Kimble V. Marvel Enterprises: A Reminder To Think Carefully And Broadly When Drafting Patent Licenses

In Kimble v. Marvel Enterprises, Inc. [576 U.S. __ (2015)], the Supreme Court relied on stare decisis, declining to overrule its 1964 Brulotte v. Thys Co. decision and holding that a patent owner cannot charge royalties for the use of an invention after the patent expires. Justice Kagan's June 22, 2015, opinion affirmed the appellate court's decision and maintains the status quo for patent licensing practice. As before, licensors should steer clear of Brulotte's ban on post expiration royalties. However, the parties can use other intellectual property that is likely to live well beyond an underlying patent (e.g., trademark, trade secret) and other financial tools (e.g., amortization, partnering) to reach a competitive, mutually beneficial, and enforceable license agreement that exists beyond the life of the underlying patent.

Supreme Court Emphasizes Patent Limits

In reaching its decision in Kimble, the Supreme Court continued its current trend in emphasizing the limits on patent rights and the public's interest in corresponding discoveries:

Patents endow their holders with certain superpowers, but only for a limited time. In crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries. While a patent lasts, the patentee possesses exclusive rights to the patented article—rights he may sell or license for royalty payments if he so chooses. See 35 U.S.C. § 154(a)(1). But a patent typically expires 20 years from the day the application for it was filed. See 35 U.S.C. § 154(a)(2). And when the patent expires, the patentee's prerogatives expire too, and the right to make or use the article, free from all restriction, passes to the public. [See Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225, 230 (1964).]

This Court has carefully guarded that cut-off date, just as it has the patent laws' subject-matter limits: In case after case, the Court has construed those laws to preclude measures that restrict free access to formerly patented, as well as unpatentable, inventions. [Kimble, Slip Op. at 3-4 (emphasis added).] While the Supreme Court acknowledged that Brulotte prevents parties from entering into certain competitive and beneficial agreements, the Court also pointed out that careful license drafting can avoid Brulotte:

... parties can often find ways around Brulotte, enabling them to achieve those same ends. To start, Brulotte allows a licensee to defer payments for pre-expiration...