Supreme Court Holds Patent Royalties Expire When Patent Expires

In 1964, the Supreme Court held, in Brulotte v. Thys Co., that a patent owner may not receive royalties on a patent after the patent expires.  Today, in Kimble v. Marvel Entertainment, the Supreme Court declined to overturn Brulotte, relying on stare decisis, which “carries enhanced force when a decision, like Brulotte, interprets a statute.”  In dissent, Justice Alito disagreed that Brulotte interpreted a statute, arguing it is “a judge-made rule and is not grounded in anything that Congress has enacted.”

As part of a patent infringement settlement, Marvel purchased Kimble’s patent on a “toy web-shooting glove,” allowing Marvel to continue selling its Spider-Man Web Blaster and similar products.  Marvel paid a lump sum and agreed to a 3 percent royalty on future sales, with no expiration date.  Neither party knew of Brulotte while negotiating the settlement, but Marvel “stumbled across” the decision before the patent expired.  Marvel sued for declaratory judgment that it could stop paying royalties when the patent expired in 2010.  The district court entered judgment for Marvel and the Ninth Circuit affirmed.

The Supreme Court acknowledged the argument that Brulotte might discourage innovation, but suggested ways around it.  For example, a contract could permit a licensee to “pay the licensor a sum equal to 10% of sales during the 20-year patent term, but . . . amortize that amount over 40 years.”  Or a multi-patent license might run until the date the last patent expires.

Central to the Court’s holding is the premise that Brulotte interpreted a statute:  the 20-year patent term.  Accordingly, the Court asserted, it would need a “superspecial justification” to reverse, and that an “argument that we got something wrong” is not sufficient.  The Court noted that “Congress has spurned multiple opportunities” to reverse the decision, and in “‘cases involving property and contract rights’—considerations favoring stare decisis are ‘at their acme.’”

The dissent argued that Brulotte “was not based on anything that can plausibly be regarded as an interpretation of the Patent Act.  It was based instead on an economic theory—and one that has been debunked.”  As a “bald act of policymaking,” focused more on antitrust principles than the language of the Patent Act, stare decisis should not, according to the dissent, pose the “superpowered” barrier the Court imposes.