Acorda Therapeutics v. Alkermes PLC — Second Circuit Upholds Arbitral Limit on Post-Patent Royalty Recovery

Background

Acorda Therapeutics licensed a pharmaceutical patent related to Ampyra (dalfampridine), a drug used to improve walking in adults with multiple sclerosis, from Alkermes PLC. When the licensed patent expired in 2018, the licensing agreement still required Acorda to keep paying royalties. Acorda complied for about two years — willingly, without protest — before finally demanding arbitration and shifting to payments made under protest.

An arbitral tribunal of three retired judges applied the Supreme Court’s landmark holdings in Brulotte v. Thys Co., 379 U.S. 29 (1964), and Kimble v. Marvel Entertainment, 576 U.S. 446 (2015), which hold that contractual clauses requiring royalty payments after a patent expires are categorically unenforceable. The tribunal voided the post-expiration royalty clause — but then had to answer the remedies question: how much of those royalties could Acorda recover? The answer was only approximately $16.5 million: the amounts paid under protest. The additional ~$65 million paid willingly, before Acorda raised any objection, was barred by New York’s Voluntary-Pay Doctrine (NYVPD), which prohibits restitution of sums paid “with full knowledge of the facts.” The U.S. District Court for the Southern District of New York (Judge Buchwald) confirmed the award, and Acorda appealed.

The Court’s Holding

The Second Circuit affirmed unanimously. To vacate or modify an arbitral award under the Federal Arbitration Act, a party must satisfy one of the narrow grounds enumerated in FAA §§ 10–11, or — under Second Circuit doctrine — demonstrate that the arbitrators exhibited “manifest disregard of the law.” That standard is “severely limited” and requires only a “barely colorable justification” for the arbitrators’ outcome to survive review.

Acorda argued that the tribunal manifestly disregarded federal patent law: specifically, that Brulotte and Kimble establish an affirmative federal right to full restitution of all post-expiration royalties paid, whether or not paid under protest. The Second Circuit rejected this squarely. Brulotte held only that post-expiration royalty clauses are unenforceable — not that a licensee who voluntarily keeps paying is automatically entitled to full recovery. Kimble merely declined to overrule Brulotte on stare decisis grounds; the court there explicitly noted that “the sole question presented” was whether to overrule Brulotte. As Acorda itself conceded during arbitration, “neither Brulotte nor Kimble addressed damages.” No court had ever held that federal patent law mandates complete restitution of post-expiration royalties paid without protest — and the handful of courts to reach the issue found the opposite.

Because Acorda could not identify “well-defined” and “explicit” federal law requiring full restitution, the manifest-disregard challenge failed. And Acorda’s public-policy challenge collapsed for the same reason: a public-policy vacatur requires showing the award violates some “explicit” and “well-defined and dominant” public policy, which Acorda could not do without an explicit legal mandate. The tribunal’s application of the NYVPD to limit recovery to amounts paid under protest had at least a “barely colorable” justification and therefore withstood FAA review.

Key Takeaways

• Begin protesting early. Under New York law, a licensee that pays post-expiration royalties willingly — without a contemporaneous protest — may be barred from recovering those payments, even if the underlying clause is void under Brulotte/Kimble. The moment a licensed patent expires, licensees should evaluate whether to continue payments and, if so, do so expressly under protest.
• Brulotte/Kimble are about enforceability, not mandatory restitution. Those decisions make post-expiration royalty clauses unenforceable going forward, but say nothing about the right to recover payments already made. Courts will not read an implied restitution mandate into them.
• FAA deference is nearly absolute. An arbitral award survives challenge if there is any “barely colorable” justification for the result. Licensees seeking to overturn unfavorable arbitral awards on patent-preemption grounds face an extraordinarily high bar.

Why It Matters

For pharmaceutical, biotech, and technology companies operating under long-term patent licenses, this case carries a clear warning: don’t sleep on your rights under Brulotte. If a licensed patent expires and your contract still requires you to keep paying, begin paying under formal protest immediately — and initiate arbitration promptly. Royalties paid willingly before you raise an objection may be unrecoverable, even if the contractual obligation driving them is void as a matter of federal patent policy.

The ruling also illustrates the extraordinary insulation that arbitral awards enjoy under the FAA. Once an arbitral tribunal resolves a patent licensing dispute, even on contested questions at the intersection of federal patent policy and state contract law, it is very difficult to undo the result in court. Parties entering patent license agreements that extend beyond a patent’s life should negotiate clear contractual provisions addressing post-expiration royalties — and the consequences of paying them without protest.

Surfaced via newsletter intake: Law360 IP.