IP Frontiers: Spider-Man defeats inventor at the Supreme Court

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In an interesting case that illustrates potential pitfalls inventors may face when entering into intellectual property contracts and license agreements, the Supreme Court of the United States recently sided with Spider-Man’s parent company Marvel Entertainment over inventor Stephen Kimble, Kimble v. Marvel Entertainment, (June 22).

In the case, the Supreme Court declined to overrule 50+ year old, legally dubious precedent governing intellectual property contract provisions. In so doing, the Supreme Court has left in place a complicated morass of patent licensing and contract rules that can render various contractual provisions unenforceable.

The Supreme Court defended its adherence to these IP-specific rules, stating that the parties could always construct more complex arrangements to avoid them. However, the case itself undermines that argument, because it came about because the attorneys for the parties, who were not specialists in intellectual property law, were apparently unaware of these rules when drafting the agreements.

‘Kimble v. Spider-Man:’ Round One

In 1991, Kimble, an individual inventor, was granted a patent for his invention of a “Toy Web-Shooting Glove” (U.S. Patent No. 5,072,856). Kimble’s invention allowed for players to act as spider-persons by shooting webs (i.e., string foam) from the palms of their hands. Kimble’s patent, like all patents, granted to its owner the right to exclude others from making, using, or selling the patented invention for a limited time. Specifically, Kimble’s patent was set to expire in 2010, giving him 20 years to profit from his invention.

After obtaining his patent, Kimble pitched his invention to Marvel, hoping that the company would buy or license his patent. But Marvel declined Kimble’s invitation. Instead, Marvel began selling a web-shooting glove of its own shortly thereafter, without compensating Kimble.

Kimble learned of the use of his invention and sued Marvel for patent infringement. The litigation ended when the parties entered into a settlement agreement. Under the terms of the settlement agreement, Marvel agreed to make a lump-sum payment to Kimble and also pay a 3 percent royalty on any future sales.

In addition, the settlement agreement contemplated that the 3 percent royalty would extend indefinitely, even beyond the 2010 expiry of the patent. However, at the time of the settlement, none of the attorneys involved knew about an obscure Supreme Court case that bars patent royalties beyond the term of the patent.

In 1964, the Supreme Court faced a situation in which an inventor licensed a patented crop-picking machine to farmers, in return for certain royalty payments, Brulotte v. Thys, 379 U.S. 29 (1964). Because the royalty payments were required both before and after the expiration of the patent, the Supreme Court found that the licensing agreement violated the public policy behind patents.

The court explained that the patent laws are designed as a tradeoff between inventors and the public at large, with inventors receiving an exclusive, limited patent term in return for disclosing the precise details of the invention. This tradeoff requires that at the end of the limited patent term the invention be dedicated to the public. Thereafter, anyone may practice the invention without any compensation to the inventor. The court therefore held such post-patent royalties “unlawful per se,” Brulotte, 379 U.S. at 30.

‘Spider-Man v. Kimble:’ Round Two

As Kimble’s patent neared its expiration date of 2010, Marvel “stumbled across” the Brulotte case, and filed a declaratory judgment lawsuit against Kimble. Marvel sought a declaration that the 3 percent ongoing royalty was unenforceable beyond the patent’s expiration date. The federal district court in Arizona agreed with Spider-Man, and the Court of Appeals for the Ninth Circuit affirmed, Marvel v. Kimble, 692 F.Supp.2d 1156, D. Ariz. (Mar. 02, 2010), affirmed 727 F.3d 856, 9th Cir. (July 16, 2013).

Kimble, seeking to vindicate his rights, petitioned the Supreme Court, and asked it to overrule Brulotte. The court did agree to hear the case, but unfortunately for Kimble, declined to overrule its precedent. The court invoked stare decisis, the legal principle of adhering to questionable prior decisions. As the court explained, “stare decisis has consequence only to the extent it sustains incorrect decisions; correct judgments have no need for that principle to prop them up.”

The stare decisis aspects of the Kimble case are interesting from an academic point of view, as are the comparisons with seemingly similar anti-trust cases that have been overruled. For example, in the anti-trust context, the court previously overruled Brulotte-era cases regarding patent tying agreements and price fixing that used similar logic, see Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U. S. 28 (overruling per se unlawfulness of patent tying agreements); and State Oil Co. v. Khan, 522 U. S. 3, 1997 (overruling per se unlawfulness of vertical maximum price fixing).

Consequences of ‘Kimble’

Of key importance to inventors and companies entering into licensing agreements is the fact that the Supreme Court has left in place a set of confusing rules that only apply to intellectual property and patent contracts. Indeed, one of the key reasons the Supreme Court declined to overrule Brulotte was that such a decision could undermine other confusing rules that only apply to patent licensing agreements.

Specifically, in addition to the per se unlawfulness of post-expiration royalties, many other long-standing rules related to patent licensing have continued validity thanks to the Brulotte decision. For example, a licensing agreement in which a manufacturer agrees to never challenge the validity of a patent is unenforceable, Scott Paper Co. v. Marcalus Mfg. Co., 326 U. S. 249 (1945). In addition, a contract that requires a patent licensee to pay royalties when challenging a patent is also unenforceable, Lear, Inc. v. Adkins, 395 U. S. 653 (1969).

When inventors or manufacturers enter into licensing agreements or contracts involving intellectual property and patents, they would be well advised to employ strategies to avoid the pitfalls of these unique rules. For example, parties can avoid the Brulotte rule by licensing both patents and trade secrets, with the licensing rate dropping somewhat after the expiration of the patents, because royalties may be collected indefinitely on trade secrets. Further, parties can enter into joint ventures, or other arrangements, without running afoul of some of the other rules.

Naresh K. Kannan is an associate attorney with Heslin Rothenberg Farley & Mesiti P.C.  He can be reached via email at [email protected], or at (518) 452-5600.