Patents are one of the few instruments that can be used by their owners to obtain a legal monopoly in the U.S. For this reason, patent law will often intersect with antitrust law. This is particularly true when a patent owner attempts to license his or her patents.
Various courts have held that certain licensing practices, such as tying, resale restrictions or patent pooling, can constitute antitrust violations. For these reasons, patent owners will often rely on experienced patent attorneys to negotiate patent licenses. However, antitrust law is very complex and can be very confusing to even the most experienced attorneys.
The legality of these practices remained unclear until the recent Supreme Court decision in Kimble v. Marvel Entertainment, LLC et al., __ U.S. __, 135 S. Ct. 2401 (2015).
The Kimble Decision
Marvel Entertainment obtained a license for a patent directed to a toy for a lump sum payment and a 3% royalty on future sales. The license agreement set no end date for royalties. As the patent neared the end of its statutory 20-year term, Marvel Entertainment discovered a 50-year-old antitrust case that was decided by the Supreme Court (i.e., Brulotte v. Thys Co., 379 U.S. 29, 85 S. Ct. 176, 13 L. Ed. 2d 99 (1964)) that held that a patent owner could not collect royalties for infringing activity that occurred after the licensed patent expired.
Marvel Entertainment filed a lawsuit in order to get a district court to confirm that it no longer had to pay royalties under the license agreement. The district court agreed.
The patent owner appealed to the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit affirmed the ruling of the district court. The patent owner appealed to the Supreme Court. The Supreme Court indicated that it was bound by the Brulotte decision and affirmed the Ninth Circuit.
The Supreme Court Established That Certain Other Licensing Practices Were Permissible Under Antitrust Law
The main issue that was resolved by the Kimble decision was very straightforward – patent owners cannot collect royalties for infringing activities that occur after the underlying patent has expired. However, the Kimble decision was notable due to the guidance that the Supreme Court provided with respect to other licensing practices.
Specifically, the Kimble decision confirmed that a patent licensor can structure a license agreement to allow the licensee to defer payments for pre-expiration use of a patent into the post-expiration period. In other words, a patent owner can delay its royalty payments, either in whole or in part, until after the licensed patent has expired.
The Kimble decision also indicated that patent owners could license multiple patents to licensees and require license payments for activities that occurred up until the last patent expired. Patent owners could even collect royalties for a trade secret that was licensed with patent after the patent expired, provided that the royalty rate decreased when the patent expired.
The Supreme Court noted that patent owners could structure other business arrangements with their licensees, such as joint ventures, to get around the 50-year-old precedent that prohibited patent owners from collecting royalties for activities that occurred after a patent expired.
Justice Kagan’s Lively Language
Another notable aspect of the Kimble decision is that it includes certain language that helps to make this otherwise dry subject more interesting. One example of this lively language contained within Justice Kagan’s opinion in which she states “[p]atents endow their holders with certain superpowers, but only for a limited time.” Kimble v. Marvel Entertainment, LLC et al., slip opinion at 3.
Another example is a quote from a Spider-Man comic book, which is used to establish that the Court should exercise its power to overrule past precedents sparingly. See Kimble v. Marvel Entertainment, LLC et al., slip opinion at 18 (quoting S. Lee and S. Ditko, Amazing Fantasy No. 15: “Spider-Man,” p. 13 (1962), “[I]n this world, with great power there must also come – great responsibility.”