Kimble v. Marvel-SCOTUS Declines to Overturn BrulotteJune 26, 2015

            Patent portfolios are often a substantial asset to business associations, and even for the individual inventor an issued patent or two can be Big Business. Patent assignments (i.e. wholesale buying and selling of patents and patent applications) are not the only ways to trade in the commodity. Many transactions take the form of licenses or assignment in exchange for royalties, where the patent owner gets a portion of revenues in exchange for a license to practice in invention covered by the patent in question. The structure of royalty deals often specify smaller payments over a longer term in order to allocate for risk or allow cash strapped licensees to reach a deal with patent owners. However, the Supreme Court in Brulotte v. Thys Co, 379 U.S. 29 (1964) set a major limit on patent licensing agreements: royalties for practicing a patented invention may not extend beyond the allowed statutory term a patent. The Supreme Court recently again took up the issue of royalties in patent license agreements in Kimble v. Marvel Entertainment, LLC, but declined to to overrule the Brulotte precedent.

            The court in Brulotte found that post-expiration royalty provisions were unlawful per se. Although preventing licensing deals of the nature contemplated by the parties in the Kimble litigation, Brulotte has not stopped parties from using different methods to achieve similar results. The precedential case allows for parties to defer payments of royalty amounts, tie royalty payments to non-patent rights, make non-royalty based business arrangements, etc. Although criticized by many, Brulotte has provided a bright line rule: if the licensing agreement provides for royalties for post-expiration use of a patent, no dice. The decision was based on the view that post-expiration royalties conflicts with the free market visualized after a patent expires.

             In the Kimble decision, the petitioner had sold his patent (covering a glove that shoots pressurized foam string) to Marvel, who sold a Spider-Man toy that embodied the patented invention. The deal involved a lump sum payment combined with a 3% royalty without an ending date. After the agreement was in place, Marvel sued for a declaratory judgment that royalty payments were no longer due after the patent expired Brulotte decision. Justice Kegan wrote for the majority in a 6-3 decision to follow the Brulotte precedent. The decision rests of the principles of stare decisis and adhering to precedent. The opinion notes that Brulotte, as a statutory interpretation case, is given even more weight because Congress has had several opportunities to correct the Court and has failed to do so. The petitioner and dissenting opinion make several arguments that the past decision should be overturned. The petitioner specifically argues that the decision was judge made law about policy considerations and not statutory interpretation; the petitioner continues to endorse a rule of reason test from antitrust law for post-expiration royalty decisions. The majority notes that even if the Brulotte decision was wrongly decided there are no special justifications present that warrant overturning the precedent and that the case-by-case test the petitioner argues for would place uncertainty in contract and property rights. The Court ultimately upholds Brulotte and leaves the issue to Congress to decide.

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