1. Where, owing to the invalidity of a patent, a price-fixing
stipulation in a license to manufacture the patented article and to
sell it in interstate commerce is in conflict with the Sherman Law,
the licensee is not estopped to set up the invalidity against the
licensor in a suit by the latter to recover royalties and to enjoin
sales not in conformity with the license agreement. P. 317 U. S.
2. This question of estoppel is a federal question. P.
317 U. S.
Local rules of estoppel will not be permitted to thwart the
purposes of statutes of the United States. Ere R. Co. v.
Tompkins, 304 U. S. 64
distinguished. P. 317 U.S.
125 F.2d 322, reversed.
Certiorari, 316 U.S. 652, to review a judgment affirming the
District Court in upholding a price-fixing provision in a patent
license agreement, and dismissing a counterclaim.
MR. CHIEF JUSTICE STONE delivered the opinion of the Court.
The question for our decision is whether a patent licensee, by
virtue of his license agreement, is estopped to challenge a
price-fixing clause in the agreement by showing that the patent is
invalid, and that the price restriction is accordingly unlawful
because not protected by the patent monopoly.
Respondent brought the present suit in the District Court for
the Northern District of Illinois, asserting diversity
Page 317 U. S. 174
of citizenship, and alleging that it was the owner op Patent No.
1777256 for improvements in an electrical transformer; that it had
entered into a license contract granting petitioner a nonexclusive
license to manufacture and sell the patented transformers
throughout the United States, its territories, dependencies, and
possessions on payment of a stipulated royalty upon each
transformer so manufactured and sold. The contract provided that
the license was granted on condition that the "prices, terms, and
conditions of sale, for use or sale" throughout the licensed
territory should not be more favorable to petitioner's customers
than those prescribed from time to time by respondent for its own
sales and those of its other licensees. Respondent sought recovery
of unpaid royalties and also an injunction restraining further
sales except in conformity to the terms of the license
Petitioner, by its answer, admitted that it had manufactured two
types of transformers, one covered by certain narrow claims of the
patent, claims 8, 14 and 19, the validity of which it does not
challenge, the other alleged to be covered by certain broader
claims. Petitioner also filed a counterclaim alleging that the
broad claims are invalid for want of novelty, as it asserted had
been recognized in the Sixth Circuit in France Mfg. Co. v.
Jefferson Electric Co.,
106 F.2d 605, and that respondent, by
reason of the price control provisions of the licensing contract
and the invalidity of the broad claims, was not entitled to recover
royalties upon those transformers covered only by the broad claims.
Petitioner accordingly prayed a declaratory judgment that most of
the claims except 8, 14 and 19, are invalid, and for other
The Circuit Court of Appeals for the Seventh Circuit affirmed
the district court's order dismissing the counterclaim, 125 F.2d
322, ruling that petitioner, having accepted a license under the
patent, was estopped to deny its validity. And, treating the patent
as valid, it held
Page 317 U. S. 175
that the stipulation for control of the sales price of the
patented articles manufactured by the licensee was a lawful
exercise of the patent monopoly. We granted certiorari, 316 U.S.
652, the question being of importance to the administration of the
patent laws and the Sherman Anti-Trust Act.
The Circuit court of appeals, in holding that petitioner as a
licensee was estopped to challenge the validity of the patent, did
not say whether it considered that it was applying a rule of
federal or of state law, and it cited no decisions of either the
federal or the Illinois courts. Where no price-fixing stipulation
was involved in the license contract, this rule of estoppel, which
was not questioned by counsel, was applied without discussion in
United States v. Harvey Steel Co., 196 U.
; cf. 59 U. S.
18 How. 289. We need not decide whether, in such a
case, the rule is one of local law, cf. Dale Tile Mfg. Co. v.
Hyatt, 125 U. S. 46
125 U. S. 53
or whether, if it be regarded as a rule of federal law because the
construction and application of the patent laws are involved, it
was rightly applied in United States v. Harvey Steel Co.,
For here, a different question is presented -- whether
the doctrine of estoppel as invoked below is so in conflict with
the Sherman Act's prohibition of price-fixing that this Court may
resolve the question even though its conclusion be contrary to that
of a state court.
The present license contract contemplates and requires that
petitioner, on sales of the licensed transformers throughout the
United States, shall conform to the prices fixed by respondent for
the sale of competing patented articles by other licensees and by
respondent. Such a restriction on the price of articles entering
interstate commerce is a violation of the Sherman Act save only as
it is within the protection of a lawfully granted patent monopoly.
See United States v. Univis Lens Co., 316 U.
, 316 U. S. 250
and cases cited; United States v. Masonite
Page 317 U. S. 176
316 U. S. 265
316 U. S.
-277. Agreements fixing the competitive sales price
of articles moving interstate, not within the protection of a
patent, are unlawful because prohibited by the Sherman Act.
It is familiar doctrine that the prohibition of a federal
statute may not be set at naught, or it benefits denied, by state
statutes or state common law rules. In such a case, our decision is
not controlled by Erie R. Co. v. Tompkins, 304 U. S.
. There, we followed state law because it was the law
to be applied in the federal courts. But the doctrine of that case
is inapplicable to those areas of judicial decision within which
the policy of the law is so dominated by the sweep of federal
statutes that legal relations which they affect must be deemed
governed by federal law having its source in those statutes, rather
than by local law. Royal Indemnity Co. v. United States,
313 U. S. 289
313 U. S. 296
Prudence Realization Corp. v. Geist, 316 U. S.
, 316 U. S. 95
Board of Comm'rs v. United States, 308 U.
, 308 U. S.
-350; cf. O'Brien v. Western Union Telegraph
113 F.2d 539, 541. When a federal statute condemns an act
as unlawful the extent and nature of the legal consequences of the
condemnation, though left by the statute to judicial determination,
are nevertheless federal questions, the answers to which are to be
derived from the statute and the federal policy which it has
adopted. To the federal statute and policy, conflicting state law
and policy must yield. Constitution, Art. VI, cl. 2; Awotin v.
Atlas Exchange Nat. Bank, 295 U. S. 209
Deitrick v. Greaney, 309 U. S. 190
309 U. S.
The federal courts have been consistent in holding that local
rules of estoppel will not be permitted to thwart the purposes of
statutes of the United States. See,
in the case of federal
statutes governing interstate freight rates, Pittsburgh, C.C.
& St.L. Ry. Co. v. Fink, 250 U. S. 577
250 U. S.
-583; Chesapeake & Ohio Ry. v. Martin,
283 U. S. 209
283 U. S.
-223; cf. 241 U. S. Topeka
& S.F. Ry. v. Harold,
Page 317 U. S. 177
241 U. S. 371
federal statutes affecting national banks, Awotin v. Atlas
Exchange Bank, supra; Deitrick v. Greaney, supra.
A state, by applying its own law of specific performance, may
not compel the performance of a contract contemplating violation of
the federal land laws, Anderson v. Carkins, 135 U.
. Similarly, this Court has declared that anyone
sued upon a contract may set up as a defense that it is in
violation of the Sherman Act. Bement v. National Harrow
Co., 186 U. S. 70
186 U. S. 88
And it has proceeded on the assumption that whether the parties to
an agreement in violation of the Act are in pari delicto
is a question of federal, not state, law. Harriman v. Northern
Securities Co., 197 U. S. 244
Eastman Kodak Co. v. Southern Photo Material Co.,
273 U. S. 359
273 U. S.
-378. It decided in Continental Wall Paper Co. v.
Voight & Sons Co., 212 U. S. 227
that a vendee of goods purchased from an illegal combination in
pursuance of an illegal agreement, both in violation of the Sherman
Act, can plead the illegality in defense to a suit for the purchase
price. This decision went much further than it is necessary to go
here to conclude that petitioner may assert the illegality of the
price-fixing agreement and may offer any competent evidence to
establish its illegality, including proof of the invalidity of the
Local rules of estoppel which would fasten upon the public as
well as the petitioner the burden of an agreement in violation of
the Sherman Act must yield to the Act's declaration that such
agreements are unlawful, and to the public policy of the Act which
in the public interest precludes the enforcement of such unlawful
agreements. Cf. Morton Salt Co. v. Suppiger Co.,
314 U. S. 488
314 U. S.