Earl Warren: -- Manufacturing Company, Petitioner, versus Ransburg Electro-Coating Corporation. Mr. Gilliom, you may continue your argument.
Elbert R. Gilliom: May it please the Court, Mr. Chief Justice. At the conclusion of the session yesterday, I had touched on most of the facts I think that bore on the first issue of alleged tie-in of equipment to patent licenses but there are some facts which I would like to bring before the Court that I had no chance to mention yesterday and to pursue that argument briefly and then go to the other points in the order in which they appear in the brief. The Ransburg Company, as soon as it had had about a year and a half experience with its number two system or process had a cost accounting study made by the firm of Ernst & Ernst, nationally known cost accountants to determine what the proper differential would be if it were to be asked by anyone for one of these licenses without its equipment. And that differential was determined in such way that the Ransburg Company issued a pricing schedule available to anyone who wanted it in which it eliminated from the initial fee which would otherwise be payable if the equipment reference to license, 60% of that amount. That was the equivalent of about 150% of the full cost including burden and profit on the equipment which Ransburg furnished when the users wanted it. So that was completely taken out to permit anybody else to furnish equipment under one of these pure licenses if anyone had been so inclined. The monthly fees were likewise revised to eliminate all of the element of rent and all of the element of replacing defective parts, which was one -- which was the continuing Ransburg obligation in the equipment license. Now, when those --
Earl Warren: Well, how many outstanding licenses were there at that time, Mr. Gilliom?
Elbert R. Gilliom: I think, Mr. Chief Justice that the Government in its memorandum said that there were 100 odd that were outstanding which were entered into prior to 1953 that's why they're more than a --
Earl Warren: And how many -- and how many since?
Elbert R. Gilliom: Since that time, those that are still in effect, I think total to about 337. There have been more issued but some of them of course have been terminated by the users when their operations changed for some such thing. But I think about 337 would be the total. Now, the -- there was no evidence which was introduced by Binks or otherwise before the trial court that questioned the sufficiency of that price differential and the trial court found that it was a due and proper allowance. Now, I'd like to come to the contention of the Government at this point with respect to this alleged tie-in. The Government's memorandum starts out with the assumption on page 3 that there was tie-in in the prohibited sense prior to 1953, and that these letters which were written to Ransburg's licensees in the 1953 were an ineffective attempt at a purge. As I stated in answer to -- to one of Mr. Justice Douglas' questions yesterday, we have not taken the position at any time that these efforts to inform prospective licensees and present licensees in 1953 that these non-equipment licenses were available, was any attempt at a purge. There was no occasion for it. There was no change in the company's policy at that time. And the trial court so found in finding 65 that it had always been the policy of Ransburg that anyone who might wish a pure license without equipment, installation, supervision or replacement of defective parts could have it. He had to pay for none of those things if he wanted to get them elsewhere. And the testimony of the salesmen whom -- whose deposition Binks took was very clear on that point. Mr. Pleva said, this is in volume 1 of the record at page 627. “I have never really tried to sell anyone on taking the license without equipment but I always told them it was available that way.” In other words, he did not limit that to post-1953. That had always been the policy. By 1953, the --
Earl Warren: Up to that time, was there -- was there any testimony on the part of anyone that he was required to -- to take the non-patented articles?
Elbert R. Gilliom: None at all, Mr. Chief Justice.
Earl Warren: There's nothing it the record.
Elbert R. Gilliom: No, sir. There was no licensee or prospective licensee that testified by deposition or otherwise after most extensive discovered proceedings in which all of the customer files were opened to Binks that he was forced to require to take anything in order to get a license under the patents. Therefore, the assumption that the Government makes is entirely unwarranted and the trial court found that the fact was just the opposite and there was no tie-in prior to 1953 and there was no occasion of course for a purge. I'd like to touch briefly now on this -- on the decision in B.B. Chemical Company versus Ellis. Mr. Justice Douglas asked a question about that yesterday. In that case, the Court will recall, the conclusion was reached that the patent owner who had a patent on a process of making insoles for shoes involving a certain cemented webbing, followed a practice of not issuing written licenses to anybody. A license went by implication when he sold his material to the shoe manufacturer. And that conduct, the Court found was within the -- the Leitch doctrine and the Carbice doctrine. In other words, no choice was given to the prospect except to buy that material to get the license. Now, there was in the Court of Appeals an argument made at that late stage that if somebody had wanted an -- a license without the materials, they would have been willing to grant it. But the Court of Appeals said that this comes too late, that to say that of this stage of the game because that raises the question of whether when you take into account the subtleties of cost accounting, the license would be a realistic alternative. In other words, the competitor might be placed at a disadvantage as that Court said by the fact that the patent owner would not make the terms equivalent to the terms under which the patent owner itself with franchise materials. Now in this case by contrast, long before this case was tried, this policy was established, the cost accounting study was made and an adequate differential was established. So I think the case is clearly distinguishable on that point. The Government relies largely in its brief on page 3 in support of its argument, upon the proposition, and I might say the Government has not made any contention if there was any tie-in after 1953. They relate their charge entirely to the period from the middle 1951 to --
William O. Douglas: How -- how do you --
Elbert R. Gilliom: -- 1953.
William O. Douglas: -- explain that 1953 letter? That's the --
Elbert R. Gilliom: The explanation of that letter appears in the testimony of Mr. Harold Ransburg and he said what the purpose of it was.
William O. Douglas: Where's -- where are you reading?
Elbert R. Gilliom: Let me find the reference to his testimony. That is record one, page 464. In substance, I think there's no question with what the Ransburg Company at that point had been advised by patent counsel to be careful in this program that it did make licenses available to people without equipment if they wanted them. And that had been its policy for a number of years of course before that, but it was emphasized at that point. Now, Harold Ransburg said --
Felix Frankfurter: Is there any -- is there any occasion for that emphasis?
Elbert R. Gilliom: No specific occasion, Mr. Justice Frankfurter, no. I think it was just that a growing --
Felix Frankfurter: What is the date of this? 19 what?
Elbert R. Gilliom: This was the middle of 1953 about July as I recall.
Felix Frankfurter: You start to say it was growing.
Elbert R. Gilliom: Well, I think there was a growing awareness on the part of all persons who had patents and who were exploiting them one way or another of the doctrine of misuse so that they were all being more careful not to transgress the law in that respect. And I think --
Felix Frankfurter: I was wondering whether --
Elbert R. Gilliom: -- that was said to the Ransburg Company.
Felix Frankfurter: I don't recall at the moment. Was there a decision of this Court that -- that naturally would --
Elbert R. Gilliom: I think not --
Felix Frankfurter: -- make picking more lively.
Elbert R. Gilliom: I think not at that particular time.
Felix Frankfurter: (Inaudible), wasn't it?
Elbert R. Gilliom: I think if there was any one decision that might have prompted that, it was the decision in the Cardox case in the --
Felix Frankfurter: And that --
Elbert R. Gilliom: -- Court of Appeals for the Seventh Circuit, which was -- just before that time. I think that figured a review of this thing in the minds of those who are responsible for it. But --
Felix Frankfurter: Our decisions or cases here dealing with that was earlier than 1953.
Elbert R. Gilliom: Oh, yes. Yes, much earlier. Yes, those -- the doctrines were well-established and Ransburg in -- in living by those rules all the time. But as -- as Harold Ransburg said in his testimony, he thought, as the vice-president of the company, that this was not necessary to do this in 1953. But that he was -- I beg your pardon.
William J. Brennan, Jr.: (Inaudible)
Elbert R. Gilliom: That is on --
William J. Brennan, Jr.: (Inaudible)
Elbert R. Gilliom: Mr. Ransburg's testimony is on 463 of volume I, Mr. Justice Brennan or -- and where you'll find.
Tom C. Clark: Where is his explanation?
Elbert R. Gilliom: I beg your pardon?
Tom C. Clark: Where is his explanation? I notice he indemnified the matter.
Elbert R. Gilliom: His explanation is 464 of the next page. He said that --
William J. Brennan, Jr.: (Inaudible)
Elbert R. Gilliom: Yes.
William J. Brennan, Jr.: (Inaudible) necessary.
Elbert R. Gilliom: Yes, that's --
William J. Brennan, Jr.: (Inaudible)
Elbert R. Gilliom: That's correct.
William J. Brennan, Jr.: (Inaudible)
Elbert R. Gilliom: Yes, that's right. He -- he explained it that way. Then on the next page, he said that he was hardly in favor of it however because he felt that these salesmen should be reminded periodically with bulletins every year or so that they should not overlook in discussing with their customers this program that these licenses were available. And he says that, right at the middle of the page there, so that they wouldn't overlook and forget that that was available if anyone should want it. He says on the next paragraph, “No one had ever asked for a license without equipment. They might be easily forget that they had been given such advice." So that was the reason for it. They've decided at that time that they wouldn't rely upon the salesman's memory to tell these people that these licenses were available and that they would write letters to every customer, every prospect before he executed agreement and say, “This agreement provides for equipment, installation, supervision and replacement of defective parts. We assume that you want this rather than one that doesn't provide that" and so that they all had written notice. The sales brochures were changed at the same time so that it said very clearly, “When desired, the equipment will be furnished by Ransburg.” And the brochure advertised the process or the method, not the equipment.
Earl Warren: And did I understand you that there -- there were no other manufacturers manufacturing these parts?
Elbert R. Gilliom: No other companies manufactured the equipment as a unit or as a whole. Of course, the nuts and bolts and things like that were -- were manufactured by other -- other manufacturers but nobody manufactured airless painting equipment as such.
Earl Warren: Well, I was wondering if the provision in the contract on the grant-back provisions had anything to do with the reasonableness of that letter.
Elbert R. Gilliom: You mean had anything to do with sending the letter out itself?
Earl Warren: Not only on sending it out but as to whether it was affected on the grant-back provision, they were bound to license to the -- to Ransburg --
Elbert R. Gilliom: Yes.
Earl Warren: -- without any royalty of any kind, every invention of every kind that they made concerning this process, do they not?
Elbert R. Gilliom: This particular process, that's correct.
Earl Warren: And -- and if there was no one else in the business and they were producing the whole thing, in any inventions that -- that were made by any of their -- their licensees which where all of the people using that in the country. Wouldn't that have -- have in effect upon whether -- whether the -- the contract to let them buy their parts any place they wanted was effective?
Elbert R. Gilliom: I wouldn't think so, Mr. Chief Justice for this reason. The grant-back provision which I had intended to discuss a little later but I had (Voice Overlap) --
Earl Warren: Well, you -- you do it in your own time please. Don't -- don't go at it now. Go right ahead.
Elbert R. Gilliom: So I am -- well then --
Earl Warren: Yes, in your own -- in your own time.
Elbert R. Gilliom: Thank you. I'll just -- just to complete the statement of facts with respect to the 1953 transaction. After it was decided to be sure that all perspective licensees knew of the alternative, it was felt also that the current licensees of which there were 100 odd number two system should know about this thing and so several types of letters were written. There was a -- a letter written to those who had already entered into agreements that -- but haven't made their payments of their initial fees saying, “If you would prefer not to take this equipment, you can have the license and your initial fee will be appropriately reduced in giving the amount in the same way of the monthly fee.” Those customers who already have equipment and had paid for it and were using it, there was no offer to rebate any of the initial fee. Those licenses had been in effect of course for various terms from almost two years on down and it was felt that the initial fee had been earned. But the customers were told clearly that for any reason they would prefer to change equipment and reduce their monthly fees which were the important aspect of this in the manufactures program that that could be done. This was not done, however, in any spirit by Ransburg that those people had originally been forced to require to take equipment because the policy had been clear at the time of those licenses were entered into. Now, the Government --
William O. Douglas: Is it true that what he says that the company put this letter, kind of letter out about once a year?
Elbert R. Gilliom: Not this type of letter, no. The bulletin is what he's talking about to the sales personnel, Mr. Justice Douglas. The sales personnel and all the management personnel got these bulletins about once a year which are referred to in finding 65 reminding them each time to be sure and tell your prospects about this alternative. The letters to the customers, there -- these bunch of 1953 letters, that was the only occasion when this was done wholesale. From thereon however, before anybody entered into a license, he got a letter specifically stating what was available. Now, the Government has relied principally upon one fact in support of its contention that there was tie-in prior -- prior to 1953 and that is that all of these 100 odd licensees had the equipment and I'd simply like to explain how that comes about. The fact is that they all wanted the equipment. There is no evidence that anyone was forced to take it and when you realize how these manufactures of refrigerators, bicycles, typewriters became interested in this thing, it's easy to understand why they all took the equipment. Ransburg's laboratories would design for each of these people a system, these were not shelf items, they had to be designed and engineered for each system, for each application because of the size and the shape of the article, the coating material and other production problems. They would design this thing in their laboratory, set it up, invite them in to come and see it. When he saw it operated and he saw the savings that were possible in his business, the thing he said is, “I want that equipment. When can I get it?” He didn't want a piece of paper, he couldn't paint with just a license and he wanted the equipment from someone who had experience in furnishing it and that he saw, worked in their laboratory. And these licensees who were brought by deposition before the Court all testified, “We were interested in the equipment. We wanted to get a price on the equipment.” Each one of them said they had never asked for a license and of course, they weren't interested in it.
Felix Frankfurter: What was the price? The normal price of the equipment?
Elbert R. Gilliom: The normal price?
Felix Frankfurter: Do you have a conventional price?
Elbert R. Gilliom: It would vary, Mr. Justice Frankfurter a great deal because some of these installations were quite large, some were smaller.
Felix Frankfurter: These were all custom-made, I gather?
Elbert R. Gilliom: Yes. Well, yes, they're custom designed as far as the arrangement and the components were concerned. Many common components of course were used. But they were all especially designed and engineered and the actual cost of the equipment plus -- plus profit on it would run from perhaps $2000 of $3000 on up to, it could be more.
Felix Frankfurter: Right.
Elbert R. Gilliom: But in each case, the non-equipment license reduced the fee by whatever the cost of all odd equipment was if the man wanted the naked license.
Hugo L. Black: I'm a little confused again by your statement, all of these was especially made?
Elbert R. Gilliom: I -- I said that each --
Hugo L. Black: I looked at the list and some of it seems to be not especially made but --
Elbert R. Gilliom: Oh, no. I don't mean to infer that -- that every part in it, every mechanical part was especially made, but the system as a whole had to be designed for the customer. The relationship to --
Hugo L. Black: I understand that.
Elbert R. Gilliom: Yes, that's right.
Hugo L. Black: Like you design a heater in a -- in a house, a particular house?
Elbert R. Gilliom: Yes.
Hugo L. Black: But that doesn't mean that the parts that you were selling were customarily made or especially made for this, does it?
Elbert R. Gilliom: Not all of them, no. The atomizing heads were and the paint supply controls were, a number of those things were -- of course there were other things that were not custom-made which Ransburg--
Hugo L. Black: They were about (Voice Overlap) above the things?
Elbert R. Gilliom: Yes, that's correct.
Hugo L. Black: Now, I was reading here on the page which I don't quite understand where if they accepted the contract to buy the equipment, they had to pay more than they did if they got it without the equipment? Is that right?
Elbert R. Gilliom: If they --
Hugo L. Black: Page 467, spelled out an alternative of being either 8400 or 10,400 depending upon what the customer took, whether he got the one with the equipment or not the equipment, is that what it referred to?
Elbert R. Gilliom: Is that page 4 --
Hugo L. Black: Page 467, right after what you referred us to.Page 450 -- 467, volume 1.
Elbert R. Gilliom: On volume 1.
Hugo L. Black: I was reading the testimony of Mr. --
Elbert R. Gilliom: Of Mr. --
Hugo L. Black: I forgot the, Web Carr?
Elbert R. Gilliom: -- Wallen? Now, your question is they would pay more in one instance?
Hugo L. Black: Does that mean that if they bought the equipment, they could get one plan and if they bought the -- didn't put by the equipment and get the other. In one instance, should cost them 8400, in the other instance would cost them 10,400.
Elbert R. Gilliom: No, it does not.
Hugo L. Black: What does that mean? If that's the one that Web Carr referred to as ridiculous --
Elbert R. Gilliom: Oh, I see what you mean. The way -- that was the letter to Web Carr on the unit which they've had and they had already paid the initial fee as I recall which was earned and they were not interested in changing the equipment for the reduction in the monthly fee. They said they thought that was ridiculous. In other words, they wanted to retain their equipment just the way it was. But in the -- in an initial case, a person who took the license without the equipment would not pay for any equipment whatever.
Hugo L. Black: But did he have to pay more for a license?
Elbert R. Gilliom: No indeed, he did not. In other words, what he paid for the license was exactly the same whether he took the equipment or not.
Hugo L. Black: I don't -- that that -- this, it has had me confused, is because I haven't read enough of it and that's the reason I was asking you a question.
Elbert R. Gilliom: Yes. Yes, but I think the record is --
Felix Frankfurter: Well, if you elucidate the question put by Justice Black, do you understand that although the facility or the equipment which you furnished or ready to furnish in which the licensees took. Although it contained some common place parts but if they wanted your equipment, you put the whole thing together.
Elbert R. Gilliom: Yes, that's correct.
Felix Frankfurter: So that -- so that while they made the conventional things that you could get in every hardware store, the totality for not something you could get in the department store.
Elbert R. Gilliom: That's correct.
Felix Frankfurter: And therefore you put it together, is that it?
Elbert R. Gilliom: That is correct, in order -- in other words, to make a working system out of it which is what these people wanted.
William J. Brennan, Jr.: (Inaudible)
Elbert R. Gilliom: Yes, that's what it was. That's where the engineering came in. In other words --
Hugo L. Black: Well, that's still -- that confuses me a little as putting together. It's like putting together hammers as I understand and files that you could go out and buy. You supplied them in a box with the machine.
Elbert R. Gilliom: That -- that was not the -- the case in this instance.
Hugo L. Black: I'm not talking -- I'm talking about when you supply equipment, it did include thing that is commonly used as hammers and files, did it not? They were not built for this particular machine.
Elbert R. Gilliom: Yes, that's correct. They were some parts, although they were minor part.
Hugo L. Black: I understand there was some.
Elbert R. Gilliom: Yes.
Hugo L. Black: But I'm talking about this did contain, this putting together or simply selling them additional equipment or pats that they could have gone out into any hardware store and bought?
Elbert R. Gilliom: Yes, they could've done that.
Hugo L. Black: There wasn't any doubt about that?
Elbert R. Gilliom: No, no.
Hugo L. Black: And when you say putting together, you simply mean that when they -- you sold them this, you supplied these parts that they could've gotten elsewhere and your point -- contention is of course, the findings show that they didn't have to do that but they did it because they wanted too.
Elbert R. Gilliom: That's correct.
Felix Frankfurter: And even these common placed parts were not disjointedly sold, was it?
Elbert R. Gilliom: Oh, no, not at all. They were a part of the -- of a working assembly. In other words, the working assembly, to paint these man's products had to have common place parts in it and as well the special parts so that the thing would work. That's what he wanted and had to have. Otherwise, he'd had to go out and gather it up and try to put it together.
Hugo L. Black: You confuse me again when you say common place things in it. I have bought some machinery where they sell you the machinery and then they will have a -- a number of things that you could buy elsewhere and you get with it for convenience, I understand that.
Elbert R. Gilliom: Yes.
Hugo L. Black: That's what you're talking about, isn't it? You're not talking about parts that were put into the machine itself which they use. You're talking about things, some of those and some things like hammers and files that they might need in connection with doing the work on that machinery when it started to work.
Elbert R. Gilliom: I think they got no tools as like hammers and files. There was one tool called a tube puller which was for removing the -- the tube from the power pack if it became defective and had to be replaced. But the parts that we're speaking of, Mr. Justice Black were functional parts, a part of this entire painting unit and they were all needed for its function.
Hugo L. Black: I understand that part of it was -- was any of it not?
Elbert R. Gilliom: Was any of it not common plates?
Hugo L. Black: Not common parts of this machine to be used in it like you would take out a bolt and put it in a wheel?
Elbert R. Gilliom: Yes, indeed. In other words, these atomi -- atomizing heads were not common parts. They -- they were the -- the thing that atomized the paint and there were paint supply controls which were special. They were not common, they couldn't -- you couldn't go out to buy those somewhere else.
Hugo L. Black: Were there any that were not common that you supply or any that were common that you supplied? That is --
Elbert R. Gilliom: Yes. Yes, there were some.
Hugo L. Black: We're -- we are not to take it on the basis that all of these things that you supplied were a part of this process which they had to use. But some of them were tools that were useful in connection with it.
Elbert R. Gilliom: Well, I -- I don't like to differentiate on -- on -- when --
Hugo L. Black: Forget the word tools. Alright, I -- I don't know of it and I'm -- that's the reason I'm asking you and the questions are confusing.
Elbert R. Gilliom: They -- they were, let's put it this way. There were things like hose and a couple of things, things like that.
Hugo L. Black: Alright now, can you buy hose anywhere (Voice Overlap) --
Elbert R. Gilliom: Yes, you can. You can buy those anywhere.
Hugo L. Black: Was there any difference in these hose to the other hose they would have bought somewhere else?
Elbert R. Gilliom: No, that's right. It's in --
Hugo L. Black: And were the other thing like that.
Elbert R. Gilliom: That's right and they simply were necessary to make this whole thing work. That's -- that's where --
Earl Warren: They were a part, they became a part of the -- of the entire product, isn't it?
Elbert R. Gilliom: That is -- that is correct, yes.
Felix Frankfurter: To repeat my words. In answer to my question, I asked you whether any of these common placed parts that you could buy at (Inaudible) where ever that old term in New York is. You could buy anywhere. Were they disjointed it from the equipment? And you said no.
Elbert R. Gilliom: No, they were not.
Felix Frankfurter: Alright.
Elbert R. Gilliom: As I understand it, with the possible exception of this tube puller which --
Hugo L. Black: Would you explain to me now in answering at what you mean by disjointed, I don't quite understand it.
Elbert R. Gilliom: Well, I understood, Mr. Justice Frankfurter's question --
Hugo L. Black: Well, tell me what you mean when you answer it that they were not disjointed?
Elbert R. Gilliom: When I said they were not disjointed, I mean that they were not something set aside from this functioning unit, useful in connection with it. But they were a part of this unit, they were an operating part. They had to be running along (Voice Overlap) --
Hugo L. Black: Were they like the spokes of a wheel? I mean automobile, a part of it?
Elbert R. Gilliom: Yes -- well yes, I think that would be a fair illustration.
Felix Frankfurter: But in the wheel, they were in the wheel (Voice Overlap) --
Elbert R. Gilliom: In the wheel, that's right, exactly. That's -- that's the -- that's the point.
Hugo L. Black: Sold out. Is that the list that -- that we have had called our attention. You say that those where like a spokes of a wheel that's a part this process that you had?
Elbert R. Gilliom: Yes, they were. There were --
Hugo L. Black: Every one of them, even the hose.
Elbert R. Gilliom: Even the what?
Hugo L. Black: Hose.
Elbert R. Gilliom: Yes, it is -- it's a part of the working system. You -- you couldn't work it without it.
Hugo L. Black: Well, you've got to have a hose?
Elbert R. Gilliom: Yes.
Hugo L. Black: You got to have a hose if you work on washing machine.
Elbert R. Gilliom: Surely. Oh, as I say, these -- these manufactures, in order to have a working system wanted Ransburg to furnish an outfit that would operate the way they have seen it operate in the laboratory. And this fact is -- I think accented by the fact it's found by the trail court that after these people had been told in 1953 that they could have a licensee either way, 55 of the people who got those letters with full knowledge of it entered into a total of 97 license agreements after that and in every instance, elected to take the equipment. Now, the time is running so I must go on to I think the next question involved. The Binks Company -- I want to say first one more fact with respect to these licenses. The Binks Company is the first company that indicated any desire to furnish airless electrostatic spray painting equipment. After the Ford Motor Company asked them to make a quote on a unit played in 1955, they did that in January or March. In January, and again I think in March of 1956 and they quoted on it, subject to Ford indemnifying Binks against liability for infringing the Ransburg patent. Of course, Ford did not buy it. Then Binks came to Ransburg and asked for a license to make and sell under the Starkey and Ransburg process patent. That license -- license was declined by Ransburg for the reason that it would have treated many of the customers unfairly and it did say through Binks, however, “We want you to know that licenses are available to your customers to use our method.” In other words, it would put Binks' customers on the same footing exactly as the Ransburg licensees so that they could use the Binks' equipment. And the court below made an expressed finding along that line and we feel that the findings of the Court with respect to this alleged tie-in are amply supported by the evidence and should stand. Now, going to the second question raised by the petitioner, the alleged tie-in of -- of one license to another or package licensing. The contention was made that since the Ransburg contract does not list patent numbers, that it has the effect of forcing the licensee to take a license under patents that he doesn't want. I think it is sufficient to say that this license does not list patent number simply because of the fact these systems are designed individually. And after a system is designed and identified in a drawing, the user gets the right to use all Ransburg patents, applications or inventions whether the patents have issued or not that are applicable to that particular system, and he does not get a license or paid for a license under any patent that does not apply. And the Court found in finding 71 that there had never been any request for a license under a specific patent and no one had ever been forced to take a license under any patent which he did not want, so that the rule in American Security Company would not apply.
John M. Harlan II: How large the patent used?
Elbert R. Gilliom: How large is it? In terms of gross volume? I think the gross volume at the present time is about -- the record shows was $2.5 million a year from these licenses at the time of trial, it's slightly more than that now as I recall. Now, going to the license-back clause, this is the third issue raised by the petitioner and one in which the Government has taken an interest. The Government contends that this was -- this type of clause could be illegal if it had the effect of perpetuating the effective life from a basic patent on page 8 of their memorandum. Now, this license-back clause had no such effect. In the first place, it did not require the licensees to convey their inventions to Ransburg. It simply required during the early period of the field experience and the number of due process when technical information was being freely exchanged by Ransburg with these licensees in an effort to bring this -- this process to its best application in all faces of industry. During that earlier period, it was felt by Ransburg that any improvements made by these licensees that had the benefit of that early experience and there know-how should be shared by Ransburg and the other licensees. To do that, a license-back clause of a restricted nature was used only during those early years, about three and a half years. It was for a non-exquisite license where the right to sublicense and was royalty free and applied only in this particular field of the basic patents. Therefore, whoever might have developed an improvement and it turned out that none were, no right was ever acquired by this at all. But whoever might have developed an improvement would have had the right to use it himself, he would have had the exclusive right to it except in this particular field and the only effect would be that Ransburg and its other licensees could use it also. It would not have prolonged the monopoly of the basic patents because at the time the basic patents expired, Ransburg and the user who developed the improvement would be on the same footing with respect to the use of the process. So we feel that it was for a reasonable purpose and it was for a reasonable period, it was eliminated from the forms in 1955. And that it was a -- a reasonable scope and that it involved only improvements in the field of the basic patents and that the license was reasonable because it was usable only in the field of the basic patents. And as I say, there were -- had been no right acquired under it by Ransburg and the only time that one was tendered, it was declined. Now, the statement was made in petitioner's brief for the time in this case that some of these are still in effect. The fact is that in September 1959, all of the one -- of the old provisions in contracts that have been entered into prior to 1955 were cancelled by letter.
John M. Harlan II: Does it show why they were eliminated in 1955, Mr. Gilliom?
Elbert R. Gilliom: Why they were eliminated for the forms? The record does not have any specific evidence as to why they were eliminated at that time, no.
John M. Harlan II: Were you threatened with a government antitrust suit anywhere along the line?
Elbert R. Gilliom: No, we were not, not at any time. I might say that the Attorney General's committee, a national committee on the study of the antitrust laws is quoted at page 34 of our brief on this very issue. That report said, the grant-back of exclusive licenses should be subject to close scrutiny but “on the other hand, grant-back of a non-exclusive license, as in this case, especially with author -- with the authority to sublicense may defuse the benefits to all licensees and thus tend to encourage competitive use of the innovations."
Earl Warren: Well -- well, doesn't that principle dependent upon whether -- whether there's a monopoly position maintained by the parties or not?
Elbert R. Gilliom: Well of course, I think, Mr. Chief Justice that there is always implicit in this arrangement, a patent monopoly because of the fact that it is in -- in a license agreement that these license-back clauses appear, so that would always be the case. I think the point is that rather than permitting someone simply to sit-on an improvement, this type of thing results in its being used by more people. I want to go briefly to the fourth question which is raised by the petition and that is the alleged fraud in the procurement of these Ransburg patents. Reliance is placed on two affidavits that were filed to the patent office in March 1953. In those affidavits which were for the purpose of showing the commercial success of the inventions as Ransburg had commercialized them in the number due process, the petitioner says that it was misrepresented that these commercial systems use stationary heads. If the Court will examine the Haworth in his big affidavits which were in record 4, pages 637 to 642. It will be found that there was no such representation. The affidavits referred to the number two system. The number two system at that time in 1953 was well-known to industry. The brochures describing these rotating heads had been distributed at the rate of some 10,000 a year and the patent office itself had received a copy of that brochure which is Exhibit IIII in this case, a year and a half before this occurred. So that not only was it proper to furnish this -- these affidavits but no one was misled. The inventions of these patents were not limited to stationary heads. The claims were broader than that and fully encompassed, the commercial systems as Ransburg Marketing Co. (ph). That was found by both of the courts below. In conclusion, if the Court please, we feel that in marketing its processes, Ransburg has followed the rules of this Court and the rules of the statutes assiduously and that it has done what the patent system and that Congress have contemplated be -- be done when you have a -- an invention of valued industry. In other words, it has licensed its inventions and it has left others free to come in and furnish the equipment on a basis which is comparable to its own. None of these practices gauged separately, is unlawful under any test laid down by this Curt or otherwise. And in their totality, they have not gone beyond what the legitimate patent monopoly has provided. We feel that the Ransburg program is one which illustrates the legitimate things that may be done under our patent laws today to bring a significant improvement to industry which is small manufacture worked out in solving his own pinning problems. And that he is entitled to compete aggressively but lawfully with Binks and all the others who are in the same field. And he is willing to issue licenses to anyone to use the process and they can get their equipment anywhere they wish. They are not forced to take anything in order to get those licenses. If the Court please, we submit that the judgment below should be affirmed.
Earl Warren: Mr. McSweeney.
W. Donald Mcsweeney: Mr. Chief Justice, our position with respect to tie in briefly in answer to Mr. Gilliom. First, we contend that the agreement which I discussed yesterday without restrictive language is the sole alternative. But we contend that it is enough for illegality that the respondent had the method of doing business of tie-in its equipment all the time and for that proposition, we site B.B. Chemical against Ellis. And we also referred -- would stand on the International Salt case in this Court where your -- where this Court said, “The tie-in clause has not been insisted upon in all leases nor has it always been enforced when it wasn't included.” Now, what the --
Felix Frankfurter: May I -- may I ask you to repeat your phrase, “Had the method of doing business?”
W. Donald Mcsweeney: This method of doing business which Your Honor was always -- and when they actually did business, they always leased the equipment in conjunction with a patent license --
Felix Frankfurter: Your mean they --
W. Donald Mcsweeney: -- and they can sell equipment, or either they leased --
Felix Frankfurter: You mean they made it available or they made it a condition of getting the license, which?
W. Donald Mcsweeney: The practice of doing business, Your Honor, this way and only this way. That is the same thing that we had in the B.B.-Ellis case.
Felix Frankfurter: Well, if the practice flow from them, if they -- did they -- as a matter of a conclusion to be derived from evidence, did they make it practically necessary to utilize there, what you call method of doing business or did people of their volition say, “We want it done like this.” Which?
W. Donald Mcsweeney: They made it practically necessary from -- and also they made it necessary from the agreements which they offered by contract.
Felix Frankfurter: Well, I understand that --
W. Donald Mcsweeney: Practically necessary.
Felix Frankfurter: I -- unders -- understand that the agreements said so, that we can agree.
W. Donald Mcsweeney: Yes, Your Honor. And I --
Felix Frankfurter: But the other thing, I should think is very important to differentiate between some compulsion in the practicalities of the situation on the part of the patent owner -- owner or desirability on those -- on the part of those who want to avail themselves of it. Those are very different things.
W. Donald Mcsweeney: We -- we contend there was no desirability, Your Honor. Now, with respect to answering whether this agreement that I discussed yesterday was the sole alternative, I refer the Court to the Ransburg sales bulletin volume 3, page 315, it's dated April 4, 1955. It tells you what the alternatives are. It says in the last sentence, “Forms, numbers, so and so and so and so in 437 --
William O. Douglas: What page is that?
W. Donald Mcsweeney: -- our -- our current forms." 315, Your Honor of volume 3. And then that letter includes as enclosures therein, the forms that it includes as the form for the airless without so-called without equipment, form number 437 which is set forth as part of the same exhibit at page 339 of the record. Now, that's their own sales bulletin. That's the thing they rely on for saying they had a different policy that that they rely on earlier sales bulletins. Here's a sales bulletin that says, “Salesmen, here are our current forms.” And that's the form they give them, the same restrictive language subject to such further specifications as Ransburg may proscribe. As for the question of -- of Mr. Gilliom about active discouragement, there was active discouragement in the Web Carr correspondents in the record, volume 2, page 823. Now, is anyone else making this equipment? That seems to be a -- a point of Mr. Gilliom that no one wants. Well, that's one thing this lawsuit is about, if the Court please. Binks was ready to produce and deliver this system, not only just the pliers for example but the whole system, the whole spokes and the wheel, the whole wheel. They could deliver it on order and they couldn't get into the market because of the position and the activities and the practices of Ransburg with respect to some other items of equipment that they were no other in the market of these voltage packs. I refer the Court to volume 3, page 283, a letter of Ransburg itself to its own people, its own distributors. We have noticed they say in August 18, 1950, we have noticed that voltage supplies had been advertised which are so supposedly suitable for electrostatic painting. Then they warned them about using them, “Don't use them.” On package licensing, if the Court please, there is a finding against this 71 and we contend that finding is clearly erroneous and this is the reason. We say it's erroneous because this Court has to construe the agreement, the agreements which they enter into and a proper construction of that agreement is that respondent licensed under all of its patents, now, this phrase, "pertaining to and covering methods and apparatus used in airless electrostatic spray coating." Now, that is regardless of whether those patents apply to the particular system being leased or not.
Hugo L. Black: May I say -- ask you, this -- you refer to this letter on page 283, volume 3?
W. Donald Mcsweeney: Yes, Your Honor.
Hugo L. Black: That letter says, in the second paragraph that, "However, the prospective customer should wish to use equipment other than ours, it would not be contrary to our policy." You -- I understood we're referring to that to show that it was their policy to refuse to let people have licenses unless they use their equipment. And it says that the second paragraph that that is not their policy.
W. Donald Mcsweeney: No. Your Honor -- yes that's true. That's in a letter of August 18, 1950. I'm referring that to that letter to show, if the Court please, that there was a potentially competitive voltage pack on the market. I referred earlier to show that -- I refer, Mr. Justice Black, to show that the sole alternative available for the airless system was only the agreement which I discussed yesterday with that restrictive language. And for that point Your Honor, I referred to page 315 of volume 3. We can see, we -- the record shows that they put out some bulletins to their salesmen which said -- and this is what they relied and they put out those bulletins to salesmen saying, "Competitors if they should insist, may use their own equipment." Now, when they formed and printed and start this agreement without a provision for equipment in 1953, then that agreement was the only, the sole alternative, Your Honor. And I refer to record page 315 for that where they say that forms numbers so and so are our current forms in the event any licensees desire a license only. Then when you see what the enclosure was, form 437, you find that it is that agreement which is -- contains as I contend this restrictive language which drives the perspective licensee right back to Ransburg to get his equipment. Thank you.