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Spiderman Loses One - Supreme Court Retains Brulotte's Rule That No Post-Expiration Royalties Are Allowed

June 22, 2015

Overview

Respondent Marvel Entertainment's corporate predecessor agreed to purchase petitioner Stephen Kimble's patent for a Spider-Man toy in exchange for a lump sum plus a 3% royalty on future sales. The agreement set no end date for royalties. As the patent neared the end of its statutory 20-year term, Marvel discovered Brulotte v. Thys Co., 379 U. S. 29, in which this Court held that a patentee cannot continue to receive royalties for sales made after his patent expires. Marvel then sought a declaratory judgment in federal district court confirming that it could stop paying Kimble royalties. The district court granted relief, and the Ninth Circuit affirmed. Kimble now asks this Court to overrule Brulotte.

Held
: Stare decisis requires this Court to adhere to Brulotte.

(a) A patent typically expires 20 years from its application date. 35 U. S. C. §154(a)(2). At that point, the unrestricted right to make or use the article passes to the public. This Court has carefully guarded the significance of that expiration date, declining to enforce laws and contracts that restrict free public access to formerly patented, as well as unpatentable, inventions. Brulotte applied that principle to a patent licensing agreement that provided for the payment of royalties accruing after the patent's expi­ration. The Court held that the post-patent royalty provision was "unlawful per se" because it continued "the patent monopoly beyond the [patent] period" and, in so doing, conflicted with patent law's policy of establishing a "post ­expiration . . . public domain."

The Brulotte rule may prevent some parties from entering into deals they desire, but parties can often find ways to achieve similar outcomes. For example, Brulotte leaves parties free to defer pay­ments for pre-expiration use of a patent, tie royalties to non-patent rights, or make non-royalty-based business arrangements. Contend­ing that such alternatives are not enough, Kimble asks this Court to abandon Brulotte's bright-line rule in favor of a case-by-case ap­proach based on antitrust law's "rule of reason."

(b) The doctrine of stare decisis provides that today's Court should stand by yesterday's decisions. Application of that doctrine, though "not an inexorable command," is the "preferred course." Overruling a case always re­quires "special justification"—over and above the belief "that the precedent was wrongly decided." Where, as here, the precedent inter­prets a statute, stare decisis carries enhanced force, since critics are free to take their objections to Congress. Congress, moreover, has spurned multiple opportunities to reverse Brulotte, and has even rebuffed bills that would have replaced Brulotte's per se rule with the standard Kimble urges. In addition, Brulotte implicates property and contract law, two contexts in which considerations favoring stare decisis are "at their acme," because parties are especially likely to rely on such precedents when ordering their affairs.

Given those good reasons for adhering to stare decisis in this case, this Court would need a very strong justification for overruling Brulotte. But traditional justifications for abandoning stare decisis do not help Kimble here. First, Brulotte's doctrinal underpinnings have not eroded over time. The patent statute at issue in Brulotte is essentially unchanged. And the precedent on which the Brulotte Court primarily relied, like other decisions enforcing a patent's cut­off date, remains good law. Indeed, Brulotte's close relation to a whole web of precedents means that overruling it could threaten oth­ers. Second, nothing about Brulotte has proved unworkable. To the contrary, the decision itself is simple to apply—particularly as compared to Kimble's proposed al­ternative, which can produce high litigation costs and unpredictable results.

(c) Neither of the justifications Kimble offers gives cause to over­rule Brulotte.

(1) Kimble first argues the Brulotte hinged on an economic er­ror—i.e., an assumption that post-expiration royalties are always an­ticompetitive. This Court sees no error in Kimble's economic analy­sis. But even assuming Kimble is right that Brulotte relied on an economic misjudgment, Congress is the right entity to fix it. The pa­tent laws are not like the Sherman Act, which gives courts exception­al authority to shape the law and reconsider precedent based on bet­ter economic analysis. Moreover, Kimble's argument is based not one involving economic theory but rather on a claim that the Brulotte Court simply made the wrong call. That claim fails to clear stare de­cisis's high bar. In any event, Brulotte did not even turn on the no­tion that post-patent royalties harm competition. Instead, the Brulotte Court simply applied the categorical principle that all pa­tent-related benefits must end when the patent term expires. Kim­ble's real complaint may go to the merits of that principle as a policy matter. But Congress, not this Court, gets to make patent policy.

(2) Kimble also argues that Brulotte suppresses technological in­novation and harms the national economy by preventing parties from reaching agreements to commercialize patents. This Court cannot tell whether that is true. Brulotte leaves parties free to enter alter­native arrangements that may suffice to accomplish parties' payment deferral and risk-spreading goals. And neither Kimble nor his amici offer any empirical evidence connecting Brulotte to decreased innova­tion. In any event, claims about a statutory precedent's consequences for innovation are "more appropriately addressed to Congress."

KAGAN, J., delivered the opinion of the Court, in which Alito, Roberts and Thomas dissented, saying "we do not give super-duper protection to decisions that do not actually interpret a statute."

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