U.S. Supreme Court Upholds 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 the Brulotte rule.

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 Kimble's pending patent application and other ideas and know-how. According to Kimble, Marvel's predecessor verbally agreed to compensate him if the company used any of his ideas. 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.

In 1997, Kimble sued Marvel for patent infringement and breach of contract. 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 three percent of net product sales.

Subsequently, the parties had a number of disagreements about royalty payments. 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. 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 was limited to a royalty for patent rights alone (it did not, for example, include a discounted rate for the non-patent rights) or otherwise indicate that the royalty was in no way subject to patent leverage, the Ninth Circuit held that no royalties were due under the settlement agreement after the patent expired. Although the Ninth Circuit characterized the Brulotte rule as "counterintuitive" and "its rationale... arguably unconvincing," the court recognized that it was bound by Supreme Court authority.

Supreme Court's Opinion in...