Duration of Royalties When Licensing an Invention
Once an inventor has received a patent from the United States Patent and Trademark Office, the patent holder can manufacture the product or license the patent to another company. The first option is time consuming and generally does not lead to profits in the short term. In contrast, licensing the patent generates quicker income and provides increased visibility in the market.
The licensing terms, including the description of the royalties received by the original inventor, are generally specified in the licensing agreement. One of the issues in a licensing relationship concerns the duration of royalty payments. The 1964 Supreme Court decision in Brulotte v. Thys Co. definitively addressed this matter by barring the payment of royalties beyond the expiration of the term of the patent. According to the Court, a contract that requires the payment of royalties after the patent expiration date is invalid.
In the recent case of Kimble v. Marvel, the plaintiff challenged this holding and asked the Supreme Court to reconsider the conclusive prohibition against such royalty payments. In the case, the plaintiff, inventors of a Spider Man toy, licensed the patent to Marvel Enterprises with the agreement providing for a 3% royalty and no expiration date. When the patent expired in 2010 and Marvel ceased making payments, the plaintiff filed suit for breach of contract. The district court and the Ninth Circuit Court of Appeals upheld the Supreme Court’s ruling in Brulotte v. Thys Co. The Supreme Court declined to overrule Brulotte in its decision on June 22, 2015.
The Supreme Court rejected a case by case approach for evaluating royalty payments after patent expiration. In deciding to affirm the 1964 ruling, the Court demonstrated its reluctance to overrule an act of the legislature, which Brulotte interpreted in reaching its decision. This result establishes the Court’s tendency to view the patent statutes as a body of law that should be reformed, amended and repealed only by Congress itself, not by the Court.
John Connors is an intellectual property attorney with decades of experience in registering patents and enforcing patent rights. Connors & Associates provides expert legal and business advice through an international network of attorneys specializing in all types of intellectual property law. Contact us at (949) 833-3622 or visit Connors & Associates online to learn more about our services or to schedule a consultation.
