395 U.S. 653 (1969), 56, Lear, Inc. v. Adkins

Docket Nº:No. 56
Citation:395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610
Party Name:Lear, Inc. v. Adkins
Case Date:June 16, 1969
Court:United States Supreme Court
 
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Page 653

395 U.S. 653 (1969)

89 S.Ct. 1902, 23 L.Ed.2d 610

Lear, Inc.

v.

Adkins

No. 56

United States Supreme Court

June 16, 1969

Argued November 20-21, 1968

CERTIORARI TO THE SUPREME COURT OF CALIFORNIA

Syllabus

Respondent, an engineer and inventor, was hired in 1952 by petitioner (Lear) to help solve gyroscope development problems. They had agreed that "new ideas, discoveries, inventions etc. related to . . . vertical gyros become the property of" respondent, and that the inventor would grant Lear a license as to all ideas he might develop "on a mutually satisfactory royalty basis." Shortly thereafter, respondent developed a method for improving gyros which Lear incorporated into its production process. In 1954, respondent filed a patent application covering these improvements and entered into licensing negotiations with Lear to establish a royalty rate. An agreement, concluded in 1955, provided that, if the

Patent Office refuses to issue a patent . . . or if such a patent so issued is subsequently held invalid . . . , Lear at its option shall have the right forthwith to terminate the specific license so affected or to terminate this entire Agreement. . . .

A patent was issued to respondent in 1960, after several rejections of the application. In 1957, Lear stated that a Patent Office search disclosed a patent which fully anticipated respondent's discovery, and that it would no longer pay royalties on the gyros it produced in its Michigan plant, although it continued to pay royalties on gyros produced in its California plant until 1959. Upon receipt of his patent, respondent brought suit in the California courts claiming that both the Michigan and California gyros used his patent, and that Lear's failure to pay royalties breached the 1955 contract and Lear's quasi-contractual obligations. Although Lear tried to raise patent invalidity as a defense, the trial judge directed a verdict for respondent on the California gyros, holding that Lear was estopped by its licensing agreement from questioning the licensor's patent. Since Lear claimed that it developed its Michigan gyro designs independently of respondent's ideas, the judge instructed the jury to award recovery to the inventor only if it was satisfied that the invention was novel. When the jury returned a substantial verdict for respondent on the Michigan gyros, the judge granted Lear's motion for judgment notwithstanding the verdict, finding that the invention had been

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completely anticipated by the prior art. The California Supreme Court held that the 1955 agreement was still in effect, that Lear did not have the right thereunder to terminate its royalty obligations in 1959, and that the doctrine of estoppel barred Lear from questioning the patent. Noting Lear's claim that it had developed the Michigan gyros independently, the court considered "whether what is being built by Lear [in Michigan] springs entirely from the prior art," found that Lear had, in fact, utilized the patent throughout the period in question, and reinstated the jury's verdict.

Held:

1. Since the California Supreme Court's construction of the 1955 licensing agreement is solely a matter of state law, the only issue open here is raised by the court's reliance on the doctrine of estoppel to bar Lear from contesting the validity of the patent. Pp. 661-662.

2. In the accommodation of (1) the common law of contracts, and (2) the federal law of patents requiring that all ideas in general circulation be dedicated to the common good unless they are protected by a valid patent, the technical requirements of contract doctrine must yield to the demands of the public interest in the typical situation involving the negotiation of a license after a patent has issued. The holding of Automatic Radio Manufacturing Co. v. Hazeltine Research Inc., 339 U.S. 827, 836, that licensee estoppel was "the general rule," is overruled. Pp. 668-671.

3. Overriding federal policies would be significantly frustrated if licensees could be required to continue to pay royalties while challenging patent validity in the courts, and, in this case, Lear must be permitted to avoid payment of all royalties accruing after the issuance of the patent if Lear can prove that the patent is invalid. Pp. 671-674.

4. Respondent's claim to contractual royalties accruing before the issuance of the patent, which raises the question of whether, and to what extent, the States may protect the owners of unpatented inventions who are willing to disclose their ideas only upon the payment of royalties, is remanded for specific consideration by the California courts. Pp. 674-675.

5. It is inappropriate at this time to pass upon Lear's contention that the patent is invalid, as Lear must address its arguments attacking the validity of the underlying patent to the California courts in the first instance. Pp. 675-676.

67 Cal.2d 882, 435 P.2d 321, vacated and remanded.

Page 655

HARLAN, J., lead opinion

MR. JUSTICE HARLAN delivered the opinion of the Court.

In January of 1952, John Adkins, an inventor and mechanical engineer, was hired by Lear, Incorporated, for the purpose of solving a vexing problem the company had encountered in its efforts to develop a gyroscope which would meet the increasingly demanding requirements of the aviation industry. The gyroscope is an essential component of the navigational system in all aircraft, enabling the pilot to learn the direction and attitude of his airplane. With the development of the faster airplanes of the 1950's, more accurate gyroscopes were needed, and the gyro industry consequently was casting about for new techniques which would satisfy this need in an economical fashion. Shortly after Adkins was hired, he developed a method of construction at the company's California facilities which improved gyroscope accuracy at a low cost. Lear almost immediately incorporated Adkins' improvements into its production process to its substantial advantage.

The question that remains unsettled in this case, after eight years of litigation in the California courts, is whether Adkins will receive compensation for Lear's use of those improvements which the inventor has subsequently patented. At every stage of this lawsuit, Lear has sought to prove that, despite the grant of a patent

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by the Patent Office, none of Adkins' improvements were sufficiently novel to warrant the award of a monopoly under the standards delineated in the governing federal statutes. Moreover, the company has sought to prove that Adkins obtained his patent by means of a fraud on the Patent Office. In response, the inventor has argued that, since Lear had entered into a licensing agreement with Adkins, it was obliged to pay the agreed royalties regardless of the validity of the underlying patent.

[89 S.Ct. 1904] The Supreme Court of California unanimously vindicated the inventor's position. While the court recognized that generally a manufacturer is free to challenge the validity of an inventor's patent, it held that

one of the oldest doctrines in the field of patent law establishes that, so long as a licensee is operating under a license agreement, he is estopped to deny the validity of his licensor's patent in a suit for royalties under the agreement. The theory underlying this doctrine is that a licensee should not be permitted to enjoy the benefit afforded by the agreement while simultaneously urging that the patent which forms the basis of the agreement is void.

67 Cal.2d 882, 891, 435 P.2d 321, 325-326 (1967).

Almost 20 years ago, in its last consideration of the doctrine, this Court also invoked an estoppel to deny a licensee the right to prove that his licensor was demanding royalties for the use of an idea which was, in reality, a part of the public domain. Automatic Radio Manufacturing Co. v. Hazeltine Research Inc., 339 U.S. 827, 836 (1950). We granted certiorari in the present case, 391 U.S. 912, to reconsider the validity of the Hazeltine rule in the light of our recent decisions emphasizing the strong federal policy favoring free competition in ideas which do not merit patent protection. Sears, Roebuck v. Stiffel Co., 376 U.S. 225 (1964); Compco Corp. v. Day-Brite Lighting Inc., 376 U.S. 234 (1964).

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I

At the very beginning of the parties' relationship, Lear and Adkins entered into a rudimentary one-page agreement which provided that, although "[a]ll new ideas, discoveries, inventions, etc., related to . . . vertical gyros become the property of Mr. John S. Adkins," the inventor promised to grant Lear a license as to all ideas he might develop "on a mutually satisfactory royalty basis."1 As soon as Adkins' labors yielded tangible results, it quickly became apparent to the inventor that further steps should be taken to place his rights to his ideas on a firmer basis. On February 4, 1954, Adkins filed an application with the Patent Office in an effort to gain federal protection for his improvements. At about the same time, he entered into a lengthy period of negotiations with Lear in an effort to conclude a licensing agreement which would clearly establish the amount of royalties that would be paid.

These negotiations finally bore fruit on September 15, 1955, when the parties approved a complex 17-page contract which carefully delineated the conditions upon which Lear promised to pay royalties for Adkins' improvements. The parties agreed that, if

the U.S. Patent Office refuses to issue a patent on the substantial claims [contained in Adkins' original patent application], or if such a patent so issued is subsequently held invalid, then in any of such events Lear at its option shall have the right forthwith to terminate the specific license so affected or to terminate this entire Agreement. . . .

§ 6. (2 App. 138.)

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As the contractual language indicates, Adkins had not obtained a final Patent Office decision as to the...

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