Itsy Bitsy Brulotte Climbed Up The Supreme Court Steps and Was Upheld

We previously reported on the potential impact that the Supreme Court’s decision in the case of Kimble v. Marvel Enterprises, Inc. may have on patent licensing terms. On June 22, 2015, the Supreme Court, basing its decision on stare decisis, upheld Brulotte which had barred royalty payments on post patent expiration activities. Kimble et al. v. Marvel Ent., LLC, 576 U.S. __ (2015). The Supreme Court, referencing the Brulotte court’s opinion, found that such post expiration royalty provisions “conflict with patent law’s policy of establishing a ‘post expiration . . . public domain’ in which every person can make free use of a formerly patented product” Kimble, 576 U.S. at _ (slip op., at 5) (quoting Brulotte v. Thys Co., 379 U.S. 29, 33 (1964). In upholding that ruling, the Supreme Court reasoned that “stare decisis carries enhanced force when a decision . . . interprets a statute. Then, unlike in a constitutional case, critics of our ruling can take their objections across the street, and Congress can correct any mistake its sees.” Id. at _ (slip op., at 8).

Despite the Supreme Court’s strict adherence to Brulotte, it did identify ways parties can work around the holding. As we previously reported, in the absence of coercion by the patentee, parties are allowed to extend payments into the post-expiration period as long as the licensee does not have to account for post-expiration sales. See Kimble, 576 U.S. at 6 (“all the decision bars are royalties for using an invention after it has moved into the public domain”). In line with this understanding, the Supreme Court identified the following arrangements as examples for getting around Brulotte:

  1. defer payments for pre-expiration use of a patent into the post-expiration period;
  2. post-expiration but stepped down royalties tied to a non-patent right such as a trade secret; and
  3. other business arrangements other than royalties, such as joint ventures.

Unless Congress acts to reverse Brulotte, licensing professionals need to be cognizant of Brulotte and creatively draft licenses to avoid the situation encountered by Stephen Kimble.

Gibbons will continue to monitor developments in patent licensing and royalty provisions.

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