Sola Electric Co v. Jefferson Electric Co

Citation63 S.Ct. 172,317 U.S. 173,87 L.Ed. 165
Decision Date07 December 1942
Docket NumberNo. 45,45
PartiesSOLA ELECTRIC CO. v. JEFFERSON ELECTRIC CO
CourtUnited States Supreme Court

Messrs. J. Bernhard Thiess, Leslie W. Fricke, and Sidney Neuman, all of Chicago, Ill., for petitioner.

Mr. Thomas H. Sheridan, of Chicago, Ill., for respondent.

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

The question for our decision is whether a patent licensee, by virtue of his license agreement, is estopped to challenge a price-fixing clause in the agreement by showing that the patent is invalid, and that the price restriction is accordingly unlawful because not protected by the patent monopoly.

Respondent brought the present suit in the District Court for the Northern District of Illinois, asserting di- versity of citizenship, and alleging that it was the owner op Patent No. 1777256 for improvements in an electrical transformer; that it had entered into a license contract granting petitioner a nonexclusive license to manufacture and sell the patented transformers throughout the United States, its territories, dependencies and possessions, on payment of a stipulated royalty upon each transformer so manufactured and sold. The contract provided that the license was granted on condition that the 'prices, terms, and conditions of sale, for use or sale' throughout the licensed territory should not be more favorable to petitioner's customers than those prescribed from time to time by respondent for its own sales and those of its other licensees. Respondent sought recovery of unpaid royalties and also an injunction restraining further sales except in conformity to the terms of the license agreement.

Petitioner by its answer admitted that it had manufactured two types of transformers, one covered by certain narrow claims of the patent, claims 8, 14 and 19, the validity of which it does not challenge, the other alleged to be covered by certain broader claims. Petitioner also filed a counterclaim alleging that the broad claims are invalid for want of novelty, as it asserted had been recognized in the Sixth Circuit in France Mfg. Co. v. Jefferson Electric Co., 106 F.2d 605; and that respondent by reason of the price control provisions of the licensing contract and the invalidity of the broad claims was not entitled to recover royalties upon those transformers covered only by the broad claims. Petitioner accordingly prayed a declaratory judgment that most of the claims except 8, 14 and 19, are invalid, and for other relief.

The Circuit Court of Appeals for the Seventh Circuit affirmed the district court's order dismissing the counterclaim, 125 F.2d 322, ruling that petitioner, having accepted a license under the patent, was estopped to deny its validity. And, treating the patent as valid, it held that the stipulation for control of the sales price of the patented articles manufactured by the licensee was a lawful exercise of the patent monopoly. We granted certiorari, 316 U.S. 652, 62 S.Ct. 946, 86 L.Ed. 1733, the question being of importance to the administration of the patent laws and the Sherman Anti-Trust Act, 15 U.S.C.A. § 1 et seq.

The Circuit court of appeals, in holding that petitioner as a licensee was estopped to challenge the validity of the patent, did not say whether it considered that it was applying a rule of federal or of state law, and it cited no decisions of either the federal or the Illinois courts. Where no pricefixing stipulation was involved in the license contract, this rule of estoppel, which was not questioned by counsel, was applied without discussion in United States v. Harvey Steel Co., 196 U.S. 310, 25 S.Ct. 240, 49 L.Ed. 492; cf. Kinsman v. Parkhurst, 18 How. 289, 15 L.Ed. 385. We need not decide whether in such a case the rule is one of local law, cf. Dale Tile Mfg. Co. v. Hyatt, 125 U.S. 46, 53, 54, 8 S.Ct. 756, 758, 759, 31 L.Ed. 683, or whether, if it be regarded as a rule of federal law because the construction and application of the patent laws are involved, it was rightly applied in United States v. Harvey Steel Co., supra. For here a different question is presented—whether the doctrine of estoppel as invoked below is so in conflict with the Sherman Act's prohibition of price-fixing that this Court may resolve the question even though its conclusion be contrary to that of a state court.

The present license contract contemplates and requires that petitioner, on sales of the licensed transformers throughout the United States, shall conform to the prices fixed by respondent for the sale of competing patented articles by other licensees and by respondent. Such a restriction on the price of articles entering interstate commerce is a violation of the Sherman Act save only as it is within the protection of a lawfully granted patent monopoly. See United States v. Univis Lens Co., 316 U.S. 241, 250, 62 S.Ct. 1088, 1093, 86 L.Ed. 1408, and cases cited; United States v. Masonite Corp. 316 U.S. 265, 275, 277, 62 S.Ct. 1070, 1076, 1077, 86 L.Ed. 1461. Agreements fixing the competitive sales price of articles moving interstate, not within the protection of a patent, are unlawful because prohibited by the Sherman Act.

It is familiar doctrine that the prohibition of a federal statute may not be set at naught, or it benefits denied, by state statutes or state common law rules. In such a case our decision is not controlled by Erie...

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295 cases
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    ...in subsequent decisions. One of the important antecedents, decided a few months earlier, is Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. 165 (1942). Sola Electric was a diversity case concerning a patent licensing agreement, and the specific issue before......
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    ...the final judgment, resting on a different ground, 7 Cir., 125 F.2d 322, was reversed for dismissal of the counterclaim in 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. 165; but since this point was not brought before the Supreme Court, the later proceedings are not significant here.4 More recently,......
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    ...for others to commit crime; see Calif.Penal Code Section 836, Arrest without warrant. 8 Sola Electric v. Jefferson Electric Co., 1942, 317 U.S. 173, 176, 63 S.Ct. 172, 174, 87 L.Ed. 165; McNeese v. Board of Ed., 1963, 373 U.S. 668, 671, 83 S.Ct. 1433, 1435, 10 L.Ed.2d 622; Nesmith v. Alford......
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