Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015), is a significant decision of the United States Supreme Court for several reasons. One is that the Court turned back a considerable amount of academic criticism of both the patent misuse doctrine as developed by the Supreme Court and the particular legal principle at issue in the case. Another is that the Court firmly rejected efforts to assimilate the patent misuse doctrine to antitrust law and explained in some detail the different policies at work in the two bodies of law. Finally, the majority and dissenting opinions informatively articulate two opposing views of the proper role of the doctrine of stare decisis in US law.
The narrow issue in Kimble v. Marvel was whether the Court should overrule the 50-year-old proposition in Brulotte v. Thys Co., 379 U.S. 29 (1964), that a patent license agreement requiring royalties for the period beyond the life of the licensed patent was unenforceable under the Supremacy Clause, state contract law notwithstanding, because it involved a misuse of patent rights. The Supreme Court in the Kimble case refused to overrule Brulotte and its doctrine against post-expiry royalties.
Criticism of Brulotte
In 1964 the Supreme Court decided Brulotte v. Thys Co., in which it held that a contract to pay patent royalties beyond the expiration of the patent was unenforceable. The decision was widely criticized in academic circles and by the patent bar, as well as in lower court decisions. The thrust of the criticism was that the patent misuse doctrine should be based on antitrust law principles, and that conduct without a significant anticompetitive effect should not be proscribed.
In its opinion in the Kimble case, the Supreme Court listed some of the criticism suggesting that the Brulotte decision was wrong and should be overruled:561 U.S. at - n.3.
Scheiber v. Dolby Labs., Inc., 293 F. 3d 1014, 1017–1018 (CA7 2002) (Posner, J.) (Brulotte has been "severely, and as it seems to us, with all due respect, justly criticized . . . However, we have no authority to overrule a Supreme Court decision no matter how dubious its reasoning strikes us, or even how out of touch with the Supreme Court's current thinking the decision seems") Ayres & Klemperer, Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 985, 1027 (1999) ("Our analysis . . . suggests that Brulotte should be overruled").
Other criticism of Brulotte includes the following:
Harold See and Frank M. Caprio, The Trouble with Brulotte: The Patent Royalty Term and Patent Monopoly Extension, 1990 Utah L. Rev. 813 (1990). Note, Patents: Supreme Court Holds Post-Expiration Royalty Agreements Unlawful Per Se, 1965 L.J. 836, 841 (1965) ("Thus, the ambiguity in Brulotte, so long as it remains unresolved, may greatly limit marketing available to [patentees]."). Paul Goldstein, Federal System Ordering of the Copyright Interest, 69 49, 70 (1969) (" In the presence of only the most attenuated federal interest, and absent any generalized public concern, the Brulotte rule gives to the federal courts a broad and probably illegitimate supervisory power over state administration of private contracts."). Richard A. Posner. Transaction Costs and Antitrust Concerns in the Licensing of Intellectual Property, 4 J. Marshall Rev. Intell. Prop. L. 325, 332 (2005) ("Brulotte does not reflect the Supreme Court's current thinking about competition and monopoly, but it will continue to bind the lower courts until the Supreme Court decides to overrule it."). In addition, decisions of the Federal Circuit have held that a patent cannot be held to have been misused without a showing of substantial anticompetitive effects, except where the Supreme Court has expressly ruled otherwise.See, e.g., Princo v. ITC, 616 F.3d 1318, 1328 (Fed. Cir. 2010) ("impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects"); Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 706 (Fed. Cir. 1992) ("To sustain a misuse defense involving a licensing arrangement not held to have been per se anticompetitive by the Supreme Court, a factual determination must reveal that the overall effect of the license tends to restrain competition unlawfully in an appropriately defined relevant market."); Windsurfing Int'l Inc. v. AMF, Inc., 782 F.2d 995, 1001–02 (1986).
Other commentators, however, have rejected adoption of an antitrust lens for analysis of patent misuse:
Robin C. Feldman, The Insufficiency of Antitrust Analysis for Patent Misuse, 55 L.J. 399, 422 (2003) ("the antitrust rule of reason focuses on one particular issue: the impact on competition, rather than all possible equitable considerations" relevant to patent policy); id. at 448 ("A behavior that retards the progress of science would be of concern to patent policy" but antitrust tests are not attuned to this type of problem.") Marshall Leaffer, Patent Misuse and Innovation, 10 J. L. 142, 148 (2010) ("patent misuse should transcend the contours of traditional antitrust law and should concern itself with policy of patent law and the effect on innovation").
Background
In 1990, plaintiff Stephen Kimble obtained U.S. Patent No. 5,072,856 on a toy that allows children and other persons interested in role-playing as "Spider-Man" to shoot a spider web—really, pressurized foam string—"from the palm of [the] hand."Kimble, 135 S. Ct. at 2405.
Defendant Marvel Entertainment, LLC makes and markets products featuring Spider-Man. Kimble sought to sell or license his patent to Marvel's corporate predecessor and met with its president to negotiate a contract. But the company instead began marketing the "Web Blaster"—a toy that, like Kimble's patented invention, enables users to mimic Spider-Man by shooting foam string. Kimble sued Marvel in 1997, alleging breach of contract and patent infringement. The parties settled that litigation and Marvel agreed to purchase Kimble's patent in exchange for a lump sum (of about a half-million dollars) and a 3% running royalty on Marvel's future sales of the Web Blaster and similar products. The parties set no end date for royalties, apparently contemplating that they would continue for as long as customers wanted to buy the product.Kimble, 135 S. Ct. at 2406.
Marvel subsequently learned of the Brulotte decision and realized that under the Brulotte doctrine it was not obliged to pay royalties after the patent expired. Kimble sued Marvel for breach of contract and Marvel counterclaimed for a declaration that it was no longer obligated to pay Kimble after the patent expired. Marvel prevailed in the litigation.Kimble v. Marvel Enters., Inc., 692 F. Supp. 2d 1156 (D. Ariz. 2010).
The Ninth Circuit reluctantly affirmed. It said:
The . . . criticism [of Brulotte] is particularly apt in this case. The patent leverage in this case was vastly overshadowed by what were likely non-patent rights, and Kimble may have been able to obtain a higher royalty rate had the parties understood that the royalty payments would stop when the patent expired. Nonetheless, Brulotte and its progeny are controlling. We are bound to follow Brulotte and cannot deny that it applies here.Kimble v. Marvel Enterprises Inc., 727 F.3d 856, 8__ (9th Cir. 2013).
Supreme Court ruling
The Supreme Court affirmed the judgment below, 6-3, largely on stare decisis grounds, but in the course of its ruling the Court explained why the Brulotte decision was correct and its critics wrong, as to the substantive law.
Majority opinion
The majority opinion by Justice Elena Kagan began by explaining how the US patent system reflects a congressional "balance between fostering innovation and ensuring public access to discoveries." Consequently, once the statutory term of the patent monopoly ends, "the right to make or use the article, free from all restriction, passes to the public."135 S. Ct. at 2406-07.
The Court elaborated the point:
In case after case, the Court has construed those laws to preclude measures that restrict free access to formerly patented, as well as unpatentable, inventions. In one line of cases, we have struck down state statutes with that consequence. By virtue of federal law, we reasoned, "an article on which the patent has expired," like an unpatentable article, "is in the public domain and may be made and sold by whoever chooses to do so." In a related line of decisions, we have deemed unenforceable private contract provisions limiting free use of such inventions. . . .[F]or example, we determined that a manufacturer could not agree to refrain from challenging a patent's validity. Allowing even a single company to restrict its use of an expired or invalid patent, we explained, "would deprive ... the consuming public of the advantage to be derived" from free exploitation of the discovery. And to permit such a result, whether or not authorized "by express contract," would impermissibly undermine the patent laws.135 S. Ct. at 2407 (citations omitted).
"Brulotte was brewed in the same barrel," the Court said. Agreements under which patent royalties must be paid after the patent expires "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."135 S. Ct. at 2407-08.
Brulotte is no bar to business arrangements to defer payment or create joint enterprises, the Court observed. Nonetheless, "Kimble asks us to abandon Brulotte in favor of 'flexible, case-by-case analysis' of post-expiration royalty clauses 'under the rule of reason,' " as under the antitrust laws. But the antitrust approach requires courts to undertake a complex analysis "taking into account a variety of factors, including specific information about the relevant business, its condition before and after the [practice] was imposed, and the [practice's] history, nature, and effect. . . a full-fledged economic inquiry into the definition of the market, barriers to entry, and the like."135 S. Ct. at 2408-09.
Putting aside for the moment the merits and demerits of taking an antitrust approach to the issue, the court turned to the role of stare decisis, acknowledging that sometimes it "means sticking to some wrong decisions." The reason for that is that usually it is "more important that the applicable rule of law be settled than that it be settled right." Moreover:
Overruling precedent is never a small matter. Stare decisis—in English, the idea that today's Court should stand by yesterday's decisions—is a foundation stone of the rule of law. Application of that doctrine, although not an inexorable command, is the preferred course because it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process. It also reduces incentives for challenging settled precedents, saving parties and courts the expense of endless relitigation.135 S. Ct. at 2409.
Therefore, for the courts to reverse course there must be a "special, justification" over and beyond just a belief that the precedent was wrongly decided. This is especially true for statutes, as in this case: For "critics of our ruling can take their objections across the street, and Congress can correct any mistake it sees." Moreover, in this case, "Congress has spurned multiple opportunities to reverse Brulotte"—50 years or more during which Congress repeatedly amended the patent laws without disturbing Brulotte and it even "rebuffed bills that would have replaced Brulotte 's per se rule with the same antitrust-style analysis Kimble now urges."135 S. Ct. at 2409-10.