SPIDERMAN FAILS TO DEFEAT ARCH NEMESIS BRULOTTE

In this recent post, I reported on the upcoming Supreme Court consideration of the long-held rule established by Brulotte v.Thys Co. prohibiting the payment of royalties based upon patent rights after the patent has expired. On June 22, 2015, the Supreme Court, in Kimble v Marvel Entertainment, upheld Brulotte.

Stephen Kimble, the inventor of a popular Spiderman toy that shoots pressurized foam string, lost his battle to obtain continued royalties based upon his agreement with Marvel.

Marvel had agreed to purchase Kimble’s patent for the Spiderman toy in exchange for a lump sum plus a three percent royalty on future sales. The agreement set no date for when royalty payments would end. As the patent term was about to expire, Marvel discovered Brulotte and obtained a declaratory judgment that it could stop paying Kimble royalties. This judgment was affirmed and Kimble looked for relief from the United States Supreme Court.

Despite arguments from several amici that Brulotte stifles technological innovation and commercial agreements, the Supreme Court upheld the Brulotte decision, from more than 50 years ago, that held a patent holder cannot charge royalties for the use of an invention after its patent term has expired. Even if the parties specifically agree in writing to permit such payments, the obligation may be void.  In Brulotte the Court had held that a post-patent royalty provision in an agreement was “unlawful per se” because it continued “the patent monopoly beyond the [patent] period” and, in so doing, was in conflict with the long-held patent law policy that granted the public unrestricted rights to make or use a patented invention once the patent expires and is in the public domain.

Invoking one of several Spiderman references in her opinion, Justice Kagan states, “Indeed, Brulotte’s close relation to a whole web of precedents means that overruling it could threaten others,” and argues that Congress is the place to set patent policy and not the courts.

Justice Kagan could not refrain from slipping in several more references to Spidey, including the following to the 1960s Spiderman cartoon theme song: “The parties set no end date for royalties, apparently contemplating that they would continue for as long as kids imitate Spider-man (by doing whatever a spider can).’’ She also quotes Stan Lee and Steve Ditko’s Amazing Fantasy No. 15, the 1962 comic where Spiderman first appears: “[I]n this world, with great power there must also come–great responsibility”. Finally Justice Kagan reminds us that “Patents endow their holder with certain superpowers, but only for a limited time.”

So we are now left to negotiate agreements under one of the most widely criticized intellectual property and competition law decisions of the Supreme Court. Economic arguments that Brulotte suppresses innovation and the freedom to contract failed. It is now up to Congress to act.

In the meantime, Spidey has some practical advice for how you can avoid the evil reach of Brulotte. If appropriate, use a hybrid agreement that establishes ongoing royalties for trade secrets. The Marvel Court specifically mentions that “post-expiration royalties are allowable so long as tied to a non-patent right –even when closely related to a patent.” Such hybrid licenses and other creative approaches to licensing can help you avoid the web of despair when patent royalties come to an end.

Judgment: Affirmed, 6-3, in an opinion by Justice Kagan. Justice Alito filed a dissenting opinion, in 
which Chief Justice Roberts and Justice Thomas joined.