Kimble v. Marvel: Everything You Need to Know
Kimble v. Marvel was a landmark Supreme Court case in 2015 which addressed whether a licensor can continue to receive royalties after his product has expired.7 min read
What is Kimble v. Marvel?
Kimble v. Marvel was a landmark case that went before the Supreme Court in 2015 and addressed whether a licensor can continue to receive royalties after the patent for his product has expired. On June 22, the Supreme Court declined to overturn the per se rule from Brulotte v. Thys Co. and ruled in favor of the defendant, Marvel.
The case covered almost two decades of negotiations, two different lawsuits, and an appeal. It also brought up important questions in terms of what patent law protects, what rights can be transferred, and how royalties work.
The Origins of Kimble v. Marvel
In 1990, a man named Stephen Kimble got a patent (U.S. Patent No. 5,072,856) based on a Spider-Man toy he'd created: a "web blaster" glove that enabled the wearer to shoot foam streams from their hand. This patent was set to expire in 2010. Kimble's claim is that the president of Marvel Enterprises, Inc. had discussed the idea with him and that Marvel would compensate Kimble for the use of his patent.
The two parties didn't come to an agreement regarding the compensation, but Marvel then produced a toy that Kimble felt was substantially similar to his design. In response, he sued for patent infringement in 1997. In 2001, the parties settled. Marvel purchased the patent for approximately $500,000 and agreed to pay royalties in the amount of 3 percent of net product sales. No expiration date or time limit to the obligation was set, nor was a reduced rate planned for after the patent expired.
After the parties reached a settlement, the lawsuit was dismissed.
Patent Sale, Re-License, and Lawsuit
Flash forward to 2006, when Marvel licensed the use of the patent to Hasbro, Inc., allowing that company to produce the toy in question. By 2008, this led to disagreements between the parties. Kimble felt he was being denied royalty payments. He filed a claim that without proper royalty payments, the original patent and the contract were infringed.
He sued in Arizona, and the case made its way to the federal district court. Marvel, in turn, used existing case law to argue that it shouldn't owe royalties at all after the underlying patent expired.
The district magistrate decided that the settlement between Marvel and Kimble constituted what is known as a hybrid agreement. Because of this, the rights involved (patent and non-patent rights) couldn't be separated. This decision was based on an earlier case that was heard by the Supreme Court, Brulotte v. Thys Co. This tactic of determining litigation points based on precedent is called stare decisis.
The Brulotte case, heard in 1964 by the Supreme Court, determined that when a patent is sold for royalties, the person who buys the patent has no obligation to keep paying after the patent expires. Doing so, the courts felt, would overcompensate the original patent owner and extend patent monopoly protections beyond the intended limits.
Neither Kimble nor Marvel were aware of the Brulotte case when they reached their original settlement. After learning of it during the course of this second lawsuit, Marvel asked for a declaratory judgment in federal district court that the company could stop paying royalties once the patent expired in 2010. The court agreed.
On recommendation of the magistrate, the federal district court granted summary judgment in favor of Marvel that patent rights were transferred upon sale. However, the court noted that non-patent rights were still unclear.
Upon appeal, the Court of Appeals for the Ninth Circuit reluctantly upheld the decision of the federal district court. The Court of Appeals noted that the reasoning behind the Brulotte rule did not seem to make much sense. Nevertheless, they did believe the rule applied the Kimble case.
Kimble filed an appeal and argued to the Supreme Court via the U.S. Ninth Circuit that the agreement transferred all rights and that he still deserved payment for the toy itself.
Kimble sought to overturn Brulotte in the Supreme Court. He claimed that Brulotte is mistaken in its view of competition after a patent expires. Thus, it serves to suppress future technological innovation, harms the economy, and fails to uphold the innovative spirit of patent law. Kimble felt that extending royalty rights beyond the end of a patent would result in lower royalty rates and thus enhance competition. He also argued that economics had changed in the intervening 50 years since Brulotte. These changes, he believed, undermined the rationale behind the Brulotte decision.
In essence, Kimble was arguing that Brulotte should be overturned and replaced with a case-by-case precedent for reviewing patent agreements. He thought the "rule of reason" outlined under antitrust law should be applied.
Victory for Marvel
Despite a wealth of scholarly and judicial criticism of the Brulotte ruling, the Supreme Court upheld the district court's ruling and refused to overturn Brulotte. The opinion was delivered by Justice Kagan; she was joined by Justices Breyer, Ginsberg, Kennedy, Scalia, and Sotomayor.
In the end, the Supreme Court felt that this was not an antitrust issue but a patent law one. As such, the Court dismissed Kimble's arguments. They decided that it wasn't within their powers to effect what they felt would essentially be a change to the substance of the law by overturning Brulotte in this case.
They felt that while economic theory had changed since the '60s, there was a line between statute-based cases like this one and those based on the Sherman Act, which established important aspects of patent law. As for the economic questions, the Court noted that it has no way to determine what would happen to the economy in the future. Because Brulotte sits at a junction between property and contract law, the Court felt that greater justification would be needed to overturn it. Such justification didn't exist in the Kimble case.
The rationale was that there was not sufficient reason to overturn the prior Brulotte v. Thys Co. precedent. This is largely because the courts have traditionally been on the side of limiting patent rights rather than expanding them. In addition, the courts felt that it is Congress's role to make changes to the way patent law works, and it has not done so.
The court wasn't unanimous in its decision; it was split 6-3. Dissenting opinions were delivered by Justice Samuel A. Alito, Jr., Justice Clarence Thomas, and Chief Justice John G. Roberts, Jr. Their dissent was based on the idea that the Brulotte rule interferes with the abilities of two parties to properly negotiate licensing agreements that reflect the true value of a product. This, in turn, makes Brulotte a poor interpretation of the Patent Act and leaves it with no weight as a precedent. The dissenters felt that, as such, Brulotte should be overturned.
In addition, the dissenting opinions claimed that Brulotte itself stepped beyond the jurisdiction of the courts and served to set policy and make law, which isn't what the court exists to do. It claimed the earlier decision was based on antitrust and only masqueraded as patent law interpretation. Finally, these dissenters claimed that the economic theory upon which the prior case was based has been roundly debunked. Therefore, they argued that the decision itself should be invalidated.
Avoiding Conflict in Future Cases
Had the courts taken a different stance on Brulotte, specifically the more flexible stance proposed by Kimble, it would've given two contracting parties more options to allocate royalties past the point where a patent ends. However, even with the "bright line" stance taken by the courts, creative partnerships can find ways around this precedent. It's possible to extend an agreement into a patent's post-agreement period via a properly constructed contract.
Agreements involving multiple patents, for example, can use the latest expiring patent as their termination date. Hybrid agreements can be created to layer royalties, allowing for reduced rates after a patent expires. Joint ventures and other partnerships can be created. All of these arrangements and more are permissible under Brulotte.
In such agreements, it's important for the parties involved to be clear in their agreements that any royalties paid after patent expiration aren't for the use of the technology. The most important lesson to take away is that agreements need to be strategically worked and put into effect. As it stands, the revenue stream related to patents ends the day the patent expires. This makes it even more crucial to avoid any potential delays while pushing your application through the USPTO.
Key Results of Kimble v. Marvel
Kimble v. Marvel has established three important precedents and functions in future case law:
- It reminds people that the Court is unlikely to overturn precedent. At the very least, it's not something that will be done lightly or easily.
- It reaffirms that the expiration of a patent is final but that there are means by which settlements can be structured around it.
- It encourages those who seek a change in the law to approach Congress. The courts have absolutely stated that this is the proper venue for such changes to be made.
Overturning precedent is something that the Supreme Court rarely does. It requires special justification far beyond believing that the existing precedent was wrong. Stare decisis has upheld such landmark decisions as Halliburton Co. v. Erica P. John Fund, Inc., Patterson v. McLean Credit Union, and Watson v. United States. It has even upheld Brulotte in the face of Congressional bills that would replace it with new standards.
The courts acknowledge that scholars are correct in stating that post-expiration royalties can be good for competition, but it feels that the case is a patent case rather than an antitrust one. If nothing else, the case has been controversial among legal scholars.
Getting Help With Patent Law
Patent law is ever-changing and difficult to navigate, so it's vital that you enlist help. The recent Kimble v. Marvel case only highlights the important lines that are drawn in these cases, as well as ways to properly structure royalty agreements to get around patent expiration.
If you need help with your patent law issues, you can find help on UpCounsel's list of patent lawyers. Our member attorneys are drawn from only the top 5 percent in the field. They are graduates of such notable institutions as Yale Law and Harvard Law, and they have represented major corporations like Google in intellectual property cases. They represent the best attorneys around and have outstanding qualifications to help you with your IP law issues. Post your job on UpCounsel's marketplace today.