June 2015

Patent Royalties Cannot Extend Past Patent Term

An unusual event happened at the Supreme Court today. An opinion issued where both the majority and dissent agreed that a past decision of that body didn’t make much sense. In Brulotte v. Thys Co., 379 U.S. 29 (1964), the Supreme Court of the United States decided that an agreement between a patentee and a third party to pay royalties past the term of a patent could not be enforced. This has been the law of the land since 1964, even though there was no economic justification for it. On June 22d, in Kimble et al. v. Marvel Entertainment, LLC, a majority decided to refrain from overturning the earlier court’s decision, based on the doctrine of stare decisis. Read more to find out what you should do today!

Stare decisis, which literally means “stands decided,” means that later courts “should stand by” the decisions of earlier courts, unless some special justification, “over and above the belief ‘that the precedent was wrongly decided,’” requires the court to overturn its prior precedent, quoting Halliburton Co. v. Erica P. John Fund, Inc., 573 U. S.  The doctrine of stare decisis is strongest for precedents relating to statutory interpretations of property and contract laws, because parties are especially likely to rely on precedent in property and contract negotiations when “ordering their affairs,” and Congress is free to overrule the courts by enacting legislation clarifying the statutory interpretation adopted by the courts. Payne v. Tennessee, 501 U. S. 808, 828, 827.

Regardless of how you feel about today’s decision, which will depend on whether you are a licensor or a licensee, the Kimble decision’s affirmation of Brulotte is good news for those involved in contract negotiations. We can rely on the law established by earlier courts, without fear that current precedent will be discarded lightly by future courts.

You should review every patent license to determine if any have royalties that extend past the term of the patent. If you need help determining the patent term, then contact us at (727) 201-2585.

When is a Lawsuit Too Late?
Laches is one of those terms that dates back to auld English courts of equity. So, I feel free to use expressions in this preamble, infrequently gracing the pages of my discourses. With some mirth, I have expressed with delight that in America everyone has an unfettered right to sue and be sued! Wisdom is always the best defense! In my experience, wisdom is so infrequently found in the office of barrister that one might suppose it to be held in great disdain. But I digress.

OK, back to simpler American English. Basically, in America it is easy to sue, and limits on suing and penalties for suing are few and far between. After all, lawyers write the rules, and lawsuits mostly benefit the lawyers. Usually, when I express these views, in good humor, I am speaking with a client that is asking whether or not his or her company could be sued for taking some action or for not taking some action. After establishing that there is no guarantee that a client will not be sued, we start a more rigorous discussion about whether or not a lawsuit might be successful, defenses available to my client and actions that my client might take to reduce the chances of a lawsuit. The purpose of this article is to discuss one defense that is often misunderstood, the defense of LACHES.

Laches is granted only when there is an unreasonable delay in bringing a lawsuit that prejudices the party asserting the laches defense. Laches is an historical defense that has been available only in equity; however, in America, rule 8(c) of the Federal Rule of Civil Procedure adds laches as an affirmative defense to a claim of copyright infringement. In contrast to laches, which focuses on reasonableness, statutes of limitations are laws enacted to specify a time limit for bringing a particular type of lawsuit. If you file a lawsuit after the date that the statute of limitations has run, the case can be dismissed, even if your delay in filing the lawsuit was entirely reasonable. In copyright, the statute of limitations to claim money damages is three years.

A split among the circuit courts of appeal developed in the application of rule 8(c), with some circuits applying laches, even if less than the statutory three years had run. This made it difficult to advise clients about this affirmative defense, because it depended on what region’s law applied. Now, the Supreme Court of the United States has spoken in Petrella v. Metro-Goldwyn-Mayer, case no. 12-1315, 572 U.S. ___ (2014), which overturned the Ninth Circuit’s application of laches prior to the three year statute of limitations in a copyright case.

Laches cannot be invoked as an affirmative defense to a lawsuit claiming damages that is brought within a statute of limitations set by federal law.

The proceeding sentence is my understanding of the impact and breadth of this case. Federal judges might disagree. I don’t know how. In my reading, the statute of limitations set by Congress in federal law prevails, because the purpose of the statute is to ensure uniformity in the federal courts. I can’t see how the holding of the Supreme Court in Petrella can be limited to only §507(b) in the Copyright Act. The logic of the majority extends to all federal statutes of limitations.

According to the court, arguments by MGM’s lawyers were “unavailing” to a majority of the Supreme Court justices.  These lawyers argued that rule 8(c) was a discrete affirmative defense available in every civil action to bar all forms of relief, regardless of any other defenses, such as statutory limitations.  The majority rejected this argument. According to the majority, “[s]uch an expansive role careens away from understandings, past and present, of the essentially gapfilling, not legislation-overriding, office of laches.” So, even Justice Ginsburg waxes eloquent when discussing laches. In plain American, laches was never intended for anything more than filling gaps where statutes do not specify a limitation on how long a plaintiff (someone wronged) has to file a lawsuit. Since statutory limitations set by federal law are intended to achieve uniformity, the Supreme Court was not willing to allow individual judges to set any time limit shorter than the limits enacted by Congress. With this reasoning behind the majority opinion, I don’t see any court granting an affirmative defense of laches if there is already a statute of limitations set by federal law. So, in copyright infringement cases, the statute of limitations on damages is three years. If you infringed someone’s copyright more than three years ago, breathe a sigh of relief, at least until we discuss tolling, but that is for another day.