Radio Corporation v. Lord

• Decision Date: 11 September 1928
• Docket Number: No. 3789.,3789.
• Citation: 28 F.2d 257
• Parties: RADIO CORPORATION OF AMERICA v. LORD et al.
• Court: U.S. Court of Appeals — Third Circuit

28 F.2d 257 (1928)

RADIO CORPORATION OF AMERICA v. LORD et al.^*

No. 3789.

Circuit Court of Appeals, Third Circuit.

September 11, 1928.

Frederick P. Fish, of Boston, Mass., John W. Davis, Stephen H. Philbin, and Thurlow M. Gordon, all of New York City, and William G. Mahaffy, of Wilmington, Del., for appellant.

Samuel E. Darby, Jr., of New York City, Ernest R. Reichmann, of Chicago, Ill., and E. Ennalls Berl, of Wilmington, Del., for appellees.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

This is an appeal from a decree of the District Court restraining the Radio Corporation of America, hereinafter called the defendant, from enforcing directly or indirectly contracts for the sale of radio vacuum tubes embodied in paragraph 9 of the agreement between the defendant and its licensees, and denying defendant's motion to dismiss the bill for want of indispensable parties.

The plaintiffs are engaged in the manufacture and sale of vacuum tubes, known as audions, which are used in radio receiving sets. The suit was brought under section 16 of the Clayton Act (15 USCA § 26) to enjoin the defendant from enforcing paragraph 9 of its agreement with its licensees. The plaintiffs alleged that this paragraph violates sections 1 and 2 of the Sherman Act (15 USCA §§ 1, 2) and section 3 of the Clayton Act (15 USCA § 14). On filing the bill, a motion was made for an injunction pendente lite. After two arguments based on affidavits, counter and reply affidavits, the court granted the injunction, but stayed its issuance or operation pending this appeal.

Paragraph 9 of the license agreement provides that:

"Nothing herein contained shall be construed as conveying any licenses expressly or by implication, estoppel or otherwise to manufacture, use or sell vacuum tubes, except to use and sell the vacuum tubes purchased from the Radio Corporation as provided herein. The Radio Corporation hereby agrees to sell to the licensee and the licensee hereby agrees to purchase from the Radio Corporation the number, and only the number of vacuum tubes to be used as parts of the circuits licensed hereunder and required to make initially operative the apparatus licensed under this agreement, such tubes to be sold by the Radio Corporation to the licensee at the terms and at the prices at which they are then being sold by the Radio Corporation to other manufacturers of radio sets buying in like quantities for the same purposes. But the sale of such tubes by the Radio Corporation to the licensee shall not be construed as granting any licenses except the right to sell such tubes for use in, and to use them in, the apparatus made and sold hereunder."

The learned District Judge held that the provisions in this paragraph violate section 3 of the Clayton Act, which provides that:

"It shall be unlawful * * * to lease or make a sale or contract for sale of goods, * * * whether patented or unpatented, * * * on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, * * * of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce." 15 USCA § 14.

The conclusion reached by the District Court was based upon three propositions, which it found were established by the evidence. These are that paragraph 9 constitutes (1) a contract for the sale of goods, (2) on condition that the purchaser should not use or deal in the goods of a competitor or competitors of the seller, and (3) the effect of such contract for sale or such condition was "to substantially lessen competition or tend to create a monopoly in" radio vacuum tubes. The correctness of the court's conclusion depends upon whether or not these three propositions are sustained by the law and evidence, for section 3 of the Clayton Act requires that they be established in order to bring paragraph 9 of the agreement within the inhibition of that act.

The defendant says that section 9 of the agreement does not contain a contract for the sale of goods, within the meaning of section 3 of the Clayton Act, but is simply a license agreement, with lawful covenants, restrictions, and conditions of the license. The paragraph, however, tells its own story. It expressly provides that "the Radio Corporation hereby agrees to sell to the licensee and the licensee agrees to purchase from the Radio Corporation the number, and only the number, of vacuum tubes to be used as parts of the circuits licensed hereunder and required to make initially operative the apparatus licensed under this agreement, * * * at the prices at which they are then being sold by the Radio Corporation to other manufacturers of radio sets buying in like quantities for the same purposes." The Uniform Sale of Goods Act, in force in New Jersey, Pennsylvania, and many other states, defines a contract for the sale of goods as: "A contract to sell goods is a contract whereby the seller agrees to transfer the property in goods to the buyer for a consideration called the price." 4 Comp. Statutes of N. J. 4647. Such a contract is defined in Cyc. as "a contract whereby the seller agrees to transfer the property in goods to the buyer for a price which the buyer pays or agrees to pay. A contact to sell is also termed an agreement to sell." 35 Cyc. 27. By whatever term the defendant calls the provisions contained in paragraph 9, they seem to us to express in apt language a contract for the sale of goods, within the meaning of section 3 of the Clayton Act.

However that may be, the defendant says that the so-called monopoly is lawful within the field of patented products, and that "a covenant which would be lawful in one license is equally lawful in 25 licenses, if its operation relates solely to the manufacture of the patented article itself." If it be conceded that, as an independent proposition, this statement may be sound, yet, if the contract for sale is made on the condition, agreement, or understanding that the purchaser shall not deal in the goods of his competitors, and the effect of the condition, agreement, or understanding may be to substantially lessen competition, or tend to create a monopoly, it is unlawful and prohibited by the Clayton Act. Section 3 of that act defines an illegal contract, "and the patent right confers no privilege to make contracts in themselves illegal, and certainly not to make those directly violative of valid statutes of the United States." United Shoe Machinery Corp. v. United States, 258 U. S. 451, 462, 42 S. Ct. 363, 68 L. Ed. 708.

A patentee, the defendant says, has the exclusive right to make and sell to licensees, for their use in completing the licensed apparatus manufactured by it, any element of the patented combination, even though that element is old and free from patent monopoly. The learned District Judge, on the authority of the case of United Shoe Machinery Corp. v. United States, supra, overruled this contention. A licensed combination need not consist of separate patented elements, each of which is entitled to individual patent monopoly. It is the new combination that the law protects. Some of the elements may be new, and patented, and others old, on which patents have expired, or never patented. Of course, the law protects the individual patented elements, as well as the new combination composed of new and old elements. In such cases the patentable novelty consists in bringing together these new and old elements into a new combination, and not in the patentability of each element. Goss Printing-Press v. Scott (C. C. A. 3) 108 F. 253; United States v. American Bell Tel. Co., 167 U. S. 224, 249, 17 S. Ct. 809, 42 L. Ed. 144; Leeds & Gatlin v. Victor Talking Machine Co., 213 U. S. 325, 29 S. Ct. 503, 53 L. Ed. 816.

A single old element, whose patent monopoly has expired, cannot be put into a new patented combination as a constituent element, and thus have its individual monopoly revived for 17 years more. This would be a new method of securing a patent, or a means of evading the patent law, by doubling the length of the life of a patent. A patent may not be secured on a single element by inclusion. The vacuum tubes are an element in the electrical circuits licensed under the contracts. It is these circuits, as such, and not the single unpatented elements, that are protected. While the defendant has the exclusive right to manufacture, lease, and sell the combination, it does not have the right to withhold from the manufacture, use, and sale by others a single one of the elements, composing the circuits, which is no longer protected by a patent. In other words, a patentee may not prevent the individual manufacture, use, and sale of a single unpatented element, which the world is free to make, use, and sell, by simply including it as an element in a new patented combination. To put it differently, the inclusion in a patented combination of an unpatented element does not give the patentee of the combination a monopoly of each element, and the exclusive right to make, use, and sell that element, independent of the combination. So long as the patent covering vacuum tubes was in existence, the patentee of this element of the combination was protected, and it could not be included in the combination without a license to do so; but, when the patent on this tube element expired, the rights, which were theretofore vested in the patentee, became the property of the public, and not of the patentee of the combination.

The defendant says that, for the sake of uniformity, efficiency, and durability, it is desirable to have these particular tubes, made by it, placed in these licensed sets or circuits to make them initially operative. This may or may not be true, but, if true, it makes no difference, for excellence of product does not...