Ares Trading S.a. v. DYAX CORP. On Appeal from the United States District Court for the District of…

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).

-- 1 of 45 --

2
Kevin J. Culligan
John P. Hanish
John M. Hintz
M AYNARD NEXSEN
551 Fifth Avenue
Suite 1600
New York, NY 10176
Thomas G. Saunders [Argued]
Seth P. Waxman
W ILMER CUTLER PICKERING H ALE & D ORR
2100 Pennsylvania Avenue NW
Washington, DC 20037
Counsel for Appellant
Ginger D. Anders
M UNGER TOLLES & O LSON
601 Massachusetts Avenue NW
Suite 500e
Washington, DC 20001
Kelly E. Farnan
R ICHARD L AYTON & FINGER
920 N King Street
One Rodney Square
Wilmington, DE 19801

-- 2 of 45 --

3
Chelsea A. Loughran [Argued]
Michael N. Rader
Suresh Rav
Stuart D. Smith
W OLF G REENFIELD & SACKS
600 Atlantic Avenue
Boston, MA 02210
Counsel for Appellee
_______________
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 of 45 --

4
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 of 45 --

5
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 of 45 --

6
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 of 45 --

7
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 of 45 --

8
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 of 45 --

9
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 of 45 --

10
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 of 45 --

-- 11 of 45 --

12
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 of 45 --

13
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. J URISDICTION AND STANDARD OF R EVIEW
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 45 --

14
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 of 45 --

15
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 of 45 --

16
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 of 45 --

17
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 of 45 --

18
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 of 45 --

19
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 of 45 --

20
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 of 45 --

21
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 of 45 --

22
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 of 45 --

23
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. D ISCUSSION
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 of 45 --

24
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 of 45 --

25
“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 of 45 --

26
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 of 45 --

27
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 of 45 --

28
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 of 45 --

29
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 of 45 --

30
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 of 45 --

31
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 of 45 --

32
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 of 45 --

33
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 of 45 --

34
* * *
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 of 45 --

35
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 of 45 --

36
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 of 45 --

37
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 of 45 --

38
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 of 45 --

39
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 of 45 --

40
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 of 45 --

41
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 of 45 --

42
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 of 45 --

43
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 of 45 --

44
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 of 45 --

45
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 of 45 --