• Supreme Court Reviews Patent Licensing in Kimble v. Marvel Enterprises
  • June 26, 2015
  • Law Firm: Staas Halsey LLP - Washington Office
  • The Supreme Court of the United States (“Supreme Court”) heard oral arguments in Kimble v. Marvel Enterprises in March and is expected to issue its opinion within a few months. The Justices split on whether or not to overturn the fifty-year-old precedent Brulotte v. Thys. The Brulotte rule is a per se prohibition on royalty base payments for post-expiration use of the patented invention. Economists and patent scholars have strongly condemned the 1960’s Brulotte decision for its improper understanding of market forces, patentmonopoly power, and that risk shifting license agreements are potentially pro-competition and pro-innovation. Moreover, risk shifting license agreements where the licensee elongates the time frame for the royalty base, and in return gets a decreased royalty rate could be optimal for numerous business situations.

    The dispute has nothing to do with Thor or any of the other Marvel comic-book characters - instead it centers on petitioner Kimble’s invention of a Spider-man web-blasting device. Kimble approached Marvel in the early 1990’s with the invention. Marvel had declined to do anything with the idea. However, several years later Marvel decided to incorporate the invention into some of its products. Kimble brought a breach of contract and patent infringement suit in 2001. Kimble and Marvel settled the case. In the settlement agreement, neither party addressed how nor even if the royalty payments would change when the patent expired.

    In 2006, Marvel licensed the toy web-blaster to Hasbro, Inc., which caused another disagreement between Kimble and Marvel. Specifically, what, if any, royalty payments was Kimble entitled to under the settlement agreement. Kimble then filed suit in 2008, claiming that royalty payments were due as long as Marvel received revenue from web-blaster sales. Kimble even argued that the royalty payments were due after the patent expired. Marvel countered that Brulotte barred post-expiration royalty payments - especially so when the royalty-base rate, or anything else in the license agreement, indicates no change due to the expiration of the patent. The U.S. District Court agreed with Marvel - dismissing Kimble’s breach of contract claim. In 2013, the U.S. Court of Appeals for the Ninth Circuit affirmed, albeit reluctantly. It noted that it was bound to following the Supreme Court’s precedent, but also stated: “We acknowledge that the Brulotte rule is counterintuitive and its rationale is arguably unconvincing.” Kimble sought review in the Supreme Court - who granted certiorari last winter.

    Intellectual Property commentators have varied predictions for how the Supreme Court will decide. It seems likely that the pro se rule of Brulotte will be thrown out because of its heavy focus on an economic harm rationale. Anti-trust law has strongly moved away from pro se rules since the 1960’s, in favor of a rule of reason analysis. Therefore, an updated rule for patent licensing would enable some version of postexpiration licensing. The issue then is: What type of post-expiration license royalty is acceptable and what rule determines? Commentators say the harder prediction is what the Supreme Court will put in Brulotte‘s place.

    We will report the Supreme Court decision when it issues this summer.