What the Spider-Man Patent Victory Means for Innovation in Life Sciences
In a 6-3 decision, The United States Supreme Court has just ruled that patent protection will not stick indefinitely – not even for Spider-Man.
The case, Kimble v. Marvel [No. 13–720], involved an inventor, Stephen Kimble, who patented an idea for a toy based on the arachnid-enhanced superhero in 1990: a glove that would allow children to shoot out foam string. When Marvel Entertainment, Spider-Man’s creator, produced a toy similar to his design, Kimble sued, alleging patent infringement. The parties settled in 2001, with Marvel agreeing to purchase Kimble’s patent and pay 3% royalties on future sales, with no set end date for the payments.
However, as Kimble’s patent neared its expiry, Marvel happily discovered Brulotte v. ThysCo. [379 U. S. 29], in which the U.S. Supreme Court previously held that a patentee cannot continue to receive royalties for sales made after his patent expires. Marvel then sought a declaratory judgment in federal district court confirming that it could stop paying Kimble royalties. The district court granted relief, and the Ninth Circuit affirmed. Kimble then petitioned the Supreme Court to overrule Brulotte.
Writing an opinion webbed with Spider-Man references, Justice Elena Kagan stated “In crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries.” Kimble’s petition was denied, the court holding that it was bound to follow the precedent as no “special justification” for overruling Brulotte had been established. [Pp. 3–18] Marvel, therefore, was not bound to pay royalties after the patent expired.
Brulotte has not been without its critics, Justice Samuel Alito being one. Writing the dissent, Justice Alito commented that Brulotte, which prevents the payment of royalties after a patent expires, was based "on an economic theory ... that has been debunked." He was joined in his dissent by Chief Justice John Roberts and Justice Clarence Thomas.
Implications for life science companies
By adhering to the Brulotte rule, the court’s decision in Kimble has important implications for patent rights across the life sciences industry. Most patents are good for 20 years (not counting extensions such as Hatch-Waxman patent term extension or supplementary protection certificates), but private parties frequently enter into licensing agreements with payments that extend beyond the expiration of applicable patents. This is particularly true in the life sciences industry where products can take a decade or more to reach commercialization and are launched near the end of relevant patent terms. As Justice Kagan pointed out, “the Brulotte rule may prevent some parties from entering into deals they desire,” such as transactions that provide royalties that reward a party for the portion of patent life lost during product development. Nevertheless, Justice Kagan continues, “Brulotte has always left parties free to defer payments for pre-expiration use of a patent, tie royalties to non-patent rights, or make non-royalty-based business arrangements.” Therefore, for the life sciences industry, if parties intend for royalties and other related payments to extend beyond patent expiration, those payments must be tied to other forms of intellectual property or other statutory exclusivities, such as know-how, trade secrets, and the duration of regulatory exclusivities (e.g., orphan drug exclusivity, or “new chemical entity” exclusivity). Importantly, parties should pay careful attention to royalty terms that are tied to a period following first commercial sale of a product if at the end of that period a product or service is not the subject of a valid patent claim or another form of intellectual property. Consideration should also be given to royalty rates that are paid for non-patent intellectual property rights or regulatory exclusivities, which are generally lower than patent-based royalty rates.
Whether the court will find a “special justification” for overruling Brulotte down the road is unclear. But Justice Kagan has made clear that for now at least, “patents endow their holders with certain superpowers, but only for a limited time.”