WASHINGTON (CN) – The Supreme Court agreed Friday to say whether Marvel owes royalties to the inventor of a Spider-Man toy after the expiration of his patent.
Stephen Kimble had first sued Marvel Entertainment in 1997 over the Web Blaster, a toy that simulates web-slinging with foam string.
After a jury trial and a settlement, the parties eventually agreed Kimble deserved 3 percent of royalties for toys that infringed his original patent for a “toy web shooting glove.” They determined that the Web Blaster did not infringe the patent but did incorporate ideas disclosed under an oral agreement that the Tucson, Ariz.-based inventor-attorney reached with Marvel at a 1990 meeting in New York.
Kimble, who has collected some $6 million from the agreement, sued Marvel again in 2008 with fellow Tucson attorney Robert Grabb. They argued this time that the company had breached the settlement by failing to pay royalties after it sold its toy-making arm to Hasbro. Marvel contended that the settlement did not require it to pay Kimble after his patent expired in 2010. A federal judge ruled for Marvel, and Kimble appealed to the 9th Circuit, arguing that the settlement had transferred both patented and “non-patented” rights, both at 3 percent, and that the latter of which did not end when the patent ran out.
A three-judge panel in San Francisco reluctantly shot him down last year, citing U.S. Supreme Court precedent from the case Brulotte v. Thys Co.
That “frequently criticized” 1964 decision prohibits licensing agreements that require royalty payments beyond the patent’s life as an “improper attempt to extend the patent monopoly,” the appellate panel noted.
“We acknowledged that the Brulotte rule is counterintuitive and its rationale is arguably unconvincing,” Judge Consuelo Callahan wrote for the panel. “Nonetheless, recognizing that we are bound by Supreme Court authority and the strong interest in maintaining national uniformity on patent law issues, we have reluctantly applied the rule.”
The only way that such a “hybrid” agreement could last beyond the expiration of the patent is if it “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,” the panel added.
Callahan seemed to regret that Supreme Court precedent had in this case robbed Kimble of “part of the benefit of his bargain based upon a technical detail that both parties regarded as insignificant at the time of the agreement,” but said the court was obligated to follow it nonetheless.
“The patent leverage in this case was vastly overshadowed by what were likely non-patent rights, and Kimble may have been able to obtain a higher royalty rate had the parties understood that the royalty payments would stop when the patent expired,” Callahan wrote. “Nonetheless, Brulotte and its progeny are controlling. We are bound to follow Brulotte and cannot deny that it applies here.”
The Supreme Court took up Kimble’s petition for certiorari regarding this case Friday.
Its order contains no mention of the 9th Circuit’s separate unpublished opinion from last year in which it found the settlement agreement ambiguous under New York law.
Kimble’s settlement includes a clause stating that it “contains the entire agreement,” and “supersedes all prior and contemporaneous arrangements or understandings,” the ruling says. The settlement’s release clause meanwhile “explicitly excepted Marvel’s obligations under the settlement agreement and its ‘obligations under the alleged verbal agreement,'” according to the ruling.
“Thus, on its face, the settlement agreement is ambiguous,” Callahan wrote. “Contrary to Marvel’s contention, Marvel’s act of agreeing to the settlement agreement did not discharge its obligations under the verbal agreement if the settlement agreement, by its own terms, preserved those very obligations.”
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