Marvel Enterprises is no longer obligated to make royalty payments to the inventor of a Spider-Man toy called the Web Blaster. The Ninth Circuit Court of Appeals ruled that Stephen Kimble’s licensing agreement was unenforceable beyond the expiration date of the underlying patent under the controversial precedent established by the U.S. Supreme Court in Brulotte v. Thys Co.
Around 1990, Kimble invented and obtained a patent for a Spider-Man toy that allowed a child “role play” as Spider-Man by shooting foam string. The patent expired on May 25, 2010.
While the patent application was pending, Kimble approached Marvel about the toy and other ideas. A company executive told him that he would be compensated if Marvel used any of his ideas. Although the company ultimately informed Kimble it was not interested, Marvel began manufacturing a similar Spider-Man role-playing toy.
Kimble filed suit for patent infringement and breach of contract. While the infringement claim was dismissed, Kimble eventually reached a settlement with Marvel under which the company agreed to purchase the patent and both parties agreed to dismiss all pending appeals. Under the terms of the settlement agreement, Marvel agreed to pay Kimble $516,000 and three percent of net product sales of the toy.
In 2006, the parties got into a disagreement regarding the calculation of royalties, and Kimble filed another breach of contract lawsuit. In response, Marvel argued that it was no longer obligated to pay Kimble after the patent expired.
The Ninth Circuit ultimately agreed. It held that “a so-called ‘hybrid’ licensing agreement encompassing inseparable patent and non-patent rights is unenforceable beyond the expiration date of the underlying patent, unless the agreement provides a discounted rate for the non-patent rights or some other clear indication that the royalty at issue was in no way subject to patent leverage.”
As explained in the opinion, Brulotte has been interpreted to require that any contract requiring royalty payments for an invention either after a patent expires or when it fails to issue cannot be enforced unless the contract provides a discount from the alternative, patent-protected rate. While the court noted that it disagreed with the rationale of the rule, it also recognized that “we are bound by Supreme Court authority and the strong interest in maintaining national uniformity on patent law issues.” Accordingly, the panel begrudgingly applied the precedent.
The Ninth Circuit also rejected Kimble’s argument that Brulotte was inapplicable because the agreement discriminated between patents and non-patent rights. “We cannot agree because the agreement plainly involved one royalty rate for both patent and Web Blaster rights, with no discount or other clear indication that the Web Blaster royalties were not subject to patent leverage,” the court concluded.
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