By Kevin E. Noonan —

In the 1977 Yale Law School Holiday Pageant there was a skit about the Supreme Court, with a song sung to the tune of Cole Porter's "Another Opening, Another Show" from the musical Kiss Me Kate:

Another opening, another term
A chance to show that no precedent's firm
Another opening of another term

That parody irresistibly comes to mind with many of the Supreme Court's patent decisions (no matter how hard the Court appears to want to create the impression of consistency, Mayo and Diehr are irreconcilable) and no more so when considering the Court's end-of-term decision in Kimble v. Marvel Enterprises where the Court let stand its fifty-year ban on royalties post patent expiry (Brulotte v. Thys Co., 1964).

The facts do not provide any equities to the licensee, Marvel:  the case arose regarding U.S. Patent No. 5,072,856 to Kimble for a toy that simulated the web-shooting devices used by the fictional Spiderman.  As any child or pop culture fan knows, Marvel is the purveyor of all things Spiderman, owning the rights to the character, comic books, movies, and ancillary merchandise.  Kimble attempted to license his invention to Marvel, but they chose to copy the invention, bringing their own version of the toy to market.  The parties settled Kimble's resulting patent infringement lawsuit on terms wherein Marvel purchased the patent for a lump sum (~$500,000) plus a 3% royalty; the settlement contained no limit on this royalty obligation with regard to patent expiry.  According to the opinion, the parties were purportedly unaware of the Brulotte rule that precluded Kimble from receiving royalties after the '856 patent expired, but (once purportedly apprised of the existence of the rule) Marvel brought a declaratory judgment action against paying post-expiry royalties in which it prevailed.

The Court affirmed Marvel's victory in an opinion by Justice Kagan, joined by Justices Scalia, Kennedy, Ginsberg, Breyer and Sotomayor; Justice Alito dissented, in an opinion joined by the Chief Justice and Justice Thomas.  While the opinion acknowledged that the Brullote rule had been the subject of judicial and scholarly criticism (citing Scheiber v. Dolby Labs., Inc., 293 F. 3d 1014, 1017–1018 (CA7 2002) (Posner, J.) and Ayres & Klemperer, Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 Mich. L. Rev. 985, 1027 (1999)), the majority refused to overrule it.  The reason is stare decisis seasoned with the Court's penchant for finding Congressional intent for "balance" in patent law, saying that "[i]n crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries."  In a sentence that will resonate (badly) with patent attorneys in the throes of the consequences of the Court's recent foray into subject matter eligibility, the opinion justifies letting the Brullote rule stand saying "[t]his Court has carefully guarded that cut-off date, just as it has the patent laws' subject-matter limits" based on the public interest.  This is reflected in other examples of its precedent consistent with Brulotte, including situations where it has prevented, inter alia, parties from agreeing not to challenge a patent (citing Scott Paper Co. v. Marcalus Mfg. Co., 326 U. S. 249 (1945); Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U. S. 394, 400–401 (1947) and Lear, Inc. v. Adkins, 395 U. S. 653, 668–675 (1969)).

The majority found the statutory basis for the Brulotte rule in the patent term (Sec. 154) which limits the term within which the patentee can exercise the right to exclude; thereafter the patent quid pro quo demands the invention to be freely available to the public.  The Court recognizes that "[t]he Brulotte rule, like others making contract provisions unenforceable, prevents some parties from entering into deals they desire" and that royalty plans like the one in Brulotte (and here) can have advantages including "draw[ing] out payments over time and t[ying] those payments, in each month or year covered, to a product's commercial success."  The majority also recognized the traditional justification, that "[a] more extended payment period, coupled (as it presumably would be) with a lower rate, may bring the price the patent holder seeks within the range of a cash-strapped licensee," the opinion analogizing the situation with purchasing a consumer product on an installment plan.  Alternatively, the opinion recognizes that "such an extended term may better allocate the risks and rewards associated with commercializing inventions — most notably, when years of development work stand between licensing a patent and bringing a product to market."

Nevertheless, the Court majority believes the principle of limiting the exclusive right to the statutory term is sufficiently important to require patentees and their licensees to "find ways around Brulotte" using other means.  These include deferred payments on royalties earned during the patent term (Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 136 (1969)) or extending royalties until the last-to-expire of a patent portfolio.  Also permitted would be licensing non-patent rights — such as "know-how" or trade secrets (no matter how closely tied to the patent).  "Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties — all kinds of joint ventures, for example — that enable parties to share the risks and rewards of commercializing an invention" according to the opinion.

The majority rejected Kimble's argument that these situations be subjected to a "case-by-case," "rule of reason" approach.  This is where the Court most directly resorts to stare decisis principles, stating that "[o]verruling precedent is never a small matter."  The benefits of not doing so include that "it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process," citing Payne v. Tennessee, 501 U. S. 808, 827–828 (1991).  But in doing so the Court adopts Justice Brandeis' view that "it is usually 'more important that the applicable rule of law be settled than that it be settled right.'"  Burnet v. Coronado Oil & Gas Co., 285 U. S. 393, 406 (1932) (which besides being contrary to the Court's role in actually trying to interpret the laws to effectuate congressional intent, it also must be noted that Justice Brandeis' statement was made in a dissenting opinion and thus not the basis for the Burnet decision.)

And in a statement that will negatively resonate with those hoping that the Court recognize the error of its thinking regarding subject matter eligibility, the opinion states that "[a]ccordingly, an argument that we got something wrong — even a good argument to that effect — cannot by itself justify scrapping settled precedent."  Rather, the majority believe that "[t]o reverse course, we require as well what we have termed a 'special justification' — over and above the belief 'that the precedent was wrongly decided,'" citing Halliburton Co. v. Erica P. John Fund, Inc., 573 U. S. ___, ___ (2014) (slip op., at 4).

The majority opinion also states that stare decisis is more important when the Court interprets a statute because the party can "take their objections across the street" and have Congress change the law, citing Patterson v. McLean Credit Union, 491 U. S. 164, 172–173 (1989).  In this case, the majority perceives that Congress has declined this opportunity repeatedly ("long congressional acquiescence"), citing the implementing statutes for the GATT/TRIPS agreements as well as specific bills introduced (but never enacted) aimed at changing the law to abrogate the Brullotte rule.

Other reasons contained in the majority opinion for refusing to overrule Brulotte include the special characteristics of cases at the nexus between property law and contract law, where the majority believe stare decisis principles to be "at their acme" because such precedents are used by parties when "ordering their affairs."  This reasoning harkens back to the sentiment that the Court should not upset "settled expectations: "[s]o long as we see a reasonable possibility that parties have structured their business transactions in light of Brulotte, we have one more reason to let it stand" (reasoning woefully absent when the Court rendered its Myriad decision).  In addition, the majority believes that Brulotte remains consistent with other precedent supporting "bright line" patent term expiry and that the rule (according to the majority) remains "workable" in practice, particularly when compared with antitrust law.

The Court majority acknowledges the scholarly consensus that post-expiration royalties can have pro-competitive effects.  But in their view this a patent case, not an antirust case (where the Court has been more flexible due to the dynamic nature of antitrust law), and the public interest trumps: "[s]o in deciding whether post-expiration royalties comport with patent law, Brulotte did not undertake to assess that practice's likely competitive effects.  Instead, it applied a categorical principle that all patents, and all benefits from them, must end when their terms expire."  (This categorical approach is consistent with the Court's views regarding subject matter eligibility.)  And, "[s]o if Kimble thinks patent law's insistence on unrestricted access to formerly patented inventions leaves too little room for pro-competitive post-expiration royalties, then Congress, not this Court, is his proper audience."

Appeals to innovation, the "wellspring of patent policy," and the rule's harm to innovation provide no help:  "[n]either Kimble nor his amici have offered any empirical evidence connecting Brulotte to decreased innovation; they essentially ask us to take their word for the problem.  And the United States, which acts as both a licensor and a licensee of patented inventions while also implementing patent policy, vigorously disputes that Brulotte has caused any 'significant real-world economic harm,'" citing the government's amicus brief.

Justice Alito disagreed, characterizing Brulotte as " a clear case of judicial overreach" and saying that in his view the rule was based not on patent law but on antitrust principles that have been "debunked."  Regarding the rationale for the majority opinion, Justice Alito writes that "[o]ur traditional approach to stare decisis does not re­quire us to retain Brulotte's per se rule.  Brulotte's holding had no basis in the law.  Its reasoning has been thoroughly disproved.  It poses economic barriers that stifle innova­tion.  And it unsettles contractual expectations."

There is one aspect of this opinion that rankles:  the majority's inability not to reference its recent subject matter eligibility decisions as if they were not only properly decided but that they are a proper exercise of the Court's gatekeeping role.  While either of these propositions may be correct (although the latter is likelier than the former), this self-satisfying (and self-satisfied) dicta was not only unnecessary:  it is guaranteed to percolate into the district courts and the Federal Circuit (which can no longer be trusted to speak truth to power when it comes to patent law as it should be) and the PTO, becoming another justification for the legitimate scope of patent rights to be constricted to the point that patents no longer are able to promote progress.  These views threaten not only progress but American competitiveness, raising the question:  when your global advantage is the ingenuity of your population why would anyone think restricting the ability to protect innovation from predation by copiers (foreign and domestic) is a good idea?

Kimble v. Marvel Entertainment, LLC (2015)
Opinion of the Court by Justice Kagan, joined by Justices Scalia, Kennedy, Ginsburg, Breyer, and Sotomayor; dissenting opinion by Justice Alito, joined by Chief Justice Roberts and Justice Thomas