Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-01-18
BUSINESS METHOD
FACES LEGAL TEST
Practice of Patent Pooling
Under Scrutiny in Su-
preme Court.
BY DEAN DINWOODEY.


The legality under the Sherman anti
trust act of so-called patent pooling
the method by which the members OF
an industry license each other to use
the basic patents SeVerally owned for
their common benefit, was argued be-
fore the Supreme Court of the United
States Thursday in concluding the first
case brought to test this relatively new
Business procedure.
The practice by competitors in an
industry of pooling patents which con-
stitute the basis of their business,
avowedly for the purpose of avoiding
disturbing industrial warfare and costly
patent litigation, has during the past
few years been pursued in several fields
but particularly in the radio aviation
and oil industries
Test Case.
The case in which the validity Of the
practise is being tested was brought by
the Department of Justice against, pri-
marily, the Standard Oil Companies
of Indiana and New jersey the Texas
Co. and the Gasoline Products Co. to re-
strain the operation of agreements be-
tween providing for cross-licensing of
patents covering processes for crack
ing" gasoline and apparatus for prac-
ticing the processes.
The defendant companies, to rebuff the
charge of monopoly, point to the evil
ident keen competition in the sale OF
cracked gasoline. There is no monopoly
Of production, they contend no monop-
oily of the product or the fixing OF a
price for its sale and no monopoly OF
patents. Besides the four companies,
licenses to practice the processes have
been granted 40 other ref1ners, and 1t
Is claimed that any reflner may have
O license.
May Effect Radio Patents.
The courts answer to the problem,
n its forthcoming decision is on the
fundamental matter involved, Will be
determinative not only OF the legality
of patent pooling arrangements in the
cracked gasoline and other fields but
decisive most probably of a specific suit
which the Department of Justice has
brought to break up a pool OF radio
patents owned by the Radio Corpora
ton of America, General Electric Co.,
Westinghouse Electric Co., American
Telephone & Telegraph Co. and asso-
ciated companies. One difference IN
the two cases, possibly fundamental. is
that in the radio case some OF the
patents pooled are So-called product
patents. covering products sold, whereas
in the cracking case the patents pooled
are So-called process patents.
Numerous other refiners of cracked
gasoline are vitality interested in the
outcome of the cracking case, not only
as so-called secondary defendants but
also as licensees of the processes OF the
four primary defendants. The Federal
District Court at Chicago, in upholding
the Governments contention, decreed
that not only the contracts between
the primary defendants but also the
contracts between the primary and sec
ondary defendants were totally void and
unenforcible.
Investments Involved.
If the Supreme Court affirIns the
latter portion of the decree, investments
Of these ref1ners in plants, built to
practice the licensed processes, may be
lost. Should the agreements between
the four primary defendants be held
10 constitute a violation of the Sherman
act, long continued patent litigation
between them on some 10 patents,
which may disturb the industry, Will
possibly result. The effect OF the
courts decision in any event viii be
Oar reaching.
(Copyright. 1917