Supreme Court to test its Spidey-Sense in Patent-Antitrust Case

The Supreme Court has granted certiorari in the patent licensing case of Kimble v. Marvel Enterprises (13-720) with the following question:

Whether the Court should overrule Brulotte v. Thys Co., which held that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.”

The policy goal behind the 1964 Brulotte decision is to avoid the potential antitrust harm associated with an ongoing patent monopoly beyond the 20-year term.  However, antitrust law has generally moved away from this sort of per se rule – especially as to freedom-of-contract.

In this case, the patentee’s patent has expired, but the license agreement seemingly calls for ongoing payments even beyond expiration.  The Ninth Circuit held that, under Brulotte, Marvel is no longer required to pay royalties on its sales of the Spider-man toy.  The Solicitor General recommend that the Supreme Court not take the case — a move that I called “somewhat surprising” since the government had previously noted that Brulotte does not mesh well with contemporary antitrust practice.

With Brulotte on the chopping block, we can also expect that the holding in Lear v. Adkins, 395 U.S. 653 (1969). In that case, the court held that a contractual promise not to challenge a patent’s invalidity is unenforceable.

42 thoughts on “Supreme Court to test its Spidey-Sense in Patent-Antitrust Case

  1. 6

    A useful discussion here would be the differences between an antitrust law violation and a contract clause that is unenforceable as contrary to public policy. They are not necessarily the same.

  2. 5

    It is quite unfortunate that the patent here is on such technologically and publicly trivial subject matter. It could further adversely influence Sup. Ct. views of what the PTO issues as patents in other cases, as well as provide more sport for oral argument anti-patent sarcasm.

  3. 4

    Given the fact that once the term of the patent expires, anybody else>/I> who has not – of their own free will – entered into the particular arrangement at focus, has full access/capability of practicing what was formerly reserved.

    The policy goal behind the 1964 Brulotte decision is to avoid the potential antitrust harm associated with an ongoing patent monopoly beyond the 20-year term

    Technically speaking, since ALL non-free-will-contract-signers are completely unaffected. Is not the “policy” an egregious over-reach?

    A policy that is by and large not needed, and that only meddles in those personal contract places inwhich the parties voluntarily signed up to, just seems too nanny-state.

    Over reaching and under effective – that’s not a great ‘policy.’

    1. 4.1

      Antitrust harm:

      Publik consumers have a “right” to “access” cheap goodies by producers who have a monopoly on the means of production (innovative capacity, creativity, brains), and are potentially thwarted when big corporations’ agreements “artificially” prices stuff too high (a standard by which one sets based on the pocket book and sentiments of the everyman), which stuff they (publik consumers) want and need, which by said want and need are thereby morally entitled to the stuff.



          What I speak is truth to All.

          Each need only decide whether true BECAUSE of sarcasm or true IN SPITE OF sarcasm.

          All agree. True.

    2. 4.2

      Marvel’s prices would be set “artificially” high because of the “unjust rents” imposed by the overzealous protection of the sanctity of contract.

      Other producers with a monopoly on the means of production will be able to participate in implicit collusion with the oppressed Marvel, by artificially and arbitrarily raising prices to the same level as that coerced upon Marvel (this being done by the nefarious mechanism of setting pricing according to the greatest resulting profit). This collusion in the market will result in overall overpricing i.e. prices for good which do not reflect morally what public consumers should pay based on want and need.

      1. 3.1.1

        Even if post-expiration royalties are “economically efficient,” it could lead to some odd results.

        What if, 10 years after the patent expires, the licensee finds proof that the patent was invalid? Does Lear v. Adkins allow the licensee to challenge the validity of a patent that expired a decade ago?

        And what if after the patent expires, the market for the product–and the royalty payments–skyrocket? If the licensor was making $1 million per year before the patent expired, is it desirable or just for the licensor to later be making $5 million per year on an expired patent?


          Have you heard the term “Freedom to Contract”…?

          Why would anyone agree to the agreement that you set forth as a hypothetical? I cannot see a situation as such, not even a “contacts of adhesion” setting.


          What if, 10 years after the patent expires, the licensee finds proof that the patent was invalid? Does Lear v. Adkins allow the licensee to challenge the validity of a patent that expired a decade ago?

          Do you have a standing issue (… f(justiciability)…)?

          Not sure which part of patent law helps you there.


            My unstated point was that abandoning the rule would lead to judicial inefficiencies, like having to litigate the validity of a patent long after the statute of limitations on enforcing the patent property right has passed.

            If the Supreme Court were to suddenly bless this licensing practice, a whole new body of common law would have to be created. The lower courts will have to decide, on a case-by-case basis, whether a particular license agreement is valid or invalid. You’ll have judicial disagreements. You’ll have courts applying the rule of reason incorrectly. You’ll have circuit splits. You’ll have patent trolls abusing the system in every way they can. You’ll have public outrage; Congress will call for patent reform; it will pass ineffective legislation. And ultimately it will come back to the Supreme Court.

            One way or another, abandoning the post-expiration royalties rule will come back to haunt them.


              I see your “parade of horribles” Grant, but I cannot get there from here.

              I think you have that “litigate the validity of a patent long after thing more than just a bit off.

              That’s why I hinted at justificiability. Once the patent lapses, it is not an issue that a court decision can effect. Sure, you still have contract issues and what not – but that’s not a patent law concern, and it surely is not a “Monopoly” concern. All you are left with is a private contract (remembering that BOTH sides willingly entered the bargain) about some prior personal property.

              As I said – policy for such “interference” is both over reaching and under effective.

      2. 3.1.2

        And while it’s not entirely persuasive to appeal to history and tradition, before the 20th century, the prohibition against post-expiration royalties wasn’t labeled “misuse”; it was simply the rule. The patent license, and the obligation to pay royalties, expired with the patent.


            See, e.g., Stanley Rule & Level Co. v. Bailey, 45 Conn. 464 (1878) (licensee entitled to recover royalties mistakenly paid to patentee after the patent expired); Appeal of Bovaird, 5 A. 26 (Pa. 1886) (licensee obligated to pay royalties to patent owner until expiration date of the patent); Sproull v. Pratt & Whitney Co., 101 F. 265 (C.C.S.D.N.Y. 1900) (obligation to pay royalties ended when patent expired); Potter v. Berthelet, 20 F. 240 (C.C.E.D. Wis. 1884) (royalties owed on a patent pool license are not due after the last patent in the pool expires).

            The case law developed in this area around the peculiar circumstances of the 1836 patent act, which allowed a patent owner to petition the patent office to extend the patent for a further 7 years after the original expiration date. The Supreme Court held that a license under the original patent expired with the original patent, because the extended patent term inured to the benefit of the patent owner and not the licensee. See Mitchell v. Hawley, 83 U.S. 544 (1872); In re Paper-Bag Cases, 105 U.S. 766 (1881).


              Thank you Grant (and I for one would not find your paper “least-interesting”).

              Are you delving into the proper role of courts and judge made law for what is fundamentally statutory law, or is the non-statutory aspects of contract law ascendant?

              (and yes, I am aware that there has not always been a careful constraint on judges dealing with fundamental statutory law, but I would suggest that such laxness is part and parcel of the mess we find ourselves in today).



                Your statement about freedom to contract is valid up to a point. But there is no longer an absolute freedom of contract (e.g., minimum-wage statutes are valid in employment law). Absent any guidance from Congress, the courts have no choice but to deal with post-expiration royalties as common law (compounded by the clash between state contract law and federal patent law).

                Ultimately the Supreme Court is going to have to make a judgement call: does freedom of contract win, or is there some policy reason why these contracts should be unenforceable? In my view, the prohibition on post-expiration royalties is older and more stable than patent misuse law, making this an exception to freedom of contract.

                I think the unsatisfying thing about this area of law is the lack of policy justification. Why should this be the rule? We don’t know. The Brulotte court tried to come up with a reason, but–and I agree with the anti-Brulotte camp on this–that reasoning was unsound.

                1. Further on “unsound reasoning”

                  Let me put forth a new hypothetical to illustrate the overt meddling nature of the ‘policy.’

                  Inventor A invents doohickey Gizmo, and dutifully files an application fully meeting the law. Since inventor A understands that an application is not an engineering document, and still meeting all required disclosure requirements, does not disclose ALL details. There is no question of propriety on what is not disclosed. The actions of A are fully legal (and ethical, for the equity minded).

                  The week after patent grant, Inventor A dedicates the patent to the public, making Gizmo an item fully in the public domain.

                  Competitor B jumps in and starts making his own version of Gizmo.

                  Consumer D, impressed with a fancy marketing presentation by B on this “recently patented” Gizmo voluntarily signs an exclusive 30 year contract with B. Let’s call this Contract F.

                  Consumer C, being a bit more savvy, recognizes and values the fact that while Gizmo is now unprotected by patent laws, that the inventor may be a better supplier of Gizmos. Consumer C takes the identical exclusive Contract F and modifies the terms of supplier and price. Consumer C willingly pays a premium for the same recently patented (but now public) item. Let’s call this Contract E.

                  Quite naturally, Gizmo’s by A are better than Gizmo’s by B – at least at first. Consumer C is happy with his deal (let’s note that Consumer D is also happy with his deal).

                  Five years go by. B has caught up with A. A has been complacent, satisfied with the premium profits from C. C has grown unhappy and wants to renege.

                  C advances the policy argument that his deal with A should be voided because the deal involves payments and timing beyond the expired (albeit one week long) patent term prior to being gifted to the public.

                  Should this type of policy trump Freedom to Contract? Consider if C only becomes unhappy at a 22 year mark, instead of at the five year mark, does the logic change? Does the logic change at 22 years after a non-gifted patent item? (why should any terms of such contracts F and E be questioned at all?)

                  If it turns out that A dedicated the item to the public because he found out (after patent grant, so there is no question of impropriety in obtaining the patent) of a dozen prior art references that arguably could be contorted together like jigsaw puzzle pieces, and thus (arguably) his patent would have been found invalid anyway – does that change ‘policy?’

                  Is there not present here the “boogeyman” of ‘patent?’ One simple observation that entities are free to bind themselves to exclusive terms regardless of patent coverage (one day or full term) should clarify and defuse parades of horribles for times after coverage no matter when the voluntary contract is entered into. A nanny state should not control the volition of entering into contracts just because post-expiration timing is involved. Courts must allow that the parties are sophisticated enough to recognize that ALL patents will expire at sometime and that the volunteered length of the contract is a mutually negotiated and privately agreed upon item.

                2. anon,

                  The problem with your hypothetical is that neither the contract between A and C nor the contract between B and D is a patent license. As I understand the scenario, both contracts E and F are contracts for the sale of goods.

                  I’ll modify the hypothetical.

                  Tesla Motors gets a bunch of patents but decides to dedicate them to the public.

                  Kodak, having failed in the camera business, decides it wants to start making electric cars. Kodak has no idea how to make cars, so it asks Tesla for help. Tesla contracts to give Kodak all of the information (maybe even the trade secrets that it didn’t patent) necessary to make an electric car.

                  The Tesla-Kodak license isn’t a patent license. It’s at best a license to know-how and trade secrets. If Kodak really wants to protect itself from an infringement lawsuit, it might insert a clause in the license that says that Tesla is giving Kodak a royalty-free license to the patent, and that the royalties paid by Kodak to Tesla are for the know-how and trade secrets.

                  The case that controls this situation is Aronson v. Quick Point Pencil, 440 U.S. 257 (1979), which held that two parties can freely contract to have royalty payments indefinitely as long as no “patent leverage” was exerted by the licensor.

                  The narrow Brulotte rule (as modified by Aronson) is that a patent license cannot require the licensee to pay royalties after the expiration of the patent, unless there is a discount on the royalty rate after the patent expires.

                  My parade of horribles has to be weighed against Kimble’s “parade of great stuff.” Will the universities cure all the diseases and will we all get flying cars if patentees are allowed to get post-expiration royalties?

                  Since we don’t actually know what will happen in the future, the Justices will need to consider whether the potential for benefit outweighs the potential for harm if the rule is changed.

                3. Grant,

                  Thanks for the response.

                  Yes, my hypo was geared to emphasize the contract nature.

                  If you look at licensing as merely a contract type of question, my hypo eliminates the “oh, no it’s a patent” hype (in the line of not treating ‘patent’ as an excuse to avoid traditional legal principles – see eBay.

                  However, you seem to stress that the licensing is a function of patenting.

                  I am not so convinced. Once obtained, patents are to be treated legally as personal property and are meant to be fully alienable. Does not your view create de facto limits on those aspects? Is any other licensing contract situation concerning personal property so constrained?

                4. anon,

                  Even if a patent is personal property that is fully alienable, it is only so for a limited time. That is not a limit created by Grant, that is a limit created by Congress.

                  The bar on post-expiration royalties are consistent with property law. You cannot give what you do not own.

                5. J,

                  That is definitely true if what you are contracting out is a patent-centric item like exclusivity or the right to sue.

                  But if you noticed how I am discussing the issue, those are not the items that I am talking about. No one is talking about such patent-centric things that obviously expire with the patent right.

                  Your point is a good one, just misses the mark here.

                6. (further, if you are talking about a patent-centric item contracted out for a certain duration, there should be no nanny-like limit as to how that limited time item that does expire is paid for – lump sum, or pro-rated over any time frame that is voluntarily signed up to in a negotiated agreement)

                7. anon,

                  I am surprised you do not think that collecting royalties after the patent expires is not patent-centric.

                  What if I, as a patent owner of a super-important drug, grant a license on a current patent only on the condition that I get royalties after it expires? Would that be patent-centric?

                8. J,

                  It is quite simple really:

                  How something is paid for (terms negotiated) is very different than the what is being paid for.

                  It helps to be clear on this distinction.

                9. Which of the below asked for in exchange are unenforceable in a contract granting a non-exclusive license to a patent:

                  Having right in title to Patent A until Time B, I promise to grant licensee a non-exclusive licence to do all the cool things non-exclusive licensees get to do, up until time B (expiry).

                  What I want in exchange is:

                  0.01% of your overall net profit associated with your X businesses over the next 50 years.

                  $0.01 for every K you sell (over the next 50 years) whether or not our patent reads on K and whether or not the patent is valid or invalid or expired at the time you sell each K.

                  $0.10 for every J you sell during the term of the patent, assuming the patent reads on J


            (I’m in the middle of writing the world’s least-interesting law review article on the subject. My thesis: the settled case law is correct.)



              One should not overturn settled law except perhaps by statute.

              That is one of the reasons I so objected to Rich’s rampage.


                I have no problem with the use of case law – where appropriate.

                Case law for those areas of law subservient to common law is perfectt fine

                But judge-made law in an area where the constitution has explicitly delineated authority to write law is clearly NOT fine.

                Constitution Ned – once again we see you being selective in where you defend it and where you ignore it. Thus, your credibility suffers.

                As for patent law that Congress has allowed judge made law to enter, there are sections (and past patent law did allow more than what was changed in 1952), but even when one branch allows another branch into its domain, clear controls and limits of authority are mandatory.


                And once again Ned, you play the spurious “blame Rich” for what Congress actually did game.

                Please stop these illicit and off-base attacks.


          I find Marvel’s brief unsatisfying. It’s all logos and no pathos, which makes me think that Marvel wasn’t taking this case seriously enough. Most of the arguments are logically correct, but they are not compelling. A really great brief should convince you that you’d be crazy to come to any other conclusion. Both Marvel’s brief and the SG’s brief lack that.

          Kimble’s briefs are full of logical fallacies: appeal to authority, straw men, and the fallacy fallacy (that a conclusion itself is wrong because the reasoning used to get to the conclusion was wrong). But he’s sure got pathos.

  4. 2

    Several decisions say Lear does not apply in the context of settlement agreements. E.g. Foster v. Hallco, 947 F.2d 469 (Fed. Cir. 1991). And you are correct – the court relied on the public policy in preserving the finality of judgments and encouraging settlements.

    1. 2.2

      Given the (excessively overblown) focus on parties WANTING settlements by asking for settlement amounts under costs of litigation (viewed as a bad thing by bad entities), does the “policy” driver of encouraging settlements come into disrepute?

      If so, is the replacement driver to be encouraging the encumbrance of the full cost of litigation (money and time) really an workable alternative?

      Is anyone going to wake up and realize that the (not-so-un)intended consequence of “Loser Pays” will be “spend-as-much-as-possible-so-that-the-other-side-loses” mentality, only exacerbating the problem?

      That or the result of Justice going unsought for, unless the big bucks are there? The factor of losing even a righteous case then drives a risk level that will make many simply forsake a path that again – given the first paragraph here – is the policy-preferred path?

      1. 2.2.1

        You make it sound like “pay us protection money or we’ll break your kneecaps” is somehow a good thing.


          …(and I am not the one saying that patent law should ‘go hand in hand’ with all other law – which is what appears to be happening in this Kimble web)

          Here, I just happen to be commenting on the “policy” in play. I did not create either policy of “it’s better to settle” or “it’s better to play things out in court,” but I am asking which is the policy-de-jour.

          I noticed your comment avoids what I am actually talking about. What do you think of these shifting policies? Which should be the guiding one? Why?

          Or do you think that all patents are bad and that all attempts to enforce valid rights are bad?

  5. 1

    Dennis, I don’t quite know what your point is about Lear v. Atkins, but I have a question: has Lear ever been extended to include a settlement agreement where there is a consent judgment in a case where validity was raised as an issue? It would seem the policy rationale for res judicata would be a lot stronger than a contract entered into without settling litigation so that a provision in such a settlement agreement preventing renewed litigation on validity should be binding.

    Obviously, today’s a settlement agreements should include reexaminations and other postgrant proceedings.

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