Supreme Court Rules That Licensor Of Toy Spider-Man Web Shooter Cannot Charge Royalties After Patent Expiration

Supreme Court Rules That Licensor Of Toy Spider-Man Web Shooter Cannot Charge Royalties After Patent Expiration

(Chicago, IL - 2015-06-24)

The Supreme Court on June 22, 2015, ruled 6-3 in favor of Walt Disney Co.'s Marvel Entertainment LLC against the inventor of a Spider-Man web shooting toy, in a dispute involving royalties for sales made after his patent expired. Kimble v. Marvel Entertainment, LLC, Case No. 13-720. The majority decision, authored by Justice Kagan and joined by Scalia, Kennedy, Ginsburg, Breyer, and Sotomayor, left intact the 50-year-old legal precedent that bars charging royalties for sales made after a patent expires.

Stephen Kimball, inventor of a Spider-Man toy that could shoot foam string, negotiated an agreement with Marvel for payment if Marvel used the idea. Marvel later created a web shooting toy but did not pay Kimball. In 1997, he filed an action for patent infringement and breach of contract. This case was settled for a lump sum and license for a 3% royalty on product sales.  The license had no expiration date.

In 2006, Marvel sublicensed the right to produce the web shooter to Hasbro Inc., which resulted in a dispute between Marvel and Kimble about royalty payments. Marvel filed a complaint for declaratory judgment in 2008, and Kimble counterclaimed for breach of contract. During the litigation, Marvel argued that a Supreme Court case, Brulotte v. Thys Co., 379 US 29, 85 S.Ct. 176 (1964), barred royalties for sales that occurred after Kimble's patent expired in 2010. The district court agreed, and the Court of Appeals for the Ninth Circuit upheld the decision, saying it was bound by the Supreme Court’s Brulotte precedent.

The Supreme Court has now reaffirmed Brulotte, and maintained the legal precedent that licenses are per se unlawful if they require royalty payments for the use of a patent after it expires. The majority found humor in the comic book nature of the subject matter, and weaved numerous Spider-Man references into the decision.

Yet, the decision is surely no laughing matter for Kimball. The majority found there was no compelling reason to end the Brulotte rule: "[f]inding many reasons for staying the stare decisis course and no 'special justification' for departing from it…." (Stare decisis is a legal doctrine that courts should apply precedents established in earlier cases.)  The majority reasoned that overturning Brulotte could destabilize other patent or antitrust law, and that patent owners and licensees had other options for avoiding the prohibitions of Brulotte. For example, they could: defer payments for pre-expiration use of a patent into the post-expiration period; amortize payments of a royalty rate beyond the patent term; or license both patents and trade secret, the latter of which is not constrained by Brulotte. The majority concluded that the Brulotte decision was imbued with a "superpowered form" of precedent protection that would "need a superspecial justification" to overturn.

In a final homage, Justice Kagan, inspired by the advice of Peter Parker's Uncle Ben that "with great power there must also come – great responsibility," remarked "[w]hat we can decide, we can undecide. But stare decisis teaches that we should exercise that authority sparingly."

Justices Alito, Thomas, and Roberts dissented, seeming less than amused by the majority's jovial discussion. The dissent characterized Brulotte as "a bald act of policymaking." The dissent argued it was improper to "give super-duper protection to decisions that do not actually interpret a statute," and that the notion of a "'superpowered form of stare decisis' that renders statutory interpretation decisions nearly impervious to challenge … goes a bit too far." The dissent took the view that "Brulotte’s only virtue is that [the Supreme Court] decided it. But that does not render it invincible. Stare decisis is important to the rule of law, but so are correct judicial decisions."