July 16, 2013 2:17pm PT by Eriq Gardner
Appeals Court Frees Marvel from Spider-Man Toy Deal
Marvel Enterprises will no longer have to pay royalties to Stephen Kimble, the inventor of a Spider-Man toy called the Web Blaster that allows users to mimic the character's web-shooting abilities with a foam string.
On Tuesday, the Ninth Circuit Court of Appeals begrudgingly gave Marvel a victory on the basis that the Supreme Court has restricted the kinds of contracts that can be made with patent owners.
Real money was at stake here. Since the product's invention in 1990, Kimble has earned $6 million in royalties from an agreement with Marvel that allowed him three percent of net product sales.
Today's ruling (read in full here) was 23 years in the making.
In 1990, after Kimble patented his idea for a toy that was activated via a trigger attached to a valve in the palm of a glove, the inventor met with the president of one of Marvel's predecessor companies.
Marvel passed on the idea, and after the company began manufacturing a similar Spider-Man role-playing toy, Kimble sued in 1997 for patent infringement and a claim that the company had breached a contract to pay him for use of his idea. The patent claim was dismissed, but a judge ruled there were genuine issues of fact precluding summary judgment on the contract claim, entering a judgment that awarded him 3.5 percent of sales. Both sides appealed.
In 2001, the parties came to a settlement agreement. As part of the deal, Marvel purchased the patent for more than $516,000 and also agreed to give him 3 percent of net product sales. (Kimble later sold an interest in his property to Robert Grabb, a co-appellant.)
That meant harmony until 2006, when Marvel licensed the rights to the Web Blaster to Hasbro. Thereafter, there was disagreement about the calculation of royalties, especially for the toys that were packaged with other role-play items like Spider-Man masks. (In a sense, this was the toy industry's version of the Alan Ladd "straight-lining" case.)
Kimble then filed a new lawsuit for breach of contract, and Marvel submitted counterclaims that sought a declaration that it was no longer obligated to pay Kimble based on the sale of products after the expiration of his patent.
That has the 9th Circuit reviewing Brulotte v. Thys Co., a 1964 Supreme Court decision which forbids patent holders from collecting royalties after the expiration date of the patent. Where it gets tricky is so-called "hybrid agreements" that allow for payments during the patent period and nonpatent period. In baseball, this would be equivalent to the Los Angeles Dodgers agreeing to lock up a young superstar beyond his early restricted free agent years.
Courts around the nation have been dubious about royalty payments under hybrid agreements, not wishing to allow patent holders to use their leverage in the early years of a patent's issuance. The 9th Circuit has been more careful on this topic, reviewing a later 1979 Supreme Court case and holding that there should at least be a discount in the post-expiration period.
On appeal, Kimble argued that the settlement agreement with Marvel distinguishes between patent and nonpatent rights and that Brulotte did not apply. 9th Circuit Judge Consuelo Callahan writes, "We cannot agree because the agreement plainly involved one royalty rate for both patent and Web Blaster rights, with no discount or other clear indication that the Web Blaster royalties were not subject to patent leverage."
The judge doesn't seem very happy with coming to the conclusion that Kimble will be deprived the benefits of his bargain with Marvel. She cites criticism of Brulotte from the 7th Circuit that noted that allowing patent-owners to make these kinds of deals doesn't really extend the patent period because after the expiration of the patent, anybody is free to make the patented product without being guilty of infringement.
Unfortunately for Kimble, the inventor might have been able to get more for his Web Blaster invention had he known what was coming. "Kimble may have been able to obtain a higher royalty rate had the parties understood that the royalty payments would stop when the patent expired," writes Judge Callahan. "Nonetheless, Brulotte and its progeny are controlling."
The inventor of a Spider-Man web-shooting toy won't be able to ensnare Marvel over any more royalties. Here's what appears to be an advertisement for the production in question: