Court Opinion

ID: 9657762
Source: CourtListenerOpinion
Date Created: 2023-08-23 20:37:00.119264+00
Date Added: 2024-06-11T18:13:48.108270
License: Public Domain

FINE, J.
(dissenting). Versa Products appeals from a judgment enforcing a patent-license agreement between Versa and Industrial Promotion Company through the agreement's expiration date of August 5, 1992. The underlying patents expired on February 22, 1989. Versa contends that the patents' expiration renders the agreement unenforceable. The majority accepts Versa's contention. I respectfully dissent because the facts of this case, as found by the trial court, show that there was no patent-misuse. Accordingly, the patent-license agreement should be enforced.
In 1964, the United States Supreme Court ruled that a patentee could not leverage its patent in order to extend the patent monopoly beyond the patent's term. Brulotte v. Thys Co., 379 U.S. 29 (1964). Brulotte held certain royalty agreements to be unenforceable because they were "on their face a bald attempt" to use the patent monopoly to secure a stream of royalties beyond the patent term, and because the Court was "unable to conjecture what the bargaining position of the parties might have been" absent the patent leverage. Id., 379 U.S. at 32. Four and one-half years later, the Court held that conditioning a patent license on the payment of *925royalties for the use, sale, or manufacture of unpatented products was, under the circumstances, also patent-misuse and unlawful. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969). Zenith, however, stressed that the key was patent leverage: the pat-entee's use of "the power of his patent to insist on a total-sales royalty and override protestations of the licensee that some of his products are unsuited to the patent or that for some lines of his merchandise he has no need or desire to purchase the privileges of the patent.” Id., 395 U.S. at 139. Thus, the Court emphasized that parties to a patent-licensing agreement could structure their agreement so as to require royalty payments to be calculated as a percentage of total sales even if none of the products sold used the patents for which the royalties were paid as long as this was for the "convenience of the parties" and not dictated by "patent power." Id., 395 U.S. at 138; see also Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 339 U.S. 827, 834 (1950) ("sound business judgment" and "convenience" may warrant "payment of royalties according to an agreed percentage of the [patent] licensee's sales" even though these sales encompass non-patented products — as long as the patent monopoly is not thereby extended), overruled on other grounds, Lear, Inc. v. Adkins, 395 U.S. 653, 671 (1969). Commenting on the Brulotte situation, Zenith accordingly recognized that it would be lawful for parties to a patent-licensing agreement to amortize royalties beyond the patent term as long as the post-expiration payments were for pre-expiration use. Zenith, 395 U.S. at 136.
Justice John Marshall Harlan, who dissented in Brulotte, 379 U.S. at 34, also dissented in part in Zenith, 395 U.S. at 141. He was concerned that the emphasis on actual patent-misuse would bring uncertainty because it required "subsequent judicial examination of the parties' *926negotiations." Id., 395 U.S. at 142. "In practice," Justice Harlan complained, "it often will be very hard to tell whether a license provision was included at the instance of both parties or only at the will of the licensor." Id., 395 U.S. at 141. Despite these misgivings, Zenith remains the law.1 Zenith's holding that, absent actual patent-misuse, parties to a patent-license agreement may structure that agreement for their "convenience" requires that we affirm the trial court — given the trial court's specific findings that there was no patent-misuse here.2
A. Background. On August 5,1983, Industrial Promotion, as assignee of exclusive rights for the United States, Canada, and Mexico in three patents dealing with ladder hinges, granted to Versa for a term of nine years the exclusive right to "buy, manufacture, use, market, and sell" the patents and "products containing" the patents in those countries. Sacóme International, owner of the patents, was also a party to the contract.
In return for the rights granted under the August 5, 1983, contract, which, as the majority opinion points out, also encompassed "know-how," Versa agreed to pay Industrial Promotion license fees, which the trial court found amounted to a "4.4%" royalty.
*927Although the August contract encompassed both patent rights and know-how and was therefore a "hybrid" agreement, it did not apportion royalty payments between the patent rights and the know-how, and did not provide for a reduction in royalty payments following the patents' expiration. Although the patents expired on February 22,1989, this was not mentioned in the contract.
B. The Trial Court's Findings of Fact. As noted earlier in part I, before a patent-license agreement may be invalidated because of patent-misuse, there must be actual misuse — that is, the patentee/licensor must have used patent-monopoly leverage to exact royalties or other consideration for permission to use, sell, or manufacture either unpatented products or products whose patent protection has expired. Thus, as Zenith indicates, and Justice Harlan's dissent underscores, intent is crucial. Id., 395 U.S. at 138, 141-142.
Following a trial to the court, the trial court here found that at the time they signed the August 5, 1983, contract, both Industrial Promotion and Versa knew that the patents would expire on February 22, 1989. Additionally, the trial court found that the August 5, 1983, contract "was prepared by [Versa]'s attorney . . ., who modified the terms and conditions" of a proposed agreement that had been prepared by Industrial Promotion.3 This proposed agreement was, with some differences not at issue on this appeal, essentially similar to the August 5, 1983, contract except:
—The duration of the agreement proposed by Industrial Promotion was specifically limited to "the term for which [the patents] were granted." In con*928trast, the August 5, 1983, contract drafted by Versa had a nine-year term that exceeded the patents' life by some three and one-half years.
—The agreement proposed by Industrial Promotion provided for a license fee of seven and one-half percent of Versa's "net sales of all items including the patented hinges such as but not limited to folding ladders." In contrast, the August 5, 1983, contract, which was to run for a longer term than the original proposal, provided for a license fee rate that was significantly lower.4
The trial court found as a fact that the extension of the contract term to August 5, 1992, from one that was coterminous with the life of the patents, was at the request of Versa, the licensee, and not Industrial Promotion, the licensor, because Versa, as found by the trial court, "wanted to recoup its start-up costs and the benefit of the continuing know-how license."
The trial court's findings of fact are fully supported by the record and are not by any stretch of the imagination "clearly erroneous." See Rule 805.17(2), Stats. They are, accordingly, binding on us. See ibid. In light of these findings, the majority applies a rule that has no application here. See Zenith, 395 U.S. at 133-140. I would affirm.

Oddly, the majority opinion ignores Zenith, which it does not even cite.

This case was tried to the court. Yet, despite Zenith's crucial focus on the parties' intent, the majority opinion wholly ignores the trial court's findings of fact on that issue. The trial court's findings may not, of course, be set aside unless they are "clearly erroneous." Rule 805.17(2), Stats. In this case, they are amply supported by the evidence adduced at trial.

As already indicated, Industrial Promotion had the rights to the patents at issue and licensed them to Versa.

Nine years at the "4.4%" rate found by the trial court is a little less than the seven and one-half percent rate for the five and one-half years that would have been the effective term of the proposed agreement drafted by Industrial Promotion had it been executed on August 5, 1983.