Revisiting Spider-Man and Patent Licenses: 'Kimble v. Marvel'

n 2015, the Supreme Court

issued its decision in Kimble

v. Marvel Entertainment, LLC,

576 U.S. 446 (2015), which

upheld a prior decision of the

court and provided clarity on a

question that frequently arises in

patent licenses: whether, and to

what extent, is it proper to col

lect royalties for a license term

that extends beyond the expira

tion date of a licensed patent?

For in-house counsel and oth

ers regularly involved in licens-

ing transactions, the decision is

worth revisiting, as it provides

helpful, practical guidance in the

complex area of patent licensing.

Background: ‘Brulotte’

In 1964, the Supreme Court in

Brulotte v. Thys Co., 379 U.S. 29

(1964), took up the question of

whether a patent holder could

charge royalties for the use

of an invention after the term

of the patent in question had

expired. The case involved Thys

Company, an owner of patents

for hop-picking, which sold a

machine to farmers for a at fee

and provided a license for use

of the machine.

The license required a mini

mum royalty payment for each

hop-picking season or a royalty

for every 200 pounds of dried

hops harvested, whichever was

greater. All seven licensed patents

expired by 1957—but the licenses

continued beyond 1957. The farm

ers refused to make royalty pay-

ments beyond 1957, and the suit

by Thys followed, with the lower

courts nding in favor of Thys.

The Supreme Court reversed,

and held that “patentee’s use of

a royalty agreement that projects

beyond the expiration date of the

patent is unlawful per se.” 379

U.S. at 32. The court support

ed their holding by stating that

“[t]he right to make, the right to

sell, and the right to use ‘may be

granted or conferred separately

Volume 267—No. 100

WedNesday, may 25, 2022

Revisiting Spider-Man and

Patent Licenses: ‘Kimble v. Marvel’

PATENT AND TRADEMARK LAW

Expert Analysis

Rob maieR is an intellectual property partner in

the New York office of Baker Botts, and the head of

its intellectual property group in New York. deRek

laNgdoN, a law clerk at the firm, assisted in the

preparation of this article.

www. NYLJ.com

But just as important as the

holding—or perhaps more so

for those working daily on pat-

ent licensing—was the help-

ful, practical guidance that the

Supreme Court provided as part

of its analysis.

Rob

Maier

by the patentee…but these rights

become court held that a patent

holder cannot charge royalties

for the use of an invention after

its patent term has expired—

once the patent is expired, the

patented rights move into the

public domain, and cannot there

fore be the subject of any ongo-

ing royalty payments or other

restraint on activity.

Decision in ‘Kimble’

Many years later, in the 2015

decision in Kimble v. Marvel

Entertainment, 576 U.S. 446

(2015), the Supreme Court revis

ited this issue. Stephen Kimble

held a patent for a Spider-Man

toy that Marvel Entertainment’s

corporate predecessor agreed to

license, for a lump sum payment

and a 3% royalty on future sales.

The agreement did not include

an end date. Near the expira

tion of Kimble’s 20-year patent

term, Marvel sought a declara

tory judgement conrming that

Marvel could stop paying Kimble

royalties.

The district court sided with

Marvel, and the U.S. Court of

Appeals for the Ninth Circuit

afrmed. On appeal, Kimble asked

the Supreme Court to reverse the

decision and overrule Brulotte.

Kimble argued that Brulotte was

wrongly decided because Bru

lotte relied on an assumption

that post-expiration royalties

are always anticompetitive, and

further arguing that Brulotte sup

presses technological innovation.

The Supreme Court afrmed

and upheld the reasoning from

Brulotte, noting that Congress

in the intervening years had

spurned multiple opportuni

ties to overturn it, and “[a]s

against this superpowered form

of stare decisis, we would need

a superspecial justification to

warrant reversing Brulotte.” Kim

ble at 458. As the court stated,

“[p]atents endow their hold-

ers with certain superpowers,

but only for a limited time.” Id.

at 451. “And when the patent

expires, the patentee’s preroga

tives expire too, and the right

to make or use the article, free

from all restriction, passes to the

public.” Id.

But just as important as the

holding—or perhaps more so

for those working daily on patent

licensing—was the helpful, prac

tical guidance that the Supreme

Court provided as part of its anal

ysis. While the Supreme Court

made clear that the approach in

question was improper, it also

provided tangible examples of

licensing schemes that parties

could employ as “ways around

Brulotte, enabling them to achieve

those same ends.” The common

thread through all of these licens

ing schemes is that the royalties

cannot be based solely on the

use of an expired patent.

The permissible approaches

outlined by the Supreme Court

include:

(1) Deferred Payments: The

law “allows a licensee to defer

payments for pre-expiration

use of a patent into the post-

expiration period ... A licensee

could agree, for example, to pay

the licensor a sum equal to 10%

of sales during the 20-year pat

ent term, but to amortize that

amount over 40 years. That

arrangement would at least

bring down early outlays, even

if it would not do everything the

parties might want to allocate

risk over a long timeframe.” In

other words, license agreements

could be structured such that

payments required beyond the

WedNesday, may 25, 2022

end of the patent term are clear-

ly specied as deferred or amor-

tized payments for use during

the patent term.

(2) Portfolio Licenses: “And

parties have still more options

when a licensing agreement

covers…multiple patents.…roy

alties may run until the latest-

running patent covered in the

parties’ agreement expires.”

This means that when licens

ing a full portfolio or signicant

portfolio of patents, continuing

royalties would not be banned

even if some licensed patents

expire, as long as other licensed

patents are not yet expired.

(3) Tied to Non-Patent Rights:

“And parties have still more

options when a licensing agree

ment covers…additional non-

patent rights.…post-expiration

royalties are allowable so long

as tied to a non-patent right—

even when closely related to a

patent. That means, for example,

that a license involving both a

patent and a trade secret can set

a 5% royalty during the patent

period (as compensation for the

two combined) and a 4% royalty

afterward (as payment for the

trade secret alone).” Id. The key

to this type of license agreement

is that there typically should be

some appreciable change in the

royalty payments or structure

following the expiration of the

patent term, to strengthen the

position that the royalty for

use of the patent is no longer

required for use after the pat

ent term expires. For example,

in many agreements, such ongo

ing royalty requirements may be

based not only on patent rights,

but also based on “know how.”

Because the royalty payments

in such a scenario are not tied

solely and exclusively to the pat

ent rights, this sort of arrange-

ment can be structured to allow

for collection of royalties after

patent expiration.

(4) Joint Ventures, etc.: “Finally

and most broadly, Brulotte poses

no bar to business arrangements

other than royalties—all kinds

of joint ventures, for example—

that enable parties to share the

risks and rewards of commer

cializing an invention.” While a