The Associated Press reported last week that The Supreme Court said it would use a patent case about a Spider-Man gadget to consider overruling a 50-year-old precedent that bars the collection of royalties on patents after they expire. The Court agreed to review an appeal by Stephen Kimble, the inventor of a web-shooting toy that let kids pretend to be the friendly neighborhood crime fighter. He obtained a patent in 1991 for a device that shoots foam “from the palm of a hand to give the impression that a spider web is being formed.”
Mr. Kimble sued Marvel Enterprises in 1997, accusing the company of breaching a verbal agreement and patent infringement, alleging the company used his ideas to develop a Web Blaster toy without paying him. (Marvel is now owned by Walt Disney Co.) The two sides eventually settled in 2001. Marvel bought the patent and also agreed to pay a running royalty of 3% on product sales. Marvel says Mr. Kimble and a partner were paid more than $6 million during the term of the patent, which expired in 2010. Not bad for a toy that shoots foam.
The agreement itself didn’t contain an expiration date however — and that’s where Supreme Court precedent comes into play.Mr. Kimble sued in 2008 for an alleged breach of settlement regarding royalty payments. As the litigation proceeded, Marvel cited the Supreme Court’s 1964 ruling in Brulotte v. Thys Co., which said royalty provisions in patent licensing agreements aren’t enforceable beyond a patent’s expiration. This precedent would provide Marvel with a defense to having to pay Kimble anything beyond 2010. After lower courts ruled for Marvel (citing Brulotte), Mr. Kimble asked the Supreme Court explicitly to overrule its earlier decision.
Under the principle of stare decisis, (“stand by decisions”), the court usually sticks by past precedent to promote stability in the law, unless there’s a special justification for charting a new course. Doing so in a Supreme Court case is very difficult as the nation depends on the Court to be the final arbiter on the Constitution and the Supreme Court’s decision on a matter of federal law becomes the Law of The Land. It has happened several times over the last few decades – most recently in Citizens United which specifically overturned prior rulings restraining corporate political donations. It occurred perhaps most famously in Brown v. Board of Education which overturned the Court’s “separate but equal” doctrine annoucned in Plessy v. Ferguson.
Mr. Kimble’s lawyers say Brulotte’s automatic prohibition on post-expiration patent royalties has been widely criticized and is economically unsound. They argue the Brulotte Court was fundamentally incorrect when it believed that allowing continued royalty payments effectively extended a patent holder’s monopoly. Marvel, joined by U.S. Solicitor General Donald Verrilli, had urged the Supreme Court not to review the case, saying Mr. Kimble hadn’t provided the court with strong enough reasons for taking the extraordinary step of abandoning its precedent. I tend to agree. Normally, it takes some kind of sweeping societal change or clear proof that the prior decision is unworkable in current society or that it has had an unforeseen impact on the country or the operation of the government. The petition for certiorari characterizes Brulotte as “the most widely criticized of [the Supreme] Court’s intellectual property and competition law decisions.”
Three panels of the courts of appeals (including the panel below), the Justice Department, the Federal Trade Commission, and virtually every treatise and article in the field have called on this Court to reconsider Brulotte, and to replace its rigid per se prohibition on post-expiration patent royalties with a contextualized rule of reason analysis.
I just don’t see that this is enough and The Justice Department is now arguing for maintaining Brulotte. In my opinion, the Court will likely kick it back to Congress by holding that any repeal of Brulotte should occur through legislation Also, the parties could have negotiated this into their contract and Mr. Kimble could have asked for a license to continue beyond the patent’s expiration.
The Supreme Court is expected to hear oral arguments in the spring, with a decision by the end of June. The decision will be important not only to Mr. Kimble and Marvel as millions of dollars may be at stake, but to Court watchers and to those looking to overturn Supreme Court precedent. This Court has shown a willingness to do so; if it does so here, the standard it sets on when that momentous event should occur will far outweigh its decision on the case itself.