In Kimble v. Marvel Enterprises, No. 13-720 (2015), the U.S. Supreme Court will decide whether to overrule Brulotte v. Thys Co., 379 U.S. 29 (1964) in which the Court held that patentees may not collect royalties for use of a patent occurring after the patent’s expiration.
In Brulotte, the Supreme Court held that any royalty payment for a sale occurring after the expiration of the patent is per se unlawful. The Court applied antitrust principles to conclude that such agreements essentially allow licensors to extend the monopoly granted by the patent beyond the term permitted by statute, thus monopolizing technology is in the public domain.
Brulotte constrains how patents can be licensed. Some courts apply Brulotte to limit the terms under which a patent holder may license a package of patents. For example, some courts require that royalty terms on package licenses must step down according to when key patents in the package expire. See, e.g., Rocform Corp. v. Acitelli-Standard Concrete Wall, 367 F.2d 678, 681 (6th Cir. 1966). In these jurisdictions, package licenses without a step-down provision are unenforceable.
Similarly, some courts will invalidate licensing agreements for patent applications if they do not include step-down provisions anticipating the possibility that the patent fails to issue. See Boggild v. Kenner Prods., 776 F.2d 1315, 1316-19 (6th Cir. 1985). Courts have also invalidated “hybrid licenses,” which include a common royalty payment related to both patent and non-patent rights. See Meehan v. PPG Indus., Inc., 802 F.2d 881, 885 (7th Cir. 1986).
The Kimble case involves a hybrid license of both patent and non-patent intellectual property rights. Stephen Kimble invented and patented a glove that allows a wearer to shoot string foam. Marvel marketed and sold a product known as the “Web Blaster,” which incorporated similar features to Kimble’s patented invention, without Kimble’s permission. Kimble sued for patent infringement. Marvel settled, agreeing to pay Kimble for the rights to Kimble’s patent on the Web Blaster as well as a fixed royalty on related products.
At a later dispute over the settlement agreement, a district court held that the entire agreement was unenforceable. The settlement agreement was a hybrid license because the court could not distinguish components of the royalty directed to patent rights and those related to non-patent rights. The royalty payments outlived the patent. Accordingly, the district court held that the entire agreement was unenforceable under Brulotte.
On appeal, the Ninth Circuit noted that “the Brulotte rule is counterintuitive and its rationale is arguably unconvincing,” but “reluctantly applied the rule” because it was bound by the Supreme Court.
Kimble filed a petition for writ of certiorari with the Supreme Court, and the Court granted the petition. The Court held oral argument on March 31, 2015.
In oral argument, several members of the Court appeared reluctant to overrule Brulotte. However, some commentators suggest that the Court may overrule Brulotte and install the more flexible “rule of reason” test in its place. The rule of reason is a fact-based inquiry applied in antitrust law, and is used by the courts to determine whether an action is anticompetitive. Under the rule of reason, a factfinder determines whether an action imposes an unreasonable restraint on competition by weighing the facts and circumstances surrounding the action. See, e.g., Continental TV, Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49-50 (1977). Courts already apply the rule of reason in patent misuse cases. If the Supreme Court decides to overrule or modify Brulotte, patent licensing may become more flexible in the U.S. by permitting some potential post-expiration licensing agreements. However, such a decision would also muddy the boundaries of permissible post-expiration patent license terms until lower courts in the various circuits have had the opportunity to rule on the new test.