Tuesday, 23 June 2015 14:10

Supreme Court Upholds Brulotte

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Following our previous post on Kimble v. Marvel Entertainment, LLC, the Supreme Court today has decided to uphold the longstanding rule in Brulotte v. Thys, which states that a patentee cannot continue to receive royalties for sales made after the expiration of the patent. Standing by the principle of stare decisis, the Court reasoned that in case after case, it construed 35 USC 154 to preclude measures that restrict free access to formerly patented inventions.

[In Brulotte,] an inventor licensed his patented hop-picking machine to farmers in exchange for royalties from hop crops harvested both before and after his patents’ expiration dates. The Court (by an 8-1 vote) held the agreement unenforceable—“unlawful per se”—to the extent it provided for the payment of royalties “accru[ing] after the last of the patents incorporated into the machines had expired.” 379 U. S., at 30, 32. To arrive at that conclusion, the Court began with the statutory provision setting the length of a patent term. See id., at 30 (quoting the then-current version of §154). Emphasizing that a patented invention “become[s] public property once [that term] expires,” the Court then quoted from Scott Paper: Any attempt to limit a licensee’s post-expiration use of the invention, “whatever the legal device employed, runs counter to the policy and purpose of the patent laws.” 379 U. S., at 31 (quoting 326 U. S., at 256). . . as against this superpowered form of stare decisis, we would need a superspecial justification to warrant reversing Brulotte. But the kinds of reasons we have most often held sufficient in the past do not help Kimble here. If anything, they reinforce our unwillingness to do what he asks.

However, the Court also noted that a series of percedence in which creative license drafters were able to work around Brulotte, such as in Zenit Radio Corp. v. Hazeltine Research Inc., 395 U.S. 100, 136 (1969), in which a 10% royalty over a 20-year patent term was amortized over 40-years. 

Going forward, parties contracting a patent license agreement should take care not to draft terms which may be construed as licensing a patent beyond its 20-year term, as this violates the per se rule in Brulotte. Additionally, parties should take care to not comingle consideration for other services which may deserve consideration beyond a 20-year term, such as for design or supervision, into the license agreement itself. Lastly, parties may wish to spell out separate terms for licensing agreements of products or processes which may involve pending applications, i.e. spell out a different rate for if the application matures into a patent (the patent license rate), vs. if the application never matures into a patent (the other-IP discounted rate).

Read 1950 times Last modified on Monday, 07 November 2016 19:25
Tony Guo

As a specialized technology counsel, Tony supports his clients in the high tech, creative, and online industries. His primary areas of practice include intellectual property protection, Internet law, and startups. Tony is a USPTO registered patent attorney, as well as a licensed lawyer in California and Florida. He comes from a background involving considerable hardware and software development experience, having worked in both development and IT roles in the tech and finance industries.