Rail-Trailer Co. v. ACF Industries, Inc.

• Decision Date: 16 March 1966
• Docket Number: No. 15277.,15277.
• Parties: The RAIL-TRAILER CO., Plaintiff-Appellant, v. ACF INDUSTRIES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

358 F.2d 15 (1966)

The RAIL-TRAILER CO., Plaintiff-Appellant, v. ACF INDUSTRIES, INC., Defendant-Appellee.

No. 15277.

United States Court of Appeals Seventh Circuit.

March 16, 1966.

Curtis F. Prangley, Douglas O. Baird, Chicago, Ill., for appellant.

Victor P. Kayser, Chicago, Ill., John Hoxie, New York City, C. Lee Cook, Jr., Chicago, Ill., Chadwell, Keck, Kayser, Ruggles & McLaren, Chicago, Ill., Davis, Hoxie, Faithfull & Hapgood, New York City, of counsel, for appellee.

Before SCHNACKENBERG, CASTLE and KILEY, Circuit Judges.

CASTLE, Circuit Judge.

The Rail-Trailer Co., plaintiff-appellant, co-owner with ACF Industries, Inc., defendant-appellee, of U.S. Patent No. 3,145,006, entitled "Collapsible Trailer Support and Anchor", brought suit in the District Court for a declaratory judgment that an exclusive license to make the invention granted by the plaintiff to the defendant is null and void, unenforceable as an agreement in restraint of trade, and that plaintiff is entitled to make, and to license others to make, the patented device. The license was granted while the application for the patent was pending and insofar as here pertinent provides:

"* * * said The Rail-Trailer Company by these presents, to the extent of its interest in the patent application, the invention covered thereby and all patents issuing thereon, hereby grant unto the said ACF Industries, Incorporated (American Car and Foundry Division), an exclusive, irrevocable, royalty-free license to make the invention disclosed in the above mentioned patent application."

An officer and employee of Rail-Trailer, together with two employees of ACF Industries, had made application for the patent and also had executed an assignment of the application to the plaintiff and the defendant by virtue of which the plaintiff became owner of an undivided one-third interest, and the defendant became owner of an undivided two-thirds interest, in the application and in the patent which subsequently issued.

In the posture in which the pleadings finally settled no issue of any material fact was presented for adjudication and the District Court, pursuant to Rule 56 of the Federal Rules of Civil Procedure (28 U.S.C.A.), heard and considered the matter on the defendant's motion for a summary judgment, granted said motion, and entered a judgment order dismissing plaintiff's complaint with prejudice. Plaintiff by its appeal has elected to stand on its complaint with the consequence that the order appealed from, although merely dismissing the complaint, is regarded as a final appealable order. Asher v. Ruppa, 7 Cir., 173 F.2d 10; Duane v. Altenburg, 7 Cir., 297 F.2d 515, 518.

The plaintiff seeks a reversal on the ground the District Court erred as a matter of law in concluding that the license agreement is not an unlawful contract in restraint of trade under the common law and in violation of Section 1 of the Sherman Act (15 U.S.C.A. § 1) and therefore void and unenforceable to bar plaintiff, a joint owner of the patent, from exercising the right to make, and to license others to make, the patented device.

The plaintiff's basic contention is that inasmuch as the grant of a patent confers on the owner only the right to exclude others from making, using or selling the invention¹ and, under the patent laws, the joint owners of a patent each have an independent right to make, use or sell the invention, and to grant non-exclusive licenses to others to do so, without the consent of and without accounting to the other co-owner or co-owners,² it must follow that the only purpose and effect of a grant by a joint owner of the patent to his co-owner of an exclusive license to manufacture the invention is the exclusion of the grantor from his right to manufacture the invention, and such a license therefore constitutes an agreement not to compete and unless it is ancillary to a joint venture of the parties is an illegal contract in restraint of trade.

But, in our opinion, the conclusion the plaintiff so draws fails to give effective consideration to two highly relevant factors. First, a patentee may, without divesting himself of ownership of the patent, grant an exclusive license for the manufacture of the patented device, which license serves to exclude the patentee himself from engaging in the manufacture of the device, and which action, without more, does not constitute an illegal restraint of trade or violation of the anti-trust laws. This is so because the restraint arises from the patent grant and a lawful transfer of a part of the rights to which that grant attached. United States v. General Electric Company, 272 U.S. 476, 47 S.Ct. 192, 71 L.Ed. 362; Bement & Sons v. National Harrow Company, 186 U.S. 70, 22 S.Ct. 747, 46 L.Ed. 1058; Brownell v. Ketcham Wire & Mfg. Co., 9 Cir., 211 F.2d 121, 129. Second, Section 262 of the Patent Act (35 U.S.C.A. § 262) recognizes the right of joint owners of a patent to contractually modify their interests in the jointly-owned patent. It is only "in the absence of any agreement to the contrary" that the section recognizes the independent right of each joint owner to "make, use or sell the patented invention without the consent of and without accounting to the other owners". Prior to the enactment of Section 262, this Court as early as 1901 in Blackledge v. Weir & Craig Mfg. Co., 7 Cir., 108 F. 71, 72, referred to Clum v. Brewer, 2 Curt. 506, as recognizing that "neither joint owner can * * * assert a superior equity, unless it has been created by some contract modifying the rights which belong to them as tenants in...