By Dennis Crouch
Kimble v. Marvel Enterprises Inc. (9th Circuit 2013) File Attachment: kimbleMarvel.pdf (341 KB)
Kimble's patent covers a pretty-cool web-shooting toy designed to mimic (in toy form) spider-man's super powers. U.S. Patent No. 5,072,856.
Following a typical David-and-Goliath pattern, Kimble approached Marvel about the idea. Marvel rejected the idea but then later began using the idea. The subsequent patent/contract lawsuit was settled back in 2001 with Marvel paying royalties to Kimble that eventually reached more than $6 million. The agreement covers both products that "infringe the patent … as well as sales of the Web Blaster product." The agreement also includes a release of other potential causes of action. However, the agreement itself contains no expiry date.
The patent is now expired, and the new dispute is about whether Marvel is required to continue to pay royalties. Kimble argues that it is still owed royalties under the agreement so long as the Web Blaster is sold. In particular, Kimble focuses on the language of the agreement; the fact that the settlement released Marvel from several non-patent causes of action; and the fact that Marvel has always maintained in court that the Web Blaster does not infringe the patent. Based on those factors, Kimble argues that the patent expiry is immaterial to Marvel's ongoing obligation to pay the monies due.
Marvel argues conversely that the case is controlled by Brulotte v. Thys Co., 379 U.S. 29 (1964). In Brulotte, the Supreme Court found a licensing agreement unenforceable because it required royalty payments beyond the expiration date of the underlying patent. Following Brulotte, the Ninth Circuit as well as several other circuit courts have held that a contract requiring royalty payments for an invention after a patent expires is unenforceable unless the contract provides a discount from rate collected while the patent was in force. See Zila, Inc. v. Tinnell, 502 F.3d 1014 (9th Cir.2007); Meehan v. PPG Indus., Inc., 802 F.2d 881 (7th Cir.1986); Boggild v. Kenner Prods., 776 F.2d 1315 (6th Cir.1985); Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365 (11th Cir.1983); Aronson v. Quick Point Pencil Co., 440 U.S. 257 (1979).
Here, the 9th Circuit again followed Brulotte, Aronson, and Zila, holding that a "so-called 'hybrid' licensing agreement encompassing inseparable patent and non-patent rights is unenforceable beyond the expiration date of the underlying patent, unless the agreement provides a discounted rate for the non-patent rights or some other clear indication that the royalty at issue was in no way subject to patent leverage."
The rule that follows, in relevant part, is that a license for inseparable patent and non-patent rights involving royalty payments that extends beyond a patent term is unenforceable for the post-expiration period unless the agreement provides a discount for the non-patent rights from the patent-protected rate. This is because—in the absence of a discount or other clear indication that the license was in no way subject to patent leverage—we presume that the post-expiration royalty payments are for the then-current patent use, which is an improper extension of the patent monopoly under Brulotte.
The result here is nothing new, but should serve as an important reminder for anyone drafting a patent license agreement. Special care must be taken if the parties expect for royalties to extend beyond the life of the patent-rights in question.
This case will likely see a petition for writ of certiorari.