Supreme Court of the United States

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1 No IN THE Supreme Court of the United States STEPHEN KIMBLE, ET AL., PETITIONERS, V. MARVEL ENTERPRISES, INC., RESPONDENT. On Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit BRIEF OF AMICUS CURIAE WILLIAM MITCHELL COLLEGE OF LAW INTELLECTUAL PROPERTY INSTITUTE IN SUPPORT OF RESPONDENT R. CARL MOY Counsel of Record William Mitchell College of Law Intellectual Property Institute 875 Summit Avenue Saint Paul, MN (651) MARCH 6, 2015

2 i TABLE OF CONTENTS TABLE OF AUTHORITIES ii INTEREST OF AMICUS CURIAE SUMMARY OF ARGUMENT ARGUMENT A. This Court has Already Rejected the Assumptions on Which Petitioner s Position Rests B. Brulotte is Supported by a Century of This Court s Decisions CONCLUSION

3 ii TABLE OF AUTHORITIES CASES page A.B. Dick Co. v. Milwaukee Office Specialty Co., 168 F. 930 (C.C.E.D. Wis. 1908) Adams v. Burke, 84 U.S. 453 (1873) Aeolian Co. v. Harry H. Juelg Co., 155 F. 119 (C.C.A. 2d Cir. 1907) Bauer & Cie v. O'Donnell, 229 U.S. 1 (1913) , 4, 7, 9 Bobbs-Merrill Co. v. Straus, 210 U. S. 339 (1908) Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8 (1918) , 4, 10 Brulotte v. Thys Co., 379 U.S. 29 (1964).... passim Carbice Corporation of America v. American Patents Development Corporation, 283 U.S. 27 (1931) , 11 Commercial Acetylene Co. v. Autolux Co., 181 F. 387 (C.C.E.D. Wis. 1910) Cortelyou v. Lowe, 111 F (C.C.A. 2d Cir. 1901)

4 iii Ethyl Gasoline Corporation v. U.S., 309 U.S. 436 (1940) , 11, 13 General Talking Pictures Corporation v. Western Electric Co., 305 U.S. 124 (1938).. 8, 11 Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., 77 F. 288 (C.C.A. 6th Cir. 1896) , 5 Henry v. A.B. Dick Co., 224 U.S. 1 (1912) Keeler v. Standard Folding Bed Co., 157 U.S. 659 (1895) Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661 (1944) Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917) , 4, 8 National Phonograph Co. v. Schlegel, 128 F. 733 (C.C.A. 8th Cir. 1904) Rupp & Wittgenfeld Co. v. Elliott, 131 F. 730 (C.C.A. 6th Cir. 1904) Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249 (1945) , 12 Straus v. Victor Talking Mach. Co., 243 U.S. 490 (1917) , 4, 8, 10

5 iv The Fair v. Dover Mfg. Co., 166 F. 117 (C.C.A. 7th Cir. 1908) U.S. v. General Electric Co., 272 U.S. 476 (1926) , 11 U.S. v. Masonite Corporation, 316 U.S. 265 (1942) , 11 U.S. v. Univis Lens Co., 316 U.S. 241 (1942)... 8, 11 United States v. Motion Picture Patents Co., 225 F. 800 (E.D. Pa. 1915) Victor Talking Mach. Co. v. The Fair, 123 F. 424 (C.C.A. 7th Cir. 1903) Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969) , 13

6 v STATUTES AND LEGISLATIVE MATERIALS page 35 U.S.C Machlup, Fritz, An Economic Review of the Patent System, Study no. 15 of the Subcommittee on Patents, Trademarks, and Copyright of the Committee of the Judiciary of the United States Senate, 85 th Cong., 2 nd Sess., (1958)

7 vi SECONDARY AUTHORITIES page Robinson, William C., A Treatise on the Law of Patents for Useful Inventions 915, 916 (1890) Vaughan, The Economics of Our Patent System (1925)

8 1 INTEREST OF AMICUS CURIAE 1 The Intellectual Property Institute is an entity within William Mitchell College of Law. The mission of the Institute is to foster and protect innovation through education, research, and service initiatives. Among its activities, the Institute advocates for the responsible development and reform of intellectual property law, including patent laws and the patent system of the United States. A purpose of the Institute is to raise issues and arguments in light of the public interest and the best interests of the patent system as a whole. The Institute has no financial interest in any of the parties to the current action. 1 Pursuant to Supreme Court Rule 37.6, no counsel for a party authored this brief in whole or in part, and no counsel or party made a monetary contribution intended to fund the preparation or submission of this brief. No person other than amicus curiae or its counsel made a monetary contribution to its preparation or submission. Additionally, counsel for both parties have consented to the filing of this brief, and their consents have been filed with the Clerk of this Court.

9 2 SUMMARY OF ARGUMENT Petitioner and many of their amici misperceive the basic nature of this Court s decision in Brulotte v. Thys Co. 2 That decision is not based on the law of antitrust; it does not assume nor require that the subject patent confer market power. Instead, Brulotte is part of a long series of decisions by this Court that develop and apply a specific interpretation of the patent statute. 3 Under this interpretation, the patent owner s rights in the patented invention do not resemble the rights that exist over traditional forms of property. Rather, the patent owner possesses only the rights that are stated in the patent grant expressly: the right to permit making, to permit use, to permit sale, and so on. 4 This statutory interpretation was announced by this Court over a century ago. 5 At that time, it overturned an entire of line decisions that viewed patent owners rights much more expansively. Since 2 Brulotte v. Thys Co., 379 U.S. 29, 31 (1964). 3 See, e.g., Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917) U.S.C See, e.g., Bauer & Cie v. O'Donnell, 229 U.S. 1, (1913). See also, e.g., Straus v. Victor Talking Mach. Co., 243 U.S. 490 (1917); Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8 (1918).

10 3 then, it has been adhered to, and has formed the basis for both the legal rules relating to patent exhaustion and patent misuse. The holding in Brulotte is itself a short, rather unremarkable extension of these principles to the enforceability of patent licenses. 6 The Institute believes that it is not especially troubling, and should be retained. Overruling Brulotte, in contrast, would risk calling the entire line of related cases into question. ARGUMENT A. This Court has Already Rejected the Assumptions on Which Petitioner s Position Rests Petitioner would have this Court believe that the reasoning in Brulotte is outmoded, and that adopting Petitioner s own analysis would be a modernizing improvement. The truth is exactly the opposite. Stripped to its basics, Petitioner s analysis repeats a view of patent owners rights that was being espoused at least as early as the 19 th Century. 7 Indeed, United 6 See generally, e.g., Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 256 (1945); Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, (1969). 7 See, e.g., Adams v. Burke, 84 U.S. 453, 457 (1873) (J. Bradley, dissenting); Keeler v. Standard Folding Bed Co., 157 U.S. 659, 667 (continued...)

11 4 States patent law adopted that view as controlling for several decades in late 19 th and early 20 th Centuries. 8 The law and business practices that developed during that time proved highly unacceptable and, beginning in 1913, this Court discarded them in favor of a sharply different view. 9 Under this newer analysis the rights of the patent owner are much more limited, and insufficient to support the modifications to Brulotte that Petitioner is suggesting. These earlier, now discarded decisions arose from the need to determine whether patent owners could restrict the handling of patented articles after transferring them to a customer. Starting in 1896, with the Sixth Circuit decision Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., 10 the lower courts settled for a time on the view that such restrictions would be given effect, provided that the patent owner had imposed them expressly in the initial 7 (...continued) (1895) (J. Brown, dissenting). 8 See, e.g., Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., 77 F. 288 (C.C.A. 6th Cir. 1896); Henry v. A.B. Dick Co., 224 U.S. 1 (1912). 9 See, e.g., Bauer & Cie v. O'Donnell, 229 U.S. 1, 17 (1913); Straus v. Victor Talking Mach. Co., 243 U.S. 490, 501 (1917); Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 516 (1917); Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8, (1918). 10 See, e.g., Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., 77 F. 288 (C.C.A. 6th Cir. 1896).

12 5 transaction. The Button-Fastener decision viewed the patent owner as having rights that were extensive. Under Button-Fastener, the patent owner could impose restrictions not only by contract, but also by withholding a portion of the title to the patented article being transferred. 11 Authorities from the time make it clear that this view was based on an extensive analogy between rights in patented inventions and rights in other forms of property, 12 coupled with freedom-ofcontract Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., 77 F. 288 (C.C.A. 6th Cir. 1896). 12 See, e.g., Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., 77 F. 288, 291 (C.C.A. 6th Cir. 1896); Henry v. A.B. Dick Co., 224 U.S. 1, 24 (1912) ( The property right to a patented machine may pass to a purchaser with no right of use, or with only the right to use in a specified way, or at a specified place, or for a specified purpose. The unlimited right of exclusive use which is possessed by and guaranteed to the patentee will be granted if the sale be unconditional. But if the right of use be confined by specific restriction, the use not permitted is necessarily reserved to the patentee. If that reserved control of use of the machine be violated, the patent is thereby invaded. This right to sever ownership and use is deducible from the nature of a patent monopoly and is recognized in the cases. ). 13 See, e.g., Henry v. A.B. Dick Co., 224 U.S. 1, (1912) ( The books abound in cases upholding the right of a patentee owner of a machine to license another to use it, subject to any qualification in respect of time, place, manner, or purpose of use which the licensee agrees to accept. ). See also, e.g., 3 Robinson, William C., A Treatise on the Law (continued...)

13 6 The result was, for a time, a system that allowed patent owners to impose restrictions on patented chattel similar to restrictive covenants and equitable servitudes in real estate. In it, patent owners were able to sue as infringers even remote persons who had come into possession of the patented articles by repurchase, if the new possessor s activities were beyond the restrictions imposed on the initial transferee. As this analysis gained acceptance, the practice of restricting title in patented articles became commonplace. 14 Frequently this involved imposing limits on the price at which the patented article could be resold, and requiring that unpatented supplies be purchased from the patent owner. This latter type of restriction then led to suits against suppliers of staple articles, for contributory infringement. 13 (...continued) of Patents for Useful Inventions 915, 916 (1890). 14 See, e.g., Cortelyou v. Lowe, 111 F (C.C.A. 2d Cir. 1901); Victor Talking Mach. Co. v. The Fair, 123 F. 424 (C.C.A. 7th Cir. 1903); National Phonograph Co. v. Schlegel, 128 F. 733 (C.C.A. 8th Cir. 1904); Aeolian Co. v. Harry H. Juelg Co., 155 F. 119 (C.C.A. 2d Cir. 1907); The Fair v. Dover Mfg. Co., 166 F. 117 (C.C.A. 7th Cir. 1908); Rupp & Wittgenfeld Co. v. Elliott, 131 F. 730 (C.C.A. 6th Cir. 1904); A.B. Dick Co. v. Milwaukee Office Specialty Co., 168 F. 930 (C.C.E.D. Wis. 1908); Commercial Acetylene Co. v. Autolux Co., 181 F. 387 (C.C.E.D. Wis. 1910); Henry v. A.B. Dick Co., 224 U.S. 1 (1912). See also, e.g., Vaughan, The Economics of Our Patent System 258 (1925).

14 7 For about 15 years, this view based on property and freedom-of-contract spread without direct approval from this Court. Finally, this Court indicated its approval in a 1912 decision, Henry v. A.B. Dick Co. 15 There, the majority of a divided Court relied on the view to approve a suit for contributory infringement against the seller of unpatented supplies. The very next year, however, this Court began what proved to be a permanent break from the preceding decisions. In a 1913 decision, Bauer & Cie v. O'Donnell, 16 the Court refused to apply the reasoning of Button-Fastener and A.B. Dick to resale price maintenance. Instead, the Court adopted the reasoning of a 1908 copyright decision, Bobbs-Merrill Co. v. Straus. 17 According to Bauer & Cie, the patent owner enjoyed no special power to insist that transferees resell the patented articles for a particular price. Rather, the grant in the patent statute, of the right to control vend[ing] of the patented invention, was indivisible: it could be either transferred or withheld; it could not be transferred on the further condition that a resale price be maintained. 18 Bauer & Cie proved to be a watershed event; afterward a series of cases by this Court adopted the 15 Henry v. A.B. Dick Co., 224 U.S. 1 (1912). 16 Bauer & Cie v. O'Donnell, 229 U.S. 1 (1913). 17 Bobbs-Merrill Co. v. Straus, 210 U. S. 339 (1908). 18 Bauer & Cie v. O'Donnell, 229 U.S. 1, 17 (1913).

15 8 holding in Bauer & Cie and expanded it to related circumstances. 19 This included a pair of decisions, Straus v. Victor Talking Machines, 20 and Motion Picture Patents, 21 that were handed down in In particular, Motion Picture Patents extended the rationale in Bauer & Cie to the patent owner s statutory right to use. 22 In doing so it expressly overruled A.B. Dick, 23 thereby extinguishing that entire line of cases. 19 See, e.g., U.S. v. General Electric Co., 272 U.S. 476, (1926); Carbice Corporation of America v. American Patents Development Corporation, 283 U.S. 27, 31 (1931); General Talking Pictures Corporation v. Western Electric Co., 305 U.S. 124, 185, n.4 (1938); Ethyl Gasoline Corporation v. U.S., 309 U.S. 436, 456 (1940); U.S. v. Masonite Corporation, 316 U.S. 265, 278 (1942); U.S. v. Univis Lens Co., 316 U.S. 241, 250 (1942). 20 Straus v. Victor Talking Mach. Co., 243 U.S. 490 (1917). 21 Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917). 22 See, e.g., Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 513 (1917)( Whatever the right of the owner may be to control by restriction the materials to be used in operating the machine, it must be a right derived through the general law from the ownership of the property in the machine, and it cannot be derived from or protected by the patent law, which allows a grant only of the right to an exclusive use of the new and useful discovery which has been made, this and nothing more. ). 23 Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917) ( It is obvious that the conclusions arrived at in this opinion are such that the decision in Henry v. A.B. Dick Co., must be regarded as overruled. ).

16 9 The statutory construction set out in Bauer & Cie has proved to be extremely durable over time. It has been relied upon in decisions of this Court consistently. During that time there has been no serious movement backwards to the earlier rationale based on property and freedom-of-contract. B. Brulotte is Supported by a Century of This Court s Decisions Brulotte is one of the later decisions by this Court that further develop the statutory interpretation set out in Bauer & Cie and Motion Picture Patents. When viewed in its proper context, the decision is not an outlier. Nor is it a decision that deals with the law of antitrust. 24 Instead, it represents a rather 24 The reference to patent monopoly in Brulotte does not indicate that the decision assumes patent rights confer a monopoly in the antitrust sense. Rather, the words patent monopoly, often refer to the exclusive nature of the patent owner s statutory control over the patented invention. See, e.g., Bauer & Cie v. O'Donnell, 229 U.S. 1, 11 (1913) ( In the exclusive rights to make, use, and vend... reside the extent of the patent monopoly under the statutes of the United States. ); United States v. Motion Picture Patents Co., 225 F. 800, (E.D. Pa. 1915) ( [T]he owner of the patent has the exclusive right to sell his patented article. This is, in a very substantial sense, a monopoly. It must be, however, that the monopoly here meant is not the monopoly condemned by the [Sherman] act of ). See also, e.g., Machlup, Fritz, An Economic Review of the Patent System, Study no. 15 of the Subcommittee on Patents, Trademarks, and Copyright of the Committee of the Judiciary of the United States Senate, 85 th Cong., 2 nd Sess., at (1958).

17 10 short, unremarkable extension of the preceding law. This can be seen by examining one particular line of decisions that followed Bauer & Cie and Motion Picture Patents. Those two initial decisions dealt with patent owners attempts to restrict patented articles by limited transfer of title. They left open, however, the related question of how their rationale should impact attempts to impose restrictions by contract. Early cases that addressed this question of contract, such as Straus v. Victor Talking Machine 25 and Boston Store of Chicago v. American Graphophone Co., 26 essentially held that practices by the patent owner could not be shielded from Bauer & Cie and Motion Picture Patents by recasting the relationships as contractual. That is, where the substance of the relationship between the patent owner and the defendant was the same as what had been held objectionable in prior decisions, the contracts were unenforceable. Obviously, though, this did not encompass the entire range of contractual terms that existed in patent transfers. Accordingly, over time this Court has issued various decisions that apply Bauer & Cie and Motion Picture Patents to the enforceability of 25 Straus v. Victor Talking Mach. Co., 243 U.S. 490 (1917). 26 Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8 (1918).

18 11 contracts. 27 Contrary to the assertions of the Petitioner and their amici, the decisions in this line are not based on a determination of whether the patent owner s activities violated the laws of antitrust, or even the more limited question of whether the involved patent rights conferred market power. Rather, the decisions continued to concern themselves with the basic statutory construction first applied to patent rights in Bauer & Cie. This can be seen in the rule that the decisions settled upon. Very quickly this Court determined that contracts between the patent owner and a transferee could contain any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure. 28 Conditions beyond this, in 27 See, e.g., U.S. v. General Electric Co., 272 U.S. 476, (1926); Carbice Corporation of America v. American Patents Development Corporation, 283 U.S. 27, 31 (1931); General Talking Pictures Corporation v. Western Electric Co., 305 U.S. 124, 185, n.4 (1938); Ethyl Gasoline Corporation v. U.S., 309 U.S. 436, 456 (1940); U.S. v. Masonite Corporation, 316 U.S. 265, 278 (1942); U.S. v. Univis Lens Co., 316 U.S. 241, 250 (1942). 28 U.S. v. General Electric Co., 272 U.S. 476, 489 (1926). See also, e.g., General Talking Pictures Corporation v. Western Electric Co., 305 U.S. 124, 127 (1938) ( As was said in U.S. v. General Electric Co., 272 U.S. 476, 489 (1926) the patentee may grant a license upon any condition the performance of which is reasonably within the reward which the patentee by the grant (continued...)

19 12 contrast, were held unenforceable. Brulotte is part of this line of cases that applies the holdings of Bauer & Cie and Motion Picture Patents. Its own holding that the patent owner may not require the transferee to pay for access to the patented invention after the patent has expired is explained directly by reference to the patent statute. The principle that the patent owner has no rights in the patented invention once the patent expires is basic to the patent system. 29 It involves none of the nuances that arise when determining whether, for example, the rights to vend or to use can be divided or made subject to an equitable servitude. Therefore, if the patent statute generally does not support the enforceability of a contract to restrict resale or use during the patent term, it is relatively easy to conclude that a contractual provision insisting on post-expiration royalties must be unenforceable as well. This is consistent with the language of Brulotte itself, which refers to the principles set out in the 28 (...continued) of the patent is entitled to secure. ). 29 See, e.g., Brulotte v. Thys Co., 379 U.S. 29, 31 (1964) ( [A]ny attempted reservation or continuation in the patentee or those claiming under him of the patent monopoly, after the patent expires, whatever the legal device employed, runs counter to the policy and purpose of the patent laws. ) (quoting Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 256 (1945)).

20 13 relevant earlier decisions of this Court See, e.g., Brulotte v. Thys Co., 379 U.S. 29, 33 (1964) ( A patent empowers the owner to exact royalties as high as he can negotiate with the leverage of that monopoly. But to use that leverage to project those royalty payments beyond the life of the patent is analogous to an effort to enlarge the monopoly of the patent by tieing the sale or use of the patented article to the purchase or use of unpatented ones. ) (citing Ethyl Gasoline Corporation v. U.S., 309 U.S. 436 (1940); Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, (1944)). See also, e.g., Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, (1969) ( Brulotte thus articulated in a particularized context the principle that a patentee may not use the power of his patent to levy a charge for making, using, or selling products not within the reach of the monopoly granted by the Government. ).

21 14 CONCLUSION For the forgoing reasons, the Institute respectfully submits that the this Court s prior decision in Brulotte v. Thys Co. should be sustained. Respectfully submitted, Date: March 6, 2015 R. CARL MOY Professor of Law William Mitchell College of Law Intellectual Property Institute 875 Summit Avenue St. Paul, Minnesota Ph. (651) Fax (651) Counsel of Record William Mitchell College of Law Intellectual Property Institute Counsel for amicus curiae