Amster Rothstein and Ebenstein, LLP - Intellectual Property Law

ARE Patent Law Alert:
Supreme Court Upholds Prior Precedent On Post-Expiration Royalty Payments

June 22, 2015
Author(s): Charles R. Macedo

Kimble v. Marvel Entertainment, LLC, No. 13-720 (U.S. June 22, 2015)

On June 22, 2015, the Supreme Court of the United States issued a decision in Kimble v. Marvel Entertainment, LLC, No. 13-720, slip op. (U.S. June 22, 2015), in which the Court declined to overrule its prior precedent in Brulotte v. Thys Co., 379 U.S. 29 (1964), which prohibited royalty payments for sales post-patent expiration.

Factual Background

Petitioner Kimble is the owner of U.S. Patent No. 5,072,856 for a toy that allows children to shoot foam string or “spider webs” out of the palm of their hand. Marvel Entertainment, LLC (“Marvel”) sells the “Web Blaster” which similarly allows Spider-Man fans to shoot foam through a polyester glove, thus mimicking Spider-Man. In an effort to settle a patent infringement litigation brought by Kimble against Marvel, the parties entered into an agreement whereby Marvel would purchase Kimble’s patent for a lump sum and a continuing three percent royalty payment on Marvel’s future sales of the Web Blaster (or similar product). The agreement did not set an end date for the royalty payments.

After a dispute arose regarding Marvel’s royalty obligations under the agreement, Kimble sued Marvel for breach of contract, and after becoming aware of the Supreme Court’s decision in Brulotte, Marvel sought a declaratory judgment that it did not owe royalty payments after the Kimble patent expired in 2010. The district court agreed with Marvel, holding that under Brulotte, “the royalty provision is unenforceable after the expiration of the Kimble patent.” Kimble v. Marvel Enters., 692 F. Supp. 2d 1156, 1161 (D. Ariz. 2010). The United States Court of Appeals for the Ninth Circuit affirmed “reluctantly,” acknowledging that the application of Brulotte, “arguably deprives Kimble of part of the benefit of his bargain based upon a technical detail that both parties regarded as insignificant at the time of the agreement.” Kimble v. Marvel Enters., 727 F.3d 856, 866 (9th Cir. 2013). The Supreme Court affirmed.

Supreme Court Decision

Justice Kagan, writing for the 6-3 majority, held that stare decisis required the Court to uphold Brulotte which bars license agreements that require royalty payments after a patent expires. The Court held that “[f]inding many reasons for staying the stare decisis course and no ‘special justification’ for departing from it, we decline Kimble's invitation to overrule Brulotte.” Kimble v. Marvel Entertainment, LLC, No. 13-720, slip. op. at 18 (U.S. June 22, 2015). Specifically, the Court found that the typical reasons for overturning precedent of the Court did not help Kimble. Id. at 10.

The Court found that there was no “superspecial justification to warrant reversing Brulotte.” Id. Brulotte’s “statutory and doctrinal underpinnings have not eroded over time,” since the patent law on which Brulotte relies has remained the same. Id. Similarly, the precedent on which Brulotte relies remains good law. Id. at 10-11. Secondly, Brulotte has not proven unworkable. To the contrary, Brulotte is simply applied, merely requiring a court to ask “whether a licensing agreement provides royalties for post-expiration use of a patent.” Id. at 11-12. Finally, the Court found that Kimble’s justifications for overturning Brulotte were not persuasive. Id. at 12. Rather, the proper audience for Kimble’s concerns is Congress not the Court. Id. at 16-18.

Interestingly, the Court noted that parties to an agreement can find ways around Brulotte. In particular, Brulotte allows for royalty payments incurred during the life of the patent to be deferred “into the post-expiration period.” Id. at 6. According to the Court, parties to an agreement have even more options “when a licensing agreement covers either multiple patents or additional non-patent rights.” Id. For instance, royalties may run until the last to expire patent expires. Or, where a license is tied to both patent rights and non-patent rights, such as a trade secret, other mechanisms can be used. Id.

In a dissenting opinion, Justice Alito wrote that Brulotte “interferes with the ability of parties to negotiate licensing agreements that reflect the true value of a patent, and it disrupts contractual expectations.” Kimble v. Marvel Entertainment, LLC, No. 13-720, slip. op. at 1 (U.S. June 22, 2015) (Alito, J., dissenting).

For more information on how this recent development may affect your organization, please contact one of our attorneys.

Charles R. Macedo is a partner and Jessica A. Capasso is an associate at Amster, Rothstein & Ebenstein LLP. Their practice specializes in intellectual property issues. They may be reached at [email protected] and [email protected].

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