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High Court To Reconsider Ban On Expired-Patent Royalties

The U.S. Supreme Court agreed to review a 50-year-old rule barring royalty agreements that extend beyond the expiration of a patent, a standard the inventor of a Spider-Man toy argues is outdated and anti-competitive.

In 1990 Kimble invented a Spider-Man wristband toy that could shoot foam string and got Marvel to agree to compensate him if it used his idea. The company later created the Web Blaster toy, but Kimble never received any payments, and he filed a 1997 patent infringement and breach of contract suit.

Marvel and Kimble settled the suit in 2001 when the company agreed to purchase the patent for about $500,000 and pay Kimble a 3 percent royalty on product sales.

But in 2006, Marvel licensed the right to produce the Web Blaster to Hasbro Inc. A number of disagreements then arose between Marvel and Kimble concerning the royalty payments, resulting in the current breach of contract suit, filed in 2008.

The justices granted a petition for certiorari by inventor Stephen Kimble and the high court will review its own 1964 decision in Brulotte v. Thys, which held that licenses requiring royalty payments for the use of a patent after it expires are per se unlawful. The justices agreed to hear the case even though U.S. Solicitor General Donald Verrilli Jr. told the court in October that Brulotte remains good law and should not be reviewed.

Kimble’s attorney said that he and his client are gratified that the justices took the case and are looking forward to arguing that the Brulotte rule “should be resigned to the dust heap of history.”

“Brulotte’s per se rule has, for 50 years, damaged the American economy by forbidding licensing practices that would provide unique pro-competitive benefits,” Kimble’s attorney said.

The rule has suppressed innovation by hindering the commercialization of life-saving medical treatments by universities and research hospitals, he said.

“And it has been a trap for the unwary and an instrument of injustice when wielded by large, sophisticated licensees to deny small inventors their contractually guaranteed royalties under circumstances where those inventors had no actual market power, and had applied no coercion during contract negotiations,” he said.

According to Marvel, the “core bargain” of the patent system is that inventors must publicly disclose their invention in return for a limited period of exclusivity.

“Brulotte’s conclusion that permitting post-expiration royalties would upset this bargain is justified and is independent of antitrust principles,” Marvel said.

Likewise, Verrilli told the court in October that the Brulotte rule “fits comfortably within a line of precedents establishing that the federal patent laws are not indifferent to what happens when a patent’s prescribed term expires.”

“Rather, those laws reflect an affirmative congressional policy judgment that the patented invention should thereafter be freely available for exploitation by others and for enjoyment by the general public,” he said.

For more information, see Law360.

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