(CN) - A lawyer who invented a web-shooting toy inspired by Spider-Man told the 9th Circuit that Marvel is trying to wriggle out their verbal agreement.
The federal appeals court in San Francisco consolidated two cases for oral argument Wednesday.
At the heart of both issues is a meeting in New York in late December 1990, when Tucson-based lawyer Stephen Kimble sat down with president of Marvel Entertainment to talk about his patented idea for a "toy web shooting glove," according to court filings.
Under an oral agreement that came out of that meeting, Marvel subsidiary Toy Biz agreed not to use any of Kimble's ideas without first negotiating a royalty payment with him.
When Toy Biz later released a toy called Web Blaster, Kimble claimed that it did so behind his back and filed suit in 1997. A federal jury in Arizona ultimately found that the 1990 oral agreement covered the Web Blaster, and awarded him 3.5 percent of net sales.
Both parties appealed, but they withdrew in 2001 in favor of a settlement that gave Kimble a 3 percent royalty for toys that infringed his original patent.
It was determined that the Web Blaster did not infringe the patent but nonetheless incorporated ideas disclosed under the oral agreement. As such, the settlement included a separate royalty of 3 percent for that toy.
In 2008 Kimble again sued Marvel, this time with fellow Tucson attorney Robert Grabb, alleging that the company had breached the settlement agreement by failing to pay royalties after it sold its toy-making arm to Hasbro.
Marvel countered that the agreement did not require it to pay Kimble after his patent expired in 2010.
A federal judge ruled for Marvel, but Kimble appealed to a three-judge panel in San Francisco.
He argues that the agreement provides for royalty payments in perpetuity for the Web Blaster toy because that product violated the 1990 oral agreement, not the expired patent.
Marvel counters that the 1964 landmark patent case Brulotte v. Thys Co. prohibits the payment of patent royalties beyond the expiration of a patent.
Judges Diarmuid O'Scannlain, Sidney Thomas and Consuelo Callahan largely focused on whether Kimble had used the patent as leverage for the agreement.
Marvel says that he did, and that everything it purchased with the agreement was related to that patent. With that patent's expiration, the deal is over, it added.
"When Marvel settled that case, what they were buying was freedom from litigation, freedom from uncertainty, freedom from having to figure out whether this product or that product infringed or didn't infringe," said Marvel attorney David Fleischer, of Haynes and Boone.
"It was only when the plaintiffs started to be a little bit hoggish, if you will, and claimed that they were entitled to the purchase price of toys that really had nothing to do with the original toy ... that the threat of litigation continued," he said.
"Over the years, the Web Blaster changed from a simple device into toys that had multiple functions," Fleischer added.
He said these newer toys "shot water and darts, and when a dispute arose whether it was fair to continue to pay the royalty when the piece of it was only one-fifth of the functionality of the toy, the plaintiffs wanted full royalties of that plus more.
"If we packaged a mask they wanted royalties," Fleischer added.
The royalties paid to Kimble have "exceeded $6 million over the course of the arrangement," he continued.
But Kimble's attorney Tony Durando scoffed at Marvel's position.
It means that "one would have to say that, every time a patent is part of an agreement, that there is leverage," Durando said.
In the associated case, the judges questioned whether the settlement agreement had canceled out the verbal agreement.
A federal judge awarded Marvel summary judgment on this issue despite Kimble's claims that Section 9 of the settlement agreement explicitly holds Marvel to the 1990 deal.
Marvel contended that the settlement released it from the prior contract.
Kimble said that he purposefully preserved the oral agreement in Section 9 out of concern that "if they tweak the toy are we still going to get paid."
He said that Marvel began to argue that the oral agreement was over only after it sold its toy division to Hasbro, and "we stopped getting paid."
Marvel thought that Hasbro would pay him, while Hasbro thought Marvel would do it, Kimble said.
"Once Marvel realizes that instead of getting 10 percent, they are getting 7 percent, because they have to kick back 3 percent to us ... then they start scouring the agreement to try to get out of it," Kimble said. "What this is, is simply an attempt to get out of an obligation to pay us because somebody at Marvel made a mistake and didn't make Hasbro sign the agreement that they would pay the 3 percent."
Kimble added that there are new toys on the market now, and ones planned for the future still incorporate the ideas he related in the 1990 meeting.
Fleischer, appearing again for Marvel, said Section 9 is nothing more than a "release clause," and that all of Marvel's obligations to Kimble have been settled. Regardless of any other argument, Kimble's claims are barred by the statute of limitations and res judicata, he added.
"The agreement that's being sued on here is an agreement that says, if you choose to use any of the ideas that I have communicated verbally to you at a meeting in 1990, you have to negotiate a reasonable royalty with me before you do so," he said. "The court below held ... that the entry into the 2001 agreement is performance of that alleged oral agreement - it was full performance of it. And that, together with the suppression clause, puts the claim to rest."
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