1. Arrangements between two patentees for cross-licensing of
their interdependent product patents, and for licensing exclusively
by one of them of other manufacturers to make and vend under both
patents, which arrangements, together with those entered into
separately with other licensees, were intended to and did control
the prices at which products embodying both patents were sold in
interstate commerce by the patentees and all licensees,
held violative of § 1 of the Sherman Act. Pp.
333 U.
S. html#288">333 U. S. 288-299, 305-315.
(a)
United States v. General Electric Co., 272 U.
S. 476, distinguished. Pp.
333 U. S.
299-305,
333 U. S.
310-312.
(b) Such a price-fixing arrangement between two or more
patentees transcends the limits of the patent monopoly granted to
each of them, and it violates § 1 of the Sherman Act no matter how
advantageous it may be to stimulate the broader use of the patents.
Pp.
333 U. S.
310-313,
333 U. S.
314-315.
2. Licensees who, with knowledge of such arrangements, enter
into licenses containing price maintenance provisions are likewise
subject to the prohibitions of the Sherman Act. P.
333 U. S.
315.
64 F.
Supp. 970, reversed.
The United States brought suit under § 4 of the Sherman Act to
restrain an alleged violation of § 1 by the appellees. The District
Court dismissed the complaint.
64 F. Supp.
970. The United States appealed directly to this Court under
the Expediting Act.
Reversed and remanded, p. 315.
Page 333 U. S. 288
MR. JUSTICE REED delivered the opinion of the Court.
The United States sought an injunction under §§ 1 and 4 of the
Sherman Act [
Footnote 1] in the
District Court against continuance of violations of that Act by an
allegedly unlawful combination or conspiracy between appellees,
through contracts, to restrain interstate trade in certain patented
electrical devices. The restraint alleged arose from a
cross-license arrangement between the patent owners, Line Material
Company and Southern States Equipment Corporation, to fix the sale
price of the devices
Page 333 U. S. 289
to which arrangement the other appellees, licensees to make and
vend, adhered by supplemental contracts. [
Footnote 2]
The District Court,
64 F.
Supp. 970, dismissed the complaint as to all defendants upon
its conclusion that the rule of
United States v. General
Electric Co., 272 U. S. 476, was
controlling. That case approved as lawful a patentee's license to
make and vend which required the licensee in its sales of the
patented devices to conform to the licensor's sale price schedule.
Appeal was taken directly to this Court, 32 Stat. 823, and probable
jurisdiction noted here on October 21, 1946. We have jurisdiction.
[
Footnote 3]
Page 333 U. S. 290
I
.
The Facts
The challenged arrangements center around three product patents,
which are useful in protecting an electric circuit from the dangers
incident to a short circuit or other overload. Two of them are
dropout fuse cutouts, and the third is a housing suitable for use
with any cutout. Dropout fuse cutouts may be used without any
housing. The District Court found that 40.77% of all cutouts
manufactured and sold by these defendants were produced under these
patents. This was substantially all the dropout fuse cutouts made
in the United States. There are competitive devices that perform
the same functions manufactured by appellees and others under
different patents than those here involved.
The dominant patent, No. 2,150,102, in the field of dropout fuse
cutouts with double jointed hinge construction was issued March 7,
1939, to the Southern States Equipment Corporation, assignee, on an
application of George N. Lemmon. [
Footnote 4] This patent reads upon a patent No. 2,176,227,
reissued December 21, 1943, Re. 22,412, issued October 17, 1939 to
Line Material Company, assignee, on an application by Schultz and
Steinmayer. [
Footnote 5]
Page 333 U. S. 291
The housing patent No. 1,781,876, reissued March 31, 1931, as
Re. 18,020, and again February 5, 1935, as Re.19,449, was issued
November 18, 1930 to Line, assignee, on an application by W. D.
Kyle. The Kyle patent covers a wet-process porcelain box with great
dielectric strength, which may be economically constructed and has
been commercially successful. We give no weight to the presence of
the Kyle patent in the licenses.
The applications for the Lemmon and Schultz patents were pending
simultaneously. They were declared in interference, and a contest
resulted. The decision of the Patent Office, awarding dominant
claims to Southern and subservient claims to Line on the Lemmon and
the Schultz applications, made it impossible for any manufacturer
to use both patents when later issued without some cross-licensing
arrangement.
Cf. Temco Electric Motor Co. v. Apco Mfg.
Co., 275 U. S. 319,
275 U. S. 328.
Only when both patents could be lawfully used by a single maker
could the public or the patentees obtain the full benefit of the
efficiency and economy of the inventions. Negotiations were started
by Line which eventuated in the challenged arrangements.
The first definitive document was a bilateral, royalty-free,
cross-license agreement of May 23, 1938, between Southern and Line
after the patent office award but before the patents issued. This,
so far as here pertinent, was a license to Southern by Line to make
and vend the prospective Schultz patented apparatus with the
exclusive
Page 333 U. S. 292
right to grant licenses or sublicenses to others. Line also
granted Southern the right to make and vend, but not to sublicense,
the Kyle patent. Southern licensed Line to make and vend, but not
to sublicense, the prospective Lemmon patent for defined equipment
which included the Schultz apparatus. Sublicense royalties and
expenses were to be divided between Line and Southern. Although a
memorandum of agreement of January 12, 1938, between the parties
had no such requirement, Line agreed to sell equipment covered by
the Southern patent at prices not less than those fixed by
Southern. Southern made the same agreement for equipment covered
solely by the Line patent. No requirement for price limitation upon
sales by other manufacturers under license was included.
Six of the other manufacturers [
Footnote 6] here involved were advised by Line by letter
dated June 13, 1938 that Southern had authority to grant licenses
under the Schultz prospective patent. On October 3, 1938, Kearney
took from Southern a license to practice the Lemmon and Schultz
patents. The license had a price, term, and condition of sale
clause, governed by Southern's prices, which bound Kearney to
maintain the prices on its sales of devices covered by the patents.
On October 7, 1938, the five other manufacturers mentioned above
were offered by Southern the same contract as the standard
licensor's agreement. The Kearney contract was discussed at Chicago
in October, 1938, by all of the above manufacturers except Railway.
Pacific also participated. It never was enforced. The first patent
involved in this case did not issue until March, 1939. Those
manufacturers who were making double jointed open and enclosed
dropout cutouts wanted to and did explore cooperatively
Page 333 U. S. 293
(F.F. 15) the validity of the patents. They failed to find a
satisfactory basis for attack. They were faced with infringement
suits. Other reasons developed for the refusal of the six
manufacturers to accept the Kearney form contracts (F.F. 16 &
17) unnecessary to detail here. One reason was that the prospective
sublicensees preferred Line to Southern as licensor because of the
fact that Line, as owner and manufacturer, would license the Kyle
patent. New arrangements were proposed for the licensees. After
mutual discussion between the licensees and patentees, these new
agreements were submitted. A finding to which no objection is made
states:
"On October 24, 1939, General Electric, Westinghouse, Kearney,
Matthews, Schweitzer and Conrad, and Railway met with Line in
Chicago and jointly discussed drafts of the proposed license
agreements under the Lemmon, Schultz, and Kyle patents. Thereafter,
identical sets of revised licenses were sent by Line to General
Electric, Westinghouse, Matthews, Schweitzer, and Conrad, and the
attorneys for Railway and Kearney."
A form for a proposed licensing agreement that contained the
essential elements of the price provision ultimately included in
the licenses had been circulated among prospective licensees by
Line by letters under date of October 6, 1939.
To meet the various objections of the future licensees, the
agreement of May 23, 1938, between Southern and Line was revised as
of January 12, 1940. Except for the substitution of Line for
Southern as licensor of other manufacturers, it follows generally
the form of the earlier agreement. There were royalty free
cross-licenses of the Schultz and Lemmon patents substantially as
before. Line was given the exclusive right to grant sublicenses
to
Page 333 U. S. 294
others for Lemmon. [
Footnote
7] Southern retained the privilege, royalty-free, of making and
vending the Kyle patent also. Southern bound itself to maintain
prices so long as Line required other licensees to do so. [
Footnote 8] Even if it be assumed
Page 333 U. S. 295
that the proper interpretation of the Line-Southern agreement
permitted Southern to manufacture under its on Lemmon patent
without price control, the practical result is that Southern does
have its price for its products fixed, because the only
commercially successful fabrication is under a combination of the
Lemmon and Schultz patents. Findings of Fact 7 and 10.
The price maintenance feature was reflected in all the licenses
to make and vend granted by Line, under the Line-Southern contract,
to the other appellees. There were variations in the price
provisions that are not significant for the issues of this case. A
fair example appears below. [
Footnote 9] The execution of these sublicenses by the
Page 333 U. S. 296
other appellees, except Johnson and Royal, [
Footnote 10] followed within a year. Licenses
were executed by the two on June 15, 1943, and March 24, 1944,
respectively. After August 1, 1940, since a number of the appellees
had executed the license contracts, two consultations of the
licensees and the patentees were held to classify the products of
the various licensees in comparison with the licensor's devices.
[
Footnote 11] The trial
judge found that prices were not discussed. These were fixed by
Line without discussion with or advice from any other appellee.
There can be no doubt, however, that each licensee knew of the
proposed price provisions in the licenses of other licensees from
the circulation of proposed from of license on October 6, 1939,
subsequent consultations among the licensees and an escrow
agreement, fulfilled July 11, 1940. That
Page 333 U. S. 297
agreement was entered into after General Electric took its
license and required for fulfillment the acceptance of identical
licenses by Matthews, Kearney, and Railway. The licenses that were
the subject of the escrow contained the price provisions of General
Electric's license. This awareness by each signer of the price
provisions in prior contracts is conceded by appellees' brief. A
price schedule became effective January 18, 1941. Thereafter, all
the appellees tried to maintain prices. Where there was accidental
variation, Line wrote the licensee calling attention to the
failure. [
Footnote 12]
The licenses were the result of arm's length bargaining in each
instance. Price limitation was actively opposed
in toto,
or restriction of its scope sought, by several of the licensees,
including General Electric, the largest producer of the patented
appliances. A number tried energetically to find substitutes for
the devices. All the licensees, however, were forced to accept the
terms or cease manufacture. By accepting, they secured release from
claims for past infringement through a provision to that effect in
the license. The patentees, through the licenses, sought system in
their royalty collections and pecuniary reward for their patent
monopoly. Undoubtedly, one purpose of the arrangements was to make
possible the use by each manufacturer of the Lemmon and Schultz
patents. These patents, in separate hands, produced a deadlock.
Lemmon, by his basic patent, "blocked" Schultz' improvement.
Cross-licenses furnished appellees a solution.
On consideration of the agreements and the circumstances
surrounding their negotiation and execution, the District Court
found that the arrangements, as a whole, were made in good faith to
make possible the manufacture by all appellees of the patented
devices, to gain a legitimate
Page 333 U. S. 298
return to the patentees on the inventions, and, apart from the
written agreements, there was no undertaking between the appellees
or any of them to fix prices. [
Footnote 13] Being convinced, as we indicated at the
first of this opinion, that the
General Electric case
controlled and permitted such price arrangements as are disclosed
in
Page 333 U. S. 299
the contracts the District Court dismissed the complaint. The
Government attacks the rationale of the
General Electric
case and urges that it be overruled, limited and explained, or
differentiated.
II
.
The General Electric Case
That case was decided in 1926 by a unanimous court, Chief
Justice Taft writing. It involved a bill in equity to enjoin
further violations of the Sherman Act. While violations of the Act
by agreements fixing the resale price of patented articles
(incandescent light bulbs) sold to dealers also were alleged in the
bill, so far as here material, the pertinent alleged violation was
an agreement between General Electric and Westinghouse Company
through which Westinghouse was licensed to manufacture lamps under
a number of General Electric's patents, including a patent on the
use of tungsten filament in the bulb, on condition that it should
sell them at prices fixed by the licensor. On considering an
objection to the fixing of prices on bulbs with a tungsten
filament, the price agreement was upheld as a valid exercise of
patent rights by the licensor.
Speaking of the arrangement, this Court said:
"If the patentee . . . licenses the selling of the articles [by
a licensee to make], may he limit the selling by limiting the
method of sale and the price? We think he may do so, provided the
conditions of sale are normally and reasonably adapted to secure
pecuniary reward for the patentee's monopoly."
272 U.S. at
272 U. S. 490.
This proviso must be read as directed at agreements between a
patentee and a licensee
Page 333 U. S. 300
to make and vend. The original context of the words just quoted
makes clear that they carry no implication of approval of all a
patentee's contracts which tend to increase earnings on patents.
The opinion recognizes the fixed rule that a sale of the patented
article puts control of the purchaser's resale price beyond the
power of the patentee. 272 U.S. at
272 U. S. 489.
Compare United States v. Univis Lens Co., 316 U.
S. 241. Nor can anything be found in the
General
Electric case which will serve as a basis to argue otherwise
than that the precise terms of the grant define the limits of a
patentee's monopoly and the area in which the patentee is freed
from competition of price, service, quality, or otherwise.
Compare Mercoid Corporation v. Mid-Continent Inv. Co.,
320 U. S. 661,
320 U.S. 665-666;
United States v. Masonite Corporation, 316 U.
S. 265,
316 U. S.
277-278,
316 U. S. 280;
Motion Picture Patents Co. v. Universal Film Mfg. Co.,
243 U. S. 502,
243 U. S.
510.
General Electric is a case that has provoked criticism
and approval. It had only bare recognition in
Ethyl Gasoline
Corporation v. United States, 309 U.
S. 436,
309 U. S. 456.
That case emphasized the rule against the extension of the patent
monopoly, 309 U.S. at
309 U. S. 456,
to resale prices or to avoid competition among buyers. 309 U.S. at
309 U. S.
457-458. We found it unnecessary to reconsider the rule
in
United States v. Masonite Corporation, 316 U.
S. 265,
316 U. S. 277,
although the arrangement there was for sale of patented articles at
fixed prices by dealers whom the patentee claimed were
del
credere agents. As we concluded the patent privilege was
exhausted by a transfer of the articles to certain agents who were
part of the sales organization of competitors, discussion of the
price-fixing limitation was not required. In
Katzinger Co. v.
Chicago Metallic Mfg. Co., 329 U. S. 394,
329 U. S. 398,
where a suit was brought to recover royalties on a license with
price limitations, this Court refused to examine the
General
Electric rule because of the claimed illegality of the
Katzinger patent. If the patent were invalid, the price-fixing
Page 333 U. S. 301
agreement would be unlawful. We affirmed the action of the
Circuit Court of Appeals in remanding the case to the District
Court to determine the validity of the patent. The
General
Electric case was cited with approval in
Carbice
Corporation of America v. American Patents Development
Corporation, 283 U. S. 27,
283 U. S. 31.
Other courts have explained or distinguished the
General
Electric rule. [
Footnote
14] As a reason for asking this Court to reexamine the rule of
the
General Electric case, the Government states that
price maintenance under patents through various types of agreements
is involved in certain pending cases. [
Footnote 15] Furthermore, the
Page 333 U. S. 302
point is made that there is such a "host of difficult and
unsettled questions" arising from the
General Electric
holding that the simplest solution is to overrule the precedent
Page 333 U. S. 303
on the power of a patentee to establish sale prices of a
licensee to make and vend a patented article. [
Footnote 16]
Such a liquidation of the doctrine of a patentee's power to
determine a licensee's sale price of a patented article would solve
problems arising from its adoption. Since 1902, however, when
Bement v. National Harrow Co., 186 U. S.
70, was decided, a patentee has been able to control his
licensee's sale price within the limits of the patent monopoly.
[
Footnote 17] Litigation
that the rule has engendered proves that business arrangements have
been repeatedly, even though hesitatingly, made in reliance upon
the contractors' interpretation of its meaning. Appellees urge that
Congress has taken no steps to modify the rule. [
Footnote 18] Such legislative attitude is
to be weighed with the counterbalancing fact that the rule of the
General Electric case grew out of a judicial
determination.
Page 333 U. S. 304
The writer accepts the rule of the
General Electric
case as interpreted by the third subdivision of this opinion. As a
majority of the Court does not agree with that position, the case
cannot be reaffirmed on that basis. Neither is there a majority to
overrule
General Electric. In these circumstances, we must
proceed to determine the issues on the assumption that
General
Electric continues as a precedent. Furthermore, we do not
think it wise to undertake to explain, further than the facts of
this case require, our views as to the applicability of patent
price limitation in the various situations listed by the
Government. On that assumption, where a conspiracy to restrain
trade or an effort to monopolize is not involved, a patentee may
license another to make and vend the patented device with a
provision that the licensee's sale price shall be fixed by the
patentee. The assumption is stated in this way so as to leave aside
the many variables of the
General Electric rule that may
arise. For example, there may be an aggregation of patents to
obtain dominance in a patent field, broad or narrow, or a patent
may be used as a peg upon which to attach contracts with former or
prospective competitors, touching business relations other than the
making and vending of patented devices.
Compare United States
v. United States Gypsum Co., post, p.
333 U. S. 364,
decided today;
United States v. Masonite Corporation,
316 U. S. 265.
It may be helpful to specify certain points that either are not
contested or are not decided in this case. The agreements, if
illegal, restrain interstate commerce contrary to the Sherman Act.
No issue of monopoly is
Page 333 U. S. 305
involved. (F.F. 31.)
Cf. American Tobacco Co. v. United
States, 328 U. S. 781,
328 U. S. 788.
That is to say, the complaint charges restraint of trade under § 1,
and does not charge "monopoly" under § 2, of the Sherman Act, so
that we need not deal with the problems of consolidation, merger,
purchase of competitors or size of business as tending toward
attaining monopoly.
See United States v. United Shoe Machinery
Co., 247 U. S. 32,
247 U. S. 44-55;
United States v. Aluminum Co. of America, 148 F.2d 416,
427-31;
United States v. American Tobacco Co.,
221 U. S. 106,
221 U. S.
181-83;
United States v. United States Steel
Corporation, 251 U. S. 417,
251 U. S. 451.
We are not dealing with a charge of monopoly or restraint because
of the aggregation of patents, by pooling or purchase, by an owner
or owners, in a single industry or field.
See United States v.
United Shoe Machinery Co., 247 U. S. 32.
Within the limits of the patentee's rights under his patent,
monopoly of the process or product by him is authorized by the
patent statutes. It is stipulated by the United States that the
validity of the patents is not in issue. With these points laid
aside, we proceed to the issues presented by this record.
III
.
The Determination of the Issue
Under the above-mentioned assumption as to
General
Electric, the ultimate question for our decision on this
appeal may be stated, succinctly and abstractly, to be as to
whether, in the light of the prohibition of § 1 of the Sherman Act,
note 1 supra, two or
more patentees in the same patent field may legally combine their
valid patent monopolies to secure mutual benefits for themselves
through contractual agreements between themselves and other
licensees, for control of the sale price of the patented
devices.
The appellees urge that the findings of the District Court,
quoted in
note 13
supra, stand as barriers to a conclusion
Page 333 U. S. 306
here that § 1 of the Sherman Act has been violated by the
licenses. Since there was material evidence to support the District
Court's finding of the evidentiary facts and the Court necessarily
weighed the credibility of the witnesses and the probative value of
their testimony to establish appellees' contentions, appellees
insist that the inferences or conclusions as to violations of the
Sherman Act, drawn by the District Court, must be accepted by us.
[
Footnote 19] As to the
evidentiary facts heretofore stated, there is no dispute. From them
the District Court made findings of fact Nos. 32 to 36, inclusive,
hereinbefore set out in
note
13 Even though we accept, as we do, these findings on
preliminary facts as correct, the last sentence in findings 32 and
34 crumbles their asserted bar to an examination by us as to
whether the agreements are violative of the Sherman Act. Those
sentences are to the effect that there was an agreement to fix
prices between all parties in the language of the contracts as set
out in notes
8 and 9
supra. If the patent rights do not empower the patentees
to fix sale prices for others, the agreements do violate the Act.
The previous summary in this opinion of the agreements which
compose these arrangements demonstrates that the agreements were
intended to and did fix prices on the patented devices.
Compare Interstate Circuit v.
United States, 306
Page 333 U. S. 307
U.S. 208,
306 U. S. 226.
While Line's sublicenses to others than
General Electric,
note 9 gave to Line the power
which it exercised to fix prices only for devices embodying its own
Schultz patent, the sublicense agreements licensed the use of the
dominant Lemmon patent. As the Schultz patent could not be
practiced without the Lemmon, the result of the agreement between
Southern and Line for Line's sublicensing of the Lemmon patent was
to combine in Line's hands the authority to fix the prices of the
commercially successful devices embodying both the Schultz and
Lemmon patents. Thus, though the sublicenses in terms followed the
pattern of
General Electric in fixing prices only on
Line's own patents, the additional right given to Line by the
license agreement of January 12, 1940, between Southern and Line,
to be the exclusive licensor of the dominant Lemmon patent, made
its price-fixing of its own Schultz devices effective over devices
embodying also the necessary Lemmon patent.
See note 9 By the patentees' agreement the
dominant Lemmon and the subservient Schultz patents were combined
to fix prices. In the absence of patent or other statutory
[
Footnote 20] authorization,
a contract to fix or maintain prices in interstate commerce has
long been recognized as illegal
per se under the Sherman
Act. [
Footnote 21] This is
true whether
Page 333 U. S. 308
the fixed price is reasonable or unreasonable. It is also true
whether it is a price agreement between producers for sale or
between producer and distributor for resale.
It is equally well settled that the possession of a valid patent
or patents does not give the patentee any exemption from the
provisions of the Sherman Act beyond the limits of the patent
monopoly. [
Footnote 22] By
aggregating patents in one control, the holder of the patents
cannot escape the prohibitions of the Sherman Act.
See Standard
Sanitary Mfg. Co. v. United States, 226 U. S.
20;
United States v. United States Gypsum Co.,
post, p.
333 U. S. 364.
During its term, a valid patent excludes all except its owner from
the use of the protected process or product.
United States v.
United Shoe Machinery Co., 247 U. S. 32,
247 U. S. 58;
Special Equipment Co. v. Coe, 324 U.
S. 370,
324 U. S. 378.
This monopoly may be enjoyed exclusively by the patentee, or he may
assign the patent "or any interest therein" to others. Rev.Stat. §
4898, as amended 55 Stat. 634. As we have pointed out, a patentee
may license others to make and vend his invention and collect a
royalty therefor. Thus, we have a statutory monopoly by the patent
and by the Sherman Act a prohibition not only of monopoly or
attempt to monopolize, but of every agreement in restraint of
trade. Public policy has condemned monopolies for centuries.
The Case of Monopolies, Darcy v. Allein, 11 Co.Rep. 84-b.
See United States v. Aluminum Co. of America, 148 F.2d
416, 428, 449.
See Employment Act of 1946, § 2, 60 Stat.
23. Our Constitution allows patents. Art. I, § 8, cl. 8. The
progress of our economy has often been said to owe much to the
stimulus
Page 333 U. S. 309
to invention given by the rewards allowed by patent legislation.
The Sherman Act was enacted to prevent restraints of commerce, but
has been interpreted as recognizing that patent grants were an
exception.
Bement v. National Harrow Co., supra,
186 U. S. 92, 21
Cong.Rec. 2457. Public service organizations, governmental and
private aside, our economy is built largely upon competition in
quality and prices.
Associated Press v. United States,
326 U. S. 1,
326 U. S. 12-14.
Validation by Congress of agreements to exclude competition is
unusual. [
Footnote 23]
Monopoly is a protean threat to fair prices. It is a tantalizing
objective to any business compelled to meet the efforts of
competitors to supply the market. Perhaps no single fact manifests
the power and will to monopolize more than price control of the
article monopolized. There can be no clearer evidence of restraint
of trade. Whatever may be the evil social effect of cut-throat
competition on producers and consumers through the lowering of
labor standards and the quality of the produce and the obliteration
of the marginal to the benefit of the surviving and low-cost
producers, the advantages of competition in opening rewards to
management, in encouraging initiative, in giving labor in each
industry an opportunity to choose employment conditions and
consumers a selection of product and price, have been considered to
overbalance the disadvantages. The strength of size alone, the
disappearance of small business, are ever present dangers in
competition. Despite possible advantages to a stable economy from
efficient cartels with firm or fixed prices for products, it is
crystal clear from the legislative history and accepted judicial
interpretations
Page 333 U. S. 310
of the Sherman Act that competition on prices is the rule of
congressional purpose and that, where exceptions are made, Congress
should make them. The monopoly granted by the patent laws is a
statutory exception to this freedom for competition, and
consistently has been construed as limited to the patent grant.
Ethyl Gasoline Corporation v. United States, 309 U.
S. 436,
309 U. S. 452,
309 U. S. 455;
United States v. Univis Lens Co., 316 U.
S. 241;
Hartford-Empire Co. v. United States,
323 U. S. 386. It
is not the monopoly of the patent that is invalid. It is the use of
that monopoly improperly.
The development of patents by separate corporations or by
cooperating units of an industry through organized research group
is a well known phenomenon. However far advanced over the lone
inventor's experimentation this method of seeking improvement in
the practices of the arts and sciences may be, there can be no
objection, on the score of illegality, either to the mere size of
such a group or the thoroughness of its research. It may be true,
as Carlyle said, that "Genius is an infinite capacity for taking
pains." Certainly the doctrine that control of prices, outside the
limits of a patent monopoly, violates the Sherman Act is as well
understood by Congress as by all other interested parties.
We are thus called to make an adjustment between the lawful
restraint on trade of the patent monopoly and the illegal restraint
prohibited broadly by the Sherman Act. That adjustment has already
reached the point, as the precedents now stand, that a patentee may
validly license a competitor to make and vend with a price
limitation under the
General Electric case and that the
grant of patent rights is the limit of freedom from competition
under the cases first cited at
note 22
With the postulates in mind that price limitations on patented
devices beyond the limits of patent monopoly violate the Sherman
Act, and that patent grants are to be
Page 333 U. S. 311
construed strictly, the question of the legal effect of the
price limitations in these agreements may be readily answered.
Nothing in the patent statute specifically gives a right to fix the
price at which a licensee may vend the patented article. 35 U.S.C.
§§ 40, 47. While the
General Electric case holds that a
patentee may, under certain conditions, lawfully control the price
the licensee of his several patents may charge for the patented
device, no case of this Court has construed the patent and
anti-monopoly statutes to permit separate owners of separate
patents, by cross-licenses or other arrangements, to fix the prices
to be charged by them and their licensees for their respective
products. Where two or more patentees with competitive,
noninfringing patents combine them and fix prices on all devices
produced under any of the patents, competition is impeded to a
greater degree than where a single patentee fixes prices for his
licensees. The struggle for profit is less acute. Even when, as
here, the devices are not commercially competitive because the
subservient patent cannot be practiced without consent of the
dominant, the statement holds good. The stimulus to seek
competitive inventions is reduced by the mutually advantageous
price-fixing arrangement.
Compare, as to acts by a single
entity and those done in combination with others,
Swift &
Co. v. United States, 196 U. S. 375,
196 U. S. 396;
United States v. Reading Co., 226 U.
S. 324,
226 U. S. 357;
Eastern States Lumber Dealers' Assn. v. United States,
234 U. S. 600;
Binderup v. Pathe Exchange, 263 U.
S. 291. The merging of the benefits of price-fixing
under the patents restrains trade in violation of the Sherman Act
in the same way as would the fixing of prices between producers of
nonpatentable goods.
If the objection is made that a price agreement between a
patentee and a licensee equally restrains trade, the answer is not
that there is no restraint in such an arrangement, but, when the
validity of the
General Electric case
Page 333 U. S. 312
is assumed, that reasonable restraint accords with the patent
monopoly granted by the patent law. Where a patentee undertakes to
exploit his patent by price-fixing through agreements with anyone,
he must give consideration to the limitations of the Sherman Act on
such action. The patent statutes give an exclusive right to the
patentee to make, use, and vend, and to assign any interest in this
monopoly to others. The
General Electric case construes
that as giving a right to a patentee to license another to make and
vend at a fixed price. There is no suggestion in the patent
statutes of authority to combine with other patent owners to fix
prices on articles covered by the respective patents. As the
Sherman Act prohibits agreements to fix prices, any arrangement
between patentees runs afoul of that prohibition, and is outside
the patent monopoly.
We turn now to the situation here presented of an agreement
where one of the patentees is authorized to fix prices under the
patents. The argument of respondents is that, if a patentee may
contract with his licensee to fix prices, it is logical to permit
any number of patentees to combine their patents and authorize one
patentee to fix prices for any number of licensees. In this present
agreement, Southern and Line have entered into an arrangement by
which Line is authorized to and has fixed prices for devices
produced under the Lemmon and Schultz patents. It seems to us,
however, that such argument fails to take into account the
cumulative effect of such multiple agreements in establishing an
intention to restrain. The obvious purpose and effect of the
agreement was to enable Line to fix prices for the patented
devices. Even where the agreements to fix prices are limited to a
small number of patentees, we are of the opinion that it crosses
the barrier erected by the Sherman
Page 333 U. S. 313
Act against restraint of trade though the restraint is by
patentees and their licensees.
As early as 1912, in
Standard Sanitary Mfg. Co. v. United
States, 226 U. S. 20, this
Court unanimously condemned price limitation under pooled [
Footnote 24] patent licenses.
[
Footnote 25] As the
arrangement was coupled with an agreement for limitation on jobbers
resale prices, the case may be said to be indecisive on patent
license agreements for price control of a product without the
jobber's resale provision. No such distinction appears in the
opinion. This Court has not departed from that condemnation of
price-fixing. Even in
Standard Oil Co. v. United States,
283 U. S. 163,
where an arrangement by which the patentees pooled their oil
cracking patents and divided among themselves royalties from
licensees fixed by the pooling contracts was upheld, the theory was
reiterated that a price limitation for the product was unlawful
per se. 283 U.S. at
283 U. S. 170,
283 U. S. 173,
283 U. S. 175.
Of course, if a purpose or plan to monopolize or restrain trade is
found, the arrangement is unlawful.
Page 333 U. S. 314
P.
283 U. S. 174.
The Government's contention in that case that the limitation on
royalties, in itself, violated the Sherman Act by fixing an element
in the price was dismissed because the Court was of the view that
controlled royalties were effective as price regulators only when
the patentees dominated the industry. 283 U.S. at
283 U. S. 174.
This domination was thought by this Court not to have been
proven.
When a plan for the patentee to fix the sale prices of patented
synthetic hardboard on sales made through formerly competing
manufacturers and distributors, designated as
del credere
agents, [
Footnote 26] came
before this Court on allegations that the plan was in violation of
the Sherman Act, we invalidated the scheme. We said that the
patentee could not use its competitor's sales organization as its
own agents so as to control prices. The patent monopoly, under such
circumstances, we said, was exhausted on disposition of the product
to the distributor. We reasoned that such an arrangement was a
restriction on our free economy, "a powerful inducement to abandon
competition," and that it derogated "from the general law [against
price limitation] beyond the necessary requirements of the patent
statute."
United States v. Masonite Corporation,
316 U. S. 265,
316 U. S.
280-281.
We think that this general rule against price limitation clearly
applies in the circumstances of this case. Even if a patentee has a
right in the absence of a purpose to restrain or monopolize trade,
to fix prices on a licensee's sale of the patented product in order
to exploit properly his invention or inventions, when patentees
join in an agreement, as here, to maintain prices on their several
products, that agreement, however advantageous it may be to
stimulate the broader use of patents, is unlawful
per se
under the Sherman Act. It is more than an exploitation of patents.
There is the vice that patentees
Page 333 U. S. 315
have combined to fix prices on patented products. It is not the
cross-licensing to promote efficient production which is unlawful.
There is nothing unlawful in the requirement that a licensee should
pay a royalty to compensate the patentee for the invention and the
use of the patent. The unlawful element is the use of the control
that such cross-licensing gives to fix prices. The mere fact that a
patentee uses his patent as whole or part consideration in a
contract by which he and another or other patentees in the same
patent field arrange for the practice of any patent involved in
such a way that royalties or other earnings or benefits from the
patent or patents are shared among the patentees, parties to the
agreement, subjects that contract to the prohibitions of the
Sherman Act whenever the selling price, for things produced under a
patent involved, is fixed by the contract or a license authorized
by the contract. Licensees under the contract who, as here, enter
into license arrangements, with price-fixing provisions, with
knowledge of the contract, are equally subject to the
prohibitions.
The decree of the District Court is reversed, and the case is
remanded for the entry of an appropriate decree in accordance with
this opinion.
MR. JUSTICE JACKSON took no part in the consideration or
decision of this case.
[
Footnote 1]
26 Stat. 209, as amended by 36 Stat. 1167:
"Sec. 1. Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or commerce among
the several States, or with foreign nations, is hereby declared to
be illegal. . . ."
"
* * * *"
"Sec. 4. The several district courts of the United States are
invested with jurisdiction to prevent and restrain violations of
this act, and it shall be the duty of the several district
attorneys of the United States, in their respective districts,
under the direction of the Attorney General, to institute
proceedings in equity to prevent and restrain such violations. . .
."
[
Footnote 2]
The names of appellees and the abbreviations hereinafter used,
as well as the percentage of production of the dropout fuse devices
manufactured under the patents, are listed below:
Appellee Abbreviated title Percent
General Electric General Electric 29.2
Line material Co. Line 25.4
James R. Kearney Corp. Kearney 18.9
Southern States Equipment Corp. Southern 7.9
Westinghouse Electric Corp. Westinghouse 5.3
Schweitzer & Conrad, Inc. Schweitzer & Conrad 5.1
Railway & Industrial Engineering Co. Railway 3.8
W. N. Matthews Corp. Matthews 2.0
Porcelain Products Co. Porcelain 1.5
Royal Electric Mfg. Co. Royal .5
Pacific Electric Mfg. Co. Pacific .2
T. F. Johnson Johnson .2
-----
100.0
All are corporations of various states except T. F. Johnson,
doing business as Johnson Manufacturing Company, Atlanta,
Georgia.
[
Footnote 3]
The case was argued April 29, 1947, and at our request reargued
November 12-13, 1947.
United States v. United States Gypsum
Co., post, p.
333 U. S. 364,
decided today, considers related phases of Sherman Act
legislation.
[
Footnote 4]
". . . The Lemmon device consists essentially of an expulsion
tube supported by a double jointed hinge at its lower end. As the
tube moves into closed circuit position, the hinge is locked and a
latch engages a terminal on top of the tube to hold the tube in
place. The hinge is released by a relatively complicated and
expensive solenoid mechanism when the current becomes excessive
because of a short circuit or overload. Thereupon the circuit is
broken in the tube and the tube drops downwardly, its upper end
disengaging from the latch, which permits the tube to swing out and
down. By reason of claims covering the double jointed hinge
construction in cutouts, this patent dominates the manufacture of
dropout fuse cutouts involved in this suit."
Findings of Fact, No. 6.
[
Footnote 5]
". . . The Schultz patent covers a dropout fuse cutout which is
an improvement on the device disclosed in the Lemmon patent, and is
dominated by the Lemmon patent. In the Schultz structure, an
expulsion tube is supported by a double jointed hinge which is held
rigid by a fuse link. On overload, the fuse melts, breaking the
circuit in the tube, and the hinge is released automatically, which
permits the tube to drop down and then swing outwardly. This
Schultz dropout fuse is much simpler, and can be manufactured at
considerably less than the cost of a comparable solenoid operated
cutout, and has met widespread commercial demand and use."
Findings of Fact, No. 7.
[
Footnote 6]
Schweitzer & Conrad, General Electric, Westinghouse,
Railway, Kearney, Matthews.
[
Footnote 7]
"The Southern Corporation grants to the Line Company a fully
paid license to make, use and sell, with the exclusive right to
grant sub-licenses to others to make, use and sell, expulsion tube
electric circuit interrupting equipment in which the circuit
interruption is caused by the thermally initiated rupturing of a
current carrying element in an expulsion tube, coming under claims
3, 4 to 10 inclusive, 15 to 22 inclusive, 25, and 27 to 30 of the
patent to G. N. Lemmon, No. 2, 150, 102, dated March 7, 1939,
entitled 'Circuit Breaker' and/or any division, continuation,
substitute, renewal and/or reissue thereof."
[
Footnote 8]
"15. The licenses hereby granted or agreed to be granted are on
the express condition that the prices, terms, and conditions of
sale of the Southern Corporation for electric fuse equipment made
and sold under the licenses herein granted shall, so long as such
electric fuse equipment continues to be covered by Letters Patent
of the Line Company under which a license is granted by this
agreement, be not more favorable to the customer than those
established from time to time and followed by the Line Company in
making its sales."
"It is the purpose and intent of this agreement that there shall
not be, directly or indirectly, any modification of the prices set
by the Line Company as they exist from time to time -- as, for
instance, by including in the transaction other material or parts,
or labor, or services at less than the regular price at which the
party making the same is at the time selling such other material or
parts or furnishing such labor or services or by making allowances
for freight or terms of payment other than those employed by the
Line Company."
"Prices, terms, and/or conditions of sale may be changed by the
Line Company from time to time through reasonable notice in writing
to the Southern Corporation, but not less than ten (10) days'
written notice shall be given before the change shall go into
effect."
"It is agreed that, if the Line Company shall grant a license to
a third party under any of the patents of this agreement (but
excepting from the provisions of this paragraph a license to be
granted to General Electric Company of Schenectady, New York, under
said Kyle reissue patent 19,449), without a provision for
maintenance by said third party of prices, terms, and conditions of
sale as set forth in the first paragraph of this section, then
Southern Corporation shall be relieved from its obligation under
said section."
[
Footnote 9]
In the Line-General Electric license agreement of March 15,
1940, the first under the revised Line-Southern contract, the price
maintenance provision was as follows:
"9. The license hereby granted by the Licensor is subject to the
express limitations that"
"as to dropout fuse cutouts manufactured and sold by Licensee
which are comparable in respect to general type and purpose, ampere
and voltage rating, and rupturing capacity, to dropout fuse cutouts
manufactured and sold by Licensor,"
"Licensee's prices, terms and conditions of sale of dropout fuse
cutouts"
"for use in the United States made under the license herein
granted to Licensee under the aforesaid Letters Patent, Lemmon No.
2, 150, 102, and Schultz and Steinmayer No. 2, 176,227, and as long
as such dropout fuse cutouts continue to be covered by such Letters
Patent,"
"shall be no more favorable to a customer of the Licensee than
those established from time to time and followed by the Licensor in
its sales. The prices, terms and conditions of sale as at present
established and in force are those set forth in Schedule A annexed
hereto and forming a part hereof. This schedule of prices may be
changed from time to time by the Licensor upon ten (10) days'
notice in writing to the Licensee."
"10. The spirit and intent of this license agreement
contemplates that in no transaction shall there be any modification
of Licensee's prices, either directly or indirectly, as, for
instance, by inclusion in the transaction of other material or
parts or services or labor at less than the regular prevailing
prices at which the party making the sale is at the time accustomed
to sell such other material or parts or furnish such services or
labor, as will serve in effect to reduce Licensee's prices below
those named in Schedule A as it exists from time to time."
This was repeated in the Line-General Electric revised agreement
of November 17, 1941. A variable appears in the Westinghouse and
other licenses. In its price provisions, the Lemmon patent is not
mentioned, but the Lemmon patent was included in its grant of
license, and the subsidiary Schultz patent could not be practiced
without the right to use the dominant Lemmon.
[
Footnote 10]
These two produced an aggregate of less than one percent of the
devices.
[
Footnote 11]
All appellees, except Royal, Pacific, and Johnson, attended one
or another of these conferences. We do not find it necessary to
determine whether or not the selling prices also of the licensees
were before the conference. The agreements adequately show an
intention to fix prices.
[
Footnote 12]
The licenses contained provisions for records of sale,
inspection thereof, and cancellation of the license for breach.
[
Footnote 13]
Findings of Fact:
"32. The price limitation provisions contained in the various
license agreements here in evidence were insisted upon by the
patent owner, and were intended and reasonably adapted to protect
its own business and secure pecuniary reward for the patentee's
monopoly. Each of the licenses granted to the licensee-defendants
was taken and granted in good faith, the parties to the licenses
believing a license under the patents to be necessary in order that
the licensee could continue lawfully to manufacture and sell its
dropout fuse cutouts. Apart from the written license agreements
here in evidence, there was no agreement, express or implied,
between the licensor and any licensee, or between any two or more
licensees, with respect to the prices of licensed dropout fuse
cutouts."
"33. All of the devices for which minimum prices were
established by Line were comparable to, and competitive with,
devices which Line manufactured and sold regularly or which it was
ready to manufacture and sell to its customers on special
order."
"34. The cross-license agreements between Line and Southern were
limited to the commercially practicable device covered by the
subservient Schultz patent, and did not create additional power for
price control of the licensed cutouts over that which each had
before entering into the agreements. The inflexible intention to
insist upon price limitation existed independently in each of the
patent owners prior to any discussions or arrangements between
them. Such cross-license agreements were entered into in good
faith, not for the purpose of fixing prices in the industry, but to
permit the manufacture and sale of the cheaper device covered by
the subservient patent, to facilitate the negotiation of licenses,
and to provide royalty income. There was no agreement, express or
implied, between Line and Southern with respect to prices on
cutouts other than the written cross-license agreements."
"35. The license agreements here in evidence did not restrain
trade, but promoted it by making available several sources where
the patented devices could be obtained, thus increasing competition
in such devices, particularly with respect to design, quality, and
service. Competition among the defendants for business in these
devices continued to be vigorous after the making of the license
agreements."
"36. There was no combination or conspiracy among the
defendants, or any of them, to fix, maintain or control prices of
dropout fuse cutouts or parts thereof, or to restrain trade or
commerce therein."
[
Footnote 14]
For illustration, and without implication as to this Court's
position on the issues, we call attention to the following:
Barber-Colman Co. v. National Tool Co., 136 F.2d 339.
In a suit by the licensor against the licensee, injunctive relief
to compel compliance with a price-fixing provision in the patent
license was denied. The
General Electric case was held not
to permit the patentee to fix prices on unpatented hobs which were
produced under a process patent by a patented machine.
Cummer-Graham Co. v. Straight Side Basket Corp., 142
F.2d 646. Licensee was denied relief in an action against licensor
for failing to require other licensees to comply with price-fixing
provisions; licensor of a patent on an attachment to a basket
making machine may not fix prices on baskets produced by the
machine.
United States v. Vehicular Parking,
Ltd., 54 F. Supp.
828. Antitrust proceeding against patent holding company and
manufacturing licensees in parking meter industry. The patent
licenses fixed the prices at which parking meters could be sold and
contained restrictive provisions on marketing practices. In
ordering compulsory licensing at a reasonable royalty, the court
distinguished the
General Electric case principally on the
ground that the patentee in this case did not itself manufacture
the parking meters; other distinctions noted were the number and
active concert of licensees, the weakness of the patents, the
fixing of prices on unpatented articles, and the existence of
marketing restrictions.
[
Footnote 15]
For example, such price arrangements under the type of agreement
indicated are in litigation as follows:
United States v. Allegheny Ludlum Steel Corp.,
D.N.J.Civil 45-83, stainless steel company owning patents on a
particular type of stainless steel allegedly issued licenses fixing
prices on all types of stainless steel.
United States v. American Optical Co., S.D.N.Y.Civil
10-391, optical patents owned by patent holding company which gave
exclusive licenses; exclusive licensee sublicensed to other
manufacturers who agreed to maintain prices and comply with
marketing restrictions.
United States v. Bausch & Lomb Optical Co.,
S.D.N.Y. Civil 10-394, patent holding company issued licenses to
two licensees to manufacture bifocal lenses, the licenses fixing
prices at which the bifocal lenses were to be sold and the
selection of wholesalers and retailers for the lenses.
United States v. Catalin Corporation of America,
D.N.J.Civil 7743, manufacturer of phenolic resins licensed other
manufacturers under its process patents, the licensees agreeing to
sell at prices established by the licensor.
United States v. General Cable Corp., S.D.N.Y.Civil
40-76, cross-licenses among holders of patents on fluid filled
cable, the licensees agreeing to adhere to uniform prices and to
observe territorial marketing limitations.
United States v. General Electric Co., D.N.J.Civil
1364, cross-licensing agreements between manufacturers of
electrical bulbs providing for price and quantitative
restrictions.
United States v. General Electric Co., Fried Krupp,
S.D.N.Y.Cr. 110-412, cross-licensing of tungsten carbide patents
with price and territorial restrictions.
United States v. General Instrument Corp., D.N.J.Cr.
3960-C, Civil 8586, owners of variable condenser patents assigned
patents to holding company and took back licenses with price-fixing
provisions; explicit price-fixing provisions subsequently removed
but allegedly continued by tacit agreement.
United States v. Phillips Screw Co., N.D.Ill.Civil
47-C-147, holder of patents on cross recessed head screws granted
exclusive license to leading screw manufacturer who sublicensed to
other manufacturers; patentholder, exclusive licensee, and
sublicensees agreed on price terms for all screws produced.
[
Footnote 16]
The United States lists: uncertainty as to the nature of the
patent, process or product, which justifies price control; extent
of patent domination over the device; may a patent pooling
corporation control all licensees' sale prices; extent of price
control in an industry. U.S.Brief 65
et seq.
[
Footnote 17]
In earlier cases involving the National Harrow Company, the
lower courts held that an industrywide combination to fix prices
was illegal.
National Harrow Co. v. Hench, 83 F. 36;
National Harrow Co. v. Quick, 67 F. 130,
aff'd on
other grounds, 74 F. 236.
Compare Rubber Tire Wheel Co. v.
Milwaukee Rubber Works Co., 154 F. 358,
and Indiana Mfg.
Co. v. J. I. Case Threshing Mach. Co., 154 F. 365, upholding
industrywide price-fixing,
with Blount Mfg. Co. v. Yale &
Towne Mfg. Co., 166 F. 555, holding such price-fixing
illegal.
[
Footnote 18]
Bills have been introduced which would outlaw price limitation
in patent licenses: H.R. 22345, 62d Cong., 2d Sess. (1912); S.
2730, 77th Cong., 2d Sess. (1942); S. 2491, 77th Cong., 2d Sess.
(1942), and Hearings thereon; H.R. 7713, 77th Cong., 2d Sess.
(1942); H.R. 109, 78th Cong., 1st Sess. (1943); H.R. 1371, 78th
Cong., 1st Sess. (1943); H.R. 3874, 78th Cong., 1st Sess. (1943);
H.R. 97, 79th Cong., 1st Sess. (1945); H.R. 3462, 79th Cong., 1st
Sess. (1945); S. 2482, 79th Cong., 2d Sess. (1946); S. 72, 80th
Cong., 1st Sess. (1947).
See Final Report of Temporary National Economic
Committee, Sen.Doc. No. 35, 77th Cong., 1st Sess. (1941), p. 36;
Report of the National Patent Planning Commission, H.Doc., No. 239,
78th Cong., 1st Sess. (1943), p. 9.
[
Footnote 19]
Rules of Civil Procedure, Rule 52:
"
Findings by the Court. -- (a) EFFECT. In all actions
tried upon the facts without a jury, the court shall find the facts
specially and state separately its conclusions of law thereon and
direct the entry of the appropriate judgment, and, in granting or
refusing interlocutory injunctions, the court shall similarly set
forth the findings of fact and conclusions of law which constitute
the grounds of its action. Requests for findings are not necessary
for purposes of review. Findings of fact shall not be set aside
unless clearly erroneous, and due regard shall be given to the
opportunity of the trial court to judge of the credibility of the
witnesses. The findings of a master, to the extent that the court
adopts them, shall be considered as the findings of the court."
[
Footnote 20]
E.g., Miller-Tydings, 50 Stat. 693.
[
Footnote 21]
Dr. Miles Medical Co. v. John D. Park & Sons Co.,
220 U. S. 373;
Boston Store of Chicago v. American Graphophone Co.,
246 U. S. 8;
United States v. United Shoe Machinery Co., 247 U. S.
32,
247 U. S. 58;
United States v. Trenton Potteries Co., 273 U.
S. 392;
United States v. Socony-Vacuum Oil Co.,
310 U. S. 150,
310 U. S.
222-224;
United States v. Univis Lens Co.,
316 U. S. 241,
316 U. S. 250;
Sola Electric Co. v. Jefferson Electric Co., 317 U.
S. 173;
Katzinger Co. v. Chicago Mfg. Co.,
329 U. S. 394.
Appalachian Coals v. United States, 288 U.
S. 344, cannot be cited to support a contrary view. In
that case, this Court held that "The plan cannot be said either to
contemplate or to involve the fixing of market prices." 288 U.S. at
288 U. S. 373.
See the
Socony-Vacuum case, supra, 310
U.S. at
310 U. S. 214
et seq. Perhaps arbitrary or monopoly prices were in mind
in
Appalachian. 288 U.S. at
288 U. S.
358-359,
288 U. S. 365,
288 U. S.
371.
[
Footnote 22]
United States v. National Lead Co., 332 U.
S. 319;
Hartford-Empire Co. v. United States,
323 U. S. 386,
323 U. S. 406;
Standard Oil Co. v. United States, 283 U.
S. 163, at
283 U. S. 169,
and cases cited;
Standard Sanitary Mfg. Co. v. United
States, 226 U. S. 20,
226 U. S. 48-49.
See Transparent-Wrap Mach. Corp. v. Stokes & Smith
Co., 329 U. S. 637,
329 U. S. 641,
329 U. S. 647,
and cases cited.
[
Footnote 23]
The Interstate Commerce Act authorizes carriers to pool revenues
and authorizes mergers of carriers, provided that approval of the
Interstate Commerce Commission is obtained. The antitrust laws are
inapplicable to such agreements. 49 U.S.C. § 5(1), (2) and
(11).
[
Footnote 24]
The words "patent pool" are not words of art. The expression is
used in this opinion to convey the idea of a linking of the right
to use patents issued to more than one patentee.
[
Footnote 25]
226 U.S. at
226 U. S.
48:
"The agreements clearly therefore transcended what was necessary
to protect the use of the patent or the monopoly which the law
conferred upon it. They passed to the purpose and accomplished a
restraint of trade condemned by the Sherman law. It had therefore a
purpose and accomplished a result not shown in the
Bement
case. There was a contention in that case that the contract of the
National Harrow Company with Bement & Sons was part of a
contract and combination with many other companies and constituted
a violation of the Sherman law, but the fact was not established,
and the case was treated as one between the particular parties, the
one granting and the other receiving a right to use a patented
article with conditions suitable to protect such use and secure its
benefits. And there is nothing in
Henry v. A. B. Dick Co.,
224 U. S.
1, which contravenes the views herein expressed."
[
Footnote 26]
Cf. United States v. General Electric Co., supra.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK, MR. JUSTICE
MURPHY, and MR. JUSTICE RUTLEDGE, join, concurring.
While I have joined in the opinion of the Court, its discussion
of the problem is, for me, not adequate for a full understanding of
the basic issue presented. My view comes to this -- it is a part of
practical wisdom and good law not to permit
United
States v. General Electric Co.,
Page 333 U. S. 316
272 U. S. 476, to
govern this situation, though, if its premise be accepted, logic
might make its application to this case wholly defensible. But I
would be rid of
United States v. General Electric Co. My
reasons for overruling it start with the Constitution itself.
The Constitution grants Congress the power
"To promote the Progress of Science and useful Arts, by securing
for limited Times to Authors and Inventors the exclusive Right to
their respective Writings and Discoveries."
Art. I, § 8, Cl. 8. It is to be noted first that all that is
secured to inventors is "the exclusive Right" to their inventions,
and, second, that the reward to inventors is wholly secondary, the
aim and purpose of patent statutes being limited by the
Constitution to the promotion of the progress of science and useful
arts.
United States v. Masonite Corporation, 316 U.
S. 265,
316 U. S. 278,
and cases cited.
Congress faithful to that standard, has granted patentees only
the "exclusive right to make, use, and vend the invention or
discovery." Rev.Stat. § 4884, 35 U.S.C. § 40. And as early as 1853,
the Court, speaking through Chief Justice Taney, defined the narrow
and limited monopoly granted under the statutes as follows.
"The franchise which the patent grants consists altogether in
the right to exclude everyone from making, using, or vending the
thing patented without the permission of the patentee."
Bloomer v.
McQuewan, 14 How. 539,
55 U. S. 549.
But the ingenuity of man has conceived many ways to graft
attractive private perquisites onto patents. The effort through the
years has been to expand the narrow monopoly of the patent. The
Court, however, has generally been faithful to the standard of the
Constitution, has recognized that the public interest comes first,
and reward to inventors second, and has refused to let the
self-interest of patentees come into the ascendency. As we stated
in
B. B. Chemical Co. v. Ellis, 314 U.
S. 495,
Page 333 U. S. 317
314 U. S. 498,
"The patent monopoly is not enlarged by reason of the fact that
it would be more convenient to the patentee to have it so, or
because he cannot avail himself of its benefits within the limits
of the grant."
From
Motion Picture Patents Co. v. Universal Film Mfg.
Co., 243 U. S. 502,
which overruled
Henry v. A. B. Dick Co., 224 U. S.
1, to
International Salt Co. v. United States,
332 U. S. 392,
decided only the other day, the Court has quite consistently
refused to allow the patentee's "right to exclude" to be expanded
into a right to license the patent on such conditions as the
patentee might choose. For the power to attach conditions would
enable the patentee to enlarge his monopoly by contract, and evade
the requirements of the general law applicable to all property. The
philosophy of those decisions was summed up in
Mercoid
Corporation v. Mid-Continent Inv. Co., 320 U.
S. 661,
320 U. S. 666,
where we said:
"The necessities or convenience of the patentee do not justify
any use of the monopoly of the patent to create another monopoly.
The fact that the patentee has the power to refuse a license does
not enable him to enlarge the monopoly of the patent by the
expedient of attaching conditions to its use. . . . The patent is a
privilege. But is it a privilege which is conditioned by a public
purpose. It results from invention, and is limited to the invention
which it defines. When the patentee ties something else to his
invention, he acts only by virtue of his right as the owner of
property to make contracts concerning it, and not otherwise. He
then is subject to all the limitations upon that right which the
general law imposes upon such contracts."
The Court, however, allowed an exception in this long line of
cases. In
United States v. General Electric Co., supra,
decided in 1926, it followed
Bement v.
National
Page 333 U. S. 318
Harrow Co., 186 U. S. 70,
decided in 1902, and sustained a price-fixing provision of a
license to make and vend the patented invention. By that decision,
price-fixing combinations which are outlawed by the Sherman Act
(
United States v. Socony Vacuum Oil Co., 310 U.
S. 150) were held to be lawful when the property
involved was a patent. By what authority was this done?
The patent statutes do not sanction price-fixing combinations.
They are indeed wholly silent about combinations. So far as
relevant here, all they grant, as already noted, is the "exclusive
right to make, use, and vend the invention or discovery." Rev.Stat.
§ 4884, 35 U.S.C. § 40. There is no grant of power to combine with
others to fix the price of patented products. Since the patent
statutes are silent on the subject, it would seem that the validity
of price-fixing combinations in this field would be governed by
general law. And since the Sherman Act outlaws price-fixing
combinations, it would seem logical, and in keeping with the public
policy expressed in that legislation, to apply its prohibitions to
patents, as well as to other property. The Court made an exception
in the case of these price-fixing combinations in order to make the
patent monopoly a more valuable one to the patentee. It was
concerned with giving him as high a reward as possible. It reasoned
that, if the patentee could not control the price at which his
licensees sold the patented article, they might undersell him; that
a price-fixing combination would give him protection against that
contingency, and therefore was a reasonable device to secure him a
pecuniary reward for his invention. Thus, the
General
Electric case inverted Cl. 8 of Art. I, § 8 of the
Constitution, and made the inventor's reward the prime, rather than
an incidental, object of the patent system.
In that manner, the Court saddled the economy with a vicious
monopoly. In the first place, this form of
Page 333 U. S. 319
price-fixing underwrites the high-cost producer. By protecting
him against competition from low-cost producers, it strengthens and
enlarges his monopoly. It is said in reply that he, the patentee,
has that monopoly anyway -- that his exclusive right to make, use,
and vend would give him the right to exclude others and manufacture
the invention and market it at any price he chose. That is true.
But what he gets by the price-fixing agreement with his competitors
is much more than that. He then gets not a benefit inherent in the
right of exclusion, but a benefit which flows from suppression of
competition by combination with his competitors. Then he gets the
benefits of the production and marketing facilities of competitors
without the risks of price competition.
Cf. United States v.
Masonite Corporation, supra. In short, he and his associates
get the benefits of a conspiracy or combination in restraint of
competition. That is more than an "exclusive right" to an
invention; it's an "exclusive right" to form a combination with
competitors to fix the prices of the products of invention. The
patentee creates by that method a powerful inducement for the
abandonment of competition, for the cessation of litigation
concerning the validity of patents, for the acceptance of patents
no matter how dubious, for the abandonment of research in the
development of competing patents. Those who can get stabilized
markets, assured margins, and freedom from price-cutting will find
a price-fixing license an attractive alternative to the more
arduous methods of maintaining their competitive positions.
Competition tends to become impaired not by reason of the public's
preference for the patented article, but because of the preference
of competitors for price-fixing and for the increased profits which
that method of doing business promises.
Page 333 U. S. 320
Price-fixing in any form is perhaps the most powerful of all
inducements for abandonment of competition. It offers security and
stability; it eliminates much of the uncertainty of competitive
practices; it promises high profits. It is therefore one of the
most effective devices to regiment whole industries and exact a
monopoly price from the public. The benefits of competition
disappear. The prices charged by the regimented industry are
determined not by representatives of the public, as in the case of
electric, water, and gas rates, but by private parties who incline
to charge all the traffic will bear. And the type of combination in
this case has the power to inflict precisely the type of public
injury which the Sherman Act condemns. This price-fixing scheme
does far more than secure to inventors "the exclusive Right" to
their discoveries within the meaning of Cl. 8 of Art. I, § 8 of the
Constitution. It gives them a leverage on the market which only a
combination, not a patent by itself, can create. Yet it is "every"
combination in restraint of trade which § 1 of the Sherman Act
condemns, price-fixing combinations dealing with patents not
excluded.
Congress has much to say as to the pattern of our economic
organization. But I am not clear that Congress could expand "the
exclusive right" specified in the Constitution into a right of
inventors to utilize through a price-fixing combination the
production and marketing facilities of competitors to protect their
own high costs of production and eliminate or suppress competition.
It is not apparent that any such restriction or condition promotes
the progress of science and the useful arts. But, however that may
be, the Constitution places the rewards to inventors in a secondary
role. It makes the public interest the primary concern in the
patent system. To allow these price-fixing schemes is to reverse
the order and place the rewards to inventors first, and the
public
Page 333 U. S. 321
second. This is not the only way a patentee can receive a
pecuniary reward for his invention. He can charge a royalty which
has no relation to price-fixing. Or he can manufacture and sell at
such price as he may choose. Certainly, if we read the patent
statutes so as to harmonize them as closely as possible with the
policy of antitrust laws, we will strike down a combination which
is not necessary to effectuate the purpose of the patent statutes.
If we did that in this case, we would overrule the
General
Electric Co. case.
This Court, not Congress, was the author of the doctrine
followed in that case. The rule it sanctions is another of the
private perquisites which the Court has written into the patent
laws.
See Special Equipment Co. v. Coe, 324 U.
S. 370,
324 U. S. 383.
Since we created it, we should take the initiative in eliminating
it. It is hard for me to square it with the standards which the
Constitution has set for our patent system. It plainly does
violence to the competitive standards which Congress has written
into the Sherman Act.
MR. JUSTICE BURTON, with whom THE CHIEF JUSTICE and MR. JUSTICE
FRANKFURTER concur, dissenting.
This dissent is impelled by regard for the soundness, authority,
and applicability to this case of the unanimous decisions of this
Court in
Bement v. National Harrow Co., 186 U. S.
70, and
United States v. General Electric Co.,
272 U. S. 476.
The complaint charges violation of § 1 of the Sherman Anti-Trust
Act [
Footnote 2/1] by the defendant
patent owners and cross-licensors, Line Material Company and
Southern States Equipment Corporation (here called, respectively,
Line
Page 333 U. S. 322
and Southern), and also by the ten defendants who hold licenses
under the two complementary patents, owned respectively by Line and
Southern. These patents are for dropout fuse cutouts. Southern's
patent is the dominant patent, but the product made under it alone
has not been commercially successful. Line's patent is for an
improvement of that product which has made it commercially
successful. Each of the twelve defendants has received and
exercised authority under both patents to make and sell this
improved product, but the Government charges them with having
engaged in an unlawful combination and conspiracy in restraint of
trade to fix, maintain, and control the prices at which they have
sold, in interstate commerce, their respective products under these
patents. It is not disputed that the sales were made in interstate
commerce. The trial court's findings of fact demonstrate, however,
that there have been no agreements between any of the defendants
with respect to the prices of these products other than the
price-limiting provisions contained in their respective licenses.
[
Footnote 2/2] The findings of fact
show also that, unless the Government
Page 333 U. S. 323
sustains its contention that those provisions constitute,
per se, an unlawful restraint of trade, its complaint
should be dismissed. [
Footnote
2/3]
Page 333 U. S. 324
The question thus presented is: do the price-limiting provisions
in some or all of the licenses under Line's or Southern's patents
constitute a restraint of trade in violation of § 1 of the Sherman
Act? We agree with the court
Page 333 U. S. 325
below that they do not. [
Footnote
2/4] The price-limiting provisions in this case are comparable
to those which, in the
Bement and
General
Electric cases,
supra, were held not to violate the
Sherman Act. This Court sustained the agreement in the
Bement case because the Sherman Act
"clearly does not refer to that kind of a restraint of
interstate commerce which may arise from reasonable and legal
conditions imposed upon the assignee or licensee of a patent by the
owner thereof, restricting the terms upon which the article may be
used and the price to be demanded therefor. Such a construction of
the act, we have no doubt, was never contemplated by its
framers."
(At. p.
186 U. S. 92).
The license in that case was issued under several patents, and, as
here, it limited the prices at which the licensee was authorized to
sell articles produced by the licensee under that license. In the
General Electric case, this Court, in speaking of the
patentholder's right to limit the selling prices of his licensee's
products, said:
"We think he [the patentholder] may do so provided the
conditions of sale are normally and reasonably adapted to secure
pecuniary reward for the patentee's monopoly. One of the valuable
elements of the exclusive right of a patentee is to acquire profit
by the price at which the article is sold."
(At. p.
272 U. S.
490).
In the present case, there are two types of license agreements.
The price-limiting provisions are the same in each. The first type
is that of the cross-licensing agreement between Line and Southern.
In it, Line granted
Page 333 U. S. 326
to Southern a nonexclusive, royalty-free license to make and
sell the products here in question. Line also prescribed that
Southern's prices, terms, and conditions of sale should be "not
more favorable to the customer than those established from time to
time and followed by the Line Company in making its sales." The
difference between this license agreement and Line's agreements
with each of the other defendants is that Southern, in return for
this license, instead of paying cash royalties to Line, issued to
Line a limited cross-license under Southern's complementary patent
on a dropout fuse cutout. Southern also granted to Line an
exclusive right to issue sublicenses under that patent. Southern
inserted no price limitation in its cross-license to Line, and Line
made no commitment to insert price limitations in any sublicense
which it might issue under Southern's patent. As far as price
limitations were concerned, they all were contained in the
royalty-free nonexclusive license from Line to Southern, and were
applicable only to products made and sold by the latter under
Line's patent. Assuming that the limitations thus placed by Line on
the price of Southern's products, made and sold by it under Line's
complementary patent, were reasonable limitations, especially in
relation to Line's own operations under the same patent, they
represented a lawful protection of Line's patent interests. They
evidenced a normal exercise by a manufacturing patentee "of the
exclusive right of a patentee . . . to acquire profit by the price
at which the article is sold." [
Footnote 2/5] In some ways, they were even more natural
and reasonable provisions for insertion by Line than would have
been a bare provision for royalties. Line evidently needed these
price limitations to enable it to continue to make and sell the
product which its own improvement had converted from a commercial
failure
Page 333 U. S. 327
into a commercial success. It will be demonstrated later that
Line's receipt of a royalty-free unconditional cross-license under
Southern's complementary patent, as consideration for Line's
license to Southern, did not
per se convert this otherwise
lawfully limited license into an invalid license violating the
Sherman Act.
The other type of license that was used by Line was that of a
direct license issued separately to each of the ten other
licensee-defendants. These licenses closely resembled each other.
Each was a nonexclusive license calling for the payment of a modest
royalty to Line on each product made and sold by the licensee under
Line's patent. Each included price limitations comparable to those
in Line's license to Southern. These price-limiting licenses from
Line are, as such, entirely comparable to those in the
Bement and
General Electric cases. Each license,
however, also included a sublicense issued by Line under Southern's
complementary patent. The royalties on the products made and sold
under the two complementary patents were to be divided equally
between Line and Southern. It will be demonstrated later that this
sublicense under Southern's complementary patent and the agreement
by Line to divide with Southern the royalties received upon
products made and sold under the two patents did not,
per
se, convert these otherwise lawfully limited licenses into
invalid licenses violating the Sherman Act.
Line also granted to certain licensee-defendants desiring it a
license under Line's so-called "Kyle patent" for enclosed fuse
boxes. Some of these licenses carried price limitations on products
made and sold by the licensee under the Kyle patent. These licenses
are entirely comparable to those in the
Bement and
General Electric cases. They are well within the scope of
those precedents, and carry no suggested basis for a distinction
claimed to convert
Page 333 U. S. 328
them into invalid licenses violating the Sherman Act.
The Government now asks this Court to overrule the
Bement and
General Electric cases. The opinion by
MR. JUSTICE REED rejects that request, but seeks to justify a
reversal of the judgment below by distinguishing this case from
those precedents. This dissent undertakes not only to emphasize the
soundness of the
Bement and
General Electric
decisions, but to demonstrate that the basic principles which
sustain those decisions apply to this case with at least equal
force. This initial discussion will omit the consideration of the
cross-license from Southern to Line, the grant from Southern to
Line of the exclusive right to issue sublicenses under the Southern
patent, and the agreement for the division of royalties between
Southern and Line. The
Bement and
General
Electric decisions are authority for upholding the remaining
portions of such agreements in the light of the previously
mentioned findings of fact which show that the agreements
"arise from reasonable and legal conditions imposed upon the
assignee or licensee of a patent by the owner thereof, restricting
the terms upon which the article may be used and the price to be
demanded therefor, [
Footnote
2/6]"
and that "the conditions of sale are normally and reasonably
adapted to secure pecuniary reward for the patentee's monopoly."
[
Footnote 2/7] This dissent
accordingly reexamines the foundation for those decisions and
emphasizes the development, nature, and effect of the patent rights
which are decisive of the main issue both in those cases and in
this.
PATENT RIGHTS
An understanding of the historical development and of the nature
of patent rights in the United States is
Page 333 U. S. 329
essential to a discussion of the relation between them and the
restraints of trade prohibited by the Sherman Act. American patent
rights find their origin in Great Britain. That nation appears to
have been the first to issue "patents" to secure to inventors for
limited times exclusive rights to their respective discoveries.
These "patents" were called "
literae patentes,"
i.e., "open letters," because they were not sealed up, but
were exposed to view with the Great Seal pendant at the bottom.
They were addressed by the sovereign to all subjects of the realm.
Such instruments were, and to a degree still are, the common form
used for making grants of dignities, such as peerages, appointments
to certain offices and grants of privilege of various kinds. Their
form therefore was similar to that of the "patents" used to grant
exclusive rights or "monopolies" to trade guilds, corporations and,
in some cases, individuals, permitting them to exclude competitors
from the conduct of certain lines of profitable business. [
Footnote 2/8]
The contrast between these two kinds of exclusive rights in
their relation to the public was reflected later in acts of the
British Parliament and in the Constitution and statutes of the
United States. A patent to an inventor took nothing from the public
which the public or the inventor's competitors already had. By
hypothesis, it dealt with a new asset available to civilization
only through its inventor. The royal patent served to encourage the
inventor to disclose his invention. By granting
Page 333 U. S. 330
to the inventor the right to exclude all others from making,
using, or selling the invention for a limited time, it was felt
that the public was well served by the invention's disclosure, its
early availability under the patent, and its later general
availability to everyone. This procedure was popular. On the other
hand, royal patents securing exclusive rights to private parties to
conduct profitable enterprises to the exclusion of existing or
available competitors were issued to show royal favor or to secure
funds at the expense of the public. Such patents became highly
unpopular. The courts at an early date held them invalid. [
Footnote 2/9]
As early as 1602, Francis Bacon, in the House of Commons,
supported the principle that a monopoly should be granted only for
a "new manufacture." In 1623, there was enacted the Statute of
Monopolies (21 Jac. I, c. 3, § 1; 1 Walker on Patents, pp. 18-21
(Deller's Ed.1937)), which declared void all monopolies and letters
patent "of or for the sole Buying, Selling, Making, Working or
Using of any Thing within this Realm. . . ." However, § VI of this
Act made an express exception in favor of patents for inventions.
[
Footnote 2/10] That Section has
become the
Page 333 U. S. 331
foundation of the patent law securing exclusive rights to
inventors not only in Great Britain, but throughout the world.
The result, historically and in principle, has not been a
conflict between two legislative mandates. It has been, rather, a
longstanding approval, both by the British Parliament and the
Congress of the United States, of the unique value of the exercise,
for limited periods, of exclusive rights by inventors to their
respective inventions, paralleled by an equally sustained and
emphatic disapproval of certain other restraints of trade not
representative of exclusive rights of inventors to their
inventions.
The long and unfaltering development of our patent law often has
been touched upon in our decisions. However, in the face of the
direct attack now made upon some of its underlying principles, the
infinite importance of our inventions justifies a brief review
hereof the development
Page 333 U. S. 332
and nature of the patent rights attacked. The decision in this
case must turn upon this Court's understanding of the relation
between the licenses before it, the patent rights to which they
relate, and the Sherman Act. As interpreter of the Congressional
Acts that have expressed the patent policy of this nation since its
beginning, this Court is entrusted with the protection of that
policy against intrusions upon it. The crucial importance of the
development of inventions and discoveries is not limited to this
nation. As the population of the world has increased, its
geographical frontiers have shrunk. However, the frontiers of
science have expanded until civilization now depends largely upon
discoveries on those frontiers to meet the infinite needs of the
future. The United States, thus far, has taken a leading part in
making those discoveries and in putting them to use.
The Constitution of the United States provides that
"The Congress shall have Power . . . To promote the Progress of
Science and useful Arts,
by securing for limited Times to
Authors and Inventors the exclusive Right to their respective
Writings and
Discoveries. . . ."
(Italics supplied.) Art. I, § 8.
The statutes primarily implementing this provision state:
"Any person who has invented or discovered any new and useful
art, machine, manufacture, or composition of matter, or any new and
useful improvements thereof, . . . not known or used by others in
this country, before his invention or discovery thereof, and not
patented or described in any printed publication in this or any
foreign country before his invention or discovery thereof, or more
than one year prior to his application, and not in public use or on
sale in this country for more than one year prior to his
application, unless the same is proved to have been abandoned, may,
upon payment of the
Page 333 U. S. 333
fees required by law, and other due proceeding had, obtain a
patent therefor."
R.S. § 4886, as amended, 46 Stat. 376, 53 Stat. 1212, 35 U.S.C.
§ 31.
"Every patent shall contain a short title or description of the
invention or discovery, correctly indicating its nature and design,
and a
grant to the patentee, his heirs or assigns, for the term
of seventeen years, of the exclusive right to make, use, and vend
the invention or discovery . . . throughout the United States
and the Territories thereof, referring to the specification for the
particulars thereof. . . ."
(Italics supplied.) R.S. § 4884, as amended, 46 Stat. 376, 35
U.S.C. § 40. [
Footnote 2/11]
"
Every application for
patent or any interest
therein shall be assignable in law by an instrument
Page 333 U. S. 334
in writing, and the applicant or patentee or his assigns or
legal representatives may in like manner grant and convey an
exclusive right under his application for patent or patent to the
whole or any specified part of the United States. . . ."
(Italics supplied.) R.S. § 4898, as amended, 55 Stat. 634, 35
U.S.C. § 47 (Supp. V, 1946).
Conway P. Coe, Commissioner of Patents of the United States from
1933 to 1945, discussed the historical significance of the early
establishment of the American patent system in his testimony before
the Temporary National Economic Committee in 1939. He said:
"The American patent system was established at a time when
mechanical inventions had already begun to affect not only the
industrial conditions, but also the economic, social, and political
status of Europe and the new Nation just erected on this continent.
The significance of the inventions put to work in England and the
States of the Confederation was realized by the American statesmen
of that era. It is agreed that their recognition of the value of
these new economic factors prompted them to write into the
Constitution the provision of article I, section 8, empowering
Congress"
"to promote the Progress of Science and useful Arts, by securing
for limited Times to Authors and Inventors the exclusive Right to
their respective Writings and Discoveries."
"This provision, by the way, is impressive not only because it
is included in the Constitution as one of the major grants of power
to Congress, but equally because it bestows on patentees a complete
monopoly, and therefore raises a question as to the
constitutionality of an attempt to compel the owner of a patent to
share with others the title, use, and avail of his property. I do
not presume to determine the point, but
Page 333 U. S. 335
I must contemplate it as an issue to be met here or
hereafter."
"The authors of our patent system, judging by the language of
article I, section 8, held the
exclusiveness of the rights
vested in a patentee as a powerful aid to progress in arts and
sciences. [
Footnote 2/12]"
Hearings before the Temporary National Economic Committee, 76th
Cong., 1st Sess. 839-840(1939).
Page 333 U. S. 336
He analyzed the "patent rights" granted to the inventor, and
stated his reasons for concluding that the "monopoly"
Page 333 U. S. 337
vested in a patentee is not in conflict with our antitrust laws
as follows:
"It occurs to me that a great deal of misapprehension results
from the failure to distinguish between the monopoly or privilege
vested in a patentee and the sort of monopoly that British
sovereigns once conferred. It is only when we appreciate this
distinction that we can understand how Jefferson could consistently
advocate the monopoly of patents for inventions while condemning
the traditional form of monopoly."
"Americans generally detest monopoly in the true sense of the
term, because it makes possible the ruthless exercise of power.
Indeed, the American Revolution was precipitated by popular
resentment of the monopoly on tea held by the East India Co. It
would therefore have been exceedingly strange if,
Page 333 U. S. 338
only a few years later, the delegates sent to the Constitutional
Convention by Massachusetts and the other Colonies had been willing
to sanction an equivalent form of monopoly under the new government
they were creating. In the sixteenth and seventeenth centuries, a
king or queen of England could reward a favorite by granting him a
monopoly on salt or some other necessary of life. This beneficiary
of royal favor was not, of course, the discoverer of salt. That
came ready-made from the hands of the Creator eons before the
advent of man. What the darling of his or her majesty received was
the power to compel others to use salt solely of his supplying and
only on terms of his dictation."
"But a patent is no such monopoly. It is a reward for the
invention or discovery of something new, something before unknown,
something added to the sum total of human knowledge, utility,
wellbeing; something which the inventor or discoverer, despising
the lure of money or fame, might have withheld from his fellow men.
By the monopoly that goes with a patent, then, the Government
recompenses, and, for a limited time, protects the inventor or
discoverer who gives to the world the use and benefit of his
invention or discovery. This is a kind and a degree of mutuality
that negatives monopoly in the old or the current concept. Monopoly
in the latter sense of the term gave to an individual or a group
complete dominion of something already existent. A patent awards
monopoly to the producer of something original, something
superadded to the common store. So it is that two things bearing
the same name need not be of the same nature."
"It has been contended that there sometimes occurs a clash
between the antitrust laws and the patent
Page 333 U. S. 339
statutes. I might suggest that, since the first antitrust
legislation in 1890, the patent laws and the antitrust laws have
coexisted without any irreconcilable conflicts between them. They
have each of them at least one common objective -- namely, the
retention by the public of a right once acquired by it. As a matter
of fact, patents accomplish more than the retention of the acquired
rights. Their influence is creative; they operate to multiply and
expand acquisitions by the public."
(
Id. at pp. 840, 841.)
A comparable analysis of the nature of the grant to inventors of
the exclusive right to their respective inventions or discoveries
for a limited time has been made by this Court.
"Though often so characterized, a patent is not, accurately
speaking, a monopoly, for it is not created by the executive
authority at the expense and to the prejudice of all the community
except the grantee of the patent.
Seymour v.
Osborne, 11 Wall. 516,
78 U. S.
533. The term 'monopoly' connotes the giving of an
exclusive privilege for buying, selling, working, or using a thing
which the public freely enjoyed prior to the grant. Thus, a
monopoly takes something from the people. An inventor deprives the
public of nothing which it enjoyed before his discovery, but gives
something of value to the community by adding to the sum of human
knowledge.
United States v. American Bell Telephone Co.,
167 U. S.
224,
167 U. S. 239;
Paper Bag
Patent Case, 210 U. S. 405,
210 U. S.
424;
Brooks v. Jenkins, 3 McLean 432, 437,
Fed.Cas.No.1,953;
Parker v. Haworth, 4 McLean 370, 372,
Fed.Cas.No.10,738;
Allen v. Hunter, 6 McLean 303, 305,
306, Fed.Cas. No. 225;
Attorney General v. Rumford Chemical
Works, 2 Bann. & Ard. 298, 302. He may keep his invention
secret and reap its fruits indefinitely. In consideration of its
disclosure and the consequent benefit to the community,
Page 333 U. S. 340
the patent is granted. An exclusive enjoyment is guaranteed him
for seventeen years, but, upon the expiration of that period, the
knowledge of the invention enures to the people, who are thus
enabled without restriction to practice it and profit by its use.
Kendall
v. Winsor, 21 How. 322,
62 U. S.
327;
United States v. American Bell Telephone Co.,
supra, p.
167 U. S. 239. To this end,
the law requires such disclosure to be made in the application for
patent that others skilled in the art may understand the invention
and how to put it to use."
United States v. Dubilier Condenser Corporation,
289 U. S. 178,
289 U. S.
186-187. [
Footnote
2/13]
Page 333 U. S. 341
This constitutional and legislative policy toward inventions is
specific, in contrast with the generality of the language in the
Sherman Act of 1890. The constitutional and longstanding statutory
approval of the exclusive rights of an inventor to make, use, and
sell products of his invention for a limited time was an ample
guaranty that the Sherman Act did not directly or impliedly repeal
such approval. The prohibition of unreasonable restraints of trade
and the approval of exclusive rights of inventors to their
inventions for limited periods of time continued to exist together.
This was nothing new. As long as the inventors kept within their
statutory exclusive rights, they were not engaging in unreasonable
restraints of trade violating the Sherman Act.
There was nothing to indicate an intent that the general
language of the Sherman Act was to change the nation's traditional
and specifically stated policy towards inventions. That policy had
been widely regarded as having made a major contribution to the
nation's exceptional economic progress. The Sherman Act
unquestionably applied to any abuse of a patentee's exclusive
rights which exceeded the limit of those rights and which amounted
to an unreasonable restraint of interstate trade. However, there
was nothing to indicate that the Sherman Act restricted the
traditional patent rights.
Bement v. National Harrow Co.,
supra, at p.
186 U. S.
92.
LIMITED LICENSE AGREEMENTS
The primary issue in this case, therefore, is to determine
whether or not Line, by the issuance of its restricted licenses,
has thereby sought to exercise any right that is in excess of the
exclusive right secured to Line by the
Page 333 U. S. 342
patent laws of the United States. If it has done so, then such
licenses, like other agreements, must be scrutinized to determine
whether or not they create an unreasonable restraint of trade in
violation of the Sherman Act.
The first consideration is the relation of the Sherman Act to
provisions in a license agreement which place limitations -- as in
the
Bement and
General Electric cases -- upon the
prices which may be charged by the licensee for products made and
sold by it under the protection of its license. The issue
corresponds to that raised by the Westinghouse license in the
General Electric case. [
Footnote 2/14] The Sherman Act's invalidation of
agreements in restraint of trade applies only to those in
unreasonable restraint of trade, and the definition of such
unreasonableness depends largely upon the common law meaning of
restraint of trade. [
Footnote
2/15] This permits such invalidation where, for example, a
license is a mere subterfuge for price-fixing which otherwise would
amount to unreasonable restraint of trade in violation of the
Sherman Act.
See United States v. U.S. Gypsum Co., post,
p.
333 U. S. 364,
decided concurrently with this case. [
Footnote 2/16]
Page 333 U. S. 343
The Sherman Act's prohibition of unreasonable restraints of
trade, accordingly, would not invalidate an unconditional
nonexclusive license agreement which served only to release the
licensee from the right of the patentholder to exclude him from
making, using or selling a patented article. The original exclusive
right of the patentholder, being secured to him through the terms
of his patent, was not in violation of the Sherman Act.
Accordingly, his release or waiver of a part of that exclusive
right by issuance of an unconditional nonexclusive license,
per
se, decreased, rather that increased, the statutory restraint
of trade to which he was entitled.
The next question is whether the insertion in such a license of
some limitation upon the licensee's right to sell the articles made
by the licensee under the patent,
per se, converts this
otherwise lawful agreement into an unreasonable restraint of trade
violative of the Sherman Act. The answer is no. Just as an
unlimited license is a partial, but lawful, relaxation of the
lawful restraint of trade imposed by the patent, so a limited
license is but a correspondingly less relaxation of that same
restraint.
The fact that the limitation in the license is a limitation on
the price which may be charged by the licensee in making sales of
the article made by the licensee under the protection of the patent
does not change the answer, provided the price prescribed is
"normally and reasonably adapted to secure pecuniary reward for
the
Page 333 U. S. 344
patentees monopoly." [
Footnote
2/17] Here again, the restraint of trade imposed by the patent
itself is lawful. Therefore, as long as the license agreement has
only the effect of reducing the lawful restraint imposed by the
patent, such agreement merely converts the original lawful
restraint into a lesser restraint, equally lawful.
Such agreements should be carefully scrutinized to make sure
that they do not introduce new restrictions which, as judicially
construed, unreasonably restrain trade, and thus violate the
Sherman Act. In the instant case, the findings eliminate such
possibilities, and thus reduce the issue here to one comparable
with the issue in the
Bement and
General Electric
cases.
This brings us to a further discussion of the nature of the
license in the present case, and of the precise limitations
contained in it. This requires, first of all, a consideration of
the nature of the exclusive right to make, use, and sell the
patented product. The precise nature of such a "patent right" has
been described as follows by Chief Justice Taft in a unanimous
opinion of this Court:
"It is the fact that the patentee has invented or discovered
something useful, and thus has the common law right to make, use,
and vend it himself which induces the government to clothe him with
power to exclude everyone else from making, using, or vending it.
In other words, the patent confers on such common law right the
incident of exclusive enjoyment, and it is the common law right
with this incident which a patentee or an assignee must have [in
order to bring a suit for infringement]. That is the implication of
the descriptive words of the grant 'the exclusive right to make,
use and vend the invention.' The government is not granting the
common law right to make, use, and vend, but it is granting the
incident of exclusive ownership of that common
Page 333 U. S. 345
law right, which cannot be enjoyed save with the common law
right. A patent confers a monopoly. So this court has decided in
the
Paper Bag Case, supra,
[
210 U.S.
405], and in many other cases. The idea of monopoly held by one
in making, using, and vending connotes the right in him to do that
thing from which he excludes others."
Crown Co. v. Nye Tool Works, 261 U. S.
24,
261 U. S.
36-37.
This analysis is the key to the issue before us. It demonstrates
that the common law right to make, use, and sell the product of an
unpatented invention exists without any right to exclude others
from so making, using, or selling such product. The additional
"exclusive right," or so-called "patent right," which is added to
the common law right of the inventor is added by authority of the
Constitution and of the federal statutes, so as to promote the
progress of science, the useful arts, and, no doubt, the general
welfare. The patent or any interest therein may be assigned. R.S. §
4898, as amended, 55 Stat. 634, 35 U.S.C. § 47 (Supp. V, 1946).
[
Footnote 2/18] An assignee,
exercising
Page 333 U. S. 346
his right to exclude others during the life of the patent from
making, using, or selling articles under protection of the patent,
does not practice a restraint of trade in violation of the Sherman
Act any more than would his assignor if the assignment had not been
made.
Any attempted assignment or transfer short of those indicated in
the statute "is a mere license, giving the licensee no title in the
patent, and no right to sue at law in his own name for an
infringement." [
Footnote 2/19]
The legal position of the holder of a simple, unconditional,
nonexclusive license is important. [
Footnote 2/20] Before his receipt of his license, he
had the common law right to make, use, and sell the patented
article, as well as other articles, except to the important extent
prevented by the patentee's exclusive rights. The license changed
that position by withdrawing from the licensee, to the extent of
the license, the restriction which the patent placed upon him.
Accordingly, to the extent of his license, the restraint placed
upon trade by the patent was diminished. In relation to the Sherman
Act, his license, instead of creating an added ground for asserting
a violation of the Sherman Act, thus,
per se, relaxed an
existing restraint of trade. The previous restraint imposed by the
patent was not a violation of the Sherman Act, and therefore the
mere lessening of that restraint was not a violation of that Act.
The important point is the need to see to it that the lessening of
the restraint resulting from the issuance of either an absolute
license or a limited license is, in fact, no more than a mere
withdrawal of the lawful restraint imposed by the patent, and is
not either directly or indirectly an imposition of a new restraint
not within the ambit of the patent
Page 333 U. S. 347
right. An unconditional, nonexclusive and royalty-free license
presents,
per se, no need for special scrutiny under the
Sherman Act. A royalty-yielding license presents the issue
suggested by the language in the
General Electric case. In
order not to violate the Sherman Act, the royalty must be "normally
and reasonably adapted to secure pecuniary reward for the
patentee's monopoly." [
Footnote
2/21] However, as well explained in that case, a royalty may
not, by itself, satisfy the needs of the patentholder. Limitations
on the price of sales by the licensee of products made by the
license under the patent may be the best, or even the only,
condition that is thus "normally and reasonably adapted" to the
situation.
The following statements illustrate the directness with which
this Court repeatedly has decided in favor of the validity of
limited licenses when that question has been before it:
". . . the general rule is absolute freedom in the use or sale
of rights under the patent laws of the United States. The very
object of these laws is monopoly, and the rule is, with few
exceptions, that any conditions which are not in their very nature
illegal with regard to this kind of property, imposed by the
patentee and agreed to by the licensee for the right to manufacture
or use or sell the article, will be upheld by the courts. The fact
that the conditions in the contracts keep up the monopoly or fix
prices does not render them illegal."
Bement v. National Harrow Co., supra, p.
186 U. S.
91.
"As was said in
United States v. General Electric Co.,
272 U. S.
476,
272 U. S. 489, the patentee
may grant a license 'upon any condition the performance of which is
reasonably within the reward which the patentee by the grant of the
patent is entitled to secure.' The restriction
Page 333 U. S. 348
here imposed [upon the licensee to manufacture and to sell the
patented article for certain uses only] is of that character. The
practice of granting licenses for a restricted use is an old one,
See Providence Rubber Company v.
Goodyear, 9 Wall. 788,
76 U. S.
799-800;
Gamewell Fire-Alarm Telegraph Co. v.
Brooklyn, 14 F. 255. So far as appears, its legality has never
been questioned."
General Talking Pictures Corporation v. Western Electric
Co., 305 U. S. 124,
305 U. S.
127.
The normality, reasonableness, and practical necessity for
inserting a price-limiting condition in certain licenses, without
trespassing upon the prohibited area of unlawful restraints of
trade, is effectively summarized in the
General Electric
case, 272 U.S. at
272 U. S.
490:
"If the patentee goes further and licenses the selling of the
articles, may he limit the selling by limiting the method of sale
and the price? We think he may do so, provided the conditions of
sale are normally and reasonably adapted to secure pecuniary reward
for the patentee's monopoly. One of the valuable elements of the
exclusive right of a patentee is to acquire profit by the price at
which the article is sold. The higher the price, the greater the
profit, unless it is prohibitory. When the patentee licenses
another to make and vend and retains the right to continue to make
and vend on his own account, the price at which his licensee will
sell will necessarily affect the price at which he can sell his own
patented goods. It would seem entirely reasonable that he should
say to the licensee,"
"Yes, you may make and sell articles under my patent, but not so
as to destroy the profit that I wish to obtain by making them and
selling them myself."
"He does not thereby sell outright to the licensee the articles
the latter may make and
Page 333 U. S. 349
sell, or vest absolute ownership in them. He restricts the
property and interest the licensee has in the goods he makes and
proposes to sell. [
Footnote 2/22]
"
Page 333 U. S. 350
During the hearings of the Temporary National Economic
Committee, testimony was received from the Commissioner of Patents
and manufacturers familiar with the commercial development of
patented products bearing on the reasonableness and propriety of
price limitations in patent licenses comparable to those in the
present case. It was to the effect that commercially successful
mechanical inventions, such as those in the electrical,
communications, and automotive industries, usually represent not
only the intrinsic merit of the inventions themselves, but a
substantial investment in research, experimentation, and promotion.
If, after the disclosure of the invention, others are to be
licensed to make the patented article, the costs of production by
such licensees will reflect none of the investments
above-mentioned. If the patentee is to be reimbursed for his
expenditures, he will need, therefore, to secure the benefit of a
royalty sufficient to accomplish this or of a restriction on the
price at which licensees may sell their products under the patent.
This price would have to be one that would enable the patentee to
manufacture and sell the article in such quantities and at such
prices as would produce a return to him commensurate with his
investment in it. He might prescribe both a royalty and a
restriction. As long as the royalties and the prices were "normally
and reasonably adapted to secure pecuniary reward for the
patentee's monopoly," [
Footnote
2/23] they would perform much the same function. [
Footnote 2/24]
Page 333 U. S. 351
In cases where patents are owned by comparatively small
industrial producers but licenses are to be issued by them to
comparatively large industrial producers in the same field, the
necessity for early reimbursement of the patent owners for their
development costs is clear, and the danger that a large licensee
will undersell his smaller licensor is obvious. This is the
situation in the present case. The
General Electric
Company and the Westinghouse Electric Corporation are among the
licensees of the much smaller patentholders Line and Southern.
Similarly, where outside capital is needed to finance the
development of an invention, it is normal and reasonable for the
investors to require not only a valid patent, but also to insist
that any licenses issued during the initial operating period shall
contain such price limitations as will allow the patentholder to
amortize his original investment within a reasonable time. In this
case, finding of fact No. 32 shows that
"the price limitation provisions contained in the various
license agreements here in evidence were insisted upon by the
patent owner, and were intended and reasonably adapted to protect
its own business and secure pecuniary reward for the patentee's
monopoly. [
Footnote 2/25]"
The following statement by Conway P. Coe, Commissioner of
Patents, before the Temporary National Economic
Page 333 U. S. 352
Committee in 1939, reinforces the above conclusions:
"Speculative capital must be encouraged to fall in behind a new
enterprise, and this is true whether the enterprise is wholly new
or represents merely an expansion of an established organization.
Some testimony has been offered to this committee by
representatives of large corporations that they would continue to
invent, and invent, and invent, and research, research, and
research whether or not they were rewarded by the patent grant,
but, if you will investigate, I believe you will find that,
whenever these large corporations, themselves firmly established,
undertake a new development, that development is likely to be
founded upon patent protection. Whatever opinions have been
expressed to this committee or may hereafter be expressed as to
whether or not the inventor will continue to invent without the
patent system, I think I can present to you indisputable evidence
that speculative capital will not back new inventions without the
patent protection. And, in the final analysis, this is the crux and
the most important thing in the whole patent question. [
Footnote 2/26]"
Hearings before the Temporary National Economic Committee,
supra at pp. 857, 858.
Page 333 U. S. 353
The foregoing supports the conclusions reached in the
Bement and
General Electric cases,
supra. The basis for such support is sufficiently broad to
lead to the same result in the present case.
SUBLICENSES AND CROSS-LICENSES
Under the foregoing principles and authorities, a simple
price-limiting patent license, in which the price limitations meet
the test stated in the
General Electric case, is a lawful
agreement. Such a license would involve, as a possible restraint of
trade, only the exclusive right to make, use, and sell the patented
product. That restraint would exist by virtue of the statute and
constitutional provision long antedating the Sherman Act. If the
limitations in a license reach beyond the scope of the statutory
patent rights, then they must be tested by the terms of the Sherman
Act. Assuming that, in the instant case, the price limitations do
not reach beyond the restraint of the patent, the next question is:
does the additional sublicense issued by Line under the Southern
patent make a difference? The answer is no.
The sublicense,
per se, further diminishes the
statutory restraint of trade imposed by the patent law. It adds a
release from the restraint of Southern's patent. Line's authority
to issue the sublicense was an express grant by Southern to Line of
an exclusive right to issue it.
Per se, this sublicense
certainly amounts to no more than another license under another
patent. In the instant
Page 333 U. S. 354
case, it is under a complementary patent without which Line's
license would be without commercial value. For that very reason, it
is a reasonable and necessary part of the transaction. In both the
Bement and
General Electric cases, the license in
question was issued not merely under one, but under many, patents
held by the licensor. In those cases, apparently, it was not
thought necessary to question the relation of those patents to one
another or the authority of the licensor to issue the license under
each of them. In any event, there hardly could have existed in
those cases any closer relationship between the patents involved or
a more essential and normal reason, of a patent nature, for
combining rights under them than existed here between Line's and
Southern's complementary patents. Except for the cross-licensing
feature, to be next considered, the situation in relation to the
Sherman Act is the same here as though Line had received an
assignment of Southern's patent and issued licenses under it as
well as under Line's patent.
In the present case, there are ten licensee-defendants, instead
of one, as in each of the
Bement and
General
Electric cases. In view of the positive finding that there was
no agreement or understanding among the licensees amounting to an
unreasonable restraint of trade, this mere multiplication of one
license by ten produces a repetition of the same issue, rather than
a different issue. It is apparent also from the record in the
General Electric case that, in that case, in addition to
the Westinghouse license, there were licenses to 13 other
manufacturers, which had been issued by the licensor, although the
licensees under them were not made parties to the suit.
15 F.2d
715, 716.
It is suggested also that the
Bement and
General
Electric rule does not apply because there is a
cross-licensing agreement between Line and Southern. The suggestion
apparently is that such an agreement,
per se, reaches
Page 333 U. S. 355
beyond the scope of the exclusive rights of the parties under
the patents, and converts the price limitations in the respective
licenses into unreasonable restraints of trade violating the
Sherman Act.
The cross-license from Southern carries no price-limiting
feature. At most, it is a royalty-free cross-license issued to Line
in consideration of Line's license to Southern. It is accompanied
by a grant from Southern to Line of an exclusive license to grant
sublicenses under Southern's patent. Provision is made also for the
equal division between Southern and Line of such royalties as shall
be received by Line upon products made and sold by the respective
licensees under the Southern and Line patents.
These sublicenses and the royalties derived from them do not,
however, increase the restraints on trade beyond those restraints
which are inherent in the respective patents. In fact, each
original license decreased those restraints under Line's patent,
and each sublicense did the same under Southern's patent. Because
of the complementary relationship between the patents, these
sublicenses have served substantially to remove the restraints
which the respective patents, when held separately, put in the way
of production. The two patents together completely covered the
product. If the price limitations were valid under Line's licenses,
the issuance by Line of the sublicenses under Southern's patent has
no more effect on the question involved in this case than if
Southern, instead of granting to Line an exclusive right to issue
sublicenses under Southern's patent, had assigned that patent to
Line and Line, had then issued original licenses under it on the
same terms as Line issued the sublicenses.
The next consideration is the effect of the cross-license by
Southern to Line, coupled with the grant of the exclusive right to
issue the above-mentioned sublicenses under
Page 333 U. S. 356
Southern's patent and the division of certain royalties received
by Line. Where, as here, there is no agreement, course of dealing,
or other circumstance than the existence of the cross-licenses
between complementary patentholders, the cross-licensing agreements
do not,
per se, reach beyond the scope of the patent
rights.
Patent pools, especially those including unrelated or distantly
related patents and involving the issuance of many forms of
royalty-free, royalty-bearing, or price-limiting licenses and
cross-licenses, might present a different picture from that in this
case. Such arrangements might be but a screen for, or incident to,
an unlawful agreement in restraint of trade violating the Sherman
Act. Here we have no such facts. The findings eliminate all bases
for the claim of invalidity except the terms of the license
agreements
per se. We are not here confronted with the
effect of cross-licenses between unrelated patents. Here we have
only that natural situation, common under our patent laws, where
two or more complementary patents are separately owned. One is for
an improvement that is commercially essential to the other. In such
a case, one solution is to combine the ownership of the two by
purchase and complete assignment. That,
per se, would not
involve an unlawful restraint of trade.
The solution in the instant case was even more natural than a
consolidation of the patents by purchase. It conduced even more to
the maintenance of competition. Each patentee granted to the other
a nonexclusive royalty-free license. This cross-licensing amounted
to a waiver by each patentholder of his right to exclude the other
from making, using, or selling the patented product. This resulted
in a diminution of the restraint created by the patent statute.
This,
per se, was therefore well within the scope of the
patent, and not a violation of the Sherman Act. Both patentees
became producers.
Page 333 U. S. 357
Unless the terms of the cross-licenses reach beyond those that
are normally and reasonably adapted to the patent relationships of
the parties, the cross-licenses are no more outside of the
protection of the patent law than would be direct licenses. A
reasonable price-limiting provision in at least one of two
cross-licenses is just as normal and reasonable a patent provision
as it would be in a direct license. In the present case, the
validity of the price limitation in Line's license to Southern is
entitled to the same judicial support and for the same reasons as
if no cross-license had been issued in exchange.
In the present case, the need for price-limiting provisions,
both in the license to Southern and in the licenses to the other
ten defendants, rest upon the need of the patentholder to protect
its opportunity to continue the manufacture of its own patented
product. The substance of the situation is that the patentholder
needs to protect itself precisely as much, and in the same way, as
in the case of a direct license, standing alone. The Sherman Act
traditionally tests its violation not by the form, but by the
substance, of the transaction.
In distinction from patent pools and from cross-license between
holders of competing or even noncompeting but unrelated patents, we
have here a case of a cross-license and a division of royalties
between holders of patents which are complementary and vitally
dependent upon each other. We have here complementary patents, each
of which alone is commercially of little value, but both of which,
together, spell commercial success for the product. Cross-licenses
between their holders, on terms within the needs of their patent
monopolies, are essential to the realization of the benefits
contemplated by the patent statutes. Far from being unlawful
agreements violative of the Sherman Act, such agreements
provide,
Page 333 U. S. 358
in fact, the only reasonable means for releasing to the public
the benefits intended for the public by the patent laws. A
cross-license between mutually deadlocked complementary patents is,
per se, a desirable procedure.
Standard Oil Co. v.
United States, 283 U. S. 163,
283 U. S. 170
et seq. Its validity must depend upon the terms and
substance of the surrounding circumstances.
The record in the
General Electric case discloses that
the license agreement between the
General Electric Company
and Westinghouse which was there upheld was itself a
cross-licensing agreement. [
Footnote
2/27] In fact, the opinion of the lower court in the instant
case commented on that cross-license as follows:
"A cross-license agreement existed between
General
Electric and Westinghouse which contained agreements even more
restrictive than the price protection
Page 333 U. S. 359
provisions of the cross-licenses involved in the case at
bar."
United States v. Line Material Co., 64 F.
Supp. 970, 975.
The opinion in the
General Electric case makes no
distinction between cross-licenses and direct licenses. That case,
therefore, is itself a precedent for upholding a cross-licensing
agreement under facts characterized below as being "even more
restrictive" than those here presented.
The acquisition by a single party of patents on noncompeting
machines has been held not to be,
per se, a violation of
the Sherman Act. In
United States v. Winslow, 227 U.
S. 202,
227 U. S. 217,
MR. JUSTICE Holmes, in a unanimous opinion of the Court, said:
"The machines are patented, making them is a monopoly in any
case, the exclusion of competitors from the use of them is of the
very essence of the right conferred by the patents,
Paper Bag
Patent Case, 210 U. S. 405,
210 U. S.
429, and it may be assumed that the success of the
several groups was due to their patents' having been the best. As .
. . they did not compete with one another, it is hard to see why
the collective business should be any worse than its component
parts. . . . we can see no greater objection to one corporation
manufacturing 70 percent of three noncompeting groups of patented
machines collectively used for making a single product than to
three corporations making the same proportion of one group each.
The disintegration aimed at by the statute does not extend to
reducing all manufacture to isolated units of the lowest
degree."
See also United States v. United Shoe Machinery Co.,
247 U. S. 32,
247 U. S. 45,
247 U. S. 51
et seq.; United Shoe Machinery Corporation v. United
States, 258 U. S. 451,
258 U. S.
463-464.
In
Standard Oil Co. v. United States, 283 U.
S. 163,
283 U. S.
170-171,
283 U. S. 175,
Mr. Justice Brandeis spoke as follows for
Page 333 U. S. 360
an unanimous Court (except for Mr. Justice Stone, who took no
part in the case):
"The Government concedes that it is not illegal for the primary
defendants to cross-license each other and the respective
licensees, and that adequate consideration can legally be demanded
for such grants. But it contends that the insertion of certain
additional provisions in these agreements renders them illegal. It
urges, first, that the mere inclusion of the provisions for the
division of royalties constitutes an unlawful combination under the
Sherman Act because it evidences an intent to obtain a monopoly.
This contention is unsound. Such provisions for the division of
royalties are not, in themselves, conclusive evidence of
illegality. Where there are legitimately conflicting claims or
threatened interferences, a settlement by agreement, rather than
litigation, is not precluded by the Act. . . . An interchange of
patent rights and a division of royalties according to the value
attributed by the parties to their respective patent claims is
frequently necessary if technical advancement is not to be blocked
by threatened litigation. [
Footnote
2/28] . . ."
"
* * * *"
"But an agreement for cross-licensing and division of royalties
violates the Act only when used to effect a
Page 333 U. S. 361
monopoly, or to fix prices, or to impose otherwise an
unreasonable restraint upon interstate commerce."
In the above context, and for the reasons previously presented,
it is evident that the agreements effecting a price fixation which
thus may violate the Sherman Act are only those which "impose . . .
an unreasonable restraint upon interstate commerce" within the
meaning of the Sherman Act read in the light of the patent laws.
[
Footnote 2/29] The agreements
which remain within the ambits of the patents to which they relate
still are lawful agreements by virtue of the patent laws, just as
they have been throughout the life of our patent system.
JUDICIAL AND LEGISLATIVE HISTORY SINCE THE
GENERAL ELECTRIC CASE
Neither the
Bement nor the
General Electric
cases,
supra, has been overruled, and the reasoning upon
which they are based has not been directly or indirectly rejected
by this Court. On the other hand, this Court repeatedly has
recognized the existence of the principles announced in them.
See, for example, Carbice Corporation v. American Patents
Development Corp., 283 U. S. 27,
283 U. S. 31;
General Talking Pictures Corporation v. Western Electric
Co., 305 U. S. 124,
305 U. S.
127:
"Appellants argue that the distributors were free to license the
films for exhibition subject to the restrictions, just as a
patentee in a license to manufacture and sell the patented article
may fix the price at which the licensee may sell it."
(Citing the
Bement and
General Electric
cases.)
Interstate Circuit, Inc. v. United States,
306 U. S. 208,
306 U. S.
228.
Page 333 U. S. 362
And see United States v. Univis Lens Co., 316 U.
S. 241,
316 U. S. 252;
United States v. Masonite Corporation, 316 U.
S. 265,
316 U. S.
277.
The rule of
stare decisis applies to the interpretation
given to the patent statutes and to the Sherman Act by the
Bement and
General Electric cases. There is no
occasion here for such a relaxation of that rule as was suggested
by Mr. Justice Brandeis in cases interpreting broad constitutional
phrases.
See his dissent in
Burnet v. Coronado Oil
& Gas Co., 285 U. S. 393,
285 U. S. 410.
To the extent that the present holdings are based upon opinions of
this Court, that element is inherent in the rule of
stare
decisis.
The exceptional recent activity in seeking, by statutory
amendment, a change in the patent laws as interpreted in the
Bement and
General Electric cases indicates a
widespread understanding that, if such interpretation is to be
changed, the remedy calls for congressional action. The resistance
to such a change which has been shown by Congress is impressive.
[
Footnote 2/30] It indicates no
dissatisfaction
Page 333 U. S. 363
with the interpretation of existing law as expressed in the
Bement and
General Electric cases.
There appears, therefore, to be neither adequate reason nor
authority for overruling the
Bement and
General
Electric cases or for distinguishing this case from them.
[
Footnote 2/1]
26 Stat. 209, as amended, 50 Stat. 693, 15 U.S.C. § 1.
[
Footnote 2/2]
"32. . . . Apart from the written license agreements here in
evidence, there was no agreement, express or implied, between the
licensor and any licensee, or between any two or more licensees,
with respect to the prices of licensed dropout fuse cutouts."
"
* * * *"
"34. . . . There was no agreement, express or implied, between
Line and Southern with respect to prices on cutouts other than the
written cross-license agreements."
"
* * * *"
"36. There was no combination or conspiracy among the
defendants, or any of them, to fix, maintain or control prices of
dropout fuse cutouts or parts thereof, or to restrain trade or
commerce therein."
(Findings of fact.)
[
Footnote 2/3]
In addition to the findings quoted in
333
U.S. 287fn2/1|>note 1,
supra, the trial court
found:
"9. The validity of the United States letters patent involved in
the licenses of the defendants is not contested by the plaintiff in
this action, and therefore is not here in issue."
"
* * * *"
"27. None of the license agreements aforesaid restrains trade in
any article moving in interstate commerce, and none of them was
entered into as a result of any conspiracy to restrain such
trade."
"28. . . . The prices listed in Schedule A are Line's own
selling prices, determined solely by Line without discussion with
or advice from any other defendant."
"29. Under the cross-licenses with Southern and its licenses to
others, Line established minimum prices only for structures within
the ambit of the claims of its own patents. The classification
schedules attached to the license agreements were only such as were
reasonably necessary to protect the business of the licensor and
implement the license agreement so as to prevent evasion by a
licensee of lawful price limitation provisions. Line did not
establish minimum selling prices for any device not covered by a
claim of its Schultz patent Re. 22,412 or its Kyle patent
Re.19,449."
"
* * * *"
"31. There is no charge of monopoly by the defendants. There was
no fixing of resale prices on licensed dropout fuse cutouts by the
defendants or any of them. . . ."
"32. The price limitation provisions contained in the various
license agreements here in evidence were insisted upon by the
patent owner, and were intended and reasonably adapted to protect
its own business and secure pecuniary reward for the patentee's
monopoly. Each of the licenses granted to the licensee-defendants
was taken and granted in good faith, the parties to the licenses
believing a license under the patents to be necessary in order that
the licensee could continue lawfully to manufacture and sell its
dropout fuse cutouts. . . ."
"
* * * *"
"34. The cross-license agreements between Line and Southern were
limited to the commercially practicable device covered by the
subservient Schultz (Line's) patent, and did not create additional
power for price control of the licensed cutouts over that which
each had before entering into the agreements. . . . Such
cross-license agreement were entered into in good faith, not for
the purpose of fixing prices in the industry, but to permit the
manufacture and sale of the cheaper device covered by the
subservient patent, to facilitate the negotiation of licenses, and
to provide royalty income. . . ."
"35. The license agreements here in evidence did not restrain
trade but promoted it by making available several sources where the
patented devices could be obtained, thus increasing competition in
such devices, particularly with respect to design, quality and
service. Competition among the defendants for business in these
devices continued to be vigorous after the making of the license
agreements."
That the patents did not represent an industrywide control
appears from the follow ing finding:
"5. The defendants are all manufacturers of electrical devices
of various kinds. The dropout fuse cutouts manufactured by the
defendants under the patent licenses have been and are in open
competition with many other devices which perform the same
functions and are not manufactured under the patent licenses, such
as open single hinge dropout fuse cutouts; open non-dropout fuse
cutouts; non-dropout fuse cutouts enclosed in materials other than
cast wetprocess porcelain, such as Prestite; automatic circuit
breaker cutouts, and others listed in Defendants' Exhibit L-23. The
average aggregate annual sales of licensed dropout fuse cutouts
manufactured by all the defendants from 1940 to 1944 was
$1,918,247.78, and constituted only 40.77% of the average aggregate
annual sales of all licensed and competitive cutouts manufactured
and sold by all the defendants, and were distributed among the
defendants as follows:
General Electric, 29.2%; Line[,]
25.4%[;] Kearney, 18.9%; Southern 7.9%; Westinghouse, 5.3%;
Schweitzer and Conrad, 5.1%; Railway, 3.8%; Matthews, 2%;
Porcelain, 1.5%; Royal, O.5%; Pacific, O.2%, and Johnson,
0.2%."
[
Footnote 2/4]
"2. The cross-licenses and the license agreements entered into
between the various defendants, as set forth in the preceding
Findings of Fact, are lawful agreements."
(Conclusions of law.)
[
Footnote 2/5]
United States v. General Electric Co., supra, 272 U.S.
at
272 U. S.
490.
[
Footnote 2/6]
Bement case,
supra, at
186 U. S.
92.
[
Footnote 2/7]
General Electric case,
supra, at
272 U. S.
490.
[
Footnote 2/8]
An early patent for the establishment of a new industry was
granted to a Flemish weaver in 1331. There are records of a
merchant, in 1347, having a monopoly for exporting Cornish tea, and
of an individual, in 1376, having a monopoly to sell sweet wines in
the City of London. The first patent for a new invention that has
been found in the records dates from 1561, and covers the
manufacture of saltpetre. Meinhardt, Inventions, Patents and
Monopoly, pp. 30, 35 (London, 1946).
[
Footnote 2/9]
In 1602, in
The Case of Monopolies, Darcy v. Allein, 6
Co.Rep. [Q.B.] 159, Part XI-84b, 1 Abb.Pat.Cas. 1, Webs.Pat.Cas. 1,
a royal grant of exclusive right to manufacture playing cards
within the realm was held void as violating the common law and
several Acts of Parliament.
And see 1 Walker on Patents,
pp. 12-16 (Deller's Ed.1937).
[
Footnote 2/10]
"VI. Provided also, and be it declared and enacted, That any
Declaration before-mentioned shall not extend to any Letters
Patents and Grants of Privilege for the Term of fourteen Years or
under, hereafter to be made, of the sole Working or Making of any
manner of new Manufactures within this Realm, to the true and first
Inventor and Inventors of such Manufactures, which others at the
Time of Making such Letters Patents and Grants shall not use, so as
also they be not contrary to the Law, nor mischievous to the State,
by raising Prices of Commodities at home, or Hurt of Trade, or
generally inconvenient: The said fourteen Years to be accounted
from the Date of the first Letters Patents, or Grant of such
Privilege hereafter to be made, but that the same shall be of such
Force as they should be if this Act had never been made, and of
none other."
21 Jac. I, c. 3 (1623).
"The Statute of Monopolies created no new right either in the
Crown or the people; it was simply declaratory of the common law
and enacted into statute law, which bound the Sovereign, the
doctrines that the courts had repeatedly affirmed, and reiterated
those principles of the Magna Charta (9 Henry III, Ch. XXXVII, A.D.
1225), which declared that the liberties of his subjects shall not
be infringed or broken by royal usurpation, and it limited the
royal prerogative to certain definite terms and conditions under
which it might be lawfully exercised. It is to be noted that there
was a reservation of Letters Patent and grants of the privilege of
the sole working or making of any new manufactures within the realm
to the true and first inventor, conferring upon him an exclusive
privilege for the term of fourteen years."
1 Walker on Patents,
supra at p. 22.
[
Footnote 2/11]
The first Act to implement the constitutional provision was
approved April 10, 1790. It provided:
"Section 1. . . . That, upon the petition of any person or
persons to the Secretary of State, the Secretary for the department
of war, and the Attorney General of the United States, setting
forth, that he, she, or they, hath or have invented or discovered
any useful art, manufacture, engine, machine, or device, or any
improvement therein not before known or used, and praying that a
patent may be granted therefor, it shall and may be lawful to and
for the said Secretary of State, the Secretary for the department
of war, and the Attorney General, or any two of them, if they shall
deem the invention or discovery sufficiently useful and important,
to cause letters patent to be made out in the name of the United
States, to bear teste by the President of the United States,
reciting the allegations and suggestions of the said petition, and
describing the said invention or discovery, clearly, truly, and
fully, and thereupon
granting to such petitioner or
petitioners, his, her or their heirs, administrators, or assigns
for any term not exceeding fourteen years, the sole and exclusive
right and liberty of making, constructing, using, and vending to
others to be used, the said invention or discovery. . . ."
(Italics supplied.) 1 Stat. 109-110.
[
Footnote 2/12]
The Commissioner referred to the special interest of President
Jefferson in this subject:
"No American among his contemporaries or his successors has
achieved a greater reputation as an opponent of monopoly than
Thomas Jefferson. Yet he not merely sanctioned, he eloquently
advocated, the form of monopoly represented in patents. I cite his
commentary on an early act of Congress, presumably that of 1790, in
the administration of which he collaborated with Henry Knox,
Secretary of War, and Edmund Randolph, Attorney General."
" An act of Congress authorizing the issue of patents for new
discoveries has given a spring to invention beyond my conception.
Being an instrument of granting the patents, I am acquainted with
their discoveries."
"
* * * *"
" In the arts, and especially in the mechanical arts, many
ingenious improvements are made in consequence of the patent-right
giving
exclusive use of them for 14 years."
" Certainly an inventor ought to be allowed a right to the
benefit of his invention for some certain time. Nobody wishes more
than I do that ingenuity should receive liberal encouragement."
Hearings before the Temporary National Economic Committee,
supra, at p. 840.
Some conception of the degree to which the present patent system
has been resorted to is found in Commissioner Coe's testimony that,
up to 1939, over 2,000,000 patents had been issued, apart from
design patents and reissues. The figure is now approximately
2,500,000, of which all but about 100,000 have been issued since
1870. He showed also that only about 60% of the applications filed
are finally granted. (
Id. at p. 844, and Exhibits 179 and
180.)
See also Official Gazette, U.S.Pat.Off., Vol. 605,
pp. 714, 885 (Dec. 30, 1947).
After the final report of the Temporary National Economic
Committee, the President issued Executive Order No. 8977, December
12, 1941, 1 C.F.R.Cum.Supp. 1040, establishing the National Patent
Planning Commission to conduct a comprehensive survey and study of
the American patent system and, among other things, to
"consider whether the system now provides the maximum service in
stimulating the inventive genius of our people in evolving
inventions and in furthering their prompt utilization for the
public good; . . . whether there are obstructions in our existing
system of patent laws, and if so, how they can be eliminated; . . .
and what methods and plans might be developed to promote inventions
and discoveries which will increase commerce, provide employment,
and fully utilize expanded defense industrial facilities during
normal times."
The President appointed Charles F. Kettering, Chairman, Chester
C. Davis, Francis P. Gaines, Edward F. McGrady and Owen D. Young as
members of the Committee. The Report of the Committee, transmitted
by the President to Congress June 18, 1943 (H.R.Doc. No. 239, 78th
Cong., 1st Sess. 1), contained the following:
"The American patent system established by the Constitution
giving Congress the 'Power . . . To promote the Progress of Science
and useful Arts,' is over 150 years old. The system has
accomplished all that the framers of the Constitution intended. It
is the only provision of the Government for the promotion of
invention and discovery, and is the basis upon which our entire
industrial civilization rests."
"The American people and their Government should recognize the
fundamental rightness and fairness of protecting the creations of
its inventors by the patent grant. The basic principles of the
present system should be preserved. The system has contributed to
the growth and greatness of our Nation; it has --"
" (1) Encouraged and rewarded inventiveness and creativeness,
producing new products and processes which have placed the United
States far ahead of other countries in the field of scientific and
technological endeavor;"
" (2) Stimulated American inventors to originate a major portion
of the important industrial and basic inventions of the past 150
years;"
" (3) Facilitated the rapid development and general application
of new discoveries in the United States to an extent exceeding that
of any other country;"
" (4) Contributed to the achievement of the highest standard of
living that any nation has ever enjoyed;"
" (5) Stimulated creation and development of products and
processes necessary to arm the Nation and to wage successful
war;"
" (6) Contributed to the improvement of the public health and
the public safety; and"
" (7) Operated to protect the individual and small business
concerns during the formative period of a new enterprise."
"The strongest industrial nations have the most effective patent
systems, and, after a careful study,
the Commission has reached
the conclusion that the American system is the best in the
world."
(Italics supplied.) In its summary of findings and
recommendations it added:
"The patent system is the foundation of American enterprise, and
has demonstrated its value over a period coextensive with the life
of our Government. The principle of recognizing a property right in
intellectual creation is sound, and should be continued as
contemplated in the Constitution."
(
Id. at p. 9.)
[
Footnote 2/13]
In
Grant v.
Raymond, 6 Pet. 218,
31 U. S.
241-242, 243, Chief Justice Marshall said:
"The law further declares that the patent 'shall be good and
available to the grantee or grantees by force of this act, to all
and every intent and purpose herein contained.' The amendatory act
of 1793 contains the same language, and it cannot be doubted that
the settled purpose of the United States has ever been, and
continues to be, to confer on the authors of useful inventions an
exclusive right in their inventions for the time mentioned in their
patent. It is the reward stipulated for the advantages derived by
the public for the exertions of the individual, and is intended as
a stimulus to those exertions. The laws which are passed to give
effect to this purpose ought, we think, to be construed in the
spirit in which they have been made, and to execute the contract
fairly on the part of the United States, where the full benefit has
been actually received if this can be done without transcending the
intention of the statute or countenancing acts which are fraudulent
or may prove mischievous. The public yields nothing which it has
not agreed to yield; it receives all which it has contracted to
receive. The full benefit of the discovery, after its enjoyment by
the discoverer for fourteen years, is preserved, and, for his
exclusive enjoyment of it during that time, the public faith is
pledged. . . ."
"
* * * *"
"The great object and intention of the act is to secure to the
public the advantages to be derived from the discoveries of
individuals, and the means it employs are the compensation made to
those individuals for the time and labour devoted to these
discoveries, by the exclusive right to make, use and sell the
things discovered for a limited time."
[
Footnote 2/14]
There is no issue here corresponding to the other issue examined
and upheld in the
General Electric case -- namely, that
involving the validity of the patentee's agency system of sales of
its patented article. Another system for making sales of a patented
article has been held invalid where the "agencies" were found not
to be
bona fide agencies.
United States v. Masonite
Corporation, 316 U. S. 265.
That case, in turn, did not reach the issue raised by the
Westinghouse license in the
General Electric case. The
Court there said (p.
316 U. S.
277):
"we need not reach the problems presented by
Bement v.
National Harrow Co., 186 U. S. 70, and that part of
the
General Electric case which dealt with the license to
Westinghouse Company."
[
Footnote 2/15]
United States v. American Tobacco Co., 221 U.
S. 106,
221 U. S.
179-180.
See also Standard Oil Co. v. United
States, 221 U. S. 1.
[
Footnote 2/16]
The instant case also is to be distinguished sharply from those
in which the parties to a license have sought to fix prices for the
resale by the licensee of patented products previously sold to the
licensee by the patentee or others.
United States v. Univis
Lens Co., 316 U. S. 241,
316 U. S. 252;
Ethyl Gasoline Corporation v. United States, 309 U.
S. 436,
309 U. S. 452,
309 U. S.
456-457;
Motion Picture Patents Co. v. Universal
Film Mfg. Co., 243 U. S. 502,
243 U. S. 516;
Straus v. Victor Talking Machine Co., 243 U.
S. 490,
243 U. S.
500-501;
Bauer v. O'Donnell, 229 U. S.
1,
229 U. S. 16-17.
See also Standard Oil Co. v. United States, 283 U.
S. 163,
283 U. S. 169;
United Shoe Machine Corporation v. United States,
258 U. S. 451,
258 U. S.
463-464;
Standard Sanitary Mfg. Co. v. United
States, 226 U. S. 20,
226 U. S. 48-49;
Adams v.
Burke, 17 Wall. 453-456.
[
Footnote 2/17]
General Electric case,
supra, at p.
272 U. S.
490.
[
Footnote 2/18]
In discussing this patent monopoly and the patent laws of the
United States, this Court long ago said:
"The monopoly thus granted is one entire thing, and cannot be
divided into parts except as authorized by those laws. The patentee
or his assigns may, by instrument in writing, assign, grant, and
convey, either (1) the whole patent, comprising the exclusive right
to make, use, and vend the invention throughout the United States,
or (2) an undivided part or share of that exclusive right, or (3)
the exclusive right under the patent within and throughout a
specified part of the United States. Rev.Stat. § 4898. . . . Any
assignment or transfer, short of one of these, is a mere license,
giving the licensee no title in the patent, and no right to sue at
law in his own name for an infringement. Rev.Stat. § 4919;
Gayler
v. Wilder, 10 How. 477,
51 U. S.
494-495;
Moore v. Marsh, 7 Wall.
515."
Waterman v. Mackenzie, 138 U.
S. 252,
138 U. S.
255.
This was quoted with approval in
Crown Co. v. Nye Tool
Works, 261 U. S. 24,
261 U. S. 37,
and was enlarged upon in the
General Electric case,
supra, 272 U.S. at
272 U. S.
489.
[
Footnote 2/19]
See note 18
supra.
[
Footnote 2/20]
"
As a license passes no interest in the monopoly, it has
been described as a mere waiver of the right to sue by the
patentee.' . . ." Quoted with approval by Chief Justice Taft in a
unanimous opinion of the Court in De Forest Co. v. United
States, 273 U. S. 236,
273 U. S.
242.
[
Footnote 2/21]
General Electric case,
supra, at p.
272 U. S.
490.
[
Footnote 2/22]
Chief Justice Taft, at pp.
272 U. S.
490-491, made the following significant references to
the
Bement case:
"This question was considered by this court in the case of
Bement v. National Harrow Co., 186 U. S.
70. A combination of manufacturers owning a patent to
make float spring tool harrows licensed others to make and sell the
products under the patent on condition that they would not, during
the continuance of the license, sell the products at a less price
or on more favorable terms of payment and delivery to purchasers
than were set forth in a schedule made part of the license. That
was held to be a valid use of the patent rights of the owners of
the patent. It was objected that this made for a monopoly. The
court, speaking by Mr. Justice Peckham, said (p.
186 U. S.
91):"
" The very object of these laws is monopoly, and the rule is,
with few exceptions, that any conditions which are not, in their
very nature, illegal with regard to this kind of property, imposed
by the patentee and agreed to by the licensee for the right to
manufacture or use or sell the article, will be upheld by the
courts. The fact that the conditions in the contracts keep up the
monopoly or fix prices does not render them illegal."
"Speaking of the contract, he said (p.
186 U. S.
93): "
" The provision in regard to the price at which the licensee
would sell the article manufactured under the license was also an
appropriate and reasonable condition. It tended to keep up the
price of the implements manufactured and sold, but that was only
recognizing the nature of the property dealt in, and providing for
its value so far as possible. This the parties were legally
entitled to do. The owner of a patented article can, of course,
charge such price as he may choose, and the owner of a patent may
assign it or sell the right to manufacture and sell the article
patented upon the condition that the assignee shall charge a
certain amount for such article."
Judge Westenhaver, whose judgment in the District Court was
affirmed by this Court in the
General Electric case,
said:
"If both licensor and licensee are making and selling, it is
quite conceivable that the owner of the patent could not safely
grant licenses at all on any other terms; otherwise, he would risk
having his business destroyed, and hence, as a matter of ordinary
business prudence, would feel obliged to keep his patent monopoly
wholly within his own hands. And it was so held in
Bement v.
National Harrow Co., 186 U. S. 70."
United States v. General Electric Co., 15 F.2d
715, 718.
[
Footnote 2/23]
General Electric case,
supra, at p.
272 U. S.
490.
[
Footnote 2/24]
Hearings before the Temporary National Economic Committee,
supra; Conway P. Coe, Commissioner of Patents, pp. 839
et seq., 857
et seq.; I. Joseph Farley, patent
Counsel, Ford Motor Co., Detroit, Michigan, p. 262
et
seq.; Dr. Vannevar Bush, President, Carnegie Institution,
Washington, p. 898
et seq.; Ralph E. Flanders, President,
Jones & Lamson, Springfield, Vermont (now U.S. Senator from
Vermont), p. 928
et seq.; John A. Graham, President, Motor
Improvements, Inc., Newark, New Jersey, p. 938
et seq.;
Dr. Frank B. Jewett, President, Bell Telephone Laboratories, Inc.,
New York City, p. 958
et seq.; Maurice H. Graham,
Independent Inventor, Minneapolis, Minnesota, p. 1076
et
seq., and George Baekeland, Vice President, Bakelite
Corporation, New York City, p. 1082
et seq.
[
Footnote 2/25]
See 333
U.S. 287fn2/3|>note 3,
supra.
[
Footnote 2/26]
In 1939, the Commissioner of Patents testified that, of the
patents issued, exclusive of design patents and reissues, large
corporations (having respectively over $50,000,000 of assets)
received but 17.2%,, small corporations (having respectively less
than $50,000,000 of assets) 34.5%, foreign corporations 5.4%, and
individuals 42.9%. Subsequent assignments did not materially affect
these proportions. Hearings before the Temporary National Economic
Committee,
supra at p. 846.
Clarence C. Carlton, president of the Automotive Parts and
Equipment Manufacturers Association, testified that, in the
automotive parts industry:
"Patents are valued so much more by the small manufacturer than
they are by the large manufacturer. . . . [I]f anything happened to
this patent system, the fellow who would be hurt more than anyone
else would be the smaller manufacturer."
(
Id. at pp. 1057, 1058.)
[
Footnote 2/27]
"As a part consideration for the granting of the foregoing
licenses, the Licensee [Westinghouse] hereby grants and agrees to
grant to the Licensor [General Electric] a nonexclusive license
under the United States patents which it now owns or controls and
under those which may issue on pending applications now owned or
controlled by it, and under any United States patents which the
Licensee may own or control, during the term of this agreement, for
improvements in incandescent lamps specified in paragraphs
a,
b, c and
d of Article 2, to make, use and sell
throughout the United States and the territories thereof
incandescent lamps of the kinds specified in said paragraphs of
Article 2 hereof, such license being personal, nonassignable,
indivisible and nontransferable except to successors to
substantially the entire good will and business of the Licensor,
and to continue for the period during which the licenses from the
Licensor to the Licensee remain in force."
Par.(8) of Agreement between General Electric Company and
Westinghouse Electric & Manufacturing Company, March 1, 1912,
Exhibit A at p. 117 of the record in the Supreme Court of the
United States, No. 113, O.T. 1926.
[
Footnote 2/28]
In that
Standard Oil case, 283 U.S. at
283 U. S. 171,
the footnote at this point stated:
"This is often the case where patents covering improvements of a
basic process, owned by one manufacturer, are granted to another. A
patent may be rendered quite useless, or 'blocked,' by another
unexpired patent which covers a vitally related feature of the
manufacturing process. Unless some agreement can be reached, the
parties are hampered and exposed to litigation. And frequently the
cost of litigation to a patentee is greater than the value of a
patent for a minor improvement."
[
Footnote 2/29]
Before making this statement, Mr. Justice Brandeis already had
joined in the opinion of the Court in the
General Electric
case,
supra, and written the opinion in
Carbice
Corporation v. American Patents Development Corp.,
283 U. S. 27.
[
Footnote 2/30]
Many bills relating to these issues have been introduced in
Congress and referred to appropriate committees. Not one has been
reported back to either House of Congress.
As early as 1912, H.R. 22345, 62d Cong., 2d Sess., proposed that
a patentee be not permitted to fix the price of articles to be sold
by others under his patent.
During the hearings held by the Temporary National Economic
Committee, the Department of Justice recommended many fundamental
as well as minor changes in the patent law. These included the
prohibition of price-limiting patent licenses comparable to those
here at issue. Preliminary Report, Temporary National Economic
Committee, Sen.Doc. No. 95, 76th Cong., 1st Sess., 16, 17 (1939).
The Department of Commerce took an opposite position. It submitted
recommendations for retaining but improving the patent system
substantially in accordance with its traditional underlying
policies. The Final Report of the Temporary National Economic
Committee incorporated the substance of the proposals of the
Department of Justice. It included a recommendation that patentees
be not permitted to limit the price at which a licensee might sell
a product made under the license. Final Report, Temporary National
Economic Committee, Sen.Doc. No. 35, 77th Cong., 1st Sess. 36, 37
(1941).
In 1941, the President appointed the National Patent Planning
Commission to submit recommendations on questions dealt with in the
report. (
See 333
U.S. 287fn2/12|>note 12,
supra.) In 1943, among the
examples of the proposed reforms which it concluded "would not be a
beneficial innovation in our patent system," it listed "outlawing
certain limitations in patent licenses. . . ." This evidently
referred to the above-mentioned proposals of the Temporary National
Economic Committee to outlaw price restrictions and other
limitations in patent licenses. Report of the National Patent
Planning Commission, House Doc. 239, 78th Cong., 1st Sess. 9
(1943).
Bills to the same general effect as the proposals of the
Temporary National Economic Committee have been introduced and
referred to Committees of Congress, but have advanced no further.
Among them have been the following:
S. 2491 ( § 4), S. 2730 ( § 3), H.R. 7713 ( § 3), 77th Cong., 2d
Sess. (1942); H.R. 109 ( § 3), H.R. 1371 ( § 29), H.R. 3874 ( §
29), 78th Cong., 1st Sess. (1943); H.R. 97 ( § 29), H.R. 3462 ( §
29), 79th Cong., 1st Sess. (1945); S. 2482, 79th Cong., 2d Sess.
(1946); S. 72, 80th Cong., 1st Sess. (1947). Section 3 of S. 2730,
supra, proposed that
"Every sale, assignment, or conveyance of a patent and every
grant of a license thereunder, in connection with any condition,
agreement, or understanding which restricts the price at which the
purchaser, assignee, grantee, or license [licensee] may sell any
article producible under the patent and customarily marketed in
interstate commerce, is hereby declared to be illegal."