## Facts

- Permanence Corp., a Michigan company, owned U.S. Patent No. 4,024,902 covering a process for incorporating tungsten carbide into a steel matrix.
- Permanence previously granted Masco a nonexclusive patent license; Masco later terminated related agreements but retained its nonexclusive license.
- Michigan courts rejected Permanence’s claim that Masco had an implied duty to use best efforts to exploit the patent, reasoning the license arrangement was supported by adequate consideration.
- Permanence later entered a written patent licensing agreement with Kennametal granting a time-limited nonexclusive right to practice the patent and related future patents, subject to Masco’s prior nonexclusive license.
- The agreement gave Kennametal an option to convert the arrangement into an exclusive license (still subject to Masco’s prior rights), which Kennametal exercised.
- Kennametal paid substantial up-front consideration, including license fees and advance royalties, plus agreed ongoing royalties tied to product sales.
- Permanence alleged Kennametal failed to develop and market products using the patented technology and sued for breach of contract based on an implied obligation to use best efforts to exploit the patent.
- The district court granted summary judgment to Kennametal, finding no implied best-efforts obligation; Permanence appealed.

## Issues

1. Whether the patent license agreement imposed an implied obligation on Kennametal to use best efforts to exploit the licensed patent rights.
2. Whether the existence of substantial up-front consideration and a detailed written contract, silent on best efforts, foreclosed implying such a term as a matter of law.
3. Whether summary judgment was proper because contract interpretation presented no genuine dispute of material fact on the implied-term theory.

## Decision

- The Sixth Circuit affirmed summary judgment for Kennametal.
- The court held the agreement did not impose an implied best-efforts obligation to exploit the patents.
- The court treated the question as one of contract interpretation appropriate for resolution as a matter of law on summary judgment.

## Legal Principles

- A best-efforts duty to exploit licensed intellectual property is not implied merely because a license (including an exclusive license) is granted.
- When a license agreement is supported by definite, substantial, bargained-for consideration (e.g., license fees and advance royalties), courts have reduced basis to imply additional performance obligations to prevent the contract from being illusory.
- Courts are reluctant to add major obligations by implication where sophisticated parties executed a detailed written agreement that omits an express best-efforts provision.
- Implied best-efforts duties are more commonly considered where necessary to supply consideration or avoid an illusory promise; they are disfavored where the contract has independent economic substance.

## Conclusion

The court enforced the patent license as written, holding that substantial consideration and a comprehensive agreement without an express best-efforts clause barred implying a duty that Kennametal exploit the patent, and it therefore upheld summary judgment against Permanence’s non-exploitation claim.


Permanence Corp. v. Kennametal, Inc., 908 F.2d 98 (6th Cir. 1990)