SCOTUS' Spidey Sense
When the patent ran out for a Spiderman web-shooter toy, the licensor insisted that he was entitled to royalties anyway. Not so says the U.S. Supreme Court. A patent gives you a right to exclude others from using your invention. But that right only lasts 20 years. In the case of Kimble v. Marvel Enterprises (as in Marvel Comics), Kimble licensed the patented web-shooter toy to Marvel. When a dispute arose over the patent, the parties entered into a settlement agreement that provided for a lump sum payment and a 3% royalty. The agreement was silent about how long the royalty payments would last. When the patent ran out, Marvel got a judgment declaring that it didn’t have to pay royalties anymore. Kimble wasn’t happy and so he appealed. The case went all the way to the U.S. Supreme Court. SOCTUS decided that once the patent expires, the right to royalties expires too. So Marvel didn’t owe any more royalties.
TAKE AWAY: There could be any number of reasons why you would want royalties to last beyond the patent term. The obvious one is the availability of an income stream. But other considerations like tax consequences or estate planning can play a role. The best time to address those goals is when the license is being drafted. In a rare instance of practical advice from SCOTUS, Justice Kagen, writing for the majority, gave some examples of how this could work. For instance, the royalties could be limited by the patent term but amortized over a longer period of time. Or the royalties can be related to a non-patent right, like a trade secret or trademark. No doubt there are other creative solutions depending on the circumstances.