                 FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


STEPHEN KIMBLE ; ROBERT MICHAEL            No. 11-15605
GRABB , individuals,
               Plaintiffs-Appellants,       D.C. No.
                                         4:08-cv-00372-
                 v.                           DCB

MARVEL ENTERPRISES INC.,
             Defendant-Appellee.            OPINION


      Appeal from the United States District Court
               for the District of Arizona
       David C. Bury, District Judge, Presiding

               Argued and Submitted
     December 5, 2012—San Francisco, California
       Submission vacated December 14, 2012
            Resubmitted May 29, 2013

                   Filed July 16, 2013

  Before: Diarmuid F. O’Scannlain, Sidney R. Thomas,
       and Consuelo M. Callahan, Circuit Judges.

               Opinion by Judge Callahan
2               KIMBLE V . MARVEL ENTER., INC.

                           SUMMARY*


                           Patent Rights

    The panel affirmed the district court’s summary judgment
in favor of Marvel Enterprises, Inc., holding that royalties had
to end when the patent expired for the Web Blaster, a Spider-
Man toy.

    The panel held that under Brulotte v. Thys Co., 379 U.S.
29 (1964), a so-called “hybrid” licensing agreement
encompassing inseparable patent and non-patent rights is
unenforceable beyond the expiration date of the underlying
patent, unless the agreement provides a discounted rate for
the non-patent rights or some other clear indication that the
royalty at issue was in no way subject to patent leverage.


                            COUNSEL

Antonio R. Durando (argued), Tucson, Arizona; Stephen
Kimble, Tucson, Arizona; and Robert Grabb, Tucson,
Arizona, for Plaintiffs-Appellants.

David Fleischer (argued), Haynes and Boone, LLP, New
York, New York; Andrew M. Jacobs, Snell & Wilmer L.L.P.,
Tucson, Arizona; and Jason T. Christiansen, Zuniga
Christiansen PLLC, Houston, Texas, for Defendant-Appellee.




  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
              KIMBLE V . MARVEL ENTER., INC.                   3

                          OPINION

CALLAHAN, Circuit Judge:

    This appeal calls on us to again construe the Supreme
Court’s frequently-criticized decision in Brulotte v. Thys Co.,
379 U.S. 29 (1964). In Brulotte, the Court held that a patent
licensing agreement requiring a licensee to make royalty
payments beyond the expiration date of the underlying patent
was unenforceable because it represented an improper
attempt to extend the patent monopoly. Id. at 30–33. We
have previously noted that Brulotte has been read to require
that any contract requiring royalty payments for an invention
either after a patent expires or when it fails to issue cannot be
upheld unless the contract provides a discount from the
alternative, patent-protected rate. Zila, Inc. v. Tinnell,
502 F.3d 1014, 1021 (9th Cir. 2007). We acknowledged that
the Brulotte rule is counterintuitive and its rationale is
arguably unconvincing. Id. at 1019–20 & n.4. Nonetheless,
recognizing that we are bound by Supreme Court authority
and the strong interest in maintaining national uniformity on
patent law issues, we have reluctantly applied the rule. Id. at
1020, 1022. We are compelled to do so again. Accordingly,
we join our sister circuits in holding that a so-called “hybrid”
licensing agreement encompassing inseparable patent and
non-patent rights is unenforceable beyond the expiration date
of the underlying patent, unless the agreement provides a
discounted rate for the non-patent rights or some other clear
indication that the royalty at issue was in no way subject to
patent leverage. See Meehan v. PPG Indus., Inc., 802 F.2d
881, 884–86 (7th Cir. 1986); Boggild v. Kenner Prods.,
776 F.2d 1315, 1319–20 & n.5 (6th Cir. 1985); Pitney Bowes,
Inc. v. Mestre, 701 F.2d 1365, 1371–72 (11th Cir. 1983).
4               KIMBLE V . MARVEL ENTER., INC.

                                    I

                                    A

    Around 1990, Appellant Stephen Kimble1 invented a
Spider-Man toy that allowed a child or other user to “role
play” as Spider-Man by mimicking Spider-Man’s web-
shooting abilities with foam string. A user would operate the
toy by activating a trigger attached to a valve in the palm of
a glove. The valve was attached to a flexible line leading to
a can of foam strapped to the user’s wrist or waist. Kimble
patented the idea under U.S. Patent No. 5,072,856 (the “‘856
Patent”). The ‘856 Patent expired on or about May 25, 2010.

    In December 1990, Kimble met with Lou Schwartz (the
President of Appellee Marvel’s predecessor2) to discuss the
idea covered by then-pending application for the ‘856 Patent
and other “ideas and know-how.” Kimble contends that at
the meeting, Schwartz verbally agreed that Marvel would
compensate him if it used any of his ideas. Marvel
subsequently told Kimble that it was not interested in his
ideas. Despite its supposed lack of interest, Marvel thereafter
began manufacturing a similar Spider-Man role-playing toy


        1
   Kimble is the inventor of the intellectual property at issue, while
Appellant Robert Grabb represented Kimble in a prior litigation with
Marvel and, at some point, acquired an interest in the property.
Accordingly, as most of the references concern Kimble alone, we use
“Kimble” in the singular to refer to both Appellants for ease of reference.

    2
   M arvel Entertainment, LLC is the entity actively litigating the action,
and is the successor to Marvel Enterprises, Inc. (the named party), and
Toy Biz, Inc. (the entity that Kimble allegedly shared his ideas with and
defendant in the 1997 action). W e refer to all of these entities as
“M arvel.”
             KIMBLE V . MARVEL ENTER., INC.                5

called the “Web Blaster.” The Web Blaster allowed that
toy’s user to shoot foam string from a can mounted on the
user’s wrist by activating a trigger in the user’s hand. Like
Kimble’s toy, the Web Blaster was packaged with a glove,
but unlike Kimble’s toy, the Web Blaster glove was purely
cosmetic – a Web Blaster user did not need the glove in order
to shoot foam string.

                             B

    In 1997, Kimble sued Marvel for patent infringement and
breach of contract, claiming that it had used his ideas in
developing the Web Blaster without compensating him.
Kimble alleged that Marvel had breached the verbal
agreement because the Web Blaster incorporated “many of
the ideas” he disclosed at the meeting and Marvel had not
compensated him for its use of those ideas.

    The district court granted Marvel’s motion for summary
judgment on the patent infringement claim, but found that
there were genuine issues of material fact precluding
summary judgment on the contract claim. A jury later found
for Kimble on the contract claim, and the court entered a
judgment awarding him 3.5% of past, present, and future
Web Blaster “net product sales” (excluding sales of foam
string refills). Kimble appealed the court’s decision on the
patent infringement claim, and Marvel appealed the verdict
on the contract claim. Throughout all stages of the case,
Kimble maintained that the Web Blaster infringed the ‘856
Patent while Marvel contended that it did not.
6            KIMBLE V . MARVEL ENTER., INC.

                              C

    In 2001, the parties agreed to settle the case while the
appeals were still pending. They accordingly executed a
written agreement (the “Settlement Agreement”)
memorializing their agreement to: (a) withdraw their appeals;
(b) stipulate to vacating the district court judgment; and (c)
stipulate to dismissing the case with prejudice. Marvel also
agreed to purchase the ‘856 Patent. The relevant section
provided that:

       The purchase price for the Patent shall be
       payable to the Patent Holders as follows:

           a. $516,214.62 upon execution and
              delivery of this Agreement; and

           b. 3% of “net product sales” (as such
              term is used in the Judgment)
              excluding refill royalties made after
              December 31, 2000. For purposes of
              this paragraph 3.b, “net product sales”
              shall be deemed to include product
              sales that would infringe the Patent
              but for the purchase and sale thereof
              pursuant to this Agreement as well as
              sales of the Web Blaster product that
              was the subject of the Action and to
              which the Judgment refers.

The parties also agreed to a release, under which Kimble
released Marvel except for Marvel’s obligations under the
Settlement Agreement itself, “and except for those
obligations under the alleged verbal agreement that was the
                KIMBLE V . MARVEL ENTER., INC.                        7

subject of the Action.” The agreement has no expiration date
and does not include any specific time limit on Marvel’s
obligation to pay “3% of ‘net product sales.’” At the parties’
request, the district court entered an order vacating the
judgment and dismissing the action with prejudice.

                                  D

   Thereafter, the parties coexisted for several years without
any significant disagreements. Web Blaster sales – and as a
consequence, royalty payments over the life of the Settlement
Agreement – were substantial. All together, Marvel paid
Kimble more than $6 million in royalties.

    But the peace did not last. In 2006, Marvel entered into
a licensing agreement with Hasbro giving it the right to
produce certain toys related to Marvel characters, including
the Web Blaster. A number of disagreements subsequently
arose between Marvel and Kimble concerning the royalty
payments.3 These disputes revolved around the calculation of
royalties for subsequent iterations of the Web Blaster that
included additional functions (in addition to shooting foam
string) or Web Blasters that were packaged with other role


 3
   Marvel intended to have Hasbro assume its responsibilities under the
Settlement Agreement by requiring it to execute a sublicense agreement.
Hasbro, however, did not execute the sublicense agreement at the same
time that it executed the licensing agreement. Marvel, apparently,
overlooked this. It later asked Hasbro to execute the agreement, but
Hasbro refused. At oral argument, Marvel’s counsel acknowledged that
when the parties negotiated the Settlement Agreement, they were not
aware of Brulotte. Consequently, had the Hasbro deal not occurred, it is
quite possible that Marvel would have continued to pay Kimble under the
Settlement Agreement beyond the expiration date of the patent without
dispute.
8             KIMBLE V . MARVEL ENTER., INC.

play items (such as Spider-Man masks). In their discussions,
Kimble initially took the position that royalties were due for
these products under the Settlement Agreement because they
“would infringe the Patent.”

    Kimble filed suit in Arizona state court for breach of
contract and related claims. Marvel removed based on
diversity of citizenship. Marvel then counterclaimed seeking,
among other things, a declaration that it was no longer
obligated to pay Kimble under the Settlement Agreement
“based on the sales of products after the expiration of the
‘856 patent.” In discovery, Marvel reaffirmed its view that
the Web Blaster never infringed the ‘856 Patent.

    The parties filed summary judgment motions, which the
district court referred to the magistrate judge for a report and
recommendation.          Kimble v. Marvel Enters., Inc.,
692 F. Supp. 2d 1156, 1164 (D. Ariz. 2010). The magistrate
judge found that under Brulotte, Kimble could not recover
royalties under the Settlement Agreement beyond the
expiration date of the ‘856 Patent. Id. at 1167–69 (discussing
Brulotte v. Thys Co., 379 U.S. 29 (1964)). He reasoned that
the Settlement Agreement transferred patent rights, and that
it was less clear that it transferred any non-patent rights. Id.
at 1167–68. He observed that the release clause “more
reasonably suggests that Plaintiffs reserved the non-patent
rights from the verbal agreement and did not transfer them to
Marvel.” Id. at 1168. Alternatively, he found that Brulotte
applied because the Settlement Agreement was a “hybrid”
agreement transferring inseparable patent and non-patent
rights, and because the patent rights were used as leverage to
negotiate the agreement. Id. at 1168–69.
             KIMBLE V . MARVEL ENTER., INC.                 9

    Kimble objected, arguing “that the Agreement transferred
both patented and non-patented rights and while the royalties
for the patent rights end with the patent, they do not end for
the non-patented rights which cover the Web Blaster.” Id. at
1159.      The district court nonetheless adopted the
recommendation over Kimble’s objection. Id. at 1159–63.
It noted that the Settlement Agreement could be read as
transferring both patent rights and “the rights to the toy
idea(s) verbally exchanged” between the parties in 1990, but
rejected Kimble’s argument that it created “separable” patent
and non-patent rights because it made “no distinction between
the royalties for these two” categories. Id. at 1160.
Accordingly, the district court agreed that the Settlement
Agreement was a “hybrid” and that the royalties had to end
when the patent expired. Id. at 1159–61. Kimble now
appeals, and we have jurisdiction pursuant to 28 U.S.C.
§ 1291.

                             II

    We review the district court’s decision to grant summary
judgment de novo. Michelman v. Lincoln Nat’l Life Ins. Co.,
685 F.3d 887, 892 (9th Cir. 2012). We “must determine,
viewing the evidence in the light most favorable to the
non-moving party, whether there are any genuine issues of
material fact and whether the district court correctly applied
the substantive law.” Id. (quoting Cruz v. Int’l Collection
Corp., 673 F.3d 991, 996 (9th Cir. 2012) (internal quotation
marks omitted)).
10              KIMBLE V . MARVEL ENTER., INC.

                                   III

                                   A

    Before analyzing the parties’ arguments, we review
Brulotte and its progeny. In Brulotte v. Thys Co., 379 U.S. 29,
29 (1964), the owner of patents for a hop-picking machine
sold machines to two purchasers along with licenses for their
use. The purchasers paid a flat sum for the machines, but also
had to make seasonal royalty payments. Id. The licenses also
precluded the purchasers from assigning the licenses or
moving the machines outside of the county. Id. The
purchasers eventually stopped making royalty payments,
arguing that the owner had misused the patents by extending
the license agreements beyond the expiration dates of the
patents. Id. at 30. The Supreme Court agreed, concluding
“that a patentee’s use of a royalty agreement that projects
beyond the expiration date of the patent is unlawful per se.”
Id. at 32.

    The Court explained that Congress had granted inventors
“the exclusive right” to make, use, or sell their discoveries
“for limited times.” Id. at 30 (quoting U.S. Const. art. 1, § 8)
(internal quotation marks omitted). After the relevant period
expires,4 however, “these rights become public property.” Id.
at 31. Any attempt to reserve or continue the patent

  4
    W hen Brulotte was decided, the statute provided a seventeen-year
period of exclusivity. Id. at 30–31 (citing, inter alia, 35 U.S.C. § 154).
Congress subsequently revised the statute to provide a term beginning on
the date of issuance and ending twenty years from the date of the
application, in most cases. 35 U.S.C. § 154(a)(2). The term may be
extended where the U.S. Patent and Trademark Office fails to issue the
patent within three years of the application’s filing date.            Id.
§ 154(b)(1)(B).
              KIMBLE V . MARVEL ENTER., INC.                11

monopoly after expiration “runs counter to the policy and
purpose of the patent laws” regardless of what “legal device”
is employed. Id. (quoting Scott Paper Co. v. Marcalus Mfg.
Co., 326 U.S. 249, 256 (1945)).

    The Court found that the annual payments were not
designed merely to compensate the owner for the use during
the patent term because the parties had agreed on a flat sum
as the purchase price for the machine and the royalty
payments covered the use of the machine for each year. Id.
Thus, the payments due in “the post-expiration period [we]re
by their terms for use during that period, and [we]re not
deferred payments for use during the pre-expiration period.”
Id. Similarly, the Court rejected the argument that the license
was merely an arrangement for payment based on the amount
of use. Id. at 31–32. Thus, “[t]he sale or lease of unpatented
machines on long-term payments based on a deferred
purchase price or on use would present wholly different
considerations.” Id. at 32. The Court also noted that the
license agreement precluded assignment or removal of the
machines from the county both before and after expiration of
the patents. Id. at 31–32.

    Because the licenses made no distinction “between the
term of the patent and the post-expiration period,” they were
“on their face a bald attempt to exact the same terms and
conditions for the period after the patents have expired as
they d[id] for the monopoly period.” Id. at 32. The Court
was consequently “unable to conjecture what the bargaining
position of the parties might have been and what resultant
arrangement might have emerged had the provision for post-
expiration royalties been divorced from the patent and nowise
subject to its leverage.” Id. Thus, the patent owner could not
use that leverage to project the patent monopoly beyond the
12            KIMBLE V . MARVEL ENTER., INC.

expiration of the patent because, if it was permissible to do
so, “the free market visualized for the post-expiration period
would be subject to monopoly influences that have no proper
place there.” Id. at 32–33.

    In contrast, in Aronson v. Quick Point Pencil Co.,
440 U.S. 257, 262–66 (1979), the Supreme Court found that
patent law did not preclude the enforcement of an agreement
to provide royalty payments indefinitely where no patent had
issued. In that case, the petitioner had invented a keyholder
and filed a patent application. Id. at 259. The design was
“ingenious” but also “so simple that it readily could be copied
unless it was protected by patent.” Id. The respondent had
agreed that it would pay the petitioner a five percent royalty
for the exclusive right to manufacture and sell the keyholder.
Id. The parties had also agreed, however, that if the patent
application was “not allowed within five (5) years” the
respondent “would pay two and one half percent (2 ½%) of
sales so long as [it] continue[d] to sell” the keyholder. Id.
(original alteration marks omitted). The petitioner did not
obtain the patent within five years, and the Board of Patent
Appeals subsequently issued a final rejection of her
application. Id. at 260. After the keyholder proved
successful, but also subject to widespread copying by
competitors, the respondent sued, seeking a declaration that
the contract was preempted by patent law. Id.

    The Court found that the agreement was “not
inconsistent” with patent law principles, as it did “not
withdraw any idea from the public domain.” Id. at 262–63.
It noted that the petitioner had disclosed the design to the
respondent in confidence, and had the respondent “tried to
exploit the design in breach of that confidence, it would have
risked legal liability.” Id. at 263. The agreement would
             KIMBLE V . MARVEL ENTER., INC.                 13

“merely require[ the respondent] to pay the consideration
which it promised in return for the use of a novel device
which enabled it to pre-empt the market.” Id. at 264.
Nonetheless, it accepted that had the petitioner obtained the
patent, “she would have received a 5% royalty only on
keyholders sold during the 17-year life of the patent.” Id. at
263–64.

    The Court distinguished Brulotte, indicating that “the
reduced royalty which is challenged, far from being
negotiated ‘with the leverage’ of a patent, rested on the
contingency that no patent would issue within five years.” Id.
at 264–65 (discussing 379 U.S. at 33). The Court further
explained:

           No doubt a pending patent application
       gives the applicant some additional bargaining
       power for purposes of negotiating a royalty
       agreement. The pending application allows
       the inventor to hold out the hope of an
       exclusive right to exploit the idea, as well as
       the threat that the other party will be
       prevented from using the idea for 17 years.
       However, the amount of leverage arising from
       a patent application depends on how likely the
       parties consider it to be that a valid patent will
       issue. Here, where no patent ever issued, the
       record is entirely clear that the parties
       assigned a substantial likelihood to that
       contingency, since they specifically provided
       for a reduced royalty in the event no patent
       issued within five years.
14            KIMBLE V . MARVEL ENTER., INC.

           This case does not require us to draw the
       line between what constitutes abuse of a
       pending application and what does not. It is
       clear that whatever role the pending
       application played in the negotiation of the
       5% royalty, it played no part in the contract to
       pay the 2 ½% royalty indefinitely.

Id. at 265. Accordingly, patent law was not a “barrier” to the
contract. Id. at 266.

    In light of these decisions, several of our sister circuits
have applied the Brulotte rule to preclude the payment of
royalties beyond the expiration date of patents under so-called
“hybrid” agreements encompassing inseparable patent and
non-patent rights. Meehan v. PPG Indus., Inc., 802 F.2d 881,
884–86 (7th Cir. 1986) (discussing Pitney Bowes and Boggild
with approval and applying Brulotte where agreement
conveyed patent rights in addition to trade secrets); Boggild
v. Kenner Prods., 776 F.2d 1315, 1319–20 & n.5 (6th Cir.
1985) (discussing Pitney Bowes and Aronson, 440 U.S. at
263–64); Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365,
1371–72 (11th Cir. 1983) (discussing Brulotte, 379 U.S. at
32, and Aronson, 440 U.S. at 261).

    In Zila, Inc. v. Tinnell, 502 F.3d 1014, 1016, 1019–22 (9th
Cir. 2007), we applied Brulotte in a case where the patent
owner had relinquished all patent and other rights in a product
in exchange for a royalty in perpetuity. In that case, the
inventor’s patent application was pending when the parties
entered into the royalty agreement. Id. at 1017. The patent
later issued, but the royalty rate was not contingent on
issuance, nor was there any discount for the post-expiration
period. See id.
              KIMBLE V . MARVEL ENTER., INC.                 15

    We initially observed that Brulotte “runs counter to the
usual task in a contract case – to interpret the terms agreed to
by the parties.” Id. at 1019. Moreover, we acknowledged
that Brulotte renders some aspects of otherwise valid
contracts unenforceable “for a reason that many courts and
commentators have found economically unconvincing,
namely, that ‘the free market visualized for the post-
expiration period would be subject to monopoly influences’
if ‘a royalty agreement was allowed to project beyond the
expiration date of the patent.’” Id. at 1019–20 (quoting
Brulotte, 379 U.S. at 32–33) (alteration marks and footnote
omitted). Thus, we acknowledged that we were bound to
apply Brulotte’s holding, but that we need not and should not
“expand Brulotte’s holding beyond its terms.” Id. at 1020.

    We then went on to discuss the state of the law after the
Aronson decision. We explained that “[t]he distinction
between the contract in Brulotte and the one in Aronson
rested, according to the Court, on the fact that the extended
royalty term in Aronson was not ‘negotiated with the leverage
of a patent but rested on the contingency that no patent would
issue within five years.’” Id. at 1020 (quoting Aronson,
440 U.S. at 265) (alteration marks and internal quotation
marks omitted). We noted that other circuits had read
Brulotte and Aronson “to create two bright-line rules: (1) If
a patent ever issues on an invention, Brulotte applies, and no
contract can properly demand royalty payments after the
patent expires; and (2) a contract that provides for royalties
either when a patent expires or when it fails to issue cannot be
upheld unless it provides a discount from the alternative,
patent-protected rate.” Id. at 1021 (citing Meehan, 802 F.2d
at 884–85; Boggild, 776 F.2d at 1319–20; Pitney Bowes,
701 F.2d at 1372–74).
16            KIMBLE V . MARVEL ENTER., INC.

    We observed that Brulotte and Aronson did not
necessarily compel these rules. We suggested that Brulotte
turned on the existence of the onerous use restrictions
unrelated to the royalty. Id. at 1021 (citing Brulotte, 379 U.S.
at 29, 31–32). It was those restrictions that showed that the
unchanging royalty rate was significant and that the patent
owner “was acting in all respects as if the patent remained in
place.” Id. (citing Brulotte, 379 U.S. at 32). Aronson, in
contrast, involved a sale of pure intellectual property that had
value apart from the patent. Id. at 1022 (citing Aronson,
440 U.S. at 261–63, 265). The language in Aronson
suggesting that the patent owner in that case could not have
received the full patent royalty beyond the patent term “was
counterfactual dicta, neither supported by any analysis nor
necessary for the decision.” Id. at 1022. Nonetheless, we
reluctantly followed the other circuits’ “consensus” in light of
the “particularly strong national uniformity concerns” present
in patent cases. Id. Accordingly, we found that Brulotte
rendered the agreement unenforceable to the extent it required
royalty payments beyond the expiration date of the patent, but
rejected several other arguments to extend the rule. Id. at
1022–26 (holding, inter alia, that Brulotte did not apply to a
foreign patent).

    The rule that follows, in relevant part, is that a license for
inseparable patent and non-patent rights involving royalty
payments that extends beyond a patent term is unenforceable
for the post-expiration period unless the agreement provides
a discount for the non-patent rights from the patent-protected
rate. This is because – in the absence of a discount or other
clear indication that the license was in no way subject to
patent leverage – we presume that the post-expiration royalty
payments are for the then-current patent use, which is an
improper extension of the patent monopoly under Brulotte.
              KIMBLE V . MARVEL ENTER., INC.                17

                              B

    Kimble argues that the Settlement Agreement
distinguishes between patent and non-patent rights, that both
parties now agree that the Web Blaster did not infringe the
‘856 Patent, and therefore, that Brulotte does not apply to the
Web Blaster royalty payments. We cannot agree because the
agreement plainly involved one royalty rate for both patent
and Web Blaster rights, with no discount or other clear
indication that the Web Blaster royalties were not subject to
patent leverage.

    Kimble’s primary contention is that the Settlement
Agreement provided two separate royalty rates (which were
both 3%) for the patented rights and the non-patented Web
Blaster rights. Putting aside for the moment the fact that
there is admittedly no discounted rate for non-patent rights,
Kimble’s argument is not supported by the language of the
Settlement Agreement. Cf. Meehan, 802 F.2d at 885–86
(rejecting a similar argument that a royalty merely related to
trade secrets based on the terms of the agreement). The
Settlement Agreement provided that Marvel would purchase
the ‘856 Patent for a lump sum plus a continuing royalty of
“3% of ‘net product sales.’” The agreement then defined “net
product sales” as including “product sales that would infringe
the Patent but for the purchase and sale thereof pursuant to
this Agreement as well as sales of the Web Blaster product.”

    Thus, the Settlement Agreement contemplated one royalty
for patent rights and Web Blaster rights. At the time the
parties negotiated the agreement, the patent infringement
claim was not definitively resolved. The district court had
found that the Web Blaster did not infringe the patent, but
Kimble was appealing that decision.          Because the
18            KIMBLE V . MARVEL ENTER., INC.

infringement claim remained disputed, it was necessary for
the parties to specifically include “Web Blaster” sales in
addition to sales of products that allegedly infringed the
patent to resolve their dispute. This, however, did not create
a distinct royalty for non-patent rights. To the contrary, the
structure of the agreement demonstrates that the rights were
intertwined and cannot be separated in any principled
manner. Tellingly: (a) the purpose of the entire provision was
to set the sale price for the patent; (b) all rights were
encompassed within the definition of “net product sales” used
to calculate a single royalty; and (c) the agreement
specifically referred to “Web Blaster” sales, as opposed to
sales of products utilizing ideas and know-how covered by
the verbal agreement. The agreement was structured this way
because, at that time, it was unclear whether Web Blaster
sales infringed the patent, violated the verbal agreement, or
both. If there were two distinct royalties at issue, the parties
could have easily specified as much. Their failure to do so is
dispositive.

    The Settlement Agreement also did not include a
discounted rate for the alleged non-patent rights. Some
language in prior opinions suggests that the failure to include
a discounted rate is a per se violation of Brulotte. See Zila,
502 F.3d at 1021 (discussing cases). Of course, the point of
requiring a discount from the patent-protected rate is that it
shows that the royalty at issue was not subject to patent
leverage. See Brulotte, 379 U.S. at 32; see also Aronson,
440 U.S. at 265 (finding that the discounted rate
demonstrated that the patent “played no part” in the
agreement to pay the lower royalty indefinitely); Pitney
Bowes, 701 F.2d at 1372 n.12 (“The implication of this
language [in Brulotte] is that, if a patent owner can prove that
he did not use his patent monopoly leverage to exact reduced
                KIMBLE V . MARVEL ENTER., INC.                         19

post-expiration trade secret payments, then there would be no
direct conflict with federal law and the agreement would be
enforced.”). We do not think that the “discount” requirement
should be applied inflexibly without reference to its purpose.
Consequently, even though a discounted rate may not be
necessary to avoid Brulotte in every case, in the absence of a
discounted rate, there must be some other clear indication that
the royalty was in no way subject to patent leverage. See
Meehan, 802 F.2d at 886 (“Although it is true . . . that parties
can contract for trade secret payments to extend beyond the
life of a patent, there must be some provision that
distinguishes between patent royalties and trade secret
royalties.”). Here, there is no such indication.5 See id.

    Kimble also argues that the Settlement Agreement’s 3%
rate represents a “discount” from the district court judgment’s
3½ % rate. Kimble is essentially arguing that because the
rate in the judgment was higher, there was a “discount” in the
final agreement. Kimble’s argument misconstrues the
significance of a discounted rate in the Brulotte analysis. The
rates in the agreement at issue are what matters, not the rates
in the long-since vacated judgment. In the Settlement
Agreement, there was only one rate for all rights, and it was
the same for both patent and Web Blaster rights. Moreover,
where a first rate is higher and is not subject to patent
leverage, that does not show that a second, lower rate
encompassing both patent-protected and non-patent protected

  5
     W e note, for example, that had the parties explicitly indicated, in a
separate section of the agreement, that royalty payments for sales of non-
patented products, including the W eb Blaster, were to be paid in
settlement of Kimble’s claims that Marvel used the ideas and know-how
he verbally disclosed at the 1990 meeting without compensation, it would
arguably be immaterial if the rate were the same as the rate for sales of
allegedly patent-infringing products.
20               KIMBLE V . MARVEL ENTER., INC.

rights was not subject to patent leverage. The “discount”
from the rate in the judgment to the Settlement Agreement
reflected the fact that Kimble might not prevail on appeal, not
that the rights at issue were not subject to patent leverage.

    Kimble further contends that this case is distinguishable
because it involved a “hybrid” agreement, that coincidentally
included both patent and non-patent rights, as opposed to a
“hybrid” product, consisting of both patented and non-
patented ideas. Cf. Boggild, 776 F.2d at 1319 (applying
Brulotte to a “patented item”). The flaw with Kimble’s
argument is that at the time of the Settlement Agreement, it
was uncertain whether the Web Blaster sales infringed the
‘856 Patent and the Settlement Agreement does not contain
any clear indication that the Web Blaster royalties were not
subject to patent leverage.

    Kimble’s primary leverage in negotiating the settlement
was undoubtedly the jury verdict on the contract claim.
Generally speaking, a party who prevailed before the district
court has the better chance of prevailing on appeal. See, e.g.,
U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 513 U.S. 18,
26 (1994) (“Judicial precedents are presumptively correct
. . . .” (internal quotation marks omitted)).6 However,
contrary to Kimble’s recent suggestion that he agrees that the


  6
    The Settlement Agreement was dated September 21, 2001. For the
twelve-month period ending September 30, 2002, we affirmed on the
merits 968 of 1,244, or 77.8%, of “other private civil” appeals (i.e., civil
appeals excluding prisoner petitions, administrative appeals, bankruptcy
cases, and cases involving the federal government). Administrative Office
of the United States Courts, 2002 Annual Report of the Director: Judicial
Business of the United States Courts 99 (2003), available at
http ://www.usc o urts.gov/uscourts/Statistics/J udic ia lB usine ss/2002/
appendices/b05sep02.pdf (last visited July 3, 2013).
             KIMBLE V . MARVEL ENTER., INC.                21

Web Blaster never infringed the ‘856 Patent, at the time of
the negotiations, he was challenging the district court’s
decision and likely derived some amount of leverage from his
patent infringement appeal. Even if this patent leverage was
significantly less than the leverage that Kimble derived from
the jury verdict on his contract claim, Brulotte applies
because it is impossible to tell “what the bargaining position
of the parties might have been and what resultant
arrangement might have emerged had the provision for post-
expiration royalties been divorced from the patent and nowise
subject to its leverage.” Brulotte, 379 U.S. at 32. Thus, the
patent rights and any non-patent rights were intertwined and
Brulotte’s presumption must apply.

                             IV

    We acknowledge our application of the Brulotte rule in
this case arguably deprives Kimble of part of the benefit of
his bargain based upon a technical detail that both parties
regarded as insignificant at the time of the agreement.
Indeed, as the Seventh Circuit has explained, Brulotte has
been criticized for exactly that reason:

       The Supreme Court’s majority opinion
       reasoned that by extracting a promise to
       continue paying royalties after expiration of
       the patent, the patentee extends the patent
       beyond the term fixed in the patent statute and
       therefore in violation of the law. That is not
       true. After the patent expires, anyone can
       make the patented process or product without
       being guilty of patent infringement. The
       patent can no longer be used to exclude
       anybody from such production. Expiration
22               KIMBLE V . MARVEL ENTER., INC.

         thus accomplishes what it is supposed to
         accomplish. For a licensee in accordance with
         a provision in the license agreement to go on
         paying royalties after the patent expires does
         not extend the duration of the patent either
         technically or practically, because . . . if the
         licensee agrees to continue paying royalties
         after the patent expires the royalty rate will be
         lower. The duration of the patent fixes the
         limit of the patentee’s power to extract
         royalties; it is a detail whether he extracts
         them at a higher rate over a shorter period of
         time or a lower rate over a longer period of
         time.

Scheiber v. Dolby Labs., Inc., 293 F.3d 1014, 1017 (7th Cir.
2002).7



  7
    W e previously acknowledged these criticisms in Zila, 502 F.3d at 1019
n.4 (collecting authorities). Accord Brulotte, 379 U.S. at 34–39 (Harlan,
J., dissenting); U.S. Dep’t of Justice & FTC, Antitrust Enforcement and
Intellectual Property Rights: Promoting Innovation and Competition 12,
116–19, 122–23 (2007) (discussing criticisms of Brulotte and concluding
that permitting patent holders to enter agreements requiring royalty
payments beyond the expiration of the patent “can be efficient” in that it
will “reduce[] deadweight loss associated with a patent monopoly and
allow[] the patent holder to recover the full value of the patent, thereby
preserving innovation incentives”), available at http://www.ftc.gov/
reports/innovation/P040101PromotingInnovationandCompetitionrpt070
4.pdf (last visited July 3, 2013); Richard Gilbert & Carl Shapiro, Antitrust
Issues in the Licensing of Intellectual Property: The Nine No-No’s Meet
the Nineties, in Brookings Papers on Economic Activity: Microeconomics
233, 322 (1997) (concluding that the “[l]egal reasoning here, based on the
notion that extending the royalties in time is to ‘enlarge the monopoly
of the patent,’ although rhetorically appealing, does not seem to
                 KIMBLE V . MARVEL ENTER., INC.                          23

    The Seventh Circuit’s criticism is particularly apt in this
case.    The patent leverage in this case was vastly
overshadowed by what were likely non-patent rights, and
Kimble may have been able to obtain a higher royalty rate
had the parties understood that the royalty payments would
stop when the patent expired. Nonetheless, Brulotte and its
progeny are controlling. We are bound to follow Brulotte and
cannot deny that it applies here. Accordingly, the district
court’s judgment is AFFIRMED.8




reflect commercial reality or basic economics”), available at
http ://www.brookings.edu/~/media/P rojects/B P E A /1997% 20mic ro/
1997_bpeamicro_gilbert.PDF (last visited July 3, 2013).

  8
    In a related case, Kimble contends that Marvel breached the verbal
agreement by failing to compensate him after the expiration of the patent
for its use of his ideas. The district court granted summary judgment for
Marvel, finding that the Settlement Agreement unambiguously barred the
claim. In an unpublished decision, we reversed, finding the agreement
ambiguous under New York law. Marvel Entmt., LLC v. Kimble, __ Fed.
App’x __, No. 12-15315 (9th Cir. July 16, 2013). Indeed, Kimble’s claim
under the verbal agreement may be consistent with the Seventh Circuit’s
suggestion that a patent holder might be able to recover under a quantum
meruit theory if the amount of royalties paid was lower than the fair
market value of the defendant’s use of the license given that illegal
contracts are treated as rescinded, placing the parties back in the positions
they would have occupied had the contract never been made in the first
place. See Scheiber, 293 F.3d at 1022–23; see also Zila, 502 F.3d at 1023
(indicating that under Scheiber, the portion of the licensing agreement that
seeks to extend the patent term is void). In that case, much like a quantum
meruit plaintiff, Kimble is essentially asking to be placed in the position
that he would have occupied had the Settlement Agreement never been
made. Like the Seventh Circuit, we do not read Brulotte to preclude such
a claim.
