Lanova Corporation v. Atlas Imperial Diesel Engine Co.

• Decision Date: 24 September 1947
• Docket Number: 184,75
• Citation: 75 U.S.P.Q. 225,44 Del. 55,55 A.2d 272
• Court: Delaware Superior Court
• Parties: LANOVA CORPORATION, a Corporation of the State of Delaware, v. ATLAS IMPERIAL DIESEL ENGINE CO., a Corporation of the State of Delaware

55 A.2d 272

LANOVA CORPORATION, a Corporation of the State of Delaware, v. ATLAS IMPERIAL DIESEL ENGINE CO., a Corporation of the State of Delaware

44 Del. 55, 75 U.S.P.Q. 225

Nos. 75, 184

Superior Court of Delaware, New Castle

September 24, 1947

Hugh M. Morris and S. Samuel Arsht (of the firm of Morris, Steel Nichols and Arsht), (Denis B. Sullivan, Arthur H. Boettcher and David B. Coxe, Jr., of counsel) for the plaintiff.

Caleb S. Layton (of the firm of Richards, Layton and Finger) (Oscar A. Mellin, of counsel) for the defendant.

CAREY J., sitting.

OPINION

CAREY, J.:

Originally, the plaintiff sought to raise the present issues by a motion to strike the pleas. The Court (Carey, J., sitting) held the motion to be improper because it can not be allowed to take the place of a demurrer. 1 Woolley Del. Prac. 308. Upon the state of this record, the proper pleading is demurrer. If the defendant is estopped to deny the validity of the patents, that estoppel appears from matter contained in the declaration. See Brady v. Delaware Mutual Life Ins. Co., 18 Del. 237, 2 Penne. 237, 45 A. 345.

Although the special demurrer raises certain formal objections, I prefer to turn immediately to the more important substantive contention. The plaintiff relies upon the rule set forth in Eastern States Petroleum Co. v. Universal Oil Products Co., 22 Del. Ch. 333, 2 A.2d 138, wherein Chancellor Wolcott held that a licensee is estopped to deny the validity of patents included in the license. This holding was approved by our Supreme Court in Id., 23 Del. Ch. 358, 8 A.2d 80. Nobody would suggest that this Court has thepower to overrule a principle of law laid down by our State Supreme Court. On the other hand, in matters subject to federal regulation, State Courts must bow to the authority of the Supreme Court of the United States. Van Winkle v. State, 27 Del. 578, 4 Boyce 578, 91 A. 385, Ann. Cas. 1916 D, 104. The patent and anti-trust laws being substantive matters within the federal jurisdiction, our present ruling would have to be controlled by the principles laid down by the United States Supreme Court if, as defendant contends, those principles overrule the Universal case in its application to the present factual situation.

It is necessarily conceded that the so-called limitation in this license agreement is valid if the patents are valid. General Talking Pictures Corp. v. Western Electric Co., 305 U.S. 124, 59 S.Ct. 116, 83 L.Ed. 81. The owner of a patent need not allow anyone to use it for any purpose. Clearly, if he does permit someone to use it, he may impose any lawful restrictions upon the privilege. Moreover, he may limit its use to "one or more of the several fields of use"; he is not forced to permit an all-inclusive use. This principle is too well settled to deny. But, says the defendant, when the license is not based upon a valid patent, then a restriction of this nature is nothing more than attempt to deprive the licensee of a privilege he already has, namely: the right to use the process for any lawful purpose whatever. Such an unauthorized limitation, it says, is an unwarranted restraint upon the free flow of goods into interstate commerce and therefore violates the anti-trust laws. In such circumstances, it argues, the estoppel doctrine does not apply, according to certain recent Federal Supreme Court decisions.

It would be useless to discuss here the weighty reasons underlying the estoppel rule as it applies to patent licenses. The doctrine has been almost universally followed in this country, at least until very recently, in both State and Federal Courts. Eastern States Petroleum Co. v. Universal Oil Products Co., supra; Kinsman v. Parkhurst, 59 U.S. 289, 18 How. 289, 15 L.Ed. 385; United States v. Harvey Steel Co., 196 U.S. 310, 25 S.Ct. 240, 49 L.Ed. 492. Even in many of those few cases where it has given way to some overpowering public policy, strong dissent was heard.

Probably the earliest instance in which the United States Supreme Court refused to follow the estoppel doctrine is Sola Electric Co. v. Jefferson Electric Co., 1942, 317 U.S. 173, 63 S.Ct. 172, 174, 87 L.Ed. 165. There the license agreement contained a covenant to maintain a fixed price. Jefferson sought a recovery for unpaid royalties as well as an injunction against further sales by Sola, except in conformity with the terms of the price-fixing agreement. The Court pointed out that price-fixing is made illegal by a federal statute, unless based upon a valid patent, and that such a statute takes precedence over local rules of law. It held that the rule of estoppel must yield to the act's declaration of illegality of a price-fixing contract, and "to the public policy of the Act which in the public interest precludes the enforcement of such unlawful agreements". The Court expressly refused to consider the applicability of Kinsman v. Parkhurst, supra, and United States v. Harvey Steel Co., supra, indicating that the only question presented was "whether the doctrine of estoppel as invoked below is so in conflict with the Sherman Act's prohibition of price-fixing that this Court may resolve the question even though its conclusion be contrary to that of a state court".

The Court later had occasion to review and explain its ruling in the Sola case in two actions decided in January 1947, towit, Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U.S. 394, 67 S.Ct. 416, 420, 424, 91 L.Ed. 374 and MacGregor v. Westinghouse Electric & Mfg. Co., 329 U.S. 402, 67 S.Ct. 421, 424, 91 L.Ed. 380. They both involved price-fixing licenses. The Court held that the Sola doctrine will be applied even where the action is only to recover unpaid royalties and that it is not restricted to instances where injunctive relief is sought. In the Katzinger case, it was said that the Sola decision was "grounded upon the broad public interest in freeing our competitive economy from the trade restraints which might be imposed by price-fixing agreements stemming from narrow or invalid patents". Here again, the Court refused to discuss Kinsman v. Parkhurst and United States v. Harvey Steel Co., stating that "'No price-fixing stipulation was involved in the license contract' at issue in those cases". The Court seems to have limited its ruling to price-fixing cases by these words: "Under what other circumstances a federal rule of estoppel might be applied is a question which can be met when particular facts present it".

In Scott Paper Co. v. Marcalus Mfg. Co., 1945, 326 U.S 249, 66 S.Ct. 101, 90 L.Ed. 47, it was held that the patent laws themselves preclude an assignee of a patent from invoking the estoppel doctrine against the assignor, where the patent in reality includes nothing more than the prior art invention of an expired patent, which anticipated the assigned patent. The Court pointed out that the public had, by granting a monopoly for a...