FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ZILA, INC., a Delaware
Corporation,
Plaintiff-counter-defendant- No. 05-15031
Appellee,
v. D.C. No.
CV-00-01345-KJD
JAMES E. TINNELL,
Defendant-counter-claimant-
Appellant.
ZILA, INC., a Delaware
Corporation,
Plaintiff-counter-defendant- No. 05-15087
Appellant,
v. D.C. No.
CV-00-01345-KJD
JAMES E. TINNELL, OPINION
Defendant-counter-claimant-
Appellee.
Appeal from the United States District Court
for the District of Nevada
Kent J. Dawson, District Judge, Presiding
Argued and Submitted
December 8, 2006—San Francisco, California
Filed September 5, 2007
Before: Dorothy W. Nelson, Robert E. Cowen,* and
Marsha S. Berzon, Circuit Judges.
*The Honorable Robert E. Cowen, Senior United States Circuit Judge
for the Third Circuit, sitting by designation.
11687
11688 ZILA, INC. v. TINNELL
Opinion by Judge Berzon
11690 ZILA, INC. v. TINNELL
COUNSEL
Larry C. Johns and John H. Pilkington, Las Vegas, Nevada,
for the appellant.
ZILA, INC. v. TINNELL 11691
William H. Drummond, Newport Beach, California, for the
appellee.
OPINION
BERZON, Circuit Judge:
Appellant James Tinnell developed a liquid solution to treat
lesions caused by the herpes virus. He applied for a patent on
the treatment and acquired a defunct corporation, now named
Zila, as a vehicle for marketing and selling the product, now
called Zilactin. Tinnell subsequently entered an agreement
with Zila that assigned all rights in his invention to the com-
pany in return for royalty payments and company stock. The
royalty payments provided for in this contract are the subject
of the present dispute.
The contract at issue is unambiguous as to the duration of
the royalties, and the parties agree on their intent at the time
it was formed. All the evidence is thus in accord with a single
interpretation — that Tinnell would relinquish all rights to
Zilactin, patent or otherwise, and, in return, receive in perpe-
tuity a five percent royalty on Zila’s sales of the invention.
The difficulty in this case arises because Zila asserts, and the
district court agreed, that the doctrine announced in Brulotte
v. Thys, 379 U.S. 29 (1964), displaces, because of federal
patent policy, the parties’ intent and renders the royalty obli-
gation unenforceable, either entirely or upon the expiration of
the first patent that issued on Tinnell’s invention. We con-
front, consequently, not simple questions of contract law but
rather issues concerning the impact and bounds of Brulotte, in
the context of an otherwise unremarkable case.
I.
Tinnell first developed his liquid solution to treat lesions
11692 ZILA, INC. v. TINNELL
caused by oral and genital herpes in 1976. He applied for a
patent on the treatment the following year and soon thereafter
acquired a defunct California corporation, which he renamed
Zila, Inc.,1 as a vehicle for marketing and selling the product.
The product has been improved since it was developed in
1976 and is now sold under the brand name Zilactin.
On September 5, 1980, Tinnell and Zila entered into an
agreement (“1980 Agreement”) that began by noting that
“Tinnell has invented a treatment composition for herpes
virus infection, which is the subject of a patent application,”
and “Tinnell is desirous of assigning all of his right, title and
interest in the application and invention, improvements
thereon and Letters Patent thereon” for consideration includ-
ing royalties and stock. The 1980 Agreement
assign[ed] all of [Tinnell’s] right, title and interest in
the [patent] application and invention, improvements
thereon and Letters Patent thereon, when granted in
the United States or foreign countries, to [Zila],
including any present or future improvement
whether the same being made by Tinnell or [Zila],
and whether presently existing or made in the future,
and as may be granted in the United States or any
foreign country or otherwise, including each patent
granted on any application which is a division, sub-
stitution or continuation of any of the applications
specifically identified herein, and each reissue or
extension of any of the same.
In return, and without any temporal or other limitation, the
contract provided Tinnell with “a five percent (5%) royalty on
gross sales of [Zila] of the invention,” as well as company
stock. Tinnell obligated himself to “cooperate with [Zila] to
1
We refer to the corporation throughout this opinion as Zila, its current
name.
ZILA, INC. v. TINNELL 11693
the extent that [Zila] may enjoy to the fullest extent the rights
conveyed hereunder . . . .”
The officers who signed on behalf of Zila testified that
when they executed the 1980 Agreement, it was not known
whether any patents would issue on Tinnell’s invention.
According to their uncontested statements, the duration of
Zila’s obligation to pay Tinnell royalties was not related in
any way to the patents that might or might not be obtained by
the company as a result of his previously-filed patent applica-
tion. Instead, the signatories understood the 1980 Agreement
to provide Tinnell with a 5% royalty on gross sales of Zilactin
for as long as the company sold his product.
Zila subsequently secured patents in the United States and
Canada.2 The first of these patents, U.S. Patent ‘934, was
issued in August 1981. Zila also secured a continuation
patent, ‘236, for the 1981 patent and, in December 1985,
Canadian Patent ‘494. The primary improvement that trans-
formed Tinnell’s original solution into the present-day Zilac-
tin was the addition of a thickener that made the product into
a gel. The patent for the addition of this thickener was
approved as U.S. Patent ‘158 in January 1992.
There is a dispute as to who invented the 1992 patent. In
1987, Zila filed a patent application which described an
improvement to the original chemical compound and named
Tinnell as the inventor. Because Zila’s patent counsel erred in
the technical description of the chemical compounds
involved, however, the company withdrew the application.
When the company resubmitted the application, it inexplica-
bly named Edwin Pomerantz, Zila’s regulatory specialist, as
the inventor. The patent office subsequently issued the patent
2
The record does not establish whether a patent was obtained in any
other country.
11694 ZILA, INC. v. TINNELL
in 1992 to Zila, crediting Pomerantz rather than Tinnell with
the invention.3
Zila’s royalties to Tinnell grew exponentially from 1987 to
2000. In 1987, gross sales of Zilactin amounted to only
$321,000, which pegged royalties at $6,426. By 2000, how-
ever, Zilactin had gross sales of over $8 million, and Zila
owed Tinnell half a million dollars in royalties annually.
In July 2000, Zila’s patent counsel advised the company to
terminate Tinnell’s royalties, on the grounds that, under Bru-
lotte, Tinnell’s right to royalties expired on August 1998,
when the 1981 patent expired. Two months later, Zila stopped
making royalty payments on all sales of Zilactin. Although
the Canadian patent did not expire until December 2002, Zila
justified its withholding of the Canadian royalties on the
ground that it had overpaid Tinnell nearly a million dollars in
American royalties over the previous two years.
Shortly after it stopped paying royalties, Zila filed a two-
count complaint in federal court requesting a declaratory
judgment that Tinnell’s right to royalties under the 1980
Agreement ceased after August 25, 1998. The suit also sought
reimbursement for the royalties paid to Tinnell for the two
years after the 1981 patent expired. Tinnell filed a counter-
claim for declaratory relief, contending that his entitlement to
royalties under the Agreement did not terminate with the
expiration of the 1981 patent but, instead, continued in perpe-
tuity. He added counterclaims for breach of contract, fraud,
and other state law claims.
After discovery, the parties made cross-motions for sum-
3
Section 111 of the Patent Act, 35 U.S.C. § 1 et seq., requires inventors
either to apply for the patent or to authorize the application. When the
patent issues, however, the Patent and Trademark Office can grant it under
§ 152 to an assignee, such as Zila, and name both the inventor and the
assignee on the patent that issues, see § 154(a)(1).
ZILA, INC. v. TINNELL 11695
mary judgment on the over-arching question of whether royal-
ties were owed after August 1998. Applying Brulotte, the
district court held that the 1980 Agreement was “unlawful per
se under federal patent law,” because it “project[ed] beyond
the expiration date of the patent.” Accordingly, the district
court granted summary judgment “to the extent that Zila
requests declaratory relief from liability under the Agree-
ment.” The court explained that, “[s]ince the Agreement is
unenforceable after the expiration of the patents on August
25, 1998, Zila cannot be forced to pay royalties after that
date.” Zila subsequently filed a further motion for summary
judgment on its demand that Tinnell repay royalty payments
from 1998 to 2000, arguing that the payments amounted to
unjust enrichment. The district court denied summary judg-
ment to Zila on this claim and, instead, dismissed it.
Tinnell did not sit idle after the district court’s first order.
He filed his own demand for entry of judgment, arguing that
Zila owed him at least $56,753 in royalties for Canadian sales
of Zilactin from August 2000, when he stopped receiving pay-
ments, until December 3, 2002, when the Canadian patent
expired. Zila admitted to owing the money but claimed it was
entitled to offset the amount against the American royalties it
paid Tinnell from September 1998 through August 2000. The
district court agreed with Zila’s bottom line and went further:
Tinnell had no rights to royalties in the United States or Can-
ada, the district court held, because, although the 1980 Agree-
ment “purports to require the payment of royalties based upon
the Canadian patent, that agreement is unenforceable.” The
court noted that this result appeared inequitable but read Bru-
lotte to require it.
On December 1, 2004 the parties stipulated to dismissal of
Tinnell’s outstanding counterclaim for breach of contact. The
district court then declared all previous orders and the judg-
ment ripe for appeal, and this timely appeal followed.
11696 ZILA, INC. v. TINNELL
II.
We first consider Brulotte. The case involved various pat-
ents held by the Thys Company, which sold farmers a hop-
picking machine for a flat sum but required them to purchase
a license for the patents on the machines in order to use the
product. Id. at 29. The license contract demanded that, in
addition to the initial purchase price of the machines and
onerous restrictions on their assignment or use, the farmers
pay the larger of a $500 annual royalty or a set royalty rate
tied to the amount of hops they harvested each year. Id. The
last patent incorporated into the machines expired in 1957. Id.
at 30. When the farmers subsequently refused to pay the roy-
alty, the Thys Company sued to enforce the licensing con-
tract. Id.
The Supreme Court ruled for the farmers, holding that the
royalty agreements were unenforceable to the extent that they
extended “beyond the expiration date of the patent[s].” Id. at
32. The Court explained its holding in part by noting that
[t]he present licenses draw no line between the term
of the patent and the post-expiration period. The
same provisions as respects both use and royalties
are applicable to each. The contracts are, therefore,
on their face a bald attempt to exact the same terms
and conditions for the period after the patents have
expired as they do for the monopoly period.
Id. As a result, the Court “conclude[d] that a patentee’s use
of a royalty agreement that projects beyond the expiration
date of the patent is unlawful per se,” and held the farmer’s
royalty obligation under the license unenforceable. Id.
[1] Simply put, Brulotte indicates that under some circum-
stances patent owners cannot exact royalties for use of pat-
ented devices beyond the duration of their patents. Id. at 33-
34. The doctrine appears straightforward enough, but its
ZILA, INC. v. TINNELL 11697
application runs counter to the usual task in a contract case —
to interpret the terms agreed to by the parties. That is, Brulotte
renders unenforceable some aspects of an otherwise valid
contract. And it does so 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.”4 Id. at 32-33. No matter how
unconvincing Brulotte’s foundation may be, however, we are
bound to apply its holding if it applies to the case before us.
See, e.g., Agostini v. Felton, 521 U.S. 203, 237 (1997)
(“Court[s] of Appeals should follow the [Supreme Court] case
which directly controls, leaving to this Court the prerogative
of overruling its own decisions.”); Scheiber v. Dolby Labs.,
Inc., 293 F.3d 1014, 1018 (applying Brulotte despite stinging
criticism of its logical underpinnings because “we have no
authority to overrule a Supreme Court decision no matter how
dubious its reasoning strikes us.”). At the same time, our task
is not to expand Brulotte’s holding beyond its terms. So,
4
Reading Brulotte to create a bright line rule that always bars all royal-
ties after a patent expires — no matter how clearly the underlying agree-
ment states otherwise or covers non-patented intellectual property rights
as well — courts and commentators have criticized roundly the fears that
they believe led to that rule. The Seventh Circuit called them simply “not
true,” Scheiber v. Dolby Labs., Inc., 293 F.3d 1014, 1017 (7th Cir. 2002),
and several commentators similarly suggest that they “lack . . . economic
or logical sense,” Note, Michael Koenig, Patent Royalties Extending
Beyond Expiration: An Illogical Ban from Brulotte to Scheiber, 2003
Duke L. & Tech. R. 5, ¶ 19; see also, Harold See & Frank M. Caprio, The
Trouble with Brulotte: The Patent Royalty Term and Patent Monopoly
Extension, 1990 UTAH L. R. 813, 846 (“In no way . . . can the patent
monopoly be extended beyond its term by the use of a royalty.”); John W.
Schlicher, 2 PATENT LAW, LEGAL AND ECONOMIC PRINCIPLES § 13:192 (2d
ed.) (“The use of the longer royalty term does not permit the patent owner
to turn a patent with a 20 year term into a patent with a 30 year term . . . .
The market power existing during the term patent can only be exploited
once.”); Raymond T. Nimmer & Jeff Dodd, MODERN LICENSING LAW
§ 13:31 (noting that post-expiration royalties do not “expand the claims or
the scope of the patent”).
11698 ZILA, INC. v. TINNELL
except as required by Brulotte and its progeny, we shall
endeavor to give effect to the intent of the parties and the bar-
gain that they struck.
[2] A central difference between this case and Brulotte is
that here, although the contracting parties contemplated the
possible future issuance of a patent, the royalty provision did
not depend on it, either on its face or as reported by the con-
tracting parties. Whether that difference is material is a diffi-
cult question that largely turns on the interpretation of a post-
Brulotte Supreme Court case that had this same feature, Aron-
son v. Quick Point Pencil Co., 440 U.S. 257 (1979), and that
enforced the contract’s royalty provision.
[3] Aronson concerned an inventor who filed an applica-
tion for a patent on a design for a keyholder. Id. at 259. While
the patent application was pending, she negotiated a contract
with a manufacturer to make and sell the product. Id. The
agreement between the inventor, Aronson, and the manufac-
turer, Quick Point, consisted of two documents. Id. In the
first, Quick Point agreed to pay a 5% royalty in return for an
exclusive license to sell the invention described in the patent
application; the duration of the royalty was not detailed. Id. In
the second, the parties agreed that if the patent application
“was not allowed” within five years, Quick Point would pay
a 2.5% royalty so long as it sold the invention. Id. After five
years passed and Aronson had failed to obtain a patent, Quick
Point reduced its royalties to the lower rate, which it paid for
14 years. Id. at 260. As sales of the keyholder rose and com-
petitors entered the market, Quick Point sought a declaratory
judgment that the royalty agreement was unenforceable. Id. at
260-61. Although Quick Point persuaded the appeals court,
the Supreme Court disagreed, holding that the Brulotte doc-
trine and similar federal patent principles “do not bear on a
contract that does not rely on a patent, particularly where, as
here, the contracting parties agreed expressly as to alternative
obligations if no patent should issue.” Id. at 262.
ZILA, INC. v. TINNELL 11699
In so holding, the Court stated that enforcing the perpetual
royalty of 2.5% was “consistent with the principles treated in
Brulotte.” Id. at 264. The 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 265. The Court recognized that “a pending
patent application gives the applicant some additional bar-
gaining power for purposes of negotiating a royalty agree-
ment,” but observed that “the amount of leverage arising from
a patent application depends on how likely the parties con-
sider it to be that a valid patent will issue.” Id. Because the
parties in Aronson negotiated a two-tier royalty, with a contin-
gency for the acceptance or rejection of the patent application,
the court concluded that “[i]t is clear that whatever role the
pending application played in the negotiation of the 5% roy-
alty, it played no part in the contract to pay the [2.5%] royalty
indefinitely.” Id.
Aronson thereby added an additional wrinkle to the Bru-
lotte analysis and has been read 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 royal-
ties either when a patent expires or when it fails to issue can-
not be upheld unless it provides a discount from the
alternative, patent-protected rate. See Meehan v. PPG Indus-
tries, Inc., 802 F.2d 881, 884-85 (7th Cir. 1986); Boggild v.
Kenner Products, 776 F.2d 1315, 1319-20 (6th Cir. 1985);
Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365, 1372-74 (11th
Cir. 1983). This understanding, however, may well overread
both Brulotte and Aronson, by glossing over the unique and
onerous contractual restrictions at issue in Brulotte and rely-
ing on a sentence in Aronson that is really only dicta.
Brulotte indicates that it is because of post-patent-
expiration contractual restrictions other than royalties that the
11700 ZILA, INC. v. TINNELL
Thys Company could not collect the royalties after the patents
expired. Specifically, the Court in Brulotte noted that,
although the farmers bought the hop-picking machines out-
right and title transferred, they were forced to obtain a license
to actually use the machines; the licenses could not be
assigned, making the machines the farmers purchased worth-
less for subsequent sales; the farmers were forbidden from
moving their machines out of the county, whether or not they
intended to use them elsewhere; and the license charged both
a sliding royalty rate and a minimum fee, depending on use.
379 U.S. at 29.5 It is only “in view of [these] other provisions
of the license agreements” that the Court found the unchang-
ing royalty rate to be “peculiarly significant.” Id. at 31-32
(emphasis added). The Court emphasized that the presence of
“[t]hose restrictions,” rather than the royalty alone, in the
“post-expiration period [was] a telltale sign that the licensor
was using the licenses to project its monopoly beyond the
patent period.” Id. at 32 (emphasis added). In other words, the
Thys Company was not simply attempting to charge a royalty
after the patent expired; it was acting in all respects as if the
patent remained in place. See id. (“The same provisions as
respects both use and royalties are applicable [during the term
of the patent and the post-expiration period] . . . . We are,
therefore, unable to conjecture what the bargaining position
of the parties might have been . . . .”) (emphases added).
Moreover, Brulotte involved the sale of a physical machine
along with a use license, where the machine was separately
paid for and owned outright by the farmers. Id. at 29. As the
Court noted, id. at 33 n.5, the sale of intellectual property
alone, as here, is a considerably more complex matter than the
contract at issue in Brulotte, and the concepts underlying Bru-
lotte do not necessarily transfer to that context readily. An
invention can have value to a manufacturer as a trade secret,
or as an opportunity to exploit brand identified or market
5
The dissent in Brulotte noted that the minimum fees, not dependent on
use, were primarily at stake. See 379 U.S. at 34-39 (Harlan, J., dissenting).
ZILA, INC. v. TINNELL 11701
share, quite aside from any patent that could issue on it. In
Brulotte, in contrast, the farmers had no interest in the inven-
tion other than its physical embodiment — which they owned
— and the right to use the intellectual property included in it,
which could not be exploited by the patent holder once the
patent expired.
Aronson, on the other hand, involved a sale of purely intel-
lectual property to a manufacturer, and recognized the value
of other intellectual property besides the patent. See 440 U.S.
at 261-62 (“Quick Point apparently placed a significant value
on exploiting the basic novelty of the device, even if no patent
issued.”); id. at 263 (noting that, even without patent rights,
the contract allowed Quick Point “to preempt the market”); id.
at 265 (“[Quick Point] agree[d] to pay for the opportunity to
be first in the market”). This recognition was both necessary
and sufficient to the holding in Aronson that Brulotte “does
not bear on a contract that does not rely on a patent,” as it was
essential to the demonstration that the “[lower] royalty was
explicitly independent of federal law.” Id. at 261-2. Although
the court stated in passing that, if Aronson had received a
patent on her keyholder, “she would have received a 5% roy-
alty only on keyholders sold during the 17-year life of the
patent,” this example was counterfactual dicta, neither sup-
ported by any analysis nor necessary for the decision.
In short, were we writing on a clean slate, we might be
inclined to read the dicta in Aronson as nonbinding in light of
what appears on its face to be a very limited holding in Bru-
lotte. By doing so, we would largely avoid attributing to the
Supreme Court in Brulotte and Aronson the lack of economic
logic laid at its feet by Scheiber and a bevy of commentators.
[4] Nonetheless, every other circuit to consider Brulotte has
ignored the relevance of the restrictions on use and, in the
process, read Aronson as turning not on the absence of such
restrictions or on the fact that the agreement was enacted
before any patent issued but on the facts that (1) a patent did
11702 ZILA, INC. v. TINNELL
not issue in that case; and (2) the underlying agreement pro-
vided for a lower royalty if no patent issued than if one did.
See Meehan 802 F.2d at 884-85; Boggild, 776 F.2d at 1319-
20; Pitney Bowes, 701 F.2d at 1372-73. This consensus view
may overread both Brulotte and Aronson for the reasons we
have surveyed, and gives rise to the trenchant criticisms of the
commentators and of the Seventh Circuit in Scheiber. But the
Supreme Court opinions are sufficiently opaque that we can-
not say with any certainty that the consensus view is wrong.
As patent matters give rise to particularly strong national uni-
formity concerns, see S. Rep. No. 97-275, at 4 (1982) (citing
the “special need for national uniformity” in the interpretation
of patent law as support for the creation of the Federal Cir-
cuit), we hesitate more than is ordinarily the case to open up
an intra-circuit conflict, see Hale v. Arizona, 993 F.2d 1387,
1393 (9th Cir. 1993) (en banc) (“For prudential reasons, we
avoid unnecessary conflicts with other circuits . . . .”). We
therefore adopt the majority approach and consider not
whether but the extent to which Brulotte preempts state law
with regard to a contract for payment of royalties on the sale
of an invention that may be patented, if a patent indeed issues
on the invention.
III.
Applying Brulotte, the district court in this case found that
the 1980 Agreement was “unlawful per se under federal
patent law.” It therefore granted summary judgment “to the
extent Zila requests declaratory relief from liability under the
Agreement.” In the subsequent order, however, the district
court expanded its previous rulings. It interpreted Brulotte as
rendering the entire patent assignment agreement null and
void, not just its provision of royalties after 1998. Faced with
the question whether Zila must pay Tinnell royalties it admit-
ted were due under a valid Canadian patent, the district court
determined that it need not, because, although the 1980
Agreement “purports to require the payment of royalties
ZILA, INC. v. TINNELL 11703
based upon the Canadian patent, that agreement is unenforce-
able.”
[5] Contrary to the district court’s conclusions, Brulotte
does not render an entire contract void and unenforceable
merely because it includes an invalid licensing agreement.
Rather, Brulotte renders unenforceable only that portion of a
license agreement that demands royalty payments beyond the
expiration of the patent for which the royalties are paid. See
379 U.S. at 30 (reversing the judgment below only “insofar
as it allows royalties to be collected which accrued after the
last of the patents . . . had expired”) (emphasis added); id. at
33-34 (holding unenforceable “an attempt to project” the pay-
ment monopoly into a term “after the expiration of the last of
the patents”) (emphasis added). We previously referenced this
interpretation of Brulotte’s scope in passing, see Atlas-Pacific
Eng’g Co. v. Geo. W. Ashlock Co., 339 F.2d 288, 289 n.1 (9th
Cir. 1965), and it is not seriously in dispute. The parties agree,
as has every appellate court to consider the question. See, e.g.,
Scheiber v. Dolby Labs., Inc., 293 F.3d 1014, 1022 (7th Cir.
2002); Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365, 1373
n.13 (11th Cir. 1983); Modrey v. American Gage & Machine
Co., 478 F.2d 470, 474 (2d Cir. 1973).
[6] The district court, however, read Scheiber to support its
conclusion that Brulotte can render void contractual obliga-
tions to pay royalties on valid patents. In Scheiber, the plain-
tiff owned a U.S. patent and a Canadian patent. 293 F.3d at
1016. As part of a settlement agreement with the defendant,
Scheiber agreed to receive royalties on both patents through
the end of the Canadian patent’s term, which ended two years
after the U.S. patent. Id. The defendant, however, “refused to
pay royalties on any patent after it expired.” Id. at 1016
(emphasis added). The Seventh Circuit, applying Brulotte,
found the contract unenforceable to the extent that the “paten-
tee extends the patent beyond the term fixed in the [U.S.]
patent statute.” Id. at 1017; see also id. at 1022 (describing
Brulotte as “refusing enforcement to contracts for the pay-
11704 ZILA, INC. v. TINNELL
ment of patent royalties after expiration of the patent”)
(emphasis added). Accordingly, the relief granted by the court
was not voiding the entire contract but rather a “partial rescis-
sion of the license agreement.” Id. at 1021 (emphasis added).
Although Scheiber states later in the opinion that the contract
is “voided on grounds of illegality,” id. at 1022, and “unen-
forceable,” id. at 1023, the context provided by the previous
lengthy discussion, as well as the limited relief sought, makes
clear that this is true only of the portion of the contract “seek-
ing to ‘extend’ [the] patent,” id. at 1021, and not anything
else. There is thus no support that for the notion that Brulotte
erects a general barrier to the enforcement of otherwise valid
contract terms unless and until that last applicable patent
expires.
A. Unpaid Canadian Royalties
[7] Nor does Brulotte extend its royalty-cancelling powers
to contracts for foreign patents. Brulotte concerned patent
rights in the United States, 379 U.S. at 30 (citing 35 U.S.C.
§ 154, which grants rights “throughout the United States”),
and reflected the Court’s fear that a patent holder would abuse
his federally-bestowed monopoly to extract payments beyond
the term of that patent. 379 U.S. at 32-33. The “patent” at
issue in Brulotte is an American one, and its dispositive effect
on state contract law is a consequence of the Supremacy
Clause. See id. at 32 (“[P]atents are in the federal domain.”).
“State law is not displaced merely because the contract relates
to intellectual property which may or may not be patentable;
the states are free to regulate the use of such intellectual prop-
erty in any manner not inconsistent with federal law.” Aron-
son, 440 U.S. at 262 (emphasis added). The rights and
obligations bestowed by the international patent regime
played thus no role in Brulotte.
Nor should they. The Canadian patent is an entirely sepa-
rate asset from the U.S. patent. See Paris Convention for the
Protection of Industrial Property, July 14, 1967, Art. 4bis, 21
ZILA, INC. v. TINNELL 11705
U.S.T. 1583, (“Patents applied for in the various countries of
the Union . . . shall be independent of patents obtained for the
same invention in other countries . . . .” ). The fact that the
asset is a foreign patent, as opposed to foreign real estate or
other real property held outside the country, does nothing to
change the propriety and competency of state contract law to
dispose of it. Brulotte has no self-executing international
effect and only displaces state contract law with respect to
royalty obligations related to federally-bestowed patent rights.
[8] In light of these observations, it is clear that summary
judgment against Tinnell on his claim for the unpaid Cana-
dian royalties was improper. Even if the principle announced
in Brulotte were to obviate Zila’s obligation to pay royalties
on the 1981 patent once it expired, an issue we discuss below,
it neither renders the entire 1980 Agreement unenforceable
nor displaces Zila’s obligation to pay royalties on the valid
Canadian patent. Because Zila admitted in its statement of
material undisputed facts that it owed $56,753 in royalties on
the Canadian patent, there are no facts in dispute, and the dis-
trict court should have entered judgment for Tinnell on this
claim.6
B. Declaratory Judgments
Both Zila and Tinnell sought declaratory judgments in dis-
trict court. Zila asked for a declaration that it is relieved of lia-
bility for any royalties under the 1980 Agreement; Tinnell
desired a declaration that he is entitled to royalty payments in
perpetuity. The district court granted summary judgment for
Zila and correspondingly denied Tinnell’s motion. Because
Tinnell was entitled to at least some royalties under the 1980
Agreement, as we have established, the district court erred.
The scope of royalties he is due on domestic sales is unclear,
6
Whether royalties are payable for Canadian sales once the Canadian
patent expires, a matter of Canadian law, is not before us.
11706 ZILA, INC. v. TINNELL
however, so a remand to the district court is necessary to
resolve disputed issues of fact.
The royalty provision in the 1980 Agreement does not ref-
erence any specific patent. Rather, it provides Tinnell with “a
five percent (5%) royalty on gross sales . . . of the invention.”
This provision has no sunset clause, time limit, or territorial
limitation. The only barrier to a perpetual royalty obligation
that Zila has suggested is that which Brulotte provides.7
Determining the reach of Brulotte’s barrier to the collection
of royalties requires us to consider the scope of the royalty
provision, as well as the impact of subsequently-issued pat-
ents on the enforceability of the royalty provision. In other
words, we have to ask both what Zila is paying royalties for
and under what conditions its obligation to do so is lawful.
We address each question in turn.
1. The Royalty Provision
Zila argues that the term “invention” in the royalty provi-
sion is explicitly defined in the agreement as limited to the
claims described in and identified by the 1981 patent. Tinnell
argues that the term refers, instead, to the product Zilactin,
including the later, patented improvement.
Although the contract is ambiguous in some respects as to
7
The record does not make clear whether the only sales of Zilactin out-
side the United States occurred in Canada and, if not, whether Zila is seek-
ing to apply Brulotte to cut off royalties on any non-Canadian
international sales as of the expiration of the American patents. We see no
reason Brulotte would have any impact on the availability of royalties on
foreign sales — because, once again, Brulotte derives only from federal
Supremacy Clause principles and does not otherwise impair agreements to
pay royalties in exchange for the assignment of an invention. But, in light
of the ambiguity of the record and of the requests for declaratory relief,
we leave any further consideration of the matter for the district court on
remand.
ZILA, INC. v. TINNELL 11707
the scope of the royalty provision, a remand is not necessary
to resolve its meaning.8 Even if we were to accept Zila’s inter-
pretation, we do not read Brulotte so mechanically as to ren-
der the royalty provision here necessarily invalid as of the
expiration of the 1981 patent. Rather, we believe the parties’
intent can be best furthered, and the Brulotte doctrine imple-
mented, by a more nuanced consideration of the contract.
[9] If the 1980 Agreement had provided royalties only on
the 1981 patent, those royalties could not be enforced after
1998. But the contract did no such thing; it provided royalties
on “sales . . . of the invention.” (Emphasis added). Even if we
accept that this clause covers only sales of the original three
acid compound, the parties agree that the invention is
embodied in and essential to Zilactin and, thus, sales of Zilac-
tin constitute sales of the invention.
The invention has been improved, however, and Zila argues
that the contract does not entitle Tinnell to royalties on sales
of Zilactin in its improved form. This argument is unpersua-
sive.
Consider a hypothetical: Henry Ford applies for a patent on
an inventive transport vehicle, which he calls a “car.” The
“car” has four wheels and uses a motor to propel people from
place to place. Ford subsequently signs a contract assigning
to the Motor Company his rights to the car, any patent that
might issue on it, as well as any future improvements on the
car that he may make. Every few years, Ford improves the
car, adding a roof, for example, and doors. He receives pat-
ents on these improvements, and the Motor Company incor-
porates them into the car. Even with these improvements,
however, the product that the Motor Company sells is none-
theless a “car,” as defined in the original patent application,
because it remains a vehicle with four wheels and a motor.
8
Zila does not argue that “invention” means the 1981 patent itself.
Rather, it contends that “invention” refers to the three acid compound
described in the patent application.
11708 ZILA, INC. v. TINNELL
[10] Here, as in the hypothetical, the improvements to the
three acid compound do not change the fact that the resulting
product fits the definition of the original invention — “[a]
composition for the topical treatment of herpes virus lesions
comprise[d] of effective amounts of tannic acid, boric acid
and salicylic acid in a liquid carrier.” We therefore need not
consider whether Zila’s interpretation of the royalty provision
is correct.
2. 1992 Patent
The more pertinent question is whether the bundle of pat-
ents covered by the 1980 Agreement can be distinguished
from the patents in Brulotte. Brulotte explicitly held that roy-
alties on a product are unenforceable only “after the last of
the patents incorporated into the machines . . . expire[s].” 379
U.S. at 30 (emphasis added). Here, as in Brulotte, the contract
at issue covers a bundle of patents that expire at different
times. See id. at 29-30. Unlike Brulotte, however, the 1980
Agreement references only prospective patents with indeter-
minate expiration dates.9 In other words, although the con-
tracts in Brulotte covered patents that expired at different
times, the expiration date for the last-expiring patent was
known at the time of the contract in Brulotte. In contrast, nei-
ther party to the 1980 Agreement knew at the time the agree-
ment was signed which or how many patents it would cover
and, consequently, when the last of those patents would
expire.
[11] We see no reason to treat the two cases differently.
Although the subsequent improvements to Tinnell’s invention
were contingent at the time of the contract, they were contem-
plated by the parties. The 1980 Agreement alluded to “im-
provements thereon and Letters Patent thereon . . . including
9
At the time the parties signed the contract, the 1981 patent had not
issued, nor had applications been filed on the ‘236 continuation patent, the
Canadian patent, or the 1992 improvement patent.
ZILA, INC. v. TINNELL 11709
any present or future improvement . . . whether presently
existing or made in the future . . . .” Over the next twelve
years, as patents issued, both parties operated with the under-
standing that the 1980 Agreement governed their relationship.
The patents that issued after the 1980 Agreement was signed
were thus part of the bundle of intellectual property rights that
the parties contracted for in the first instance. See Meehan,
802 F.2d at 884-86; Boggild, 776 F.2d at 1320-21.
Brulotte poses no bar to the collection of royalties so long
as Zilactin incorporates a valid patent for a compound
invented by Tinnell pursuant to the 1980 Agreement. When
an inventor is listed on an application for a patent, and a
patent issues, he has — unless he has assigned it to someone
else — the right to exploit the federal patent monopoly, “em-
power[ing him] to exact royalties as high as he can negotiate
with the leverage of that monopoly.” Brulotte, 379 U.S. at
33; see Meehan, 802 F.2d at 885. Although Tinnell assigned
the patent to Zila before it issued, and thus held no patent
rights the 1992 patent issued, “it is the issuance of the patent
that triggers Brulotte’s application, not the transfer of the
rights.” Meehan, 802 F.2d at 885. And because Brulotte pro-
hibits only “a projection of the patent monopoly after the
patent expires,” 379 U.S. at 32, Tinnell can receive payment
on his inventions from Zila, the party to whom he has
assigned the patent rights and who is therefore the patent
owner, so long as that monopoly is valid. Whether this
monopoly consists of one patent or a dozen, the ability to
exact royalties runs to the last of the patents providing
monopoly protection. Id. at 30.
[12] Consequently, if Tinnell invented an improvement on
his 1981 patent, which was itself patented and provided addi-
tional monopoly protection, Brulotte cannot be applied to dis-
place the royalty provision when the 1981 patent expires.
Instead, the royalty obligation would stand until the end of the
term of any such later patent.
11710 ZILA, INC. v. TINNELL
Here, there is a disputed issue of fact as to whether Tinnell
did so, specifically whether he or Edwin Pomerantz invented
the improvement embodied in the 1992 patent. Despite the
fact that the patent listed Pomerantz as the inventor, Tinnell
produced extensive evidence that the idea originated with
him: Zila named him as the inventor on the first application;
Pomerantz told Zila’s patent counsel that Tinnell first had the
idea; another witnesses so testified; and Zila’s patent counsel
told Tinnell that he would be named the inventor.
[13] We therefore remand to the district court for a determi-
nation whether Tinnell should be credited with invention of
the 1992 patent.10 If he should be, summary judgment in his
favor is appropriate to the extent that it declares him entitled
to domestic royalties until the 1992 patent expires. If not,
summary judgment in Zila’s favor is appropriate to the extent
that it declares the company released from liability for any
domestic royalties after the 1981 patent expired in 1998.11
REVERSED and REMANDED for proceedings consis-
tent with this opinion.
10
Section 256 of the Patent Act permits a court to correct the name of
an inventor on an issued patent when “through error an inventor is not
named in an issued patent and such error arose without any deceptive
intention on his part.”
11
We do not address Zila’s unjust enrichment claim, as it may never
arise on the view we take of the case. If Zila is found on remand to owe
Tinnell royalties on American sales of Zilactin through 2009, its earlier
payments would be consistent with that obligation, and no unjust enrich-
ment issue could arise.