SCOTUS Docket No. 13-720
June 22, 2015
Brief Summary: Under Brulotte (US 1964), a patent licensing agreement cannot extend patent royalties beyond the patent expiration date.
Summary: Marvel agreed to buy Kimble’s patent for a Spider Man toy in exchange for a 3% royalty on future sales with no end date. Near the end of Kimble’s patent term, Marvel obtained a DJ in federal court confirming it did not need to continue paying royalties after the patent expired (Brulotte v. Thys. Co., US 1964). SCOTUS explained that the Court has carefully guarded the significance of [a patent’s] expiration date, declining to enforce laws and contracts that restrict free public access to formerly patented, as well as unpatentable, inventions” (citing Sears Robuck (US 1964) (“[a]n unpatented article, being in the public domain, may be freely copied”) and Scott Paper (US 1945) (“any attempted reservation or continuation in the patentee or those claiming under him of the patent monopoly, after the patent expires, whatever the legal device employed, runs counter to the policy and purpose of the patent laws”)). Brulotte applied this principle to a patent licensing agreement (“post-patent royalty provision was ‘unlawful per se’…because it continued ‘the patent monopoly beyond the [patent] period”). The opinion explains that this does not mean parties cannot contract for payments relating to other rights or “business arrangements” beyond patent expiration (“Brulotte leaves parties free to defer payments for pre-expiration use of a patent, tie royalties to non-patent rights, or make non-royalty-based business arrangements.”) And the Court did not find “a very strong justification for overruling Brulotte” (rejecting Kimble’s arguments that “Brulotte hinged on an economic error…that post-expiration royalties are always anticompetitive” and it “suppresses technological innovation and harms the national economy by preventing parties from reaching agreements to commercialize patents”) and therefore applied the doctrine of stare decisis (“Application of that doctrine, though ‘not an inexorable command,’ is the ‘preferred course.”) The dissent argued Brulotte was “based…on an economic theory…that has been debunked” since “[e]xtending a royalty term allows the parties to spread the licensing fees over a longer period of time, which naturally has the effect of reducing the fees during the patent term…[r]estricting royalty payments to the patent term…compresses payment into a shorter period of higher fees” and “[t]he Patent Act does not prefer one approach over the other.”