By Jason Rantanen
Kimble v. Marvel Entertainment, LLC (2015) Download Opinion
Opinion by Justice Kagan. Justice Alito filed a dissenting opinion joined by Chief Justice Roberts and Justice Thomas.
Drawing heavily on stare decisis, the Supreme Court has declined to overrule the rule in Brulotte v. Thys that a patentee cannot continue to receive royalties for sales made after the expiration of the patent based on principles of stare decisis. However, the Court leaves open the possibility of creative license drafting. From the opinion:
Patents endow their holders with certain superpowers, but only for a limited time. In crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries. While a patent lasts, the patentee possesses exclusive rights to the patented article—rights he may sell or license for royalty payments if he so chooses. See 35 U. S. C. §154(a)(1). But a patent typically expires 20 years from the day the application for it was filed. See §154(a)(2). And when the patent expires, the patentee’s prerogatives expire too, and the right to make or use the article, free from all restriction, passes to the public. See Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225, 230 (1964). This Court has carefully guarded that cut-off date, just as it has the patent laws’ subject-matter limits: 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.
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Brulotte was brewed in the same barrel. There, an inventor licensed his patented hop-picking machine to farmers in exchange for royalties from hop crops harvested both before and after his patents’ expiration dates. The Court (by an 8-1 vote) held the agreement unenforceable—“unlawful per se”—to the extent it provided for the payment of royalties “accru[ing] after the last of the patents incorporated into the machines had expired.” 379 U. S., at 30, 32. To arrive at that conclusion, the Court began with the statutory provision setting the length of a patent term. See id., at 30 (quoting the then-current version of §154). Emphasizing that a patented invention “become[s] public property once [that term] expires,” the Court then quoted from Scott Paper: Any attempt to limit a licensee’s post-expiration use of the invention, “whatever the legal device employed, runs counter to the policy and purpose of the patent laws.” 379 U. S., at 31 (quoting 326 U. S., at 256).
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As against this superpowered form of stare decisis, we would need a superspecial justification to warrant reversing Brulotte. But the kinds of reasons we have most often held sufficient in the past do not help Kimble here. If anything, they reinforce our unwillingness to do what he asks.
Slip Op. at 3-4, 6, 10. Nonetheless, wary license drafters can work around Brulotte:
Yet parties can often find ways around Brulotte, enabling them to achieve those same ends. To start, Brulotte allows a licensee to defer payments for pre-expiration use of a patent into the post-expiration period; all the decision bars are royalties for using an invention after it has moved into the public domain. See 379 U. S., at 31; Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 136 (1969). A licensee could agree, for example, to pay the licensor a sum equal to 10% of sales during the 20-yearpatent term, but to amortize that amount over 40 years.That arrangement would at least bring down early outlays, even if it would not do everything the parties might want to allocate risk over a long time frame. And parties have still more options when a licensing agreement covers either multiple patents or additional non-patent rights. Under Brulotte, royalties may run until the latest-running patent covered in the parties’ agreement expires. See 379 U. S., at 30. Too, post-expiration royalties are allowable so long as tied to a non-patent right—even when closely related to a patent. See, e.g., 3 Milgrim on Licensing §18.07, at 18–16 to 18–17. That means, for example, thata license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone). Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties—all kinds of joint ventures, for example—that enable parties to share the risks and rewards of commercializing an invention.
Slip Op. at 6. Tom Cotter has already provided his own insightful commentary on the opinion over on ComparativePatentRemedies.
Side note: this may be the only judicial opinion ever to quote both my colleague Herb Hovenkamp and Stan Lee & Steve Ditko.
Nice write-up on SCOTUSblog:
link to scotusblog.com
Here, the Court emphasizes that the dispute “lies at the intersection of” the law of property and contracts. In that context, the Court goes on to explain, “considerations favoring stare decisis are at their acme . . . because parties are especially likely to rely on such precedents when ordering their affairs.” As discussed above, the Court characterized this as a “superpowered form of stare decisis” that “would need a superspecial justification to warrant reversal.” My guess is that those passages will be called into use frequently as a caution against the rejection of any statutory precedent that has even a tenuous connection to commercial activity.
Question – does Justice Kagan’s repeated appeal to Congress as the proper entity to correct any errors inherent in Brulotte signal that she might also find Congress to be the proper entity to correct any errors in the drafting of the Affordable Care Act (aka “ObamaCare”?) The opinion in King v. Burwell is due out soon, so we won’t have to wait long to see . . .
How about the proper entity for questions of 101 (instead of the the nose of wax treatment)…
But that would mean that the Court would actually have to abide by this thing they so flippantly call statutory stare decisis. No more Royal fingers in the nose of wax (not going to happen).
James: does Justice Kagan’s repeated appeal to Congress as the proper entity to correct any errors inherent in Brulotte signal that she might also find Congress to be the proper entity to correct any errors in the drafting of the Affordable Care Act (aka “ObamaCare”?)
I highly doubt it. If anything, Burwell will be “the exception that proves the rule.”
In the grand scheme of things, keeping the rule in Brulotte affects pretty much nobody and that tiny number of people who are affected are primarly entities in the top eschelons of the economy. Chucking the ACA on a trumped up statute drafting technicality, on the other hand, will have negative consequences for millions of ordinary people, some of whom may actually die.
Of course, not all the Justices are like Kagan. And all of them are rich enough with incredibly secure jobs such that they are insulated from the concerns of the ordinary person who, without the ACA, is one major health issue away from losing everything.
Congrats to Roberts et al on getting it right.
If you think that our country is better off letting private interests decide who gets affordable health insurance and who doesn’t, by all means vote Republican.
The trick will be figuring out exactly which rightwing confederate-flag waving g00fball to vote for.
The race-bait angle is offensive.
Nice ecosystem Prof.
Just counting noses, I thing en back court is going to reverse Aukerman and follow the Supreme Court case of Patrella.
They seem unanimous that the statute regarding damages is a statute of limitations. Laches will not bar a legal remedy when there is a SOL. Damages are a legal remedy.
Laches will however bar an equitable remedy — accounting for the infringer’s profits or an injunction.
There is one judge, I don’t know who, who seems confused that damages are a legal remedy. Why don’t they cite Markman — there is a right to a jury trial to collect for damages, a legal remedy.
SCA HYGIENE PRODUCTS v. FIRST QUALITY BABY PRODUCTS
Here is the link to the oral argument. link to oralarguments.cafc.uscourts.gov
“Just counting noses, I thing en back court is going to reverse Aukerman and follow the Supreme Court case of Patrella.”
Speed limit is 30, no sorry it is 40, no sorry it is 50, but I meant it is 30….may be 35….we will tell you after you drive.
Scientist, thanks.
But I was also looking for a good argument from the pro-Aukerman side. The main argument from that side was that the statute was not a statute of limitations. The en banc panel flatly rejected that notion. The second argument from the pro-Aukerman side was congressional approval by reenactment. The en banc panel was not convinced that Congress considered Aukerman when reenacting the statute.
The pro-Aukerman site also could not demonstrate a well-accepted position among the circuits that laches was available against a legal remedy.
The only position that seem to be having any traction at all was that Congress allowed damages in a court of equity in the 1870 Act. By this, one judge, I don’t know who, consistently argued that Congress converted damages into an equitable remedy. Of course, this is not possible given the seventh amendment, but no one in court, neither the judges nor the attorneys arguing the case, brought this point up.
The judge who kept bringing up the 1870 Patent Act and saying that patent damages (was it damages or just lost profits? I don’t remember) were equitable was Judge Dyk.
DCL, the 1870 Act, Section 55, RS 4921, allowed damages to be proved in equity cases.
Patrella, fn. 1,
“As infringement remedies, the Copyright Act provides for injunctions, § 502, impoundment and disposition of infringing articles, § 503, damages and profits, § 504, costs and attorney’s fees, § 505. Like other restitutional remedies, recovery of profits “is not easily characterized as legal or equitable,” for it is an “amalgamation of rights and remedies drawn from both systems.” Restatement (Third) of Restitution and Unjust Enrichment § 4, Comment b, p. 28 (2010). Given the “protean character” of the profits-recovery remedy, see id., Comment c, at 30, we regard as appropriate its treatment as “equitable” in this case.”
Copyright Act Section 504(b)
“(b) Actual Damages and Profits.—The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.”
Clearly, Patrella was referring to the infringer’s profits — an equitable remedy.
Apparently Dyk was confused on this point, thinking the court was talking about the copyright owner’s profits as damages made damages equitable.
This decision seems to be a straightforward exercise of discretion that a different mix of judges–or the same judges on a different day–may well have decided differently. All seem to agree that Brulotte is at least questionable. Three judges are convinced that it should be overruled; six aren’t. 6 votes beats 3 votes, so Brulotte stays.
Beyond that, they don’t seem to disagree about much. They just weigh things a little differently here.
The majority says that(a) stare decisis is heightened in cases where Congress can fix the court’s mistakes and (b) stare decisis is heightenedwhere parties may come to rely on a rule over time, and (c) Brulotte may be wrong, but not disastrously so.
The dissent doesn’t disagree, but thinks (a) Brulotte isn’t based on a statute, and stare decisis is weaker when the court’s making things up as opposed to construing statutes, (b) the only available evidence shows that some parties like Kimble have been unjustly screwed by Brulotte; only speculation suggests that anyone’s relied on Brulotte, and (c) Brulotte’s obviously wrong and imposes costs.
As the post points out, though, it’s helpful to see that the Supreme Court explicitly endorses creative end-runs around Brulotte, which should limit that case’s bad effects and discourage arguments based on trying to stretch that case to get a licensee out of making payments.
“Making things up.” There’s a lot of argument by a lot of people that the so-called exceptions to the statutory subject matter are not based upon the statutory but simply because the Supreme Court is making things up. However, I think the Supreme Court has acknowledged this, but since the precedent was first made in Le Roy v. Tatham 150 years ago, that this is long enough for the precedent not to be overturned even if it were wrongly decided in the first place.
But I would also like to point out that Application of Bernhart was obviously wrongly decided when it ruled that a programmed computer was a physically new or improved machine and therefor per se eligible under 101. This nonsense led to 50 years of chaos in American patent law. It has been implicitly if not explicitly overruled by multiple Supreme Court cases. It is time for this case to be expressly overruled by an en banc Federal Circuit.
Your second paragraph is simply wrong in fact and reality, Ned.
No matter how many times you choose to ignore all of the counter points presented to you and merely engage in your internet style monologuing shout down.
Why not instead base a discussion on inherency?
Again, correct result.
Another way to look at this: a promise to pay for nothing in return is not a contract. Without something more, the patent owner has nothing left to offer the licensee after the patent goes by the way.
Of course, there’s plenty of room for crafting the requisite consideration: licensing more than just the patent together with the appropriate step-down, an up-front license fee structured as a long-term payment, etc.
But, seeing as the patent expired, and the patentee could point to no other reason for the contract, he or she is not deprived of anything.
mmm, the SC has clarified Brullotte, if it needed any clarification.
Royalties for activity that occurs after expiration is per se unlawful.
Clear. Simple. And easily avoided.
But, mmm, be careful that unlawful royalties are not part of some other lawful consideration. That taints.
This passage of the opinion suggests otherwise, unless I’m misunderstanding the comment. Too, post-expiration royalties are allowable so long as tied to a non-patent right—even when closely related to a patent. See, e.g., 3 Milgrim on Licensing §18.07, at 18–16 to 18–17. That means, for example, thata license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone).
DCL, we are talking about activity within the scope of the patent laws, are we not? Make, use or sell a patented invention? If there are royalties for this activity that takes place after a patent’s expiration, even when mixed with otherwise lawful royalties, then there is a problem.
Not really Ned.
That’s the nuance here that you seem unable to grasp.
be careful that unlawful royalties are not part of some other lawful consideration
I found it odd that this issue was relegated to a mere footnote in the decision (and, apparently, in the case history). Kimble sold the patent to Marvel, a fact not part of the pattern in Brulotte, but neither side argued that this made any difference. I don’t know that this would have made any difference, but it surprised me that Kimble didn’t bother to make an argument.
Scotus screws the patentee. No surprise here. Nothing to see. Move on.
Silicone, hardly.
Can you imagine a non per se rule? Imagine? Just one more thing for lawyers to argue about in court, with economic professors giving their opinions and driving up litigation costs by several more million dollars.
The Court continues to display its hubris and “bah-when-I-feel-like-it” scrivining.
The first paragraph of the dissent is accurate for what it states.
How much more of this royal treatment and holding itself above the law can we take? Should we take?
Churchill – not Chamberlain…
Brulotte has the beauty of being a simple rule, easy to understand.
What is surprising, then, anon, is that you do not understand it.
You merely assume that which you yourself do not understand.
“Simple” and “wrong” adds up to “simply wrong.”
If you bothered to read an understand, you would see that this is “simply” yet another case of a trap for the unwary, patent profanity, and that this will result in MORE (not less) intricate scrivining to get to the same result.
The “logic” of the majority is a slap in the face of reason and true statutory authority, which the Royal Nine dispenses with at their pleasure much alike the Red Queen.
Your adoration of the group blinds you to the reality about you.
Yes, it’s a trap for the unwary. The dissenters probably have the better of the argument, particularly on the reliance bit and the fact that Brulotte isn’t a policy decision, but I don’t get the offended reaction to the majority.
Once some types of traps for the unwary sit out there for 50+ years, and their precise location and function are described in patent textbooks and known to competent patent litigators and transactional attorneys, the majority says that those traps become part of the common law and it becomes the responsibility of Congress to remove them. I wouldn’t have reached that result here, but if you think stare decisis is a real thing then today’s decision is totally legitimate.
“Legitimate” is a nonce word for the Black Robed Red Queens.
I don’t know what you mean by “red queens,” but this is difficult to take seriously. Stare decisis means that the Supreme Court doesn’t overturn precedent lightly. The Supreme Court of 2015 might disagree with the Supreme Court of 1964 but it takes something more than that to overturn precedent. 3 justices thought there was enough; 6 didn’t. If you don’t like the word “legitimate,” try “an uncontroversial way for the highest court in a system to decide cases.”
Also, if anyone cares, in my earlier comment (2.1.1.1), by “Brulotte isn’t a policy decision” I meant the opposite — “Brulotte isn’t a statutory decision”
You want “uncontroversial” instead of “legitimate” and you think that my post “is difficult to take seriously”…?
Woowhee.
But hey, the pickup on the nonstatuory basis is a feather in your cap – but what does that do to the majority “flavor of the day”…?
anon, the only people who are unwary are non patent lawyers who swagger about calling themselves transaction specialists, or licensing executives, or some such, and who are profoundly uneducated in the basics of patent law.
I have seen such botched agreements dozens of times in my career — every single one of them the product of non patent lawyers.
Every one.
Um, you do realize that you are making my point for me, right?
Items such as typical terms of contracts regarding such things as payment schedules should NOT be held ransom to traps for the unwary (those outside of the the patent law speciality).
The option before the Court was just as simple Ned – and fully in line with the rest of antitrust jurisprudence (and such creates no – repeat no – traps for the unwary.
Thanks for the update and links, Jason.
I also note this other Supreme-related patent news:
Cert denied: Google v. Vederi 14-448
That case concerned the following issue (per link to law360.com)
Google Inc. has asked the U.S. Supreme Court to consider whether a court can presume a patent claim’s scope remains the same despite amendments to overcome an earlier rejection, arguing that when the Federal Circuit did just that in a patent infringement suit over Street View it violated high court precedent.
I suspect the Google case was too fact intensive for the court. How are they to judge whether as a matter of law the Federal Circuit was wrong?
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