Kimble v. Marvel Enter., Inc.

A “hybrid” license agreement with inseparable patent and non-patent rights that includes royalty payments beyond the patent’s expiration is unenforceable after expiration unless the agreement includes a discount rate for the non-patent rights.

Stephen Kimble invented and patented a foam-shooting Spider-Man toy. Afterwards, Kimble met with Marvel Enterprises Inc. (“Marvel”), and they made an agreement to compensate Kimble if Marvel used his idea. Marvel later manufactured a similar toy without compensating Kimble, and Kimble sued. A judge ruled for Marvel on the patent claim and a jury found for Kimble on the breach of contract claim. During appeal, the parties made a settlement agreement (“the Agreement”) where Marvel purchased the patent and would pay Kimble royalties on net sales. There was no expiration date for Marvel’s obligation. Later, Marvel entered a licensing agreement with Hasbro, giving them the right to produce certain toys, including Kimble’s design. Kimble sued Marvel claiming breach of contract regarding royalties for Hasbro’s sales of his design and subsequent iterations. The district court found the Agreement was a “hybrid” agreement that transferred both patented and non-patented rights, and according to Brulotte v. Thys Co., Kimble could not receive royalties beyond the expiration of the patent. The Ninth Circuit reviewed de novo and affirmed, citing the Supreme Court’s rules in Brulotte and Aronson v. Quick Point Pencil Co. The panel held that a “hybrid” license with inseparable patent and non-patent rights and royalty payments beyond the patent’s expiration is unenforceable for the post-expiration term unless the agreement includes a discount rate for the non-patent rights. The panel found that the Agreement was unenforceable past the patent expiration because it only provided for one rate and did not have a discounted rate for non-patent rights. Additionally, there was no clear indication that the royalties were not subject to patent leverage because the plain language of the agreement concerned the patent and patent rights. AFFIRMED.