United States v. Univis Lens Co Univis Lens Co v. United States

• Citation: 62 S.Ct. 1088,86 L.Ed. 1408,316 U.S. 241
• Decision Date: 11 May 1942
• Docket Number: 856,Nos. 855,s. 855
• Parties: UNITED STATES v. UNIVIS LENS CO., Inc., et al. UNIVIS LENS CO., Inc., et al. v. UNITED STATES
• Court: U.S. Supreme Court

316 U.S. 241

62 S.Ct. 1088

86 L.Ed. 1408

UNITED STATES

v UNIVIS LENS CO., Inc., et al.

UNIVIS LENS CO., Inc., et al.

v. UNITED STATES.

Nos. 855, 856.

Argued April April 9, 10, 1942.

Decided May 11, 1942.

Appeals from the District Court of the United States for the Southern District of New York.

Messrs. Francis Biddle, Atty. Gen., Samuel S. Isseks, Sp. Asst. to Atty Gen., and Thurman Arnold, Asst. Atty. Gen., for the United States.

Mr. H. A. Toulmin, Jr., of Dayton, Ohio, for Univis Lens Co., Inc., et al.

Mr. Chief Justice STONE delivered the opinion of the Court.

These cases come here on direct appeal and cross appeal from a judgment of the district court granting in part and denying in part the Government's prayer for an in- junction restraining violations of §§ 1 and 3 of the Sherman Act, 15 U.S.C. §§ 1, 3, 15 U.S.C.A. §§ 1, 3, which make unlawful and contract, combination or conspiracy in restraint of trade or commerce among the states. The principal questions for decision are:

First: Whether the system established and maintained by the Univis Corporation, appellee and cross appellant, for licensing the manufacture and sale of patented multifocal eyeglass lenses is excluded by the patent monopoly from the operation of the Sherman Act.

Second: Whether if not so excluded the resale price provisions of the licensing system are within the prohibition of the Sherman Act and not exempted from it by the provisions of the Miller-Tydings Act amendment of § 1 of the Sherman Act, 50 Stat. 693, 15 U.S.C.A. § 1.

Appellee, Univis Lens Company, was the owner of a number of patents and two trademarks relating to multifocal lenses. In 1931 it organized appellee, Univis Corporation. The Lens Company then acquired and now holds a majority of the stock of the corporation. The individual appellees are the principal stockholders of the Lens Company. They are stockholders in the Corporation and are the principal officers of both corporations, which may for the purposes of this suit be treated as though they were a single corporation. Upon the organization of the Corporation, the Lens Company transferred to it all its interest in the patents and trademarks presently involved, and the Corporation then proceeded to set up and has since maintained the licensing system which the Government now assails.

The relevant features of the system are as follows: The Corporation licenses the Lens Company to manufacture lens blanks and to sell them to designated licensees of the Corporation, upon the Lens Company's payment to the Corporation of an agreed royalty of 50 cents a pair. The lens blanks are rough opaque pieces of glass of suitable size, design and composition for use, when ground and polished, as multifocal lenses in eyeglasses. Each blank is composed of two or more pieces of glass of different refractive power, of such size, shape, and composition and so disposed that when fused together in the blank it is said to conform to the specifications and claims of some one of the Corporation's patents.

The Corporation also issues three classes of licenses licenses to wholesalers, to finishing retailers and to prescription retailers. The licenses to wholesalers authorize the licensees to purchase the blanks from the Lens Company, to finish them by grinding and polishing, and to sell them to prescription licensees only at prices fixed by the Corporation licensor. In finishing the lenses so as to make them an effective aid to vision of the prospective wearer, to whom the prescription retailer sells, it is necessary for the wholesaler, by grinding the blanks, to conform their curvatures to the prescription supplied by the retailer with his order. By the terms of the license the wholesalers are required to keep full accounts of all sales, showing the sales prices of lenses and the names of the purchasers, and to make them available to representatives of the Corporation.

The licenses to finishing retailers—who purchase the blanks from the Lens Company, grind and polish them and adjust the lenses, in frames or supports, to the eyes of the consumers contain similar provisions. The retailers are licensed to purchase the blanks of the Lens Company and to sell them to their customers at prices prescribed by the Corporation licensor.

Both the licenses to wholesalers and to finishing retailers require the licensee to notify the Corporation 'of any violation on the part of any jobbers or other licensees of the agreements respectively made by them with the Corporation, and to assist the Corporation in all possible ways in securing evidence against, and enforcing its agreements with such jobbers and licensees'.

The licenses to prescription retailers, who are without facilities for grinding and finishing the lenses, but who prescribe and adjust glasses for their customers, are signed both by the Corporation and a licensor wholesaler, and grant to the retailer a 'franchise to prescribe anf fit Univis lenses', in return for which the prescription retailer agrees to sell finished lenses only to consumers and only at prices prescribed by the Corporation.

All the licenses to wholesalers and retailers recite the Corporation's ownership of the lens patents and purport to confer on the licensee the privilege of selling the patented invention in the manner and to the extent stated. No royalties are exacted of any of the licensees other than the 50 cents collected by the Corporation for each pair of blanks sold by the Lens Company. The rewards of the corporate appellees for the exploitation of the patents and the patented lenses are derived wholly from the sales by the Lens Company of the blanks, from the proceeds of which the 50 cent royalty is paid.

The prices prescribed and maintained under the licensing system are: $3.25 a pair for the blanks sold by the Lens Company to wholesalers, and $4 a pair for those sold to finishing retailers; $7 a pair for finished lenses sold by wholesalers; $16 a pair for white, and $20 for tinted, lenses sold to consumers by prescription and finishing retailers.

The Corporation pursues the policy of issuing licenses to 'qualified licensees' who, it is said, are required to maintain 'high standards of practice' and to be skilled in the performance of the services which they undertake to render. According to the Corporation's instructions to its field representatives, 'price cutters' are not eligible as prescription retailer licensees. Inquiry is made to ascertain whether prospective licensees advertise prices, and whether they are considered in their communities to be price cutters. The Corporation cancels licenses principally because of the failure of licensees to adhere to the price fixing provisions but also because they advertise prices or the acceptance of installment payments, or for other forms of advertising objectionable to it; for selling Univis lenses to customers other than those designated by the Corporation; for not giving a certain percentage of the licensees' multifocal lens business to Univis; because the licensee is located in a drug, department or jewelry store, or because the licensee engaged in price cutting in the sale of the products of other manufacturers.

For a time the Corporation licensed approximately 20 per cent of the retailers in a locality. It now licenses a larger percentage but not more than 50 per cent. There are approximately 330 wholesaler licensees, 325 finishing retailer licensees and 6,500 prescription retailer licensees located in various states of the Union including New York and the District of Columbia. The Corporation, by its representatives, solicits licenses and negotiates with licensees in the towns and cities where they conduct their business, including the Southern District of New York. The Lens Company, whose annual sales volume is approximately $1,000,000, ships blanks in interstate commerce from its factory in Ohio to wholesalers and finishing licensees in the various places where they are located, including the Southern District, where its representatives visit licensees for the purpose of instructing them in finishing lens blanks and for promoting sales of Univis lenses. The facts amply established the venue of the court below. Eastman Kodak Co. v. Southern Photo Co., 273 U.S. 359, 373, 47 S.Ct. 400, 403, 71 L.Ed. 684.

Of the sixteen patents owned by the Corporation three are unrelated to the issues of the present case; five are for methods of producing lenses utilized by the Lens Company in manufacturing blanks and do not concern any method or process employed by the licensees who finish the lens blanks. Each of the remaining eight patents relates to the shape, size, composition and disposition of the pieces of glass of different refractive power in the blanks into which they are fused.

The district court found, 41 F.Supp. 258, that the claims of each of these eight patents are for a finished lens and that consequently the wholesalers and finishing retailers, in grinding and polishing each lens, practice in part the patent, in conformity to which the Lens Company has manufactured the blanks which it supplies. The court thought that without the granted license the final step in finishing the lens would infringe the patent and concluded that for this reason the Corporation could condition its licenses upon the maintenance by the licensee of the prescribed retail price. See United States v. General Electric Co., 272 U.S. 476, 47 S.Ct. 192, 71 L.Ed. 362. But it held that the prescription retailer licenses are unlawful because their restrictions upon the resale of the finished product are not within the patent monopoly and are proscribed by the Sherman Act.

It also held that certain 'fair trade agreements' entered into by the Lens Company with the licensees for the control of resale prices of the finished lenses, were not within the exception to the Sherman Act created by the Miller-Tydings Act. This was because the Lens Company had undertaken to fix the...