Drafting License Agreements: Agreement Unenforceable Post-Patent-Expiration Even When Contract Says Otherwise

By Dennis Crouch

Kimble v. Marvel Enterprises Inc. (9th Circuit 2013) File Attachment: kimbleMarvel.pdf (341 KB) 

Kimble’s patent covers a pretty-cool web-shooting toy designed to mimic (in toy form) spider-man’s super powers. U.S. Patent No. 5,072,856.

Following a typical David-and-Goliath pattern, Kimble approached Marvel about the idea. Marvel rejected the idea but then later began using the idea. The subsequent patent/contract lawsuit was settled back in 2001 with Marvel paying royalties to Kimble that eventually reached more than $6 million. The agreement covers both products that “infringe the patent … as well as sales of the Web Blaster product.” The agreement also includes a release of other potential causes of action. However, the agreement itself contains no expiry date.

The patent is now expired, and the new dispute is about whether Marvel is required to continue to pay royalties. Kimble argues that it is still owed royalties under the agreement so long as the Web Blaster is sold. In particular, Kimble focuses on the language of the agreement; the fact that the settlement released Marvel from several non-patent causes of action; and the fact that Marvel has always maintained in court that the Web Blaster does not infringe the patent. Based on those factors, Kimble argues that the patent expiry is immaterial to Marvel’s ongoing obligation to pay the monies due.

Marvel argues conversely that the case is controlled by Brulotte v. Thys Co., 379 U.S. 29 (1964). In Brulotte, the Supreme Court found a licensing agreement unenforceable because it required royalty payments beyond the expiration date of the underlying patent. Following Brulotte, the Ninth Circuit as well as several other circuit courts have held that a contract requiring royalty payments for an invention after a patent expires is unenforceable unless the contract provides a discount from rate collected while the patent was in force. See Zila, Inc. v. Tinnell, 502 F.3d 1014 (9th Cir.2007); Meehan v. PPG Indus., Inc., 802 F.2d 881 (7th Cir.1986); Boggild v. Kenner Prods., 776 F.2d 1315 (6th Cir.1985); Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365 (11th Cir.1983); Aronson v. Quick Point Pencil Co., 440 U.S. 257 (1979).

Here, the 9th Circuit again followed Brulotte, Aronson, and Zila, holding that a “so-called ‘hybrid’ licensing agreement encompassing inseparable patent and non-patent rights is unenforceable beyond the expiration date of the underlying patent, unless the agreement provides a discounted rate for the non-patent rights or some other clear indication that the royalty at issue was in no way subject to patent leverage.”

The rule that follows, in relevant part, is that a license for inseparable patent and non-patent rights involving royalty payments that extends beyond a patent term is unenforceable for the post-expiration period unless the agreement provides a discount for the non-patent rights from the patent-protected rate. This is because—in the absence of a discount or other clear indication that the license was in no way subject to patent leverage—we presume that the post-expiration royalty payments are for the then-current patent use, which is an improper extension of the patent monopoly under Brulotte.

The result here is nothing new, but should serve as an important reminder for anyone drafting a patent license agreement. Special care must be taken if the parties expect for royalties to extend beyond the life of the patent-rights in question.

This case will likely see a petition for writ of certiorari.

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

55 thoughts on “Drafting License Agreements: Agreement Unenforceable Post-Patent-Expiration Even When Contract Says Otherwise

  1. are apparatus claims that have structure subject to “single means” rejection?

    That would depend on the claim, the recited structure and whether the jurist deciding the issue is a result-oriented stooge desperately trying to fluff the softie-woftie crowd.

  2. that’s what happens in the Toby McGuire Spiderman series. I’m not surprised that you don’t know that.

    Thanks?

  3. That type of structure is…

    LOL – see the question posed to Ned concerning the ability to obtain copyright protection and the necessary implication thereof.

    (try not to butcher copyright law like you usually do)

  4. I have no idea what point you’re trying to make. Can you get your Mom to help you type in English?

    LOL – the combination of feigned and projected ignorance and the ‘you must have English as a second language’ is obvious and rejected.

    just say so… I know it’s difficult for you.

    LOL – like discussing the FACT of who was right and why in the Myriad case?

    Like that?

  5. Fish,

    That was an obvious combination of strawman and goalpost moving.

    No one ever suggested that single means claiming is permissible, let alone present in the current conversation.

    Leave it to Malcolm to attempt to cover his blunder of law concerning functional claiming (clearly, functional claiming is NOT limited to 112P6, or 112(f)) with such a goalpost moving strawman.

    Hey look, the friction of the move has caused his strawman to burst into flames. Grab the bag of marshmallows.

  6. “If your claim is nothing but a single means plus function clause,”

    — are apparatus claims that have structure subject to “single means” rejection?

  7. Software has structure.

    So does an argument. That type of structure is an abstraction that allows people to discuss aspects of the software or aspects of an argument.

    It’s not “structure” in the sense that “a DNA molecule, wherein said DNA is ATGGGGTCCTCACTCA” describes a structure. In addition, the functions that softie-woftie patentistas describe for software methods (“determining real estate availability”) have no corresponding structures that you or anyone else can identify.

    A computer readable medium is structurally changed

    Not necessarily. The same “structurally modified” medium can encode different functions depending on the system which operates on the medium. Again: there is no defined structure on that medium. That’s important for a composition claim, otherwise you are just claiming the new function of the composition. That’s not permitted. Never was. Never will be.

  8. A comic book power

    It’s not a “power”. It’s an apparatus. A pretty simple one, too: pressurized fluid ejected when a trigger is pressed.

    There is NOTHING WRONG with functional claiming.

    To the extent that you are speaking of 112P6, I recognize that such claiming is permitted provided that you have disclosed corresponding structure in the specification. If your claim is nothing but a single means plus function clause, then your disclosed structure needs to be novel and non-obvious. One might reasonably question the point of such a claim.

    remember kids in the 70s hiding the cans of silly string in their shirt sleeves so they could mimic Spidey’s finger/palm action.

    Assuming that you do … not 102 art.

    I do remember. My point was not about 102 but simply an observation about silly string. I’m sure if one was interested in finding evidence of kids “playing Spiderman” with silly string in the prior art, it wouldn’t be terribly difficult.

  9. MM, why are you always so ignorant. In fact, the whole 101 thing is coming to the mechanical arts. That is one of the implications of the attack of the functional claims. I write functional method claims for every mechanical case I write. And, guess what, there isn’t any difference between those and the information processing methods.

    Functional claims in information processing convey structure. Software has structure. A computer readable medium is structurally changed for the better by encoding a method on the medium.

    You are a b*b***. I still can’t believe that that word is banned from this board.

  10. The jumper is MM. The jump is MM’s attempt to make all information processing methods ineligible for patentability. The slippery water is patent law.

  11. The company had $200,000,000 in sales, not profit. The “little guy” spent nothing on product development, distribution, marketing, etc., and could not have effectively marketed his product without Marvel, because of their pre-existing intellectual property rights. I’d say things worked out OK for him.

  12. FYI, that’s what happens in the Toby McGuire Spiderman series. I’m not surprised that you don’t know that.

  13. Clause (c) is just functional j–k

    This is why you will NEVER become an even halfway decent patent attorney. There is NOTHING WRONG with functional claiming. In fact, in many situations, it is desirable. A good attorney embraces ALL the tools at their command.

    Spiderman’s similarly activated web-shooter
    A comic book power as prior art? Only from MM … I don’t think even 6 would stoop that low.

    I remember kids in the 70s hiding the cans of silly string in their shirt sleeves so they could mimic Spidey’s finger/palm action.
    Assuming that you do … not 102 art.

  14. This is pretty uninteresting deuxdeux.

    Are you kidding? Spider-man’s web-shooters uninteresting? What, were you inside, hiding in your closet, playing with your sister’s Malibu Barbi?

  15. On the other hand, if the license expressly requires payment of royalties beyond the term of the patent

    Um, how about, just say NO to signing that contract…?

      D’Oh!” (said in the best Homer Simpson tones)
  16. Ned – it was a patent litigation settling contract.

    How much more (or less) ‘wary’ should the parties who signed that contract have been?

  17. The company made $200,000,000.00 dollars on a product
    The “little guy’ (the one with the patent) made 3% of that amount.

    And yet, here, Malcolm rails against the patent (and the little guy).

    The word (still) for Malcolm: hypocrite.

  18. most new methods of transforming one physical substance into another

    The chemical elements are all old.
    The methods of putting chemical elements together are all old.

    LOL – Hey NIMBY-Malcolm, do you see where the logic leads you…?

    Most new methods of information processing are not eligible for patenting

    Because ‘methods’ (or Processes) are not a statutory category, right?

    /eyeroll

  19. ” I don’t need a reference to show “exactly that valve.” You think this Kimble guy invented a non-obvious valve and buried it in a disclosure about Spiderman?”

    He didn’t bury it, if you read the spec he’s quite up front about it being the cat’s meow. He notes that nearly all of the thing is old elements put together to make a new thing, save for his valve, at least he felt like it was. And be honest MM, if there was one thing missing from the design of spidey’s webslinger it was a valve that would work sufficiently well to make the thing worth a da m in a commercial embodiment. Or at least that was what I was thinking about mostly when I read your comic book wiki. Otherwise you would have had them in the 60’s or whatever.

  20. I’ll save my time and money for more interesting targets.

    LOL – like tens of thousands of words on a case he really does not care about: Myriad.

    C’mon Malcolm, repeat after me: anon was right

  21. Last I checked, people are free to contract, and if represented by a lawyer, there should be a presumption that patents being of limited time should be a known fact. If someone wants to sign a contract paying royalties without regard to time and ignore this fact, then where do you draw the line on nanny-state controls?

  22. You have a reference that shows exactly that valve? Well, file a re-exam brosef.

    1) The patent is expired.

    2) I don’t need a reference to show “exactly that valve.” You think this Kimble guy invented a non-obvious valve and buried it in a disclosure about Spiderman? “the same principle of the valves typically found on spray cans”? “trigger contains means well-known to those skilled in the art”? Now we have means within means. That’s funny.

    3) This is pretty uninteresting deuxdeux. I’ll save my time and money for more interesting targets. If you know of other j–k similar to this, though, let me know. I’m always interested.

    LOL.

  23. It doesn’t really matter what’s in the specification

    LOL

    He really does write his own punch lines sometimes.

  24. Well, file a re-exam brosef.

    LOL – like any of what Malcolm QQ’s about, he ONLY QQ’s about it. Him, actually take steps in the Office? He’s got better things to do – like write tens of thousands of mewling vacuous words on Myriad while three little words escape his ken.

  25. This sounds like a trap for the unwary and is one point for experience. Who would think, other than those in the industry, of this type of rule. Gee, maybe this contract will not be enforceable after the patent expires . . . someone is supposed to know. Yikes. I’m sure it makes sense to those in the industry and I am not knocking it, but wow. Stay informed lawyers . . . stay informed. (Great post.)

  26. In other words, it does not matter what the claims are, what limitations are in the claims.

    Uh … no. Learn to read. Use your brain. That’s a big hint.

  27. “Most new methods of information processing are not eligible for patenting,” ???

    In other words, it does not matter what the claims are, what limitations are in the claims. Thus, claims in an application whose title is “Method of Information Processing” are automatically patent ineligible.

  28. I wasn’t clear about it, LB, but I was referring to a generalized functional description (like you see in many “sci-fi” books and movies) of some fantastic device, e.g., a “time machine,” a “a non-moving transporter”, “miniaturization machine (or “potion”). It doesn’t really matter what’s in the specification: such a claim isn’t enabled across that enormous scope.

    That’s what I meant.

  29. I do ha te to rain upon your invalidity party, but claim 1 (which is only one of several in ds) seems to be a means + function claim. The examiner may not have had the same or equiv valve means available as was in the spec.

    “The details of the valve 30 are illustrated in FIG. 2. Using the same principle of the valves typically found on spray cans, valve 30 consists of a seat 32 with an opening 34 capable of slideably and hermetically housing a spring-loaded hollow plunger 36, which is in turn incased into and through a trigger 38. The seat 32 is connected to the line 22 and contains means, well known in prior art (not shown in the figures), for releasing the pressurized foam when the trigger 38 (and therefore the plunger 36) is pressed inward and for interrupting the flow when the plunger is released. Thus, when the trigger 38 is pushed, it actuates the valve system by causing the plunger 36 to slide through the opening 34 and release the flow of foam from the line 22, first through the plunger itself and finally to the outside environment in spray form through the orifice 35.”

    The mystery of the validity of claim 1 is thus diminished. Looks like the valve, rather than the whole device, was more the focus of claim 1.

  30. 6, have you ever read Sakraida v. Ag Pro, Inc., 425 US 273 (1976) particularly at fn. 1? The Supremes cited Greek Mythology and the story of Heracles cleaning the stables of Augeas using the same principle and similar means as claimed.

  31. but if the description is identical to the claim, it’s a good chance the claim isn’t enabled either

    I don’t think that follows, MM, since enablement is a function of the specification, not the claim standing alone.

  32. the old sci-fi as prior art question.

    Exactly what is the question you are referring to? I don’t think there’s any question that publications which describe or depict a claimed invention or some aspect of that claimed invention are prior art relevant to the patentability of that invention. The prior disclosure might not be enabled but if the description is identical to the claim, it’s a good chance the claim isn’t enabled either. What difference does it make if the fictional work being referred to is considered “sci-fi” or “crime” or “mystery” or “alternate history” or “dramatized version of actual events”? The idea was published. That’s all that matters. It doesn’t matter why it was published.

  33. link to en.wikipedia.org

    Since the radioactive spider-bite did not initially grant him the power to spin webs, he had instead found a way to produce them artificially. The wrist-mounted devices fire an adhesive “webbing” (see below) through a threaded adjustable nozzle. The trigger rests high in the palm and requires a double tap from the middle two fingers to activate, eliminating the chance of accidental discharge when forming a fist. In order to fire the webbing, Spider-Man’s fingers must hit the sensor precisely.

    Spider-Man must steadily replenish his webbing supply, reloading his web-shooters with small cartridges of web fluid, which is stored under high pressure. In early stories, he carries his extra supplies in a utility belt worn under his costume. Later on, he equips the web-shooters with a bracelet-like carousel that automatically rotates a new cartridge into position as he empties them.

    When in use, a steel nipple in the carousel pierces the seal of the cartridge, and allows the fluid to travel through an air-tight channel toward the nozzle. Pressing down on the palm-trigger of the web-shooter causes the valve in the nozzle to open wider, expelling the fluid. Releasing the trigger causes the valves to close, cutting off the web-line or fluid…..

    Occasionally, the web-shooters are modified to expel other liquids

    There is no reason to exclude any of this as prior art. What’s really funny is that anyone would deem a functionally claimed glove-implemented shooter of pressurized liquid patent-worthy even back in 1962, when it was first described. What happened here is that the Examiner thought this was “neato” and so out came the rubber stamp.

    Heckuva job.

  34. there is no principle distinction that can be made between the mechanical arts claims and the information processing claims.

    You should type that in all-caps and bold. It’s much more persuasive that way.

    Are all methods of information processing eligible for patenting, NWPA? No, they’re not. Most new methods of information processing are not eligible for patenting, in fact. I don’t believe that’s true of most new methods of transforming one physical substance into another. That’s a pretty big distinction right there.

    Try harder, please.

  35. I’m not sure if that prior art is enabling brosef.

    That’s an anticipation issue which I’m not addressing. We’re talking about a claim to a mechanical device for ejecting pressurized stringy fluid, wherein the device is fashioned into a glove. There’s nothing “sci-fi” about it, once the pressurized stringy fluid is figured out. Did you think that Spiderman ejected his web from his veins or what?

  36. Really, IANAE, do you have the integrity to really look at your position on so called functional claiming in information processing and compare it to the mechanical arts? Probably not. If you do, then you will find there is no principle distinction that can be made between the mechanical arts claims and the information processing claims.

  37. 6, Star Trek disclose but does not enable a transporter.

    If Joe Blow discovers a principle of nature that enables matter transportation and at least one apparatus that will transmit an electron 2 mm, and then defines a transporter in the specification to be any apparatus that employees this principle to transport items from one place to another, can the applicant properly make any of the following claims:

    1. A transporter.

    2. Apparatus comprising:

    an item; and

    means for transporting said item from one location to another.

    3. Apparatus comprising:

    an item; and

    a transporting to transport said item from one location to another.

  38. Dennis, I’ve been involved in a number of cases with similar facts. I think the should adopt a general contract interpretation rule that would construe a royalty-bearing patent license to have an implicit termination date as of the date the patent expires.

    On the other hand, if the license expressly requires payment of royalties beyond the term of the patent, I think the patentee may be guilty of unclean hands; in which case, he should be denied a remedy for breach of contract even during the term of the patent.

  39. you mean like the so-called functional claims in the steps of an information processing method? You mean like conveying structure.

    Yes and no. Or, more precisely, no and yes.

  40. “self enabling”– you mean like the so-called functional claims in the steps of an information processing method? You mean like conveying structure.

  41. Which brings up the old sci-fi as prior art question.

    Which is a question of enablement. Sure, a teleportation device or a laser weapon might not be enabled by its recitation in a science-fiction work, but a mechanical device might well be self-enabling, and the subject matter of a design “patent” certainly is.

  42. “or some other clear indication that the royalty at issue was in no way subject to patent leverage.””

    You would think that would be implicit if they voluntarily signed the agreement without any expiration date. But on the other hand, you’d also think someone would make that explicit.

    “Spiderman’s similarly activated web-shooter”

    I’m not sure if that prior art is enabling brosef. Which brings up the old sci-fi as prior art question.

  43. 1. A toy glove for shooting string foam, comprising:

    (a) a pressurized assembly for storing, transporting and delivering a foam suspension, consisting of a canister attached to a delivery line with terminal valve means for releasing said suspension in the form of string foam;

    (b) a glove; and

    (c) a holder incorporated into the palm of said glove for housing and actuating said valve means by the action of the fingers of the hand wearing said glove;

    said pressurized assembly and said glove constituting two separable units to permit the replacement of the pressurized assembly upon exhaustion of the foam suspension.

    Not that it matters much now, but that’s a rather broad claim given the prior art (so-called “silly string” and Spiderman’s similarly activated web-shooter). Clause (c) is just functional j–k that covers the finger-to-palm trigger that Spiderman uses and a heck of a lot more. I remember kids in the 70s hiding the cans of silly string in their shirt sleeves so they could mimic Spidey’s finger/palm action.

    Ah well. Bygones.

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