Spiderman, Patents and Royalty Arrangements: Untangling What Kimble Means in Practice and How to Weave around Brulotte's Economic Constraints

By Retta, Nebyu | The Journal of High Technology Law, October 2016 | Go to article overview

Spiderman, Patents and Royalty Arrangements: Untangling What Kimble Means in Practice and How to Weave around Brulotte's Economic Constraints


Retta, Nebyu, The Journal of High Technology Law


I. Introduction

Article I, Section VIII of the U.S. Constitution fosters and promotes innovation and new discovery. (1) The Framers gave Congress the authority to give inventors the exclusive right to secure their discoveries for a limited time. (2) Approximately one year later, President George Washington signed The Patent Act of 1790; a bill that laid the foundation for today's modern American patent system. (3) In 1964, the U.S. Supreme Court established a firm and bright-line rule in Brulotte v. Thys, holding that parties forming private contracts for payments of royalties beyond the patent term-limit were unenforceable patent misuse. (4) But over the years, as modern patent law has commercially advanced, concerns surrounding royalty agreements became a paramount issue. (5) As a result, the Brulotte decision has been widely criticized by academics and legal scholarship. (6)

Despite the legal community's growing disdain for Brulotte, on June 22, 2015, the U.S. Supreme Court in Stephen Kimble et al. v. Marvel Entertainment, decided not to strike down the precedent, on the basis of stare decisis (7) The Court upheld the rule established in Brulotte, that post-patent term royalties are unlawful per se, even where parties enter into voluntary agreements and equal bargaining power exists among them. (8) Although, the decision in Kimble reetched Brulotte''s bright-line, the Court hinted at creative ways parties can structure agreements without disturbing the precedent. (9)

This Note discusses four ways patent licensors can draft agreements without infringing on Brulotte. These include: (1) amortization agreements--where parties set a royalty based on sales during the patent term, and remunerating it over a longer period extending passed the end of the patent term; (2) patent groupings--where a large family of patents are licensed, royalties may run for all patents in the portfolio until the expiration of the last patent terminates; (3) hybrid agreements--which encompasses both the right to use the patent as well as trade secrets, and the licensor provides technical support, or some other source of value to the licensee throughout the term of the license, which may extend beyond the term of the patent and; (4) business arrangements such as joint ventures--which would enable parties to share the risks and rewards of commercializing an invention. (10) In addition, this Note seeks to dispel some of the misconceptions surrounding the limitations posed by the aforementioned precedents. (11) Part II examines the history, development and policy objectives of the modern patent system--including the lasting jurisprudential footprint left behind by Brulotte (12) Part III provides a discussion of Kimble, including the scope of limitations regarding patent royalty agreements. (13) Part IV analyzes and advances four legal royalty arrangements that circumvent Brulotte to ultimately achieve the same ends advocated by the petitioners in Kimble (l4) Ultimately, this Note will conclude that the Supreme Court decision in Kimble signified that Brulotte hardly set economic constraints on licensing arrangements because other legal agreements may be implemented involving ongoing payments for patent rights. (15)

II. History

A. A Brief Introduction to US Patent Law

Since 1953, the patent laws have been revised and codified under Title 35 of the United States Code. (16) The Patent Act, as amended, broadly grants to: "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof...." (17) As defined by the statute, patents are broadly classified into categories of design, utility or plants. (18) An inventor may apply to obtain a patent to an invention from the United States Patent and Trademark Office ("USPTO"). (19) Once the patent is issued and without aid of the USPTO, the patent holder has the right to exclude others (20) from making using, selling or importing the invention during the term of the patent. …

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