MR. JUSTICE REED delivered the opinion of the Court.
The United States sought an injunction under §§ 1 and 4 of the Sherman Act
The District Court, 64 F.Supp. 970, dismissed the complaint as to all defendants upon its conclusion that the rule of United States v. General Electric Co., 272 U.S. 476, was controlling. That case approved as lawful a patentee's license to make and vend which required the licensee in its sales of the patented devices to conform to the licensor's sale price schedule. Appeal was taken directly to this Court, 32 Stat. 823, and probable jurisdiction noted here on October 21, 1946. We have jurisdiction.
I. The Facts.
The challenged arrangements center around three product patents, which are useful in protecting an electric circuit from the dangers incident to a short circuit or other overload. Two of them are dropout fuse cutouts and the third is a housing suitable for use with any cutout. Dropout fuse cutouts may be used without any housing. The District Court found that 40.77% of all cutouts manufactured and sold by these defendants were produced under these patents. This was substantially all the dropout fuse cutouts made in the United States. There are competitive devices that perform the same functions manufactured by appellees and others under different patents than those here involved.
The dominant patent, No. 2,150,102, in the field of dropout fuse cutouts with double jointed hinge construction was issued March 7, 1939, to the Southern States Equipment Corporation, assignee, on an application of George N. Lemmon.
The applications for the Lemmon and Schultz patents were pending simultaneously. They were declared in interference and a contest resulted. The decision of the Patent Office awarding dominant claims to Southern and subservient claims to Line on the Lemmon and the Schultz applications made it impossible for any manufacturer to use both patents when later issued without some cross-licensing arrangement. Cf. Temco Electric Motor Co. v. Apco Mfg. Co., 275 U.S. 319, 328. Only when both patents could be lawfully used by a single maker could the public or the patentees obtain the full benefit of the efficiency and economy of the inventions. Negotiations were started by Line which eventuated in the challenged arrangements.
The first definitive document was a bilateral, royalty-free, cross-license agreement of May 23, 1938, between Southern and Line after the Patent Office award but before the patents issued. This, so far as here pertinent, was a license to Southern by Line to make and vend the prospective Schultz patented apparatus with the exclusive
Six of the other manufacturers
A form for a proposed licensing agreement that contained the essential elements of the price provision ultimately included in the licenses had been circulated among prospective licensees by Line by letters under date of October 6, 1939.
To meet the various objections of the future licensees, the agreement of May 23, 1938, between Southern and Line was revised as of January 12, 1940. Except for the substitution of Line for Southern as licensor of other manufacturers, it follows generally the form of the earlier agreement. There were royalty-free cross-licenses of the Schultz and Lemmon patents substantially as before. Line was given the exclusive right to grant sublicenses to
The price maintenance feature was reflected in all the licenses to make and vend granted by Line, under the Line-Southern contract, to the other appellees. There were variations in the price provisions that are not significant for the issues of this case. A fair example appears below.
The licenses were the result of arm's length bargaining in each instance. Price limitation was actively opposed in toto or restriction of its scope sought by several of the licensees, including General Electric, the largest producer of the patented appliances. A number tried energetically to find substitutes for the devices. All the licensees, however, were forced to accept the terms or cease manufacture. By accepting they secured release from claims for past infringement through a provision to that effect in the license. The patentees through the licenses sought system in their royalty collections and pecuniary reward for their patent monopoly. Undoubtedly one purpose of the arrangements was to make possible the use by each manufacturer of the Lemmon and Schultz patents. These patents in separate hands produced a deadlock. Lemmon by his basic patent "blocked" Schultz's improvement. Cross-licenses furnished appellees a solution.
On consideration of the agreements and the circumstances surrounding their negotiation and execution, the District Court found that the arrangements, as a whole, were made in good faith, to make possible the manufacture by all appellees of the patented devices, to gain a legitimate
II. The General Electric Case.
That case was decided in 1926 by a unanimous Court, Chief Justice Taft writing. It involved a bill in equity to enjoin further violations of the Sherman Act. While violations of the Act by agreements fixing the resale price of patented articles (incandescent light bulbs) sold to dealers also were alleged in the bill, so far as here material the pertinent alleged violation was an agreement between General Electric and Westinghouse Company through which Westinghouse was licensed to manufacture lamps under a number of General Electric's patents, including a patent on the use of tungsten filament in the bulb, on condition that it should sell them at prices fixed by the licensor. On considering an objection to the fixing of prices on bulbs with a tungsten filament, the price agreement was upheld as a valid exercise of patent rights by the licensor.
Speaking of the arrangement, this Court said: "If the patentee. . . licenses the selling of the articles [by a licensee to make], may he limit the selling by limiting the method of sale and the price? We think he may do so, provided the conditions of sale are normally and reasonably adapted to secure pecuniary reward for the patentee's monopoly." P. 490. This proviso must be read as directed at agreements between a patentee and a licensee
General Electric is a case that has provoked criticism and approval. It had only bare recognition in Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 456. That case emphasized the rule against the extension of the patent monopoly, p. 456, to resale prices or to avoid competition among buyers. Pages 457-58. We found it unnecessary to reconsider the rule in United States v. Masonite Corp., 316 U.S. 265, 277, although the arrangement there was for sale of patented articles at fixed prices by dealers whom the patentee claimed were del credere agents. As we concluded the patent privilege was exhausted by a transfer of the articles to certain agents who were part of the sales organization of competitors, discussion of the price-fixing limitation was not required. In Katzinger Co. v. Chicago Mfg. Co., 329 U.S. 394, 398, where a suit was brought to recover royalties on a license with price limitations, this Court refused to examine the General Electric rule because of the claimed illegality of the Katzinger patent. If the patent were invalid, the price-fixing
Such a liquidation of the doctrine of a patentee's power to determine a licensee's sale price of a patented article would solve problems arising from its adoption. Since 1902, however, when Bement v. National Harrow Co., 186 U.S. 70, was decided, a patentee has been able to control his licensee's sale price within the limits of the patent monopoly.
It may be helpful to specify certain points that either are not contested or are not decided in this case. The agreements, if illegal, restrain interstate commerce contrary to the Sherman Act. No issue of monopoly is
III. The Determination of the Issue.
Under the above-mentioned assumption as to General Electric, the ultimate question for our decision on this appeal may be stated, succinctly and abstractly, to be as to whether in the light of the prohibition of § 1 of the Sherman Act, note 1, supra, two or more patentees in the same patent field may legally combine their valid patent monopolies to secure mutual benefits for themselves through contractual agreements, between themselves and other licensees, for control of the sale price of the patented devices.
The appellees urge that the findings of the District Court, quoted in note 13 supra, stand as barriers to a conclusion
It is equally well settled that the possession of a valid patent or patents does not give the patentee any exemption from the provisions of the Sherman Act beyond the limits of the patent monopoly.
The development of patents by separate corporations or by cooperating units of an industry through an organized research group is a well known phenomenon. However far advanced over the lone inventor's experimentation this method of seeking improvement in the practices of the arts and sciences may be, there can be no objection, on the score of illegality, either to the mere size of such a group or the thoroughness of its research. It may be true, as Carlyle said, that "Genius is an infinite capacity for taking pains." Certainly the doctrine that control of prices, outside the limits of a patent monopoly, violates the Sherman Act is as well understood by Congress as by all other interested parties.
We are thus called upon to make an adjustment between the lawful restraint on trade of the patent monopoly and the illegal restraint prohibited broadly by the Sherman Act. That adjustment has already reached the point, as the precedents now stand, that a patentee may validly license a competitor to make and vend with a price limitation under the General Electric case and that the grant of patent rights is the limit of freedom from competition under the cases first cited at note 22.
With the postulates in mind that price limitations on patented devices beyond the limits of a patent monopoly violate the Sherman Act and that patent grants are to be
If the objection is made that a price agreement between a patentee and a licensee equally restrains trade, the answer is not that there is no restraint in such an arrangement but, when the validity of the General Electric case
We turn now to the situation here presented of an agreement where one of the patentees is authorized to fix prices under the patents. The argument of respondents is that if a patentee may contract with his licensee to fix prices, it is logical to permit any number of patentees to combine their patents and authorize one patentee to fix prices for any number of licensees. In this present agreement Southern and Line have entered into an arrangement by which Line is authorized to and has fixed prices for devices produced under the Lemmon and Schultz patents. It seems to us, however, that such argument fails to take into account the cumulative effect of such multiple agreements in establishing an intention to restrain. The obvious purpose and effect of the agreement was to enable Line to fix prices for the patented devices. Even where the agreements to fix prices are limited to a small number of patentees, we are of the opinion that it crosses the barrier erected by the Sherman
As early as 1912, in Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20, this Court unanimously condemned price limitation under pooled
When a plan for the patentee to fix the sale prices of patented synthetic hardboard on sales made through formerly competing manufacturers and distributors, designated as del credere agents,
We think that this general rule against price limitation clearly applies in the circumstances of this case. Even if a patentee has a right in the absence of a purpose to restrain or monopolize trade, to fix prices on a licensee's sale of the patented product in order to exploit properly his invention or inventions, when patentees join in an agreement as here to maintain prices on their several products, that agreement, however advantageous it may be to stimulate the broader use of patents, is unlawful per se under the Sherman Act. It is more than an exploitation of patents. There is the vice that patentees
The decree of the District Court is reversed and the case is remanded for the entry of an appropriate decree in accordance with this opinion.
MR. JUSTICE JACKSON took no part in the consideration or decision of this case.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK, MR. JUSTICE MURPHY and MR. JUSTICE RUTLEDGE join, concurring.
While I have joined in the opinion of the Court, its discussion of the problem is for me not adequate for a full understanding of the basic issue presented. My view comes to this — it is a part of practical wisdom and good law not to permit United States v. General Electric Co.,
The Constitution grants Congress the power "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." Art. I, § 8, Cl. 8. It is to be noted first that all that is secured to inventors is "the exclusive right" to their inventions; and second that the reward to inventors is wholly secondary, the aim and purpose of patent statutes being limited by the Constitution to the promotion of the progress of science and useful arts. United States v. Masonite Corp., 316 U.S. 265, 278 and cases cited.
Congress, faithful to that standard, has granted patentees only the "exclusive right to make, use, and vend the invention or discovery." Rev. Stat. § 4884, 35 U.S.C. § 40. And as early as 1853 the Court, speaking through Chief Justice Taney, defined the narrow and limited monopoly granted under the statutes as follows: "The franchise which the patent grants, consists altogether in the right to exclude every one from making, using, or vending the thing patented, without the permission of the patentee." Bloomer v. McQuewan, 14 How. 539, 549. But the ingenuity of man has conceived many ways to graft attractive private perquisites onto patents. The effort through the years has been to expand the narrow monopoly of the patent. The Court, however, has generally been faithful to the standard of the Constitution, has recognized that the public interest comes first and reward to inventors second, and has refused to let the self-interest of patentees come into the ascendancy. As we stated in B.B. Chemical Co. v. Ellis, 314 U.S. 495,
The Court, however, allowed an exception in this long line of cases. In United States v. General Electric Co., supra, decided in 1926, it followed Bement v. National
The patent statutes do not sanction price-fixing combinations. They are indeed wholly silent about combinations. So far as relevant here, all they grant, as already noted, is the "exclusive right to make, use, and vend the invention or discovery." Rev. Stat. § 4884, 35 U.S.C. § 40. There is no grant of power to combine with others to fix the price of patented products. Since the patent statutes are silent on the subject, it would seem that the validity of price-fixing combinations in this field would be governed by general law. And since the Sherman Act outlaws price-fixing combinations it would seem logical and in keeping with the public policy expressed in that legislation to apply its prohibitions to patents as well as to other property. The Court made an exception in the case of these price-fixing combinations in order to make the patent monopoly a more valuable one to the patentee. It was concerned with giving him as high a reward as possible. It reasoned that if the patentee could not control the price at which his licensees sold the patented article, they might undersell him; that a price-fixing combination would give him protection against that contingency and therefore was a reasonable device to secure him a pecuniary reward for his invention. Thus the General Electric case inverted Cl. 8 of Art. I, § 8 of the Constitution and made the inventor's reward the prime rather than an incidental object of the patent system.
In that manner the Court saddled the economy with a vicious monopoly. In the first place, this form of
Congress has much to say as to the pattern of our economic organization. But I am not clear that Congress could expand "the exclusive right" specified in the Constitution into a right of inventors to utilize through a price-fixing combination the production and marketing facilities of competitors to protect their own high costs of production and eliminate or suppress competition. It is not apparent that any such restriction or condition promotes the progress of science and the useful arts. But however that may be, the Constitution places the rewards to inventors in a secondary role. It makes the public interest the primary concern in the patent system. To allow these price-fixing schemes is to reverse the order and place the rewards to inventors first and the public
This Court, not Congress, was the author of the doctrine followed in that case. The rule it sanctions is another of the private perquisites which the Court has written into the patent laws. See Special Equipment Co. v. Coe, 324 U.S. 370, 383. Since we created it, we should take the initiative in eliminating it. It is hard for me to square it with the standards which the Constitution has set for our patent system It plainly does violence to the competitive standards which Congress has written into the Sherman Act.
MR. JUSTICE BURTON, with whom THE CHIEF JUSTICE and MR. JUSTICE FRANKFURTER concur, dissenting.
This dissent is impelled by regard for the soundness, authority and applicability to this case of the unanimous decisions of this Court in Bement v. National Harrow Co., 186 U.S. 70, and United States v. General Electric Co., 272 U.S. 476.
The complaint charges violation of § 1 of the Sherman Antitrust Act
The license in that case was issued under several patents and, as here, it limited the prices at which the licensee was authorized to sell articles produced by the licensee under that license. In the General Electric case, this Court, in speaking of the patent holder's right to limit the selling prices of his licensee's products, said:
In the present case, there are two types of license agreements. The price-limiting provisions are the same in each. The first type is that of the cross-licensing agreement between Line and Southern. In it Line granted
The other type of license that was used by Line was that of a direct license issued separately to each of the ten other licensee-defendants. These licenses closely resembled each other. Each was a nonexclusive license calling for the payment of a modest royalty to Line on each product made and sold by the licensee under Line's patent. Each included price limitations comparable to those in Line's license to Southern. These price-limiting licenses from Line are, as such, entirely comparable to those in the Bement and General Electric cases. Each license, however, also included a sublicense issued by Line under Southern's complementary patent. The royalties on the products made and sold under the two complementary patents were to be divided equally between Line and Southern. It will be demonstrated later that this sublicense under Southern's complementary patent and the agreement by Line to divide with Southern the royalties received upon products made and sold under the two patents did not, per se, convert these otherwise lawfully limited licenses into invalid licenses violating the Sherman Act.
Line also granted to certain licensee-defendants desiring it, a license under Line's so-called "Kyle patent" for enclosed fuse boxes. Some of these licenses carried price limitations on products made and sold by the licensee under the Kyle patent. These licenses are entirely comparable to those in the Bement and General Electric cases. They are well within the scope of those precedents and carry no suggested basis for a distinction claimed to convert
The Government now asks this Court to overrule the Bement and General Electric cases. The opinion by MR. JUSTICE REED rejects that request but seeks to justify a reversal of the judgment below by distinguishing this case from those precedents. This dissent undertakes not only to emphasize the soundness of the Bement and General Electric decisions, but to demonstrate that the basic principles which sustain those decisions apply to this case with at least equal force. This initial discussion will omit the consideration of the cross-license from Southern to Line, the grant from Southern to Line of the exclusive right to issue sublicenses under the Southern patent and the agreement for the division of royalties between Southern and Line. The Bement and General Electric decisions are authority for upholding the remaining portions of such agreements in the light of the previously mentioned findings of fact which show that the agreements "arise from reasonable and legal conditions imposed upon the assignee or licensee of a patent by the owner thereof, restricting the terms upon which the article may be used and the price to be demanded therefor"
An understanding of the historical development and of the nature of patent rights in the United States is
The contrast between these two kinds of exclusive rights in their relation to the public was reflected later in acts of the British Parliament and in the Constitution and statutes of the United States. A patent to an inventor took nothing from the public which the public or the inventor's competitors already had. By hypothesis, it dealt with a new asset available to civilization only through its inventor. The royal patent served to encourage the inventor to disclose his invention. By granting
As early as 1602, Francis Bacon, in the House of Commons, supported the principle that a monopoly should be granted only for a "new manufacture." In 1623, there was enacted the Statute of Monopolies (21 Jac. I, c. 3, § I; 1 Walker on Patents, pp. 18-21 (Deller's ed. 1937)) which declared void all monopolies and letters patent "of or for the sole Buying, Selling, Making, Working or Using of any Thing within this Realm, . . . ." However, § VI of this Act made an express exception in favor of patents for inventions.
The result, historically and in principle, has not been a conflict between two legislative mandates. It has been rather a long standing approval, both by the British Parliament and the Congress of the United States, of the unique value of the exercise, for limited periods, of exclusive rights by inventors to their respective inventions, paralleled by an equally sustained and emphatic disapproval of certain other restraints of trade not representative of exclusive rights of inventors to their inventions.
The long and unfaltering development of our patent law often has been touched upon in our decisions. However, in the face of the direct attack now made upon some of its underlying principles, the infinite importance of our inventions justifies a brief review here of the development
The Constitution of the United States provides that "The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries; . . . ." (Italics supplied.) Art. I, § 8.
The statutes primarily implementing this provision state:
Conway P. Coe, Commissioner of Patents of the United States from 1933 to 1945, discussed the historical significance of the early establishment of the American patent system in his testimony before the Temporary National Economic Committee in 1939. He said:
A comparable analysis of the nature of the grant to inventors of the exclusive right to their respective inventions or discoveries for a limited time has been made by this Court.
There was nothing to indicate an intent that the general language of the Sherman Act was to change the nation's traditional and specifically stated policy towards inventions. That policy had been widely regarded as having made a major contribution to the nation's exceptional economic progress. The Sherman Act unquestionably applied to any abuse of a patentee's exclusive rights which exceeded the limit of those rights and which amounted to an unreasonable restraint of interstate trade. However, there was nothing to indicate that the Sherman Act restricted the traditional patent rights. Bement v. National Harrow Co., supra, at p. 92.
LIMITED LICENSE AGREEMENTS.
The primary issue in this case, therefore, is to determine whether or not Line by the issuance of its restricted licenses has thereby sought to exercise any right that is in excess of the exclusive right secured to Line by the
The first consideration is the relation of the Sherman Act to provisions in a license agreement which place limitations — as in the Bement and General Electric cases — upon the prices which may be charged by the licensee for products made and sold by it under the protection of its license. The issue corresponds to that raised by the Westinghouse license in the General Electric case.
The next question is whether the insertion in such a license of some limitation upon the licensee's right to sell the articles made by the licensee under the patent, per se, converts this otherwise lawful agreement into an unreasonable restraint of trade violative of the Sherman Act. The answer is no. Just as an unlimited license is a partial, but lawful, relaxation of the lawful restraint of trade imposed by the patent, so a limited license is but a correspondingly less relaxation of that same restraint.
The fact that the limitation in the license is a limitation on the price which may be charged by the licensee in making sales of the article made by the licensee under the protection of the patent does not change the answer, provided the price prescribed is "normally and reasonably adapted to secure pecuniary reward for the
Such agreements should be carefully scrutinized to make sure that they do not introduce new restrictions which, as judicially construed, unreasonably restrain trade and thus violate the Sherman Act. In the instant case the findings eliminate such possibilities and thus reduce the issue here to one comparable with the issue in the Bement and General Electric cases.
This brings us to a further discussion of the nature of the license in the present case and of the precise limitations contained in it. This requires, first of all, a consideration of the nature of the exclusive right to make, use and sell the patented product. The precise nature of such a "patent right" has been described as follows by Chief Justice Taft in a unanimous opinion of this Court:
This analysis is the key to the issue before us. It demonstrates that the common law right to make, use and sell the product of an unpatented invention exists without any right to exclude others from so making, using or selling such product. The additional "exclusive right," or so-called "patent right," which is added to the common law right of the inventor is added by authority of the Constitution and of the federal statutes, so as to promote the progress of science, the useful arts and, no doubt, the general welfare. The patent or any interest therein may be assigned. R.S. § 4898, as amended, 55 Stat. 634, 35 U.S.C. (Supp. V, 1946) § 47.
Any attempted assignment or transfer short of those indicated in the statute "is a mere license, giving the licensee no title in the patent, and no right to sue at law in his own name for an infringement."
The following statements illustrate the directness with which this Court repeatedly has decided in favor of the validity of limited licenses when that question has been before it:
The normality, reasonableness and practical necessity for inserting a price-limiting condition in certain licenses, without trespassing upon the prohibited area of unlawful restraints of trade, is effectively summarized in the General Electric case, at p. 490:
The following statement by Conway P. Coe, Commissioner of Patents, before the Temporary National Economic
SUBLICENSES AND CROSS-LICENSES.
Under the foregoing principles and authorities, a simple price-limiting patent license, in which the price limitations meet the test stated in the General Electric case, is a lawful agreement. Such a license would involve, as a possible restraint of trade, only the exclusive right to make, use and sell the patented product. That restraint would exist by virtue of the statute and constitutional provision long antedating the Sherman Act. If the limitations in a license reach beyond the scope of the statutory patent rights, then they must be tested by the terms of the Sherman Act. Assuming that in the instant case the price limitations do not reach beyond the restraint of the patent, the next question is: does the additional sublicense issued by Line under the Southern patent make a difference? The answer is no.
The sublicense, per se, further diminishes the statutory restraint of trade imposed by the patent law. It adds a release from the restraint of Southern's patent. Line's authority to issue the sublicense was an express grant by Southern to Line of an exclusive right to issue it. Per se, this sublicense certainly amounts to no more than another license under another patent. In the instant
In the present case, there are ten licensee-defendants instead of one as in each of the Bement and General Electric cases. In view of the positive finding that there was no agreement or understanding among the licensees amounting to an unreasonable restraint of trade, this mere multiplication of one license by ten produces a repetition of the same issue rather than a different issue. It is apparent also from the record in the General Electric case that, in that case, in addition to the Westinghouse license, there were licenses to 13 other manufacturers, which had been issued by the licensor, although the licensees under them were not made parties to the suit. 15 F.2d 715, 716.
It is suggested also that the Bement and General Electric rule does not apply because there is a cross-licensing agreement between Line and Southern. The suggestion apparently is that such an agreement, per se, reaches
The cross-license from Southern carries no price-limiting feature. At most it is a royalty-free cross-license issued to Line in consideration of Line's license to Southern. It is accompanied by a grant from Southern to Line of an exclusive license to grant sublicenses under Southern's patent. Provision is made also for the equal division between Southern and Line of such royalties as shall be received by Line upon products made and sold by the respective licensees under the Southern and Line patents.
These sublicenses and the royalties derived from them do not, however, increase the restraints on trade beyond those restraints which are inherent in the respective patents. In fact, each original license decreased those restraints under Line's patent and each sublicense did the same under Southern's patent. Because of the complementary relationship between the patents, these sublicenses have served substantially to remove the restraints which the respective patents, when held separately, put in the way of production. The two patents together completely covered the product. If the price limitations were valid under Line's licenses, the issuance by Line of the sublicenses under Southern's patent has no more effect on the question involved in this case than if Southern, instead of granting to Line an exclusive right to issue sublicenses under Southern's patent, had assigned that patent to Line and Line had then issued original licenses under it on the same terms as Line issued the sublicenses.
The next consideration is the effect of the cross-license by Southern to Line, coupled with the grant of the exclusive right to issue the above-mentioned sublicenses under
Patent pools, especially those including unrelated or distantly related patents and involving the issuance of many forms of royalty-free, royalty-bearing or price-limiting licenses and cross-licenses, might present a different picture from that in this case. Such arrangements might be but a screen for, or incident to, an unlawful agreement in restraint of trade violating the Sherman Act. Here we have no such facts. The findings eliminate all bases for the claim of invalidity except the terms of the license agreements, per se. We are not here confronted with the effect of cross-licenses between unrelated patents. Here we have only that natural situation, common under our patent laws, where two or more complementary patents are separately owned. One is for an improvement that is commercially essential to the other. In such a case one solution is to combine the ownership of the two by purchase and complete assignment. That, per se, would not involve an unlawful restraint of trade.
The solution in the instant case was even more natural than a consolidation of the patents by purchase. It conduced even more to the maintenance of competition. Each patentee granted to the other a nonexclusive, royalty-free license. This cross-licensing amounted to a waiver by each patent holder of his right to exclude the other from making, using or selling the patented product. This resulted in a diminution of the restraint created by the patent statute. This, per se, was, therefore, well within the scope of the patent and not a violation of the Sherman Act. Both patentees became producers.
In the present case, the need for the price-limiting provisions, both in the license to Southern and in the licenses to the other ten defendants, rests upon the need of the patent holder to protect its opportunity to continue the manufacture of its own patented product. The substance of the situation is that the patent holder needs to protect itself precisely as much and in the same way as in the case of a direct license standing alone. The Sherman Act traditionally tests its violation not by the form but by the substance of the transaction.
In distinction from patent pools and from crosslicenses between holders of competing or even noncompeting but unrelated patents, we have here a case of a cross-license and a division of royalties between holders of patents which are complementary and vitally dependent upon each other. We have here complementary patents each of which alone is commercially of little value, but both of which, together, spell commercial success for the product. Cross-licenses between their holders, on terms within the needs of their patent monopolies, are essential to the realization of the benefits contemplated by the patent statutes. Far from being unlawful agreements violative of the Sherman Act, such agreements provide
The record in the General Electric case discloses that the license agreement between the General Electric Company and Westinghouse which was there upheld was itself a cross-licensing agreement.
The opinion in the General Electric case makes no distinction between cross-licenses and direct licenses. That case, therefore, is itself a precedent for upholding a cross-licensing agreement under facts characterized below as being "even more restrictive" than those here presented.
The acquisition by a single party of patents on noncompeting machines has been held not to be, per se, a violation of the Sherman Act. In United States v. Winslow, 227 U.S. 202, 217, Mr. Justice Holmes, in a unanimous opinion of the Court, said:
In Standard Oil Co. v. United States, 283 U.S. 163, 170-171, 175, Mr. Justice Brandeis spoke as follows for
In the above context, and for the reasons previously presented, it is evident that the agreements effecting a price fixation which thus may violate the Sherman Act are only those which "impose . . . an unreasonable restraint upon interstate commerce," within the meaning of the Sherman Act read in the light of the patent laws.
JUDICIAL AND LEGISLATIVE HISTORY SINCE THE GENERAL ELECTRIC CASE.
Neither the Bement nor the General Electric case, supra, has been overruled and the reasoning upon which they are based has not been directly or indirectly rejected by this Court. On the other hand, this Court repeatedly has recognized the existence of the principles announced in them. See, for example, Carbice Corp. v. American Patents Development Corp., 283 U.S. 27, 31; General Talking Pictures Corp. v. Western Electric Corp., 305 U.S. 124, 127:
The rule of stare decisis applies to the interpretation given to the patent statutes and to the Sherman Act by the Bement and General Electric cases. There is no occasion here for such a relaxation of that rule as was suggested by Mr. Justice Brandeis in cases interpreting broad constitutional phrases. See his dissent in Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 410. To the extent that the present holdings are based upon opinions of this Court, that element is inherent in the rule of stare decisis.
The exceptional recent activity in seeking, by statutory amendment, a change in the patent laws as interpreted in the Bement and General Electric cases indicates a widespread understanding that, if such interpretation is to be changed, the remedy calls for congressional action. The resistance to such a change which has been shown by Congress is impressive.
There appears, therefore, to be neither adequate reason nor authority for overruling the Bement and General Electric cases or for distinguishing this case from them.
"Sec. 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. . . ."
"Sec. 4. The several district courts of the United States are invested with jurisdiction to prevent and restrain violations of this act; and it shall be the duty of the several district attorneys of the United States, in their respective districts, under the direction of the Attorney-General, to institute proceedings in equity to prevent and restrain such violations. .. ."
Appellee Abbreviated title Percent General Electric Co. ................ General Electric .............. 29.2 Line Material Co. ................... Line .......................... 25.4 James R. Kearney Corp. .............. Kearney ....................... 18.9 Southern States Equipment Corp. ..... Southern ...................... 7.9 Westinghouse Electric Corp. ......... Westinghouse .................. 5.3 Schweitzer & Conrad, Inc. ........... Schweitzer & Conrad ........... 5.1 Railway & Industrial Engineering Co. Railway ....................... 3.8 W.N. Matthews Corp. ................. Matthews ...................... 2.0 Porcelain Products Co. .............. Porcelain ..................... 1.5 Royal Electric Mfg. Co. ............. Royal ......................... .5 Pacific Electric Mfg. Co. ........... Pacific ....................... .2 T.F. Johnson ........................ Johnson ....................... .2 _____ 100.0
All are corporations of various states except T.F. Johnson, doing business as Johnson Manufacturing Company, Atlanta, Georgia.
"It is the purpose and intent of this agreement that there shall not be directly, or indirectly, any modification of the prices set by the Line Company as they exist from time to time, as for instance, by including in the transaction other material or parts, or labor, or services, at less than the regular prices at which the party making the same is at the time selling such other material or parts or furnishing such labor or services or by making allowances for freight or terms of payment other than those employed by the Line Company.
"Prices, terms and/or conditions of sale may be changed by the Line Company from time to time through reasonable notice in writing to the Southern Corporation, but not less than ten (10) days' written notice shall be given before the change shall go into effect.
"It is agreed that if the Line Company shall grant a license to a third party under any of the patents of this agreement (but excepting from the provisions of this paragraph a license to be granted to General Electric Company of Schenectady, New York, under said Kyle reissue patent 19,449), without a provision for maintenance by said third party of prices, terms and conditions of sales as set forth in the first paragraph of this section, then Southern Corporation shall be relieved from its obligation under said section."
"9. The license hereby granted by the Licensor is subject to the express limitations that
Licensee's prices, terms and conditions of sale of dropout fuse cutouts
shall be no more favorable to a customer of the Licensee than those established from time to time and followed by the Licensor in its sales. The prices, terms and conditions of sale as at present established and in force are those set forth in Schedule A annexed hereto and forming a part hereof. This schedule of prices may be changed from time to time by the Licensor upon ten (10) days' notice in writing to the Licensee.
"10. The spirit and intent of this license agreement, contemplates that in no transaction shall there be any modification of Licensee's prices, either directly or indirectly, as for instance by inclusion in the transaction of other material or parts or services or labor at less than the regular prevailing prices at which the party making the sale is at the time accustomed to sell such other material or parts or furnish such services or labor, as will serve in effect to reduce Licensee's prices below those named in Schedule A as it exists from time to time."
This was repeated in the Line-General Electric revised agreement of November 17, 1941. A variable appears in the Westinghouse and other licenses. In its price provisions, the Lemmon patent is not mentioned but the Lemmon patent was included in its grant of license and the subsidiary Schultz patent could not be practiced without the right to use the dominant Lemmon.
"32. The price limitation provisions contained in the various license agreements here in evidence were insisted upon by the patent owner and were intended and reasonably adapted to protect its own business and secure pecuniary reward for the patentee's monopoly. Each of the licenses granted to the licensee-defendants was taken and granted in good faith, the parties to the licenses believing a license under the patents to be necessary in order that the licensee could continue lawfully to manufacture and sell its dropout fuse cutouts. Apart from the written license agreements here in evidence, there was no agreement, express or implied, between the licensor and any licensee, or between any two or more licensees, with respect to the prices of licensed dropout fuse cutouts.
"33. All of the devices for which minimum prices were established by Line were comparable to, and competitive with, devices which Line manufactured and sold regularly or which it was ready to manufacture and sell to its customers on special order.
"34. The cross-license agreements between Line and Southern were limited to the commercially practicable device covered by the subservient Schultz patent, and did not create additional power for price control of the licensed cutouts over that which each had before entering into the agreements. The inflexible intention to insist upon price limitation existed independently in each of the patent owners prior to any discussions or arrangements between them. Such cross-license agreements were entered into in good faith, not for the purpose of fixing prices in the industry but to permit the manufacture and sale of the cheaper device covered by the subservient patent, to facilitate the negotiation of licenses, and to provide royalty income. There was no agreement, express or implied, between Line and Southern with respect to prices on cutouts other than the written cross-license agreements.
"35. The license agreements here in evidence did not restrain trade but promoted it by making available several sources where the patented devices could be obtained, thus increasing competition in such devices, particularly with respect to design, quality and service. Competition among the defendants for business in these devices continued to be vigorous after the making of the license agreements.
"36. There was no combination or conspiracy among the defendants, or any of them, to fix, maintain or control prices of dropout fuse cutouts or parts thereof, or to restrain trade or commerce therein."
Barber-Colman Co. v. National Tool Co., 136 F.2d 339. In a suit by the licensor against the licensee, injunctive relief to compel compliance with a price-fixing provision in the patent license was denied. The General Electric case was held not to permit the patentee to fix prices on unpatented hobs which were produced under a process patent by a patented machine.
Cummer-Graham Co. v. Straight Side Basket Corp., 142 F.2d 646. Licensee was denied relief in an action against licensor for failing to require other licensees to comply with price-fixing provisions; licensor of a patent on an attachment to a basket-making machine may not fix prices on baskets produced by the machine.
United States v. Vehicular Parking, Ltd., 54 F.Supp. 828. Antitrust proceeding against patent holding company and manufacturing licensees in parking meter industry. The patent licenses fixed the prices at which parking meters could be sold and contained restrictive provisions on marketing practices. In ordering compulsory licensing at a reasonable royalty, the court distinguished the General Electric case principally on the ground that the patentee in this case did not itself manufacture the parking meters; other distinctions noted were the number and active concert of licensees, the weakness of the patents, the fixing of prices on unpatented articles, and the existence of marketing restrictions.
United States v. Allegheny Ludlum Steel Corp., D.N.J. Civil 45-83, stainless steel company owning patents on a particular type of stainless steel allegedly issued licenses fixing prices on all types of stainless steel.
United States v. American Optical Co., S.D.N.Y. Civil 10-391, optical patents owned by patent holding company which gave exclusive licenses; exclusive licensee sublicensed to other manufacturers who agreed to maintain prices and comply with marketing restrictions.
United States v. Bausch & Lomb Optical Co., S.D.N.Y. Civil 10-394, patent holding company issued licenses to two licensees to manufacture bifocal lenses, the licenses fixing prices at which the bifocal lenses were to be sold and the selection of wholesalers and retailers for the lenses.
United States v. Catalin Corporation of America, D.N.J. Civil 7743, manufacturer of phenolic resins licensed other manufacturers under its process patents, the licensees agreeing to sell at prices established by the licensor.
United States v. General Cable Corp., S.D.N.Y. Civil 40-76, cross licenses among holders of patents on fluid filled cable, the licensees agreeing to adhere to uniform prices and to observe territorial marketing limitations.
United States v. General Electric Co., D.N.J. Civil 1364, cross-licensing agreements between manufacturers of electrical bulbs providing for price and quantitative restrictions.
United States v. General Electric Co., Fried. Krupp, S.D.N.Y. Cr. 110-412, cross-licensing of tungsten carbide patents with price and territorial restrictions.
United States v. General Instrument Corp., D.N.J. Cr. 3960-C, Civil 8586, owners of variable condenser patents assigned patents to holding company and took back licenses with price-fixing provisions; explicit price-fixing provisions subsequently removed but allegedly continued by tacit agreement.
United States v. Phillips Screw Co., N.D. Ill. Civil 47-C-147, holder of patents on cross recessed head screws granted exclusive license to leading screw manufacturer who sublicensed to other manufacturers; patent holder, exclusive licensee, and sublicensees agreed on price terms for all screws produced.
See Final Report of Temporary National Economic Committee, Sen. Doc. No. 35, 77th Cong., 1st Sess. (1941), p. 36; Report of the National Patent Planning Commission, H.R. Doc. No. 239, 78th Cong., 1st Sess. (1943), p. 9.
Findings by the Court. — "(a) EFFECT. In all actions tried upon the facts without a jury, the court shall find the facts specially and state separately its conclusions of law thereon and direct the entry of the appropriate judgment; and in granting or refusing interlocutory injunctions the court shall similarly set forth the findings of fact and conclusions of law which constitute the grounds of its action. Requests for findings are not necessary for purposes of review. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses. The findings of a master, to the extent that the court adopts them, shall be considered as the findings of the court."
Appalachian Coals v. United States, 288 U.S. 344, cannot be cited to support a contrary view. In that case, this Court held that "The plan cannot be said either to contemplate or involve the fixing of market prices." P. 373. See the Socony-Vacuum case, supra, 214 et seq. Perhaps arbitrary or monopoly prices were in mind in Appalachian. Pp. 358, 359, 365, 371.
"The agreements clearly, therefore, transcended what was necessary to protect the use of the patent or the monopoly which the law conferred upon it. They passed to the purpose and accomplished a restraint of trade condemned by the Sherman law. It had, therefore, a purpose and accomplished a result not shown in the Bement Case. There was a contention in that case that the contract of the National Harrow Company with Bement & Sons was part of a contract and combination with many other companies and constituted a violation of the Sherman law, but the fact was not established and the case was treated as one between the particular parties, the one granting and the other receiving a right to use a patented article with conditions suitable to protect such use and secure its benefits. And there is nothing in Henry v. A.B. Dick Co., 224 U.S. 1, which contravenes the views herein expressed."
That the patents did not represent an industry-wide control appears from the following finding:
Some conception of the degree to which the present patent system has been resorted to is found in Commissioner Coe's testimony that, up to 1939, over 2,000,000 patents had been issued, apart from design patents and reissues. The figure is now approximately 2,500,000 of which all but about 100,000 have been issued since 1870. He showed also that only about 60% of the applications filed are finally granted. (Id. at p. 844, and Exhibits 179 and 180.) See also, Official Gazette, U.S. Pat. Off., Vol. 605, p. 714 (Dec. 30, 1947).
After the final report of the Temporary National Economic Committee, the President issued Executive Order No. 8977, December 12, 1941, 1 C.F.R. Cum. Supp. 1040, establishing the National Patent Planning Commission to conduct a comprehensive survey and study of the American patent system and, among other things, to —
The President appointed Charles F. Kettering, Chairman, Chester C. Davis, Francis P. Gaines, Edward F. McGrady and Owen D. Young as members of the Committee. The Report of the Committee, transmitted by the President to Congress June 18, 1943 (H.R. Doc. No. 239, 78th Cong., 1st Sess. 1), contained the following:
In its summary of findings and recommendations it added:
This was quoted with approval in Crown Co. v. Nye Tool Works, 261 U.S. 24, 37, and was enlarged upon in the General Electric case, supra, at p. 489.
Judge Westenhaver, whose judgment in the District Court was affirmed by this Court in the General Electric case, said:
Clarence C. Carlton, president of the Automotive Parts and Equipment Manufacturers Association, testified that in the automotive parts industry:
As early as 1912, H.R. 22345, 62d Cong., 2d Sess., proposed that a patentee be not permitted to fix the price of articles to be sold by others under his patent.
During the hearings held by the Temporary National Economic Committee, the Department of Justice recommended many fundamental as well as minor changes in the patent law. These included the prohibition of price-limiting patent licenses comparable to those here at issue. Preliminary Report, Temporary National Economic Committee, Sen. Doc. No. 95, 76th Cong., 1st Sess. 16-17 (1939). The Department of Commerce took an opposite position. It submitted recommendations for retaining but improving the patent system substantially in accordance with its traditional underlying policies. The Final Report of the Temporary National Economic Committee incorporated the substance of the proposals of the Department of Justice. It included a recommendation that patentees be not permitted to limit the price at which a licensee might sell a product made under the license. Final Report, Temporary National Economic Committee, Sen. Doc. No. 35, 77th Cong., 1st Sess. 36-37 (1941).
In 1941, the President appointed the National Patent Planning Commission to submit recommendations on questions dealt with in the report. (See note 12, supra.) In 1943, among the examples of the proposed reforms which it concluded "would not be a beneficial innovation in our patent system," it listed "outlawing certain limitations in patent licenses, . . . ." This evidently referred to the above-mentioned proposals of the Temporary National Economic Committee to outlaw price restrictions and other limitations in patent licenses. Report of the National Patent Planning Commission, H.R. Doc. 239, 78th Cong., 1st Sess. 9 (1943).
Bills to the same general effect as the proposals of the Temporary National Economic Committee have been introduced and referred to Committees of Congress but have advanced no further. Among them have been the following:
S. 2491 (§ 4), S. 2730 (§ 3), H.R. 7713 (§ 3), 77th Cong., 2d Sess. (1942); H.R. 109 (§ 3), H.R. 1371 (§ 29), H.R. 3874 (§ 29), 78th Cong., 1st Sess. (1943); H.R. 97 (§ 29), H.R. 3462 (§ 29), 79th Cong., 1st Sess. (1945); S. 2482, 79th Cong., 2d Sess. (1946); S. 72, 80th Cong., 1st Sess. (1947). Section 3 of S. 2730, supra, proposed that —