Rebuffing Critics, Supreme Court Re-Affirms Ban On Post-Expiration Patent Royalties

Fifty years ago, in Brulotte v. Thys Co.,1 the U.S. Supreme Court held that the collection of royalties after a patent's expiration constitutes per se patent misuse. Brulotte has been widely criticized as economically irrational. In particular, critics have contended that Brulotte was based on a faulty view of the competitive effects of post-expiration royalties and that the Court, as it has in several antitrust cases, should abandon the per se rule in favor of a "rule of reason" approach.

In Kimble v. Marvel Enterprises, Inc., the critics finally had their day in court; the question presented was whether the Court should overrule Brulotte. While acknowledging that a "broad scholarly consensus" supports the "view of the competitive effects of post-expiration royalties," the Court nevertheless refused to overrule Brulotte, adhering to principles of stare decisis.2 The Court was not convinced by claims that Brulotte posed a significant barrier to efficient licensing or that the case has discouraged technological innovation. Moreover, the majority emphasized that Brulotte involved an interpretation of the Patent Act, which requires stricter adherence to stare decisis than in antitrust cases.3 Brulotte may therefore have implications for other patent cases in which antitrust and competition policies concerns are at issue.

1. BRULOTTE'S CRITICS

   In Brulotte, the Court reasoned that obtaining royalties for the use of patents post-expiration would expand the scope of the patentee's rights: "to use that leverage to project those royalty payments beyond the life of the patent is analogous to an effort to enlarge the monopoly of the patent by tieing the sale or use of the patented article to the purchase or use of unpatented ones."4 The Court therefore held that "a patentee's use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se."5

   This reasoning has been the subject of criticism from legal scholars, economists, and the lower courts.6 Some commentators argue that "post-expiration royalties merely amortize the price of using patented technology"7and "thus do not represent an extension in time of the patent monopoly."8 Economists contend that "allocative efficiency considerations should permit a licensor and licensee to agree to longer royalty terms."9 The Seventh Circuit has questioned whether obtaining post-expiration royalties "really 'extends' the patent,"10 and reasoned that "paying royalties after the patent expires does not extend the duration of the patent either technically or practically, because . . . if the licensee agrees to continue paying royalties after the patent expires the royalty rate will be lower."11 Such licenses are therefore nothing more than "a risk-shifting credit arrangement between...