Monday, June 22, 2015

Supreme Court Affirms Brulotte, but Opens the Door to Creative Licensing

Just a short note that the court has affirmed Brulotte v. Thys in Kimble v. Marvel Entertainment. The question was a simple one: can a patent owner charge a royalty for sales after the patent expires? Brulotte said no. But the economic rationale for that has been whittled away, just as much has been in antitrust. But the court today Stare decisis governs, and the reasons for overturning are just not great enough.

An interesting aspect of this dispute is that many folks with whom I often disagree on patent policy were in favor of lifting the post-expiration ban, while I never thought it was that big a deal because you can always creatively license around it.

The good news is that the Court has affirmed my latter assumption. The most important quote in the whole case (at least on my very quick reading) may be (citations omitted):

And parties have still more options when a licensing agreement covers either multiple patents or additional non-patent rights. Under Brulotte, royalties may run until the latest-running patent covered in the parties’ agreement expires. Too, post-expiration royalties are allowable so long as tied to a non-patent right—even when closely related to a patent. That means, for example, that a license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone). 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.
The trade secret example is especially important. As I note in my article Patent Challenges and Royalty Inflation, there is uncertainty about how much one must drop the license fee for trade secrets. For example, I cite one case where a fifty percent drop when the patent expires was still anticompetitive under Brulotte.

But not all patents come with trade secrets. The question is whether an optional know-how license will be sufficient. If I wanted to try for post-expiration royalties, I'd give it a shot but not count on it.

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