The U.S. Supreme Court’s recent decision in Kimble et al. v. Marvel Entertainment, LLC, rejuvenates a 50-year old rule addressing patent royalties, bringing it to the forefront of patent and licensing practice. On June 22, 2015, the Court upheld the per se rule barring a patent licensor’s collection of royalties for use of a claimed invention beyond the expiration date of the underlying patent. The Court directly addressed criticisms of its rule, which originated in the 1964 Brulotte v. Thys Co. decision, and foreclosed speculation about continued viability of Brulotte’s bright-line rule in current practice.

The facts of Kimble are not particularly compelling, but they present a common issue in patent agreements: how to construct a license or settlement agreement that encompasses patent and non-patent rights beyond the expiration date of the underlying patent. The district court, reading the settlement agreement in Kimble as a hybrid license (granting patent and non-patent rights), held that Brulotte precluded Kimble from recovering royalties beyond the expiration of the underlying patent. The Ninth Circuit “reluctantly” affirmed the district court, holding that a “licensing agreement encompassing inseparable patent and non-patent rights is unenforceable beyond the expiration date of the underlying patent, unless the agreement provides a discounted rate for the non-patent rights or some other clear indication that the royalty at issue was in no way subject to patent leverage.” Echoing its previous criticism, the Ninth Circuit noted that “Brulotte ‘runs counter to the usual task in a contract case – to interpret the terms agreed upon by the parties,’” and it “renders some aspects of otherwise valid contracts unenforceable [for the unconvincing economic reason] that ‘the free market visualized for the post-expiration period would be subject to monopoly influences’ if ‘a royalty agreement was allowed to project beyond the expiration date of the patent.’”