Source: https://www.law.cornell.edu/supremecourt/text/339/827
Timestamp: 2019-04-22 18:15:26+00:00

Document:
But petitioner urges that this case 'is identical in principle' with the 'Tie-in' cases. It is contended that the licensing provision requiring royalty payments of a percentage of the sales of the licensee's products constitutes a misuse of patents because it ties in a payment on unpatented goods. Particular reliance is placed on language from United States v. U.S. Gypsum, 333 U.S. 364, 389, 400, 68 S.Ct. 525, 539, 544, 92 L.Ed. 746. 5 That case was a prosecution under the Sherman Act, 15 U.S.C.A. § 1 et seq., for an alleged conspiracy of Gypsum and its licensees to extend the monopoly of certain patents and to eliminate competition by fixing prices on patented and unpatented gypsum board. The license provisions based royalties on all sales of gypsum board, both patented and unpatented. It was held that the license provisions, together with evidence of an understanding that only patented board would be sold, showed a conspiracy to restrict the production of unpatented products which was an invalid extension of the area of the patent monopoly. 333 U.S. at page 397, 68 S.Ct. at page 543. There is no indication here of conspiracy to restrict production of unpatented or any goods to effectuate a monopoly, and thus the Gypsum case does not aid petitioner. That which is condemned as against public policy by the 'Tie-in' cases is the extension of the monopoly of the patent to create another monopoly or restraint of competitiona restraint not countenanced by the patent grant. See, e.g., Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661, 665666, 64 S.Ct. 268, 271, 88 L.Ed. 376; Morton Salt Co. v. Suppiger Co., 314 U.S. 488, 778, 62 S.Ct. 402, 86 L.Ed. 363; Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 456, 60 S.Ct. 618, 625, 84 L.Ed. 852. The principle of those cases cannot be contorted to circumscribe the instant situation. This royalty provision does not create another monopoly; it creates no restraint of competition beyond the legitimate grant of the patent. The right to a patent includes the right to market the use of the patent at a reasonable return. See 46 Stat. 376, 35 U.S.C. 40, 35 U.S.C.A. § 40; Hartford-Empire Co. v. United States, 323 U.S. 386, 417, 65 S.Ct. 373, 388, 89 L.Ed. 322; Id., 324 U.S. 570, 574, 65 S.Ct. 815, 818, 89 L.Ed. 1198.
The licensing agreement in issue was characterized by the District Court as essentially a grant by Hazeltine to petitioner of a privilege to use any patent or future development of Hazeltine in consideration of the payment of royalties. Payment for the privilege is required regardless of use of the patents. 6 The royalty provision of the licensing agreement was sustained by the District Court and the Court of Appeals on the theory that it was a convenient mode of operation designed by the parties to avoid the necessity of determining whether each type of petitioner's product embodies any of the numerous Hazeltine patents. D.C., 77 F.Supp. at 496. The Court of Appeals reasoned that since it would not be unlawful to agree to pay a fixed sum for the privilege to use patents, it was not unlawful to provide a variable consideration measured by a percentage of the licensee's sales for the same privilege. 1 Cir., 176 F.2d at page 804. Numerous District Courts which have had occasion to pass on the question have reached the same result on similar grounds, 7 and we are of like opinion.
Respondent did not seek to have this provision of the agreement enforced, and the decree of the District Court does not enforce it. It may well have been a dead letter from the beginning, as indicated by the fact that, as petitioner averred in its answer, it has never observed this provision of the agreement. Thus it is doubtful that the legality of this provision could be contested, even assuming that the issue was properly raised, which respondent disputes. In any event, it is clear that any issue with respect to this provision of the agreement is moot. An affidavit of the president of respondent corporation advises us of certain letters which were sent by respondent in September 1945, to each of its licensees, including petitioner. These letters authorized the discontinuance of the restrictive notice provision and the substitution of the marking 'This apparatus is licensed under the United States patent rights of Hazeltine Corporation.' It is further averred that this form of notice is all that respondent has required of its licensees since September 1945. Since this provision of the agreement was made for the benefit of respondent, it could voluntarily waive the provision. Westinghouse Electric Corp. v. Bulldog Electric Products Co., 4 Cir., 179 F.2d 139, 145, 146. Thus the question of the legality of the original restrictive notice provision is not before us. Cf. Standard Oil Co. (Indiana) v. United States, 283 U.S. 163, 181182, 51 S.Ct. 421, 427, 428, 75 L.Ed. 926.
It is said that if the purpose was to enlarge the monopoly of the patentfor example, through price fixingthen estoppel would not bar the licensee from challenging the validity of the patents. But what worse enlargement of monopoly is there than the attachment of a patent to an unpatentable article? When we consider the constitutional standard, what greater public harm than that is there in the patent system? It is only right and just that the licensee be allowed to challenge the validity of the patents. A great pooling of patents is made; and whole industries are knit together in the fashion of the unholy alliances revealed in United States v. Line Material Co., 333 U.S. 287, 68 S.Ct. 550, 92 L.Ed. 701, and United States v. Gypsum Co., 333 U.S. 364, 68 S.Ct. 525, 92 L.Ed. 746. One who wants the use of one patent may have to take hundreds. The whole package may contain many patents that have been foisted on the public. No other person than the licensee will be interested enough to challenge them. He alone will be apt to see and understand the basis of their illegality.
Hazeltine Research v. Admiral Corp., D.C., 87 F.Supp. 72, 79; H-P-M Development Corp. v. Watson-Stillman Co., D.C., 71 F.Supp. 906, 912; American Optical Co. v. New Jersey Optical Co., D.C., 58 F.Supp. 601, 606; Ohio Citizens Trust Co. v. Air-Way Electric Appliance Corp., D.C., 56 F.Supp. 1010, 1012; Cf. Pyrene Mfg. Co. v. Urquhart, D.C., 69 F.Supp. 555, 560; International Carbonic Engineering Co. v. Natural Carbonic Products, D.C., 57 F.Supp. 248, 251253, affirmed, 9 Cir., 158 F.2d 285. At least one state court has reached this result. Hazeltine Research v. DeWald Radio Corp., 194 Misc. 81, 84 N.Y.S.2d 597, 603.
See Hamilton, Patents and Free Enterprice, T.N.E.C. Monograph No. 31, 76th Cong., 3d Sess., pp. 6270.

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