Appendix — McCullough Tool Co. v. Well Surveys, Inc.

Rocrorm CoRPoRATION

; v.

Aorretii-Sranparp Concikrs Walz,, Inc. —

Decided Oct. 11, 1966

Before O’Suniivan, Epwarps, and ee Circuit

Judges. i *

-". Epwanps, Circuit Judge.

This is a patent infringement action brought by plain-

tiff-appellant Rocform Corporation against defendant-

appellee Acitelli-Standard Concrete Wall, Inc. The patent

in suit is No. 2,526,529, issued October. 17, 1950, for a Pre-

fabricated Wall Form’’ for pouring concrete basement

“walls. The patent in suit. will expire October 17, 1967.

Plaintiff claims deféndant infringed the patent by em-

e one Pmcantand cara

license fee. :

In defense, defendant Acitelli claimed invalidity of the

patent and 5 infringement. Defendant also defended

by alleging that Rocform had misused its patent. This

*

appeal is derived from a trial in the United States District —

Court for the Eastern District. of Michigan wherein testi-

mony was taken on the misuse issue only, after defendant

had conceded (for purposes of that hearing) that the patent

At the conclusion of this hearing the District Judge

entered lengthy findings of fact and conclusions of law,

finally concluding, 143 USPQ 405, 414:

ein this action for infringement of a patent by de-

fendant, the defense of misuse of the patent in suit,

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by attempting to extend patent monopoly beyond the

expiration date of the patent, has been established and

© is a valid defense.

Due to misuse of the patent in suit by plaintiff, as

owner thereof, this action will be dismissed for want

of equity.“

On appeal plaintiff-appellant Rocform contends that this

record discloses no coercion; that there is no evidence of

misuse of the patent, and that mandatory package licensing

of ‘‘interlocking’’ patents is not a misuse.

The record in this appeal shows that Rocform had signed

standard licensing agreements with 189 builders. Acitelli

had been onb of these, as an individual builder; but after

incorporation his company came into possession of a set

of Rocform forms ‘which it proceeded to use without a

license. Roeform offered to license defendafit, but only

under its standard license agreement, which offer defend-

ant refused.

VVV

building are that it allows a builder to set forms for pour-

ing concrete basement walls rapidly and then disassemble

and reemploy substantially all of the fixtures and material

from that set of forms for other jobs. The District Judge

found that the system gave its users a competitive ad-

Plaintiff Rocform did not issue licenses under this patent

(or. any of its other patents), but did license builders to

build under The Rocform System. The District Judge

e eee mnanen meee ae Bie

findings, 143 USPQ at 408:

“Under provisions of the license agreement,

‘*Licensor grants to licensee a non-exclusive license

to use the Rocform System in accordance with terms

thereof, agrees while the agreement is ih effect to sell

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to licensee all necessary Rocform panels and hardware

and to replace and repair without charge worn out or

damaged hardware, and authorizes use of the words

‘Rocform System’ in promotion and advertising;

‘‘Licensee agrees to pay for the equipment and to

pay a license fee for each basement he casts (license

fees vary from approxim=tely $10.00 to $25.00 per

basement cast, dependin «"-size) ;

It is acknowledged and agreed that ‘certain fea-

tures, hardware and accessories used in and being a

part of the Rocform System’ are covered by patents

and licensor stipulates that any further improvement

in the system shall be made available to licensee for

use under the agreement;

‘‘The-agreement and license is revoked, remanded

and terminated upon default in payments or in

rr

The Distriet Judge also pointed out that the patent in

suit had an early termination date (October 17, 1967), but

the Rocform standard license agreement provided no re-

. duction of license fees or termination date (except with

penalties on the licensee’s default). After a careful re-

view of the license and its use, he concluded, 143 USPQ

at 412: 12

_ The license is, in the view of this Court, primarily

a patent license and other features thereof are only

incidental to the grant of use of patents. Upon a

careful reading of the license agreement it is apparent

that the prime consideration for the license fee is the ©.

to use the Rocform System which cannot be used

without using the patent in suit and other patents.

The services which are included in the consideration

for the license are disproportionate to the license fees

stiputated therein.

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We regard this language and the District Judge’s other

findings as holding that plaintiff-appellant employed the

patent in suit so as to coerce (or attempt to coerce) this

defendant to purchase the Rocform System and thus to

purchase other patents and unpatented materials and

services, 4

We have reviewed the basic findings of fact of the Dis-

trict Judge against the record. In our view there is sub-

stantial evidence to support them and they are not clearly

erroneous. In this situation we cannot property set them

aside. Toledo Scale Corp. v. Westinghouse Electric Corp.,

351 F.2d 173, 147 USPQ 125 (C.A. 6, 1965); Graver Tank

& Mfg. Co., Inc. v. Linde Air Products Co., 336 U.S. 271,

80 USPQ 451 (1949), rehearing granted, 337 U.S. 910

(1949), aff’d, 339 U.S. 605, 85 USPQ 328 (1950).

But appellant contends that some (if not all) of the

District Judge’s findings of fact are really interpretations

of the license agreement and hence that they should not

be reviewed under the clearly erroneous rule. Crosley

Radio Corp. v. Dart, 160 F.2d 426, 73 USPQ 26 (C. A. 6,

1947). To the extent that our affirmance depends upon

interpretation of that document, we have inspected and

considered it and agree with the interpretations placed

thereon by the District Judge.

This brings us to the legal ani in this case

Plaintiff-appellant contends that the license .

(even if properly described above) was a mandatory pack-

aging agreement for interlocking patents related to produc-

ing one product and hence valid under International Mfg.

Co. v. Landon, Inc., 336 F. 2d 723, 142 421 (C. A. 9,

1964), cert. denied, 379 U.S. 988, 144 USPQ 780 (1965);

see also Standard Oil v. United States, i U.S. 163, 171,

9 USPQ 6, 10 (1981).

[1] The District Judge, however, did not find this stand-

ard licensing agreement illegal per se because it repre-

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sented mandatory patent package licensing. He found

plaintiff’s license agreement illegal because it contained no

termination clause and hence represented an attempted

illegal extension of the patent in suit.

In the recent case of Brulotte v. Thys mm the Supreme

Court said:

A patent empowers the owner to exact royalties as

high as he can negotiate with the leverage of that

monopoly. But to use that leverage to project those

royalty payments beyond the life of the patent is anal-

ogous to an effort to enlarge the monopoly of the

patent by tieing the sale or use of the patented article

to the purchase or use of unpatented ones. See Ethyl

Gasoline Corp. v. United States, 309 U.S. 436, 44

USPQ 614; Mercoid Corp. v. Mid-Continent Inv. Co.,

320 U.S. 661, 664-665, 60 USPQ 21, 24, and cases cited.

Brulotte v. Thys Co., 379 US. 29, 33, 143 USPQ 264,

266 (1964). *

In the instant case the District Judge said, 4s USPQ

at 412: ‘‘Upon expiration of the patent in suit the con-

sideration for the grant of the license becomes substantially

devaluateel The District Judge’s findings make

it clear that the n en Whip expires tm T88 be the

most important consideration for the license.

We believe that the District Judge was correet in view-

ing this licensing agreement as an illegal attempt to extend

the patent in suit. It contains no termination clause run-

ning to the benefit of the licensee. See 3A Corbin, Gon-

tracts § 761 (1960). After the expiration of the patent in

suit, Rocform’s licensees would continue to pay the same

fees as are provided during the life of the crucial patent.

The dissent in this case asserts that appellee is not en-

titled to claim patent misuse absent proof of 2 a demand for

the patent in suit as a separate item.

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[2] Clearly, wliere a licensee seeks relief from a patent

package contract which he has signed voluntarily, he should

be able to show a demand by him (and a refusal!) for the

desired patent or patents as a separate item or items.

Automatic Radio Co. v. Hazeltine, 339 U.S. 827, 85 USPQ

378 (1950). Such a demand is not, however, held essential

to a defense of misuse when the patentholder seeks equi-

table relief from infringement while still pursuing the illegal

practice. Morton Salt Co. v. Suppiger Co., 314 U.S. 488,

52 USPQ 30 (1942).

On this point the District Judge said, 143 USPQ at 414:

If defendant’s hands be unclean in that it made

no bona fide application to plaintiff for licensing, or

for any other reason indicated by the facts in this

case, such uncleanliness will not render plaintiff’s

hands clean if it is attempting to unlawfully extend its

patent monopoly.

Cf. Amercian Securit Co. v. Shatterproof Glass Corp., 268

F. 2d 769, 776, 122 USPQ 167, 173 (C. A. 3, 1959), cert. de-

Med, 361 U.S. 902, 123 USPQ 589 (1959).

The dissent also contends that a flat price for use of a

number of patents is permissible practice up to the termi-

nation date of the last necessary patent.

We believe this is too broad a contention. We do not

deal here (as did the Supreme Court in Brulotte v. Thys

Co., supra) with the sale of a piece of machinery which

incorporated a number of patents. Rather we deal with a

licensing arrangement where one important patent (about

to expire) is grouped with others of longer duration for

‘*leverage.’’ Cf. American Securit Co. v. Shatterproof

Glass Corp., supra.

We believe such a contract, when it contains no diminu-

tion of license fee at the expiration of the most important

patent and contains no termination clause at the will of

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the licensee, constitutes, in effect, an effort to continue to

collect royalties on an expifed patent. Brulotte v. Thys

Co., supra; American Securit Co. v. Shatterproof Glass

Corp., supra.

[3] Since, however, the patent is n valid

and the complained of extension would not take place until

October 17, 1967, we have considered the propriety of

granting plaintiff relief from infringement until the de-

fendant could show damage from the illegal extension. We

have concluded, however, that there is no merit in employ-

ing the equity powers of the federal court to force defend-

ant to enter into an agreement which is plainly illegal,

even if the damages therefrom be future ones.

In Morton Salt the United States Supreme Court said:

At 15 is a principle of general application that courts,

and especially courts of equity, may appropriately

withhold their aid where the plaintiff is using the right

asserted contrary to the public interest. Virginia Ry.

Co. v. Federation, 300 US. 515, 562; Central Kentucky

Co. v. Railroad Commission, 290 U.S. 264, 270-73;

Harrisonville v. Dickey Clay Co., 289 U.S. 334, 337-38;

Beasley v. Texas & Pacific Ry. Co., 191 U.S. 492, 497;

Securities & Exchange Comm’n v. US. Realty Co.,

310 U.S. 434, 455; United States v. Morgan, 307 U.S.

183, 194.“ Morton Salton Salt Co. v. Suppiger Co.,

supra at 492, 52 USPQ at 32. :

The license agreement can, of course, readily be amended.

It seems clear to us that the District Judge was correct in

denying plaintiff the use of the equity powers of the court

until and unless it purges itself of the practice identified

above as representing’ patent misuse. Preformed Line

Products Co. v. Fanner. Mfg. Co., 225 F.Supp. 762, 124

USPQ 288 (N.D. Ohio, 1960), aff’, 328 F.2d 266, 140

USPQ 400 (C.A. 6, 1964), cert. denied, 379 U.S. 846, 143

8a

USPQ 464 (1964); B. B. Chemical Co. v. Ellis, 314 U.S.

495, 52 USPQ 33 (194).

Affirmed. ro

O’Su1iivan, Circuit Judge, dissenting.

I am unable to join the conclusion of my brothers. De-

fendant concedes that it is infringing a valid patent. The

judgment before us allows it to continue. This is because

a contract then in use by plaintiff, and which defendant re-

fused to sign, licensed the use of all of plaintiff’s patents;

and because the contract would continue unchanged as in-

dividual patents expired until the expiration of the final

patent; and because plaintiff had a patent; and because

plaintiff had a policy of not selling the materials which

could be used to infringe its ‘‘combination’’ patents unless

licenses were first taken.

Without any prior attempt to obtain a license to do so,

defendant began infringing the patent in suit. Plaintiff .

threatened that it would sue unless defendant entered into

the agreement then in use by plaintiff where by it liéensed

builders te use The Rocform System.“ This agreement

made no reference to any particular patents, but contained

the following provisions

48. It is hereby acknowledged and e that cer-

tain features, hardware and accessories used in and

being a part of the Rocform System are covered by

letters of Patent for the protection of the Licensor and

that it has good title thereto and the right to grant

this license, and Licensor stipulates that any further

improvement in its system developed by or for it shall

be available for use hereunder by licensee, and,

49. The licensee hereby agrees not to dispute the

validity of any Letters of Patent or the title of the

_ Licensor thereunder nor aid others im doing so, and,

ad

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The proofs established that it had been plaintiff’s policy

to require the signing of such a contract as a condition to

use of its system. Use of the Rocform System required

employment of the patent in suit, which will not expire

until October 17, 1967. At the time here involved, plaintiff

owned several other unexpired patents related to and use-

able in the processes of the Rocform System. The contract

would require a licensee to continue to pay a stipulated

fee so long as the Rocform System was used by a licensee.“

When requested to sign the Rocform System contract, de-

fendant refused, without suggesting that any other agree-

ment would be acceptable or making any request that it

begiven a license limited to the patent which it was infring-

ing. Cf. McCullough Tool Co. v. Well Surveys, Inc., 343

F. 2d 381, 408, 145 USPQ 6, 27 (CA 10, 1965), cert. den.

383 U.S. 933, 148 USPQ 772.

It is clear indeed that misuse of a patent denies its fruits

to the patentee. Such misuse may consist of coercing the

acceptance of unwanted licenses to gain the use of a desired

patent —mandatory packaging. American Securit Co. v.

Shatterproof Glass Corp., 268 F.2d 769, 122 USPQ 167

(CA 3, 1959); it may arise from coercing the purchase of

unpatented material as a condition to use of a valid patent

—illegal tying. Morton Salt Co. v. G. S. Suppiger Co.,

314 U.S. 488, 52 USPQ 30 (1942), reh. den. 315 U.S. 826

(1942); it may consist of attempting to extend the monop-

oly of a patent after it has expired, Brulotte v. Thys. Co.,

379 U.S. 29, 143 USPQ 264 (1964) ; Prestole Corp. v. Tin.

fie whenever a licensee decided he only needed

ices on which the patents had already

ful use of _ system.

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nerman Products, Inc., 271 F.2d 146, 123 USPQ 242 (CA

6, 1959) cert. den. 361 U.S. 964, 124 USPQ 535 (1960).

Defendant’s position here is that it is entitled to free

use of plaintiff’s patent because plaintiff had in the past

entered into 189 license agreements with users of the Roc-

form System containing provisions which, if they had been

coerced, would not be enforceable and because plaintiff

requested defendant to sign such a contract. We consider

that the District Judge was correct in his statement that

coercion was essential to a a finding of misuse, 143 nee

at 413-414:

Licensing of several patents in single license agree-

ment does not constitute patent misuse unless element

of coercion is present, such as where there has been

request by prospective licensee for license under less

than all patents and refusal of by licensor to grant such

license. Eversharp, Inc. v. Fisher Pen Co., 1961, 204

F.Supp. 649, 132 USPQ 423.“

He was of the view that, there, being no evidence of co-

ercive practices in the making of plaintiff’s previous 189

license agreements, such licensing contracts did not consti-

tute misuse of a patent. He said, 143 USPQ at 414,

% present licensees of plaintiff could contract

with it as they choose; if the consideration was accep-

table to them, in return for the package patent license

and services to be performed thereunder, and it has

not been shown. that any licensee requested but was

refused a grant of a license to use one patent only

upon acceptance of a license to use more than one

patent, no mandatory package patenting has been es-

tablished as to such licensees.“

He found misuse, however, in the case of plaintiff’s offer

of a like contract to defendant, primarily, as we view it,

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becanse defendant refused to ace such contract, He

said, 143 USPQ at 414,

„But plaintiff offered to defendant, and defend-

ant refused, plaintiff’s standard license on the ground,

primarily, that defendant would be required to con-

tinue payment of royalties after expiration in 1967

of the basic wallform patent, if it entered into such

licensing agreement. 5

The District Judge’s observation that this refusal was on

the ground, primarily, that defendant would be, required

to continue payment of royalties after expiration in 1967 of

the basic wall-form patent, if it entered into such licensing

agreement“ involved a misunderstanding of, the evidence.

The defendant tacitly concedes this now, saying in its brief

only that such was ‘‘probably one of Acitelli’s reasons for

its refusal to become a licensee. (Emphasis added.) The

fact is that defendant Acitelli’s repreesntative who talked

with plaintiff about Acitelli’s admitted infringement of

the patent in issue, gave no reason for refusing to sign

the offered contract; it asked for no modification of it, it

did not ask to be licensed alone under the patent in suit;

it merely refused and went on infringing.

For the view I express I concede arguendo that plain-

tiff’s previous agreements licensing its Rocform System

would have been unenforceable if coerced and that had de-

fendant sought and been refused a license for less than

all of plaintiff’s patents, the plaintiff could be found guilty

of misuse. That, however, is not what happened. I read

defendant’s position to be that, without any showing of

intent to coerce, plaintiff, having once proposed that de-

fendant sign its regular licensing contract, thereby sur-

rendered all right to enforce its patent; that such request

alone gave defendant the privilege of appropriating the

patent to its own free use. I find such position invalid.

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Relevant to whether defendant had been coerced, the

District Judge said, 143 USPQ at 414,

„If defendant’s hands be unclean in that it made

no bona fide application to plaintiff for licensing, or

for any other reason indicated by the facts in this case,

such uncleanliness will not render plaintiff’s hands

clean if it is attempting to unlawfully extend its pat-

ent monopoly. (Emphasis supplied.)

I read the majority opinion as ‘holding that, without

reference to coercion, the Rocform contract was illegal

per se because, as viewed by them, Rocform was attempting

to extend the life of one of its patents. But the majority

also apparently assume that an element of coercion was in-

deed present, by stating that the District Judge held that

‘‘plaintiff-appellant employed the patent in suit so

as to coerce (or attempt to coerce) this defendant

to purchase the Rocform System and thus to purchase

other patents and unpatented materials and services.

(Emphasis supplied.)

Such conduct would result in an illegal tie-in, but I do

not interpret the District Judge’s opinion as so holding,

nor would the proofs justify such a conclusion.

I. Patent Extension

I do not consider that fixing one price for use of the

Rocform System and any one or all of Rocform’s patents

constitutes illegal patent extension where no coercion was

employed. Because the contract may continue past the

date, 1967, when the patent in suit expires, does not mean

that its monopoly is thereby extended. The majority

opinion seemingly rests on the fact that ‘‘After the ex-

piration of the patent in suit, Rocform’s licensees would

continue to pay the same fees as are provided during the

life @f the crucial patent, and the inference therefrom

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that some part of the license fees after 1967 would nec-

essarily have to be attributed to an extension of the re-

turn from the patent which expired in that year. But

this is not so. The price which a builder is willing to pay

to use the Rocform System remains a constant, and it is

immaterial to the builder whether the most effective use

of that system is controlled by ten unexpired patents, or

by the very last of those ten patents to expire. Such seems

to be the clear implication of the Supreme Court 's holding

in Brulotte v. Thys Co., 379 U.S. 29, 30, 143 USPQ 264,

265 (1964): We conclude that the judgment below must

be reversed insofar as it allows royalties to be collected

which accrued after the last of the patents incorporated

into the machine had expired.“ (Emphasis added.) The

majority would hold the Rockform contract illegal before

the expiration of the first patent.

2. Illegal Tie-in

There was a complete lack of proof that plaintiff had

made any attempt to use the leverage of its patent monop-

oly to extend its power into another market, ef. Times-

Picayune Pub. Co. v. United States, 345 U.S. 594 (1953).

The District Judge specifically found, 143 USPQ at 408:

Under the license agreement plaintiff obligates himself

to furnish all necessary equipment but licensees are not

required to purchase any equipment from plaintiff, * * *”?

and again, ‘‘While the license agreement does not obligate

a licensee to purchase any equipment whatsoever * * „

(Emphasis added.) The only basis for any holding that

there has. been an illegal tie is a finding by the district

judge that ‘Plaintiff will refuse to sell any of the wall

forming equipment to non-licensees.’” Apart from the

fact noted above that this seems a perfectly reasonable

attitude for the holder of a combination patent to take,

whatever else it might be, the policy complained of could

not be construed as misuse of the patent. ‘

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In the absence of any proof of coercion or attempt to

extend the patent monopoly beyond the term of the last

necessary patent, there is no nd for a finding of misuse.

Contrast McCullough Tool Co. v. Well Surveys, Inc.; 343

F. 2d 381, 408-410, 145 USPQ 6, 27-29 (CA 10, 1965) and

Automatic Radio v. Hazeltine, 339 U.S. 827, 85 USPQ 378

(1950), with United States v. Paramount Pictures, Inc.,

334 US. 131, 156-159, 77 USPQ 243, 252-263. (1948), and

Brulotte v. Thys Co., 379 U.S. 29, 30, 33, 143 USPQ 264,

265, 266 (1964).

The majority recognize that defendant has appropriated

plaintiff’s patent without request for a license therefor, but

withhold relief by ‘asserting that ‘‘there is no merit in

employing the equity powers of the federal court to force

defendant to enter into an agreement which is plainly ille-

gal,.even if the damages therefrom be future ones.’’ (Em-

phasis supplied.) But plaintiff’s complaint does not ask

such relief—it seeks only enjoining of defendant’s in-

fringement of its patent damages flowing, therefrom.

I would reverse the judgment.