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SUPREME COURT UPHOLDS PRECEDENT PROHIBITING ROYALTY COLLECTION ON EXPIRED PATENTS

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On June 22, 2015, U.S. Supreme Court ruled against the inventor of a Spiderman toy who claimed that a 50-year-old precedent barred him from collecting the royalties he was entitled to. The court declared collection of post-patent royalty as unlawful and upheld the precedent set by Brulotte vs. Thys Co. (1964). The inventor of the Spiderman toy, Stephen Kimble, attempted to overturn the decision that has prevented numerous inventors from collecting royalties after their patent had expired.

History of the Case

In 1991, Kimble obtained a patent for his invention of a toy that shoots foam from the palm of the hand. In 1997, Kimble sued Marvel Entertainment for patent infringement and claimed that the company illegally used his idea to create the Web Blaster toy. After years of legal dispute, Marvel settled the case in by obtaining the patent for $500,000.00 and giving Kimble a 3% royalty on product sales made after December 31, 2000.

Later in 2008, Kimble filed a suit for breach of settlement because he disagreed with Marvel over the amount of royalty he would receive. Marvel countered the suit, claiming that the royalty payments to the inventor would stop when the patent expired in 2010 even though the agreement did not have an end date. Marvel sought a declaratory judgment confirming that the company would not need to pay royalties after Kimble’s patent term. The court approved Marvel’s judgment due to the precedent set by Brulotte v Thys Co.

Kimble attempted to appeal the decision by trying to overturn the ruling of Brulotte v Thys Co. He argued that inability to collect royalties beyond the patent term hurt could suppress innovation and harm the economy.

The Precedent in Question

In the case of Brulotte v Thys Co., Brulotte purchased a crop-harvesting machine from Thys Co. and accepted a licensing agreement that required him to pay royalties to the company based on the amount of crops harvested. Brulotte stopped paying royalties to Thys Co. when he realized that the patent had expired. The parties disagreed over the inventor’s collection of royalties and took the battle all the way to the Supreme Court. Brulotte argued that Thys Co. misused the patent by extending the licensing agreement past the expiration date of the patent.

The Court ruled that royalty provisions in patent licensing agreements are not enforceable beyond a patent’s expiration date. As a patent holder, Thys Co. has the exclusive right to make, sell, and use the invention, but those rights become public property after the 17-year expiration date.

The Decision

The Supreme Court defended the previous decision and ruled that Kimble did not provide “special justification” or enough evidence of economic harm to overturn the precedent. After the date of expiration on a patent, the rights to the invention become public property. Therefore, contracts that restrict public access to formerly patented inventions are not enforceable by the law. Furthermore, Brulotte v Thys Co. prevents royalties on expired patents, but it does not prevent other methods that achieve similar results such as royalty payments tied to non-patented rights.

Justice Kagan wrote the majority opinion of the ruling to uphold the precedent. Kagan expressed that the ruling was done reluctantly and stated in the opinion, “overruling a precedent is never a small matter and respecting stare decisis means sticking to some wrong decisions.” The Supreme Court generally uses the principle of “stare decisis” when deciding on the overruling of a precedent. This means that the Supreme Court will favor the precedent because it promotes stability of the law.

Collecting post-patent royalty is unlawful and conflicts with laws regarding expiration dates. The court held that a patent holder is unable to charge royalties for the use of his or her inventions after its patent term has ended.

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