Innovation Asset Blog

Contract oversight leads to unexpected loss of licensing revenue

An Arizona inventor was recently forced to swallow a bitter pill after a lucrative stream of patent licensing revenue was cut off by the application of a controversial Supreme Court precedent.

In 1990, Tucson native Stephen Kimble was came up with a unique children's toy inspired by Marvel Comic's popular Spider-Man franchise and decided to file a patent protecting his design. Soon after, he approached Marvel to see if the company would be interested in becoming a licensee. The company declined the offer at the time, according to Bloomberg, and ultimately developed a similar product in-house years later.

In 2001, Kimble sued Marvel for patent infringement - in addition to breach of a verbal contract which implied he would be appropriately compensated if the company ever commercialized the toy idea. Marvel elected to settle the dispute, according to Bloomberg, purchasing the disputed patent for $500,000 and agreed to a 3 percent royalty rate on future sales. Although Kimble did not recognize the risk at the time, the key contract provision was that no end date was specified for these payments.

This week, an appellate court confirmed that Kimble was not entitled to receive any royalties after the original patent expired in May 2010, citing precedents set in a 1964 Supreme Court case (Brulotte v. Thys Co.). According to PatentlyO, the only way Kimble could have continued to receive royalties would have been to install clauses in the original agreement dictating that a lesser rate would be paid upon patent expiry. While this is not a new interpretation of case law, according to the news outlet, it does serve as a vital reminder that royalty rates and timelines must be carefully delineated before entering into any patent licensing agreement.

Peter Ackerman

Peter Ackerman

Founder & CEO, Innovation Asset Group, Inc.