Court Opinion

ID: 9651127
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:08:16.358984+00
Date Added: 2024-06-11T18:12:30.435753
License: Public Domain

FRANK, Circuit Judge
(dissenting in part).
On the issue of the breach of defendant’s equitable obligation, I think that Judge Leibell was correct, for the reasons excellently stated in his opinion, and that his decree should be affirmed. Before the execution of the present license agreement, defendant had been making and selling types 2 and 3. Clause 11 of the agreement, coupled with the decision of Judge Campbell in the Abraham & Straus case, put defendant in the position it would have occupied if the agreement had provided that types 2 and 3 were not within the patent claims and that defendant could continue, free of royalties, to make and sell them. It was as if originally the parties bad expressly agreed that, although defendant was required to exploit the patent, it was not required to discontinue making and selling types 2 and 3, despite the fact that they competed in part with the patented device. But, had the agreement expressly so provided, defendant’s obligation to exploit the patent would have required it, nevertheless, I think, not to reduce the number of its sales of the patented device by making and selling a wholly-new device like type 4 which, although not covered by the patent, was even more directly competitive within the patented device and better than types 2 and 3, unless there arose (as there did not here) outside competition that could not be successfully met with the patented device.1
Defendant played dog-in-the-manger from November 1940 — when it began the substitution of type 4 for type 7 — until at least the date of the decree, October 11, 1943, and, for all we know from this record, up to now. Under the contract, it could have relieved itself of its equitable obligation either by surrendering the license or by accepting a non-exclusive license. It did neither. It retained its original license, thereby preventing plaintiff from manufacturing and selling type 7 in competition with defendant’s new type 4. I do not believe that, when the parties agreed upon clause 11, they had any such result in mind, that they meant that defendant could thus, in part, place plaintiff’s patent on ice. In other words, I do not believe that they intended that, should a court decision narrow the patent claims in any respect, the defendant, still retaining its right to keep plaintiff from using the patent, could itself reduce the sales of the patented device while making and selling a competing article which it had not therefore made and which no one else was making or selling or threatening to make or to sell. Nor can I agree that, on any principle of fairness or public policy, we should, without regard to the parties’ actual intention, read into the contract a “constructive” intention2 to permit such anti-social conduct, which, I think, closely approaches (if, indeed, it does not reach) illegality.
My colleagues say that the defendant is not charged with having failed to make and sell any trays after the Abraham & Straus decision, and that it did continue thereafter to sell type 7 trays. But the sales of type 4 trays go to show that the sales of type 7 trays were substantially reduced. As type 4 is inferior to type 7 but more directly competitive with type 7 than are types 2 and 3, it is obvious that the sales of type 4 derived from defendant’s desire to escape royalty payments. It is also obvious that defendant’s course of conduct reduced the availability to the public of type 7 trays.
It is true that the doctrine of the Paper Bag Patent cases (Continental Paper Bag Co. v. Eastern Paper Bag Co.) 210 U.S. 405, 28 S.Ct. 748, 52 L.Ed. 1122, allows a patentee to refrain from manufacturing and selling the patented device and yet to stop others by injunctions from making or selling it.3 Whether that doctrine still lives has recently been doubted by Judges Arnold and Miller.4 Be that as it may, the *728far-flung extension of that doctrine which began with the Dick case [Henry v. A. B. Dick Co., 224 U.S. 1, 32 S.Ct. 364, 56 L.Ed. 645, Ann.Cas.1913D, 880], was repudiated in 1931 in Carbice Corporation v. American Patents Development Corporation, 283 U.S. 27, 51 S.Ct. 334, 75 L.Ed. 819, and again in 1941, in Morton Salt Co. v. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363. And, cutting across the Paper Bag rule, the courts developed the doctrine of the obligation of an exclusive licensee not to deprive the public of the benefit of the patent. As this latter doctrine promotes the public interest, it is surprising that the defendant should urge that it is inconsistent with, and should be abandoned because of, such recent cases as Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. 165, or Mercoid Corp. v. Mid-continent Investment Co., 320 U.S. 661, 64 S.Ct. 268, or Nachman Spring-Filled Corporation v. Kay Mfg. Co., 2 Cir., 139 F.2d 781, and should quote in favor of its position this statement from the Mercoid case [320 U.S. 661, 64 S.Ct. 271]: “The patent is a privilege. But it is a privilege which is conditioned by a public purpose.”5 The decisions cited by defendant, which stress the limited constitutional basis for congressional authorization of patent monopolies, have insisted that patent rights should not be utilized to repress competition unduly. Yet defendant here asserts, with my colleagues’ approval, that it may employ its license to reduce competition between types 4 and 7, thereby barring the public from receiving the advantages of the exploitation of plaintiff’s patent.
The decision of my colleagues involves, I think, an unnecessary and undesirable corollary to the Paper Bag doctrine, suggesting to those interested in stifling competition a new-fangled method by which a patent, constitutionally issuable only if it will “promote the progress of the useful arts,” may be made a means of impeding that progress.

 There is no evidence of even a threat of outside competition of that kind.

 That obligations thus “implied” have nothing to do with the actual intention of the contracting parties but are imposed by the courts because of policy considerations, see Beidler & Bookmyer, Inc., v. Universal Ins. Co.. 2 Cir.. 134 F.2d 828.

 For comments on suggested expedients to meet criticisms of that doctrine, see concurring opinion in Picard v. United Aircraft Corp., 2 Cir., 128 F.2d 632.

 Special Equipment Co. v. Coe, - U.S.App.D.C. —, 144 F.2d 497.

 Defendant suggests that the implied equitable obligation doctrine should now be abandoned because it compels the conclusion that, even if a patent is invalid, the licensee cannot make or sell a competing device. But Nachman Spring-Filled Corp. v. Kay Mfg. Co., 2 Cir., 139 F.2d 781, serves, in. most instances, to answer that contention. Moreover, the defendant here could not be thus hemmed in, since, as above noted, it reserved the right to surrender its license.