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Consider a patent licensee. It is quite possible that the expected royalty payments, cost of challenge (post grant, inter partes, or ex parte reexam), and probability of invalidation would justify a validity challenge (i.e. expected value >$0). For example, if the expected lifetime royalties may amount to a few million, the cost of a challenge was $100k, and the probability of invalidation may be 20%, it would probably make sense to challenge.

Is this done in practice? Are there traditional license terms that forbid this? Does the challenging licensee lose credibility in the case given that they were concerned enough to sign a license in the first place?

I have read that validity challenges are usually initiated by those being sued for infringement, but it seems like a valid action for a licensee as well.

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  • “Are there traditional license terms that forbid this?“ afaik licenses seldom expire if the patent falls.
    – DonQuiKong
    Jul 28 '17 at 6:32
  • I fear this is unanswerable, since generally licensing terms are not made public. And licensing is off topic in any case. But in my experience, there is wide variation in how this dealt with, so that there really is no traditional approach of note.
    – Maca
    Jul 28 '17 at 8:03
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    By way of randomly picked anecdotes, Harvard's example licence contains a provision at 4.4.2 for doubling royalties fees if a patent is challenged and the University of Rochester provides at 16.2 that the licensee will keep paying even while challenging, but doesn't disallow it.
    – Maca
    Jul 28 '17 at 8:03
  • @DonQuiKong Although I don't have the reference on hand, I believe the courts have ruled in the past that if the patent is invalid, royalties are no longer due. However, if know-how was licensed, then those royalties can persist.
    – user132162
    Jul 28 '17 at 13:27
  • @Maca Okay, good to know
    – user132162
    Jul 28 '17 at 13:29