United States v. Line Material Co., Civ. A. No. 1696.

Decision Date06 March 1946
Docket NumberCiv. A. No. 1696.
Citation64 F. Supp. 970
CourtU.S. District Court — Eastern District of Wisconsin

Timothy Cronin, U. S. Atty., of Milwaukee, Wis., and Melville C. Williams, Dept. of Justice of Chicago, Ill., for plaintiff.

Louis Quarles, Maxwell Herriott, and Clark Hazelwood, all of Milwaukee, Wis., and Charles Meroni, of Chicago, Ill., for Line Material Co.

Thomas H. Spence, of Milwaukee, Wis., and Alexander C. Neave, Harry R. Pugh, Jr., and William J. O'Hearn, Jr., all of New York City, for General Electric Co.

George Affeldt, of Milwaukee, Wis. (Foster & Vogel and E. M. Harrington, all of St. Louis, Mo., of counsel), for James R. Kearney Corporation.

J. H. Marshutz, of Milwaukee, Wis., and James A. Murray and Wilder Lucas, both of St. Louis, Mo. (Fish, Marshutz & Hoffman, of Milwaukee, Wis., and Sullivan, Finley & Lucas, of St. Louis, Mo., of counsel), for W. N. Matthews Corporation.

Willis G. Sullivan, of Milwaukee, Wis., for Pacific Electric Mfg. Co.

Wilber Owen, of Toledo, Ohio, and Willis G. Sullivan, of Milwaukee, Wis. (Owen & Owen, of Toledo, Ohio, of counsel), for Porcelain Products Co.

Louis A. Lecher, of Milwaukee, Wis. (Robert W. Smith, of Greensburg, Pa., of counsel), for Railway Industrial Engineering Co.

Willis G. Sullivan, of Milwaukee, Wis., for Royal Electric Mfg. Co.

Louis A. Lecher, of Milwaukee, Wis. (John A. Dienner and Edward C. Grelle, both of Chicago, Ill., of counsel), for Sweitzer & Conrad, Inc.

W. F. Sonnekalb, Jr., of New York City, Louis Quarles and Maxwell Herriott, both of Milwaukee, Wis., and Needham A. Graham, Jr., of Birmingham, Ala., for Southern States Equipment Corporation.

Louis A. Lecher, of Milwaukee, Wis. (Cravath, Swaine & Moore, Albert R. Connelly, George B. Turner, and John J. O'Connell, all of New York City, of counsel), for Westinghouse Electric & Manufacturing Co.

Willis G. Sullivan, of Milwaukee, Wis., for T. F. Johnson.

DUFFY, District Judge.

As a boy in grade school I many times pondered the answer to the problem then often discussed among younsters: What would happen if an irresistible force came into collision with an unbreakable and immovable object? The issue to be decided in the case at bar recalls that boyhood problem when I consider how the ambit of the monopoly given to the owner of a patent and to his licensees by the patent laws comes into head-on collision with the ambit of the Sherman Anti-Trust Law, 15 U.S. C.A. §§ 1-7, 15 note.

The eighth clause of Article I, Section 8, of the United States Constitution gives Congress the right to grant patents. The third clause of the same article and section gives Congress the right to regulate interstate commerce, and the Sherman Act is an exercise of that power. It is apparent, therefore, that the patent laws and the Sherman Act must be given an equal standing, and no presumption may be indulged in that the one placed a limitation upon or dominates the other.

The complaint herein alleges an unlawful combination and conspiracy among the defendants to control prices of certain types of dropout fuse cutouts in violation of Section 1 of the Sherman Act. Cutouts are protective devices used to break an electric circuit when the current becomes excessive because of a short circuit or other overload. Where higher voltages are utilized, such as on distribution and power lines, two types of cutouts are commonly used, known as dropout and non-dropout fuse cutouts, which may be either open, or enclosed in an insulated housing such as a porcelain box. Both comprise two insulated terminals connected by a meltable and replaceable wire or fuse link enclosed in an insulating tube called an expulsion tube. When the fuse link melts in a non-dropout fuse cutout the tube stays in position and must be removed by hand. In the dropout type, when the fuse link ruptures, the tube automatically drops or swings out of place. In the dropout fuse cutouts involved in this suit, a double jointed hinge at the bottom permits the tube to drop upon the rupture of the fuse link.

Plaintiff charges that in early 1938 the defendants Line Material Company (hereinafter called "Line") and Southern States Equipment Corporation (hereinafter called "Southern") agreed to pool certain of their patents in a scheme to fix the selling prices of themselves and other manufacturers of dropout fuse cutouts. Plaintiff claims it was an attempt by the principal manufacturers of cutouts to utilize patents to fix prices upon an industry-wide basis; and that the prices so fixed affected sales of twelve manufacturers who manufactured substantially all of the dropout fuse cutouts distributed in the United States.

There are two principal patents involved in this suit: the Lemmon Patent No. 2,150,102 issued March 7, 1939, and the Schultz and Steinmayer Patent No. 2,176,227 issued October 17, 1939, reissued Re-22,412 on December 21, 1943. The Lemmon patent is owned by Southern. It covers a dropout fuse cutout mounted on a double hinge at the bottom. The latching mechanism is released by a solenoid which is relatively complicated and expensive. The Schultz and Steinmayer patent (hereinafter called "Schultz patent") is owned by Line. It covers a cutout with a double jointed hinge but with a fuse link instead of the intricate solenoid mechanism. The hinge is kept rigid by one end of the fuse link, but when the fuse link is ruptured the tube drops, which automatically releases the upper latch and permits the tube to swing down. This is a simple and less expensive device than shown in Lemmon, but the Lemmon patent reads on the Schultz patent.

A third patent, which will be hereafter referred to, is the Kyle Patent No. 1,781,876 issued November 18, 1930, reissued Re-18,020 on March 31, 1931, and again reissued Re-19,449 on February 5, 1935. Four of its claims covered any fuse cutout, whether dropout or non-dropout, in combination with a box made of wet process porcelain.

All of the defendants are manufacturers of electrical devices of various kinds. The dropout fuse cutouts manufactured by the defendants subject to the price limitations contained in the patent licenses constitute 40.77% of the average aggregate annual sales by these defendants of all cutouts. Two of the defendants will be hereafter referred to as General Electric and as Schweitzer and Conrad; T. F. Johnson will be referred to as Johnson; and the other defendants by the first word of their corporate name. All defendants ship their products in interstate commerce with the possible exception of Royal and Johnson.

During the years 1940 to 1944, inclusive, the sales of dropout fuse cutouts covered by one or more of the three patents hereinabove described totaled $1,918,000 and were distributed among the defendants as follows: General Electric, 29.2%; Line, 25.4%; Kearney, 18.9%; Southern, 7.9%; Westinghouse, 5.3%; Schweitzer and Conrad, 5.1%; Railway, 3.8%; Matthews, 2%; Porcelain, 1.5%; Royal, 0.5%; Pacific, 0.2%; and Johnson, 0.2%.

In the manufacture of open dropout fuse cutouts involved in this suit, the Lemmon patent owned by Southern and the Schultz improvement patent owned by Line were utilized. In making enclosed dropout fuse cutouts the inventions covered by the Lemmon and Schultz patents were utilized in combination with Kyle patent Re-19,449 if a wet process porcelain box were used.

Southern had popularized the idea of a dropout fuse cutout and had sent out notices of infringement. It offered licenses under its broad dropout patent, U. S. 1,821,761. From the beginning Southern insisted that any licensee must agree not to sell patented devices made under the license at a price lower than that at which Southern offered and sold same. Although only a nominal royalty of 1% was requested, no such licenses were accepted. Line had numerous patents in the cutout field and it also had insisted on price protection on any license given under its important patents.

Southern had pending in the Patent Office the Lemmon application on a double hinge dropout. In 1934 the Lemmon and Schultz applications were declared in interference, No. 68,183. Final Patent Office action was reached in November, 1937, pursuant to which Lemmon was awarded the dominant claims for the double hinge circuit breaker operated by a solenoid and Line was awarded the subservient claims for a double jointed hinge dropout cutout with a tube supported by a fuseable element. Line was infringing Southern's patents in the manufacture of practically all of its dropout fuse cutouts. Nevertheless the subservient claims allowed to Line were a great improvement over Lemmon's solenoid mechanism and much simpler and less expensive to manufacture. If Southern desired to utilize this less expensive device, it would have to obtain a license from Line. Accordingly Southern welcomed a suggestion from Line that their conflicts and contests be compromised. This resulted in an agreement dated May 23, 1938, wherein Line and Southern settled the interference and under which agreement Southern licensed Line under the Lemmon application, and Line licensed Southern under the Schultz application, and authorized Southern to grant sublicenses thereunder. The cross-license agreement between Line and Southern was on a royalty-free basis. The agreement also provided that all sublicenses granted by Southern under Line's patents were required to include provisions for minimum prices to be established by Line, and all sublicenses under the Lemmon patent were to include provisions for minimum prices to be fixed by Southern.

Line gave Southern a license under the whole of Line's patent covering the commercially accepted dropout fuse cutout. Southern, however, kept for itself some features covered by Southern's patents and licensed Line to use the invention only in equipment "in which the circuit interruption is caused by melting of a fuseable element."

The price limitation in the license to Line provided that the prices,...

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3 cases
  • United States v. Line Materials Co
    • United States
    • U.S. Supreme Court
    • March 8, 1948
    ...devices to which arrangement the other appellees, licensees to make and vend, adhered by supplemental contracts. 2 The District Court, 64 F.Supp. 970, dismissed the complaint as to all defendants upon its conclusion that the rule of United States v. General Electric Co., 272 U.S. 476, 47 S.......
  • United States v. General Electric Co.
    • United States
    • U.S. District Court — District of New Jersey
    • April 4, 1949
    ...for their positions that the licenses were valid and legal, from the opinions of the lower courts in the cases of United States v. Line Material Co., D.C., 64 F.Supp. 970; and United States v. United States Gypsum Co., D.C., 67 F.Supp. 397; and quoted copiously from them. Unhappily for them......
  • United States v. United States Gypsum Co.
    • United States
    • U.S. District Court — District of Columbia
    • June 15, 1946
    ...and equally subjected to the patentee's price whether there is no licensee, one licensee or many. Cf. United States v. Line Material Company, D.C.E.D.Wis.1946, 64 F.Supp. 970; Laurence I. Wood, Patents and Antitrust Law (C.C.H.1942) No distinction, moreover, can be drawn between the General......

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