October 20, 2020

Precedent snares Justices in Spider-Man toy royalty dispute

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By Tony Mauro, From Supreme Court Brief

During an intense U.S. Supreme Court debate recently over the patent for a toy related to Spider-Man, the name of the masked superhero was never uttered.

That was just one sign of how deep in the weeds of patent law the justices were wading as they heard arguments in two cases that could affect future patent litigation.

The Spider-Man-inspired case, Kimble v. Marvel Enterprises, tests whether royalties must end when the patent expires.

Stephen Kimble obtained a patent in 1991 for a toy allowing users to shoot foam “string” from a glove—just as Spider-Man would. Kimble met with Marvel and came to a verbal agreement that if Marvel used his concept in a product, he would be compensated. Marvel later told Kimble that it was not interested in his idea, but then created a “Web Blaster” toy with similar attributes.

Kimble sued for infringement and breach of contract and won a partial jury verdict. The two sides then came to an agreement in which Marvel would buy Kimble’s patent and give him a three percent royalty. The parties did not put an ending date on the royalty arrangement, which led to further litigation over when royalties have to end.

The justices seemed inclined to leave in place Brulotte v. Thys Co., a 51-year-old patent precedent that bars patent licensing agreements that extend royalty payments beyond the 20-year life span of patents.

“It may or may not be right, but there’s nothing incredibly sort of weird and anomalous about it,” Justice Elena Kagan said of the Brulotte case. She was one of several justices who seemed to embrace stare decisis and shied away from overturning such an entrenched precedent. Economists and others told the court in briefs that the rule was out of step with modern-day innovations, some of which take decades to find a market.

But Chief Justice John Roberts Jr., usually a fan of precedent, might be an exception on the issue, noting that the high court has overruled numerous precedents from the 1960s. “It’s a problem with the ’60s,” he joked.

Roman Melnik of Goldberg, Lowenstein & Weatherwax in Los Angeles argued for Kimble that Brulotte “should be discarded as a rule without a reason” that “suppresses innovation.”

But Marvel’s lawyer, Thomas Saunders of Wilmer Cutler Pickering Hale and Dorr, said the precedent should be preserved. “This issue has been off the table for 50 years,” he said. In numerous revisions of patent law, Saunders said, Congress has never felt the need to overturn Brulotte.

In the other patent case of the day, Commil USA v. Cisco Systems, the issue was whether patent infringers can escape liability by claiming that they believed the patent at issue was invalid. Justice Stephen Breyer, who reported owning Cisco stock on recent financial disclosure forms, recused himself in the case.

The dispute arose over Commil’s patent for an invention that improves wireless networks. The company claimed that Cisco infringed the patent directly by manufacturing products that used the patent, and indirectly by inducing infringement through sales of the products to third parties.

Cisco’s defense was that it was not liable for infringement because of its “good-faith belief” that the Commil patent was invalid to begin with. The defense was based on the 2011 Supreme Court decision Global-Tech Appliances v. SEB, which said that a claim of induced infringement requires “knowledge that the induced acts constitute patent infringement.”

A jury found Cisco liable and awarded damages of more than $63 million. Cisco appealed to the U.S. Court of Appeals for the Federal Circuit. That court ruled for Cisco, finding that the “good-faith belief” defense was valid.

Justices seemed divided over the defense, though at least one lawyer who watched the argument said the Federal Circuit might fare better than it usually does before the high court. David Tellekson, a partner with Fenwick & West, said, “One thing seemed clear, that the court was not going to retreat from or reinterpret its decision in Global-Tech.” He also noted that “with Justice Breyer not participating in the decision it will only take 4 votes to affirm the Federal Circuit decision.” A 4-4 tie would leave the Federal Circuit ruling intact.

But Kagan and other justices wondered whether accused infringers deserve to be able to shield themselves from liability. “Is there any other area of the law,” she asked, where defendants enjoy an affirmative defense, even when they might turn out to be wrong.

Former solicitor general Seth Waxman, now with Wilmer, said that without the defense, Cisco and other companies could have to shut down their production every time a patent holder sends them a letter claiming a patent is valid and is being infringed.

“Why shouldn’t you bear that risk?” Roberts asked skeptically. “Why do you require the patent holder to lose the value of his patent?”

Commil’s lawyer Mark Werbner of Sayles Werbner in Dallas agreed. Invoking the longstanding presumption of validity of patents, he said, “It would be wrong to allow the infringer to escape liability. If there’s a mistake, it should be borne by the infringer who made the mistake.”

IMAGE: Marvel Comics

For more on this story go to: http://www.nationallawjournal.com/supremecourtbrief/id=1202722208979/Precedent-Snares-Justices-in-SpiderMan-Toy-Royalty-Dispute#ixzz3W3xikS1N

 

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