Supreme Court Docket Report - December 15, 2014

On Friday; the Supreme Court granted certiorari in three cases of interest to the business community:

Patent Law—Enforceability of a Royalty Agreement Beyond the Patent Term Bankruptcy Code—Disposition of Funds Held By Chapter 13 Trustee After Conversion to Chapter 7 Bankruptcy Code—Appealability of Order Denying Confirmation of Plan Patent Law—Enforceability of a Royalty Agreement Beyond the Patent Term

In Brulotte v. Thys Co., 379 U.S. 29 (1964), the Supreme Court held that a patent licensing agreement is per se unenforceable to the extent that it requires the licensee to pay royalties after the patent expires. The Court reasoned that such an agreement is an impermissible effort to extend the patent beyond its term. In recent years, courts and commentators alike have criticized Brulotte, arguing that a private licensing agreement does not expand the monopoly rights of the patent in the marketplace. Today, the Court granted certiorari in Kimble v. Marvel Enterprises, Inc., No. 13-720, to consider whether it should overrule Brulotte.

In 1990, Petitioner Stephen Kimble invented a toy that allows a child to imitate the comic book character Spider-Man by spraying foam string from a canister strapped to the child's wrist. In 2001, following litigation, Kimble and Respondent Marvel Enterprises entered a licensing agreement: Marvel agreed to pay Kimble about $500,000 plus 3% of "net product sales" in perpetuity. The patent for Kimble's innovation expired in May 2010. In subsequent litigation, Marvel asserted that, under Brulotte, the licensing agreement was unenforceable after the 2010 expiration of the patent. Marvel prevailed in the district court, and the Ninth Circuit affirmed. Kimble v. Marvel Enterprises, Inc., 727 F.3d 856 (9th Cir. 2013).

The Court of Appeals nonetheless severely criticized Brulotte, observing that its core assumption—that "by extracting a promise to continue paying royalties after expiration of the patent, the patentee extends the patent beyond the term fixed in the patent statute"—"is not true." "After the patent expires," the court explained, "anyone can make the patented process or product without being guilty of patent infringement." Thus, the effect of Brulotte, in the lower court's view, is simply to allow a patentee to extract royalties at "a lower rate over a longer period of time" rather than only "at a higher rate over a shorter period of time."

Following the petition for certiorari, the Supreme Court sought the views of...