A complaint in a civil suit by the United States under § 4 of
the Sherman Act charging that the two defendants successfully
conspired to fix uniform minimum prices and to eliminate
competition throughout substantially all of the wrinkle finish
industry of the United States by means of patent license agreements
to have charged a violation of § 1 of the Sherman Act
by both defendants. Pp. 342 U. S.
1. That one of the defendants, a patent-holding company,
abstained from manufacturing activities and concentrated on patent
licensing did not insulate its activity from the prohibitions of §
1 of the Sherman Act. Pp. 342 U. S.
2. The making of these license contracts for the purpose of
regulating distribution and fixing prices of commodities in
interstate commerce is subject to the Sherman Act, even though the
isolated act of contracting for the licenses is wholly within a
single state. P. 342 U. S.
3. Patents give no protection from the prohibitions of the
Sherman Act when licensing agreements are used as a means of
restraining interstate commerce and fixing prices throughout
substantially all of an entire industry involving many different
manufacturers. United States v. Line Material Co.,
333 U. S. 287
United States v. United States Gypsum Co., 333 U.
. Pp. 342 U. S.
The District Court dismissed a complaint by the United States
under § 4 of the Sherman Act to restrain violations of § 1 by
appellees. On direct appeal to this Court under 15 U.S.C. § 29,
p. 342 U. S.
Page 342 U. S. 372
MR. JUSTICE REED delivered the opinion of the Court.
This suit against New Wrinkle, Inc., and The Kay & Ess Co.
was instituted in the United States District Court for the Southern
District of Ohio by the United States as a civil proceeding under §
4 of the Sherman Act. [Footnote
] Defendants are charged with having violated § 1 of that law
] by conspiring to
fix uniform minimum prices and to eliminate competition throughout
substantially all of the wrinkle finish industry [Footnote 3
] of the United States by means of
patent license agreements. Motions to dismiss the suit were filed
by defendants. The defendant Kay & Ess urged that the complaint
failed to state a cause of
Page 342 U. S. 373
action. Defendant New Wrinkle pressed a sole contention: that it
was not then, and never had been, engaged in interstate commerce,
and could therefore not be guilty of violating the Sherman Act.
The District Court, without opinion, thereafter entered separate
judgments as to each defendant dismissing the complaint and
reciting in each judgment that the motion to dismiss was "well
taken." A petition for appeal was filed and allowed, and, on
October 8, 1951, probable jurisdiction was noted on direct appeal
pursuant to a jurisdiction conferred on this Court by § 2 of the
Expediting Act of February 11, 1903. 15 U.S.C. § 29.
In granting the motions of defendants, the District Court, of
course, treated the allegations of the complaint as true. In
substance, the complaint charges that, prior to and during 1937,
defendant Kay & Ess was engaged in litigation with a named
coconspirator, the Chadeloid Chemical Co., in regard to certain
patents covering manufacture of wrinkle finish enamels, varnishes,
and paints. Each company claimed it controlled the basic patents on
wrinkle finish, contending that the patents of the other
Page 342 U. S. 374
were subservient to its own. Negotiations throughout 1937
resulted in a contract entered into by Kay & Ess and Chadeloid
on November 2, 1937. This contract made provision for the
organization of a new corporation, the defendant New Wrinkle. Both
Kay & Ess and Chadeloid agreed to accept stock in the new
company in exchange for assignments of their wrinkle finish
patents. New Wrinkle was to grant patent licenses, incorporating
agreements which fixed the minimum prices at which all licensed
manufacturers might sell, to the manufacturers in the wrinkle
finish industry, including Kay & Ess and Chadeloid. The
price-fixing schedules were not to become operative until twelve of
the principal producers of wrinkle finishes had subscribed to the
minimum prices prescribed in the license agreements.
Pursuant to this arrangement, the complaint charges New Wrinkle
was incorporated, and the patent rights of Kay & Ess and
Chadeloid were transferred to it. In conjunction with other named
companies and persons, the defendants and Chadeloid thereafter
worked together to induce makers of wrinkle finishes to accept the
price-fixing patent licenses which New Wrinkle had to offer. These
prospective licensees were advised of the agreed-upon prices,
terms, and conditions of sale in the New Wrinkle licenses, and they
were assured that like advice was being given to other
manufacturers "in order to establish minimum prices throughout the
industry." After May 7, 1938, when the requisite twelve leading
manufacturing companies had accepted New Wrinkle licenses, the
price schedules became operative. By September, 1948, when the
complaint was filed in this action, more than two hundred, or
substantially all, manufacturers of wrinkle finishes in the United
States held nearly identical ten-year extendable license agreements
from New Wrinkle. These agreements required, among other things,
that a licensee observe in all sales of products covered
Page 342 U. S. 375
by the licensed patents a schedule of minimum prices, discounts,
and selling terms established by the licensor New Wrinkle. Upon
thirty days' notice in writing, New Wrinkle might alter any or all
of the terms of the price schedule, but such prices, terms, and
discounts as New Wrinkle might establish were to bind the licensee
only if imposed at the same time and in the same terms upon the
licensor and all other licensees. [Footnote 4
] Termination provisions in the agreements
required a licensee to give three months' written notice and
allowed the licensor to terminate the license if a licensee failed
to remedy a violation of the agreement within thirty days after
written notice thereof by the licensor. A 5-cent per gallon royalty
was made payable on all wrinkle finish sold or used by a licensee,
said royalty to be reduced to the same figure as that contained in
any subsequent license granted at a lower royalty charge.
New Wrinkle, acting with the consent of its licensees, issued at
intervals "License Rulings" giving minimum
Page 342 U. S. 376
prices, detailed terms and conditions such as allowable
discounts and permissible practices. The requirements of these
"Rulings" were adhered to by the licensees. Since an entire copy of
"License Rulings," as filed with the complaint as an exhibit, is
too bulky for reprinting, the schedule of prices operative at the
time of the filing of the complaint in this action, as
illustrative, is set out in an Appendix to this opinion.
p. 342 U. S. 381
It precisely details and makes rigid the selling procedure for a
variety of minutely prescribed products deemed to be covered by the
patents and the license agreements.
Since the motions to dismiss must be deemed to admit all of the
above as true, we need only consider whether or not these facts
would establish a violation of § 1 of the Sherman Act by appellees,
New Wrinkle and Kay & Ess.
Appellee, New Wrinkle, differs from Kay & Ess. New Wrinkle
is not a manufacturer of the commodities covered by its patents. It
is solely a holder or owner of the patents, granting the right of
making and vending to others. Kay & Ess does manufacture under
the New Wrinkle license. New Wrinkle urges that its abstention from
manufacturing activities and concentration on patent licensing
insulates its activity from the prohibitions of § 1 of the Sherman
Act. Persons engaged exclusively in licensing patents are said by
appellee to be exempt from the Sherman Act because such contracts
are not commerce, and are functions solely controlled by the patent
laws. For the contention that its licensing is not commerce,
reliance is placed on New York Life Ins. Co. v. Deer Lodge
County, 231 U. S. 495
cases involving such local incidents of interstate commerce as were
treated in United Shoe Machinery Corp. v. United
Page 342 U. S. 377
] For the latter contention, if we understand the argument
correctly, New Wrinkle asserts that, since patents give their
owners a right to sell, they may do so on such terms as they
please, because they are merely selling personal services, and such
services are not commerce, citing Apex Hosiery Co. v.
Leader, 310 U. S. 469
310 U. S. 502
a case holding that a strike to unionize a factory did not violate
the Sherman Act.
These contentions leave out of consideration the allegations of
the complaint concerning the alleged combination in restraint of
trade. The United States charges the use of patent licenses as an
essential part of the plan to restrain trade, a trade in enamels,
varnishes, and paints that is alleged to be and obviously is
interstate in character. It charges that the price control is an
essential part of that restraint.
We think it beyond question that this making of license
contracts for the purpose of regulating distribution and fixing
prices of commodities in interstate commerce is subject to the
Sherman Act, even though the isolated act of contracting for the
licenses is wholly within a single state. Certainly since
United States v. Treton Potteries Co., 273 U.
, 273 U. S. 397
(1927), price-fixing in commerce, reasonable or unreasonable, has
been considered a per se
violation of the Sherman Act.
] Likewise it is
clear that, although the execution of a contract of insurance may
not be interstate commerce,
"If contracts of insurance are in fact made the instruments of
restraint in the marketing of goods and services in or affecting
interstate commerce, they are not beyond the reach of the Sherman
Act more than
Page 342 U. S. 378
contracts for the sale of commodities -- contracts which, not in
themselves interstate commerce, may nevertheless by used as the
means of its restraint. [Footnote
And so it is with patent license contracts which are a part of a
plan to restrain commerce. Patents give no protection from the
prohibitions of the Sherman Act to such activities, when the
licenses are used, as here, in the scheme to restrain. The
allegations of the complaint cover such a situation and New Wrinkle
and its manufacturing licensee, Kay & Ess, are alike covered by
the prohibitions of § 1.
Appellees argue further, however, that the principles of
United States v. General Electric Co., 272 U.
, and E. Bement & Sons v. National Harrow
Co., 186 U. S. 70
control here. Since we examined these principles in detail as
recently as 1948, we draw upon that discussion for our conclusions
here. [Footnote 8
and General Electric
cases allowed a
patentee to license a competitor in commerce to make and vend with
a price limitation controlled by the patentee. When we examined the
rule in 1948, the holding of the General Electric
left as stated above. 333 U.S. at 333 U. S. 310
But it was pointed out 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."
333 U.S. at 333 U. S.
Page 342 U. S. 379
We said that
"two or more patentees in the same patent field may [not]
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."
333 U.S. at 333 U. S. 305
Price control through cross-licensing was barred as beyond the
On the day of the Line Material
decision, this Court
handed down United States v. United States Gypsum Co.,
333 U. S. 364
case was based on facts similar to those here
alleged, except that the patent owner was also a manufacturer. We
have pointed out above, in section 342 U. S.
we consider the fact that New Wrinkle is exclusively a
patent-holding company of no significance as a defense to the
alleged violation of the Sherman Act. We said in Gypsum
"industry-wide license agreements, entered into with knowledge
on the part of licensor and licensees of the adherence of others,
with the control over prices and methods of distribution through
the agreements and the bulletins, were sufficient to establish a
case of conspiracy."
333 U.S. at 333 U. S. 389
On remand, the prima facie
case resulted in a final
judgment, affirmed by this Court. [Footnote 9
] In discussing the General Electric
case, the Court was unanimous in saying that it
"gives no support for a patentee, acting in concert with all
members of an industry, to issue substantially identical licenses
to all members of the industry under
Page 342 U. S. 380
the terms of which the industry is completely regimented, the
production of competitive unpatented products suppressed, a class
of distributors squeezed out, and prices on unpatented products
stabilized. . . . [I]t would be sufficient to show that the
defendants, constituting all former competitors in an entire
industry, had acted in concert to restrain commerce in an entire
industry under patent licenses in order to organize the industry
and stabilize prices"
33 U.S. at 33 U. S.
We see no material difference between the situation in Line
and the case presented by the
allegations of this complaint. An arrangement was made between
patent holders to pool their patents and fix prices on the products
for themselves and their licensees. The purpose and result plainly
violate the Sherman Act. The judgment below must be reversed.
MR. JUSTICE CLARK took no part in the consideration or decision
of this case.
Page 342 U. S. 381
15 U.S.C. § 4:
"The several district courts of the United States are invested
with jurisdiction to prevent and restrain violations of sections
1-7 of this title, 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. Such
proceedings may be by way of petition setting forth the case and
praying that such violation shall be enjoined or otherwise
prohibited. When the parties complained of shall have been duly
notified of such petition the court shall proceed, as soon as may
be, to the hearing and determination of the case, and, pending such
petition and before final decree, the court may at any time make
such temporary restraining order or prohibition as shall be deemed
just in the premises."
"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 declared to be illegal. . .
"8. 'Wrinkle' finishes, also known as 'Crinkle,' 'Shrivel,'
'Sag,' 'Morocco,' and by other designations, are defined as
enamels, varnishes and paints which have been compounded from such
materials and by such methods as to produce, when applied and
dried, a hard wrinkled surface on metal or other material."
"9. Wrinkle finishes are widely used as coverings for the
surfaces of typewriters, cash registers, motors, adding machines,
and many other articles of manufacture. They have the following
advantages over smooth finishes such as ordinary enamels and
"a. One coat of wrinkle finish is sufficient for many purposes
for which two or more coats of smooth finish would be
"b. Surfaces to which wrinkle finishes are to be applied need
not be prepared as carefully as those which are to receive smooth
finishes, since the wrinkle finishes cover small imperfections;
"c. The original appearance of wrinkle-finished articles can be
maintained with less cleaning and polishing than that of
A copy of the license was filed with the complaint. An important
section, § 7, reads, so far as material in this proceeding, as
"7. The Licensor hereby reserves and shall have the right at any
time to establish a Schedule of Minimum Prices, Discounts, and
Selling Terms only in accordance with which Licensee, Licensor, and
all other Licensees shall thereafter sell or otherwise dispose of
products covered by patents included herein, and thereafter to
modify, amend and suspend any such Schedule and/or establish a New
Schedule. . . . The Licensor announces as a matter of policy that
it will fix said price based upon the cost of raw materials and
labor as reported by the United States Department of Commerce and
the United States Department of Labor, plus the royalty charged
hereunder, it being the intent and purpose of the Licensor to open
to the entire trade the use of these patents so licensed at the
lowest price consistent with a reasonable profit to the
manufacturer, Licensee, the trade, and to this Licensor. No
Schedule of Minimum Prices, Discounts and Selling Terms nor any
modification or amendment or suspension thereof shall be binding
upon Licensee unless at the same time and in the same terms imposed
upon Licensor and all other Licensees."
258 U. S. 258
451, 258 U. S. 465
There, it is said: "It is true that the mere making of the lease of
the machines is not, of itself, interstate commerce."
United States v. Line Material Co., 333 U.
, 333 U. S.
United States v. South-Eastern Underwriters Assn.,
322 U. S. 533
dissent, 322 U. S. 570
majority, 322 U. S. 546
And see Polish National Alliance v. Labor Board,
322 U. S. 643
322 U. S. 647
and Lorain Journal Co. v. United States, 342 U.
, 342 U. S.
United States v. Line Material Co., 333 U.
; United States v. United States Gypsum
Co., 333 U. S. 364
United States v. United States Gypsum Co., 340 U. S.
as to copyrights, United
States v. Paramount Pictures, 334 U.
, 334 U. S.
APPENDIX TO OPINION OF THE COURT
NEW WRINKLE, INC.
Licensors of Processes and Finishes
MINIMUM PRICE SCHEDULE No. 5
(Announced June 1, 1947)
EFFECTIVE JULY 1, 1947
(Superseding Minimum Price Schedule No. 4
as revised December 12, 1946)
Part of New Wrinkle, Inc., License Agreement
Dated April 1, 1938
The following are the minimum prices at which patented Wrinkle
Finish may be sold under License Agreement, to take effect on July
1, 1947 and to remain in force until further notice.
WRINKLE FINISH CLEAR
1 Gal. 5 Gal 1/2 Drum Drum
-100 $2.85 $2.70 $2.65 $2.60
+100 2.70 2.55 2.50 2.45
WRINKLE FINISH BLACK
-100 3.40 3.25 3.20 3.10
+100 3.25 3.10 3.05 2.95
WRINKLE FINISH ORDINARY COLORS
-100 3.65 3.50 3.40 3.35
+100 3.50 3.35 3.25 3.20
WRINKLE FINISH ORGANICS (see page 3)
-100 4.00 3.85 3.75 3.70
+100 3.85 3.70 3.60 3.55
WRINKLE FINISH METALLICS (see page 3)
(Addition of metallic to clear Wrinkle)
-100 3.50 3.35 3.25 3.20
+100 3.35 3.20 3.10 3.05
In the event that a metallic is added to a
pigmented Wrinkle Finish, the established
minimum for that pigmented finish, plus $.25,
will be the minimum price.
Reductions in price for quantity as shown on above schedule are
permissible on and shall apply only to quantities of wrinkle finish
contained in a single shipment.
Wrinkle Finish in concentrated form or ingredients from which
customer may produce wrinkle finish may be sold by Licensee only at
minimum price per gallon on the number of gallons of the kind or
color of wrinkle finish for final use by the customer than can
normally be produced by adding to such concentrate or ingredients
supplied by Licensee.
Clear Wrinkle Finish sold by Licensee under circumstances
charging seller with knowledge that customer intends converting
same into colored wrinkle finish may be sold only in accordance
with the minimum price per gallon hereby established for wrinkle
finish of the color and quantity in question.
Prices are f.o.b. destination or freight allowed.
In the event of cancellation of orders or return of goods prices
shall be readjusted and settlement made according to the actual
quantities purchased and retained.
Terms:30 days net, 1% for cash within ten days after
In making bids, it is not permissible to deduct the cash
discount. The cash discount of 1% can only be given or allowed if
the "Wrinkle Finish" is actually paid for within ten days after
See minimum Price Schedule (No. 2-A) on Page 7 for Canadian