Kimble v. Marvel Enterprises involved a device that allowed its user to shoot “webs” a la Spider-Man. Kimble invented and obtained a patent for this web-shooting device and tried to sell or license that patent to Marvel Entertainment, the creator/owner of Spider-Man. Marvel declined, but ultimately came to market with its own “Web Blaster,” which similarly allowed its user to shoot webs a la Spider-Man. Kimble brought an action for patent infringement which was settled by Marvel purchasing Kimble’s patent for a lump sum plus a royalty on future sales of the “Web Blaster.” The agreement was open ended as there was no termination to the royalty payment.
Are Royalties Due After Patent Expires?
Kimble’s patent expired in 2010. Thereafter, Marvel brought a declaratory judgment action seeking a determination that it was no longer required to pay royalties on an expired patent. Marvel’s position was based on Brulotte v. Thys Co., 379 U.S. 29 (1964), where the Supreme Court held that a licensor is not entitled to patent royalties from a licensee after expiration of the licensed patent. The district court agreed with Marvel, finding no distinction between the fact that Brulotte involved a patent license agreement where the party receiving royalties retained ownership of the patent at issue and the Kimble/Marvel relationship where the party receiving royalties no longer owned the patent at issue. Thus, Brulotte controlled and no further royalties were required after expiration of the Kimble patent. The Ninth Circuit Court of Appeals affirmed reluctantly, agreeing that Brulotte was controlling precedent but felt that the decision was “counterintuitive.”
The Supreme Court also affirmed the lower court ruling. In doing so, the Court relied heavily on stare decisis and noted it should stand by its prior decisions unless there were compelling reasons to overrule them. In the context of matters dealing with property and contracts, the Court noted this was especially the case, since parties often relied on legal precedent when shaping their agreements. Therefore, the Court found no reason not to follow Brulotte and its hard and fast, simple rule that the obligation to make royalty payments on a patent expire with the patent. Given this, Marvel was not required to make further royalty payments to Kimble after the patent at issue expired in 2010.
While Kimble affirmed Brulotte’s patent expiration rule, as the Court itself noted, there are ways parties can structure their transactions to avoid Brulotte. Parties are free to find alternative ways to contract that do not involve patent length. For instance, parties can tie royalty payments to non-patent rights such as trade secrets or trademarks. Additionally, while Brulotte might prohibit post-expiration royalties, it does not prohibit payment of pre-expiration royalties after expiration. Therefore, parties can amortize royalty payments over a period longer than the life of the patent.
Kimble’s impact is clear: when structuring transactions pertaining to patents, parties should consider all potential alternative forms of calculating the value of and payment for use of the patent. Further, parties may wish to even consider seeking patent protection in the first instance and instead utilize and license access to trade secrets.