Meehan v. PPG Industries, Inc., 85-2495

• Decision Date: 26 September 1986
• Docket Number: No. 85-2495,85-2495
• Citation: 802 F.2d 881
• Parties: , 1986-2 Trade Cases 67,301 John C. MEEHAN, Plaintiff-Appellant, v. PPG INDUSTRIES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 881

802 F.2d 881

231 U.S.P.Q. 400, 1986-2 Trade Cases 67,301

John C. MEEHAN, Plaintiff-Appellant, v. PPG INDUSTRIES, INC., Defendant-Appellee.

No. 85-2495.

United States Court of Appeals Seventh Circuit.

Argued April 11, 1986.

Decided Sept. 26, 1986.

Lloyd W. Mason, Wood Dalton Phillips Mason & Rowe, Chicago, Ill., for plaintiff-appellant.

Madeline Henricks Devereux, Marshall O'Toole Gerstein Murray & Bicknell, Chicago, Ill., for defendant-appellee.

Before CUMMINGS, Chief Judge, BAUER and FLAUM, Circuit Judges.

CUMMINGS, Chief Judge.

Plaintiff brought this breach of contract action in 1984 when defendant stopped making him royalty payments for sales of his invention. The contract involved an assignment of rights in a "method and apparatus" invented by the plaintiff. The three patents on plaintiff's invention have since expired. Although the contract required defendant to make royalty payments to plaintiff until the expiration of all patents, defendant refused to pay royalties for sales in the United States after the expiration of the only United States patent.

Both parties brought motions for summary judgment. On July 3, 1985, the district court granted defendant's motion and denied plaintiff's motion. Plaintiff then brought this appeal. The sole issue on appeal is whether the district court correctly decided that the royalty provisions of the contract were unenforceable as a matter of federal patent law. We affirm the order of the district court.

The facts in this case are undisputed. The plaintiff, John Meehan, invented a method and apparatus for the packaging and dispensing of anti-icing products, which when added to fuels in internal combustion engines prevent ice formation. In a contract executed January 30, 1964, Meehan conveyed exclusive rights in the invention to Hoffman-Taff Corporation. Hoffman-Taff's rights and obligations under the agreement were subsequently assumed by defendant PPG Industries.

At the time that the agreement was entered into Meehan had not filed a patent application for the invention. But the contract did require PPG to determine immediately whether the invention was patentable and, if so, to pursue an application for a U.S. patent. Meehan was required to assist in a technical capacity, as well as to furnish the necessary information and complete the necessary documents in the patent application process. The contract also transferred the patent, once it issued, to PPG.

Ultimately patents were granted in the United States, Canada, and the United Kingdom. The three patents expired in the following sequence: British patent, November 11, 1981; U.S. patent, January 4, 1983; Canadian patent, December 19, 1984. Since the U.S. patent expired, PPG has made no royalty payments on sales of plaintiff's invention in the United States.

Meehan sued PPG for breach of contract in 1984. The contract was interpreted as requiring PPG to continue paying plaintiff royalties on all sales until the last patent expired, or in December of 1984. PPG defended, asserting that any obligation it had to continue paying plaintiff royalties beyond the life of the U.S. patent was unenforceable under federal patent law. The district court agreed with PPG and granted summary judgment in its favor. We affirm.

1. Discussion

Article I Sec. 8 of the Constitution empowers Congress to grant inventors limited monopoly rights in their discoveries. Congress exercised that power by giving inventors the right to exclude others from making, using, or selling the idea for 17 years. 35 U.S.C. Sec. 154. The policy behind this federal patent law is to give a 17-year monopoly to inventors in exchange for release of the invention to the public upon expiration of the patent. Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 255, 66 S.Ct. 101, 104, 90 L.Ed. 47; Singer Mfg. Co. v. June Mfg. Co., 163 U.S. 169, 185, 16 S.Ct. 1002, 1008, 41 L.Ed. 118. Thus for a limited time the inventor may profit exclusively from the invention on condition that the invention goes public after 17 years. Even this limited monopoly right has extensive social and economic consequences for the public and therefore the courts are ever watchful of the possibility that patent monopolies will overstep their bounds. Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 816, 65 S.Ct. 993, 998, 89 L.Ed. 1381. Consequently the policy and purpose of the patent laws is undermined by any attempt to extend or preserve the patent monopoly beyond the 17 years. Scott Paper, 326 U.S. at 255-56.

Accordingly, in Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176, 13 L.Ed.2d 99, the Supreme Court held that licensing agreements extending royalty payments beyond the life of an issued patent were unlawful. In Brulotte, an owner of patents on hop-picking techniques sold machines to farmers for a flat sum. With each sale the owner also executed a licensing agreement requiring payment of a royalty. All of the patents expired before the licenses; nonetheless, the terms of the licenses remained identical both before and after the last patent expired. When the hop farmers eventually refused to pay the royalties, the owner sued to enforce the licenses under state contract law. The farmers defended claiming misuse of the patents. The Supreme Court held that the owner had improperly used the leverage of his patent to extend the monopoly. Id. at 32, 85 S.Ct. at 179. The Court based its conclusion on the unchanging nature of the license agreement terms after the patent expired; continuation of patent protection limitations and identical amounts of royalties due. Id. Because the terms failed to distinguish between the pre-expiration and post-expiration periods, the Court was unable to determine whether or not the post-expiration royalties were subject to the leverage of the patent. Id. Without evidence that the post-expiration royalties were not tied to the patent, the Court assumed that they were. "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." Id.

The Eleventh Circuit's decision in Pitney Bowe's, Inc. v. Mestre, 701 F.2d 1365 (1983), certiorari denied, 464 U.S. 893, 104 S.Ct. 239, 78 L.Ed.2d 230, applied Brulotte's rule of per se invalidity to an agreement specifically encompassing both patent and trade secret rights and where the patents were only pending at the time the agreement was entered into. In Pitney, the inventor had applied and was awaiting patents for his inventions. The prospective patent owner executed four licenses granting exclusive right to make and sell different paper-handling machines. Like Brulotte, the royalty and use provisions did not distinguish between rates of payment for the pre-expiration and post-expiration periods or between royalties attributable to patent rights and those for trade secret rights. These hybrid royalty payments extended beyond the life of the patent. The Eleventh Circuit ruled that once the patent issued, the conflicting and indistinguishable trade secret provisions were unenforceable. Thus the Pitney Court held that misuse of the leverage afforded by a pending patent was subject to the Brulotte rule of per se invalidity. See also Aronson v. Quick Point Pencil Co., 440 U.S. 257, 264-65, 99 S.Ct. 1096, 1100-01, 59 L.Ed.2d 296. In Pitney, the court reasoned that the anticipation of the issuance of a patent provided sufficient bargaining power to warrant application of the Brulotte per se analysis.

The Sixth Circuit, relying on Brulotte and Pitney, took the analysis one step further in Boggild v. Kenner Products, 776 F.2d 1315 (6th Cir.1985), certiorari denied, --- U.S. ---, 106 S.Ct. 3284, 91 L.Ed.2d 573. Boggild involved a set of facts remarkably similar to the case presented before this Court. In Boggild, the plaintiffs invented a toy extruder to be used with Play-Doh. These plaintiffs sold an exclusive license to make, use, and sell the extruder to Kuto/Products, which subsequently assigned its rights to Kenner Products. No patents for the extruder had been applied for when the agreement was executed. However, the agreement required the plaintiffs to apply promptly for mechanical and design patents on the extruder. Patents were subsequently issued. The agreement required Kenner Products to make royalty payments for 25 years, regardless of whether the patents issued. The Sixth Circuit held that the Brulotte rule of per se invalidity precluded enforcement of license terms that were entered into in anticipation of patent protection and that required royalty payments beyond the life of the patent. Id. at 1319. Because the agreement did not contain provisions for reduction of post-expiration royalties and because the use restrictions on the extruder were the same in the post-expiration and pre-expiration periods, it was held unlawful. Id. at 1321.

Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S.Ct. 1096, 1097, 59 L.Ed.2d 296, is not to the contrary. In Aronson, the Supreme Court reversed an Eighth Circuit decision applying Brulotte to an agreement in which the patent applications, although anticipated, ultimately failed. The Aronson Court held that absent an issued patent, federal patent law will not preempt state contract law. Id. at 265,...