As licensing professionals await the decision of the Supreme Court in the case of Kimble v. Marvel Enterprises, Inc., which is widely believed to determine the future viability of the fifty year old decision of the Court in Brulotte v. Thys Co., it may be useful to consider the practical impact such a decision may have.
The Brulotte decision held that use of the monopoly power of a patent to exact royalty payments on post expiration activities was a per se violation of the anti-trust laws. The reasoning was based on an analogy of the Court’s earlier prohibitions against tie-in arrangements where the use of a patented article required the purchase of an unpatented article. The patented invention was considered to be in the public domain upon expiration and thus free to use by all.
This strict rule has softened over the intervening years. The concept of “for the convenience of the parties,” in the absence of coercion by the patentee, has allowed licensor and licensees to extend payments into the post-expiration period as long as the licensee does not have to account for post-expiration sales. Thus, for example, if a paid-up license required a $1MM payment there would be no apparent anti-trust issue even if the payments were spaced over a ten year period and the last several payments were made in the post expiration period. Similar accommodations have been made in allowing reasonable, expanded scope in defining royalty bases to encompass non-patented components where the patented sub-component is not an article of commerce and thus has a difficult valuation. This concept has also been used in accommodating bundle licensing of multiple patents without having to parse the many claims against a complex licensed product. The question that may be answered by the Supreme Court’s decision in Kimble is whether an even more flexible approach will be allowed in post expiration financial accounting in patent licensing.