On Friday, the Supreme Court granted certiorari to reconsider the fifty-year-old patent licensing rule from Brulotte v. Thys. Co., 379 U.S. 29 (1964), which held that charging post-expiration patent royalties is “unlawful per se.” The rule against post-expiration royalties has been the subject of sharp criticism since its conception, and it played the villain’s role in Kimble v. Marvel Enters., 727 F.3d 856 (9th Cir. 2013), the case of the Spider-Man “Web Blaster” toy that will now be reviewed by the Supreme Court.
The Kimble case, now under review, involves a so-called “hybrid” license agreement, where both patent and non-patent rights are licensed. By its terms, the agreement provides the patentee (Mr. Kimble) a perpetual running royalty on sales of the Spider-Man Web Blaster toy. In analyzing the agreement, the Ninth Circuit explained how courts have come to understand the application of Brulotte to hybrid license agreements:
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.
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