# Amicus Curiae Brief — Lear, Inc. v. Adkins > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386413_0121%3A09 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1969 - **Citation:** 395 U.S. 653 ## Text Question IE icine iinnivinigsinngetbotetn winintabetinidide Interest of the United States__..._.--..--.--.--------- SSS RE EEE EOE OE OSE OR, PONE Summary of Arwument. - ° - F -° . ‘ : . . pe ° °, - . - ° ‘ a ee £ . . “. . ae . e . ‘ . i é ; . > ve ae . . ‘ - ms . . . ‘ ra a ee . v a . “ . ? os s > - ® . bd . a . ‘ e . ° st . = . . ‘ ‘ Fe . e ° - >. r > . : * . Z é ’ - . 4 Bike ; : . , ° Soe ae ; ——$—_ ales ’ : : = ” . . J! ¢ 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 Z 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 Y j \ | ° | 9 ° , . 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 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 ‘ ~—, a any em ene at . . eee SOP CY ra NS i WOT QW oem ; --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386413_0121%3A09. Public record. Not legal advice.