Published 12/17/2021 by CIONCA IP TEAM (SE)
In 1990, Stephen Kimble (the Petitioner) obtained a patent on a spider-man toy, to expire in 2010. The spider-man toy allowed children and adults to shoot webs from the palms of their hands.
The Petitioner met with the president of Marvel Enterprises, Inc, the predecessor of Marvel Entertainment, LLC (the Respondent). The Petitioner discussed the idea of the spider-man toy and its patent with the Respondent.
At that time, the Respondent was a manufacturer and marketer of products featuring spider-man. The Respondent promised to compensate the Petitioner for the use of its ideas.
The Respondent proceeded in manufacturing products (“Web Blaster”) similar in functions with the Petitioner’s spider-man. Although there was no formal agreement, the Respondent did not compensate the Petitioner.
In 1997, the Petitioner sued the Respondent for patent infringement. The parties settled in 2001, with an agreement to purchase the patent for 500,000 dollars.
The Respondent said he would pay 3 per cent royalty on future sales to the Petitioner without an expiration date. As a result, the case was dismissed.
In 2006, the Respondent entered a licensing agreement with Hasbro Inc. Thus; the Respondent gave the right to produce the spider-man toy to the Hasbro Inc.
The Respondent failed to pay royalty, and the Petitioner claimed the original patent would be infringed upon without payment. The Petitioner sued at Arizona State Court, which was later removed to the Federal District Court.
The Respondent argued that a purchaser is not obligated to pay royalty after the patent’s expiration date. The Federal District Court upheld the argument and granted summary judgement in favour of the Respondent.
On appeal to the United States Court of Appeal (the “Ninth Circuit”), the decision of the Federal District Court was affirmed. The Petitioner further appealed to the Supreme Court.
The issue for determination was whether the rule in Brulotte v. Thys Co. (“the rule”) relied upon by the Ninth Circuit should be overturned. Out of the nine justices, six gave the majority opinion supporting the rule, while three dissented.
Justice Kagan delivered the leading majority opinion. The rule was that a patentee could not receive royalty payments after the patent had expired.
Justice Kagan said there was no sufficient reason to overturn the rule. Since no subsequent legal development has overturned the rule, it remained workable.
The court further stated that Congress had ample opportunity to enact a statute foreclosing the rule. However, Congress did not. Hence the rule as applied by the Ninth Circuit could not be overturned.
Justice Alito led the dissenting opinion, supported by Chief Justice Roberts and Justice Thomas. Justice Alito opined that the rule has no weight and should be overturned.
He said the rule impermissibly interfered with parties’ abilities to negotiate licensing agreements, especially licensing agreements that reflected the true value of the product patented.
Although, the decision of the Ninth Circuit was upheld by the Supreme Court. The decision was a poor representation of the Patent Act.
As said by Justice Alito, it promoted economic inefficiency. Thus, it lacked the support of legal standing and public policy.
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