UPDATE: On June 22, 2015, the Supreme Court upheld the Federal Circuit’s decision in this case. For more details, see this IP Spotlight post.
2015 could prove to be a time of change for patent licensing law, as the Supreme Court recently agreed to review the long-standing rule that a patent holder may only receive royalties during the term of a patent, and not after it expires.
In the case that is the subject of the appeal, Kimble v. Marvel Enterprises, Inc., the inventors of a toy with Spider-Man-like web-shooting capabilities sold a patent covering the toy to Marvel Enterprises. The agreement imposed a 3% royalty and had no expiration date. After the patent expired in 2010, the inventors filed suit for breach of contract. Marvel argued that it was not obligated to pay royalties for sales made after the patent’s expiration. Both the district court and the U.S. Court of Appeals for the Ninth Circuit agreed with Marvel.
In the Ninth Circuit’s decision, the court applied the 50-year-old rule of Brulotte v. Thys Co., which states the “a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” The Ninth Circuit’s opinion characterized the Brulotte decision as “much-criticized.” The opinion also noted that later decisions have somewhat scaled back the Brulotte doctrine by stating that it bars contracts that require royalty payments after a patent expires or when it fails to issue “unless the contract provides a discount from the alternative, patent-protected rate.”
The inventors’ Supreme Court petition went even further, describing the Brulotte decision as “[a] product of a bygone era, [and] the most widely criticized of this Court’s intellectual property and competition law decisions.” The petition then simply defined the question presented as:
Whether this Court should overrule Brulotte v.Thys Co., 379 U.S. 29 (1964).
In an amicus brief, the Solicitor General argued that the Court should “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.”
If the Court does overrule the Brulotte doctrine, it will represent a significant shift in 50 years of licensing precedent.
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