339 U.S. 827 (1950), 455, Automatic Radio Manufacturing Co., Inc. v. Hazeltine Research, Inc.

Docket Nº:No. 455
Citation:339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312
Party Name:Automatic Radio Manufacturing Co., Inc. v. Hazeltine Research, Inc.
Case Date:June 05, 1950
Court:United States Supreme Court
 
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Page 827

339 U.S. 827 (1950)

70 S.Ct. 894, 94 L.Ed. 1312

Automatic Radio Manufacturing Co., Inc.

v.

Hazeltine Research, Inc.

No. 455

United States Supreme Court

June 5, 1950

Argued April 5, 1950

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

Syllabus

Petitioner, a manufacturer of radio broadcasting receivers, entered into a licensing agreement with respondent, a radio research organization, whereby, for royalties amounting to a small percentage of petitioner's selling price of complete radio broadcasting receivers, petitioner obtained permission to use in the manufacture of its "home products" any or all of 570 patents which respondent held and any others to which it might acquire rights. Respondent is not a manufacturer, but derives its income from licensing its patents, and its policy is to license any and all responsible manufacturers. Under the agreement, petitioner was not obligated to use any of respondent's patents in the manufacture of its products, but it was required to pay the royalty whether it used them or not.

Held:

1. It is not per se a misuse of patents to require the licensee to pay royalties based on a percentage of its sales, even though none of the patents is used. Pp. 830-834.

(a) On the record in this case, there was nothing to support petitioner's averment that respondent refused to grant a license under any one or more of its patents to anyone who refused to take a license under all, since the affidavit in support thereof was made upon information and belief, and the relevant portion did not comply with Rule 56(e) of the Federal Rules of Civil Procedure. P. 831.

(b) There is no indication in this case of a conspiracy to restrict production of unpatented goods, or any goods, to effectuate a monopoly. United States v. Gypsum Co., 333 U.S. 364, distinguished. P. 832.

(c) In this case, the royalty provision did not create another monopoly, and created no restraint of competition beyond the legitimate grant of the patent. P. 833.

(d) The mere accumulation of patents, no matter how many, is not per se illegal. P. 834.

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(e) In the circumstances of this case, there being no inherent extension of the monopoly of the patents, payment of royalties according to an agreed percentage of the licensee's sales is not unreasonable. P. 834.

(f) Having obtained by the agreement the privilege of using any or all of respondent's patents and developments, petitioner cannot complain because it must pay royalties whether it uses the patents or not. P. 834.

2. The question whether the inclusion in the licensing agreement of a provision requiring petitioner to attach restrictive notices to the apparatus manufactured by it made the agreement unenforceable is moot, because respondent had waived compliance with this requirement. Pp. 834-836.

3. There being no showing that the licensing agreement or the practices under it were a misuse of patents or contrary to public policy, petitioner may not, in this suit, challenge the validity of the licensed patents. P. 836.

176 F.2d 799, affirmed.

In a suit by the licensor of certain patents, the District Court sustained the validity of a patent licensing agreement, entered judgment for an accounting and recovery of royalties, and enjoined petitioner from failing to pay royalties, to keep records, and to render reports during the life of the agreement. 77 F.Supp. 493. The Court of Appeals affirmed. 176 F.2d 799. This Court granted certiorari. 338 U.S. 942. Affirmed, p. 836.

Page 829

MINTON, J., lead opinion

MR. JUSTICE MINTON delivered the opinion of the Court.

This is a suit by respondent Hazeltine Research, Inc., as assignee of the licensor's interest in a nonexclusive patent license agreement covering a group of 570 patents and 200 applications, against petitioner Automatic Radio Manufacturing Company, Inc., the licensee, to recover royalties. The patents and applications are related to the manufacture of radio broadcasting apparatus. Respondent and its corporate affiliate and predecessor have for some twenty years been engaged in research, development, engineering design, and testing and consulting services in the radio field. Respondent derives income from the licensing of its patents, its policy being to license any and all responsible manufacturers of radio apparatus at a royalty rate which for many years has been approximately one percent. Petitioner manufactures radio apparatus, particularly radio broadcasting receivers.

The license agreement in issue, which appears to be a standard Hazeltine license, was entered into by the parties in September, 1942, for a term of ten years. By its terms, petitioner acquired permission to use, in the manufacture of its "home" products, any or all of the patents which respondent held or to which it might acquire rights. Petitioner was not, however, obligated to use respondent's patents in the manufacture of its products. For this license, petitioner agreed to pay respondent's assignor royalties based upon a small percentage of petitioner's selling price of complete radio broadcasting receivers, and, in any event, a minimum of $10,000 per year. It further agreed to keep a record of its sales and to make monthly reports thereof.

This suit was brought to recover the minimum royalty due for the year ending August 31, 1946, for an accounting of other sums due, and for other relief. Petitioner answered, and both parties filed motions for summary

Page 830

judgment and affidavits in support of the motions. The District Court found the case to be one appropriate for summary procedure under Rule 56 of the Federal Rules of Civil Procedure, and sustained the motion of respondent for judgment. The validity of the license agreement was upheld against various charges of misuse of the patents, and judgment was entered for the recovery of royalties and an accounting, and for a permanent injunction restraining petitioner from failing to pay royalties, to keep records, and to render reports during the life of the agreement. 77 F.Supp. 493. The Court of Appeals affirmed, one judge dissenting, (176 F.2d 799), and we granted certiorari (338 U.S. 942) in order to consider important questions concerning patent misuse and estoppel to challenge the validity of licensed patents.

The questions for determination are whether a misuse of patents has been shown and whether petitioner may contest the validity of the licensed patents in order to avoid its obligation to pay royalties under the agreement.

First. It is insisted that the license agreement cannot be enforced because it is a misuse of patents to require the licensee to pay royalties based on its sales even though none of the patents are used. Petitioner directs our attention to the "Tie-in" cases. These cases have condemned schemes requiring the purchase of unpatented goods for use with patented apparatus or processes,1 prohibiting

Page 831

production or sale of competing goods,2 and conditioning the granting of a license under one patent upon the acceptance of another and different license.3 Petitioner apparently concedes that these cases do not, on their facts, control the instant situation. It is obvious that they do not. There is present here no requirement for the purchase of any goods. Hazeltine does not even manufacture or sell goods; it is engaged solely in research activities. Nor is there any prohibition as to the licensee's manufacture or sale of any type of apparatus. The fact that the license agreement covers only "home" apparatus does not mean that the licensee is prohibited from manufacturing or selling other apparatus. And finally, there is no conditioning of the license grant upon the acceptance of another and different license. We are aware that petitioner asserted in its countermotion for summary judgment in the District Court that Hazeltine refused to grant a license under any one or more of its patents to anyone who refused to take a license under all. This averment was elaborated in the affidavit of petitioner's attorney in support of the motion. The point was not pressed in the Court of Appeals or here. In any event, there is nothing available in the record to support the averment, since the affidavit in support thereof was made upon information and belief, and the relevant portion, at least, does not comply with Rule 56(e) of the Federal Rules of Civil Procedure.4

Page 832

But petitioner urges that this case "is identical in principle" with the "Tie-in" cases. It is contended that the licensing provision requiring royalty payments of a percentage of the sales of the licensee's products constitutes a misuse of patents because it ties in a payment on unpatented goods. Particular reliance is placed on language from United States v. U.S. Gypsum, 333 U.S. 364, 389, 400.5 That case was a prosecution under the Sherman Act for an alleged conspiracy of Gypsum and its licensees to extend the monopoly of certain patents and to eliminate competition by fixing prices on patented and unpatented gypsum board. The license provisions based royalties on all sales of gypsum board, both patented and unpatented. It was held that the license provisions, together with evidence of an understanding that only patented board would be sold, showed a conspiracy to restrict the production of unpatented products which was an invalid extension of the area of the patent monopoly. 333 U.S. at 397. There is no indication here of conspiracy to restrict production of unpatented or any goods to effectuate a monopoly, and thus the Gypsum case does not aid petitioner. That which is condemned as against public policy by the "Tie-in" cases is the extension of the monopoly of the patent to create another monopoly or restraint of...

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