The Supreme Court carefully guards the twenty-year expiration date of a patent, allowing the public the unrestricted right to make or use a patented article after that date. The Court’s fifty-year-old Brulotte decision applied this principle to patent licensing agreements requiring payment of royalties that accrued after the patent’s expiration date, finding such royalties unlawful per se.1 Despite significant pushback from the legal community, the Supreme Court recently reaffirmed itsBrulotte decision, terminating a patent licensing agreement upon expiration of the patent where the agreement provided an ongoing 3% royalty—despite neither parties’ awareness of Brulotte in valuing the patent.
The Kimble Decision
The Kimble v. Marvell Enterprises, LLC case involved petitioner Stephen Kimble, who patented a toy glove that allowed children to shoot webs—really, foam—from the palm of their hands “like a spider person,”2 and respondent Marvel Entertainment, LLC (“Marvel”), who makes products featuring comic-book characters like Spider-Man.3 Seeking to license his patent, Kimble met with Marvel’s predecessor to discuss his idea, but without compensating Kimble, Marvel released their own “Web Blaster” that performed a very similar function.4 Kimble sued Marvel in 1997 alleging patent infringement, which ultimately settled.5 Per their settlement agreement, Marvel purchased Kimble’s patent in exchange for a lump sum and an ongoing 3% royalty of Marvel’s future sales of the Web Blaster and related products.6 The agreement provided no end date for these royalties.7
Several years into their agreement, Marvel discovered the existence of the 1964Brulotte decision, in which the Court found the payment of royalties after the expiration date of the patent unlawful per se—essentially sunsetting any patent licensing agreement’s royalty clause upon expiration of the patent’s twenty-year term.8 Neither party knew of the Brulotte decision during the negotiation of their agreement.9 Marvel sought a declaratory judgment in federal district court confirming that Marvel could cease payment of royalties to Kimble for their use of his toy web-shooting glove patent when the patent expired in 2010.10 The district court agreed.11 The Court of Appeals for the Ninth Circuit “reluctantly” affirmed despite its dislike for the Brulotte rule, characterizing the rule as “counterintuitive and its rationale . . . arguably unconvincing.”12
On certiorari to the Supreme Court, the only question at issue was whether the Court would overrule Brulotte.13 Kimble requested the Court abandon Brulotte in favor of a flexible, case-by-case analysis of post-expiration royalty clauses under the rule of reason, mirroring current antitrust analysis.14 The Court declined Kimble’s request in favor of reaffirming the decision under stare decisis, finding no “substantial justification” to overturn the rule over and above the belief that the precedent was wrongly decided.15 According to Kimble, Brulotte hinged on an error about economics—the assumption that post-patent royalty arrangements are invariably anticompetitive.16 Kimble argued that longer royalty periods would tend to mean lower royalty rates, which may have pro-competitive effects, including lower consumer prices, more competitive alternatives, and more licensees.17 Kimble argued—and the dissent agreed—that economic theory had changed since the Court’s 1964 Brulotte decision, debunking the economic reasoning upon which the decision stood.18 The Court acknowledged that the economic theories had changed but drew a line between patent cases based upon statute, as here, and antitrust cases based on the Sherman Act, where stare decisis may be less dispositive.19 The Court emphasized that Congress was the right entity to fix any mistake made by theBrulotte decision, pointing out that Congress had rebuffed bills in the past that would have replaced Brulotte with the antitrust-style analysis Kimble suggested.20Quoting Spider-Man, the Court concluded that Kimble’s reasoning for overruling Brulotte—even if correct—was not sufficiently “special” to overcome stare decisis’s high bar: “in this world, with great power there must also come—great responsibility.”21
The Kimble Dissent
Three justices dissented with harsh words about Brulotte and the Court’s affirmation of the decision.22 The dissent described Brulotte as a “bald act of policymaking” based on a “debunked” economic theory, one which interferes with the ability of parties to negotiate licensing agreements that reflect the true value of a patent and stifles innovation.23 The dissent characterized Brulotte as “an antitrust decision masquerading as a patent case” and cautioned the majority from reading acceptance of laws from congressional silence.24 The dissent ended with Justice Alito’s recommendation to “reconsider and overrule our obvious mistake.”25
Despite a growing body of criticism against the Brulotte rule citing debunked economic theory and stifled innovation, the Supreme Court reaffirmed the rule.Kimble is a lesson for the wary. No one disputed that neither party knew of Brulottewhen they crafted their licensing agreement—Kimble may have asked for more than a 3% royalty of future sales if he had known. But Brulotte’s toll was heavy, vitiating the agreement at the end of the patent’s term despite their lack of knowledge. Kimble thus serves as a cautionary tale for those who consider including post-expiration royalties in the sale or license of their patent.