Spider Man and the tangled web of the Kimble v. Marvel decision
This article was first published in Inside Counsel on July 22, 2015:
In the early 1990s, Tuscson resident Stephen Kimble patented an amazing invention. It was a real-life web-shooter that could blast bad guys – or one’s little brother – at the incredible range of about three feet. Granted, this patent was for a toy that only fired foamy string, not Spider-Man’s stronger-than-steel thread, but it was nevertheless a rather ingenious idea. It was a device that not only allowed kids to exercise their imaginations, it also permitted them to make a big mess without getting yelled at!
Original drawings from Kimble’s patent: U.S. Patent #5,072,856
So what happened? How did the inventor of such a popular plaything end up in a 20-year battle against Marvel and its universe of superheroes? And why did the Supreme Court choose not to stick up for the “little guy” in this one-sided fight? Well, the story might not be as exciting and concise as a 28-page fantasy magazine, but it does have some interesting plot twists. And just like most graphic novels, it ends with a cliffhanger that leaves readers wanting more.
The tale begins over a decade before the first Spider-Man movie hit the theaters in 2002 (the one that would have been really good if Willem Dafoe had not worn such a silly-looking bad guy costume). Kimble, who liked to spend time with his son reading comic books, came up with a viable way of connecting a can of aerosol foam to a valve concealed in a glove. By touching a trigger hidden in the palm of the glove, the pressurized string would stream out just like Spider-Man’s webbing (sort of).
In 1990, while waiting for his patent on this invention (which he secured on December 17, 1991), Kimble took his design to Marvel Enterprises (then known as Toy Biz). The inventor claims that even though his proposal was ultimately rejected, Marvel promised to pay him if it ever did decide to use his idea. Not long thereafter, Marvel came out with its Web Blaster®, a toy very similar to the one created by Kimble, but without offering Kimble any type of remuneration.
Kimble claims he found out about Marvel’s product when a friend called to congratulate him after seeing the toy advertised on television. Kimble then sued Marvel in 1997 for both patent infringement and breach of contract. And though he lost his infringement claim, the jury found that Marvel had, in fact, violated a verbal contract and that Kimble should be awarded damages of “3.5% of net product sales, past, present and future…” However, that court decision merely marks the beginning of this saga.
Both parties appealed the decision, but while the appeal was pending, the two sides decided to settle in 2001. Marvel agreed to buy the rights to Kimble’s patent for $516,214.62, and to pay Kimble a royalty of 3 percent of net product sales (ultimately totaling over $6 million) with no expiration date. Thus, it appeared that this story was ending with “And they all lived happily ever after.” But alas, any comic book fan will tell you that Marvel’s gritty stories never conclude with such a blissful fairytale ending.
The Fight Begins
Before long, Marvel began producing new iterations of the toy, they began packaging the Web Blaster® with other products, and, beginning in 2006, Marvel gave Hasbro the rights to manufacture the Web Blaster®. All of these factors made calculating Kimble’s royalties increasingly complex. Kimble felt he was being cheated out of his fair share and, soon, the parties were battling it out once again before a judge and jury. But this time around, litigation did not go so well for Kimble.
Marvel just happened to “stumble across” a 50-year old Supreme Court case, Brulotte v. Thys Co. (1964), which held that royalties had to end when the patent expired. Therefore, Marvel argued, since the settlement with Kimble was a “hybrid” licensing agreement (one encompassing inseparable non-patent and patent rights), the expiration of Kimble’s patent in 2010 sunset the royalty provision, making it unenforceable. The district court agreed and granted summary judgment in favor of Marvel.
On appeal, the Ninth Circuit reluctantly upheld the lower court’s decision even though it found the rationale behind Brulotte to be “counterintuitive” and “arguably unconvincing.” The court also acknowledged that in applying this bright-line rule, licensors who did not know of Brulotte when making a license agreement – people such as Kimble – would effectively be robbed of the benefit of the bargain. Nonetheless, the court held that it was bound by Supreme Court authority to uphold the Brulotte Rule:
The Seventh Circuit has also upheld Brulotte, but has similarly criticized the reasoning behind the rule. In Scheiber v. Dolby Labs (2002), for example, Judge Posner wrote that post-expiration royalties are not an extension of a patent monopoly as they do not exclude others from making, using, selling, or importing the invention after the patent’s expiration. Therefore, Posner argued post-expiration royalties should not be per se unlawful.
Despite these defeats, Kimble refused to give up. In true superhero fashion, the lone inventor took his fight with the corporate giant Marvel all the way to the top. He petitioned the Supreme Court, and on December 12, 2014, the Court granted certiorari. Kimble’s petition defined the question presented as simply: Whether this Court should overrule Brulotte v. Thys Co. 379 U.S. 29 (1964). Many legal scholars believed that, after waiting a half century, the Supreme Court would finally overturn this decision.
The Supreme Court Battle
In his cert petition, Kimble noted that both the Justice Department and the Federal Trade Commission believe that Brulotte discourages innovation by limiting licensing practices that encourage competition (e.g. spreading out lower royalty payments over a longer period of time to allocate the risk of financing). Kimble further pointed out that the presumption that a patent automatically confers market power and improper leverage over licensees (a key assumption in Brulotte) has long since been abandoned.
Unfortunately for Kimble, a 6-3 majority rejected the inventor’s argument that the rigid per se rule of Brulotte should be abandoned in favor of a case-by-case analysis based on the “rule of reason.” The Court explained that such a drastic change would complicate and destabilize the legal principles upon which license drafters rely. Therefore, according to the majority, the issue of whether the present rule should be replaced is “more appropriately addressed to Congress.”
Justice Kagan, who wrote the majority opinion, cleverly laced her comments with comic book references and Spider-Man quotes. “What we decide, we can undecide,” she wrote. “But stare decisis teaches that we should exercise that authority sparingly [because] ‘In this world, with great power there must also come – great responsibility’.” She also referred to “a web of precedents” and noted that “Patents endow their holders with certain superpowers, but only for a limited time.”
Justice Alito did not take time to drop quips about Spider Man in his dissent, and he clearly did not find the issues at stake to be light and humorous. Alito called Brulotte “a bald act of policymaking” that was based on debunked economic theory, and he argued that no support for the Court’s holding could be found in the Patent Act. In short, Alito disagreed that post-expiration royalties were in anyway an anti-competitive arrangement.
Alito stated, “A licensing agreement that provides for the payment of royalties after a patent’s term expires does not enlarge the patentees monopoly or extend the term of the patent. It simply gives the licensor a contractual right.” He further noted that Brulotte interferes with parties’ ability to freely negotiate a contract that reflects the true value of a patent, and that it forces parties to compress payments into a shorter period of higher fees.
The Marvel v. Kimble decision means that the bright-line rule will continue to apply until the Supreme Court feels justified to overturn Brulotte. But, as Justice Kagan pointed out, Brulotte does not prevent parties from deferring payments for pre-expiration use of a patent, tying royalties to non-patent rights, or making other non-royalty based business arrangements (such agreements are commonly necessary for products that do not reach the commercialization stage until late into their patent term).
Parties must nevertheless be very careful when entering agreements that extend beyond the expiration of the applicable patent, and the drafting of such a contract may go beyond the ability of mere mortals. Inventors and other producers are therefore well-advised to seek the assistance of mighty legal counsel before attempting such a feat. A patent attorney with superhuman skills and experience can craft an agreement that can work around the limitations of Brulotte so that licensors can still reach their goals.
Jeffrey C.P. Wang is the managing partner and founder of WHGC, P.L.C. Mr. Wang’s practice focuses on handling the legal concerns of international and domestic…