When a patent is invalidated after a Patent Non-Implementation Agreement is executed, what becomes of the legal relationship surrounding the agreement? Under the Korean Patent Act, if a patent is invalidated, it is considered to have never existed from the outset. Does this mean that if the other party used the patented invention, it is no longer considered a breach of contract? Additionally, if the other party proves that the invention they used falls under the category of free-to-use technology, would this eliminate their liability under the agreement? This article will first review relevant Supreme Court decisions regarding Patent Licensing Agreements and the invalidation of the related patent and then introduce the latest Supreme Court ruling delivered on November 20, 2024, which addresses these issues.    ______________________________________________________________________________________________________________________________________________________

Patent Licensing Agreements and the Invalidation of the Related Patent
(Supreme Court Decision 2012Da42666, 42673 | November 13, 2014)

   1.    Does a Patent Licensing Agreement Become Void If the Underlying Patent is Invalidated?

   When a patent is invalidated after the execution of a licensing agreement, the patent is deemed to have never existed, except in specific circumstances. However, unless the patented invention that is the subject of the contract was impossible to implement, the Patent Licensing Agreement cannot be deemed to have been in a state of initial impossibility at the time of its execution. It is only upon the invalidation of the patent that the agreement is considered to enter a state of non-performance.

   2.    Is the Patentee Obligated to Refund Royalties for the Period the Agreement Was Valid?

   Even if the patent is invalidated, the patentee is not required to refund royalties received for the period when the licensing agreement was valid, unless the agreement was initially void or there were separate grounds for invalidity of the agreement. 
   A subsequent Supreme Court ruling (2018Da287362, April 25, 2019) reinforced this view, stating that patentees can claim royalties for the valid period of the agreement.

   3.    Can a Licensing Agreement Be Voided Due to a Mistake About Patent Validity?

   Given the inherent possibility of a patent being invalidated after registration, a licensing agreement cannot be voided for mistake unless the validity of the patent was explicitly agreed upon as a fundamental term of the contract.

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Patent Non-Implementation Agreements and the Invalidation of the Related Patent
(Supreme Court Decision 2024Da270105 | November 20, 2024)

   1.    Does a Non-Implementation Agreement Lose Effect Upon Patent Invalidation?

   Even if a patent is invalidated after the execution of a Non-Implementation Agreement, the agreement is not void from the outset. Instead, it becomes unenforceable only after the patent’s invalidation. Thus, unless there are separate grounds for invalidity of the agreement, the patentee can claim damages for breach of the agreement during the valid period

   2.    Can the Defendant Argue Freedom-to-Use Technology as a Defense Against Breach

   The fact that the defendant’s use of the invention constitutes freedom-to-use technology (i.e., technology that can be easily derived from public knowledge) does not exempt them from the obligations under the Non-Implementation Agreement, which remains binding as per the parties’ mutual understanding.

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Conclusion

The Supreme Court has clarified that neither licensing agreements nor non-implementation agreements are automatically void when the associated patent is invalidated. In licensing agreements, patentees can claim royalties for the period before invalidation, and refunds are not owed for royalties already received during that time. In non-implementation agreements, patentees can claim damages for breach of contract during the period before the patent’s invalidation, and defendants cannot evade liability by arguing freedom-to-use technology.