionally the period by the length from
application, not only from the issue as currently, to deal
with the delayed-issue case.

This type of limitation is of course disadvantageous to
patentees. However, considering the possibility of a contract
that provides royalty for the period before patent issue, we
may be able to say that it is not hardship or unfair.

As referred to above relating to Lear, however, we
should note also that such contract is not so practical.
Nonetheless, the current U.S. system that admits "surprising
appearance"31 of inventor does not seem to be appropriate.

29 Note the word "current." The Kohkai system was
introduced by the amendment of 1970, effective as of
January 1, 1971. Concerning applications before that,
the 20 year limitation is not applicable. Therefore,
even these days, a story like that of Mr. Hyatt is not
impossible either in Japan. Actually, in 1990, a basic
invention concerning IC production was patented to Texas
Instrument, based on its application in 1960.
30 Mr. Hyatt argues that the development by Intel was a
result of leak of his invention. However, it is not
persuasive compared with the well-known story about the
development by Intel. See Shima, Waga Seishun-no 4004,
which was written by a Japanese engineer who was
involved in the development, as a supervisor from a
Japanese manufacturing company that ordered the product.
31 Asahi Shimbun Weekly AERA 1991.4.9 at 21.
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