## Facts

- SPS Technologies held two patents covering a prevailing-torque locknut and a tool for converting certain free-spinning nuts into locknuts, and used the trademark “Conelok” for the products.
- SPS licensed Bristol Locknut to sell locknuts under the “Conelok” trademark and to use the covered technology in exchange for royalties.
- After a change in Bristol’s ownership, Bristol underpaid royalties for several years, then stopped paying while continuing activities within the scope of the license.
- Bristol repudiated the license and sued for declaratory relief that the patents were invalid and not infringed.
- SPS counterclaimed for patent infringement, trademark infringement, breach of contract, and unpaid/underreported royalties.
- The district court held both patents invalid, found no infringement, denied Bristol a refund of royalties already paid, and denied SPS recovery of the withheld/underreported royalties.
- Both parties appealed the adverse portions of the judgment.

## Issues

1. Whether the licensed patents were valid.
2. Whether a licensee must pay royalties that accrued before it challenged the patents’ validity, even if the patents are later held invalid.
3. Whether a licensee may obtain restitution of royalties paid before it challenged the patents’ validity.

## Decision

- The Ninth Circuit affirmed the judgment that both patents were invalid.
- Because the patents were invalid, the court did not reach patent infringement.
- The court reversed the denial of SPS’s claim for royalties that Bristol had withheld and underreported before Bristol challenged validity, holding those royalties remained due under the license up to the challenge.
- The court affirmed the denial of Bristol’s request to recover royalties already paid before it challenged validity.
- The judgment was affirmed in part and reversed in part.

## Legal Principles

- A patent licensee may challenge patent validity under federal patent policy, and royalty obligations tied to the patent may cease prospectively once validity is challenged.
- Until the licensee challenges validity (placing the licensor on notice), the license remains enforceable as a contract for benefits received, and royalties accruing during that period are owed even if the patents are later declared invalid.
- A later declaration of invalidity does not, by itself, entitle the licensee to restitution of royalties voluntarily paid before the validity challenge where the licensor performed and the licensee obtained substantial benefits.

## Conclusion

The court held the licensed patents invalid but enforced the licensee’s pre-challenge contractual duty to pay all royalties that accrued before the validity challenge, while rejecting any attempt to recover royalties already paid for that same period.


Bristol Locknut Co. v. SPS Techs., Inc., 677 F.2d 1277 (9th Cir. 1982)