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<img class="alignright wp-image-2211 size-medium" src="https://ipintelligencereport.bakerhostetlerblogs.com/wp-content/uploads/sites/11/2015/07/Patent147631712-300x199.jpg" alt="Patent147631712" width="300" height="199" />Authored by: Samuel McMahon, 2015 Summer Associate

In <a href="http://www.supremecourt.gov/opinions/14pdf/13-720_jiel.pdf">Kimble v. Marvel Entertainment, LLC</a>, No. 13-720 (U.S. June 22, 2015), the Supreme Court, in a 6-3 decision with Justice Kagan writing for the majority, upheld its 1964 decision in <a href="https://supreme.justia.com/cases/federal/us/379/29/case.html">Brulotte v. Thys</a>, 379 U.S. 29, reaffirming that a patent owner cannot charge royalties for use of the patent after the patent term expires.

Stephen Kimble patented a device that allows the user to shoot pressurized foam string from the palm of the hand, like Spider-Man shooting web. He pitched his idea to Marvel, and the company’s representatives apparently liked it but nonetheless declined to engage Kimble in a licensing agreement. Kimble sued for patent infringement when Marvel began manufacturing and selling its own “Web Blaster” toy. Pursuant to a settlement agreement, Marvel purchased the patent for a lump sum and agreed to pay Kimble a 3 percent royalty on future sales. The parties did not negotiate an end date for the royalty payments, but before the patent term expired, Marvel asked for and received from federal district court in Arizona a declaratory judgment that it could avoid the royalty payments upon expiration of the patent. Relying on Brulotte, the district court held that the agreement to pay royalties was unenforceable after expiration of the patent term. The Ninth Circuit affirmed, and Kimble appealed.

The only issue before the Supreme Court was whether Brulotte should be overruled. Arguing that it should, Kimble urged the Court to adopt antitrust law’s “rule of reason” over the bright-line rule of Brulotte. Kimble argued that a case involving post-expiration patent royalties requires a “full-fledged economic inquiry” into the particular practice’s “history, nature, and effect” in the relevant market. Because many post-expiration royalty agreements, including the one at issue, are not anticompetitive, Kimble argued, the Court should allow them as satisfying antitrust law’s “rule of reason.”

The Court was not persuaded that economic realities, or even contractual realities, could overcome patent law’s own provisions and stare decisis. The Court reasoned that even if Brulotte was wrong, the merits of upholding it as a settled rule of law outweigh the benefits of overturning it in favor of a new rule. Kimble’s economic contentions presented no “special justification” for abandoning stare decisis. Kimble’s proper audience, the Court made clear, is Congress. Moreover, since the 1964 decision, “Congress has spurned multiple opportunities” to legislatively correct Brulotte’s perceived flaws. Congress’s long acquiescence therefore enhances the staying power of the Brulotte bright-line rule against post-expiration royalties.

Finally, Kimble invoked principles of patent law itself in attempt to discredit Brulotte, arguing that its bright-line prohibition against post-expiration royalties suppresses technological innovation by limiting access to patented technology for would-be licensees. Largely declining to entertain the economic arguments, the Court pointed out that alternative royalty arrangements remain possible under Brulotte. Such alternative arrangements might include deferring payments for pre-expiration use of a patent into the post-expiration period; tying post-expiration royalties to a non-patent right, such as a trademark or trade secret; or entering a joint venture or other business arrangement that allows parties to share the risks and rewards of commercializing an invention.

Justice Alito’s dissent, joined by the Chief Justice and Justice Thomas, sided with Kimble on the basis that Brulotte was wrongly decided and should be overruled. Stare decisis, they reasoned, does not require adherence to a per se rule based on an economically flawed “bald act of policymaking.”

Ultimately, the Court upheld Brulotte and affirmed the district court’s holding that the royalty agreement between Kimble and Marvel was unenforceable after the expiration of the patent term. Statutory stare decisis and patent law’s strict enforcement of a limited patent term (still) do not allow for post-expiration royalties.

The Supreme Court Again Rejects Post-Expiration Patent Royalties