Argument analysis: Justices apparently dubious about overturning long-standing precedent on patent misuse
on Apr 2, 2015 at 1:24 pm
The Court finished its patent day for this month, hearing what presumably will be the last patent case of the Term: Kimble v. Marvel Enterprises. The dispute has nothing to do with any of Marvel’s characters, but rather with a patent for a string-shooting toy. The parties settled protracted litigation with a royalty agreement in which Marvel agreed to pay three percent of product sales in return for Kimble’s patent. That provision apparently runs afoul of the Supreme Court’s oft-criticized 1964 decision in Brulotte v. Thys Co., holding that a patent-holder cannot collect royalties after the patent expires. After the Ninth Circuit reluctantly agreed that Brulotte invalidated the agreement, the Court granted review for the express purpose of considering whether it should overrule Brulotte.
If the argument provides any reliable guide to the Justices’ thinking, it suggests that several of the Justices are quite dubious about the benefits of rejecting Brulotte. The Justices sparred in a desultory way with Thomas Saunders (arguing for Marvel in favor of the status quo), challenging him to explain the economic benefits of the rule. They left Malcolm Stewart, arguing for the government, also in support of the status quo, largely uninterrupted. But their treatment of Roman Melnik (seeking rejection of Brulotte on behalf of the inventor Kimble) was almost unrelentingly skeptical.
The two most persistent questioners were Justices Elena Kagan and Stephen Breyer, both of whom seemed quite plainly to finish their discussions as dubious as they were when they began them. Justice Kagan’s comments started from the premise that the Court should overrule statutory decisions only when there are “special circumstances.” So she repeatedly challenged Melnik to identify any argument other than “different variants of ‘Brulotte is wrong.’”
So, for example, she pushed Melnik to explain how Brulotte can have any practical consequence if it can so easily be avoided by use of a joint venture between the patentee and the user. Although she pressed the point several times, Melnik never managed to articulate an answer that seemed persuasive to her. Kagan summarized her thoughts on that point: “[To] the extent that we think something is not really causing a problem in the real world, why overrule something?”
She also challenged him to establish that the rule was so egregiously wrong as to warrant rejection: “Usually we ask for something that says this is just unworkable. That’s not this. Or we say this is completely anomalous. It’s a relic of a past system that is utterly out of kilter. I don’t think that’s this either, you know. It may or may not be right, but there’s nothing incredibly sort of weird and anomalous about it.”
The discussion eventually devolved into something of a monologue, in which she suggested that Kimble was seeking a special rule for economic analysis: “[W]hat it seems to me you are arguing for is a new rationale for when to depart from statutory stare decisis, and that new rationale is when a prior decision is based on what we now view to be naïve economics. I mean, that’s the fundamental argument here, isn’t it?” As the quotation suggests, her tone did not suggest any support for such a rule.
Melnik faced even more persistent questioning from Justice Breyer. His line of questioning rested directly on the principal point of Marvel’s brief, that Brulotte makes sense as a matter of patent policy, regardless whether it works as antitrust policy. From that view, he interrupted Melnik’s argument that royalties should be available even after a patent expires, to ask:
I just wonder how you reconcile that with the Constitution’s requirement that patents are for limited terms, and the statute which says the limited term is 20 years. Because if that means something, I suppose it means that after that statutory period of 20 limited years people can use that intellectual property for free. Now if it doesn’t mean that, what does it mean?
Melnik repeatedly offered the only answer he had, the consensus of informed economic analysts that the rule has no justification in economic analysis. Unfortunately for Melnik, Breyer regarded that response as wholly evasive, and so returned again and again, with apparently increasing irritation to his original inquiry:
My simple question was how you reconcile the fact that everybody is paying a lot of money to use this intellectual property [after the patent expires] with what seems a statute and a Constitution that say it should be free at the time. That’s what I’m asking. I don’t want to ask it again because I don’t like to ask a question more than four times.
As the discussion above should illustrate, the Justices seemed to receive the arguments through the same frame as they received the arguments last Term in Halliburton, when they considered, but ultimately rejected, the idea that they should overrule Basic v. Levinson. If the argument is a fair guide, it seems likely that when the dust settles at the end of the Term Brulotte will remain a part of the landscape of patent licensing.