Even Spider-Man Can't Defeat Ban On Post-Patent Expiration Royalties

Fifty years ago, in Brulotte v. Thys Co., the U.S. Supreme Court held that "a patentee's use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se." 379 U.S. 29, 32 (1964). On June 22, 2015, in Kimble v. Marvel Entertainment, LLC (a 6-3 decision), the U.S. Supreme Court upheld Brulotte, finding that Marvel was not required to pay royalties on its Spider-Man role-playing toy after Kimble's patent expired. While the Kimble decision maintains the Court's precedent, the opinion does provide additional guidance regarding the types of licensing arrangements that are enforceable under Brulotte.

Factual Background in Kimble v. Marvel Entertainment, LLC

Around 1990, Kimble invented a Spider-Man toy that allowed a user to mimic Spider-Man's web-shooting abilities with foam string. Kimble v. Marvel Enters. Inc., 727 F.3d 856, 857-58 (9th Cir. 2013). After filing a patent application on this invention, Kimble met with Marvel's predecessor company to discuss the idea covered by his pending patent application and other ideas and know-how. Id. at 858. According to Kimble, Marvel's predecessor verbally agreed to compensate him if the company used any of his ideas. Id. The company subsequently told Kimble that it was not interested in developing his idea, but later began manufacturing a similar Spider-Man role-playing toy. Id.

In 1997, Kimble sued Marvel for patent infringement and breach of contract. Id. The parties ultimately settled that litigation. The settlement agreement had no expiration date and did not include any specific time limit on Marvel's obligation to pay Kimble 3% of net product sales. Id. at 859.

Subsequently, the parties had a number of disagreements about royalty payments. Id. Kimble filed suit for breach of contract, and Marvel counterclaimed seeking a declaration that it was no longer obligated to pay Kimble under the settlement agreement based on sales of products after the expiration of the patent. Id. Applying the Brulotte rule, the district court held that the royalties had to end when the patent expired. Kimble v. Marvel Enters., Inc., 692 F.Supp.2d 1156, 1159-1161 (D. Ariz. 2009).

The Ninth Circuit Court of Appeals affirmed. Kimble, 727 F.3d 856. Because the settlement agreement did not include a discounted rate for the non-patent rights or an indication that the royalty was in no way subject to patent leverage, the Ninth Circuit held that no royalties were due under the settlement...