Supreme Court Reaffirms Bar on Post-expiration Patent Royalties in Kimble v. Marvel | Practical Law

Supreme Court Reaffirms Bar on Post-expiration Patent Royalties in Kimble v. Marvel | Practical Law

In Kimble v. Marvel Entertainment, LLC, the US Supreme Court held that a patent holder cannot charge royalties for the use of the patented invention after the patent's expiration. The Court refused to overrule its prior decision in Brulotte v. Thys Co. based on the doctrine of stare decisis.

Supreme Court Reaffirms Bar on Post-expiration Patent Royalties in Kimble v. Marvel

Practical Law Legal Update 6-616-6425 (Approx. 5 pages)

Supreme Court Reaffirms Bar on Post-expiration Patent Royalties in Kimble v. Marvel

by Practical Law Intellectual Property & Technology
Published on 23 Jun 2015 • USA (National/Federal)
In Kimble v. Marvel Entertainment, LLC, the US Supreme Court held that a patent holder cannot charge royalties for the use of the patented invention after the patent's expiration. The Court refused to overrule its prior decision in Brulotte v. Thys Co. based on the doctrine of stare decisis.
On June 22, 2015, in Kimble v. Marvel Entertainment, LLC, the US Supreme Court held that a patent holder cannot charge royalties for post-expiration use of the patented invention (No. 13-720, (S. Ct. June 22, 2015)).
Petitioner Stephen Kimble owns US Patent No. 5,072,856 ('856 patent), which covers a toy that allows a person to shoot pressurized foam string from the palm of the hand. Marvel Entertainment, LLC, who markets products featuring Spider-Man, purchased the '856 patent from Kimble in exchange for:
  • A lump sum of about a half-million dollars.
  • A 3% royalty on Marvel's future sales of Web Blaster and similar products that use the '856 patent. The parties did not set an end date for the royalties payments.
After entering the agreement, Marvel learned of the Supreme Court's decision in Brulotte v. Thys Co., which held that a patent holder cannot charge royalties for post-expiration use of the patented invention (379 U.S. 29 (1964)). Marvel then filed a lawsuit in US District Court for the District of Arizona seeking a declaratory judgment that it could cease royalty payments when the '856 patent expired, which was in 2010. Relying on the Supreme Court's decision in Brulotte, the district court and US Court of Appeals for the Ninth Circuit granted Marvel's requested relief. The Supreme Court granted certiorari to decide whether it should overrule Brulotte, as some courts and commentators have suggested. For more information on the Ninth Circuit's decision, see Legal Update, Spiderman Toy Maker Gets Tangled by Ninth Circuit Royalty Decision.
The Supreme Court declined to overrule Brulotte and held in favor of Marvel that a patent owner cannot charge royalties for post-expiration use of the patented invention. The Court explained that the patent law gives a patent owner a limited monopoly, and when a patent expires, the right to make and use the invention passes to the public. The Court acknowledged that Brulotte limits the ability of parties to design a patent license agreement. However, the Court noted that parties can often find ways around Brulotte by:
  • Deferring payments for pre-expiration use of the patent into the post-expiration period.
  • Tying post-expiration royalties to non-patent rights, such as trade secrets.
  • Entering a joint venture agreement.
The Court refused to overrule Brulotte based on the doctrine of stare decisis, explaining that:
  • Following the doctrine of stare decisis is preferable, especially when the prior decision interprets a statute, because critics of the ruling can seek Congressional action to correct the mistake.
  • Congress has refused to reverse Brulotte on multiple occasions.
  • Parties have relied on Brulotte to structure their patent license agreements.
  • The patent term expiration provision on which the Brulotte court relied has remained the same.
  • The Brulotte decision is simple to apply.
  • There is no indication that the Brulotte decision relied on the allegedly incorrect economic belief that post-expiration royalties will harm competition. Instead, the Brulotte court applied the categorical rule that a patent and the benefits from it must end when the patent term expires.
  • Kimble and his amici did not provide any empirical evidence that Brulotte was discouraging innovation or the commercialization of patented inventions.
The Court noted that had Kimble been an antitrust case involving the Sherman Act, it may have given stare decisis less consideration. The Court explained that based on Congressional intent and authorization, the Court feels relatively free to revise antitrust case law in light of evolving economic analysis.
Chief Justice Roberts and Justices Alito and Thomas dissented, arguing that Brulotte was wrongly decided and relied on a debunked economic theory.
The following Practical Law resources concerning patent licensing were updated immediately following the Supreme Court's decision in Kimble to reflect that post-expiration patent royalties remain per se unlawful: