American Optical Co. v. New Jersey Optical Co.

• Decision Date: 15 December 1944
• Docket Number: No. 1583.,1583.
• Citation: 58 F. Supp. 601
• Court: U.S. District Court — District of Massachusetts
• Parties: AMERICAN OPTICAL CO. v. NEW JERSEY OPTICAL CO. et al.

58 F. Supp. 601

AMERICAN OPTICAL CO. v. NEW JERSEY OPTICAL CO. et al.

No. 1583.

District Court, D. Massachusetts.

December 15, 1944.

Brooks Potter, John L. Hall, Frederick H. Nash, and Marcien Jenckes (all of Choate, Hall & Stewart), all of Boston, Mass., for plaintiff.

John M. Russell, Charles B. Rugg, and Edward B. Hanify, all of Boston, Mass., and Daniel V. Mahoney and Morris D. Jackson, both of New York City, for defendant.

SWEENEY, District Judge.

This is a motion for summary judgment dismissing the plaintiff's complaint. The original action was brought by the American Optical Company in the Municipal Court of the City of Boston to recover unpaid royalties under certain patent license and sublicense agreements. The defendant, after removal of the cause to this Court because of diversity of citizenship, interposed an answer denying liability for the royalties on the ground that the agreements were invalid as part of a conspiracy unlawfully to monopolize and restrain trade in violation of the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note. The answer also included a counterclaim for treble damages. Defendant later amended its answer to allege the invalidity of all the patents covered by the licenses. Trial of the case on the merits has been postponed so that war production will not be impeded. The defendant now moves for summary judgment dismissing the action on the ground that illegality of the license agreements is apparent on the face of the complaint.

Both the plaintiff and the defendant are manufacturers of spectacle frames and mountings. The license agreements involve three groups of patents of which the American Optical Company alleges it is owner or exclusive licensee. The first license agreement (hereinafter referred to as the Ful-Vue license) was entered into May 25, 1934, and authorizes the New Jersey Optical Company to make, use and sell the inventions covered by two U. S. patents — the Emons, re-issue, No. 17994, and the Smith, re-issue, No. 17996. Defendant maintains that this license agreement is illegal on its face because of the following provisions contained therein: "The Rimmed Type Of Spectacle Unit shall include a front having two end pieces and also a pair of temples. The fronts and temples may be either assembled or unassembled as long as the component parts of each complete unit are delivered in one shipment. Fronts suitable for use in making complete units embodying the same patent inventions are not to be sold separately without temples. The Rimless Type Of Spectacle Unit shall include a pair of end pieces and a pair of temples. The component parts of each unit shall be delivered in one shipment. Temples only for rimmed or rimless units may be sold as such for replacement parts."

It is contended by the defendant that "fronts" used in the rimmed type unit are not patented and that the plaintiff is using the Emons and Smith patents to restrain competition in the marketing of unpatented fronts. The same contention is made in regard to the temples and end pieces used in the rimless type mountings, with the further allegation that royalties in the sum of $246.06 were charged on Ful-Vue temples and ends, said temples and ends not being patented. In addition, New Jersey Optical asserts that the Ful-Vue license agreement is illegal because of the requirement imposed therein that the defendant "will not sell the inventions covered by said patents in England, North Ireland, France, and Germany". Such a geographical limitation, it is maintained, is an evident violation of the Sherman Act, 15 U.S.C.A. § 1.

The second license agreement (hereinafter referred to as the Numont license), was entered into September 13, 1939, and covers the Uhlemann patent No. 2,108,875, and the subsequent Uhlemann patents Nos. 2,164,557 and 2,188,380. This agreement provides for royalty payments on Numont Ful-Vue Semi-Rimless Frames. The defendant contends that every claim under the Uhlemann patent No. 2,108,875 includes a pair of lenses as an element and that the plaintiff has no patent rights under this patent on a frame independently of the lenses. The defendant also asserts that since the Numont license provides that all devices manufactured under its authority shall embody the Smith and Emons patents, supra, the invalidity of the Ful-Vue agreement infects the Numont agreement. The result, it is alleged, is a restraint of competition in the marketing of unpatented frames.

The third license agreement (hereinafter called the E-Z-Mont license) was entered into November 28, 1940, and covers the Nerney patents Nos. 1,747,904 and 1,984,541, and an application which became Snavely patent No. 2,236,304. No allegedly illegal provisions are found in the terms of the E-Z-Mont license itself but the defendant maintains that the illegal elements in the Ful-Vue agreement have also become a part of the E-Z-Mont agreement, making the latter equally invalid as a further restraint of competition in unpatented fronts of rimmed type spectacle units, and temples and end pieces of rimless type spectacle units.

The defendant bases its motion for summary judgment primarily on the decision of the United States Supreme Court in Mercoid Corporation v. Mid-Continent Investment Co., 320 U.S. 661, 64 S.Ct. 268. This was a suit brought by Mid-Continent against Mercoid for contributory infringement of a patent on a domestic heating system composed of three main elements — a motor-driven stoker, a room thermostat and a combination stoker switch. The claims of the patent were combination claims but the stoker switch was itself unpatented. Mid-Continent granted an exclusive license to Minneapolis-Honeywell to make, use and sell the combination patented system. Neither Mid-Continent nor Minneapolis-Honeywell manufactured or installed heating systems under the combination patent. The royalty payments under the license were based upon sales of the stoker switch, and Minneapolis-Honeywell granted the right to use the combination patent only when the user purchased the necessary combustion stoker switches from Minneapolis-Honeywell or its sublicensees. The alleged contributory infringement occurred when Mercoid manufactured and sold its own combustion stoker switches for use in the patented combination. Mercoid filed a counterclaim charging Mid-Continent and Minneapolis-Honeywell with conspiracy to extend the patent monopoly to include an unpatented appliance in violation of the anti-trust laws. The Supreme Court denied relief for contributory infringement because of complainant's misuse of the patent to secure a limited monopoly of the unpatented stoker switches.

The actual holding in this case does not extend the doctrine of the invalidity of certain restrictive licensing agreements greatly beyond the limits established by the decided cases. It is basically a reaffirmation of earlier decisions. Carbice Corporation v. American Patents Development Corporation, 283 U.S. 27, 51 S.Ct. 334, 75 L.Ed. 819; Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, 58 S.Ct. 288, 82 L.Ed. 371; Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363; B. B. Chemical Co. v. Ellis, 314 U.S. 495, 62 S.Ct. 406, 86 L.Ed. 367. Its significance lies chiefly in the application of the doctrine to the field of combination patents, where "the unpatented device is part of the patented whole." Mercoid Corporation v. Mid-Continent Investment Co., 320 U.S. 661, at page 667, 64 S.Ct. 272. But this extension concerns the nature of the relationship of the patented to the unpatented device. There is no enlargement of the scope of the activities which are to result in judicial condemnation.

On analysis, none of the authorities cited above warrants a holding by this Court that the licensing agreements between American Optical and New Jersey Optical are illegal. In all of the above cited cases the licensor granted licenses under its patent only on condition that the licensee purchase from the licensor, or its sublicensees, some unpatented device. Furthermore, the respective licensors were deriving their profits substantially from the sale of the unpatented device, rather than from the sale or licensing of the patented article itself. In the licensing agreements now under consideration there is no requirement that New Jersey Optical purchase anything from American Optical. There is no evidence that the allegedly objectionable provisions in the agreements were inserted to promote sales by the plaintiff of unpatented parts.

The other cases relied on by the defendant, which were decided before the Mercoid case, are also distinguishable on their facts. National Lock Washer Co. v. George K. Garrett Co., 3 Cir., 137 F.2d 255, involved an agreement by the licensees not to manufacture any other form of nontangling washers except those covered by the license. The agreement was condemned for misuse by the licensor of the patent monopoly to suppress competition in goods not covered by the patent. There is no such suppression by American Optical in the agreements under consideration here. New Jersey Optical remained free to obtain the unpatented parts for the complete spectacle units anywhere it wished. The requirements as to quality standards in the agreements were not to suppress competition, but to promote a legitimate business interest of the licensor. As long as the product as a whole was approved, New Jersey was under no restriction as to the type of unpatented parts it could use. There is no indication that American Optical utilized its approval rights to effect the result condemned in the National Lock Washer case.

Barber-Colman Co. v. National Tool Co., 6 Cir., 136 F.2d 339, may also be distinguished. This involved a license agreement which attempted to use a machine patent and a process patent to control the selling price of the unpatented products of the machine. There is no such plan in the case at bar.

In the Mercoid case there is some broad...