1. The facts establish venue for this suit in the District Court
in which it was brought. P.
316 U. S.
246.
2. Sale by a patent owner of an article which is capable of use
only in practicing the patent is a relinquishment of the patent
monopoly with respect to that article. P.
316 U. S.
249.
3. A patent does not confer the right to control the resale
prices of the patented articles after their sale by the patentee.
P.
316 U. S.
250.
4. The owner of a patent covering lens blanks (capable of use
only in manufacturing eye glass lenses) and also (as was assumed in
this case) covering the process of grinding and polishing them, by
which the blanks are converted into finished lenses for use as
eyeglasses, devised a licensing and price-fixing system pursuant to
which, for a stipulated royalty, one licensee was authorized to
make the blanks and sell them to other licensees, who in turn were
authorized to buy them from the maker at prices fixed and to finish
them as lenses according to the patent and to sell the lenses to
other licensees, who were authorized to sell them to the public --
the prices in all cases being those fixed by the patent owner. The
rewards of the patent owner and the manufacturer of the blanks for
the exploitation of the patent and the patented lenses were derived
wholly from the proceeds of sales of the blanks by the
manufacturer, from which proceeds the royalty was paid.
Held:
Page 316 U. S. 242
(1) That, with the sale of the lens blanks for use in
manufacturing lenses, the patent owner conferred on the buyer the
right to practice the patent with respect to the blanks, and parted
with the right to assert its patent monopoly with respect to them,
and could no longer control the price at which they might be sold
in their unfinished, or their finished, forms. P.
316 U. S.
250.
(2) The stipulations for maintenance of prices derived no
support from the patent, and must stand on the same footing under
the Sherman Act as like stipulations with respect to unpatented
commodities. P.
316 U. S.
251.
5. Agreements for maintaining prices of goods in interstate
commerce, including restrictions imposed by the seller upon resale
prices,
held unreasonable restraints within the meaning of
the Sherman Act. P.
316 U. S.
252.
6. The Miller-Tydings Act cannot be so applied to products
manufactured in successive stages by different processors that the
first processor may control the prices of his successors. P.
316 U.S. 253.
7. Features of a licensing system, which, by themselves, might
be lawful, but which are closely identified and interwoven with a
scheme of price restriction violative of the Sherman Act, will be
suppressed with the scheme as a whole. P.
316 U. S.
254.
No. 855 reversed.
No. 856 affirmed.
Appeal and cross-appeal from a decree of the District Court
which granted in part, and in part refused, relief sought by the
Government in a suit under the Sherman Act.
MR. CHIEF JUSTICE STONE delivered the opinion of the Court.
These cases come here on direct appeal and cross-appeal from a
judgment of the district court granting in part and denying in part
the Government's prayer for an injunction
Page 316 U. S. 243
restraining violations of §§ 1 and 3 of the Sherman Act, 15
U.S.C. §§ 1, 3, which make unlawful and contract, combination or
conspiracy in restraint of trade or commerce among the states. The
principal questions for decision are:
First: Whether the system established and maintained by
the Univis Corporation, appellee and cross-appellant, for licensing
the manufacture and sale of patented multi-focal eyeglass lenses,
is excluded by the patent monopoly from the operation of the
Sherman Act.
Second: Whether, if not so excluded, the resale price
provisions of the licensing system are within the prohibition of
the Sherman Act, and not exempted from it by the provisions of the
Miller-Tydings Act amendment of § 1 of the Sherman Act, 50 Stat.
693.
Appellee, Univis Lens Company, was the owner of a number of
patents and two trademarks relating to multi-focal lenses. In 1931,
it organized appellee, Univis Corporation. The Lens Company then
acquired and now holds a majority of the stock of the corporation.
The individual appellees are the principal stockholders of the Lens
Company. They are stockholders in the Corporation, and are the
principal officers of both corporations, which may, for the
purposes of this suit, be treated as though they were a single
corporation. Upon the organization of the Corporation, the Lens
Company transferred to it all its interest in the patents and
trademarks presently involved, and the Corporation then proceeded
to set up, and has since maintained, the licensing system which the
Government now assails.
The relevant features of the system are as follows: the
Corporation licenses the Lens Company to manufacture lens blanks
and to sell them to designated licensees of the Corporation, upon
the Lens Company's payment to the Corporation of an agreed royalty
of 50 cents a pair.
Page 316 U. S. 244
The lens blanks are rough opaque pieces of glass of suitable
size, design, and composition for use, when ground and polished, as
multi-focal lenses in eyeglasses. Each blank is composed of two or
more pieces of glass of different refractive power of such size,
shape, and composition, and so disposed that, when fused together
in the blank, it is said to conform to the specifications and
claims of some one of the Corporation's patents.
The Corporation also issues three classes of licenses --
licenses to wholesalers, to finishing retailers, and to
prescription retailers. The licenses to wholesalers authorize the
licensees to purchase the blanks from the Lens Company, to finish
them by grinding and polishing, and to sell them to prescription
licensees only at prices fixed by the Corporation licensor. In
finishing the lenses so as to make them an effective aid to vision
of the prospective wearer, to whom the prescription retailer sells,
it is necessary for the wholesaler, by grinding the blanks, to
conform their curvatures to the prescription supplied by the
retailer with his order. By the terms of the license, the
wholesalers are required to keep full accounts of all sales,
showing the sales prices of lenses and the names of the purchasers,
and to make them available to representatives of the
Corporation.
The licenses to finishing retailers -- who purchase the blanks
from the Lens Company, grind and polish them, and adjust the
lenses, in frames or supports, to the eyes of the consumers --
contain similar provisions. The retailers are licensed to purchase
the blanks of the Lens Company and to sell them to their customers
at prices prescribed by the Corporation licensor.
Both the licenses to wholesalers and to finishing retailers
require the licensee to notify the Corporation
"of any violation on the part of any jobbers or other licensees
of the agreements respectively made by them with the Corporation,
and to assist the Corporation in all possible ways
Page 316 U. S. 245
in securing evidence against, and enforcing its agreements with,
such jobbers and licensees."
The licenses to prescription retailers, who are without
facilities for grinding and finishing the lenses, but who prescribe
and adjust glasses for their customers, are signed both by the
Corporation and a licensor wholesaler, and grant to the retailer a
"franchise to prescribe and fit Univis lenses," in return for which
the prescription retailer agrees to sell finished lenses only to
consumers and only at prices prescribed by the Corporation.
All the licenses to wholesalers and retailers recite the
Corporation's ownership of the lens patents, and purport to confer
on the licensee the privilege of selling the patented invention in
the manner and to the extent stated. No royalties are exacted of
any of the licensees other than the 50 cents collected by the
Corporation for each pair of blanks sold by the Lens Company. The
rewards of the corporate appellees for the exploitation of the
patents and the patented lenses are derived wholly from the sales
by the Lens Company of the blanks, from the proceeds of which the
50 cent royalty is paid.
The prices prescribed and maintained under the licensing system
are: $3.25 a pair for the blanks sold by the Lens Company to
wholesalers, and $4 a pair for those sold to finishing retailers;
$7 a pair for finished lenses sold by wholesalers; $16 a pair for
white, and $20 for tinted, lenses sold to consumers by prescription
and finishing retailers.
The Corporation pursues the policy of issuing licenses to
"qualified licensees" who, it is said, are required to maintain
"high standards of practice," and to be skilled in the performance
of the services which they undertake to render. According to the
Corporation's instructions to its field representatives,
"price-cutters" are not eligible as prescription retailer
licensees. Inquiry is made to ascertain whether prospective
licensees advertise prices, and whether they are considered in
their communities to
Page 316 U. S. 246
be price-cutters. The Corporation cancels licenses principally
because of the failure of licensees to adhere to the price-fixing
provisions, but also because they advertise prices or the
acceptance of installment payments, or for other forms of
advertising objectionable to it; for selling Univis lenses to
customers other than those designated by the Corporation; for not
giving a certain percentage of the licensees' multi-focal lens
business to Univis; because the licensee is located in a drug,
department, or jewelry store, or because the licensee engaged in
price-cutting in the sale of the products of other
manufacturers.
For a time, the Corporation licensed approximately 20 percent of
the retailers in a locality. It now licenses a larger percentage,
but not more than 50 percent. There are approximately 330
wholesaler licensees, 325 finishing retailer licensees, and 6,500
prescription retailer licensees located in various states of the
Union, including New York and the District of Columbia. The
Corporation, by its representatives, solicits licenses and
negotiates with licensees in the towns and cities where they
conduct their business, including the Southern District of New
York. The Lens Company, whose annual sales volume is approximately
$1,000,000, ships blanks in interstate commerce from its factory in
Ohio to wholesalers and finishing licensees in the various places
where they are located, including the Southern District, where its
representatives visit licensees for the purpose of instructing them
in finishing lens blanks and for promoting sales of Univis lenses.
The facts amply established the venue of the court below.
Eastman Kodak Co. v. Southern Photo Co., 273 U.
S. 359,
273 U. S.
373.
Of the sixteen patents owned by the Corporation, three are
unrelated to the issues of the present case; five are for methods
of producing lenses utilized by the Lens Company in manufacturing
blanks, and do not concern any method or process employed by the
licensees who finish
Page 316 U. S. 247
the lens blanks. Each of the remaining eight patents relates to
the shape, size, composition, and disposition of the pieces of
glass of different refractive power in the blanks into which they
are fused.
The district court found, 41 F. Supp. 258, that the claims of
each of these eight patents are for a finished lens, and that,
consequently, the wholesalers and finishing retailers, in grinding
and polishing each lens, practice in part the patent in conformity
to which the Lens Company has manufactured the blanks which it
supplies. ,The court thought that, without the granted license, the
final step in finishing the lens would infringe the patent, and
concluded that, for this reason, the Corporation could condition
its licenses upon the maintenance by the licensee of the prescribed
retail price.
See United States v. General Electric Co.,
272 U. S. 476. But
it held that the prescription retailer licenses are unlawful
because their restrictions upon the resale of the finished product
are not within the patent monopoly, and are proscribed by the
Sherman Act.
It also held that certain "fair trade agreements" entered into
by the Lens Company with the licensees for the control of resale
prices of the finished lenses were not within the exception to the
Sherman Act created by the Miller-Tydings Act. This was because the
Lens Company had undertaken to fix the resale price of the finished
lenses, which are a different product from the lens blanks which it
manufactures and sells. The court accordingly limited the relief
which it granted to an injunction restraining respondents from
carrying out or enforcing the restrictive provisions of the
prescription retailer licenses and the fair trade agreements, and
from using its licensing system -- as has been done in one instance
-- as the means of preventing a particular competitor from
manufacturing and distributing multi-focal lens blank similar in
appearance to those produced by the Lens Company.
Page 316 U. S. 248
The Government has not put in issue the validity of the lens
patents, but argues that their scope does not extend beyond the
structure of the lens blanks, and consequently affords no basis for
the Corporation's restrictions on the sale of the finished lenses
which the wholesalers and finishing retailers fashion from blanks
purchased from the Lens Company. It insists that the novel features
of the invention do not include more than the combination of shape,
size, and arrangement of the described pieces of glass when they
are fused into the blank; that the grinding and polishing of the
blank involve no practice and add no feature not common to the
finishing and "fitting" of other types of multi-focal lenses which
are not covered by the patents, and that their scope cannot be
lawfully extended to a procedure not, in itself, novel merely
because it is applied to an article which embodies the only novel
features of the alleged invention, and has, by the sale, become a
lawful subject of commerce.
The record gives no account of the prior art, and does not
provide us with other material to which, if available, resort might
appropriately be had in determining the nature of an alleged
invention and the validity and scope of the patent claims founded
upon it. In any event, we find it unnecessary, in the circumstances
of this case, to decide whether, as the court below held, the
patent claims can rightly be said to include the finishing of the
blanks.
As appellees concede, the invention of only a single lens patent
is utilized in making each blank and finishing it as a lens. We
therefore put to one side questions which might arise if the
finisher of a particular lens blank utilized the invention of some
patent other than the patent which was practiced in part by the
manufacture of the blank. And we assume for present purposes,
without deciding, that the patent is not fully practiced until the
finishing licensee has ground and polished the blank so that it
will
Page 316 U. S. 249
serve its purpose as a lens. But merely because the licensee
takes the final step in the manufacture of the patented product, by
doing work on the blank which he has purchased from the patentee's
licensee, it does not follow that the patentee can control the
price at which the finished lens is sold.
Notwithstanding the assumption which we have made as to the
scope of the patent, each blank, as appellees insist, embodies
essential features of the patented device, and is without utility
until it is ground and polished as the finished lens of the patent.
We may assume also, as appellees contend, that sale of the blanks
by an unlicensed manufacturer to an unlicensed finisher for their
completion would constitute contributory infringement by the
seller.
Leeds & Catlin v. Victor Talking Machine Co.,
213 U. S. 325,
213 U. S. 332,
333;
cf. Carbice Corp. v. American Patents Corp.,
283 U. S. 27,
283 U. S.
34.
But, in any case, it is plain that, where the sale of the blank
is by the patentee or his licensee -- here, the Lens Company -- to
a finisher, the only use to which it could be put, and the only
object of the sale, is to enable the latter to grind and polish it
for use as a lens by the prospective wearer. An incident to the
purchase of any article, whether patented or unpatented, is the
right to use and sell it, and, upon familiar principles, the
authorized sale of an article which is capable of use only in
practicing the patent is a relinquishment of the patent monopoly
with respect to the article sold.
Leitch Mfg. Co. v. Barber
Co., 302 U. S. 458,
302 U. S.
460-461;
B. B. Chemical Co. v. Ellis,
314 U. S. 495.
Sale of a lens blank by the patentee or by his licensee is thus, in
itself, both a complete transfer of ownership of the blank, which
is within the protection of the patent law, and a license to
practice the final stage of the patent procedure. In the present
case, the entire consideration and compensation for both is the
purchase price
Page 316 U. S. 250
paid by the finishing licensee to the Lens Company. We have no
question here of what other stipulations, for royalties or
otherwise, might have been exacted as a part of the entire
transaction which do not seek to control the disposition of the
patented article after the sale. The question is whether the
patentee or his licensee, no longer aided by the patent, may
lawfully exercise such control.
The declared purpose of the patent law is to promote the
progress of science and the useful arts by granting to the inventor
a limited monopoly, the exercise of which will enable him to secure
the financial rewards for his invention. Constitution of the United
States, Art. I, § 8, Cl. 8; 35 U.S.C. §§ 31, 40. The full extent of
the monopoly is the patentee's "exclusive right to make use, and
vend the invention or discovery." The patentee may surrender his
monopoly in whole by the sale of his patent, or in part by the sale
of an article embodying the invention. His monopoly remains so long
as he retains the ownership of the patented article. But sale of it
exhausts the monopoly in that article, and the patentee may not
thereafter, by virtue of his patent, control the use or disposition
of the article.
Bloomer v.
McQuewan, 14 How. 539,
55 U. S.
549-550;
Adams v.
Burke, 17 Wall. 453;
Hobbie v. Jennison,
149 U. S. 355.
Hence, the patentee cannot control the resale price of patented
articles which he has sold, either by resort to an infringement
suit or, consistently with the Sherman Act (unless the
Miller-Tydings Act applies), by stipulating for price maintenance
by his vendees.
Bauer & Cie v. O'Donnell, 229 U. S.
1;
Boston Store v. American Graphophone Co.,
246 U. S. 8;
Straus v. Victor Talking Machine Co., 243 U.
S. 490;
Ethyl Gasoline Corp. v. United States,
309 U. S. 436,
309 U. S.
456-457, and cases cited.
We think that all the considerations which support these results
lead to the conclusion that, where one has sold
Page 316 U. S. 251
an uncompleted article which, because it embodies essential
features of his patented invention, is within the protection of his
patent, and has destined the article to be finished by the
purchaser in conformity to the patent, he has sold his invention so
far as it is or may be embodied in that particular article. The
reward he was demanded and received is for the article and the
invention which it embodies, and which his vendee is to practice
upon it. He has thus parted with his right to assert the patent
monopoly with respect to it and is no longer free to control the
price at which it may be sold, either in its unfinished or finished
form. No one would doubt that, if the patentee's licensee had sold
the blanks to a wholesaler or finishing retailer, without more, the
purchaser would not infringe by grinding and selling them. The
added stipulation by the patentee fixing resale prices derives no
support from the patent, and must stand on the same footing under
the Sherman Act as like stipulations with respect to unpatented
commodities.
Ethyl Gasoline Corp. v. United States,
supra.
Our decisions have uniformly recognized that the purpose of the
patent law is fulfilled with respect to any particular article when
the patentee has received his reward for the use of his invention
by the sale of the article, and that, once that purpose is
realized, the patent law affords no basis for restraining the use
and enjoyment of the thing sold.
Adams v. Burke, supra, p.
84 U. S. 456;
Keeler v. Standard Folding Bed Co., 157 U.
S. 659;
Motion Picture Co. v. Universal Film
Co., 243 U. S. 502,
and see cases collected in General Talking Pictures Co. v.
Western Electric Co., 305 U. S. 124,
305 U. S. 128,
note 1. In construing and applying the patent law so as to give
effect to the public policy which limits the granted monopoly
strictly to the terms of the statutory grant,
Morton Salt Co.
v. G. S. Suppiger Co., 314 U. S. 488, the
particular form or method by which the monopoly is
Page 316 U. S. 252
sought to be extended is immaterial. The first vending of any
article manufactured under a patent puts the article beyond the
reach of the monopoly which that patent confers. Whether the
licensee sells the patented article in its completed form or sells
it before completion for the purpose of enabling the buyer to
finish and sell it, he has equally parted with the article, and
made it the vehicle for transferring to the buyer ownership of the
invention with respect to that article. To that extent, he has
parted with his patent monopoly in either case, and has received in
the purchase price every benefit of that monopoly which the patent
law secures to him. If he were permitted to control the price at
which it could be sold by others, he would extend his monopoly
quite as much in the one case as in the other, and he would extend
it beyond the fair meaning of the patent statutes and the
construction which has hitherto been given to them.
There is thus no occasion for our reconsideration, as the
Government asks, of
United States v. General Electric Co.,
supra, on which appellees rely. The Court in that case was at
a pains to point out that a patentee who manufactures the product
protected by the patent and fails to retain his ownership in it
cannot control the price at which it is sold by his distributors
(272 U.S. at
272 U. S.
489). Accordingly, neither the Lens Company nor the
Corporation, by virtue of the patents, could, after the sale of the
lens blank, exercise any further control over the article sold.
The price-fixing features of appellees' licensing system, which
are not within the protection of the patent law, violate the
Sherman Act save only as the fair trade agreements may bring them
within the Miller-Tydings Act. Agreements for price maintenance of
articles moving in interstate commerce are, without more,
unreasonable restraints within the meaning of the Sherman Act
because they eliminate competition,
United
States v. Trenton Potteries,
Page 316 U. S. 253
273 U. S. 392;
United States v. Socony Vacuum, 310 U.
S. 150, and restrictions imposed by the seller upon
resale prices of articles moving in interstate commerce were, until
the enactment of the Miller-Tydings Act, 50 Stat. 693, consistently
held to be violations of the Sherman Act.
Ethyl Gasoline Co. v.
United States, supra,
309 U. S. 457, and cases cited.
The Miller-Tydings Act provides that nothing in the Sherman
Act
"shall render illegal, contracts or agreements prescribing
minimum prices for the resale of a commodity which bears, or the
label or container of which bears, the trademark, brand, or name of
the producer or distributor of such commodity and which is in free
and open competition with commodities of the same general class
produced or distributed by others . . ."
whenever such agreements are lawful where the resale is
made.
The contracts entered into by the Lens Company with the
licensees of the Corporation stipulate for the maintenance of the
prices which are prescribed by the licensing system. Appellees
assert, and we assume, for present purposes, that the blanks which
the Lens Company sells and the finished lenses are marked by
appellees' trademark as required by the statute. In the contracts,
the Lens Company is designated as the manufacturer of "eyeglass
lenses" which are distributed and sold under the trademark of the
manufacturer. But the Lens Company manufactures the blanks, and not
the finished lenses to which the resale prices apply. It is
therefore not the manufacturer of the "commodity" which the
licensees sell, and the licensees are not engaged in the "resale"
of the same commodity they buy. We find nothing in the language of
the Miller-Tydings Act, or in its legislative history, to indicate
that its provisions were to be so applied to products manufactured
in successive stages by different processors that the first would
be free to control the price of
Page 316 U. S. 254
his successors. The prescribed prices are thus not within the
Miller-Tydings exception to the Sherman Act.
Appellees stress the features of their licensing system by which
it is said they protect the public interest and their own goodwill
by the selection as licensees of those who are specially skilled
and competent to render the service which they undertake. But, if
we assume that such restrictions might otherwise be valid,
cf.
Fashion Guild v. Trade Commission, 312 U.
S. 457,
312 U. S. 467,
these features are so interwoven with and identified with the price
restrictions which are the core of the licensing system that the
case is an appropriate one for the suppression of the entire
licensing scheme, even though some of its features, independently
established, might have been used for lawful purposes.
Ethyl
Gasoline Corp. v. United States, supra, 627. The injunction of
the district court will therefore be continued, and extended so as
to suppress all the license contracts and the maintenance of the
licensing system which appellees have established other than the
Corporation's license to the Lens Company. The judgment in No. 856
is affirmed. The judgment in No. 855 is reversed, and both cases
are remanded to the district court for the entry of an appropriate
decree in conformity to this opinion.
No. 855 reversed.
No. 856 affirmed.
MR. JUSTICE JACKSON took no part in the consideration or
decision of these cases.
* Together with No. 856,
Univis Lens Co., Inc., et al. v.
United States, also on appeal from the District Court of the
United States for the Southern District of New York.