Beginning in 2006, Marvel expanded the Web Blaster line of products by packaging the Web Blaster toy with other products (like Spider-Man masks), and partnering with Hasbro to allow Hasbro to produce Spider-Man Web Blaster products with other functionalities (like the ability to shoot water and toy arrows, a specialty of Hasbro’s Nerf brand division). Kimble believed that royalties were due in connection with sales of these new products, but Marvel and Hasbro disagreed. Kimble sued and Marvel filed a counterclaim seeking a declaration that royalties would no longer due upon the expiration of the patent. The District Court determined that the settlement agreement was a “hybrid” agreement that intertwined the transfer of both patent and non-patent rights in the Web Blaster toy because there was only a single royalty structure that did not distinguish between the value of the patent rights and the value of the non-patent rights. As a result, the District Court was obliged to apply the Supreme Court’s 1964 ruling in Brulotte v. Thys Co. by agreeing with Marvel that royalties would no longer be payable to Kimble upon the 2010 expiration of the patent at issue.
Kimble appealed to the Ninth Circuit, hoping for a better result. Unfortunately for Kimble, the Ninth Circuit reluctantly upheld the District Court’s ruling, stating (citations omitted):
The Ninth Circuit’s ruling exhibits a strong concern that the Brulotte precedent impedes contract law by invalidating significant portions of otherwise enforceable contracts: