Guides · Patent Litigation
Settlement and Licensing
Most patent cases end in a settlement, usually a license.
· Law checked through October 20, 2026
In Short
Most patent cases end in a settlement, usually a license. The terms matter long after the case is dismissed: which products and companies are covered, whether past and future infringement are released, whether the licensee can later challenge the patent, and what happens if either side is sold. Some settlements, especially between brand and generic drug makers, also raise antitrust concerns.
Common situations.
- A defendant agrees to pay to end a case and wants to be sure the deal covers its customers.
- A licensee wants to know whether it can still challenge the patent.
- A brand drug maker and a generic company negotiate an entry date.
- A patent owner's license agreement is governed by Texas law and a dispute arises over royalties.
Paths to settlement.
Settlement can come at any stage, but it often follows a key ruling: denial of a motion to dismiss or transfer, a decision on whether the PTAB will review the patent, claim construction, or the eve of trial. Federal courts in Texas commonly order the parties to mediate before trial. Statements made in settlement talks generally cannot be used to prove liability or the amount of a claim (Fed. R. Evid. 408), but some settlement negotiations may be discoverable when they bear on a reasonable royalty (In re MSTG, Inc., 675 F.3d 1337 (Fed. Cir. 2012)).
Key terms in a patent settlement.
| Term | What to decide |
|---|---|
| Release | Whether past infringement is released, for whom (affiliates, customers, suppliers), and through what date |
| License or covenant not to sue | Which patents (including continuations and foreign counterparts), which products, fields, and territory, and for how long |
| Payment | Lump sum or running royalty; royalty base and audit rights; most-favored-licensee terms |
| Coverage of others | Rights for customers, distributors, and contract manufacturers ("have made" rights) |
| Transfer and change of control | Whether the license survives a sale of either party or of the licensed business |
| Challenges to the patent | Whether the licensee may challenge validity, and the consequences |
| Dismissal | With or without prejudice; who bears costs and fees; any consent judgment |
| Confidentiality | Who may see the terms, including in later litigation where licenses are used to prove damages |
Rules that limit settlement terms.
- Challenges by licensees. A licensee is not barred from challenging the validity of a licensed patent (Lear, Inc. v. Adkins, 395 U.S. 653 (1969)). A clear promise not to challenge the patent, made in settling litigation, can be enforced (Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001)).
- Royalties after expiration. A license requiring royalties for use after the patent expires is unenforceable as to those royalties (Kimble v. Marvel Entm't, LLC, 576 U.S. 446 (2015)). Agreements that also cover other rights, such as know-how, should allocate royalties accordingly.
- Pay-for-delay. A payment from a brand drug maker to a generic challenger to delay entry can violate the antitrust laws, judged under the rule of reason (FTC v. Actavis, Inc., 570 U.S. 136 (2013)). Certain brand-generic settlements must be filed with the Federal Trade Commission and the Department of Justice. See Hatch-Waxman and Biosimilar Litigation.
- Vacatur. Settlement on appeal does not by itself justify erasing the lower court's judgment (U.S. Bancorp Mortg. Co. v. Bonner Mall P'ship, 513 U.S. 18 (1994)), so a judgment of invalidity may survive a later settlement.
- Bankruptcy. If a licensor goes bankrupt and rejects the license, the licensee may elect to keep its rights under the license (11 U.S.C. § 365(n)).
Texas notes.
- License and settlement agreements are contracts, usually governed by the state law the parties choose. Disputes over royalties or scope under a Texas-law license can be heard in Texas state courts, including the Texas Business Court when its requirements are met, unless the dispute requires deciding infringement or validity. See Where IP Disputes Are Heard in Texas.
- Licenses entered to settle suits in the Eastern and Western Districts are often produced in later suits as evidence of a reasonable royalty, under protective orders.
Sources.
- Fed. R. Evid. 408.
- 11 U.S.C. § 365(n).
- In re MSTG, Inc., 675 F.3d 1337 (Fed. Cir. 2012).
- Lear, Inc. v. Adkins, 395 U.S. 653 (1969).
- Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001).
- Kimble v. Marvel Entm't, LLC, 576 U.S. 446 (2015).
- FTC v. Actavis, Inc., 570 U.S. 136 (2013).
- U.S. Bancorp Mortg. Co. v. Bonner Mall P'ship, 513 U.S. 18 (1994).
- Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, §§ 1111-1118 (settlement filing requirement).
This guide is general information, not legal advice. Law checked through October 20, 2026. See the Disclaimer.