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United States of America v. Studiengesellschaft Kohle, M.b.h., Director Max Planck,institut Fur Kohlenforschung, Appellant,hercules Incorporated, et al, 670 F.2d 1122 (D.C. Cir. 1981) :: Justia
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United States of America v. Studiengesellschaft Kohle, M.b.h., Director Max Planck,institut Fur Kohlenforschung, Appellant,hercules Incorporated, et al, 670 F.2d 1122 (D.C. Cir. 1981)
U.S. Court of Appeals for the District of Columbia Circuit - 670 F.2d 1122 (D.C. Cir. 1981) Argued May 7, 1980. Decided Dec. 11, 1981
This is a civil antitrust enforcement action brought by the United States against Studiengesellschaft Kohle m.b.H. (S.K.) and its licensees. Essentially, the complaint challenged certain arrangements which granted an exclusive license to sell the product of a patented process as an unreasonable restraint of trade and an attempt to monopolize a part of trade or commerce in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Before trial, the district court denied defendants' motion for summary judgment, holding that the patents did not immunize the challenged arrangements from antitrust scrutiny. United States v. Studiengesellschaft Kohle, m.b.H., 426 F. Supp. 143 (D.D.C. 1976). After a trial without a jury, the district court found that the license provisions in question, stripped of any patent law protection, violated Sections 1 and 2 of the Sherman Act. The court entered a decree enjoining defendant S.K.1 from enforcing any agreement limiting sales of the product of its process patent, and requiring defendant to license the patented process to all applicants at a reasonable royalty. This appeal followed. For reasons stated below, we reverse the judgment of the district court and remand with instructions that it enter judgment for the defendant.
Ethyl was one such disappointed licensee. In 1959 it reacted to Ziegler's denial of its application for a license to sell by filing a declaratory judgment action in the United States District Court for Delaware challenging Ziegler's right to enforce the license provisions banning ATA sales by Ethyl. Before that case came to issue, the parties agreed that, whatever the outcome, Ethyl would be permitted to sell ATAs-by right if the result was in favor of Ethyl, and if otherwise, according to the terms of a special license that would require Ethyl to pay Hercules an additional 2% royalty on sales of ATAs.2 The Delaware Court ultimately found that the license restrictions were a valid exercise of the monopoly power inherent in Ziegler's process patent. Ethyl Corp. v. Hercules Powder Co., 232 F. Supp. 453 (D. Del. 1964). Ethyl took no appeal, but began selling ATAs, subject only to an obligation to pay the 2% royalty agreed upon in partial settlement of the Delaware litigation. Only Hercules and Ethyl have sold industrial quantities of ATAs since that time.
On April 24, 1970, the United States filed the complaint in this case against Dr. Ziegler, Hercules, Stauffer, and Texas. After extensive discovery, defendants moved for summary judgment on the ground that the exclusive license to market ATAs manufactured by the Ziegler process was protected by the patent laws and thus immune from attack under the antitrust laws. The district court denied this motion, finding, contrary to the Delaware decision, that the patent laws did not protect the Ziegler licensing agreement. J.A. 77; 426 F. Supp. 143, 149 (D.D.C. 1976). The court emphasized that S.K. (which was substituted as a defendant upon the death of Dr. Ziegler) held a process patent and not a product patent. The court concluded that a restriction on sales of the product by the nonexclusive process licensees exceeded the scope of a process patent. According to the district court, Ziegler's
426 F. Supp. at 148, 149 and n.3. Having denied defendants' motion for summary judgment, the court set the case for trial on the issue of whether the agreements limiting sales violated the Sherman Act.
On appeal, the parties make a number of contentions, not all of which need be addressed in view of the conclusion we reach. Appellant renews its argument below in support of its motion for summary judgment that its conduct is protected by the patent laws because (1) it effected no greater restraint than the patent granted, and (2) it could have legally imposed a much greater restraint by granting Hercules an absolutely exclusive license to use the Ziegler process, thereby automatically vesting Hercules with the exclusive right to sell ATA's manufactured by that process. In addition, appellant argues that the restraints challenged here should be upheld as permissible quantity restrictions on the use of the process, citing Q-Tips, Inc. v. Johnson & Johnson, 109 F. Supp. 657 (D.N.J. 1951), aff'd, 207 F.2d 509 (3rd Cir. 1953), cert. denied, 347 U.S. 935, 74 S. Ct. 630, 98 L. Ed. 1080 (1954).5 Finally, appellant argues that the government's failure to prove a relevant market is fatal to its claim under both Section 1 and Section 2.6
The patent laws, authorized by the Constitution, were enacted by Congress to stimulate invention and reward innovation by granting the patentee a 17-year monopoly of the making, using, and selling of the patented invention. U.S.Const., art. I, sec. 8; 35 U.S.C. § 154. Such a grant is in inevitable tension with the general hostility against monopoly expressed in the antitrust laws, 15 U.S.C. § 1 et seq. Therefore, courts normally construe patent rights narrowly in deference to the public interest in competition. Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 665-66, 64 S. Ct. 268, 271, 88 L. Ed. 376 (1944); United States v. Masonite Corp., 316 U.S. 265, 278-80, 62 S. Ct. 1070, 1077-78, 62 S. Ct. 1302 (1942). As a result, there has been a stream of litigation down through the years flowing from the conflict between the monopoly rights created by the patent laws on one hand and the national policy favoring competition expressed in the antitrust laws on the other.7
The essential rights of a patentee may be briefly summarized. A patentee has the right to exclude others from profiting from the patented invention. Zenith Radio Corp. v. Hazeltine Research Inc., 395 U.S. 100, 135, 89 S. Ct. 1562, 23 L. Ed. 2d 129 (1969); Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405, 424-25, 28 S. Ct. 748, 753-54, 52 L. Ed. 1122 (1908). This includes the right to suppress the invention while continuing to prevent all others from using it, Continental Paper Bag Co., supra, to license others, or to refuse to license, and to charge such royalty as the leverage of the patent monopoly permits. See Brulotte v. Thys Co., 379 U.S. 29, 33, 85 S. Ct. 176, 179, 13 L. Ed. 2d 99 (1964) (dictum); W.L. Gore & Assoc. v. Carlisle Corp., 529 F.2d 614, 622-23 (3d Cir. 1976). A patentee may grant one exclusive license or may grant many licenses. See E. Bement & Sons v. National Harrow Co., 186 U.S. 70, 22 S. Ct. 747, 46 L. Ed. 1058 (1902); United States v. Westinghouse Elec. Co., 648 F.2d 642 (9th Cir. 1981).
A patent may be awarded for either a product or a process. A product patent creates a monopoly over the manufacture, use, and sale of a product; a process patent creates a monopoly over the manufacture, use, and sale of a process. The essential difference between the two relates to scope. A product patent gives the patentee the right to restrict the use and sale of the product regardless of how and by whom it was manufactured. A process patentee's power extends only to those products made by the patented process. Merrill v. Yeomans, 94 U.S. 568, 24 L. Ed. 235 (1876); see pages 1133-1134, infra. A process patent thus "leaves the field open to ingenious men to invent and to employ other processes." 1 A. Walker, Patents § 23 at 140 (2d Deller ed. 1964).
A sale of a product made by a patented process does not itself infringe the patent; it is the unauthorized use of the process that infringes the patent. See, e.g., Koratron Co. v. Lion Uniform, Inc., 449 F.2d 337, 338 (9th Cir. 1971); In re Amtorg Trading Corp., 75 F.2d 826 (C.C.P.A. 1935), cert. denied 296 U.S. 576, 56 S. Ct. 102, 80 L. Ed. 407 (1935).8 Here the several licenses contained conditions restricting sales by the nonexclusive licensees of the product of the patented process. Such sales would violate the license agreement and therefore expose the seller to infringement claims by Hercules and S.K., unless the antitrust laws rendered those conditions unenforceable. See Ethyl Corp. v. Hercules Powder Co., supra. The validity of these restrictions in the nonexclusive licenses under the antitrust laws is the issue which we must resolve.
The district court treated the question of the interaction between the patent laws and the antitrust laws here in two stages: it first determined that the restriction imposed was outside the scope of the patent protection, then examined the unprotected restriction to determine if it constituted an attempt to monopolize or an unlawful restraint of trade. See 426 F. Supp. at 149. Although in the second step of its analysis the court purported to assess the reasonableness of the competitive effects of the restriction, in fact, its method of analysis had the effect of applying a per se rule. This is so because once the protection of the patent was removed, the license conditions, like the patent itself, inevitably had the effect of restricting competition.
Such a formalistic, two-step analysis forecloses adequate consideration of the fundamental fact that a patent by definition restrains trade, and in effect makes most exclusive patent licenses per se violations of the antitrust laws. But as the Supreme Court noted in E. Bement & Sons v. National Harrow Co., 186 U.S. 70, 91, 22 S. Ct. 747, 755, 46 L. Ed. 1058 (1902); "(t)he very object of (the patent laws) is monopoly.... The fact that the conditions in the contract keep up the monopoly does not render them illegal." Thus, as appears more fully below, we conclude that a rule of reason rather than a per se rule applies here. Under our analysis, the protection of the patent laws and the coverage of the antitrust laws are not separate issues. Rather, the conduct at issue is illegal if it threatens competition in areas other than those protected by the patent, and is otherwise legal.9 The patentee is entitled to exact the full value of his invention but is not entitled to endanger competition in other areas by manipulating his patent monopoly. It was thus error to consider the scope of the patent protection irrespective of any competitive effects in the first phase of the case, and then rule separately on the anticompetitive effects of the arrangement without consideration of the protection of the patent.
The government contends and the district court concluded that defendant's conduct in this case was an attempt to extend its monopoly of the process for making ATAs into a monopoly of the product, ATAs, which are themselves unpatented. As already noted previously, the defendant was not given a product patent on the ATAs because he did not invent them. S.K. thus has no right to prevent others from selling ATAs which are manufactured by another process. An attempt by defendant to expand its monopoly to cover such an unpatented product manufactured by another process would be an attempt to enlarge its monopoly beyond what the patent law gives it and would thus be subject to antitrust attack. For example, if S.K. had required its licensees to refrain from selling any ATAs, even if they were made by other processes, it might well be in violation of the antitrust laws. Cf. Compton v. Metal Prods., Inc., 453 F.2d 38 (4th Cir. 1971), cert. denied, 406 U.S. 968, 92 S. Ct. 2414, 32 L. Ed. 2d 667 (1972). A requirement by defendant that any licensee who discovered an alternative process grant back to S.K. a license under that process might similarly be illegal, since such a license might dampen the incentive to invent around the patent. But S.K. did neither of these things. It merely restricted the sale of ATAs which were manufactured by its process. Such a restriction does not in any way operate to limit competition between ATAs manufactured pursuant to the Ziegler process and ATAs manufactured by other processes, now or hereafter available. Nor does this restriction make it less likely that such process will be discovered.
Defendant has thus sought nothing beyond what the patent itself gave it. The patent gives it the unlimited right to exclude others from utilizing its process. This process is, in fact, so superior to other processes that a monopoly over the process gives its holder a de facto monopoly over the product. But there is no danger that defendant can, by manipulating its process patent, "convert a process patent into a product patent." 426 F. Supp. at 149. S.K. has no monopoly over ATAs not produced by the Ziegler patent. Its monopoly of the product can continue only so long as its process remains "so superior to other processes that ATAs made by those other processes could not compete commercially..." J.A. 92. The district court's ruling that Ziegler could not restrict sales of products made by the patented process, without a showing that trade in some article other than ATAs made by that process was restrained, amounted to a rule that restraints on sales by a process patentee, though not by a product patentee, are per se unlawful.
Even were we otherwise attracted to this purely formalistic distinction between a process patent and a product patent, however, it is clear that such a per se approach is no longer acceptable in the wake of the Supreme Court's decision in Continental TV, Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977). Prior to Continental TV, restrictions by a seller upon the territories in which dealers could sell were per se illegal when title to the relevant goods had passed from the seller to the dealer, but were governed by the rule of reason when the seller retained title. United States v. Arnold Schwinn & Co., 388 U.S. 365, 87 S. Ct. 1856, 18 L. Ed. 2d 1249 (1967).10 This distinction, based as it was essentially upon a "restraints on alienation" theory, was criticized by the Continental TV Court as overly formalistic and insufficiently attentive to the real economic effects of the particular challenged restraint. Continental TV is a message to lower courts that antitrust violations should be based upon economic effects rather than upon formal distinctions. As the Supreme Court said:
433 U.S. at 58-59, 97 S. Ct. at 2561-62.
This conclusion is further supported by the Supreme Court's decision in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 99 S. Ct. 1551, 60 L. Ed. 2d 1 (1979). There the Court again cautioned against a willingness to invoke per se rules lightly, stating that it is only after considerable experience with a restraint that courts should classify it as per se illegal. This is particularly true where, as here, the restraint is not a "naked restraint of trade with no purpose except stifling of competition." 441 U.S. at 10, 99 S. Ct. at 1557, citing White Motor Co. v. United States, 372 U.S. 253, 263, 83 S. Ct. 696, 702, 9 L. Ed. 2d 738 (1963). In addition, the Court noted in the related context of copyrights that "we would not expect that any market arrangements reasonably necessary to effectuate the rights that are granted would be deemed a per se violation of the Sherman Act." 441 U.S. at 19, 99 S. Ct. at 1562.
While it is possible that some restraints in a patent license, such as tying restrictions, may be illegal per se after Continental TV and Broadcasting Music, Inc., it would be necessary at least to show that the restraints involved had no purpose except restraining trade, and had unequivocally anticompetitive effects in the vast majority of cases. As we noted in Smith v. Pro Football, Inc., 193 U.S.App.D.C. 19, 27, 593 F.2d 1173, 1181 (1978), per se rules risk sweeping reasonable, procompetitive activity within a general condemnation, and a court will run this risk only where dictated on the basis of unambiguous experience. As appears below, we conclude that, far from being a "naked restraint of trade," the restraint challenged here is "reasonably necessary to effectuate the rights that are granted" by the Ziegler process patent. Cf. Broadcast Music, Inc., supra, 441 U.S. at 19, 99 S. Ct. at 1562.
Defendant's reasonableness claim rests primarily on its assertion that it effected no more control over ATAs than it could have exercised if it had given Hercules an absolutely exclusive license. The law is settled that S.K. could legally have licensed Hercules alone to use the patented process. See, e.g., E. Bement & Sons v. National Harrow Co., supra; United States v. Westinghouse Elec. Co., 648 F.2d 642 (9th Cir. 1981); Rail Trailer Co. v. ACF Indus. Inc., 358 F.2d 15 (7th Cir. 1966); Benger Laboratories Ltd. v. R.K. Laros Co., 209 F. Supp. 639 (E.D. Pa. 1962), aff'd, 317 F.2d 455 (3d Cir.), cert. denied, 375 U.S. 833, 84 S. Ct. 69, 11 L. Ed. 2d 64 (1963). The actual licensing arrangement here is less restrictive than an exclusive license. Because other nonexclusive licensees are free to manufacture for their own use, demand for ATAs produced by Texas, and therefore the benefit of its exclusive license, is lessened. This lesser restraint, which has fewer anti-competitive effects than a lawful exclusive license, gives the Ziegler arrangement an important badge of reasonableness.
The government attempts to respond by pointing out that antitrust scrutiny of a patent arrangement is not foreclosed simply because the patentee had the power to license less widely than it did. Of course, it is not the case that merely because the patentee has the right to refuse to license anyone, he has the right to license upon any condition he chooses; that position was rejected as early as Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 37 S. Ct. 416, 61 L. Ed. 871 (1917). But in all of the cases which the government cites, and which are discussed below, the restriction imposed itself had competitive dangers which were not present in purely legal arrangements. The government has cited no case, and we are not aware of any, which found antitrust infirmities in a restriction that posed only the restraint on competition imposed by the patent itself or by exercise of legal rights corollary to those created by the patent.
Of course, where the restraint imposed has the danger of extending the patent monopoly, courts have not hesitated to prohibit it. For example, tying arrangements, in which the patentee agrees to license the patent only in exchange for the licensee's agreement to purchase other goods from the patentee, are illegal per se because they tend to foreclose competition in markets other than those in the patented product or process. See, e.g., International Salt Co. v. United States, 332 U.S. 392, 68 S. Ct. 12, 92 L. Ed. 20 (1947); Morton Salt v. G.S. Suppiger Co., 314 U.S. 488, 62 S. Ct. 402, 86 L. Ed. 363 (1942); Motion Picture Patents Co., supra.
Similarly, courts have sometimes struck down attempts by a patentee to restrict the prices at which products may be resold, because of the danger that such a restriction can be used as a means of organizing a cartel. Cases involving price-fixing restrictions illustrate well the controlling considerations. At one end of the spectrum, United States v. General Electric Co., 272 U.S. 476, 47 S. Ct. 192, 71 L. Ed. 362 (1926), approved a restriction on the prices at which the licensee could sell the patented products, stating that "a patentee may grant a license... upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure." Id. at 489, 47 S. Ct. at 196. The Supreme Court concluded that the patentee's reward included the right to fix prices at which products were sold and that a price restriction in a patent license was thus not illegal. While this toleration of price-fixing by the patentee has been seriously questioned,12 and has survived twice only by the grace of an equally divided Court,13 over the years the General Electric formulation has been the verbal frame of reference for testing the validity of a license restriction in many subsequent decisions. See e.g., United States v. Westinghouse Elec. Co., 648 F.2d 642 (9th Cir. 1981); Hensley Equipment Co. v. Esco Corp., 383 F.2d 252 (5th Cir. 1967); Turner Glass Corp. v. Hartford-Empire Co., 173 F.2d 49 (7th Cir.), cert. denied, 338 U.S. 830, 70 S. Ct. 57, 94 L. Ed. 505 (1949).
At the other end of the spectrum, United States v. Univis Lens Co., 316 U.S. 241, 62 S. Ct. 1088, 86 L. Ed. 1048 (1942) held invalid an attempt by a patentee of lenses to control the price of finished lenses produced by others from the lens blanks after it had sold the lens blanks it produced. The Supreme Court ruled that sale of a patented article exhausts the patentee's monopoly of that article and that the patentee could not thereafter control the use or disposition of the article to any greater extent than could a seller of an unpatented article. The Court relied on a number of earlier cases which predated the Sherman Act and which held that the patent gave its owner no power over the product once it was sold. See, e.g., Bauer & Cie v. O'Donnell, 229 U.S. 1, 33 S. Ct. 616, 57 L. Ed. 1041 (1913); Adams v. Burke, 84 U.S. (17 Wall.) 453, 21 L. Ed. 700 (1873).
This early Supreme Court case law tended to rely on per se rules and contained little analysis of possible anticompetitive effects. In Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 60 S. Ct. 618, 84 L. Ed. 852 (1940), however, there began to emerge a tendency to focus more on the economic effects of the challenged license restriction. The patentee in Ethyl owned a patent on a gasoline additive which improved performance and which was used by almost the entire gasoline industry. The patentee required all jobbers who sold gasoline with this additive to adhere to its prices and refused to license jobbers with a history of selling for less. This practice gave the patentee the power, not authorized by the patent grant, to fix prices in the retail gasoline industry. Ethyl was using its patent to obtain a reward not contemplated by the patent laws: the cartelization of the gasoline market. The Supreme Court proscribed this practice.
United States v. Masonite Corp., 316 U.S. 265, 62 S. Ct. 1070, 86 L. Ed. 1461 (1942) further clarified the distinction between legal and illegal restraints on prices. Masonite had entered into del credere agency agreements with its competitors under which it consigned to them its patented hardboard, for sale at agreed prices. Title to the patented hardboard remained with Masonite under the agency agreement; and the case would have seemed to be governed by General Electric, supra, which allowed price-fixing where title to the patented product had not yet passed rather than by Univis, which did not allow price fixing with respect to patented goods once they were sold. Nonetheless, the Supreme Court, refusing to be bound by the form of the transaction, found the arrangement illegal. It noted:
316 U.S. at 278-79, 62 S. Ct. at 1078-79 (emphasis supplied). The Court found that the arrangement gave Masonite far more than just a reward for its invention:
Id. at 281, 62 S. Ct. at 1079.14
The so-called "field-of-use" cases, which are perhaps most closely related to the case at bar, illustrate well the distinction between lawful use of the patent monopoly and uses which operate to extend the patent monopoly. General Talking Pictures v. Western Elec. Co., 304 U.S. 175, 58 S. Ct. 849, 82 L. Ed. 1273 aff'd on rehearing, 305 U.S. 124, 59 S. Ct. 116, 83 L. Ed. 81 (1938), involved a typical "field-of-use" restriction. The patentee there licensed patents relating to amplifiers which could be used both in motion picture exhibition equipment and in private radio reception equipment. The defendant was licensed only to practice the patent in equipment for noncommercial use, while others were licensed to use the patent in equipment used commercially. The Supreme Court upheld this restriction, concluding that it was well within the scope of the patentee's monopoly and therefore legal under the General Electric test. Courts have generally followed General Talking Pictures in holding legal such field-of-use restraints as a restriction on classes of customers to which licensees could sell and a restriction on the kinds of objects on which the process could be used.15 But courts have occasionally distinguished General Talking Pictures and held the restraint illegal where they perceived that the field-of-use restriction was being used to extend the patent into areas not protected by the patent monopoly, such as a requirement that a patented strain gauge only be sold with the licensee's machines.16
The government attempts to support its position by citing a number of decisions holding that the owner of a patent on a machine may not control the price of products made or handled by that machine. See, e.g., Cummer-Graham Co. v. Straight Side Basket Corp., 142 F.2d 646 (5th Cir.), cert. denied, 323 U.S. 726, 65 S. Ct. 60, 89 L. Ed. 583 (1944); American Equipment v. Tuthill Bldg. Material Co., 69 F.2d 406 (7th Cir. 1934). However, there is an obvious difference between a patentee of a brick-handling machine seeking to control the price of ordinary bricks, see American Equipment, supra, or a patentee of an attachment to a basket-making device seeking to fix the price of baskets, see Cummer-Graham, supra, and the restriction here on the unique product, ATAs. If Ziegler were attempting to restrain a generic product primarily in the public domain, the government's position here might have some merit. But, in fact, the district court found the Ziegler process to be the only presently feasible method of manufacturing ATAs.
Only one case cited by the government draws the distinction between a process patent and a product patent which the government urges here. In Barber-Coleman Co. v. National Tool Co., 136 F.2d 339 (6th Cir. 1943), the court held that a process patentee did not have the right to fix prices on sales of the product of the process, even though under General Electric a product patentee would have that right. The decision in Barber-Coleman, is, however, probably best regarded as a transparent attempt by a court to avoid the result it would have reached by literally following General Electric, which as previously noted17 has been widely criticized and frequently distinguished on dubious grounds. See L. Sullivan, supra, § 185c (1977). Indeed, the General Electric case itself involved process patents as well as product patents, and the Court there did not draw any distinction between the two. As a number of commentators have noted, the difference between a process patent and a product patent makes no difference to the potential for competitive harm inherent in a given restraint. See L. Sullivan, supra ; Adelman & Juenger, supra, at 273, 286, 288, 303. In addition, in Barber-Coleman, the patent was on a process for manufacturing hobs, which, like the bricks in American Equipment, and unlike ATAs, were also made by a number of other processes. Further, there is no issue presented here as to whether Ziegler could restrict the prices at which licensees sold ATAs manufactured with its process. Finally, courts have applied General Electric and similar cases numerous times without distinguishing process patents from product patents. See, e.g., Extractol Process v. Hiram Walker & Sons, 153 F.2d 264, 266 (7th Cir. 1946) (dictum); Barr Rubber Prods. Co. v. Sun Rubber Co., 277 F. Supp. 484, 506 (S.D.N.Y. 1967), modified on other issues, 425 F.2d 1114 (2d Cir.), cert. denied 400 U.S. 878, 91 S. Ct. 118, 27 L. Ed. 2d 115 (1970); Deering-Milliken & Co. v. Temp-Resisto Corp., 160 F. Supp. 463 (S.D.N.Y. 1958), rev'd on other grounds, 274 F.2d 626 (2d Cir. 1960); Ethyl Corp. v. Hercules Powder Co., 232 F. Supp. 453 (D. Del. 1964).
The situation here is thus quite different from those obtaining where the patentee threatened to extend its monopoly beyond those rights accruing under the patent. None of the anticompetitive effects found by the district court18 involve this danger. Moreover, these same anticompetitive effects would be created if Ziegler had given Hercules an exclusive license. Thus, none of the effects found will support a finding that the license restraints at issue violated Section 1 of the Sherman Act under the rule of reason. Since we have rejected both a per se rule and the district court's rule-of-reason approach which, in effect, applied a per se rule, the district court's conclusion that defendant violated Section 1 must be reversed. The conclusion that the restraints violated Section 2 because they constitute an attempt to monopolize must similarly be reversed: defendant cannot be guilty of attempting to monopolize the market for ATAs manufactured by the Ziegler process. That is the very market which the patent authorizes its grantee to monopolize. See, e.g., Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979), cert. denied, 444 U.S. 1025, 100 S. Ct. 688, 62 L. Ed. 2d 659 (1980); Commissioner of Patents v. Deutsche-Gold-Und-Silber-Scheideanstalt Vormals Roessler, 130 U.S.App.D.C. 95, 397 F.2d 656, 663 (1968).
Our conclusion is further corroborated by United States v. Westinghouse Elec. Corp., 471 F. Supp. 532 (N.D. Cal. 1978), aff'd 648 F.2d 642 (9th Cir. 1981) where both courts upheld against antitrust challenges an agreement in which defendant licensed its patents to Mitsubishi only for use outside the United States. The courts found no evidence that the agreement operated to extend the scope of the patents. They firmly rejected the government's theory that it was wrongful for Westinghouse to license Mitsubishi to practice Westinghouse's patents while not allowing it to compete with Westinghouse. Judge Weigel in the district court noted:
471 F. Supp. at 542.22
The consent decrees, entered December 8, 1977, enjoined these defendants from enforcing or entering into any agreements that restricted any licensee's use of any process to produce aluminum alkyls or prevented any person authorized to use those patented processes from selling the products of those processes. It also provided for compulsory licensing, at reasonable and nondiscriminatory rates and conditions, of all applicants for licenses to practice any patented invention owned by these defendants relating to aluminum alkyls, and for royalty-free licensing of patents on the manufacture of ATAs. Defendants agreed further that if any motion were filed with respect to the judgment in Ethyl Corp. v. Hercules Powder Co., 232 F. Supp. 453 (D. Del. 1964), they would not oppose intervention by the United States nor would they oppose a modification of that judgment to permit sale of unpatented ATAs. In order to secure compliance with the provisions of the consent decree, each defendant agreed to provide the United States with access to books, ledgers, etc. and the district court retained jurisdiction to enforce or modify the judgment
In Q-Tips, Inc. v. Johnson & Johnson, Q-Tips held patents for a machine that made unpatented swabs with cotton either at one or both ends of the swab. It licensed use of the machines to others but limited licensees either to production of swabs with only one cotton tip or limited the number of swabs that could be produced with cotton at both ends. The district court found that Q-Tips had not "overstepp(ed) the monopoly to which it (was) entitled under the patent laws, into the areas interdicted by the antitrust statutes," by including quantity restrictions in its licenses. 109 F. Supp. at 661. The court of appeals affirmed. 207 F.2d 509
See United States v. E.I. DuPont de Nemours & Co., 351 U.S. 377, 76 S. Ct. 994, 100 L. Ed. 1264 (1956); Hecht v. Pro-Football, Inc., 187 U.S.App.D.C. 73, 570 F.2d 982 (1977), cert. denied, 436 U.S. 956, 98 S. Ct. 3069, 57 L. Ed. 2d 1121 (1978); Oetiker v. Jurid Werke, G.m.b.H., 181 U.S.App.D.C. 124, 556 F.2d 1 (1977)
Litigation of such cases increased markedly in 1970 when the Antitrust Division of the Department of Justice reinstated its Patent Section and filed several civil actions, including the present case, challenging the validity of various licensing practices. See Adelman & Juenger, Patent-Antitrust: Patent Dynamics and Field-of-Use Licensing, 50 N.Y.U. L. Rev. 273, 273-74 (1975) (collecting cases and statements of Justice Department officials expressing "the view that the days of benign neglect toward restrictions of competition by patentees should be numbered"). During this period the Division also filed, among others, United States v. Westinghouse Elec. Corp., 471 F. Supp. 532 (N.D. Cal. 1978), aff'd 648 F.2d 642 (9th Cir. 1981) (see p. 1123, infra) ; United States v. Ciba Geigy Corp., 508 F. Supp. 1118 (D.N.J. 1976) (see p. 1123 n.22, infra) ; United States v. Glaxo Group Ltd., 328 F. Supp. 709 (D.D.C. 1971), rev'd in part, 410 U.S. 52, 93 S. Ct. 861, 35 L. Ed. 2d 104 (1973) (see p. 1129 n.10, infra)
See United States v. Griffith, 334 U.S. 100, 68 S. Ct. 941, 92 L. Ed. 1230 (1948) (use of monopoly power, even if lawfully acquired, to foreclose competition in other markets unlawful); SCM Corp. v. Xerox Corp., 645 F.2d 1195 (2d Cir. 1981) (refusal to license patent is legal where not used to extend patent monopoly); United States v. Westinghouse Elec. Corp., 471 F. Supp. 532 (N.D. Cal. 1978), aff'd 648 F.2d 642 (9th Cir. 1981) (rejecting view that patent licensing contract should, if at all possible, be found illegal). See generally L. Sullivan, Handbook of Law of Antitrust § 184c (1977); W. Bowman, Patent and Antitrust Law 53-57 (1973); Adelman & Juenger, supra, at 294-96; Baxter, Legal Restrictions on Exploitation of the Patent Monopoly: An Economic Analysis, 76 Yale L.J. 267, 275-79, 312-14 (1966); Buxbaum, Restrictions Inherent in the Patent Monopoly: A Comparative Critique, 113 U. Pa. L. Rev. 633 (1965)
The court considered the question of whether Ziegler was guilty of patent abuse to be roughly the same question as whether an antitrust violation occurred. See 232 F. Supp. at 458
United States v. Line Material Co., 333 U.S. 287, 68 S. Ct. 550, 92 L. Ed. 701 (1948); United States v. Huck Mfg. Co., 382 U.S. 197, 86 S. Ct. 385, 15 L. Ed. 2d 268 (1965), aff'g 227 F. Supp. 791 (E.D. Mich. 1964)
See also United States v. Line Material Co., 333 U.S. 287, 68 S. Ct. 550, 92 L. Ed. 701 (1948) (price-fixing illegal where two patentees cross-license each other's patents, since this is more than mere exploitation of patents)
See, e.g., Armstrong v. Motorola Inc., 374 F.2d 764 (7th Cir.), cert. denied, 389 U.S. 830, 88 S. Ct. 95, 19 L. Ed. 2d 88 (1967) (upholding a restriction on classes of customers to which manufacturer licensees could sell); Bela Seating Co. v. Poloron Prods. Inc., 297 F. Supp. 489 (N.D. Ill. 1968), aff'd, 438 F.2d 733 (7th Cir.), cert. denied, 403 U.S. 922, 91 S. Ct. 2228, 29 L. Ed. 2d 701 (1971) (upholding restriction on the design of chairs manufactured under the patent); Barr Rubber Prods. Co. v. Sun Rubber Co., 277 F. Supp. 484 (S.D.N.Y. 1967), modified on other issues, 425 F.2d 1114 (2d Cir.), cert. denied, 400 U.S. 878, 91 S. Ct. 118, 27 L. Ed. 2d 115 (1970) (upholding restriction on process patent which granted one licensee exclusive right to use process on hobby horses)
Baldwin-Lima-Hamilton Corp. v. Tatnall Measuring Systems Co., 169 F. Supp. 1 (E.D. Pa. 1958), aff'd per curiam, 268 F.2d 395 (3d Cir.), cert. denied, 361 U.S. 894, 80 S. Ct. 190, 4 L. Ed. 2d 151 (1959); see also Prestole Corp. v. Tinnerman Prods. Inc., 271 F.2d 146 (6th Cir. 1959), cert. denied, 361 U.S. 964, 80 S. Ct. 593, 4 L. Ed. 2d 545 (1960) (striking down restriction which prevented sale of patented product in conjunction with feature on which patent had expired, since this would operate to extend the life of the latter patent)
General Talking Pictures and other field-of-use cases have been critically examined in a number of scholarly works. See, e.g., Baxter, supra ; G. Gibbons, Field Restrictions in Patent Transactions: Economic Discrimination and Restraint of Competition, 66 Colum. L. Rev. 423 (1966).
Cf. Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176, 100 S. Ct. 2601, 65 L. Ed. 2d 696 (1980) (restriction on product whose only use is with patented process not illegal)
See Masonite, supra, 316 U.S. at 278-81, 62 S. Ct. at 1077-79; cf. Lear, Inc. v. Adkins, 395 U.S. 653, 89 S. Ct. 1902, 23 L. Ed. 2d 610 (1969) (licensees may challenge validity of patent even though there are contractual provisions to the contrary); Bendix Corp. v. Balax, Inc., 471 F.2d 149, 154-59 (7th Cir. 1972), cert. denied, 414 U.S. 819, 94 S. Ct. 43, 38 L. Ed. 2d 51 (1973) (restraint of licensee challenge by patentee may violate antitrust laws)
See also United States v. Ciba Geigy Corp., 508 F. Supp. 1118 (D.N.J. 1976), which upheld a licensing arrangement which prohibited bulk sales of the patented drug by the licensee. The court there observed:
F. Supp. at 1151