Patent royalty rights extinguished

The dispute centered on patents for "Eblanks" - an electronic device designed to simulate live ammunition firing as an environmentally friendly alternative to blank ammunition. In August 2015, Nimtec transferred these patents to Eblanks under an agreement that secured Nimtec a 10% royalty on all future sales of the patented products.

The arrangement unraveled when Eblanks was subjected to compulsory dissolution in February 2019 due to lack of an auditor. The bankruptcy estate subsequently sold the patents to Green Ammo without the royalty obligation attached. When Green Ammo began generating significant sales revenue in 2022, Nimtec sued for payment of the agreed royalty.

The court first established that patents constitute transferable assets subject to creditor attachment under the Norwegian Debt Recovery Act section 2-2. Since Eblanks had acquired full ownership of the patents in 2015, they became part of the bankruptcy estate available to satisfy creditors.

Nimtec argued that the Norwegian Debt Recovery Act section 7-12, which governs production fees (royalties), should apply as lex specialis, potentially preserving their royalty rights. The court rejected this argument, finding that section 7-12 only regulates the boundary between the estate's dividend liability and direct liability for royalty claims, not whether a purchaser from the estate assumes responsibility for such claims.

The court's most significant part of the judgment concerned the requirement for security interests in patent royalty arrangements. Drawing on recent amendments to trademark law and academic commentary, the court concluded that royalty claims must be secured by a registered pledge in the patent to have legal protection against the patent owner's creditors.

The court cited the Ministry's clear statement in trademark law propositions that claims for unpaid consideration in trademark transfers "must be secured by a pledge... and recorded in the trademark register" to be enforceable against subsequent acquirers. The court found this reasoning equally applicable to patents.

Crucially, the court held that in creditor extinction situations, the good or bad faith of the acquirer is irrelevant. The timing of registration in the patent register is decisive, and an extinguished right cannot be "revived" when the asset is transferred from the estate to a new owner.

This judgment has several important implications for IP practice:

1. Mandatory Security Registration

   Royalty arrangements in patent transfers must be secured by registered pledges to survive the patent owner's insolvency.

2. Risk Assessment

   Patent assignors accepting deferred or conditional payment face significant risks if the buyer becomes insolvent without proper security in place.

3. Due Diligence 

   Patent assignees should verify whether any unregistered royalty obligations exist, though such obligations will typically not survive creditor proceedings.

4. International Considerations

   While the case initially raised questions about different treatment in various jurisdictions, the court applied Norwegian law throughout, suggesting that the law of the patent owner's domicile may govern royalty extinction.

The court awarded Green Ammo full legal costs of NOK 578,015, reflecting the significant stakes involved and the specialized nature of the legal issues. This cost award underscores the financial risks of pursuing unsuccessful royalty claims.

The Nimtec decision serves as a stark reminder that good intentions and clear contractual provisions may not be sufficient to protect royalty rights. Without proper security registration, even well-documented royalty arrangements can be extinguished through creditor proceedings, leaving the royalty holder with only a dividend claim against a bankruptcy estate.

IP practitioners should ensure clients understand these risks and implement appropriate security measures when structuring patent transactions involving deferred or conditional payments.