Kimble v. Marvel Enterprises, Inc.
Patent Licensing – Decided: June 22, 2015
In Kimble v. Marvel Entertainment, the Supreme Court upheld a long-standing precedent that restricts the ability of a patent holder to charge a royalty beyond the term of a patent. In a 6-3 decision, the Court declined to overrule the 1964 Brulotte decision, which held that an obligation to pay royalties beyond patent expiration was unenforceable. “Overruling precedent is never a small matter,” the Court explained, and the petitioner failed to persuade the Court to overrule the controlling precedent.
In 1997, petitioner Kimble, original owner of a patent to a web-shooting toy, sued Marvel for infringement. The settlement included a 3 percent royalty on future sales of the toy, with no end date. Marvel later learned of Brulotte and filed a declaratory judgment action seeking an end to its royalty payments at the end of Kimble’s patent term. The district court found in Marvel’s favor. Citing Brulotte, the Ninth Circuit affirmed.
In affirming the Ninth Circuit, the Supreme Court reasoned that the end of a patent term is a carefully guarded end to one’s monopoly right. Contract provisions that accrue a running royalty beyond patent expiration contradict patent law’s policy of “establishing a ‘post-expiration . . . public domain’ in which every person can make free use of a formerly patented product.”
While Brulotte restricts a party’s right to freely contract to a royalty that runs beyond the patent’s term, the Court explained that parties “can often find ways around Brulotte, enabling them to achieve those same ends,” such as structuring payments or tying post-expiration royalties to a non-patent right.
Kimble turns on the principle of stare decisis, providing that the Court generally should stand by prior decisions. But the Court acknowledged that a consequence of stare decisis is “sticking to some wrong decisions.” While the Court was not convinced it should overturn Brulotte, it invited the critics ofKimble to “take their objections across the street, and Congress can correct any mistake it sees.”
The dissent argued that the Court’s reliance on stare decisis is misplaced because that doctrine teaches judicial restraint and should not be invoked to maintain precedent like Brulotte that is “a clear case of judicial overreach.”
Kimble serves at least three important functions. First, the decision and the dissent remind practitioners that the Court will not overturn precedent lightly, giving market participants at least some confidence and certainty in past decisions. Second, the decision affirms the finality of a patent’s term yet provides guidance for structuring patent licensing agreements that do not run afoul of Brulotte. Third, the decision may serve as a call to action for interested parties to take the argument to Congress, which the Court regards as the appropriate forum to continue the discussion.
CASES TO WATCH
Pro-Football, Inc. v. Amanda Blackhorse, et al. (E.D. Va.) 1
Trademark – Pending Appeal: July 8, 2015
In July, the US District Court for the Eastern District of Virginia affirmed the Trademark Trial and Appeal Board’s June 2014 decision cancelling six trademark registrations owned by Pro-Football, Inc. (PFI), proprietor of the Washington Redskins NFL franchise. The registrations had been cancelled based on claims that the REDSKINS trademarks “may disparage” a substantial composite of Native Americans under Section 2(a) of the Trademark Act. On appeal, the team challenged the constitutionality of Section 2(a) as well as the substance of the TTAB’s analysis.
The Court rejected the constitutional claims as well as the non-constitutional claims, holding that the evidence in the record was sufficient to show that the REDSKINS marks consisted of matter that “may disparage” Native Americans.
Although the Court ultimately ordered cancellation of the six trademark registrations at issue, the decision carefully noted that the judgment is not an order that precludes the team from using the REDSKINS marks or that precludes sports fans from collecting or wearing items bearing REDSKINS marks.
The registrations will not be finally cancelled until the team has exhausted all of its available appeals. Almost immediately following the issuance of this decision, the team indicated its intent to appeal to the Fourth Circuit. While the future of the controversial mark is unclear, the litigation is far from over.