As many of you know, a patent grants its owner the right to exclude others from making, using, selling offering for sale or importing the invention as claimed for a period of 20 years, beginning on the date of filing of the application. This much is clear. The situation becomes murkier, however, when agreements relating to the patented technology require royalty payments beyond the expiration date of the patent.

The conflict is essentially between freedom of contract and maintaining the balance struck by Congress in mandating a 20 year term for patents. In 1964, the Supreme Court decided this very question, determining that such arrangements were unlawful per se.[1] In this decision, Brulotte v. Thys Co., the court analogized this practice to tying, which had formerly been declared unlawful.[2] Tying agreements restrict a buyer from buying a patented product unless the buyer agrees to the purchase of additional unpatented products from the patent holders, generally for use therewith. This practice was held to extend the reach of intellectual property right beyond what Congress had envisioned, thereby upsetting the balance it had carefully crafted. Brulotte has since served as an absolute prohibition on the collection of any patent royalties extending beyond the expiration date of the patent.

Despite the similarities between tying agreements and post-expiration royalty payments, the Brulotte decision has been characterized, almost universally, as simply bad. A recent decision has even gone so far as to describe Brulotte as employing "dubious" reasoning, as "out of touch with the Supreme Court's current thinking" and even as "silly".[3][4] This is largely because the cases on which it was based are readily distinguishable.[5][6]

Recently, the Supreme Court had another chance to overrule this decision, in the case of Kimble v. Marvel Entertainment, LLC. Unfortunately, the court failed to capitalize on this opportunity, relying in large part on the principle of stare decisis, or reliance on precedent, and the value of certainty in the law to explain their decision, while admitting that Brulotte was/is incorrect. The court seemingly made light of its decision through thinly veiled Marvel Comics references throughout (the subject of the case was actually a spiderman-style web-shooting device) with comments such as "as against this superpowered form of stare decisis, we would need a superspecial justification to warrant reversing Brulotte", although this was no laughing matter for intellectual property owners and practitioners.

As disappointing as this decision was for those involved in the protection and exploitation of intellectual property, the court did provide indications that the Brulotte decision has fallen out of favor. Namely, the court noted that "parties can often find ways around Brulotte, enabling them to achieve those same ends" and seemingly encouraged parties to do so. In some parts of the decision, the court even went so far as to recommend licensing strategies that would avoid implicating Brulotte, allowing intellectual property owners to collect royalties well after the expiration of the patent. One such recommended way was to charge an elevated royalty rate during the patent term and to then amortize that rate over a longer period. The court also pointed out that if a portfolio was licensed, the license could run until the last patent to expire, allowing revenue generation through the expired patents.

Conclusion

While intellectual property owners and practitioners alike had hoped that this decision would mark the end of Brulotte, the decision provided guidance on avoiding Brulotte and endorsed creative licensing that would allow owners and practitioners to do so. Other than explicitly overruling the case, this result is reasonable and useful, especially when considered in light of other recent Supreme Court decisions relating to intellectual property.

And as always, Please Spread the Word!

This is one example of how, here at MCR, we try to keep the community informed of the developing legal landscape. Please contact us for more information; and please pass this along to anyone you know who may be interested in intellectual property legal services. Author Matthew Curran may be contacted at [email protected] and 603.886.6100. 

About  Matthew J. Curran