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Supreme Court: Want post-expiration royalties? Go to Congress

The US Supreme Court has upheld the ban on royalty payments for sales made after a patent’s expiration

Kimble v Marvel involves Stephen Kimble's invention (patent no 5,072,856) for a toy glove that allows the user to shoot foam string from the wrist. A Marvel predecessor licensed the patent for use in a Spiderman toy. The agreement had no limitation regarding the patent’s expiration. Marvel later sought a declaratory judgment ruling that it was not required to pay royalties for post-expiration sales due to the Supreme Court’s ruling in Brulotte v Thys, which bars such payments. Both the District Court and the Ninth Circuit found in favour of Marvel.

In a 6-3 decision, the Court affirmed, finding that its earlier holding expressly barred patentees from continuing to receive royalties for sales made after the patent has expired. The majority decision written by Justice Kagan held that stare decisis dictates that the Court follow the Brulotte ruling. The majority noted that while Kimble may have raised valid arguments attacking the economic underpinnings behind Brulotte, such arguments should be brought to Congress, not the court.

Similarly, the majority said that Kimble’s proposed alternative, applying the “rule of reason” analysis from antitrust law, would lead to less certainty and higher litigation costs in contrast to the bright-line Brulotte rule.

The majority also found that, despite complaints that the Brulotte prohibition restricts innovation and deal-making, there are multiple ways of drafting agreements that get around this restriction.

The dissent, written by Justice Alito and joined by Chief Justice Roberts and Justice Thomas, argued that though the majority hangs its decision on stare decisis, the underlying Brulotte decision was an example of judicial overreach that was less about interpreting the Patent Act and more about concocting policy. Alito also argued that the policy goals behind Brulotte have been “soundly refuted” and that the bar against royalties for post-expiration sales restricts parties from efficiently structuring agreements to reflect the risk of certain types of research.

Check back later in the week for in-depth analysis of this decision. For Managing IP’s coverage of the oral arguments, click here.

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