Post-Expiration Royalties Remain Stuck In Web Of 50-Year Precedent

On June 23, 2015, the United States Supreme Court upheld a 50-year old prohibition against a patent owner collecting royalties following the patent's expiration. In Kimble et al. v. Marvel Entertainment, LLC, 576 U.S. ___ (2015), the Court relied on the principle of stare decisis and refused to overturn Brulotte v. Thys Co., 379 U.S. 29 (1964) which judicially created the rule that contracts for patent royalties following expiration of the patent were unenforceable.

Kimble stems from an agreement between Stephen Kimble and Marvel Enterprises, LLC for the purchase of U.S. Patent No. 5,072,856, a patent covering a toy that allows one to role-play a "spider person" by shooting pressurized foam string from the hand. Marvel sells a "Web-Blaster" in its Spider-Man line of toys that Kimble previously alleged infringed upon the '856 patent. To resolve that dispute, Kimble and Marvel entered an agreement through which Marvel purchased Kimble's patent and agreed to pay 3% royalties on Marvel's sales of the Web-Blaster. The agreement specified no end date for the royalties. The patent expired in 2010. Marvel filed suit seeking a declaratory judgment that its obligation to pay royalties to Kimble ceased upon the patent's expiration per the Brulotte rule. After Marvel succeeded at the district court and before the Ninth Circuit Court of Appeals, Kimble sought to have the Supreme Court overturn Brulotte and eliminate the legal prohibition to extending royalties longer than the life of a patent. In a 6-3 decision, the Supreme Court declined.

Brulotte has been criticized by some of the lower courts1, including by the Ninth Circuit panel decision in Kimble itself.2 Judges have not been alone in their criticism. Many academics3 and practitioners have been similarly unsparing in their critiques. Indeed, the senior author of this alert (read, "ancient") and his co-author (even more ancient) of Modern Licensing Law have severely criticized the Brulotte rule, invoking Justice Harlan's incisive dissent in Brulotte:

Justice Harlan's dissent recognizes that pricing of the use of the patent is a complex, market-driven matter. The fact that payments are to be made post-expiration (perhaps even based on post-expiration uses), based on a package of licenses, geared to total sales, cover a variety of intellectual property or productsall of which were suspect or condemned at one timedo not reflect patent leverage or coercion in and of themselves. Nor do they expand the...