When a company buys the licensing rights for a web-slinging toy, does it need to pay royalties to the inventor forever? Or just until the toy’s patent expires? The Supreme Court has already answered this question, but an upcoming decision from the Court may overrule a 50-year precedent.
The Court is scheduled to hear oral arguments in Kimble v. Marvel on Tuesday and it could decide to overturn its 1964 decision in Brulotte v. Thys Co.The ruling in Brulotte is clear; that isn’t the problem. The Court held that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” This simply means that once a patent expires, the patent holder doesn’t have to pay royalty fees to the original inventor when using it.
The Kimble case is, then, an easy one if the Court were to simply apply the Brulotte standard.
In a settlement agreement out of prior litigation with Marvel Enterprises, Stephen Kimble assigned his patent for a toy with Spider-Man’s web-shooting power to Marvel, and Marvel agreed to pay annual royalties if it made its own web-shooting toy. In 2010 Kimble’s patent expired, and Marvel stopped paying royalties.
To apply Brulotte to these facts, all a court needs to do is read the contract between the parties and determine whether royalties following the expiration of the patent were agreed to or not. Applying the rule of law is not the problem.
The problem, then, is that the Brulotte has been widely unpopular, and Kimble is not alone in moving to challenge it.
When Kimble brought his case, the district court applied Brulotte and found in favor of Marvel. The Ninth Circuit affirmed on appeal, but not without voicing criticism of the standard. In discussing its previous application of Brulotte in Zila, Inc. v. Tinnell, Judge Consuelo Maria Callahan wrote:
We acknowledged that the Brulotte rule is counterintuitive and its rationale is arguably unconvincing. Nonetheless, recognizing that we are bound by Supreme Court authority and the strong interest in maintaining national uniformity on patent law issues, we have reluctantly applied the rule. We are compelled to do so again.
This reluctance is shared. Judge Richard Posner wrote for the Seventh Circuit in Scheiber v. Dolby Laboratories that Brulotte “seems rather to have been a free-floating product of a misplaced fear of monopoly… however, we have no authority to overrule a Supreme Court decision no matter how dubious its reasoning strikes us, or even how out of touch with the Supreme Court’s current thinking the decision seems.” The petition to the Court in Kimble even characterized Brulotte as “the most widely criticized of this Court’s intellectual property and competition law decisions.”
Brulotte, however, is not without its supporters. In his amicus brief, the Solicitor General argued that “the Court does not lightly reverse settled interpretations of federal statutes, however, particularly where, as here, Congress has amended related aspects of a statutory scheme without disturbing this Court’s longstanding construction,” and that the criticisms of Brulotte do not amount to the “special justification” required for the Supreme Court to overrule its own precedent.
It is argued that parties negotiating patent licensing agreements have relied on Brulotte and subsequent decisions applying Brulotte in drafting agreements for so long that overturning the decision would result in costly litigation over long forgotten contracts.
These critics argue that when these kinds of substantial reliance interests are at stake, that the Court must maintain stare decisis, whether a standard has been the subject of debate in the lower courts or not.
They further point out that this standard is an easy to follow bright-line rule, and if the parties wish to extend the royalties for the patent beyond the patent’s expiration, they need only include that term in their contract.
Whether the Court will maintain its Brulotte decision or instead find that “special justification” for overruling Brulotte remains to be seen this term.
Laura Beltz is a pro bono intern at the National Constitution Center. She is also a student at the University of Pennsylvania Law School.
