US Supreme Court Decision in Kimble v. Marvel Entertainment, LLC Leaves Brulotte's Ban on Post-Expiration Royalties Intact But Confirms How to Escape Its Web

In Kimble v. Marvel Entertainment, LLC,/em> the US Supreme Court, while acknowledging the criticism of other judges and scholars, chose to uphold the long-standing rule in Brulotte v. Thys Co., 379 U.S. 29 (1964), that renders unenforceable an agreement requiring payment of royalties for a patent after that patent expires. While Brulotte remains good law, Kimble enumerates several Supreme Court-sanctioned workarounds for parties seeking to extend royalty fee payments beyond the life of a patent.

Summary of Kimble Decision

Petitioner Stephen Kimble invented and obtained a patent on a hand-worn toy that allows users to mimic Marvel's Spider-Man by shooting pressurized foam string. After failed licensing discussions and litigation, Marvel agreed to pay Kimble a lump-sum payment and a perpetual 3 percent royalty for Marvel's future sales of web-slinging toys.

Later, after Marvel "stumbled across" Brulotte, the company sought declaratory judgment that it no longer needed to pay royalties after Kimble's patent expired. Based on Brulotte, the district court granted Marvel the relief it sought, and the Ninth Circuit (grudgingly) affirmed.

On appeal to the Supreme Court, Kimble argued that Brulotte should be overturned in favor of a case-by-case analysis of post-expiration royalty clauses under a "rule of reason" analysis. But the Court rejected that argument, explaining that overruling Brulotte would further complicate the law and risk upturning a stable legal principle on which license drafters rely. Bowing to stare decisis and opining that Congressional action is the proper means for change, the Court declined to overturn Brulotte and affirmed the decision rendering Kimble's licensing agreement unenforceable.

Justice Alito (joined by Chief Justice Roberts and Justice Thomas) dissented. His dissent argued that Brulotte was based on a "debunked" economic theory, "interferes with the ability of parties to negotiate licensing agreements that reflect the true value of a patent, and ... disrupts contractual expectations." Justice Alito found nothing in the Patent Act that forbids post-expiration royalty payments, calling the Brulotte decision "a bald act of policymaking."

The Workarounds

Although it declined to abolish the Brulotte rule, the Supreme Court provided licensors with clear justification for several workarounds in use. First, the Court instructed that "Brulotte allows a licensee to defer payments for pre-expiration use of a patent into the...