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Kimble v. Marvel ruling does not bring about many changes on licenses.

Byline: Ed Silverstein

Patent royalties are not going to see changes under a new decision from the U.S. Supreme Court, where a majority of the justices opted for relying on precedent.

The Kimble v. MarvelEntertainment ruling also highlights how parties can sign licensing agreements, but they do not always pay attention to what they are agreeing to.

The case relates to Stephen Kimble, who patented technology that lets users strap a toy to their wrists that simulates the web shooters of Marvel superhero Spider-Man. Kimble had a licensing agreement with Marvel, but Marvel stopped paying royalties after the expiration of Kimble's patent.

Also, the new opinion does not change the understanding of the decision in the earlier Brulotte v. Thys case. This rule holds that a patentee cannot receive royalties after a patent expires. Yet, it has been argued that there are ways that parties can work around the Brulotte rule.

"It's a good reminder," Deborah Fishman, an attorney at Kaye Scholer, told InsideCounsel about the high court's new decision.

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Given the ruling, Fishman advises companies to be careful in licensing language, and sometimes it may be preferable to use a different vehicle than a licensing agreement. That may be a joint venture or a partnership, Fishman said. Licensors also need to look over the agreements they are using, Fishman said. They may need to make the language more explicit if they are involved in time shifting.

She also points out that the ruling may particularly impact such sectors as university licensing and biotech companies.

From the licensee's point of view, the ruling does not hurt them and it could be a good thing. Overall, Fishman says there is no change in the law from the ruling.

Attorneys looking at the decision in the case said a party can defer payment for pre-exemption use, but the justices did not explain how this should be done, and overall the Supreme Court did not provide a lot of clarity. In fact, details may not come until a district court or an appeals court hears some future case.

Also, when asked to comment on the ruling, Gregory Winsky, an attorney at Archer & Greiner, reminds that "you can't get patent royalties after the patent expires. It's really important to know that."

"The licensee should not have to pay for something in the public domain after the patent has expired," Winsky added. He also points out that patents are only enforced if the patent holder is paying maintenance fees. Companies can visit the patent office website to check if the maintenance fees have been paid.

Also, Michael Sandonato, chair of the Electronic and Computer Technologies practice group at Fitzpatrick, Cella, Harper & Scinto, said, that while "there is a little bit of discussion of the soundness of the Brulotte rule" in the ruling, the "clear take-away here is that if the rule is to be changed, it's Congress' job to do so."

Still, there is some disagreement about the new ruling. "I think the decision is right," Winsky said. But Neil Smith, who was the administrative patent judge for the U.S. Patent and Trademark Office's Silicon Valley office and is now an attorney at Rimon, expressed "disappointment" in the Supreme Court opinion.

"Often, one cannot accurately predict how much and how long a product, such as the toy at issue here, will be sold or have a demand in the market. The running royalty satisfies most expectations. The licensee doesn't want to pay ahead for fear the market will dry up, and the licensee hopes the sales will continue and wants a fair payment if they do," Smith said. "It is ironic that the beneficiary in this case is the big company licensee who claims ignorance of the law set down by the Supreme Court, who can now stop paying under the contract."

On the other hand, Jeanne Gills, an attorney at Foley & Lardner, said, "The court's decision to keep Brulotte -- a 50 year decision -- in place makes sense and is consistent with patent policy."

"Parties have relied on the fact that a patent is dedicated to the public at the end of its term (about 20 years from application date). Parties have thus long been free to negotiate a business deal that allocates both risk and reward without running afoul of Brulotte, including, as the Justices recognized, provisions such as deferred payments, royalties on non-patented IP or other patents, and a myriad of other business arrangements not even discussed (e.g., joint venture, cross-licensing, consulting relationships, etc.) Kimble's arguments for overruling Brulotte were aimed more at the principle of the rule, yet the court felt it was within Congress' purview to change the rule if Congress deemed it appropriate, as there was no evidence before the court to overcome stare decisis nor any empirical evidence that Brulotte suppressed innovation or harmed the economy. Brulotte's more straightforward rule is also simpler to apply, as the court noted that Kimble's proposed Cyrule of reason' alternative could produce unpredictability and higher litigation costs," Gills said.

"Today's ruling simply means business as usual, although it may encourage parties to be even more creative in negotiating patent licenses going forward, especially with breakthrough technology," she added.

Looking at the ruling, Ropes & Gray attorney Harry Rubin noted the Supreme Court's decision calls for a "creative crafting of solutions" and that allows for some options.
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Publication:Inside Counsel Breaking News
Date:Jun 24, 2015
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