Amicus Curiae Brief — Lear, Inc. v. Adkins

Question IE icine iinnivinigsinngetbotetn winintabetinidide

Interest of the United States__..._.--..--.--.---------

SSS RE EEE EOE OE OSE OR, PONE

Summary of Arwument.<........ cee cccccpecceccccacg, ;

EERIE Soe POOL FR ae hice Wcitnlatite

I. The patent licensee estoppel doctrine thwarts the .

federal policy of assuring the public of free and

open competition in unpatentable products- - ---

A. The policy of the federal patent and anti-

‘trust laws is to guarantee free and open

competition in unpatented and un-

patentable pfoducts___._...._.._.-- ale

B. Federal policy favors invalidation of worth-'

iikknntindcenienenirnmnpen

C. The doctrine of licensee estoppel is an

i to the achievement of these

II. The trend of this Court’s recent decisions has ©

been toward abolition of the patent licensee

estoppel doctrine and there is no. countervailing

_ justification for its retention----------- apeenn

Conclusion---.--- Re CO eT

as 2 . . .

" (ly °

315-351—68——2 , m

-3 @ & 09 to mS

ey | 7, 8, 9, 10, 15, 21, 22, 23

Barrows v. Jackson, 346 US. SSE CSS ene

Compeo Corp. v. eee a Lighting, Ine., 376.U.S. 234. ate

| ges ~~ 13,983,238 Of

“ Crane v. French, 38 Miss. OE haa 13__}. |

Cuno Bnpinering Crp. v. Astomatie Do Cr. .

Cooke s le pnnnanae Sea cae vine 6 12.

Graham. v. John Deere Co., 383 U.S. 1_----------- 11, 12, 23

Haughey v. Lee, 151. DR MGAbitbwkccenanesesgess, 14

Jones v. United States, | Se eS

" Katzinger Co. v. oo Mis. Ce, 329 U.S. 304... 7,

~ 9, 14; 15, 18, 21, 23

Kiefer-Stewart Co. v. Shain Wf Sive, 340 U.S. ae. a

Kinsman v. Parkhurst, 18 How: 289-.---.---------- 18,19 .

Klor’s, Ine, -v.° - Broadway-Hale _— Inc., 359 US.

tA ihe ieee a chon nanen awa. 00 16

peer Seite * Westinghouse Oo. 329 US. 402... .7, 15, 21, 23

Mercoid., Corp. v. Mid-Continent Inv. ‘Co., 320.U.S. 661- 10

Morgan v. Railroad Co., 96 U.S. 716..--.----+----- or

‘Muncie Gear Co. y. Outboard Co., 315 U.S. 759.-...-. . 14 rs

Paramount Corp. v. American Tri-Ergen tia ot

US. :464._....-..--.--------------5----- 2-2 ---- ce

Pennock v. Dialogue, 2-Pet. Died pads ndtnsnns ab oc ae

Perma Life Mufflers, Inc. v. International Parts: ‘Core. is :

No. 733, O.T. 1967, decided June,10, 1968... 17, 23, 25

. $ *

0

CITATIONS i,

ha Oo. v. B.'@. Corp, 180 F, 2d 290 (C.A. 2)...

i Co. v. Hazeltine, Inc., 339 U.S. 827_-

.:

- Pope Mfg. Co. v. Gormully, 144 U.S. 224.12, 13, 14,18, 19, 23

as Precision Instrument Mig. Co. v. Automotive Co., 324

er

EE OSEAN EES a le pe 10

'- Sazton v. Dodge, 57 Barb. (N.Y.) 84_..---.--------- oe

‘Scott Paper Co. v. Marcalus Co., 326 U.S. 249.....-. 15,

‘16, 17, 20, 21, 26

a Re es

Sears, Roeburk & Co. v. Stiffel Co., 376 US. ree

7 7, 11, 12, 22, 23

Simpeon v. ‘Union Oil Co., 377 US. NRE SrgOe HMR

Sinclair Co. v. Interchemical Corp., 325 U.S. 327..--. 14

& ‘Sola Electric Co. v. Jefferson Co., 317 U.S. 1738-.----- 18,

20, 21, 22,23

| Southern Pacific Co. v. Arizona, 325 U.S. 761,------ oe

United States v. General Electric Co., 272 U.S. 476.--- . 20

United States v. Gypsum Co., 333 U.S. 364_------ 20, 21, 23

United States v. Harvey Steel Co., 196 U.S. 3102......' 19

- United States v. Huck Mfg. Co., 382 U.S.197-..----. 20

United States v. Singer Mfg. Co., 374 U.S. 174... 12, 15, 23°“

| Westinghouse Co, v., Formica Co., 226 US. 342... -=.- 16

Constitution, statutes, and regulations: _

US. Constitation, Art, I, § 8, cl. 8...........:..... =

ERS Ppp e aR er on ff ONEN oy Na POP 11

a INA hb iii Sed evn ncoleichcedcirarinin nso acpiiass va

1 ixkakvicspiniinmaiccastapisines ae

fA RRR ROR ieee aMenere ere ae,

‘Statute of Monopolies (1623), 21 Jac. I, 6:3. ......- oe ee

WO Ai iiecncinsccceigna 8

Miscellaneous: — | acre ae

Restatement, Contracts § 90...-------- Spe RP 24

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by Guth Seprene Gout of the ited Bes

“OcToBRR TERM, 1968

& No. 56

| wo a TxCORPORATED, PEITTIONER

ON WRIT. oF CHRTIORARI TO THE SUPREME ¢ COURT .

OF CALIFORNIA

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

“t OPINIONS BELOW py

The opinion of the Supreme ‘Court .of California |

(A-I* 164-215) is reported at 67 C. 2d 882, 435 P. 2d

—_—— _ 321.-The opinion of the District’ Court of Appeals

S| _ (A-I 121-158) is reported at 244 A.C.A. 100, (a mod-

ification is noted at 244 A.C.A. 563), as modified, 52 -

ee Cal. Rept: 795. The opinion of the Superior Court (A-I

| 74-82) is not reported a but is oT un-

\ | officially a at 143 U.S.P.Q. 53.

JURISDICTION

The judgment of the Supreme Court” of California

was entered on December 14, 1967 (A-I 164), and

a timely petition for rehearing was denied on January

11, 1968 (A-I 217). The petition for a writ of

*A-T refers to Volumé I of the ‘Appendix. ° et rsa

: (ty

“_@

C

| & 2 . 7

certiorari was filed on April. 9, 1368, er was granted

on re 1968, 391 U.S. 912.

7 | QUESTION PRESENTED

“The United States will discuss the, following ques-

tion, which fairly is So within Question 1

of the petition:

* ‘Whether ' the State law déetring “imt_ a licensee

under a, patent license is‘ estopped- from challenging

the validity of the patent is valid in view of the

policies and objectives of the federal eras and anti-

trust laws. fl

| INTEREST OF THE UNITED STATES .

. The effect of the application of the doctrine of

patent licensee estoppel by the court below is to en-

force the respondent’s patent, monopoly regardless of ©

whether it meets the federaf standard of patentability.

. This ‘judgment, if ‘allowed to stand, will _ substantially ___—

increase the procurement cost to ‘the United States of. ‘ered

defense items manufactured by the petitioner for the

- government. But the government’s primary concern —

here transcends immediate fiscal considerations. This

case presents important issues-of public policy regard-

_ing the availability in private patent litigation of

__ defenses _based_on_invalidity—of-patents. There is a

significant public interest in enabling private litigants

to invoke the power ‘of the courts to relieve the chan-

~ nels of commerce of the anticompetitive burden of

~~invalid patent monopolies~'The importatice of issue

' to the national economy and to the proper fun ioning sity

of the federal patent system has led the United States

to file’ this uenet ¢ amicus curiae.

ES

\

|

3

" . The relevant facts are set out in the opinion of the

California Supreme Court (A-I 164-215). ‘Peti- -

tioner Lear émployed resportttent Adkins between 1951

anjl | 1958 to develop and‘ improve gyroscopes (devices

in aircraft navigation, hereinafter ‘‘gyros”). In

\ Adkins granted Lear a licerse_(A-I 12-33)

se. the invention claimed’ in a then-pending

patent application relating both to methods and to

apparatus for mounting and aligning gyros in 1 bear-

ings (A-I 167, 172, 174).

Lear manufactured two types of devices cnbidiing ,

Adkins’ alleged ‘invention, “2156 gyros’? and “steel

gyros”, and paid him royalties on both products until -

1957. In March 1957 the Patent Office rejected all of\

Adkins’ claims on the basis of a prior patent. Lear

_ then advised Adkins- that—it- had ‘concluded that its

“steel gyros” did not come within the- scope of the

patent application; and that thereafter it would pay

- y Adkins royalties only on the “2156 gyros”. .(A-I

' 176). Adkins continued to prosecute the application, .

however, abandoning his method claims and. substi-

tuting new apparatus claims. The latter were finally -

___—allowed by the Patent Office in.1960. In 1959, however, .

Lear notified Adkins that it was terminating the li-

cense and would no longer pay him,any royalties on

the ‘2156 gyros’? .(A-I 176-177). Since that time

Lear has continued to manufacture both. models. pf —

gyro, but has paid Adkins no royalties thereon (4-1

177). ?

_ Adkins filed this suit for royalties in a: California

court in 1960, on the day the — was issued. The —

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trial court directed’ a $16,000 verdict for Adkins on

_ the “2156 gyros,” holding | that, Lear was estopped.

J 7 from “contesting the validity of the patent (A-I Ang

oh The jury returned a verdict on the “steel gyros”

for $888,000. The trial court set aside this. verdict,

however, holding that the estoppel doctrine did not

apply to this phase of the case (A-I 75). It then

ruled that : Adkins’ alleged invention’ was 3_antici-~

pated by, and was: obvious in the light-of, “the prior

art, as was the allége infringing “steel gyro”? (A-I

17-81). Inthe atter connection, the trial court said |

rt 81) :-

| Defendant’s s “Michigan” device [steel gyro’’]

a represents even less. of an advance over the

prior art, than plaintiff’s. The teachings of

Schwan and Moody are so obvious that little

3 further need be said to dispose of the matter.

It is*sufficient to point out that a dunderhead |

* * * would come up with precisely the device . ae

3 manufactured by Lear. - DEERE; :

\ --On appeal, the intermediate ania eourt * opel

that it had been the intention of the parties, in the

~ 1955 -agreement, to make royalties payable only on

patentable inventions (A-I 133-134). The court rea-

_ ‘goned that since Lear gave Adkins notice of termina-

_ tion of the license in 1959, at a time when the Patent

- Office had refused to allow any claims to Adkins, the

termination was effective and Lear had no further

obligation under the ljeefise (A-I 187). In the

: 1 Respondent states that under California law the grant of a

hearing by-the State Supreme Court rendered the opinion of

_ the intermediate ‘appellate court @ sai! for all purposes. (Br.

in Opp.; a 16, n. 6). 7 :

wee eee al te ial hoo ais

5 . boas

court’s view, Léar’s éffective termination of the li-

cense made the doctrine of estoppel thereafter inap-

plicable ‘under California law (A-I 138-139). And

since the license had been effectively terminated, Ad- —

re kins was deemed to have no cause of action there- -

en . under for acts’ after 1959, but. was “relegated to an

er . action for infringement” in the’ federal courts (A-I -.

oar ese 141). An alternative theor yof recovery based on

' ; *+Lear’s alleged unjust enrichment was rejected’ on the

authority of Sears, Roebuck & Co. v. Stiffel Co, 376

US. 225 (A-I 142-143); The. casé was remanded,

however, for trial on the amount of damages to

awarded for’ production of the “steel gyros” prio

to termination of the license. |

On further appeal, the California ‘Sopeeme. Court.

| “4 ©. reinstated. both the $888,000. award on the “steel

4 | gyros”. and the $16,000 award on the “2156 dyros”.

It ruled, first,’ ‘that the 1959 termination was. not

effective, in the light of the intention of the parties

‘ reflected in their agreement, as constryed under State

‘law, and that Lear, therefore, was liable under the

license when it refused to pay royalties. The court

: also held that “the doctrine of licensee estoppel is

2 applicable and Lear is foreclosed from challenging the

validity of Adkins’ patent”” (A-I 191). In addi-

tion, the court found that thé.prior art’ did not antici-

‘pate the claims of Adkins’ patent (A-I 200-202),

and that Lear’s ‘steel gyros infringed the patent |

-(A-E 199). Accordingly, Lear was held liable for

_._. damages (1) on the “steel gyros” since 1957, when it -

ne had incorrectly concluded that such gyros fell outside

} _. the Adkins invention, and (2) on the “2156 gyros”

2 '

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nuatieesiteaeimanini LPO PEL Gg, EIEN PE NEE NIP LORIE NEE ?

, : + a . z ° y a> i teapot 8 eh ae the ee eee ee

Lt ‘ vel 6

- ginee 1959, ‘ini it had inetectively attempted to

_. terminate the contract.” one

ee Sk

This case presents. an appropriate occasion for re-

‘ examination by this Court of the-validity of the State

_ ~ law doctrine of patent licensee estoppel. Although this .

Court ypheld the doctrine iw Automatic Radi Co. v.

" Hagéltine, Inc., 339 U.S. 827, that aspect of the! Hazel-

time decision is conspicuously. inconsistent with the

premises underlying. important decisions of this Court

' both preceding arid following H. azeltine,

A basic policy of the federal patent and antitrust is

laws i is to foster free competition in unpatented and

“unpatentable products. As an important corollary . ee

achieving this’ objective, federal policy favors. the

exposure of invalid. patent monopolies before the

courts in order to free the public from their:economic. —

effects. On several occasions, this Court has held that

particular applications of the doctrine of patent

licensee estoppel are forbidden under federal law be-

cause they interfere ‘with these fundamental federal

| patent) and ‘antitrust policies.

Recent decisions of this Court have further ro

_ fied these policies of federal law and strongly indicate

‘that the entire doctrine of patent licensee estoppel

Under the decision below, Leer cannot effectively terminate

the confract without discontinuing manufacture of the gyros. If

it were to do so, it would disrupt certain Department of De-

fense procurement arrangements. We are informed by that

Department that the cost of Lear’s future contractual liabili-

ties to. Adkiges will probably be passed on, in substantial part, -

LL eee

Seo 82 CFR. é 15.205-26..

baat Pa pAS Ee Yueey eee

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7

conflicts therewith. Unqualified tejection of the doc-

trine by this Court would appropriately vindicate °

a

these important federal policies and would not i impair

has 5 substantial interest of the States. Py eet

ARGUMENT

_ One of the most effective safeguards of the. wublie

‘interest in maintaining the integrity of the patent sys- .

tem is.the ability of private litigants to raise the in-

validity ef patents as a defense, thereby ridding the

- channels of commerce of the clogs on competition cre- ,

- ated by invalid’ patent monopolies. The State law doc-

-_trine of licensee estoppel has long obstructed and in-

terfered with this safeguard. On several occasions in

the past, the United States: has unsuccessf lly urged

this Court to eliminate’ the doctrine. See riefs for —

.the United States as Amicus Curiae in Katzinger Co.’ .

v. Chicago Mfg. Co., 329 U.S. 394; MacGregor v. West-

inghouse Co., 329 U.S. 402; Automatic Radio Co. v.

Hazeltine, TInc., 339 U.S. 827. In light of the recent de-

- eisions of this’ Court in Sears, Roebuck & Co. v. Stif-

_. . fel Co., 376 U.S. 225, and Compéco Corp. v. Day-Brite

Inghting, Inc., 376 U.S. 234, concerning the relation-

| ship between State law doctrines which forbade the ik

copying of unpatented articles and the federal patent

laws, it is now appropriate for this Court fundamen- °

tally to re-examine. the State rule of patent licensee '

estoppel, and to hold it impermissible because it is in-

consistent with, ; and ne to, federal patent. and

e antitrust policy.

‘The present case presents an appropriate occasion

for such’ a re-examination. .The highest court of the 3

at aS sate

* State eater held that “the dvttine of iiceindge’

estoppel is applicable” (A-I 191). Reversal » of,

that holding would be dispositive of the case in this

Court and would be a judgment addressed to. the

issue inherent in the litigation which is of the most

_ fundaméntal and general importance. This Court need -

not be deterred from ‘reaching this issue by the fact

that the petitioner’ s contentions in the State courts

| - were directed primarily to attempting to carve out an

exception to the’ doctrine rather than to its overturn.

Because of this Court’s decision upholding the doc-

trine in Automatic Radio Co. v. Hazeltine, Inc., 339

U.S. 827, it would have been futile for the petitioner

~to argue broa to the State courts that federal law

bars the Statescfrom applying the doctrine of patent

3 - licensee estoppel.:It is the province of this Court, and

not of the State courts, to re-examine the premises of

‘the Hazeltine decision; and it is appropriate to do so

in a case, such as this one, in whtch the explicit hold-

ing of the court below is unavoidably dependent — 2

the tontinuing ‘validity of that decisién. — :

_ Moreover, the facts of thé present case graphically :

illustrate. the need for re-examination of the permis-

sibility. under federal law of the doctrine of patent .

‘licensee estoppel. The respondent - has been. awarded,

over and above the normal salary he was paid by the

petitioner for his professional services (see Reply Br.

of Petitioner in Support of ‘Petition, p. 3), a judg-

ment for royalties totaling $904,000. In addition, he

5) ean anticipate several million dollars of future royalty

payments under the license (see supra, n. 2). Such

_ payments are undeniably warranted under the patent

a SOM RET SS Sg ere

cane acl iT ie int bin a bl INET TS zs TED I

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system. if the respondent has in fact contributed, by

means of a patentable invention, to the economic ac-

_ tivities that are. generating this return. But if he

has not made such.g contribution because the patent

is specious, the payments represent only an unjustified

exaction upon the work and investment of large num-

bers of other persons whose economic efforts are pro-

- ducing the income from whick these royalties are

derived. ‘Because of the doctrine. of licensee estoppel,

—. the respondent is being allewed ‘to exact this tribute

even if his: patent is invalid. “Of course, when it is |

* possible to do, so, the ultimate cost of such payments.

will be passed along through the economy to be ‘borne

by the consumer, who is not even a party to the li-

~ eense agreement. This; too, is strikingly illustrated

hy the present ‘case, in which the cost of. future

. royalty payments will largely be borne by the Treas-:

-ury, and ee of the United States (see. ‘oupra,

a 3}

I. THE PATENT LICENSEE ESfOPPEL DOCTRINE THWARTS .

. THE FEDERAL POLICY OF ASSURING <THE PUBLIC OF

FREE AND OPEN COMPETITION IN. UNPATENTABLE’

-PRODUCTS | 7

The potential litigants who are the most likely to

combine the requisite knowledge and incentive ta chal-

lenge invalid patents are barred by the doctrine of .

licensee estoppel from relieving the public of the eco- —

nomic burden of unlawful patent monopolies.’ Such .

as monopolies obstruct the public interest objectives that

the patent system was designed to encourage, includ-

/ *See Automatic Radio Co. v. Hazeliine, Ine., 339 US. 827,

840: (dissenting opinion cf Mr. Justice Douglas) ; ; cf. Kateinger :

Co. Vv. — Mfg. Co:, 325 U.S. 394, 400-401..

Cae SS

ing the careful limitation of patent monopolies so as

to permit the maximum exploitation of .science and

~ the useful arts. This public interest is dominant.over

. any ‘private concern.‘ It is advanced by ridding the

economy of invalid patents, and it is hindered by any

obstacles thereto.’ Because the doctrine of licensee

estoppel is such an obstaele, it is inconsistent with

fundamental policies of the federal patent and. anti-

trust laws. While it is true that a majority of this

Court, upheld the doctrine in Automatic Radio Co. v.

Hazeltine, Inc., 339 U.S. 827, $36; we shall show that

that aspect of Hazeltine constituted a departure from

the premises underlying important decisions of this

Court which preceded Hazeltine, and is even, more ©

plainly inconsistent with this Court’s holdings in ‘more

recent cases. In these circumstances, we submit that.

re-examination by this Court of that aspect of the

_ Hazeltine decision is both warranted and needed.

A. THE POLICY OF THE FEDERAL PATENT AND ANTITRUST LAWS IS TO |

GUARANTEE FREE AND OPEN COMPETITION IN UNPATENTED AND

UNPATENTABLE PRODUCTS 2

The Patent Clause: of the Constitution authorizes

Congress “To promote the Progress of Science and -_

useful Arts, by securing for limited Times'to * * *

Inventors the exclusive Right to their respective * * *

Discoveries” (Art. I, §8, cl. 8). By its terms, the

€ Pennock v. Dialogue; 2 Pet. 1; see authorities collected in

Mercoid Corp. v: Mid-Continent Inv. Co., 320 U.S. 661, 665.

" See, ‘also, Precision Instrument Mfg. Co. v. Automotive Co.,

- $24 U.S. 806, 815-816. |

- 8 See Aero Co. v. B. G. Corp., 130 F.2d 290, 294 (CA. 2)

(Frank, J., concurring: “An imvalid patent masquerading as

z: valid one is a public merce * * *,”), 7

SEM ene ee LAURE ATEN OER WN SANS, PLES YEN EIS REIT RNG OT TTY OT PPPOE EEE RA Ne GE TOE ER Ne ee Ig RN SOON, PE OS TE ERO IEE RT ee ee i... nat

11

China iii: the grant of exclusive right only for

original creative contributions. In giving effect to the —

Patent Clause, Congress. has authorized the grant of

a patent only to one who invents or discovers a new

"and useful ‘product or process (35 U.S.C. § 101), and

it has prohibited such grants where the alleged inven-

‘tion has been known or used by another in the past

(35 U:S.C. § 102) or, would have been obvious to a

person having ordinary 1 in the art involved (35 ©

U.S.C. § 103). 3

The decisions of this Court have made it clear that

the “clause is both a grant of power and a limitation’’

(Graham v. John Deére: Co., 383 U.S. 1, 5). The

Court has coinpared the Patent Clause with the

Statute of Monopolies,’. which both authorized the

grant of limited monopolies to true and frst inventors _

of new manufactures and at the same time prohibited

. the grant of monopolies over goods or businesses

3 which had: ‘previously: been enjoyed by the public

_ (ibid.; Sears, Roebuck & Co. v. Stiffel Co., 376 US.

B20, 229). Because of these dual policies of the patent

_ system,“ neither Gongress nor “any State may, con-

_ .sistently with the Conistitution, grant product monop-

. olies which “remove existent knowledge from thé

public domain, or * * * restrict free access to mate-

rials already available” (John Deere, 383 U.S. at 6;

see Stiffel, 376 U.S. at 231). |

In order to protect these policies and objectives-of

the patent system, the Court has recently rejected,

under the Supremacy - Clause, decisions imposing

liability. under State law for the’ copying of an un-

°91- Jac. I, «3 (1 $23).

34

, 12 .

patentee Sears, Roebuck & Co. v. Stiffel.Co.,

376 U.S. 225; Compco Corp. v. Day-Brite Lighting,

Inc., 376 U.S. 234. The Court held that “[t]o allow a

State by use of its law of unfair competition to prevent

the copying of on article which represents too. slight

ari advance to “be patented would be to permit the

State to block off from the public something which

federal law has said belongs to the public” (id., at.

~~. 231-232).

B. FEDERAL POLICY FAVORS INVALIDATION OF WORTHLESS PATENTS

Tn furtherance of the federal policy of free and

- open competition in unpatented and unpatentable

products, “public policy favors the exposure of invalid

patent monopolies before the courts in order to free

the public from their effety.’’ United States v. Singer .

Mfg.. Co., 374 U.S. 174, 200 (concurring opinion of

Mr. Justice White). This principle has been recog-

‘nized, implicitly, in the many decisions of this Court,

culminating in Graham v. John Deere Co., supra,

requiring the maintenance of the high, Constitutional

standard of invention, lest “the heavy hand of tribute.

be laid on each slight technological advance in an art’*

(Cuno Engineering Corp. Vv. Automatic Devices Corp.;

314 U.S. 84, 92). -

The principle has also ‘been. recognized —e

in a context very close to that of the present case. In)

Pope Mfg. Co. v. Gormully, 144 U.S. 224, a patentee

sued to obtain specific performance of a patent licens-

ing agreement in which the licensee promised that it”

, would not, during the life of the licensed patents, dis- |

pute the validity of the licensor’s title to certain other

s

_. . following termination of the license, the. licensor |

\ < = 13

patents on that, if the ieee used any such patents ©

might treat him as an infringer and obtain an in-: .

junction against him without notice.” The Court said,

“The real question is whether the defendant can estop

himself from disputing patents which may be wholly:

void” (144 U.S. at 233). Noting that it “is as impor-

tant to the public that competition should not be

repressed by worthless patents, as that the patentee

of a really valuable invention should be protected in

his ‘monopoly * * *”’ (id.,.at 234), the Court held

that the agreement was so oppressive that a court of

equity would not enforce it .(id., at 236-237). ‘The

Court also indicated that the estoppel provisions of _

the contract were void, as contrary to public policy-

(id. at 236)-In so holding, it said that “it is a serious

_ question whether 2r public policy. permits a-man to barter

‘away beforehand his right to defend umjust actions or |

classes of actions’’ (id,, at 234), and quoted with ap-

proval the statement in Crane v. French, 38 Miss. 503,

that the right to make a defense may be one which

(id., at 234-235) 3

is not only a private right to the individual,

but * * * is founded on public policy which ‘i is

promoted by his making the defence, and con-

_ travened by his refusal to make it. * * * With

‘ regard ‘to all such matters of public policy, it

would seem that: no-man can bind himself by

estoppel not to assert a right which the law:

gives him on reasons of public policy. |

™The patentee sought an injunction and an accounting; he

' did not seék damages.

‘

14

. Today, Gormully plainly’ means that patent license

agreements that: prevent challenge to patents con-

travene public policy. The distinction carefully made

there between an action in equity and one at law can

no longer be regarded as significant. See Katzinger

Co. Vv. Chicago Mfg. Co., 329 U.S. 394, 399-400: ef.

Barrows v, Jackson, 346 U.S. 249, 254. °

More fecent authorities similarly recognize ‘that

there is a strong public policy favoring legal invali-

dation of unlawful patents, lest “competition * * * ‘\ -

be repressed by worthless patents” (Gormully, supra).

_ ° Thus, in Sinclair Co. v. Interchemical Corp., 325 U. a

327, 330, this Court. admonished the- lower federal

couxts trying’ infringement suits to pass upon the

validity of patents, even where they deemed ‘the de- -

fendant’s product non-infringing, because “of the

two questions, validity has the greater public im-

portance.” See, also, Muncie Gear Co. v. Outboard

Co., 315 U.S. “759, 768. Earlier, in Haughey v. Lee,

151 U.S. 282, 285, the Court had’ found “no: merit in

the proposition’? that an infringer should be estopped

from challenging the validity of a patent because of

his own, unsuccessful efforts to: ‘procure the same

patent, stating: = [T]he defence of want of patentable

invention in a patent operates not merely to exon-

erate the defendant, but to relieve the public from

Corp. v. American Tri-Ergon Corp., 294 U.S.

7 ~~ < ;

-an asserted. monopoly * * *.’? Accord, — nt

Pare eee ; ee ee |

©. THE DOCTRINE OF LICENSEE ESTOPPEL IS at Dale TO THE

ACHIEVEMENT OF THESE POLICIES !

| ‘Unies tee doctrine of licensee estoppel, a licensee |

may not challenge the validity of his licensor’s patent, a

at least during the term of and within the scope of the -

. license agreenient. * In the case-at bar, although the

‘trial. court for at Adkins’ alleged ‘invention was’

obvious in light of the prior art (a finding not dis-

turbed on appeal), the petitioner was nevertheless

“estopped” by its license frowt utilizing that invalidity

to defeat the respondent’s claim for damages. Thus, —

assuming that under federal law respondent’s devices.

represent too slight an advance to be patented, or that

they are already i in the public domain, the State rule —

applied here blocks the public from two substantial

benefits: (1) petitioner’s demonstration’ that- the

| ‘monopoly seemingly conferred by the patent is

valid; and (2) petitioner’s ‘free use of a techni :

* It is common practice to place an express ‘no-contest clause in

the license (as in the Katzinger-case, supra; cf. United States v. |

» Singer Mfg. Co., 374 U.S. 174, 180, 199), but the distinction.

between the express and’ implied promise not to challenge valid-

- . ity has been deemed immaterial (Katzinger, ‘329 U.S. at 401-

', 402; see Scott Paper Co. v. Marcalus Co., 326 U.S. 249, 255-256).

The estoppel rule has at times been stated in terms of suits

: for royalties due under the contract (see Automatic Radio Co.

v. Hazeltine, Inc., 339 U.S. 827, 836), but the doctrine has also

been invoked in infringement suits and actions for a declaratory

judgment of invalidity (see Katzinger Co. v. Chicago Mfg. Co.,

329 U.S. 394; MacGregor v. Westinghouse Co., 329 U.S. 402; Scott

Paper Co. v. Maroalus Co.,f 326 U.S. 249 (assignor estoppel) ).

4

°

ne 16

which; ae federal a, belongs to all members of

_ the public.’

This Court has recdgnized the importance to the

public of preventing even a single manufacturer from

being blocked off from the field engrossed by an in-

valid patent.” Scott Paper Co. v. Marcalus Co.,.326

U.S. 249. In Scott Paper, the assignee of a patent.

sued its assignor for manufacturing an. allegedly in-

fringing’ device. The assignor defended on the ground

that its machine was ‘simply a copy of an expired |

prior art patent. The trial court held that since the _

assignor was estopped by its own assignment from

showing the patent’s invalidity (Westinghouse Co. ¥. «

| Formica Co., 266 U. S. 342, 349), it. could not accom-

plish the same result indirectly by using the prior art

’ “to show noninfringement. The court of appeals, also

relying on Formica, ruled that the estoppel doctrine

did not’bar the assignor from using prior art to nar-

row the claims of the patent, even to the ‘point of

_ eliminating them entirely. This Court cut through the

_formalistic distinctions of the two lower gourt opin-

ions and held the estoppel doctrine to bé: completely

-inapplicable for the simple reason that foreclosure of

the assignor from use of the prior art is inconsistent

with federal patent laws which dedicate such matter

to public use: The Court ‘said that the aim of the

patent laws is not only that the public shall be free

*Lear is a leading competitor in the production of instru:

ments of this type. The Department of Defense has advised us

' that Lear is its only source for procurement of certain of these

gyros, and is the leader among the Tour suppliers of others.

Cf. Klor’s, Inc. v. Broadway-Hale Stores, Ino., 359 US.

207, 218. |

| me Shee |

to. mhanufaéture the subject matter of an expired

patent, “but also that the consuming public at large

shall receive the benefits of the unrestricted exploita-

tion, by others, of [such] disclosures” (326 U.S, at

. 255).’The effect of permitting a manufacturer, whether

. by-express contract or by “estoppel, to, preclude himg

‘self from using the invention of an’ expired patent

would run directly counter to this policy. . is

Frequently, the enforcement of a publie policy ~

depends upon persons who will, in protection of their

own interests, also assert the public’s rights. See, e.9.,

Barrows v. Jackson, 346 U.S. 249. Private enforce-

ment of the antitrust laws is an. important. element

in protecting the public interest in competition. See, .

€.9., Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S.

211; Simpson v. Union Oil Co., 377 U.S. 13. Equally

important is private protection of the patent system.

by means of the defense that a technology is already _

- in the public domain. Scott Paper Co, y. Marcalus Co.,

supra. The widest possible availability of such a

defense by private persons is. especially needed in a

patent system, such as ours, in which patent monop-

olies are granted in essentially ex parte, non-adver-’

. Sary administrative proceedings. This’ Court has

“often indicated’ the inappropriateness of invoking

broad common-law barriers to relief where a private

suit serves important public purposes.” Perma Life -

Mufflers, Inc. v. International Parts Corp., No. 733, ~

_ O.T. 1967, decided June 10, 1968, slip op. p. 4. The: ~

licensee estoppel doctrine is such a barrier.

a ee ata S

I, THE TREND OF THIS COURT'S RECENT DECISIONS 114%

BEEN TOWARD ABOLITION OF PATENT LICENSEE |

ESTOPPEL DOCTRINE AND THERE 18 NO COUNTERVAILING

JUSTIFICATION FOR ITS RETENTION jhe

“1. The recent decisions of this Gourt. dealing with

“patent: estoppel emphasize “the necessity of protecting

our competitive economy by keeping open the way for

interested persons to challenge the validity of patents .

which might be shown to be invalid * * *” (Kate- -

inger Co. v. Chicago Mfg. Co., 329 U.S. 394, 400). %

Thus they return to the principle of Pope Mfg. Co. v.

' Gormully, supra, 144 U.S. at 295, that “the right to ~ |

challenge ‘isnot only a private right to the individual,

but it is founded on public policy which is promoted. by

his making the defence, and contravened by his

refusal to make it’ ” (329 U.S. at 400-401). :

Some of the earlier cases, it is true, departed from

the approach of Gormully. But they did so without

- discussion of the rule of estoppel; which’ was. not even

| questioned by counsel (see Sola Electric Co. v. Jef-

ferson Co., 317 U.S. 173, 175). Moreover, they turned

upon the “particular circumstances there involved”’

(Katzinger Co. v. Chicago Mfg. Co., supra, at 399).

Thus the estoppel doctrine slipped into our law dlmost ”

- unnoticed, often on the basis of casual dicta. :

For example, Kinsman v. Parkhurst, 18 How: 289, |

was a pre-Sherman Act case involving a partnership ;

agreement between a patentee and his assignee to pro- .

_ duce the patented product and divide*the profits. The —

Court ;held only that .the alleged invalidity of the

« °

: eo

tee wR he ale: eaten ee

- 19 ae

patent was immaterial to the assignes’s duty ‘under

the agreement to account for the proceeds.

United States v. Harvey Steel Co., 196 U.S. 310,

involved a government contract for use of a patented

armor plate process which contained a clause provid-

ing for termination of royalty payments if the patent

was held to be invalid. When ‘sued for disputed roy-

alties, the government attacked the patent. On appeal,

government counsel did riot refer this Court to Pope

‘V. Gormully, and did not challenge the general validity >

of the licensee estoppel doctrine. Instead they accepted

the doctrine, arguing only that it was inapplicable to

user-licensees as distinguished from licensees who sold

the product. This Court ‘rejected the purported dis-

tinction and held that under the explicit language’ of -

the contract clause the government could set up the ..

invalidity of the patent as a defense only upon a prior

showing of invalidity by a. third patty. There'was no

discussion—as there. had been in Gormully—of the

public policy implications of the estoppel doctrine.

Moreover, under the license agreement in H arvey

Steel, royalties were’ payable as consideration song

only for the ‘use of the patent, but for the use of te- ,

lated trade secrets that were communi¢ated and that .

+ went beyond the patent. In fact, the Court found it -

unnecessary to decide whether the patent itself had.’

been infringed, because of the admitted ase‘of a ptoc-

ess based upon these “communications of ‘the > claimant

Ae Oy

* 9 (196 U.S. at 319).

Any validity which the licensee estoppel doctrine had

derived from Kinsman and H arvey Steel was com-

pletely. eroded by the more recent patent - estoppel

«a @

20

_ eases in this Court. In Sola Electric Co, v. Jefferson

Co., supra, the Court held that a license agreement

- containing a pricefixing clause did not. bar the li-

~~ eensee from challenging the clause by showing that the

patent is invalid and that the- price restriction was

accordingly | unlawful under the Sherman. Act be-

cause not protected , by. the patent ‘monopoly.* The

~ Court emphasized that “local rules of estoppel will

not be permitted to thwart. the purposés of statutes

of the United States.’’ 317 U.S. at 176.

‘As noted above (pp. 16-17), in Scott Paper Co. 4

Marcalus, supra, the Court held that’ the assignor of a

_ patent cannot be estopped from defending an infringe- |

| ment suit on the ground that the patent has éxpired.”

m observed (326 U.S. at 256-257) :

They [the patent laws] do not. contemplate that

-anyone by contract’ or any form of private

arrangement may withhold from the public the

use of an invention for which the public has

paid by its grant of a monopoly and which

has been appropriated to the use of all. The

_ rights in the invention are then no longer sub-

ject to private barter, sale, or waiver. [Cita-

tions omitted.] It follows that the patent laws -

preclude the pétitioner assignee from invok-

ing the doctrine of estoppel * * * and _ they

11 See United States v. General Electric Co., 272 U.S. 476;

United States v. Gypsum Co., 333 US. 364, 386-387. Ina case

in which this Court -was evenly divided, the government recently

_ challenged the continuing validity of General Electric’s author-

ization of price-fixing clauses in patent license agreements. See

United States v. Huck Mfg. Co., 382 U.S. 197.

. 2 The dissenting opinion of Mr. Justice Frankfurter in Mar- .

calus _argued that the effect of the Court's decision was to. |

abolish assignor estoppel.

. »

ie mtn ttthal A a Npeio NU stains ke nites Ym dee oe

- ee REMERON SOE ERS SORES Re Soe

. .

: ae

preclude the assignor from estopping himself

from enjoying rights which it is the policy of ~

the patent laws to free from all restrictions.

For no more than private contract can estoppel

+ be the means of’ successfully avoiding the re-

quirements of legislation enacted for the pro- - &

tection of a public interest. .

ae " Sola Electrie and Scott Paper,,were followed in

_ . Katzinger- v. Chicago Mfg. Co., supra, which also in-

volved a license containing: a pricefixing clause and

in whichnit was thrs unnecessary to decide whether

‘the doctrine of licensee estoppel must be rejected in

its entirety. dowever, the Court emphasized the

dominant public interest in permitting challenges to

the validity of patents. 329 U.S, at 400-401, Accord, «

MacGregor v. Westinghouse Co., 329 U.S. 402; United

States v. Gypsum Co., 333 U.S. 364, 387.

The only contrary authority in recent years is

Automatic Radio Co. v. Hazeltine, Inc., supra. The

principal issues in that case involved questions of

alleged patent misuse. After dealing with those issues

in detail, the Court simply noted that, ‘‘The’ general .

rule is that the licensee under a patent license agree-

ment may not challenge the validity of the licensed

patent in a suit for royalties due under the contract” |

(339 U.S. at 836). Application of the estoppel rule was

upheld because the licenses involved did not, it -was

said, contain provisions. in direct conflict with the anti-

trust laws. But this aspect of the Hazeltine opinion does

not rest on.a considered articulation of policies or anal-.

ysis of precedents. By contrast,.the dissenting Justices,

in an opinion which has grown in persuasiveness,

ATE RARE ARE (APPA SONNE LENE LYRE TOLL eI

+ tialbeaiens Mize =

Ree een

undertook such an siya (389 U.S. at 338-840) and

observed (339-U.S. at 840) : | o

| . The licensee protects the public interest in

exposing invalid or expired patents and freeing

the public of their ‘toll. He should be allowed

that privilege. He would be allowed it were the

' public interest considered. the dominant one. |

Ridding the public: of stale or specious patents

is one way of serving the end of the sgh inaes

of science.

- In merely reciting the “general wane” of licensee :

estoppel, the Court in Hazeltine did not focus on the

critical question of the relationship between State

- and federal law in evaluating the issue of the pérmis- ©

sibility of patent-licensee estoppel. Analysis of that

critical relationship was an important feature of this

Court’s leading opinion in this field, Sola Electric Co.

Vv. Jefferson Co.; supra, 317°-U.S. at 176-177. More

recently, this Court very signifjgantly returned to the —

_- teaching of Sola Electric in Sears, Roebuck & Co. v.

_ Stiffel Co., 376 U.S. 225, and Compco Corp. v. Day-

Brite Lighting, Inc., 376 U.S. 234. Fundamental con-

siderations of federal patent and: antitrust policy led

the Court in those cases to strike down State “use of

its law of unfair competition to prevent the copying

_ of an article which represents too slight an advance |

to be patented” because the. States would thereby be

giving “protection of a kind that clashes with the

objectives of the. federal patent laws” G16 U.S. at.

231-232). —

Enforcement of invalid patent hie ore be means

of the State doctrine of licensee estoppel, likewise

.

ELE I EIEIO IGE LEE IOI LEU A LE LY IE IE BAEC REE Ae AOD oe pe pg Se ee ee ee

“clashes with the objectives of the federal patent

laws” and must yield to the supremacy of federal

. policies. To the extent that Hazeltine held to the con-

_ trary, it, should be overruled as conspicuously incon-

sistent. with the premises underlying decisions both __

preceding and following it—from Gormully and Sola.

Electric, through Scott Paper, Katzinger, McGregor

and Gypsum, to Stiffel, ‘Compco, John Deere and

| Perma Life Mufflers. The logic of these decisions can

. lead to no other result, as one member of this Court

recently re ognized (United States v. Singer Mfg. Co.,

374 U.S. 174, 200) (coneurring opinion of Mr. J ustice.

White): — hh eae ae

In the “patent estoppel” cases; the Court found.

that public policy favors the exposure of in-

valid patent monopolies before the courts in

order’ to free the public from their effects.

Thus a licensee may not be prevented from. at-

tacking the validity of: his licensor’s patent.

2. Recognition that the es‘oppel doctrine conflicts .

with, and must yield to, federal law is facilitated by

the. fact that countervailing policies of State law

favoring perpetuation of the doctrine are not. sub-’.

stantial. Cf. Southern Pacific Co. y. Arizona, 325\U.8.

761, 775-779, 783-784. The patentee. is not a vietim

of unfair dealing merely. because his licensee chal-

lenges the patent." A non-exclusive license, such as

18 Rejection of the doctrine of patent licensee estoppel would

leave unimpaired the general State doctrines of equitable

_ estoppel and promissory estoppel, which are distinguishable

from licensee estoppel. The doctrine of equitable estoppel is

that one is not permitted to deny something which by his.

culpable silence or misrepresentation he has led another to

Pn owns a itneonmenuprescy BEETLE LOLOL IDOE LA SES EI SN AA PIU NI 95 PLD AL Ory EAI

LA EET. SON SONS ERLE ACER che NA EG BERING A aN SD nas

24

the present one (see A-I 158), does. not require

- the licensor to forego granting licenses to, and col-

‘lecting royalties from, others. His royalties represent

. “full compensation for the patentee’s agreement not

to. sue. If the royalties cease, he may sue either on

the contract (as respondent elected to do in’ this

case) or for infringement under the damage pro-

visions of the patent code (35 U.S.C. 284). But if

_ the patent is in fact invalid, neither the licensor nor

_ anyone else should be permitted to enjoy the monopoly

it confers or ‘to tax the economy therewith. The

licensee should be.-permitted to show the facts. _

It might be argued that, from the standpoint of

fair dealing, additional considerations may be present

in cases involving exclusive licenses and patent assign-

- ments. In the case of ‘an exclusive license it can be

claimed that the patentee ‘gave up other licenses or

business arrangements ; and in the case of a patent

assignment it may be said that it is unfair for the

assignor to purport to sell a valuable patent right and

then, if the assignee should challenge the assignor’s

unlicensed post-assignment use of the patent, to claim

that what was sold is worthless. But if the patent is

-believe, if the other has acted upon that belief. “The doctrine

always presupposes error on one side and fault or fraud upon

the other” (Morgan v. Railroad Co., 96 -US. 716, 720). A

promissory, estoppel occurs only when one’ party’s statement

~ to the other induces him to change his position and act sub-

stantially to his prejudice’in consequence of the inducement

(Jones v. United States, 96 U.S. 24, 29; Restatement, Contracts

§ 90). By contrast, the question involved here is the appro-

priateness of a rule of estoppel where there has been neither -

fraud or falsehood on the one hand, nor reliance or injury

onthe other.. ; sora:

a;

‘in fact invalid, the “license conferred no right, for the

licensors had none to confer” (Saxton v. Dodge, 57

Barb. (N.Y.) 84, 113). | | :

Perhaps, as a’ matter. of state equity doctrine, an

exclusive licensee who successfully ‘challenges his li-

censor’s patent might nevertheless-he required to -

account for the benefits of exclusivity he enjoyed

* _. prior to the time the patént’was declared invalid, And

an assignor, who successfully challenges a patent he

assigned, might be required to return the considera-

tion he received for the assignment. Similarly, in cases

where one party or the other had substantial reason to

believe that the patent was invalid at the time.of the

license or assignment, and failed to disclose this fact

to the other party, special damages might be appro- .

priate. So long as such. remedies do not conflict with -

federal patent or antitrust policy, these considerations | 2

are matters of state concern in adjusting the private

rights between parties." But the estoppel doctrine’s x

bar against challenges to the validity of patents

directly interferes, in any of these cases, with the

federal interest: in, protecting the economy from un-

lawful monopolies. The’States must be restricted, in

. this field, to remedies which can be reconciled with the

. federal patent and antitrust, laws. The States’ “inter-_

est in private good ‘faith is not a universal touchstone

which can be made the means of sacrificing a public __

interest secured by an appropriate exercise of the

“Cf. Perma. Life Mufflers vy. International Parts Corp.,

supra, in which the @eurt held that although the pari delicto

' defense could not bar liability for violating the antitrust laws,

the plaintiff's conduct can “be taken into consideration in

computing damages * * *” (slip op., p. 6).

26

legislative power. og Scott Paper Co. v. Marcalus, supra,

326 U.S. at 257.

ely BS he CONCLUSION | 3

For the era reasons, the “judginent et. the. i

- Supreme Court of California should be reversed and

the case remanded for that court to consider peti-

tioner’s challenge to the validity of the — a

* acannieted submitted: _

_ Erwin N, Griswox,

_ Solicitor General.

EpWIN M. ZIMMERMAN,

Assistant Attorney General.

_ Lawrence G. WALLACE,

Assistant to the Solicitor General.

Howarp E. SHAPimRo, —

RicHarp H. STERN,

. : Attorneys.

Avcust 1968. xv |

43s The relief here requested. i is appropriate to the contention on

the merits made in this brief. Although this brief has been con-

fined to a single issue, the government does not thereby intimate

agreement or disagreement with the petitioner’s additional con-

‘tentions on the merits or related requests for further relief.

f,

B.S. GOVERNMENT PRINTING OFFICE: i866

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