Bottom line: Patent royalties based on activities after a licensed patent has expired is per se unlawful. Kimble v. Marvel (S. Ct. 2015). This rule is effective even if the parties did not know about the rule when they entered into the license agreement.
Clients will often ask during the last days of a successful patent term how one might go about extending the patent term. The simple answer is that one cannot extend the term of patent protection for a patent. However, there are some work-arounds which the court points to but they are not the same as extending a patent’s term of protection.
The license relationship between Kimble and Marvel started around 1997 when Kimble obtained a patent for a device that shoots webs (i.e., pressurized foam strings) from the palm of a person’s hand. Kimble then offered Marvel a licensee for its “Spiderman” toy which Marvel declined to accept. Soon afterwards, Marvel began to market the Web Blaster. Kimble sued Marvel and the parties settled with Marvel taking a license for the “Spiderman” toy.
The current dispute between Kimble and Marvel began around the time that Kimble’s patent term was about to expire. Obviously, Marvel did not want to pay royalties after the patent term expired because it would place them at a business disadvantage from their competitors who were not required to pay any license fee. However, the license agreement set no end date for royalties. For Kimble this was a great source of income without any liability or effort. Marvel was pleased when they stumbled across Brulotte which was decided back in 1964 and held that a patent owner cannot receive royalties or sales made after a patent’s expiration. Brulotte v. Thys (S. Ct. 1964).
“Patents endow their holders with certain superpowers, but only for a limited time.” After a patent issues, the patent term generally lasts 20 years from the filing date of the patent application. No more. After the patent expires the patent is free to be practiced by anyone. If royalties are paid for activities after the patent’s term, then the patent monopoly is extended beyond the limited time even if the extension is only to one particular licensee.
The patent owner wanted the Court to change the law and overturn the Brulotte decision. The Court provided an extensive discussion between stare decisis and when legal precedents should be overturned. To overturn legal precedent, there must be some justification for it. The simplicity of applying the Brulotte rule and the absence of any empirical data indicating that the Brulotte rule is unworkable are factors in deciding to maintain the Brulotte rule. Brulotte was thus not overruled.
In this case, the Brulotte rule was effective at allowing Marvel to stop payment of royalties after the patent’s term expired even if Marvel entered the license agreement believing that they would pay royalties to Kimble indefinitely.
Moreover, the Court indicated that the Brulotte rule does not prevent parties from contracting in different ways in order achieve benefits that might be achieved with extended royalty payments beyond the patent’s term. For example, the Brulotte rule does not prevent the parties from:
- Amortizing royalty payments beyond the patent term of the licensed patent so that money owed before the patent expires is paid after patent expiration;
- Extending payment of royalties until expiration of the last of patent within a group of licensed patents;
- Tying royalties to non-patent rights (e.g., know-how); and
- Entering into non-royalty based business arrangements.
These are some of the ways that monies can be received by a patent owner after the term of patent protection of the base patent has expired. However these are not as effective from the patent owner’s perspective. For example, although royalties for non-patent related rights can be included in the license agreement, the licensee can choose not to pay monies for those non-patent rights as long as he/she chooses not to use those non-patent rights.
I invite you to contact me with your patent questions at (949) 716-8178. Please feel free to forward this article to your friends. As an Orange County Patent Attorney, I serve Orange County, Irvine, Los Angeles, San Diego and surrounding cities.