Court Opinion

ID: 9637610
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:12:26.592162+00
Date Added: 2024-06-11T18:09:57.939648
License: Public Domain

MAGRUDER, Circuit Judge
(concurring).
I agree that the defendants have infringed the plaintiff’s patented process, for the reasons stated by Judge Mahoney. Yet *836denial of equitable relief in the circumstances disclosed is amply supported by authority, and I concur in the result reached by the court.
It is not clear to me, however, that the case depends upon any distinction between direct and contributory infringement. This distinction is often a shadowy one, as it is in the case at bar. The defendants have certainly participated more directly and intimately in the infringing process than did the defendant in Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, 58 S.Ct. 288, 82 L.Ed. 371, where all it did was to sell to road contractors a staple unpatented article (bituminous emulsion) with knowledge that a small proportion of it would be used by the infringing contractors in practicing the patented process. Here the defendants are engaged in actively inducing unlicensed shoe manufacturers to practice the process. They furnish to such manufacturers the machines, the pre-coated duck and the adhesive top coat, all especially designed and prepared for this particular use, and, in addition, they furnish “instruction to operators, servicing of machines, and advice and assistance in reinforcing operations.” Certainly, if the shoe manufacturers as direct infringers would be liable to the plaintiff, ordinary principles of tort liability would require us to hold the defendants liable as joint tortfeasors.
But in my opinion the doctrine of the Leitch case gives immunity to the direct infringer as well as to one who might be called a contributory infringer. It would be a solemn farce to hold that the seller of the unpatented article cannot be enjoined from making the sale to the direct infringer for use in the process, but that the direct infringer may be enjoined from practicing the process. If the plaintiff in the Leitch case could have got an injunction against any infringing road contractors who purchased bituminous emulsion from anybody other than the plaintiff, the defendant would have been quite as effectively choked off from selling this unpatented article for use in the process as if the injunction had run against the defendant itself. But the whole purpose of the doctrine laid down in the Leitch case was to thwart “every use of a patent as a means of obtaining a limited monopoly of unpatented material.” 302 U.S. at 463, 58 S.Ct. at 290, 82 L.Ed. 371. Accordingly, I think that American Lecithin Co. v. Warfield Co., 7 Cir., 105 F.2d 207, made a correct deduction from the Leitch case in holding that it gave immunity to a direct infringer as well as to a contributory infringer. It may be noted that this case was cited with approval in Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 459, 60 S.Ct. 618, 84 L.Ed. 852. And I see nothing in the reasoning or the language of the Leitch case to indicate that it applies only to the sale of “staple” unpatented articles. Philad Co. v. Lechler Laboratories, 2 Cir., 107 F.2d 747, 748. See Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 459, 60 S.Ct. 618, 84 L.Ed. 852.
This does not mean that the patentee suffers a forfeiture of its patent rights because of objectionable practices in exploiting the patent, but merely that the patentee is disabled from obtaining legal redress for infringements while such practices continue. There is no present need to inquire how far the doctrine of the Leitch case squares with earlier lower court holdings that violation of the anti-trust laws by a patentee is no defense to a suit for patent infringement. See Brown Saddle Co. v. Troxel, C.C., 98 F. 620; Radio Corp. of America v. Majestic Distributors, D.C., 53 F.2d 641; Buck v. Newsreel, Inc., D.C., 25 F.Supp. 787.
Presumably there is a maximum cost for reinforced insoles prepared by the patented process beyond which shoe manufacturers would find it uneconomic to utilize the process. That maximum cost would include, among other elements, the patentee’s charge for practicing the process, and also the profits to the suppliers of the unpat-ented materials used with the process. If the patentee is not also engaged in supplying the materials, he must fix the royalty at a point which permits a reasonable profit to suppliers furnishing materials to the shoe manufacturer and at the same timé does not make it uneconomic for the shoe manufacturer to utilize the patented reinforcing process. Otherwise the patentee would make no headway in marketing the process. There is thus a definite limit to the profit a patentee can realize by the simple exploitation of the patent monopoly in this way.
But the patentee, in addition to realizing the maximum profit obtainable merely from licensing the process, may want to profit by the sale of unpatented materials used by the licensee. This is a legitimate obj ect. However, the doctrine of the Leitch case is that the patentee may not utilize the leverage of the patent monopoly to achieve a limited monopoly of the sale of the un-patented materials. If the shoe manufacturer is in the market for the purchase, of *837unpatented materials, it must be a fair field and no favor as between the patentee and its competitors in the sale of those articles.
The practical question then is presented, how the plaintiff in the case at bar could legitimately have proceeded to exploit its patent monopoly.
(1) The plaintiff could have laid the patent “on the shelf” and neither practiced the process itself nor licensed others to do so. In this event, the plaintiff could have got an injunction against any direct or contributory infringer. ■
(2) The plaintiff might without licensing anyone have practiced the patented process itself in its own plants and sold to shoe manufacturers the reinforced insoles ready for insertion in the shoes. This of course would have excluded the defendants from manufacturing and selling the unpatented pre-coated duck and the top coat for use in connection with the patented process. It might have enabled the plaintiff to make a profit in excess of the maximum profit that could have been derived merely from licensing the process, since the price of the reinforced insoles to shoe manufacturers would include a reasonable profit on the pre-coated duck and top coat supplied by the patentee. However, the record is clear that for many reasons it happened not to be feasible for the plaintiff to follow this perfectly legitimate method of exploiting the patent. As a practical matter the final reinforcement of the insoles, in accordance with the patented process, must be done in the shoe factories.
(3) The plaintiff might have licensed shoe manufacturers to use the process on a royalty basis. It appears that the shoe manufacturers probably would not want to bother with the preliminary steps of preparing the pre-coated duck. But under this alternative there would be. nothing to prevent the shoe manufacturers from buying the unpatented materials where they pleased, that is, the pre-coated duck and the top coat. They could buy these materials from the plaintiff or from the defendants or from any other competitor. Whether the shoe manufacturers could obtain from the defendants the machines for practicing the process would of course depend upon whether the defendants’ machines infringed the plaintiff’s machine patent. There is no evidence that the plaintiff ever refused so to license any shoe manufacturer; nor is there any evidence that any shoe manufacturer ever sought such a license. At the oral argument before us counsel for the plaintiff stated that the plaintiff would be willing to grant such licenses on a suitable royalty basis.
(4) The plaintiff might adopt a policy of granting licenses to shoe manufacturers only upon the express condition that all the unpatented materials used in the process must be bought from the plaintiff. Such a condition would be void under the decisions. Carbice Corp. v. American Patents Development Corp., 283 U.S. 27, 51 S.Ct. 334, 75 L.Ed. 819.
(5) A fifth alternative is what the plaintiff did in the case at bar. It granted no express licenses to the shoe manufacturers, but offered to furnish the machines, the pre-coated duck, the top coat and the incidental supervision over the shoe manufacturers’ practice of the process in reinforcing the insole. The compensation was fixed as a single charge based on so much per web yard of pre-coated duck supplied by the plaintiff. If, as seems to be the fact, this charge was somewhat higher than the similar charge made by the defendants, it is to be remembered that the plaintiff had something to sell which the defendants could not give, namely, the right to practice the patented process. This method of doing business resulted in giving to the shoe manufacturers who dealt with the plaintiff an implied license to practice the patented process in connection with the unpatented materials furnished by the plaintiff. Such manufacturers did not, however, have any license, express or implied, to practice the process upon unpatented materials procured from other sources.
We are obliged by the decision in Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, 58 S.Ct. 288, 82 L.Ed. 371, to regard the fifth alternative just mentioned as being the substantial equivalent of the fourth and as being equally objectionable. As the court said (302 U.S. pages 460, 461, 58 S.Ct. page 289):
“For the method of so retarding evaporation the Barber Company acquired the process patent sued on, and seeks to use it to secure a limited monopoly in the business of producing and selling the bituminous material for practicing and carrying out the patented method. The company does not itself engage in road building, or compete with road contractors. It does not seek to make road builders pay a royalty for employing the patented method. It does not grant to road builders a written license to *838use the process. But it adopts a method of doing the business which is the practical equivalent of granting a written license with a condition that the patented method may be practiced only with emulsion purchased from it. (Italics ours.) For any-road builder can buy emulsion from it for that purpose, and whenever such a sale is made, the law implies authority to practice the invention. On the other hand the Barber Company sues as contributory in-fringer a competing manufacturer of this unpatented material who sells it to a road builder for such use. Thus, the sole purpose to which the patent is put is thereby to suppress competition in the production and sale of staple unpatented material for this use in road building.”
At the oral argument it seemed to me that the method of business adopted by the plaintiff in the case at bar could not be considered objectionable in the absence of a finding that the plaintiff had refused or would refuse to grant an unrestricted license to any shoe manufacturer who chose to buy from some other source the materials used in reinforcing the insoles by the patented process. That is, if the plaintiff is prepared to grant an unrestricted license on a royalty basis to any shoe manufacturers who prefer to obtain the unpatented pre-coated duck and top coat elsewhere, it is difficult at first blush to see how the plaintiff would be doing anything wrong in furnishing the unpatented materials and incidental services at so much per web yard of duck to those shoe manufacturers who prefer to do business with the plaintiff on that basis. But this point was urged in Leitch Mfg. Co. v. Barber Co., supra, and it was pointed out in the plaintiff’s brief before the Supreme Court that the plaintiff was “not shown to have refused to grant any license under the patent, much less granted any license conditioned on purchase of emulsion from it.” The argument was to no avail. The court considered it sufficient to condemn the plaintiff’s method of doing business, that, as matters stood, no road contractor had a license to practice the patented process except those contractors who bought their bituminous emulsion from the plaintiff. The court apparently did not consider it relevant that contractors who were disposed to buy their bituminous emulsion from the defendant or from some other source might, if they had applied to the plaintiff, have obtained an unrestricted express license to practice the process for a stated royalty.
The catch in the professed willingness of the patentee to offer the alternative of an unrestricted license to any shoe manufacturers who prefer to buy the unpatented materials elsewhere is, I suppose, that the terms of such license can be so framed as to render the choice illusory, and thus to-leave the patentee’s competitors at a disadvantage. See Dehydrators, Ltd., et al. v. Petrolite Corp., Ltd., 117 F.2d 183, decided by the Circuit Court of Appeals for the Ninth Circuit on January 6, 1941; also Barber Asphalt Corp. v. La Fera Grecco Contracting Co., 3 Cir., 116 F.2d 211. In the first of these cases the patentee, who was supplying an unpatented product at a single price which combined a charge for the use of the process and a charge for the product supplied, ran afoul of the Leitch case, so the court held, even though the patentee had publicly offered to any persons who preferred to procure the unpatented product elsewhere the alternative of an unrestricted license to practise the process, upon payment of a royalty based on the difference between the cost of the unpatented product on the open market and the patentee’s sale price for the same unpatented product. The court said:
“If the appellee had been more interested in promoting or exploiting its patent than in selling its Tret-O-Lite it would have been a very simple matter to fix a royalty fee of so many cents per gallon whether purchased from the appellee or from outsiders. Indeed, no other course on the part of a pat-entee who is selling a commercial product to use in the patented process he owns would seem to quite meet the claim that the practice of combining the price of a royalty and of the product in the same unit without separation tends to promote a monopoly in the product if the patent monopoly is not waived.”
Suppose the plaintiff adopts the method of business suggested in the passage just quoted, and licenses all shoe manufacturers who want to utilize the process, at a fixed royalty payable whether the manufacturers buy the unpatented materials from the plaintiff or from its competitors. Theoretically, then, the plaintiff and defendants would be on a free competitive basis in the sale of the unpatented materials used in the process. But the patent monopoly gives the plaintiff an undeniable advantage. The royalty exacted might be fixed at a point which would enable the plaintiff to sell the unpatented materials at prices its competitors could not profitably meet, and *839still yield the patentee an over-all profit. This profit might indeed be equivalent to the maximum profit that the patentee could have realized by the simple licensing of the process, as previously explained, plus a reasonable profit on the sale of the un-patented materials. If it were sought to extend the doctrine of the Leitch case to cover such a situation, many difficulties would at once be presented, not the least of which would be elusive problems of cost accounting. But if the doctrine is not so extended the patentee may yet be able to exploit the patent monopoly in a way to achieve the result condemned in the Leitch case; and the defendants, in the long run, will be little better off for having escaped an injunction at this point.
I agree that on the decided cases the decree below should be affirmed. However, in view of the differences of opinion that have developed in the lower courts as to the scope and effect of the Leitch case, it may be that the Supreme Court will find an early occasion to review the whole subject matter.