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23 June 2015Patents

Kimble v Marvel reaction: Congress’s job to change post-patent royalty rules

Only Congress should amend legislation governing post-patent royalties, not the courts, was the reaction of lawyers to yesterday’s decision in the Kimble v Marvel case.

In the case, the US Supreme Court handed down a 6-3 decision in favour of Marvel, reaffirming the 1964 Brulotte v Thys decision that a patent owner cannot receive royalties based on an expired patent.

The dispute centred on a web blaster toy that inventor Stephen Kimble patented in 1990.

In 1997, he and Marvel signed an agreement that meant in exchange for Marvel marketing its own web blaster toy using Kimble’s patented technology, he would receive a 3% royalty on all future sales and a $500,000 fee.

But the agreement had no expiry date, and in 2010 Marvel asked the US District Court for the District of Arizona to rule that it no longer owed Kimble royalties because the patent had expired in the same year. The district court ruled accordingly.

Kimble appealed against the decision and in 2013 the US Court of Appeals for the Ninth Circuit affirmed the district court’s ruling.

But citing Brulotte, in which an inventor was denied royalties based on a hop-picking machine because the patent had expired, the Supreme Court applied the stare decisis (precedent) doctrine and stood by the 51-year old decision.

Jeanne Gills, partner at law firm Foley & Lardner, said the decision to “keep Brulotte makes sense and is consistent with patent policy”.

She added that “parties have thus long been free to negotiate a business deal that allocates both risk and reward without running afoul of Brulotte”.

Gills argued that Kimble failed to demonstrate that Brulotte suppressed “innovation or harmed the economy” and that it is within “Congress’s purview to change the rule”.

Michael Sandonato, partner at Fitzpatrick, Cella, Harper & Scinto, agreed with Gills, saying that “although there is a little bit of discussion of the soundness of Brulotte”, the “clear take-away here is that if the rule is to be changed, it’s Congress’s job to do so”.

But Neil Smith, partner at Rimon Law, said that the Brulotte decision “interfered with the most rational and fair basis for settling a running royalty” and is fundamentally “anti-trust”.

“One cannot accurately predict how much and how long a product, such as the toy at issue here, will be sold or have a demand in the market. The running royalty satisfies most expectations.

“It is ironic that the beneficiary in this case is the big company licensee who claims ignorance of the law set down by the Supreme Court, [and] who can now stop paying under the contract,” he added.

Harry Rubin, partner at law firm Ropes & Gray, said the decision means that patent owners and licensees will have to construct more creative ways of agreeing licensing deals.

“The big message to practitioners and intellectual property companies is to monitor carefully the law pertaining to patent monetisation and craft creative solutions to achieve commercial objectives consistent with applicable law.”

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