A patent licensing agreement provided that the licensee should
sell the licensed products at prices fixed by the licensor and
should be estopped from denying the validity of the patent. The
products were sold widely in interstate commerce. A controversy
having arisen as to the coverage of certain products by the patent,
the licensing agreement was terminated, the licensee sued for a
declaratory judgment declaring the patent invalid, and the licensor
counterclaimed for unpaid royalties or damages for infringement.
The patent was held invalid.
1. In these circumstances, the licensee is not estopped to
challenge the validity of the patent. Sola Electric Co. v.
Jefferson Electric Co., 317 U. S. 173
Scott Paper Co. v. Marcalus Mfg. Co., 326 U.
. Pp. 329 U. S.
2. The licensee's obligations to pay royalties and to sell at
prices fixed by the licensor are not severable. P. 329 U. S.
3. Since the royalties here claimed accrued, if they accrued at
all, prior to the time the licensing agreement terminated, the fact
of subsequent termination does not free the promise to pay
royalties from the taint of the price-fixing provision. P.
329 U. S.
4. The alleged fact that the licensee suggested the price-fixing
provision in the licensing agreement does not estop him from
challenging its validity as being in violation of the antitrust
laws. P. 329 U. S.
5. The specific contract not to challenge the validity of the
patent cannot override congressional policy against contracts in
restraint of interstate trade any more than can an implied
estoppel. P. 329 U. S. 402
153 F.2d 149 affirmed.
In a suit by a licensee for a declaratory judgment declaring a
patent invalid, the licensor counterclaimed for unpaid royalties or
damages for infringement. The District
Page 329 U. S. 395
Court held that the licensee was estopped to challenge the
validity of the patent. The Circuit Court of Appeals reversed and
remanded to the District Court to pass on the validity of the
patent. 139 F.2d 291. The District Court held the patent invalid.
The Circuit Court of Appeals affirmed. 153 F.2d 149. This Court
granted certiorari. 328 U.S. 826. Affirmed,
329 U. S. 402
MR. JUSTICE BLACK delivered the opinion of the Court.
The question here is whether the defendant, in a suit to recover
royalties only under a terminated patent license agreement
containing price-fixing provisions, can challenge the validity of
the patent despite a covenant in the license contract that he would
not do so.
The petitioner, Edward Katzinger Company, and the respondent,
Chicago Metallic Mfg. Company, make and sell tin baking pans. The
undenied testimony was that Metallic sold its pans over a large
part of the United States, probably in every state in the country.
Katzinger became owner of Jackson patent No. 2,077,757 on a certain
type of pan. [Footnote 1
Metallic, accused of infringing, entered into a licensing contract
under which, upon payment of stipulated royalties, it was
authorized to manufacture and sell pans made in accordance with the
Page 329 U. S. 396
Section 3 and 11 of the license contract, set out below,
] provided that
Metallic, like all other licensees, should sell these pans at
prices fixed by Katzinger. Royalties were to be computed on the
basis of "net sales" of articles "made in accordance with any of
the patents or applications under this license." Section 14
provided that, if Metallic elected to terminate the contract
without ceasing to manufacture the pans, Metallic should "be
estopped from denying the validity of said patent . . . and be
Page 329 U. S. 397
an infringer thereof." Metallic maintained the patentee-fixed
prices and paid royalties on pans deemed by it to be covered by the
patent. [Footnote 3
A controversy later arose as to whether certain types of pans
manufactured by Metallic were covered. Declining to pay royalties
on this type of pan, Metallic gave notice of termination of the
contract and initiated this action for a declaratory judgment
praying that the court declare that the patent was invalid for want
of invention and that the controversial pans were not covered by,
and did not infringe, any of Katzinger's patents. Katzinger, in an
answer and counterclaim, alleged, so far as material here, that the
patent covered all the Metallic pans, that Metallic was estopped to
challenge validity of the patent by § 14 of the contract, and that
Metallic either owed royalties or was liable for infringement. It
prayed, among other things, for an accounting for unpaid royalties
which were to be computed at 2.5% to 5% of the sales price which
was governed by the minimum price list attached to the license.
] In the
alternative, it prayed that Metallic be required to account for
profits and damages as an infringer. The District Court held that
Metallic was estopped to challenge the validity of the patents,
and, treating them as valid, found that the patent claims did cover
all the pans. Accordingly,
Page 329 U. S. 398
it ordered an accounting to determine royalties due for the
period prior to termination of the license contract, and for
infringement damages thereafter.
Relying upon our decision in Sola Electric Co. v. Jefferson
Electric Co., 317 U. S. 173
Circuit Court of Appeals reversed. It held that the agreement to
fix prices was inseparably connected with the agreement to pay
royalties; that, if the patent was invalid, the price-fixing
provision violated the federal antitrust laws; that conflict of the
price-fixing provision with the antitrust laws would make the
agreement to pay royalties unenforceable, and that the District
Court had erred in barring Metallic from challenging the patent's
validity as a predicate to establishing the illegality and
consequent unenforceability of the royalty covenant. The cause was
remanded to the District Court to pass upon validity of the patent.
139 F.2d 291. That Court then held the patent invalid, and rendered
judgment for Metallic. The Circuit Court of Appeals affirmed. 153
F.2d 149. We granted certiorari because of a conflicting decision
in Westinghouse Electric & Mfg. Co. v. MacGregor,
Pa. 333, 38 A.2d 244. The Pennsylvania Supreme Court in the
case ruled that price-fixing provisions in a
license agreement such as the one before us were severable from the
agreement to pay royalties, and read our Sola
though it were a holding that a licensee was estopped to challenge
a patent's validity except in cases where a licensor sought
affirmative relief to enforce price-fixing provisions of a
We need not consider whether, under the ruling of Bement
& Son v. National Harrow Co., 186 U. S.
, 186 U. S. 87
186 U. S. 91
these price-fixing provisions would be lawful if the patent were
valid. The question here is entirely different. Nor need we, as it
has been suggested, discuss this Court's opinions in
18 How. 289, and United
Page 329 U. S. 399
v. Harvey Steel Co., 196 U. S. 310
which were concerned with particular circumstances there involved.
In the Sola
case, we declined to examine these prior
decision, holding that neither of them was relevant because "no
price-fixing stipulation was involved in the license contract" at
issue in those cases. So here, it would be inappropriate to
reexamine those decisions now. Under what other circumstances a
federal rule of estoppel might be applied is a question which can
be met when particular facts present it.
case reaffirmed past decisions holding that
price-fixing agreements such as those here involved are
unenforceable because of violations of the Sherman Act, save as
they may be within the protection of a lawful patent. That case
held further that local rules of estoppel cannot screen such
agreements from court scrutiny, and that federal courts must, in
the public interest, keep the way open for the challenge of patents
which are utilized for price-fixing of interstate goods. It is true
that the licensor there not only sought a recovery of royalties,
but prayed generally for an injunction to require observance of all
the provisions of the license agreement, one of which provisions
was for price-fixing. But that the chief object of that suit was to
recover royalties and not to require observance of the price-fixing
provisions is indicated by the fact that, while breaches of other
covenants of the contract were alleged in the petition, and
specific prayers for their observance were included, there was no
charge that the licensee had breached the price-fixing covenant,
and there was no specific prayer to require observance of it. Nor
did this Court indicate that the patent would have been immune from
challenge had the licensor sued for royalties only. This would have
permitted a licensor to be protected on an illegal contract merely
because he chose one remedy rather than another on the same
Page 329 U. S. 400
issue. If we had intended to draw such a fine line, it is hard
to believe that such a careful writer as the late Chief Justice
would have failed to indicate in the opinion of the mandate of the
Court in the Sola
case that, on remand the trial court,
while permitting challenge of the patent to defeat the injunction,
must treat the price-fixing provision as severable, and forbid
challenge for the purpose of defeating the claim for recovery of
royalties. [Footnote 5
decision, instead of resting on such a narrow procedural base, was
firmly grounded upon the broad public interest in freeing our
competitive economy from the trade restraints which might be
imposed by price-fixing agreements stemming from narrow or invalid
patents. Sola Electric Co. v. Jefferson Electric Co.,
at 317 U. S.
In Scott Paper Co. v. Marcalue Mfg. Co., 326 U.
, it was held that even an assignor who had sold a
patent issued to itself was free to challenge the validity of the
patent, and thereby defeat an action for infringement by showing
that the invention had been described in an expired patent. In thus
emphasizing the necessity of protecting our competitive economy by
keeping open the way for interested persons to challenge the
validity of patents which might be shown to be invalid, the Court
was but stating an often
Page 329 U. S. 401
expressed policy that "It is the public interest which is
dominant in the patent system," Mercoid Corp. v. Mid-Continent
Investment Co., 320 U. S. 661
320 U.S. 665
, and that the
right to challenge
"is not only a private right to the individual, but it is
founded on public policy, which is promoted by his making the
defense, and contravened by his refusal to make it."
Pope Mfg. Co. v. Gormully, 144 U.
, 144 U. S. 235
If the question of severability, urged by the petitioner here,
were a new one, we should again arrive at the conclusion we reached
in the Sola
case. Metallic's obligation to pay the
royalties and its agreement to sell at prices fixed by Katzinger
constituted an integrated consideration for the license grant.
Consequently, when one part of the consideration is unenforceable
because in violation of law, its integrated companion must go with
it. See Hazelton v. Sheckels, 202 U. S.
, 202 U. S. 78
Moreover, solicitude for the interest of the public fostered by
freedom from invalid patents and from restraints of trade, which
has been manifest by the line of decisions of which the Scott
cases are two of the latest
examples, requires that there should be no departure from the
guiding principles they announced.
The royalties here claimed accrued, if they accrued at all,
prior to the time the license agreement terminated. Consequently,
the fact of subsequent termination does not free the promise to pay
royalties from the taint of the price-fixing provision. Nor does
the fact, if it be a fact, that Metallic itself suggested the
price-fixing provision, bar Metallic's challenge to the patent's
validity. For the contract was still illegal, whoever suggested it,
so that there is no less reason for leaving the way open to
challenge the patent as a service to the public interest than if
Katzinger had suggested price-fixing. Finally, Metallic's
Page 329 U. S. 402
specific contract not to challenge the validity of Katzinger's
patent can no more override congressional policy than can an
implied estoppel. See Scott Paper Co. v. Marcalus Mfg. Co.,
at 326 U. S. 257
and cases cited.
[For dissenting opinion of MR. JUSTICE FRANKFURTER, concurred in
by MR. JUSTICE REED, MR. JUSTICE JACKSON, and MR. JUSTICE BURTON,
in this case and in MacGregor v. Westinghouse Mfg. Co., see
p. 329 U. S.
Other patents originally in suit are not involved in this
"3. Licensor agrees that, while this agreement remains in force
and effect, if it permits others under license or other agreement
to manufacture or sell articles or devices embodying or made in
accordance with any of the patents or applications hereinbefore
described, upon terms more favorable than those granted the
Licensee hereunder, the Licensor shall immediately notify the
Licensee hereunder and grant the same terms to the Licensee."
"* * * *"
"11. Licensor reserves the right to establish a minimum sales
price for the articles or products which Licensee is licensed to
manufacture hereunder and to modify or change such minimum prices
from time to time during the life of this agreement. The Licensor,
as well as Licensee and any other person, persons, or corporation
licensed by Licensor shall not, with the consent of Licensor, sell
or offer for sale, or otherwise dispose of any of the licensed
devices or products below said minimum sales price, or on more
favorable terms of sale than those set forth in any such scale or
prices so established by Licensor. Contemporaneously with the
execution and delivery of this license agreement, Licensee has
received from Licensor a schedule of minimum prices, effective as
of the date hereof, below which none of the products or devices
made under this license shall be sold. Licensor reserves the right,
upon thirty (30) days' notice in writing given by Licensor to
Licensee, to change said minimum prices from time to time during
the life hereof. On such articles or devices made and sold by
Licensee as to which Licensor shall have failed or neglected to
establish a minimum sales price, the royalty shall likewise be
computed on the net sales price received by Licensee from its
customers. Licensee or its duly authorized representatives shall
have access from time to time to he books of account of Licensor
during ordinary business hours for the purpose of determining
whether or not Licensor has complied with the provisions of this
Of course, it is the unlawful agreement, whether it is executed
or not, which violates the antitrust laws. United States v.
Socony-Vacuum Oil Co., 310 U. S. 150
American Tobacco Co. v. United States, 328 U.
, 328 U. S. 809
In the cases here, the parties stipulated that,
"in pursuance of this license agreement, Metallic did, for a
period of two years, more or less, exercise the license therein
given by making certain tinware products, maintaining minimum
prices and paying therefor applicable royalties."
While the court originally made findings to the effect that
Metallic did not attempt to carry out the price-fixing agreement
and was willing to have it removed from the contract, these
findings were expressly vacated on remand.
The schedule of minimum prices incorporated by reference into
the license agreement was set out as an exhibit in Katzinger's
The cases cited in the Sola
contentions that the offending price-fixing provisions should be
considered severable from the rest of the contract, and therefore
enforceable. See, e.g., Bement v. National Harrow Co.,
186 U. S. 70
186 U. S. 88
Continental Wall Paper Co. v. Louis Voight & Sons Co.,
212 U. S. 227
[argument of counsel -- omitted].
That this Court's attention was called in the Sola
to this question is shown by examination of the brief filed here
for Sola, which cited decisions of this Court to support a
contention that the provisions for royalties and price-fixing were
inseparable, and that royalties must be denied if the price-fixing
provision were illegal. Morton Salt Co. v. Suppiger Co.,
314 U. S. 488
Loud v. Pomona Land & Water Co., 153 U.
, 153 U. S. 576
Williams v. Bank of United
2 Pet. 96.
See Morton Salt Co. v. Suppiger Co., supra,
314 U. S.