On June 22, 2015, the U.S. Supreme Court decided Kimble v. Marvel Entertainment, LLC, No. 13-720, declining to overrule Brulotte v. Thys Co., 379 U.S. 29 (1964), and holding that a contract transferring or licensing patent rights can charge royalties only for uses of the invention that occur before the patent term expires.
In 1990, Stephen Kimble filed a patent application for a toy that allows a user to imitate Spider-Man by shooting foam “webs” from a glove on the user’s hand. He sued Marvel Entertainment for patent infringement in 1997. The parties settled the lawsuit, with Marvel purchasing Kimble’s patent for a lump sum plus a 3 percent royalty on its sales of products that used the patented invention. The parties’ contract did not specify an end date for the payment of royalties.
The patent expired in 2010. Marvel sought a declaratory judgment that, under Brulotte v. Thys Co., 379 U.S. 29 (1964), once the patent expired, it was no longer obligated to pay royalties under the agreement with Kimble. The lower courts agreed and held that no further royalties could be charged under Brulotte.
The Supreme Court affirmed in a 6-3 vote. The only issue before the Court was whether to overrule Brulotte and replace it with a case-by-case approach based on antitrust law’s “rule of reason.” The Supreme Court declined to do so, noting that a “superpowered form of stare decisis” applies in this case for a variety of reasons. Because Brulotte interpreted a statute, “Congress can correct any mistake it sees,” and in fact has engaged in a “continual reworking of the patent laws” but has not changed the rule of Brulotte. In addition, the Court observed, parties may “have structured their business transactions in light of Brulotte” by declining to write sunset provisions into royalty agreements. The Court also concluded that none of the reasons for setting aside stare decisis were present because “Brulotte’s statutory and doctrinal underpinnings have not eroded over time,” other related decisions cutting off patent-related rights at expiration remain good law, and Brulotte has not been unworkable because it creates a simple bright-line test for cutting off royalty accrual. The Court also observed that Brulotte leaves other ways for parties to accomplish payment deferral and risk spreading in licensing arrangements. The Court also noted that Brulotte does not bar business arrangements other than royalties (joint ventures, for example) that allow parties to share the risks and rewards of commercializing an invention.
Justice Kagan delivered the opinion of the Court, in which Justices Scalia, Kennedy, Ginsburg, Breyer, and Sotomayor joined. Justice Alito filed a dissenting opinion, joined by Chief Justice Roberts and Justice Thomas.
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