Sunday, September 1, 2013

Marvel's Web Blaster Toy: Are Royalties Payable in a Patent License After a Patent has Expired?

In May 1990, inventor Stephen Kimble filed an application to patent a toy designed to allow a person to shoot "webbing" from the palm of his hand using a hidden pressurized container full of string foam. The container is incorporated into a glove. Kimble secured the patent in the US (US Patent No 5.072,856). (The patent attorney who drafted the specification amusingly included the following in the description of the prior art: All kinds of shooting toys have been designed and built over time for the amusement of children and adults alike. Water is normally the medium used as projectile and water guns are the most common type of toy utilized for this purpose. They come in the shape of hand guns, rifles, machine guns, and other configurations allowing the player to squirt water from various parts, often hidden, of his or her body. The mind boggles.)

Kimble offered his design to Marvel Enterprises, Inc. Marvel's Spider-Man character has the ability to shoot webbing from the palm of his hands, and so Marvel was an obvious partner in any exploitation of the invention. Indeed, it was clear from the patent specification that this was what Kimble had in mind: “Accordingly, this invention creates a toy that makes it possible for a player to act like a spider person by shooting webs from the palm of his or her hand.”

Marvel said to Kimble that they would consider his designs for the web-shooting toy and that he would receive royalties if they ever make a toy out of it. However, Marvel then launched a Spider-Man toy called the "Web Blaster." The toy bears similarities to Kimble's designs.



Kimble initially sued for breach of contract. Marvel obtained summary judgment that they had not infringed Kimble's rights, but the claim for breach of contract was eventually upheld. After appeals from both sides, Marvel and Kimble came to an agreement where Kimble was awarded a lump sum and ongoing royalties at a rate of 3% of net product sales. Kimble, on the other hand, agreed to assign his rights to Marvel and dropped all claims against the company.

Curiously, there was no expiration date on their agreement. This gave Kimble a reason to file another suit recently, claiming that Marvel had breached the settlement agreement for failing to pay once it sold its toy division to Hasbro. Marvel’s defence was that it was no longer obligated to pay the inventor because the patent to the Web Blaster toy expired in 2010.

A federal judge initially ruled in favor of Marvel, but Kimble appealed, arguing that both patented and "non-patented" rights were transferred, and that the patent's expiration did not negate the non-patented rights.

Kimble's case was dismissed by a three-judge panel following authority which deems agreements that require a licensee to provide royalty payments beyond the expiration date of the applicable patent are unenforceable, as it is tantamount to an "improper attempt to extend the patent monopoly."

In the Court's words:
“The rule that follows, in relevant part, is that a license for inseparable patent and non-patent rights involving royalty payments that extends beyond a patent term is unenforceable for the post-expiration period unless the agreement provides a discount for the non-patent rights from the patent-protected rate.  This is because – in the absence of a discount or other clear indication that the license was in no way subject to patent leverage – we presume that the post-expiration royalty payments are for the then-current patent use, which is an improper extension of the patent monopoly under Brulotte.”

What does this mean for licensors of technology in the US? First, ensure that the agreement has a term which matches that of the duration of the patent. Second, if the license includes rights which are not the subject of patent protection, ensure that these (and the rationale for the extended duration of the license) are fully-fleshed out in the license agreement. If, for example, trade mark rights or copyright which is the subject of the licence outlast the patent-related rights, the ensure that the license agreement allows the patent-related rights to fall away while permitting the license of the other rights to continue.

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