379 U.S. 29 (1964), 20, Brulotte v. Thys Co.

Docket Nº:No. 20
Citation:379 U.S. 29, 85 S.Ct. 176, 13 L.Ed.2d 99
Party Name:Brulotte v. Thys Co.
Case Date:November 16, 1964
Court:United States Supreme Court

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379 U.S. 29 (1964)

85 S.Ct. 176, 13 L.Ed.2d 99

Brulotte

v.

Thys Co.

No. 20

United States Supreme Court

Nov. 16, 1964

Argued October 20, 1964

CERTIORARI TO THE SUPREME COURT OF WASHINGTON

Syllabus

The royalty provisions of a patent licensing agreement which provides for royalties for the use of machines incorporating certain patents are not enforceable for the period beyond the expiration of the last patent incorporated in the machine. Automatic Radio Co. v. Hazeltine, 339 U.S. 827, distinguished. Pp. 30-34.

62 Wash.2d 284, 382 P.2d 271, reversed.

DOUGLAS, J., lead opinion

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

Respondent, owner of various patents for hop picking, sold a machine to each of the petitioners for a flat sum1 and issued a license for its use. Under that license, there is payable a minimum royalty of $500 for each hop picking season or $3.33 1/3 per 200 pounds of dried hops harvested by the machine, whichever is [85 S.Ct. 178] greater. The licenses, by their terms, may not be assigned, nor may the machines be removed from Yakima County.

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The licenses issued to petitioners listed 12 patents relating to hop picking machines,2 but only seven were incorporated into the machines sold to and licensed for use by petitioners. Of those seven, all expired on or before 1957. But the licenses issued by respondent to them3 continued for terms beyond that date.

Petitioners refused to make royalty payments accruing both before and after the expiration of the patents. This suit followed. One defense was misuse of the patents through extension of the license agreements beyond the expiration date of the patents. The trial court rendered judgment for respondent, and the Supreme Court of Washington affirmed. 62 Wash.2d 284, 382 P.2d 271. The case is here on a writ of certiorari. 376 U.S. 905.

We conclude that the judgment below must be reversed insofar as it allows royalties to be collected which accrued after the last of the patents incorporated into the machines had expired.

The Constitution by Art. I, § 8 authorizes Congress to secure "for limited times" to inventors "the exclusive right" to their discoveries. Congress exercised that power by 35 U.S.C. § 154, which provides in part as follows:

Every patent shall contain a short title of the invention and a grant to the patentee, his heirs or assigns, for the term of seventeen years, of the right to exclude others from making, using, or selling the invention throughout the United States, referring to the specification for the particulars thereof. . . .

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The right to make, the right to sell, and the right to use "may be granted or conferred separately by the patentee." Adams v. Burke, 17 Wall. 453, 456. But these rights become public property once the 17-year period expires. See Singer Mfg. Co. v. June Mfg. Co., 163 U.S. 169, 185; Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 118. As stated by Chief Justice Stone, speaking for the Court in Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 256:

. . . any attempted reservation or continuation in the patentee or those claiming under him of the patent monopoly, after the patent expires, whatever the legal device employed, runs counter to the policy and purpose of the patent laws.

The Supreme Court of Washington held that, in the present case, the period during which royalties were required was only "a reasonable amount of time over which to spread the payments for the use of the patent." 62 Wash.2d at 291, 382 P.2d at 275. But there is intrinsic evidence that the agreements were not designed with that limited view. As we have seen,4 the purchase price in each case was a flat sum, the annual payments not being part of the purchase price, but royalties for use of the machine during that year. The royalty payments due for the post-expiration period are, by their terms, for use during that period, and are not deferred payments for use during the pre-expiration period. Nor is the case like the hypothetical ones put to us where nonpatented articles are marketed at prices based on use. The machines in issue here were patented articles, and the royalties exacted were the same for the post-expiration period [85 S.Ct. 179] as they were for the period of the patent. That is peculiarly significant in this case in view of other provisions

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of the license agreements. The license agreements prevent assignment of the machines or their removal from Yakima County after, as well as before, the expiration of the patents.

Those restrictions are apt and pertinent to protection of the patent monopoly, and their applicability to the post-expiration period is a telltale sign that the licensor was using the licenses to project its monopoly beyond the patent period. They forcefully negate the suggestion that we have here a bare arrangement for a sale or a lease at an undetermined price based on use. The sale or lease of unpatented machines on long-term payments based on a deferred purchase price or on use would present wholly different considerations. Those arrangements seldom rise to the level of a federal question. But patents are in the federal domain, and "whatever the legal device employed" (Scott Paper Co. v. Marcalus Mfg. Co., supra, at 256), a projection of the patent monopoly after the patent expires is not enforceable. The present licenses draw no line between the term of the patent and the post-expiration period. The same provisions as respects both use and royalties are applicable to each. The contracts are, therefore, on their face a bald attempt to exact the same terms and conditions for the period after the patents have expired as they do for the monopoly period. We are, therefore, unable to conjecture what the bargaining position of the parties might have been and what resultant arrangement might have emerged had the provision for post-expiration royalties been divorced from the patent and nowise subject to its leverage.

In light of those considerations, we conclude that a patentee's use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se. If that device were available to patentees, the free market visualized for the post-expiration period

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would be subject to monopoly influences that have no proper place there.

Automatic Radio Co. v. Hazeltine, 339 U.S. 827, is not in point. While some of the patents under that license apparently had expired, the royalties claimed were not for a period when all of them had expired.5 That license covered several hundred patents, and the royalty was based on the licensee's sales, even when no patents were used. The Court held that the computation of royalty payments by that formula was a convenient and reasonable device. We decline the invitation to extend it so as to project the patent monopoly beyond the 17-year period.

A patent empowers the owner to exact royalties as high as he can negotiate with the leverage of that monopoly. But to use that leverage to project those royalty payments beyond the life of the patent is analogous to an effort to enlarge the monopoly of the patent by tieing the sale or use of the patented article to the purchase or use of unpatented ones. See Ethyl Gasoline Corp. v. United States, 309 U.S. 436; Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 664-665, and cases cited. The exaction of royalties for use of a machine after the patent has expired [85 S.Ct. 180] is an assertion of monopoly power in the post-expiration period, when, as we have seen, the patent has entered the public domain. We share the views of the Court of Appeals in Ar-Tik Systems, Inc. v. Dairy Queen, Inc., 302 F.2d 496, 510, that, after expiration of the last

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of the patents incorporated in the machines "the...

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