How long does the obligation to pay royalties continue?

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Since 1964 it has been settled law in the United States that a US patent holder cannot charge royalties for the use of their invention after the relevant patent term has expired [1]. However, this longstanding principle has recently been the subject of a challenge in the US Supreme Court.

The challenge arose in the case of Kimble, et al v Marvel Entertainment, LLC, et al [2]. The plaintiff, Kimble, had invented a toy that enabled a person to shoot pressurised foam string, resembling a spider’s web, from the palm of their hand. This was of obvious interest to the defendant, Marvel, who make and market products featuring the web-slinging superhero, Spider-Man. Kimble met with Marvel representatives to discuss licensing the patent to them but the parties could not reach an agreement. Shortly after this meeting, Marvel began marketing a similar product. Kimble sued for patent infringement and the parties subsequently settled. Under the terms of the settlement agreement, Marvel agreed to pay a lump sum and a 3 per cent running royalty on future sales of the infringing product. Surprisingly, the agreement did not stipulate an end date for the royalty payments.

Marvel subsequently sought a declaratory judgment from the Court that it could stop paying royalties when Kimble’s US patent expired. The case worked its way up to the Supreme Court where the issue, in essence, was whether to continue to follow the precedent established in 1964 – with Marvel, of course, arguing that it should do.

The Supreme Court divided on the issue but the majority decided to uphold the existing law. The judgment is sprinkled with humorous references to the “superpowered” doctrine of precedent and “super-duper protections” to judicial decisions, but between witticisms, the majority also made the serious point that there must be very good reasons for a court to depart from a precedent. This was particularly the case where, as in this case, the precedent in question interpreted a statute, as the court’s decision had effectively become part of the statutory scheme. If there were to be a departure from that statutory scheme, this was a matter for Congress, and not the Court.

The majority decision outlined different ways in which the parties might be able to contract around the prohibition on post-expiry royalties. This is suggestive of at least some sympathy towards the argument, put forward by Kimble, that the 1964 precedent is too restrictive. For example, post-expiration royalties may be permissible where they are closely tied to a non-patent right, such as a trade secret; or where there is more than one patent, the royalties may run until the latest-running patent covered in the parties’ agreement expires. A licensee could also agree to amortise royalties payable on sales during the patent term over a longer period than the life of the patent.

Both as a matter of legal doctrine and as a matter of commercial common sense, the judgment is hard to criticise. In addition, at the same time as upholding the existing law, the case provides useful hints from the highest judicial authority as to how to structure a settlement agreement to ensure royalty payments continue to accrue post patent expiry.


[1] Brulotte v Thys Co 379 U.S. 29 (1964)
[2] Case No 13-720 (22 June 2015)