Brulotte v. Thys Co.
379 U.S. 29, 1964 U.S. LEXIS 2379, 13 L. Ed. 2d 99 (1964)
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Rule of Law:
A patent licensing agreement requiring the payment of royalties for the use of a patented invention for a period extending beyond the patent's expiration date constitutes a per se unlawful misuse of the patent monopoly.
Facts:
- Respondent, Thys Company, owned several patents related to hop-picking machines.
- Thys sold patented hop-picking machines to each of the petitioners for a flat sum.
- In addition to the purchase price, petitioners were required to enter into license agreements for the use of the machines.
- These licenses required annual royalty payments, calculated as either a minimum of $500 per season or a fee per 200 pounds of hops harvested.
- The terms of the license agreements, including the royalty payment obligations, extended beyond the 17-year life of the last patent incorporated into the machines.
- The licenses also prohibited petitioners from assigning the machines or removing them from Yakima County, with these restrictions applying both during and after the patent period.
- After the last of the relevant patents expired, petitioners refused to continue making royalty payments.
Procedural Posture:
- Respondent, Thys Co., sued petitioners in Washington state court for unpaid royalties.
- The trial court rendered a judgment in favor of Thys Co.
- Petitioners appealed to the Supreme Court of Washington.
- The Supreme Court of Washington affirmed the trial court's judgment.
- Petitioners successfully petitioned the Supreme Court of the United States for a writ of certiorari.
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Issue:
Does a patent licensing agreement that requires royalty payments for the use of a patented machine to continue for a period beyond the expiration date of the last relevant patent constitute an unlawful misuse of the patent monopoly?
Opinions:
Majority - Mr. Justice Douglas
Yes. A patentee's use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se. The Constitution and federal patent law grant an inventor an exclusive right for a limited time, after which the invention enters the public domain. Any attempt to extend the patent monopoly beyond this period, regardless of the legal device used, is contrary to the policy of the patent laws. In this case, the royalty payments were for the use of the machine during the post-expiration period, not deferred payments for use during the patent term. The continued restrictions on assignment and location after the patents expired are a 'telltale sign' that the licensor was attempting to project its monopoly beyond the patent period, which is unenforceable.
Dissenting - Mr. Justice Harlan
No. The Court improperly conflates the patentable idea with the tangible, unpatented machine. While patent laws prohibit post-expiration restrictions on the use of a patented idea, they have no bearing on use restrictions for a physical machine. The royalty agreement was simply a flexible pricing and payment plan for the purchase of a tangible piece of equipment, where payments were based on use. Thys could have lawfully structured this as a long-term installment sale for a fixed price, and the economic substance of this use-based payment plan is no different. The majority's holding elevates the technical form of the contract over its economic substance and creates a rule that can be easily circumvented by redrafting the agreement.
Analysis:
This case establishes the bright-line Brulotte rule, which declares that collecting patent royalties after a patent's expiration is a per se misuse of the patent. This decision created a clear, albeit rigid, boundary for patent licensing, preventing patentees from using the leverage of their monopoly to extract payments after the monopoly has legally ended. The ruling simplifies litigation by avoiding complex analyses of market power or reasonableness, but it has been criticized, as the dissent argues, for being formalistic and potentially chilling pro-competitive licensing arrangements that could be mutually beneficial. Despite criticism, the Brulotte rule has remained a foundational principle of U.S. patent law for over half a century.
