Respondent, an engineer and inventor, was hired in 1952 by
petitioner (Lear) to help solve gyroscope development problems.
They had agreed that "new ideas, discoveries, inventions etc.
related to . . . vertical gyros become the property of" respondent,
and that the inventor would grant Lear a license as to all ideas he
might develop "on a mutually satisfactory royalty basis." Shortly
thereafter, respondent developed a method for improving gyros which
Lear incorporated into its production process. In 1954, respondent
filed a patent application covering these improvements and entered
into licensing negotiations with Lear to establish a royalty rate.
An agreement, concluded in 1955, provided that, if the
"Patent Office refuses to issue a patent . . . or if such a
patent so issued is subsequently held invalid . . . , Lear at its
option shall have the right forthwith to terminate the specific
license so affected or to terminate this entire Agreement. . .
A patent was issued to respondent in 1960, after several
rejections of the application. In 1957, Lear stated that a Patent
Office search disclosed a patent which fully anticipated
respondent's discovery, and that it would no longer pay royalties
on the gyros it produced in its Michigan plant, although it
continued to pay royalties on gyros produced in its California
plant until 1959. Upon receipt of his patent, respondent brought
suit in the California courts claiming that both the Michigan and
California gyros used his patent, and that Lear's failure to pay
royalties breached the 1955 contract and Lear's
-contractual obligations. Although Lear tried to
raise patent invalidity as a defense, the trial judge directed a
verdict for respondent on the California gyros, holding that Lear
was estopped by its licensing agreement from questioning the
licensor's patent. Since Lear claimed that it developed its
Michigan gyro designs independently of respondent's ideas, the
judge instructed the jury to award recovery to the inventor only if
it was satisfied that the invention was novel. When the jury
returned a substantial verdict for respondent on the Michigan
gyros, the judge granted Lear's motion for judgment notwithstanding
the verdict, finding that the invention had been
Page 395 U. S. 654
completely anticipated by the prior art. The California Supreme
Court held that the 1955 agreement was still in effect, that Lear
did not have the right thereunder to terminate its royalty
obligations in 1959, and that the doctrine of estoppel barred Lear
from questioning the patent. Noting Lear's claim that it had
developed the Michigan gyros independently, the court considered
"whether what is being built by Lear [in Michigan] springs entirely
from the prior art," found that Lear had, in fact, utilized the
patent throughout the period in question, and reinstated the jury's
1. Since the California Supreme Court's construction of the 1955
licensing agreement is solely a matter of state law, the only issue
open here is raised by the court's reliance on the doctrine of
estoppel to bar Lear from contesting the validity of the patent.
Pp. 395 U. S.
2. In the accommodation of (1) the common law of contracts, and
(2) the federal law of patents requiring that all ideas in general
circulation be dedicated to the common good unless they are
protected by a valid patent, the technical requirements of contract
doctrine must yield to the demands of the public interest in the
typical situation involving the negotiation of a license after a
patent has issued. The holding of Automatic Radio Manufacturing
Co. v. Hazeltine Research, Inc., 339 U.
, 339 U. S. 836
that licensee estoppel was "the general rule," is overruled. Pp.
395 U. S.
3. Overriding federal policies would be significantly frustrated
if licensees could be required to continue to pay royalties while
challenging patent validity in the courts, and, in this case, Lear
must be permitted to avoid payment of all royalties accruing after
the issuance of the patent if Lear can prove that the patent is
invalid. Pp. 395 U. S.
4. Respondent's claim to contractual royalties accruing before
the issuance of the patent, which raises the question of whether,
and to what extent, the States may protect the owners of unpatented
inventions who are willing to disclose their ideas only upon the
payment of royalties, is remanded for specific consideration by the
California courts. Pp. 395 U. S.
5. It is inappropriate at this time to pass upon Lear's
contention that the patent is invalid, as Lear must address its
arguments attacking the validity of the underlying patent to the
California courts in the first instance. Pp. 395 U. S.
67 Cal. 2d
, 435 P.2d 321, vacated and remanded.
Page 395 U. S. 655
MR. JUSTICE HARLAN delivered the opinion of the Court.
In January of 1952, John Adkins, an inventor and mechanical
engineer, was hired by Lear, Incorporated, for the purpose of
solving a vexing problem the company had encountered in its efforts
to develop a gyroscope which would meet the increasingly demanding
requirements of the aviation industry. The gyroscope is an
essential component of the navigational system in all aircraft,
enabling the pilot to learn the direction and attitude of his
airplane. With the development of the faster airplanes of the
1950's, more accurate gyroscopes were needed, and the gyro industry
consequently was casting about for new techniques which would
satisfy this need in an economical fashion. Shortly after Adkins
was hired, he developed a method of construction at the company's
California facilities which improved gyroscope accuracy at a low
cost. Lear almost immediately incorporated Adkins' improvements
into its production process to its substantial advantage.
The question that remains unsettled in this case, after eight
years of litigation in the California courts, is whether Adkins
will receive compensation for Lear's use of those improvements
which the inventor has subsequently patented. At every stage of
this lawsuit, Lear has sought to prove that, despite the grant of a
Page 395 U. S. 656
by the Patent Office, none of Adkins' improvements were
sufficiently novel to warrant the award of a monopoly under the
standards delineated in the governing federal statutes. Moreover,
the company has sought to prove that Adkins obtained his patent by
means of a fraud on the Patent Office. In response, the inventor
has argued that, since Lear had entered into a licensing agreement
with Adkins, it was obliged to pay the agreed royalties regardless
of the validity of the underlying patent.
The Supreme Court of California unanimously vindicated the
inventor's position. While the court recognized that generally a
manufacturer is free to challenge the validity of an inventor's
patent, it held that
"one of the oldest doctrines in the field of patent law
establishes that, so long as a licensee is operating under a
license agreement, he is estopped to deny the validity of his
licensor's patent in a suit for royalties under the agreement. The
theory underlying this doctrine is that a licensee should not be
permitted to enjoy the benefit afforded by the agreement while
simultaneously urging that the patent which forms the basis of the
agreement is void."
67 Cal. 2d
, 891, 435 P.2d 321, 325-326 (1967).
Almost 20 years ago, in its last consideration of the doctrine,
this Court also invoked an estoppel to deny a licensee the right to
prove that his licensor was demanding royalties for the use of an
idea which was, in reality, a part of the public domain.
Automatic Radio Manufacturing Co. v. Hazeltine Research,
Inc., 339 U. S. 827
339 U. S. 836
(1950). We granted certiorari in the present case, 391 U.S. 912, to
reconsider the validity of the Hazeltine
rule in the light
of our recent decisions emphasizing the strong federal policy
favoring free competition in ideas which do not merit patent
protection. Sears, Roebuck v. Stiffel Co., 376 U.
(1964); Compco Corp. v. Day-Brite Lighting,
Inc., 376 U. S. 234
Page 395 U. S. 657
At the very beginning of the parties' relationship, Lear and
Adkins entered into a rudimentary one-page agreement which provided
that, although "[a]ll new ideas, discoveries, inventions, etc.,
related to . . . vertical gyros become the property of Mr. John S.
Adkins," the inventor promised to grant Lear a license as to all
ideas he might develop "on a mutually satisfactory royalty basis."
] As soon as Adkins'
labors yielded tangible results, it quickly became apparent to the
inventor that further steps should be taken to place his rights to
his ideas on a firmer basis. On February 4, 1954, Adkins filed an
application with the Patent Office in an effort to gain federal
protection for his improvements. At about the same time, he entered
into a lengthy period of negotiations with Lear in an effort to
conclude a licensing agreement which would clearly establish the
amount of royalties that would be paid.
These negotiations finally bore fruit on September 15, 1955,
when the parties approved a complex 17-page contract which
carefully delineated the conditions upon which Lear promised to pay
royalties for Adkins' improvements. The parties agreed that, if
"the U.S. Patent Office refuses to issue a patent on the
substantial claims [contained in Adkins' original patent
application], or if such a patent so issued is subsequently held
invalid, then in any of such events Lear at its option shall have
the right forthwith to terminate the specific license so affected
or to terminate this entire Agreement. . . ."
§ 6. (2 App. 138.)
Page 395 U. S. 658
As the contractual language indicates, Adkins had not obtained a
final Patent Office decision as to the patentability of his
invention at the time the licensing agreement was concluded.
Indeed, he was not to receive a patent until January 5, 1960. This
long delay has its source in the special character of Patent Office
procedures. The regulations do not require the Office to make a
final judgment on an invention's patentability on the basis of the
inventor's original application. [Footnote 2
] While it sometimes happens that a patent is
granted at this early stage, it is far more common for the Office
to find that, although certain of the applicant's claims may be
patentable, certain others have been fully anticipated by the
earlier developments in the art. In such a situation, the Patent
Office does not attempt to separate the wheat from the chaff on its
own initiative. Instead, it rejects the application, giving the
inventor the right to make an amendment which narrows his claim to
cover only those aspects of the invention which are truly novel.
] It often happens,
however, that, even after an application is amended, the Patent
Office finds that some of the remaining claims are unpatentable.
When this occurs, the agency again issues a rejection which is
subject to further amendment. [Footnote 4
] And so the process of rejection and amendment
continues until the Patent Office Examiner either grants a patent
or concludes that none of the inventor's claims could possibly be
patentable, at which time a final rejection is entered on the
Office's records. [Footnote 5
Thus, when Adkins made his original application in 1954, it took
the average inventor more than three years before he obtained a
final administrative decision on the patentability of his ideas,
with the Patent
Page 395 U. S. 659
Office acting on the average application from two to four times.
The progress of Adkins' effort to obtain a patent followed the
typical pattern. In his initial application, the inventor made the
ambitious claim that his entire method of constructing gyroscopes
was sufficiently novel to merit protection. The Patent Office,
however, rejected this initial claim, as well as two subsequent
amendments, which progressively narrowed the scope of the invention
sought to be protected. Finally, Adkins narrowed his claim
drastically to assert only that the design of the apparatus used to
achieve gyroscope accuracy was novel. [Footnote 7
] In response, the Office issued its 1960
patent, granting a 17-year monopoly on this more modest claim.
During the long period in which Adkins was attempting to
convince the Patent Office of the novelty of his ideas, however,
Lear had become convinced that Adkins would never receive a patent
on his invention, and that it should not continue to pay
substantial royalties on ideas which had not contributed
substantially to the development of the art of gyroscopy. In 1957,
after Adkins' patent application had been rejected twice, Lear
announced that it had searched the Patent Office's files and had
found a patent which it believed had fully anticipated Adkins'
discovery. As a result, the company stated that it would no longer
pay royalties on the large number of gyroscopes it was producing at
its plant in Grand Rapids, Michigan (the Michigan gyros). Payments
were continued on the smaller number of gyros produced at the
Page 395 U. S. 660
California plant (the California gyros) for two more years until
they too were terminated on April 8, 1959.
As soon as Adkins obtained his patent in 1960, he brought this
lawsuit in the California Superior Court. He argued to a jury that
both the Michigan and the California gyros incorporated his
patented apparatus, and that Lear's failure to pay royalties on
these gyros was a breach both of the 1955 contract and of Lear's
-contractual obligations. Although Lear sought to
raise patent invalidity as a defense, the trial judge directed a
verdict of $16,351.93 for Adkins on the California gyros, holding
that Lear was estopped by its licensing agreement from questioning
the inventor's patent. The trial judge took a different approach
when it came to considering the Michigan gyros. Noting that the
company claimed that it had developed its Michigan designs
independently of Adkins' ideas, the court instructed the jury to
award the inventor recovery only if it was satisfied that Adkins'
invention was novel within the meaning of the federal patent laws.
When the jury returned a verdict for Adkins of $888,122.56 on the
Michigan gyros, [Footnote 8
the trial judge granted Lear's motion for judgment notwithstanding
the verdict, finding that Adkins' invention had been completely
anticipated by the prior art. [Footnote 9
Page 395 U. S. 661
Neither side was satisfied with this split decision, and both
appealed to the California District Court of Appeal, which adopted
a quite different approach. The court held that Lear was within its
contractual rights in terminating its royalty obligations entirely
in 1959, and that, if Adkins desired to recover damages after that
date, he was "relegated to an action for infringement" in the
federal courts. 52 Cal. Rptr. 795, 806. So far as pre-1959
royalties were concerned, the court held that the contract required
the company to pay royalties on both the California and Michigan
gyros regardless of the validity of the inventor's patent. 52 Cal.
Rptr. at 809.
Once again both sides appealed, this time to the California
Supreme Court, which took yet another approach to the problem
presented. The court rejected the District Court of Appeal's
conclusion that the 1955 license gave Lear the right to terminate
its royalty obligations in 1959. Since the 1955 agreement was still
in effect, the court concluded, relying on the language we have
already quoted, that the doctrine of estoppel barred Lear from
questioning the propriety of the Patent Office's grant. 67 Cal. 2d
at 907, 435 P.2d at 336. The court's adherence to estoppel,
however, was not without qualification. After noting Lear's claim
that it had developed its Michigan gyros independently, the court
tested this contention by considering "whether what is being built
by Lear [in Michigan] springs entirely
supplied) from the prior art. 67 Cal. 2d at 913, 435 P.2d at 340.
Applying this test, it found that Lear had, in fact, "utilized the
apparatus patented by Adkins throughout the period in question," 67
Cal. 2d at 915, 435 P.2d at 341, and reinstated the jury's $888,000
verdict on this branch of the case.
Since the California Supreme Court's construction of the 1955
licensing agreement is solely a matter of state
Page 395 U. S. 662
law, the only issue open to us is raised by the court's reliance
upon the doctrine of estoppel to bar Lear from proving that Adkins'
ideas were dedicated to the common welfare by federal law.
] In considering
the propriety of the State Court's decision, we are well aware that
we are not writing upon a clean slate. The doctrine of estoppel has
been considered by this Court in a line of cases reaching back into
the middle of the 19th century. Before deciding what the role of
Page 395 U. S. 663
should be in the present case and in the future, it is, then,
desirable to consider the role it has played in the past.
While the roots of the doctrine have often been celebrated in
tradition, we have found only one 19th century case in this Court
that invoked estoppel in a considered manner. And that case was
decided before the Sherman Act made it clear that the grant of
monopoly power to a patent owner constituted a limited exception to
the general federal policy favoring free competition.
18 How. 289 (1856). [Footnote 11
] Curiously, a second decision
often cited as supporting the estoppel doctrine points clearly in
the opposite direction. St. Paul Plow Works v. Starling,
140 U. S. 184
(1891), did not even question the right of the lower courts to
admit the licensee's evidence showing that the patented device was
not novel. A unanimous Court merely held that, where there was
conflicting evidence as to an invention's novelty, it would not
reverse the decision of the lower court upholding the patent's
In the very next year, this Court found the doctrine of patent
estoppel so inequitable that it refused to grant an injunction to
enforce a licensee's promise never to contest the validity of the
"It is as
Page 395 U. S. 664
important to the public that competition should not be repressed
by worthless patents as that the patentee of a really valuable
invention should be protected in his monopoly. . . ."
Pope Manufacturing Co. v. Gormully, 144 U.
,2 144 U. S. 34
Although this Court invoked an estoppel in 1905 without citing
or considering Pope's
powerful argument, United States
v. Harvey Steel Co., 196 U. S. 310
doctrine was not to be applied again in this Court until it was
revived in Automatic Radio Manufacturing Co. v. Hazeltine
Research, Inc., supra,
which declared, without prolonged
analysis, that licensee estoppel was "the general rule." 339 U.S.
at 339 U. S. 836
In so holding, the majority ignored the teachings of a series of
decisions this Court had rendered during the 45 years since
had been decided. During this period, each time a
patentee sought to rely upon his estoppel privilege before this
Court, the majority created a new exception to permit judicial
scrutiny into the validity of the Patent Office's grant. Long
was decided, the estoppel doctrine had
been so eroded that it could no longer be considered the "general
rule," but was only to be invoked in an ever-narrowing set of
The estoppel rule was first stringently limited in a situation
in which the patentee's equities were far more compelling than
those presented in the typical licensing arrangement.
Westinghouse Electric Manufacturing Co. v. Formica Insulation
Co., 266 U. S. 342
(1924), framed a rule to govern the recurring problem which arises
when the original patent owner, after assigning his patent to
another for a substantial sum, claims that the patent is worthless
because it contains no new ideas. The courts of appeals had
traditionally refused to permit such a defense to an infringement
action on the ground
Page 395 U. S. 665
that it was improper both to "sell and keep the same thing,"
Faulks v. Kamp,
3 F. 898, 902 (1880). Nevertheless,
imposed a limitation upon estoppel which was
radically inconsistent with the premises upon which the "general
rule" is based. The Court held that, while an assignor may not
directly attack the validity of a patent by reference to the prior
state of the art, he could introduce such evidence to
the claims made in the patent. "The distinction may
be a nice one, but seems to be workable." 266 U.S. at 266 U. S. 351
Workable or not, the result proved to be an anomaly: if a patent
had some novelty, Formica
permitted the old owner to
defend an infringement action by showing that the invention's novel
aspects did not extend to the inclusion of the old owner's
products; on the other hand, if a patent had no
all, the old owner could not defend successfully, since he would be
obliged to launch the direct attack on the patent that
seemed to forbid. The incongruity of this position
compelled at least one court of appeals to carry the reasoning of
exception to its logical conclusion. In 1940,
the Seventh Circuit held that a licensee could introduce evidence
of the prior art to show that the licensor's claims were not novel
at all, and thus successfully defend an action for royalties.
Casco Products Corp. v. Sinko Tool & Manufacturing
116 F.2d 119.
In Scott Paper Co. v. Marcalus Manufacturing Co.,
326 U. S. 249
(1945), this Court adopted a position similar to the Seventh
Circuit's, undermining the basis of patent estoppel even more than
had done. In Scott,
the original patent
owner had attempted to defend an infringement suit brought by his
assignee by proving that his product was a copy of an expired
patent. The Court refused to permit the assignee to invoke an
estoppel, finding that the policy of the patent laws would be
frustrated if a manufacturer was required to pay for the use of
information which, under the patent statutes, was
Page 395 U. S. 666
the property of all. Chief Justice Stone, for the Court, did not
go beyond the precise question presented by a manufacturer who
asserted that he was simply copying an expired patent. Nevertheless
it was impossible to limit the Scott
doctrine to such a
narrow compass. If patent policy forbids estoppel when the old
owner attempts to show that he did no more than copy an expired
patent, why should not the old owner also be permitted to show that
the invention lacked novelty because it could be found in a
technical journal or because it was obvious to one knowledgeable in
the art? As Justice Frankfurter's dissent indicated, id.
at 326 U. S.
-264, there were no satisfactory answers to these
questions. The Scott
exception had undermined the very
basis of the "general rule."
At about the time Scott
was decided, this Court
developed yet another doctrine which was profoundly antithetic to
the principles underlying estoppel. In Sola Electric Co. v.
Jefferson Electric Co., 317 U. S. 173
(1942), the majority refused to permit a licensor to enforce the
license's price-fixing provisions without permitting the licensee
to contest the validity of the underlying patent. Since the
price-fixing clause was per se
illegal but for the
existence of a valid patent, this narrow exception could be
countenanced without compromising the general estoppel principle.
But the Sola
Court went further: it held that, since the
patentee had sought to enforce the price-fixing clause, the
licensee could also avoid paying royalties if he could show that
the patent was invalid. Five years later, the "antitrust exception"
was given an even more extensive scope in the Katzinger
cases. [Footnote 12
] Here, licensors
Page 395 U. S. 667
were not permitted to invoke an estoppel despite the fact that
they sought only to collect their royalties. The mere existence of
a price-fixing clause in the license was held to be enough to bring
the validity of the patent into question. Thus, in the large number
of cases in which licensing agreements contained restrictions that
were arguably illegal under the antitrust laws, the doctrine of
estoppel was a dead letter. Justice Frankfurter, in dissent, went
even further, concluding that Katzinger
had done all but repudiate the estoppel
"If a doctrine that was vital law for more than ninety years
will be found to have now been deprived of life, we ought at least
to give it decent public burial."
329 U.S. at 329 U. S. 416
The lower courts, both state and federal, have also hedged the
impact of estoppel by creating exceptions which have indicated a
recognition of the broader policies pointing to a contrary
approach. It is generally the rule that licensees may avoid further
royalty payments, regardless of the provisions of their contract,
once a third party proves that the patent is invalid. See,
e.g., Drackett Chemical Co. v. Chamberlain Co.,
63 F.2d 853
(1933). Some courts have gone further to hold that a licensee may
notify the patent owner that he is repudiating his agreement,
regardless of its terms, and may subsequently defend any action for
royalties by proving patent invalidity. Note, The Doctrine of
Licensee Repudiation in Patent Law, 63 Yale L.J. 125 (1953); R.
Ellis, Patent Licenses § 328 (3d ed., A. Deller 1958). And even in
the 19th century, state courts had held that, if the licensee had
not actually sold products incorporating the patent's ideas, he
could challenge the validity of the patent. See
Page 395 U. S. 668
Estoppel in Patent Law, 20 Temp.L.Q. 515, 529, n. 45 (1947).
The uncertain status of licensee estoppel in the case law is a
product of judicial efforts to accommodate the competing demands of
the common law of contracts and the federal law of patents. On the
one hand, the law of contracts forbids a purchaser to repudiate his
promises simply because he later becomes dissatisfied with the
bargain he has made. [Footnote
] On the other hand, federal law requires that all ideas in
general circulation be dedicated to the common good unless they are
protected by a valid patent. Sears, Roebuck v. Stiffel Co.,
supra; Compco Corp. v. Day-Brite Lighting, Inc., supra.
faced with this basic conflict in policy, both this Court and
courts throughout the land have naturally sought to develop an
intermediate position which somehow would remain responsive to the
radically different concerns of the two different worlds of
contract and patent. The result has been a failure. Rather than
creative compromise, there has been a chaos of conflicting case
law, proceeding on inconsistent premises. Before renewing the
search for an acceptable middle ground, we must reconsider on their
own merits the arguments which may properly be advanced on both
sides of the estoppel question.
Page 395 U. S. 669
It will simplify matters greatly if we first consider the most
typical situation in which patent licenses are negotiated. In
contrast to the present case, most manufacturers obtain a license
after a patent has issued. Since the Patent Office makes an
inventor's ideas public when it issues its grant of a limited
monopoly, [Footnote 15
potential licensee has access to the inventor's ideas even if he
does not enter into an agreement with the patent owner.
Consequently, a manufacturer gains only two benefits if he chooses
to enter a licensing agreement after the patent has issued. First,
by accepting a license and paying royalties for a time, the
licensee may have avoided the necessity of defending an expensive
infringement action during the period when he may be least able to
afford one. Second, the existence of an unchallenged patent may
deter others from attempting to compete with the licensee.
Under ordinary contract principles, the mere fact that some
benefit is received is enough to require the enforcement of the
contract, regardless of the validity of the underlying patent.
Nevertheless, if one tests this result by the standard of good
faith commercial dealing, it seems far from satisfactory. For the
simple contract approach entirely ignores the position of the
licensor who is seeking to invoke the court's assistance on his
behalf. Consider, for example, the equities of the licensor who has
obtained his patent through a fraud on the Patent Office. It is
difficult to perceive why good
Page 395 U. S. 670
faith requires that courts should permit him to recover
royalties despite his licensee's attempts to show that the patent
is invalid. Compare Walker Process Equipment, Inc. v. Food
Machinery & Chemical Corp., 382 U.
Even in the more typical cases, not involving conscious
wrongdoing, the licensor's equities are far from compelling. A
patent, in the last analysis, simply represents a legal conclusion
reached by the Patent Office. Moreover, the legal conclusion is
predicated on factors as to which reasonable men can differ widely.
Yet the Patent Office is often obliged to reach its decision in an
proceeding, without the aid of the arguments
which could be advanced by parties interested in proving patent
invalidity. Consequently, it does not seem to us to be unfair to
require a patentee to defend the Patent Office's judgment when his
licensee places the question in issue, especially since the
licensor's case is buttressed by the presumption of validity which
attaches to his patent. Thus, although licensee estoppel may be
consistent with the letter of contractual doctrine, we cannot say
that it is compelled by the spirit of contract law, which seeks to
balance the claims of promisor and promisee in accord with the
requirements of good faith.
Surely the equities of the licensor do not weigh very heavily
when they are balanced against the important public interest in
permitting full and free competition in the use of ideas which are
in reality a part of the public domain. Licensees may often be the
only individuals with enough economic incentive to challenge the
patentability of an inventor's discovery. If they are muzzled, the
public may continually be required to pay tribute to would-be
monopolists without need or justification. We think it plain that
the technical requirements of contract doctrine must give way
before the demands of the public interest in the typical
Page 395 U. S. 671
involving the negotiation of a license after a patent has
We are satisfied that Automatic Radio Manufacturing Co. v.
Hazeltine Research, Inc., supra,
itself the product of a
clouded history, should no longer be regarded as sound law with
respect to its "estoppel" holding, and that holding is now
The case before us, however, presents a far more complicated
estoppel problem than the one which arises in the most common
licensing context. The problem arises out of the fact that Lear
obtained its license in 1955, more than four years before Adkins
received his 1960 patent. Indeed, from the very outset of the
relationship, Lear obtained special access to Adkins' ideas in
return for its promise to pay satisfactory compensation.
Thus, during the lengthy period in which Adkins was attempting
to obtain a patent, Lear gained an important benefit not generally
obtained by the typical licensee. For until a patent issues, a
potential licensee may not learn his licensor's ideas simply by
requesting the information from the Patent Office. During the time
the inventor is seeking patent protection, the governing federal
statute requires the Patent Office to hold an inventor's patent
application in confidence. [Footnote 17
] If a potential
Page 395 U. S. 672
licensee hopes to use the ideas contained in a secret patent
application, he must deal with the inventor himself unless the
inventor chooses to publicize his ideas to the world at large. By
promising to pay Adkins royalties from the very outset of their
relationship, Lear gained immediate access to ideas which it may
well not have learned until the Patent Office published the details
of Adkins' invention in 1960. At the core of this case, then, is
the difficult question whether federal patent policy bars a State
from enforcing a contract regulating access to an unpatented secret
idea. [Footnote 18
Adkins takes an extreme position on this question. The inventor
does not merely argue that, since Lear obtained privileged access
to his ideas before 1960,
the company should be required
to pay royalties accruing before 1960
regardless of the
validity of the patent which ultimately issued. He also argues
that, since Lear obtained special benefits before 1960, it should
also pay royalties during the entire patent period (1960-1977),
without regard to the validity of the Patent Office's grant. We
cannot accept so broad an argument.
Adkins' position would permit inventors to negotiate all
important licenses during the lengthy period while their
applications were still pending at the Patent Office, thereby
disabling entirely all those who have the strongest incentive to
show that a patent is worthless. While the equities supporting
Adkins' position are somewhat more appealing than those supporting
Page 395 U. S. 673
licensor, we cannot say that there is enough of a difference to
justify such a substantial impairment of overriding federal
Nor can we accept a second argument which may be advanced to
support Adkins' claim to at least a portion of his post-patent
royalties, regardless of the validity of the Patent Office grant.
The terms of the 1955 agreement provide that royalties are to be
paid until such time as the "patent . . . is held invalid," § 6,
and the fact remains that the question of patent validity has not
been finally determined in this case. Thus, it may be suggested
that, although Lear must be allowed to raise the question of patent
validity in the present lawsuit, it must also be required to comply
with its contract and continue to pay royalties until its claim is
finally vindicated in the courts.
The parties' contract, however, is no more controlling on this
issue than is the State's doctrine of estoppel, which is also
rooted in contract principles. The decisive question is whether
overriding federal policies would be significantly frustrated if
licensees could be required to continue to pay royalties during the
time they are challenging patent validity in the courts.
It seems to us that such a requirement would be inconsistent
with the aims of federal patent policy. Enforcing this contractual
provision would give the licensor an additional economic incentive
to devise every conceivable dilatory tactic in an effort to
postpone the day of final judicial reckoning. We can perceive no
reason to encourage dilatory court tactics in this way. Moreover,
the cost of prosecuting slow-moving trial proceedings and defending
an inevitable appeal might well deter many licensees from
attempting to prove patent invalidity in the courts. The deterrent
effect would be particularly severe in the many scientific fields
in which invention is proceeding at a rapid rate. In these areas, a
patent may well become obsolete long before its
Page 395 U. S. 674
17-year term has expired. If a licensee has reason to believe
that he will replace a patented idea with a new one in the near
future, he will have little incentive to initiate lengthy court
proceedings, unless he is freed from liability at least from the
time he refuses to pay the contractual royalties. Lastly, enforcing
this contractual provision would undermine the strong federal
policy favoring the full and free use of ideas in the public
domain. For all these reasons, we hold that Lear must be permitted
to avoid the payment of all royalties accruing after Adkins' 1960
patent issued if Lear can prove patent invalidity. [Footnote 19
Adkins' claim to contractual royalties accruing before the 1960
patent issued is, however, a much more difficult one, since it
squarely raises the question whether, and to what extent, the
States may protect the owners of unpatented inventions who are
willing to disclose their ideas to manufacturers only upon payment
of royalties. The California Supreme Court did not address itself
to this issue with precision, for it believed that the venerable
doctrine of estoppel provided a sufficient answer to all of Lear's
claims based upon federal patent law. Thus, we do not know whether
the Supreme Court would have awarded Adkins recovery even on his
pre-patent royalties if it had recognized that previously
established estoppel doctrine could no longer be properly
Page 395 U. S. 675
with regard to royalties accruing during the 17-year patent
period. Our decision today will, of course, require the state
courts to reconsider the theoretical basis of their decisions
enforcing the contractual rights of inventors, and it is impossible
to predict the extent to which this reevaluation may revolutionize
the law of any particular State in this regard. Consequently, we
have concluded, after much consideration, that, even though an
important question of federal law underlies this phase of the
controversy, we should not now attempt to define in even a limited
way the extent, if any, to which the States may properly act to
enforce the contractual rights of inventors of unpatented secret
ideas. Given the difficulty and importance of this task, it should
be undertaken only after the state courts have, after fully focused
inquiry, determined the extent to which they will respect the
contractual rights of such inventors in the future. Indeed, on
remand, the California courts may well reconcile the competing
demands of patent and contract law in a way which would not warrant
further review in this Court.
We also find it inappropriate to pass at this time upon Lear's
contention that Adkins' patent is invalid.
Not only did Lear fail to raise this issue in its petition for
certiorari, but the California Supreme Court has yet to pass on the
question of patent validity in that clear and unequivocal manner
which is so necessary for proper adjudication in this Court. As we
have indicated, the California Supreme Court considered the novelty
of Adkins' ideas relevant to its decision at only one stage of its
extensive analysis. Since Lear claimed that it had developed its
Michigan gyros completely independently of Adkins' efforts, the
Supreme Court believed itself obliged to consider whether Adkins'
ideas were not "entirely" anticipated by the prior art. 67 Cal. 2d
at 913, 435 P.2d at 340. Applying
Page 395 U. S. 676
this test, the court upheld the jury's verdict of $888,000 on
the Michigan gyros, finding that "Lear utilized the apparatus
patented by Adkins throughout the period in question." 67 Cal. 2d
at 915, 435 P.2d at 341. In reaching this conclusion, however, the
court did express its belief that Adkins' invention made a
"significant step forward" in the art of gyroscopy. 67 Cal. 2d at
915, 435 P.2d at 341.
It is far from clear that the court, in making this last
statement, intended to hold that Adkins' ideas satisfied the
demanding standard of invention explicated in our decision in
Graham v. John Deere Co., 383 U. S.
(1966). Surely such a holding was not required by the
court's analysis, which was concerned only with the question
whether Lear had benefited from Adkins' ideas in any degree. In
this context, we believe that Lear must be required to address its
arguments attacking the validity of the underlying patent to the
California courts in the first instance.
The judgment of the Supreme Court of California is vacated, and
the case is remanded to that court for further proceedings not
inconsistent with this opinion.
It is so ordered.
Lear argues that this original agreement was not submitted in
evidence at trial, and so should not be considered a part of the
record on appeal. The California Supreme Court, however, treated
the agreement as an important part of the record before it, 67 Cal.
2d at 906, 435 P.2d at 335, and so we are free to refer to it.
37 CFR § 1.111 (1967).
37 CFR § 1.106 (1967).
37 CFR § 1.112 (1967).
37 CFR § 1.113 (1967).
A. Seidel, What the General Practitioner Should Know About
Patent Law and Practice 61 (A.L.I.1956).
Adkins actually amended his application a third time before he
made the amendment which gained the approval of the Patent Office.
This third amendment was superseded by the successful amendment,
however, before the Patent Office considered it.
For purposes of the present lawsuit, the parties stipulated that
the jury would award only those damages accruing before May 31,
Adkins also filed a second cause of action which contended that
Lear had wrongfully appropriated a valuable trade secret, and so
was liable regardless of the validity of the inventor's contractual
-contractual theories. The trial court, however,
required Adkins to choose between his contract and tort claims.
Since the California Supreme Court completely vindicated the
inventor's right to contractual royalties, it was not obliged to
consider the propriety of this aspect of the trial judge's
decision. Consequently, the tort claim is not before us at this
Adkins claims that we have no jurisdiction to decide the federal
question presented because the company did not adequately preserve
it in its argument before the State Supreme Court. We do not agree.
While it is true that Lear did not ask the Supreme Court to
repudiate estoppel entirely, it did seek to persuade the court to
carve out an exception to the estoppel principle which was so
sweeping as to undermine the doctrine's vitality completely. The
company argued, on the basis of federal as well as state cases,
that a licensee may escape the impact of estoppel simply by
announcing that it has repudiated the licensing agreement,
regardless of the contract's terms. See, e.g.,
Respondent's and Cross-Appellant's Opening Brief in Cases Nos.
28624 and 30089, at 110-111.
The California Supreme Court rejected this argument on its
"Lear relies on authorities holding that a licensee may
terminate a license agreement upon notice to his licensor even
though, prior to termination, there has been no adjudication of
invalidity of the patent which is the subject of the agreement, and
that thereafter the licensee may challenge the validity of the
patent. (See, e.g., Armstrong Co. v. Shell Co. of Cal.
(1929) 98 Cal. App. 769, 778-779). This rule has no application if
the agreement sets forth the particular circumstances under which
termination must occur. As stated above, such provisions must be
complied with in order to effect a valid cancellation."
67 Cal. 2d at 899-900 n. 15, 435 P.2d at 331, n. 15.
We clearly have jurisdiction to consider whether this decision
is wrong. In doing so, we have the duty to consider the broader
implications of Lear's contention, and vindicate, if appropriate,
its claim to relief on somewhat different grounds than it chose to
advance below, especially when the California court recognized, in
language we have already quoted, supra
at 395 U. S. 656
that matters of basic principle are at stake.
There are two other early cases which enforced patent licenses
without a thorough consideration of the estoppel issues that were
presented. In Eureka Co. v. Bailey
11 Wall. 488 (1871), the Court held that a
licensee was obliged to overcome a "very strong presumption" of
patent validity in order to avoid his royalty obligations, without
indicating how much more compelling a showing was required than was
considered necessary in an ordinary infringement action. In
Dale Tile Manufacturing Co. v. Hyatt, 125 U. S.
(1888), this Court affirmed the decision of the New
York state courts invoking the doctrine of licensee estoppel, on
the ground that the estoppel question presented was one which
involved only state law.
Edward Katzinger Co. v. Chicago Metallic Manufacturing
Co., 329 U. S. 394
(1947); MacGregor v. Westinghouse Electric & Manufacturing
Co., 329 U. S. 402
In addition to the works cited in the text, a detailed
explication of the development of estoppel doctrine may be found in
Cooper, Estoppel to Challenge Patent Validity: The Case of Private
Good Faith vs. Public Policy, 18 W.Res.L.Rev. 1122 (1967), and in
Kramer, Estoppel To Deny Validity -- A Slender Reed, 23
N.Y.U.Intra.L.Rev. 237 (1968).
1 A. Corbin, Contracts § 127 (163); Treece,
Licensee Estoppel in Patent and Trademark Cases, 53 Iowa L.Rev.
525, 52530 (1967).
37 CFR §§ 1.11, 1.13 (1967).
Of course, the value of this second benefit may depend upon
whether the licensee has obtained exclusive or nonexclusive rights
to the use of the patent. Even in the case of nonexclusive
licenses, however, competition is limited to the extent that the
royalty charged by the patentee serves as a barrier to entry.
35 U.S.C. § 12 provides:
"Applications for patents shall be kept in confidence by the
Patent Office and no information concerning the same given without
authority of the applicant or owner unless necessary to carry out
the provisions of any Act of Congress or in such special
circumstances as may be determined by the Commissioner."
The present regulations issued by the Patent Office
unequivocally guarantee that:
"Pending patent applications are preserved in secrecy . . .
unless it shall be necessary to the proper conduct of business
before the Office"
to divulge their contents. 37 CFR § 1.14(a) (1967). The parties
do not contend that Adkins' patent application was publicized by
the Office during the period it was under consideration.
Doerfer, The Limits on Trade Secret Law Imposed by
Federal Patent and Antitrust Supremacy, 80 Harv.L.Rev. 1432 (1967);
Note, The Stiffel
Doctrine and the Law of Trade Secrets,
62 Nw.U.L.Rev. 956 (1968); Adelman, Trade Secrets and Federal
Preemption -- the Aftermath of Sears
49 J.Pat.Off.Soc. 713 (1967); Treece, Patent Policy and Preemption:
Cases, 32 U.Chi.L.Rev. 80
Adkins suggests that any decision repudiating licensee estoppel
as the general rule should not be retroactively applied to
contracts concluded before such a decision is announced. Given the
extent to which the estoppel principle had been eroded by our prior
decisions, we believe it clear that the patent owner -- even before
this decision -- could not confidently rely upon the continuing
vitality of the doctrine. Nor can we perceive that our decision
today is likely to undermine any existing legitimate business
relationships. Moreover, the public's interest in the elimination
of specious patents would be significantly prejudiced if the
retroactive effect of today's decision were limited in any way.
MR. JUSTICE BLACK, with whom THE CHIEF JUSTICE and MR. JUSTICE
DOUGLAS join, concurring in part and dissenting in part.
I concur in the judgment and opinion of the Court, except for
what is said in 395 U. S.
of the Court's opinion. What the Court does in this part of its
opinion is to reserve for future decision the question whether the
States have power to enforce contracts under which someone claiming
to have a new discovery can obtain payment for disclosing it while
his patent application is pending, even though the discovery is
later held to be unpatentable. This reservation is, as I see it,
Page 395 U. S. 677
in conflict with what this Court held to be the law in
Sears, Roebuck v. Stiffel Co., 376 U.
(1964), and Compco Corp. v. Day-Brite
Lighting, Inc., 376 U. S. 234
(1964). Brother HARLAN concurred in the result in those cases,
saying -- contrary to what the Court held -- "I see no reason why
the State may not impose reasonable restrictions on the future
copying' itself." Compco, supra, at 376 U. S. 239.
Consequently the Court is today joining in the kind of
qualification that only MR. JUSTICE HARLAN was willing to make at
the time of our Stiffel and Compco
I still entertain the belief I expressed for the Court in
that no State has a right to
authorize any kind of monopoly on what is claimed to be a new
invention except when a patent has been obtained from the Patent
Office under the exacting standards of the patent laws. One who
makes a discovery may, of course, keep it secret if he wishes, but
private arrangements under which self-styled "inventors" do not
keep their discoveries secret, but rather disclose them in return
for contractual payments, run counter to the plan of our patent
laws, which tightly regulate the kind of inventions that may be
protected and the manner in which they may be protected. The
national policy expressed in the patent laws, favoring free
competition and narrowly limiting monopoly, cannot be frustrated by
private agreements among individuals, with or without the approval
of the State.
MR. JUSTICE WHITE, concurring in part.
The applicable provision of 28 U.S.C. § 1257 empowers us to
review by writ of certiorari
"[f]inal judgments or decrees rendered by the highest court of a
State . . . where any title, right, privilege or immunity is
specially set up or claimed under the Constitution, treaties or
statutes of, or commission held or authority exercised under,
Page 395 U. S. 678
Although Adkins disputes it, we have jurisdiction to consider
whether a patent licensee is estopped to challenge the validity of
the patent. The California Supreme Court ruled that he is, and
therefore would not entertain attacks on Adkins' patent as a
defense to his suit for royalties. Lear seeks review of that
holding here. In my view, not only is the issue properly here, but
the Court has correctly decided it.
Although we have jurisdiction to review this state court
judgment and to determine the licensee estoppel issue, it does not
necessarily follow that we may or should deal with two other
federal questions which come into focus once the licensee is free
to challenge the patent. The first is whether the patent is valid.
The second, which arises only if the patent is invalidated, is
whether federal law forbids the collection of royalties which might
otherwise be collectible under a contract rooted in state law.
Although the Court does not deal with the first issue, it does
purport to decide the second, at least in part. However, as either
a jurisdictional or a policy matter, neither of these issues is
properly before us in this case.
In the first place, we have no decision of the California
Supreme Court affirming or denying, as a matter of federal law,
that Adkins may not enforce his contract if his patent is held
invalid. The California court held that the license agreement had
not been terminated in accordance with its terms, that the doctrine
of licensee estoppel prevented Lear from challenging the patent and
that Lear was utilizing the teaching of Adkins' patent. There was
thus no necessity or reason to consider whether the patent was
invalid, or, if it was, whether either state or federal law
prevented collection of the royalties reserved by the contract.
Even if these issues had been presented to the California Supreme
Court, sound principle would have dictated that the court not
Page 395 U. S. 679
decision on questions unnecessary to its disposition of the
case. See, e.g., Southwestern Bell Telephone Co. v.
Oklahoma, 303 U. S. 206
303 U. S.
There is no indication, however, that Lear, directly or by
inference, urged in the California courts that, if Adkins' patent
were invalid, federal law overrode state contract law and precluded
collection of the royalties which Lear had promised to pay. One of
the defenses presented by Lear in its answer to Adkins' claim for
royalties was that there had been a failure of consideration
because of the absence of bargained-for patentability in Adkins'
ideas. But failure of consideration is a state law question, and I
find nothing in the record and nothing in this Court's opinion
indicating that Lear at any time contended in the state courts
that, once Adkins' patent was invalidated, the royalty agreement
was unenforceable as a matter of federal law. [Footnote 2/1
Given Lear's failure below to "specially set up or claim" the
federal bar to collection of royalties in the
Page 395 U. S. 680
event Adkins' patent was invalidated, and without the California
Supreme Court's "final judgment" on this issue, I doubt our
jurisdiction to decide the issue. But even if jurisdiction exists,
the Court should follow its characteristic practice and refuse to
issue pronouncements on questions not urged or decided in the state
In McGoldrick v. Compagnie Generale Transatlantique,
309 U. S. 430
(1940), the Court, while recognizing it had jurisdiction to
determine whether a New York tax was an unconstitutional burden on
interstate commerce, refused to consider whether the tax was a
prohibited impost or duty on imports and exports, saying:
"[I]t is only in exceptional cases, and then only in cases
coming from the federal courts, that [the Court] considers
questions urged by a petitioner or appellant not pressed or passed
upon in the courts below. . . . [D]ue regard for the appropriate
relationship of this Court to state courts requires us to decline
to consider and decide questions affecting the validity of state
statutes not urged or considered there."
at 309 U. S.
Wilson v. Cook, 327 U. S. 474
(1946), reached a similar conclusion. There, the Court denied a
government contractor the benefit of the implied constitutional
immunity of the Federal Government from taxation by the State, but,
at the same time, declined to consider whether the state tax at
issue placed a forbidden tax directly on the United States. This
was because the Court was "not free to consider" a ground of attack
"not presented to the Supreme Court of Arkansas or considered or
decided by it," even though the issue was in some measure related
to one actually decided by the state courts and arose under the
same implied constitutional immunity argument. Id.
327 U. S. 483
Cf. Dewey v. Des Moines, 173 U. S. 193
173 U. S.
-198 (1899). The Court relied on McGoldrick
and a long line of prior cases, including New York ex rel. Cohn
v. Graves, 300 U. S. 308
300 U. S. 317
Page 395 U. S. 681
where the Court had said:
"In reviewing the judgment of a state court, this Court will not
pass upon any federal question not shown by the record to have been
raised in the state court or considered there, whether it be one
arising under a different or the same clause in the Constitution
with respect to which other questions are properly presented."
The result is the same when a party has attempted to raise an
issue in the state court, but has not done so in proper or timely
fashion. "Questions first presented to the highest State court on a
petition for rehearing come too late for consideration here. . . ."
Radio Station WOW v. Johnson, 326 U.
, 326 U. S. 128
"Since the State Supreme Court did not pass on the question now
urged, and since it does not appear to have been properly presented
to that court for decision, we are without jurisdiction to consider
it in the first instance here."
CIO v. McAdory, 325 U. S. 472
325 U. S. 477
(1945). And no different conclusion obtains when the federal
question, although not yet presented to or decided by the state
court, will probably or even certainly arise during further
proceedings held in that court. See, e.g., NAACP v.
Alabama, 357 U. S. 449
357 U. S.
-467 (1958); Hudson Distributors, Inc. v. Eli
Lilly & Co., 377 U. S. 386
377 U. S.
Wholly aside from jurisdictional considerations or those
relating to our relationships with state courts, there is the
matter of our own Rule 23(1)(c), which states that "[o]nly the
questions set forth in the petition or fairly comprised therein
will be considered by the court." See Flournoy v. Wiener,
321 U. S. 253
321 U. S. 259
(1944). None of the questions presented by Lear's petition for
certiorari comes even close to the issue to which the Court now
addresses itself -- an issue which will arise only if Lear can and
does challenge the patent, if the patent is declared invalid, if
Adkins nevertheless seeks to enforce the agreement, and if Lear
interposes a defense based on federal law.
Page 395 U. S. 682
This seems a poor case for waiving our Rules. In the first
place, the question of validity has not been reached by the
California Supreme Court, and, when it is, the patent may withstand
attack. In that event, there will be no necessity to consider the
impact of patent law on the enforceability of a contract grounded
in state law. Second, even if the patent is declared invalid, the
state court, after the parties have addressed themselves to the
issues, may accommodate federal and state law in a matter which
would not prompt review here. Third, the parties themselves have
neither briefed nor seriously argued the question in this Court,
and we do not have the benefit of their views on what is surely a
difficult question. The Court itself has flushed the issue, which
it now deals with on a piecemeal basis. [Footnote 2/2
] Like the question of patent validity, I
would leave the consequences of invalidity to the state court in
the first instance.
The Court brushes aside the problem by characterizing the
additional issue it decides as representing a "more complicated
estoppel problem." But licensee estoppel, the question raised here,
refers to estoppel against the licensee to challenge the patent,
not to any bar or "estoppel" interposed by federal law against
collecting royalties on an invalidated patent. Whether Adkins can
enforce his contract for royalties if his patent is found to be
invalid cannot be shoehorned into the licensee estoppel question,
and by no stretch of the imagination can it be included within the
scope of the question raised and litigated by the parties in this
case. In the courts below, Lear wanted to challenge Adkins' patent
only for the purpose of showing that Adkins was entitled to no
recovery under the terms of the contract itself, either because of
a failure of consideration or because the contract had been legally
terminated or could be legally terminated. Indeed, the District
Court of Appeal noted:
"Lear concedes that it would be estopped to contest the validity
of any patent issued to Adkins on the claims of his application
described in the license agreement so long as it continued to
operate under that agreement."
52 Cal. Rptr. 795, 805. See also
Lear's Opening Brief
in the District Court of Appeal 109.
The Court's opinion flatly proscribes recovery by Adkins of "all
royalties accruing after Adkins' 1960 patent issued if Lear can
prove patent invalidity." Ante
at 395 U. S. 674
But recovery of pre-1960 royalties is left open by the Court,
apparently because pre-issuance and post-issuance royalties do not
stand on the same footing under federal law. Such a distinction may
be valid, and pre-1960 royalties recoverable; but if so, what of
post-1960 royalties which are attributable to the headstart Lear
obtained over the rest of the industry as a result of pre-issuance
disclosure of Adkins' idea? Today's bar to collection of post-1960
royalties would seem to be inflexible, and yet those royalties
arguably are recoverable to the extent they represent payment for
the pre-1960 disclosure of Adkins' idea; to that extent, they seem
indistinguishable from pre-1960 royalties, at least for purposes of
federal patent law. Cf. Brulotte v. Thys Co., 379 U. S.
, 379 U. S. 31
(1964). See also id.
at 379 U. S. 34
(dissenting opinion). This possibility and others serve to indicate
the wisdom of refraining from any pronouncement now, and
particularly from any rigid line-drawing, in advance of
consideration by the courts below and by the parties.