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Tony Mauro, Supreme Court Brief

June 22, 2015

The U.S. Supreme Court's ruling Monday cutting off royalties for the developer of a Spider-Man toy may be a boon to the patent bar, but a blow to "garage inventors" who don't know the intricacies of patent licensing agreements.

By a , the court in Kimble v. Marvel Entertainment ruled that the inventor of a Spider-Man web-shooting toy is not entitled to royalties for use of the patent after it expired.

Justice Elena Kagan, writing for the majority, invoked a 1964 ruling Brulotte v. Thys, holding that a patentee may not continue to receive royalties beyond the ending date of the patent.

Kagan said that in the case before the court, inventor Stephen Kimble and Marvel Entertainment set no ending date when they signed a licensing agreement that set a 3 percent royalty fee on sales of Kimble's device, which shoots out foam string, Spider-Man-style.

It was only later that Marvel "stumbled across" the Brulotte precedent, Kagan said. The company went to court to end the royalties by 2010—the year when Kimble's patent would expire. The district court and the U.S. Court of Appeals for , and the high court affirmed. The ruling means Marvel will not have to pay further royalties to Kimble.

Patent lawyers said the case highlighted the proposition that inventors and licensees need to hire experienced attorneys to make sure that such niceties are not missed in drafting agreements.

"This is a strong reminder that these details have huge implications for their clients," Case Collard, a partner in Dorsey & Whitney's Denver office, said on Monday. “Attorneys drafting patent licenses, which include nearly all patent litigations that settle, need to draft carefully." He added, "There are many creative and legal ways to extend payments past the expiration of the patent, but they cannot be based on patent royalties."

Intellectual property lawyer Jordan Sigale of Dunlap Codding's Chicago office, said the justices were "unsympathetic to the garage inventor who may not have the wherewithal" to hire knowledgeable patent lawyers. He added, "I know the rule, so the ruling is not that important for me. But it is for those who don't know the rule."

Kagan acknowledged that "parties can often find ways around Brulotte," for example by stretching out royalty payments for use of the patent before it expires, or by signing other nonroyalty arrangements like joint ventures.

But dissenters led by Justice Samuel Alito Jr. said those alternatives are no substitute for a licensing agreement with royalties that extends beyond the patent expiration date. "Parties are not always aware of the prohibition—as this case amply demonstrates," Alito said. He said it was "fanciful" to suggest that parties consistently rely on the Brulotte precedent.

Joined by Chief Justice John Roberts Jr. and Justice Clarence Thomas, Alito also wrote that Brulotte "was not based on anything that can plausibly be regarded as an interpretation of the terms of the Patent Act. It was based instead on an economic theory—and one that has been debunked." The precedent, he said, interferes with the ability of parties to negotiate licensing agreements that "reflect the true value of a patent."

, Thomas Saunders of Wilmer Cutler Pickering Hale and Dorr, who argued for Marvel, said the precedent should be preserved. "This issue has been off the table for 50 years," he said. In numerous revisions of patent law, Saunders said, Congress has never felt the need to overturn Brulotte.

The majority opinion amounted to a paean to stare decisis—the principle of standing by precedent—even if Brulotte has been criticized as an outmoded rule.

"What we can decide, we can undecide. But stare decisis teaches that we should exercise that authority sparingly," Kagan wrote. "Finding many reasons for staying the stare decisis course and no 'special justification' for departing from it, we decline Kimble’s invitation to overrule Brulotte."

Kagan also quoted from a Spider-Man comic to bolster her opinion: "In this world, with great power there must also come—great responsibility." And in another Spider-Man reference, she said "patents endow their holders with certain superpowers."

Marvel did not respond to requests for comment, but the Washington Legal Foundation, which sided with Marvel in the case, applauded the ruling.

The foundation's chief counsel, Richard Samp, said in a statement: “In a world where patent trolls and rampant litigation funding thrive, ‘zombie’ litigation—in which long-expired licenses are dredged up for new rounds of litigation—would have been an all-too-likely result of a decision overturningBrulotte.”

Samp said “the court correctly concluded that overturning statutory-interpretation precedents is almost never appropriate when companies have been relying on them in entering into business transactions.”