Takeaway: If you are in the process of negotiating a patent license, you may want to keep an eye on the Supreme Court’s upcoming decision in Kimble v. Marvel that could change the state of the law and allow royalties beyond the patent expiration date.
On March 31, 2015, the Supreme Court of the United States heard arguments in Kimble v. Marvel, and the Court is expected to decide whether to overturn its 1964 decision of Brulotte v. Thys Co., a case relating to patent royalties extending beyond patent expiration. In that case, the Court held that, “a patentee’s use of a royalty agreement that projects beyond the expiration date is unlawful per se.”
In the present case, a settlement agreement was reached between Marvel Enterprises and Stephen Kimble in which Kimble assigned his patent for a Spiderman-like “web shooter” toy to Marvel, and Marvel agreed to pay Kimble annual royalties. When the patent term for Kimble’s patent had expired, Marvel refused to pay additional royalties based on the rule in Brulotte. Kimble sued Marvel in District Court, and that court applied the rule in Brulotte and found in favor of Marvel. The Ninth Circuit affirmed the district court on appeal, but not without criticizing the standard of Brulotte and stating they could not overturn a Supreme Court decision. Judge Consuelo Maria Callahan opined, “We acknowledged that the Brulotte rule is counterintuitive and its rationale is arguably unconvincing. Nonetheless, recognizing that we are bound by Supreme Court authority and the strong interest in maintaining national uniformity on patent law issues, we have reluctantly applied the rule. We are compelled to do so again.”
Proponents for overturning the Brulotte rule believe that parties should have the right to negotiate their own terms of the contract regardless of the patent term. In other words, they seek to decouple the patent holder’s “right to exclude” from the formation of a contract. On the other hand, supporters for the Brulotte rule argue that post-expiration patent royalties improperly extend the exclusive right of patentees, and that overturning Brulotte would have significant ramifications on existing patent license agreements. In oral arguments, Supreme Court Justice Sonya Sotomayor expressed a reluctance to overturn Brulotte, stating, “Why don’t we just let Congress fix it, because if it’s wrong, people can complain to [Congress]…”
Whether the Court will overturn Brulotte in a dramatic reversal of stare decisis remains to be seen. The decision is expected to be rendered sometime in June 2015.