Respondents Brief — Alma Motor Co. v. Timken-Detroit Axle Co.

IN THE

Supreme Court of the United States

* Oecroner Term, 1946

No. J1.

Auma Motor ¢ ompany, Petitioner, >

ea ‘

Tie. Timkex-Detror Axte Company, Respondent,

RESPONDENT'S BRIEF ON REARGUMENT.

Wirwiame AL NrRatce,

Canpsel fe “hei Sp) yprede wis

J. Marrurws Neae,

Sreaven & Horrmay,

Of Counsel for Respondent

xc

Pures or Braow 8. AvLams. Wastiwetox, DC. -

eee cy. Page

UIE DONUT 6 cc icactcc cece lecsecsse rere rey ee ke

Jurisdiction and Proceedings in This Court.......... ioe

‘The Questions Presented .............. ste eeeeecees ey

Statutes. Involved .............. Ace a EE: Ey te MDa ‘:.

NEE hava VL de cad dde aun beachasdeccnsceedeysse 3

Proceedings ie A CN i vaaciceccwaec le

Royalty Adjustment Proceedings ...:.......... die

- Proceedings in Court Below ...... ee eeedeceeeees rae

Summary of pana EE PA me Peer a),

BOOS foo Sais 6 525s oc so deh weheed Pt ghana 12

Point I. The Royalty édsuailiels Act is Constitu-

tional as applied to royalties due from Respon-

. dent The Timken-Detroit Axle Company to Peti-

tioner for patented devices manufactured, sold —

and delivered to the renee before the date

of approval of the Act .,......:....eseseeeee 12

‘Peint Il. The Royalty Adjustmest Act is Constitu- .

\ tional as applied to royalties dve from Respon-

dent The Timken-Detroit Axle Company to Peti-

tioner for-patented devices manufactured, sold

and delivered to the Government before the

cognac of the Departmental Royalty Or- 4

PEE PSE EEN OO EEL Ee PEE EEP EOE TTL ete 21

Point LI. Section 2 of the Royalty Adjustment Act

authorizing a suit to be brought in the Court of

Claims or in a District Court saves to Petitioner

a right to recover in such a suit a sum equal to

the royalties stipulated to be paid under its con- —

tract with the Respondent The Timkefi-Detroit —

ese

BRR COON 5 ob Wass ok bc aetssbivans ae

Goncinsion . RO a er OEY are Sear a ies (28

Appendix A:. The eeu Adjustment Act of Octo-

ber 31, 1942 PE AT LPN PETE EET CT 29

‘ Appendix B: The Act of June 25, 1910, as amended by

_ the Act of July 1, 1918 aeees Sabu gu wachanenes 33 -

\

ii

—

>

“Appendix C: The Patent Statutes

Index Continued.

_ Revised Statute 4893, Act of J uly. 8, 1870, C. 230

§ 31, 16 Statute 202, 89 U.S.C. ‘Sec. 36 Fee Sey 34

. Revised Statute 4884, "Act of July 8, i870, C. 330 x

§ 22, 16 Statute ‘201, 35 U.S.C. Sec. 40 ae AR -

The Act of June 25, 1910, C. 423,-36 Stat. 851,

as-amended July 1, 1918, Cc. 114, 40 Stat. 705, ;

85 U.S.C. Sec. @ oss... fiaveen Vverye is |

Casks : . ot ; as \

Billings v. “United States, 939 U. S. + eeere 9, 10, lu, a

Block v. Hii pch, 256 U. 8. 135,......... 8; 9, 13, 17,19, 22

Bowles v. illingham, 321.U. 8. 503......... wie 4 9, 16 -

’ Charles River Bridge v. The Warren Bridge et al. ?

Eh PRM os obo en BE ed acca cs .8,9, 16,19

Crozier v. Krupp, 224 U. 8. 290. tebe idasteavatdes 11,24

Highland v.’Russel Car & Snow Plow Company, 279.

We We OS ge voce abi Ck race 4s 0's a's oBy Op Ady Ady 19, 22

Home. Building and Loan Association v. Blaisdell

et.al., 290 U.S. 398. 0... oo. eons oo 8 9, 16, 19, 20

Louisville and, Nashville R. R. Co. v. Moitiey, 219.

Le RE RAR) OREN PRS thre Ce

| Mentaault v. Springs, 199 U OF: TE eae 9,16

Norman v. Baltimore & O, R a. Co., 394 U.S. 240. 9; Yi, :

18, 19, 20, 22 |

Richmond Screw Anchor Co: v. United States, 275

Ep Mawes teMu beeen ae suecly es fie wor ee

Scott Paper Co. v. -,Marcalys. Mfg. Co., et al., 326 .

eee a Ann cm 9; 11, "20, 26, 27

, Sinclair. & Carroll Company, Inc. v. Interchemical

Corporation, 896 0. 8; 387 3. i .666 5 ken beck.

Stephenson v. Binford, 287 U. S. 251.............. 9,16

Union Bridge Co. v. United States, 204 U. S; 364...9, 16

Wood v.. Lovett,.313 U.S. 362.2. ..0...0066.65 . 8, 16, 20

Yakus’ v. United en 321 U. S. 414. Lge ewken "11,25

‘Srarures:

Act of June 25, 1910 as ainendaa =) Act of July i.

1918 C. 114, 40 Stat. 705, ey Oe, «seme

ll.

ha

Index Continued. . |.

t a : wis

Me TA oe cin, Se ENG cedcckdcaeeve den 3, 8, 12 >

Rev. Stat. 1008 PELE MOLE TA SI OE BEC ied ES

ae, Adjustment Act of October 31, i943, 36 Stat.

. 1018, b. 8, C. Sart: III, See. 89.96: rf

12, 1f, 17, 19, 21, 22,2

Miscen. ANEOUS:

“aoe “House Committee on ‘Patents, op H. R.

™ IN THE |

Supreme Court of the United States

Ocroser Term, 1946. |

=

No. 11.

Auma Moron Company, Petitioner,

v.

Tue Timken-Derrorr AXLE Company, Respondent.

RESPONDENT'S BRIEF ON REARGUMENT.

OPINIONS BELOW.

The opinion of the District Court of the United States

for the District of Delaware (R. 33-43) is reported in 47

F. Supp. 982. The opinion of the United States Circuit

‘Court of Appeals for the Third. Cireuit (R. 112-120) is

reported in 144 F. 2d 714.

JURISDICTION AND PROCEEDINGS IN THIS COURT.

On January 2 2, 1945 petitioner filed its petition for cer-

tiorari in this court basing the jurisdiction of this court

upon Section 240(a) of the Judicial Code, as amended by

the Act.of February 13, 1925.

aco -

ee )

is In due course petitioner’ “ brief, respondent’ s brief, th

brief for the United States as- intervenor, the brief of _

, Roscoe A. Coffman Amicae Curiae and petitioner's repl

_ brief: were filed‘and April 24 and 25, 1945 oral argumen

- was had in this ng ws counsel for petitioner, counsel for\ :

'. the United States and counsel for respondent being rest |

in the order listed. On May 21, 1945, this. Honorable Cou

entered its ordér restoring the case to the ‘docket for re-

| argument on the questions stated below.’

THE QUESTION 8 PRESENTED.

’ Whether thé Royalty Adjustment Act, 56 Stat.. 1013,

35 U. 8. C. Supp. III, §§' 89-96, is constitutional under the

Fifth Amendment to the Constitution as applied to royal-

— ties due from. respondent, The Timken-Detroit Axle Com-

pany, to petitioner for the patented devices manufactured,

sold and delivered to the Government of the United States

(a) before the enactment of the Act and (b) before the

ieh promulgation . of the departmental: tered Adjustment

Order W-3. |

2. ‘Whether Section 2 2 of the Royalty Atheist Act, 56

ae 1013, 35 U.S. CG, Supp. III, $$ 89-96, authorizing a suit

to be brought in the Court of Claims or in a District Court,

saves .to petitioner any rights it may have to recover, in

such a suit or otherwise, any of the royalties stipulated to

be paid under its contract with respondent, The Timken-

Detroit Axle. Company. = : |

STATUTES INVOLVED. | /

The . Act of October. 31; 1942 (56 Stat. 1013, 35 U.S. ¢.

‘Supp. III, §§ 89-96), known as the Royalty Adjustment Act,

is set forth in Appendix A, pp. 29-32, The Act of June

25, 1910, ax ainended by the Act: of July 1; 1918 (36 Stat. ©

851, 40 Staf. 705; 35 U! SoC. §.68), is set forth in Appendix

B, -pp. 33. . The applicable patent statutes, Revised

. Statute 4893, Act of July 8, 1870, C. 230, § 31, 16 Stat. 202,

wr

GN

35 U. S.. C. See.’36; Revised Statute 4884, Act of July 8,

1870; ('. 230, § 22, 16 Stat. 201, 35 U. S. C. Sec. 40; and the

Agt of June 25, 1910, C, 423, 36 Stat. 851 as amended July

1, 1918, C. 114, 40 Stat. 705, 35 U.S. C. See. 68 are set forth

in Appendix £ y pp. 34- a

STATEMENT. eae oe ee a

Petitioner, Alma Motor Company, i is the owner of United

-States Patent 2,173,044 issued to it on September 12, 1939

as the assignee of Ruggles and Smith and respondent, The ©

Timken-Detroit Axle Company, is a licensee of petitioner —

under an agreement dated September 12, 1939 and pro-

viding for a royalty ranging from fifty cents to $1.50 per

transfer case (R. 11, 88-90). A transfer case is an auxiliary .

transmission for automotive vehicles-(R. 88) and respond-

_ enh’s production ‘and sale of transfer cases covered. by the

patent in suit has been only to or for the use of the _War

Department (R. 60).

Proceedings in District Court.

On January. 23, 1941, respondent brought this action

against petitioner under the Federal Declaratory Judg-

ment Act? in the ‘District Court of the United States for

‘the District of Delaware to declare the patent invalid and

the license agreement inapplicable to certain transfer cases

manufactured by: respondent (R. 2-9, 16-17). Petitioner

‘filed an answer and a counterclaim for royalties alleged to

be due from respondent under the license agreement. (R.

13, 17-18). “On September 23, 1942, the district. court

rendered its opinion (R. 33- 43), and on December 2, 1942,

entered a judgment (R. 49-51), holding that respondent as

a roe was estopped to question the patent’s validity

(Par. 3, R. 49): that certain of the transfer cases in qués-_

‘tion were dominated by the patent and thus subject to

royalties under “ei license -(Par. 4, R. 49-50); and that the

“bJudicial Code, ; 274d (38 U. 8. Co§ 400).

4

remainder were outside the patent and hence not subject

to royalties (Par. 5, R. 50).

_ On February 27, 1943, ‘petitioner appealed to the court

below from Paragraph 5 of the judgment (R. 51), which

had held certain hngee cases to be evans the patent.

Respondent did not appeal. |

Royalty Adjustment

‘The Hoyalty-Adjustment Act became Jaw on October 31,

1942, about three years after issuance of the patent and

about one, year and nine months after institution of this

litigation. It provides that whenever a patented or un-

patented invention is ‘‘manufactured, used (or) sold * * *

for the United States,’’ under a license stipulating for the

payment of royalties ‘‘believed to be unreasonable or ex-

cessive’’ by the head of the Government agency concerned,

he ‘‘shall give written notice of such fact to the licensor

and to the licensee.’’ It provides that within a reasonable

time thereafter the head of the agency ‘‘shall by order fix

and specify such rates or amounts of royalties, if any, as

he shall determine are fair and just, taking into account the

conditions of wartime production * * * .’’ (See. 1.) The Act

directs the licensee, after the effective date of the notice,

not to ‘‘pay to the licensor, nor charge directly or indi-

rectly to the United States a royalty, if any, in excess of

that specified in said order on account of such manufacture,

use (or) sale’’ (Sec. 1). Section 7 makes -the Act applicable

‘to all roy alties directly or indirectly charged or chargé-

“able to the United States’’ which ‘‘have not been paid to

_ the licensor prior to the effective date of the notice®,”? as

well as to’ royalties aceruing upon all articles delivered

after such effective date. By Section 4 any reduction in

royalties authorized by tha Act is to ‘‘inure to the benefit

of the Government by way of a corresponding reduction in

* Emphasis ours.

iy UR NR OY Rape EID ES BRAD SB LY ety pak Cae RO Oe LF

a

the contract price to be paid * * * or by way of refund if

already paid to the licensee.’” . eh

On December 30, 1942, pursuant to Section 1 of the

Royalty Adjustment Act, the War Department ‘served

written notice upon petitioner and respondent that the

royalties called for by the license agreement between them

and ‘‘now being paid by the United States’’ are ‘‘believed

to be unreasonable or excessive;*’ that an order fixing the

rate or amount of royalty deemed fair and just would be

issued within a reasonable time; that the licensor and the

licenseé could, upon request, ‘‘present in writing or in

person any facts-or circumstances which may * * * have a

hearing upon the rates or amounts of royalty, if any, to be

determined, fixed and specified as provided in said Act;’”

and that until an order is issued ‘‘no royalties are to be

paid on account of the manufacture, use, sale or other dis-

position for the 'United States’? (R. 106-107). On Febru-

_ ary 8, 1943, upon petitioner’s request (R. 107-108), peti-

tioner and respondent were afforded an opportunity to -

present before a War. Department Examining Board |

‘facts and circumstances’? bearing upon the royalty to be

fixed under the Act (R. 61-86).

On July 28, 1943, the War Department issued Royalty

Adjustment Order No. W-3 (R. 93-96). That Order recited

that royalties payable by respondent to petitioner under

the license agreement are ‘directly or indirectly charged

or ehargeable to the War Department for or on account of

the manufacture, use, sale or other disposition for the

—_

_ * The Royalty Adjustment Act was summarized by this Court

in Coffman v. Breeze Corporations, Inc., 323 U. S. 316, 319-320.

__ Section 1 of the Act provides that ‘‘the licensee or licensor,

if he so requests within ten days from and after the effective date

of said notice, may within thirty day¢from the date of such re-

quest present in writing or in person any facts or circumstances

which may, in his opinion, have a bearing upon the rates or amounts

of royalties, if any, to be deterniined, fixed and specified as afore-

said, and any order fixing and specifying the rates and amounts -

of royalties shall be issued within a reasonable time after such

presentation.”’

, 3

United States’? of the alleged invention covered i the

patent ; that such roy alties were ‘*believed to be unreason-

- able or excessive taking into account the conditions of war-

"time production’ (R. 93-94); and that the ‘‘fair and just”

royalty under the circumstances. was zero (R. 94, 96).‘ -

The order then directed respondent to pay no royalties

whatever to petitioner. under any license, agreement ‘tin

respect of any supplies, equipment or materials delivered

to or for the War Department’’ (R. 94-95); to pay to the

United.States any sich royalties which had accrued or were

to accrue on deliveries to or for the War Department and

- which had not been paid to petitioner prior-to the notice*

(R. 95); and to reduce the contract price of articles to the |

War Department or. its contractors or subcontractors ‘‘to

. the-extent necessary to give the’ War Department the full "

benefit of the (ordered) reduction in royalty rates’’ (R. 95).

Proceedings in the Court Below.

* After Royalty Adjustment Order No. W-3 was issued, re-

spondent.on August 25, 1943, filed a motion to dismiss ‘the

appeal and remand the cause.to the district court (R. 53-

55). - Asserting that respondent ‘thas manufactured and

sold transfer cases coming within the (license) agreement .

* * * only to or for the use’ of the War Department,” the

motion alleged that the court’s jurisdiction had been with-

drawn by the provision in the Royalty Adjustment Act de-

priving the licensor of any remedy against the licensee for

any royalties in excess of those permitted by the Order

and meking the licensor’s exclusive remedy’’ for such roy-

alties a suit against the United States for “fair and just

compensation’’ (Sees. 1, 2). By leave of court (R. 96-98),

the United States filed a memorandum brief as amicus

/

‘ This was based upon the belief of the War Department officials ©

that the patent was invalid (R. Seema

‘* Emphasis ours.

curiae on’ November 15, 1943, cofitending that if all the

_ transfer cases in suit had ‘‘been\manufactured and sold

directly or indirectly to. the United States,’’ as the affidavit

supporting respondent’s motion averred (R. 60), so that

the royalties due thereon were: “directly or indirectly

charged or chargeable to the United States’’ (Royalty Ad-

justment Act, See: 7), then. an ‘‘actnal controversy’” be-

tween the litigants no longer existed under the Declaratory

Judgment Act, in view of the Royalty Adjustment Act and

Order issued thereunder. . The brief suggested | that the

court below should either dismiss. the appeal or anepend

action thereon until an actual controversy again arises.”. _

On December 6; 1943, petitioner filed a ‘*Petition To Re-

view and Vacate Royalty Adjustment Order No. W-3’’ on

the ground that the Order and the underlying Act were un-

‘constitutional ‘R. 98-103). Upon certification by the court

below that the constitutionality of the Act has been ques-

tioned, the United States intervened under the Act of Aug-

ust 24, 1937 (28 U. S. C. § 401) for the purpose of support-

_ ing the constitutionality of the Act and se (R. 110-111,

113). een

- After this issue was briefed and argued, sia court biline

rendered its opinion on August 7, 1944 (R. 112- 120), hold-

ing the. Act and Order valid: as a ‘‘constitutional. exercise |

of the power of eminent domain by Congress in-aid of its ©

expressly granted war power’? (R. 120); and concluding

‘that the Order’s direction to pay no royalties whatever to

petitioner rendered the instant suit moot (R. 113). ~The -

court accordingly directed the following disposition of the. .

“case (R. 120):

Paragraph 3+ of the judgment entered ie the District —

Court in this cause is vacated and the cause is re-

manded to the District Court with directions to pro-

ceed no further therein-unless and until it shall appear.

* The brief amicus is not in the record but can be made available 3

to this Court upon request. The Government’s position as amicus

_is also set forth in its motion for: leave to file a brief (R. 96-97 ).

— 5 reac onacn anne

Weis

to the Court. that a justiciable controversy again® ex-

_ists between the parties arising out of the facts set

forth in the complaint, except that the Court may, if

it deems such action to be appropriate, vacate ‘all or

any part of the remainder of the judgment and. dismiss

the complaint as moot. -

The court also dismissed the ‘*Petition To Review and Va-

cate Royalty Adjustment Order No. W-3’’ (R. 111-112) for

want of jurisdiction (R. 119). On October 2, 1944, a peti-

tion for Sia vemiied was denied (R. ine

| SUMMARY OF ARGUMENT.

3 I. ies

The patent in‘suit, numbered 2,173,044, was granted pur-

suant to Revised Statute 4893, Act of July 8, 1870, C. 230,

§ 31, 16 Stat. 202, 35 U.S. C. See. 36 and Revised Statute _

4884, Act of July $, 1870,.C. 230, § 22, 16-Stat. 201, 35 U.S.

-C. See. 40. As a result thereof petitioner acquired the ex-

clusive right to make, use, and vend the alleged invention

or discovery of patent 2,173,044 subject to the Government's

right to have any invention or discovery disclosed, manu-—

factured or used by or for the United States as provided

by the Act of June 25, 1910, (. 423, 36 Stat. 851 as amended

July 1, 1918, C. 114, 40 Stat. 705, 35 U. S. C. See.-68 and

subject, like all other property, to.the Constitutional power

of the Government.under Article I, Sec. 8 to wage war,

Block v. Hirsch, 256 U. 8S. 13%; Highland v. Russell Car.

and Snow Plow, € ‘ompany, 279 U. S. 253. Cf: The Charles

River Bridge. v. The Warren Bridge et al., 11 Peters 420,.

Home Building and Loan Association v. Blaisdell et al., 290:

U. S. 398, and Wood v. Lovett, 313 U. S. 362.

Being subject to the Constitutional powers of the Gov-

ernment, the exercise of the Constitutional war powers ‘in

derogation of °a private contract relating to property, in

this case’ patent property, does not constitute a retroactive

' 6 The-word ‘‘again”’ was deleted by an order of October 2, 1944,

— the court’s opinion (R. 129-130).

SLSR, WEL LBL REL LITLE ILE EMAIL MOS IER LTE ETAL SS maa ASA RA BS tires Oe ots, oY

; : : | :

J > ; \ :

g .

_ impairment of a contract obligation but is a legal and -

proper exercise of the Government’s reserved Constitu-

‘ tional power to protect its citizens by effective use of such

power, Highland v. Russell Car and Snow Plow Company,

279 U. S. 233; Block v./Hirsch, 256 U. S. 135; Norman v.

_ Baltimore & O. R. Co., 294 U.S. 240, The Union Bridge Co.

v. United States, 204 U.S. 364; The Charles River Bridge

y. The Warren Bridge et al 11 Peters 420; Manigault v.

Springs, 199 U. 8. 473; Louisville and N. R.,Co. v. Mottley,

219 U. S. 467; Stephenson v. Binford, 287 U. S. 251; Home

Building and Loan Association v. Blaisdell; 290 U. S. 398 ;

and Bowles _v. Willingham, 321 U._S. 503. Having: such

sovereign powers, it is submitted, that private contracts

cannot destroy these powers, Highland v. Russell Car and

Snow Plow Company, 279 U. S. 253; Norman v. Baltimore

& O. R. Co., 294 U. 8.240; Scott Paper Co. v. Marcalus

Mfg. Co., et al, Docket No. 54, decided November 13, 1945, —

326 U.S , 90 L. Ed. 88.

_ Since Congteie under its war powér. can kere or abro-

gate the patent grant itself, and as a cig of fact did

_ modify it in 1910 and 1918 as shown by the Act-of June 25,

1910, C. 423, 36 Stat. 851 as-amended July 1, 1918, C. 114,’

40 Stat. 705, 35 U. S.C. See. 68, it has the: power to regu-

late contracts based on such patent rights as provided by

the Act of October 31, 1942 (56 Stat. 1013, 35 Y. S. C. Supp.

ITI $s 89-96) where such contracts have the effect of ‘im-

peding the war effort, for example by increasing costs, to

the same extent 9s it has the power to regulate contract

prices relating to other property in such circumstances

Block v. Hirsch, 232 U. S. 261; Highland v. Russell-Car and ~

Snow Plow Company, 279 U.S, 253.

~The fact that the Royalty Adjustment Act has a pein.

_ tive effect does not cause the Act to be unconstitutional and

- beyond the power of Congress, Billings v. United States, 232

_.U. 8. 261.

‘10.

{I.

Assuming -arguendo that exercise of. the Government’s _

reserved Constitutional war powers in the manner provided -

by the Royalty Adjustment Act ig unconstitutional insofar —

as it affects a-contractor’s right to money accrued and pay-

able prior to the effective date of the Act, it-is submitted

that the Act becomes a part of the contract on the effective

date of the Act and is constitutional insofar as it affects |

royalties accruing after the effective date of the Act. It is

immaterial that the official application of the Act and the

extent to which a contracting party's rights are affected

is: provisionally determined by; subsequent issuance of an

administrative notice, such as the notice of December 30,

1942 (R. 106-107), or an administrative order, such as Roy-

alty Adjustment Order W-3 (R. 93-96) since such notice or

_ order is no different in principle from a provision of aD

Act Which effects a retroactive result and was upheld i in

Billings v. United States, 232 U. S. 261.”

\

Hi. \.

(a) Irrespective of its retroacitve aspects,- the Royalty

‘Adjustment Act of October 31, 1942 (56 Stat. 1013, 35.U.S:

-C. Supp. III, § 90) affords.a licensor fair and just compen-

sation for the Government’s. use of his licensed invention.

It, therefore, is submitted that it is imuaterial whether the

Royalty Adjustment Act be considered ‘a taking of the in-

‘vention or impairment or taking of the license contract,

for the Act itself’ gives a-licensor of a pa ent the right to

- sue in the Court of Claimis for “‘fair and j just compensation

to the licensor for the manufacture, use, sa , or other dis-

position of the licensed invéntion* for the United States

taking into account the conditions of wartime’ production. és

Act of October 31, 1942, Sec, 2, 36 Stat. 1013,:35 U.'S. C.,

Supp IIT, § 90. This specification of “‘licensed/ invention

we submit, shows*that Congress intended to place the WV:

f

_ © Emphasis ours. , Seren oon /

ill ee ys ee

ernment in the same » position to purchase in devices

from licensees under patents as it was to purchase from —

others under the Act of June 25, 1910, C. 423, 36 Stat. 851

as amended July 1, 1918, C. 114, 40. Stat. 705, 35 U. 8. ris :

Sec. 68. .

The fact that the: Royalty “Adjustment Act specifically

gives the Government the right to attack validity is of no

consequence since the public interest here involved was -

- sufficient to entitle the licensee to such defense, Scott. ‘Paper

Co. v. Marcalus Mfg. Co. et al., ‘Docket No. 54, decided No-.

__-vernber 13, 1945, 326 U. S. , 90 L. Ed. 88. The further

fact that full compensation cxiniot be. secured except by

Court action subsequent to the exercise of the Government’

sovereign rights is likewise immaterial since the Constita-

tion merely requires a judicial review even where the neces-

city of compensation exists, Crozier y. Krupp, 224 U. 8.

' 290; Yakus v. United States, 321 U.S. 414.

(b) \Even though the Act of October 31, 1942 (56 Stat. ©

1013, 34 U. S. C, Supp. ITI, §§°89-96) effects a taking of the

contract or an invention under the sovereign power, the

- Aet is constitutional since it provides the licensor fair‘and

just compensation i in view, of the lack of an. effective estop-

pel as to validity, Scott Paper Co. ¥. Marcalus Mfg-Co.,

et dt., Docket No. 54, décided November 13, 1945, 326 U. S.

—-, 90 L. Ku. 88, and gives the licensor the exact equiva-

lent of what is taken, namely a right. of action for manu-

facture and use of the licensed invention, Richmond Screw

Anchor Co. v. United States, 275 U.S. 331. |

os

! _ the date of approval of the Act.

‘Royalty Adjustment Act.

7 12

, ,

‘ ARGUMENT. )

‘Point 1. The Royalty Adjustment Act is Constitutional

as applied to royalties due from Respondent Tke Timken.

Detroit Axle Company to Petitioner for patented devices

manufactured, sold and delivered to the Government before

»

._ The title of: the. Act of October 31, 1942 (56 Stat. 1013, °

35 U. S. C: Supp. IIT, § 90) is «An Act to provide for ad-_

justing royalties for the use of inventions for the. benefit

an the United States, in aid of the prosecution of: the war, .

and for other. purposes.’” At the outset of the enacting

' portion of the Act,.the purpose is stated to be to aid in the .

successful prosecution of the war. Section 2 provides that

' conditions of wartime production shall be taken into ac-

- count by the Court of Claims in determining what royalties’

shall constitute fair and just compensation. ‘Section 7 pro-

= ‘vides, in effect, that the Act shall remain in force only. dur-

ing continuance of the jpresent war and for’ six months

after its termination. It thus seems very ciear that, the

t.is a temporary war measure. + |

The transfer cases on which royalties are sought by peti-

- tioner-are all military’ equipinent, which prior to the pas-

age of the: Act involved had been purchased for military "

use by the. Government iif contemplation of, preparation °

_ for, and military use during-the War.

The patent in suit was granted pursuant to Revised Stat.

4893, Act of July 8, 1870, C. 230, § 31, 26 Stat. 202, 35 U.S. -

C. Sec. 36 and Revised Stat. 4884, Act of July 8, 1870, C.

230, § 22, 16 Stat. 201, 35 U. S. C. See: 40. Under these —

statutes the patentee acquires the exclusive right to make, |

tise and sell the alleged invention ‘or discovery of his pat-

ent subject, -we submit,-to the Government’s right to have

_. his invention or discovery manufactured or used by or for

the United States as provided by the Act of June 25, 1910,

C. 423, 36 Stat. 851 as amended July 1, 1918, C. 114, 40 Stat.

_ 705, 35 U.S. C. See. 68 and subject to the constitutional

13

power of the Government under Article 1, Sec. 8 of the

. Constitution providing for waging war. That private prop-:

-° erty and private rights are subject to: the war powers of

Congress, was definitely decided by this Court in the case

_ of Block v. Hirsth, 256 U. S. 135, wherein Mr. Justice

Holmes in upholding the rent control Act. of October: 22,

1919, Chap. 80, Title 2, § 109 against the contention that

rental contracts relating to land were not clothed with a’

public interest and therefore not subject to control under :

/ a valid exercise of the war powers said (page 155): .

“The geveral proposition to. be maiftained is that

_ circumstances have clothed the letting, of buildings in

thé District of Columbia with a public/interest so great... _

as to justify regulation by law. Plainly, circumstances —

may so change in time or so differ in space as to clothe

- with such an interest what at other times or in other -

A 8 would be a matter of purely private concern.

__Itis enough to refer to the decisions as to insurance,

‘in German Alliance Ins. Co: v. Lewis, 293 U. 8: 389,

08 L. Ed. 1011, L:.R..A. 1915 C, 1189, 34-Sup.: Ct: Rep.

612; irrigation, in Clark v. Nash, 198 U. S. 361, 49 L.

Ed. 1083, 25 Sup. Ct. Rep. 676, 4 Ann. Cas, 1171; and

minipg, in Strickley v. Highland Boy Gold Min. Co.,

200 ¥§ S. 527, 50 L. Ed. 581, 26 Sup. Ct. Rep. 301, 4

. Ann.eWas. 1174.. They sufficiently illustrate what

‘ hardy, would be denied. They illustrate also that the

use &y\ the public generally of each specific thing

affectegl cannot be made the test of public interest (Mt.

Vern Yoodberry Cotton Duck Co. v. Alabama Inter-

state hewer Co., 240 U. S. 30, 32, 60.L. Ed. 507, 511,

36 Sup\p't. Rep. 234), and that the public interést may

extend to the use of land. They dispel the notion that

what in its immediate aspect may be only a private

transaction may not be raised by its class or character

to a public affair. See also Noble State Bank v.

Haskell, 219 U. 8. 104, 110, 111, 55 L. Ed. 112, 116, 117,

32 L. R. A. (N. 8.) 1062, 31 Sup. Ct. Rep. 186, Ann. Cas.”

1912 A, 487. sae :

| *** * * Under the police power the right to erect

buildings in a certain quarter of a city may be-limited

to from 80 to 100 feet. Welch v.’’ (156) ‘‘Swasey, 214

U.S. 91, 53 L. Ed. 923, 29 Sup. Ct. Rep. 567: Safe

14°

pillars may be required in coal mines. Plymouth Coal

Co. v. Pennsylvania, 232 U. 8S. 531, 58 L. Ed, 713, 34

Sup. Ct..Rep. 359. Billboards im-cities- may_be reg-

istered. St. Louis Poster Advertising Co. v. St. Louis, .

. 249 U.S. 269, 63 L. Ed. 599, 39 Sup. Ct. Rep. 274.

Watersheds in the country may be kept clear. Perley

v. North Carolina, 249 U. 8. 511, 63 L. Ed. 735, 39 Sup.

Ct. Rep. 357. These cases are enough to establish that .

ih vabtle exigency will justify the legislature in re-

stricting property rights in land to a certain extent

without compensation. But if, to answer one need, the

legislature may limit height, to answer another it may

limit rent. We do not perceive any reason for denying

the justification held good in the foregoing cases -to a

law. limiting the property rights now in question if the

' public exigency requires that. The reasons are of a —

‘different nature, but they certainly are not less press-

ing. Congress has stated the unquestionable embarrass-

ment of government and danger to the public health in

- the existing conditions of things. The space in Wash-

ington is necessarily moriopolized in comparatively

‘few harids, and letting portions of it is as much a busi-

ness as any other. .Housing.is a necessary of life. All

- the elements of a public interest justifying some degree

of public control are present. The only matter that

‘seems to us open to debate is whether the statute goes

too far. | n

ie , ‘ AL

(157) ‘‘Machinery is provided to secure to the land-

lord a reasonable rent. § 106. It may be assumed that

the interpretation of ‘reasonable’ will deprive him, in

art, at least, of the power of profiting by the sudden

influx of people to Washington, caused by the needs of

governmeni and the war, and thus of a right usually

incident to fortunately situated property,—of a part

of the value of his property as defined in International

Harvester. Co. v. Kentucky, 234 U. S. 222-58 L. Ed.

1287, 35 Sup. Ct. Rep. 853; Southern R. Co. v. Green,

216 U. S. 490, 414, 54 L. Ed. 536, 540; 30 Sup. Ct. Rep.

287, 17 Ann. Cas. 1247. But while it is unjust to pur-

-sue such profits from a national misfortune. with

sweeping denunciations, the policy of restricting them:

has n embodied in taxation and is accepted. It

, goes little if at all farther than the restriction put upon

15

the rights of the owner of money by the more debatable

usury laws. * * * . f

(158) ‘Assuming that the end in view otherwise

justified the means adopted by Congress, we have. no

concern, of course, with. the question whether those

ineans were the wisest, whether they nfay not cost more

than they come to, or will effect the result desired. It

is enough that we are not warranted in saying that

legislation that has been resorted to for the same pur--

pose all over the world is futile, or has no reasonable

relation to the relief sought. Chicago B. & Q. R: Co.

v. MeGuire, 219 U. S. 549, 569, 55 L. Ed. 328, 339, 31

Sup. Ct. Rep. 259.’’

Similar legislation under war powers was also upheld in

the ease of Highland v. Russell Car and Snow Plow Com-

pany, 279, U.S, 253 where the right of Congress to regulate

the price of coal under the Lever Act approved August 10,

1917, Chap. 53, 40 Stat. at L. 276, 284 was upheld against

an attack that it was unconstitutional as an impairment of

a contract and repugnant to the due. process. clause of thé

Federal Constitution. In this case Mr. Justice Butler

“peaking for the Court said, page 261: Ba

‘*It is everywhere recognized that the freedom of

the people to enter into and carry out contracts in re-

spect of. their property and private affairs is a matter

of great public concern and that such liberty may not

lightly be impaired. Steele v. Drummond, 275 U. S. 199,

209, 72 L. Ed. 238, 240, 48 Sup. Ct. Rep. 53. Generally

speaking that right is protected by the due process ¥

clause of the 5th and 14th amendments. * * * It is |

also well established by the decisions of this Court that

such liberty is not absolute or universal, and that

Congress may regulate the making and performance

of such contracts whenever reasonab] necessary to

effect any of the great purposes for which the national

(iovernment was created. * * * :

‘Under the Constitution, and subject to the safe-

guards there set for the protection of life, liberty and

property, ° ° * the Congress and the President exert -

the war power of the nation, and they have wide dis-

cretion as to the means to be employed successfully

\ 16

to carry on. (Miller v. Robertson, 266 U. S. 243, 248,

_ 69 L. Ed. 265, 270, 45 Sup. Ct. Rep. 73; United States

v. Chemical Foundation, 272 U.S. 1, 10, 71 L. Ed. 131,

140, 47 Sup. C't. Rep. 1). The measures here challenged |

are supported by a strong presumption of validity,

and they may not be set-aside unle’s clearly shown: to

be arbitrary and repugnant to the constitution. Adkins ,

‘y. Children’s Hospital, supra, 544, (67 L. Ed. 790, 24

“A. .L. R. 1238, 43 Sup. Ct. Rep. 394). * * *The fixing ©

of just prices was calculated to serve the convenience

- of producers and dealers as well as of consumers of -

coal needed to carry on the war. As it does not appear

that plaintiff would have been entitled to more if his

coal had beén requisitioned, the act and orders will be. .

deemed ‘to have deprived him only of the right or

opportunity by negotiation to obtain more than his

coal was worth. Such an exaction would have increased

the cost of the snowplows and other railroad equip-

ment being manufactured by the defendant and there-

_ fore would have been directly opposed to the interest

of the government. As applied to the coal in question, |

the statute and executive orders were not so clearly

‘unreasonable and arbitrary as to require them to be

held repugnant to the due process. clause of the 5th

Amendment.’’ irs 3 ;

These decisions and their reasoning, we submit, apply

equally as well to the license rights under patents sought |

to be regulated by the Act.of October 31, 1942 here under

‘consideration and establish the dominance of the sovereign

war powers over private contract rights of: the citizens.

Similar dominance of sovereign powers of Government

over. private rights has been repeatedly recognized by this

- Court in The Charles River Bridge v.. The Warren Bridge

et al, 11 Peters 420; Manigault v. Springs, 199 U. 8. 473;

The Union Bridge Co. v. United States, 204 U. S. 364;

Louisville and N. R. Co. v. Mottley, 219 U. 8. 467; Stephen-

son v. Binford, 287 U.S. 251; Home Building & Loan Assoc.

v. Blaisdell et al, 290-U. S. 398; Wood v. Lovett, 313 U. S.

362 and Bowles v, Willingham, 321 U. S.-503..

Since private rights: of all kinds, ineluding contract

rights, are subject.to the sovereign powers of the Govern-

at

ao

17

ment, the right of exercise of the constitutional war powers

in derogation of private patent rights we submit cannot

now be.seriously questioned. For Congress, under its war

power, regulated patent rights in 1910 and 1918 as shown

by the Act of June 25, 1910,.C. 423, 36 Stat. 851 as amended

July 1, 1918, C. 114, 40 Stat. 705, 35 U. 8S. C. Sec. 68. If

Congress Can regulate the patent grant itself and other con-

tract nights, we submit it has the power to regulate con-

tracts based on patent rights in thé manner provided by

the Act of October 31, 1942 (66 Stat. 1013, 35 U. S. C. Supp..

3 Sections 89 to 96) whére such contracts have the effect of

, iupeding the war effort, for example by increasing. costs,

fo the same extent as it has the power to regulate costs re-

lating to other propérty Block v. Hirsch, 256 U.S. 135;

Highland vy. Russell Car and Snow Plow Company, 279 U.S. -

204 and Norman v. Baltimore & Ohio R. R. Co., 294 U.S.

240.

As Mr. Justice Holmes, after finding rent: control proper

under the war powers, aptly. stated in Block v. Hirsch, 206

U. S. 135,. 156,

“The only matter that seems to us open to debate is

whether the statute goes too far.’’

And the sole question suggested by this court for. reargu-

‘ment is whether the Act of October 31, 1942 goes too far

because of its retroactive features. 7

This ‘Court -held that an Act of Congress, otherwise

proper, is not rendered unconstitutional or beyond the

power of Congress merely because of its retroactive effect

in Billings v. United States, 232 U. S. 261. In this case Mr.

Chief Justice White in construing Section 37' of the Tariff

Act of August 5, 1909 which became effective on August 6,

1909 and provided an annual use’ tax on. foreign built |

pleasure yachts operated. by American owners or char-'

terers upheld the act against the contention that the act

was unconstitutional insofar as it required a tax to be paid

on September 1, 1909 for the es year’s use > saying,

page 282: ' .

18

“e* * * Again let it be conceded that the causing the

tax for the annual period to become due in September,

1909, is to give it in some respects a retroactive effect,

such concession does not cause the act to be beyond

the power of Congress’ under the Constitution to

adopt. Flint v. Stone Traey Co., 220 U. S. 107, 55 L.

Kd? 389, 31 Sup. Ct. Rep. 342; Ann. Cas. 1912 B, 1312,

and authorities there cited. While the rule is that

statutes should be so construéd as to prevent them

from operating retrvactively, that: principle is one of

construction, and not of reconstruction, and therefore

does not authorize a judicial reenactment hy interpre-

tation of a statute to save it from producing a retro-

active. effect.’’ 3

A similar ruling as to retroactive effects of Congressional

_ legislation under the sovereign powers was made in

Norman vy, Baltimore & Ohio R. R. Co., 294 U. 8. 240

wherein Mr. Chief Justice Hughes in upholding the con-

stitutionality of the Joint Resolution of the Congress, of

June 5, 1933 (48 Stat. at L. 112) with respect to the ‘‘gold ©

clauses’’ of private contracts against the attack that it con-

stituted an impairment of a contact, in particular the pro-

visions for payment by reducing the value of the payments,

said pages 304 and 305; ; '

‘‘*Dealing with the specific question as to the effect

of the legal tender acts upon contracts made before

their passage, that is, those for the payment of money

generally, the Court, in the legal tender cases, recog-

nized the possible consequences of such enactments in

frustrating the expected performance of contracts,—in

rendering them ‘fruitless or partially fruitless’. . The

Court pointed out’? (305) “‘that the exercise of the

powers of Congress may affect ‘apparent obligations’

of contracts in4many ways. The Congress may pass

bankruptey acts. ‘The Congress may declare war, or, .

even in peace, pass non-intercourse acts, or direct ‘an

enibargo, which may operate seriously. upon existing »

contracts. And the Court reasoned that if the legal

tender acts ‘were justly chargeable with impairing con-

tract obligations, they would not, for that reason, be

19

forbidden unless a different rule is to be applied to

them from that which has hitherto prevailed in the con-

"struction of other powers granted by the fundamental

law.” The conclusion was that contracts must be un-

derstood as having been made in reference to the pos-

sible exercise of the rightful authority of the Govern-

ment, and that no obligation of a contract ‘can extend

to the defeat’ of that authority. Legal Tender Cases

(Knox v. Lee) supra (12 Wall. pp. 549-551, 20 L. Ed.

311, 312).°° | : .

(306) “The question of the validity of the Joint Res-

olution of June 5, 1933, must be determined in the light —

of these settled principles.’’.

We submit the Act of October 31, 1942 at Sec. 7 shows a

clear intent-to have the Act“apply to supplies, equipment

or materials already delivered to the Government if. the

royalty has not been paid when it says:

‘“ * * * This. Act shall also apply to all royalties

charged or chargeable directly or indirectly to the

United States for supplies, equipment, or materials

already delivered to.or for the Government which

royalties have not been paid to the licensor prior to

the effective date of the notice provided in section 1

mereen. *.7->: |

_ Applying the doctrine of construction rather than recon-

struction announced in the Billings case quoted above or

the reasoning of. the Norman case, it is submitted that a

holding of unconstitutionality of this Act would amount to

the ** judicial re-enactment’’ condemned by Mr. Chief Jus-

tice White. We submit such a holding is unnecessary here

if Mr. Justice Holmes’ reasoning in- Block v. Hirsch, 256

U.S. 135; Mr. Justice Butler's reasoning in Highland v.

‘Russell Car and Snow Plow Company, 279 U. 8. 253 and

Mr. Chief Justice Holines’ reasoning in Norman v, Balti- |

more & Ohio R. R. Co., 294 U.S. 240 is applied in the light —

of this Court's decisions in The Charles River Bridge v.

The Warren Bridge et al., 11 Peters 420; Home Building &

20

* Loan Assoc. ¥. Blaisdell et al., 290 U. S. 398; and Wood v..

Lovett, 313 U. S. 362 since the licensor’s patent rights are

and always have been subject to the exercise of the sov-

ereign powers of the Government which cannot be defeated

by the obligation of a private contract, Norman v. Balti-

more and Ohio R. R. Co., 294 U. S. 240; nor by a private °

estoppel, Scott Paper Co. v.:Marcalus Mfg. Co., et al.,

Docket No. 54, decided November 13, 1945, 326 U. 8S. —,

90 L. Ed. 88. ‘In Norman v. Baltimore & Ohio Mr. Chief

Justice Holmes stated at page 305: bf.

‘ce * * The conclusion was that contracts must be

understood as having been made in reference to pos-

sible exercise of the rightful authority of the Govern-

ment, and that no obligation of a contract ‘can extend

to the defeat’ of that authority. Legal Tender Cases,

(Knox v. Lee) supra (12 Wall. pp. 549-551, 20 L. Ed.

‘312).”’ : :

In Scott Paper Co. v. Marcalys Mfg. Co., et al., Docket

~ No. 54, decided November 13, 1945, 326 U. S, ——, 90 L. Ed. -

-88, involving patent rights Mr. Chief Justice Stone upheld

a public interest unsupported by the sovereign power

' against the.claim of the patent owner that his private right

was such.as to require a judgment for money in his: favor

saying: | Sten

| ‘Tf a manufacturér or user could restrict ‘himself,’

. by express contract, or by any action which would give

rise to an ‘estoppel,’ from using the invention of an

expired patent; he would deprive himself and the con-

suming public of the advantage to he derived from his —

free use of the disclosures. The public has invested

in such free use by the grant of a monopoly to the pat-

entee for a limited time. Hence any attempted reser-. .

vation or continuation in the patentee or those clain-

ing under him of the patent monopoly, after the patent

expires, whatever the legal device employed, runs coun-

ter to the policy and purpose of the patent laws. And ©

for the same reason a stranger, such as respondent —

Marcalus, cannot, by securing and assigning a patent

on the invention of the expired Inman patent, confer

21

on petitioner any right to deprive the public of the

. benefits ‘of the free use of the invention for which ‘the

public has paid by the grant of a limited monopoly.”

Certainly if this public interest standing alone is suffi-

cient to deny to a patent owner all compensation for his»

alleged invention or discovery, assertion of the publie in-

terest in prosecuting the war at reasonable cost through

exercise of the powers of the Federat Government under a

Congressional Act limiting a private right to recover mone-

tary compensation under a patent license agreement to ac-

tion against the Government is constitutional. And merely

because Congress in its discretion intended the Act of Octo-

_ ber 31, 1942 to have a retroactive effect for'the purpose of

preventing unjust enrichment of private individuals due to

preparation for, and the necessities of war, does not render

the Act unconstitutional or beyond the powrt of Congress.

Point II. The Royalty Adjustment Act is Constitutional

as applied to royalties due from Respondent ‘The Timken-

Detroit Axle Company to Petitioner for patented devices

- manufactured, sold and delivered to the Government before

™ promulgation of the Departmental Royalty Order.

. Assuming arguendo that the Act of October 31, 1942 goes

too far in attaching to unpaid royalties on patented devices

‘manufactured, sold and delivered to the Government prior

to the date of the Act, it is respectfully submitted that Pe-

titioner, Alma Motor Company, had constructive notice of

' the Royalty Adjustment Act of October 31, 1942 ( 66 Stat.

1013, 35 U. S. C. Supp. 3, Sections 89-96) from its effective

October 31, 1942, and of the possible application of

this Act to any unpaid royalties accruing to it as a result

of the manufacture, sale; and use of the: patented devices

subsequent to the date of the Act. The fact that the ad-

ministrative notice of December, 30, 1942 and administra-

tive order W-3 of July 29, 1942 were issued to officially

apply the Act to the specific matter here under considera-

tion, and to determine the reduction to be provisionally

4

22

made i in the royalties stipulated in the license is immaterial

since the Act itself, not the notice or thé order, effects the

reaching back or retroactivity. It is respectfully submitted

that if a Fedéral act imposing a tax on the use of a yacht

and having ati effective date. of August 6, 1909 can consti-

tutionally iripose a use tax extending back to September 2,

1908. as approved in’ thé case of Billings v. United States;

232 U. S. 261 quoted above, the retroactive aispects of this -

Act, brought into force by issuance of the notice of Decem-

ber 30, 1942, ‘and the administrative Order W-3 do not ren-

der the Act unconstitutional insofar as it/affects royalties

accruing on patented devices manufactured, sold and de-

_ livered to the Government before the promulgation ‘of the

administrative: notice and order, but after enactment of

the Act. | 3

Accordingly, it is respectfully submitted that a strict in-

terpretation of the Act of October 31, 1942 and its applica-

tion to royalties accruing on patented devices manufac-

tured, sold and delivered to the Government before. pro-

mulgation of the administrative royalty adjustment order

does not constitute an unconstitutional exercise of the Gov-

ernment’ 8 war powers,

Point III. ‘Section 2 of the Royalty hateinaatin Act au-

thorizing a suit-to be brought in the Court of Claims or in

a District Court saves to Petitioner a right to recover in

such a suit a sum equal to the royalties stipulated to be paid

under its contract with the Respondent The Timken-Detroit

ae pany.

(a) As hereinbefore widesed out, the cases of Block v.

‘Hirsch, 256 U. 8. 135; Norman v. Baltimore & Ohio R. R.

" < Co., 294 U. S. 240; and Highland v. Russell Car and Snow

Plow Co., 279 U. 8. 253 hold that regulation to prevent un-

just enrichment as a result of war conditions, and éxces-

sive-cests of prosecuting the war, by reducing war profits 7

or income from private property are constitutional without -

requiring payment of privately stipulated compensation to

ACerS oe ae :

. e EC “ . ms .

the property owner, And section 2 of the Royalty Adjust-

ment Act in providing that a dissatisfied or aggrieved li-

censor ; wry

at ee

may institute suit against the United States in

the Court of Claims, or in the District Courts of the

: United States insofar as such courts may have con-

’ current jurisdiction with the Court of Claims, to re-

cover such sum, if any, as, when added to the royalties -

fixed and spegified in such order, shall constitute fair

and just compensation to the licensor for the manufac-

_ ture, use, sale, or other disposition of the licensed in-

vention® for the Uttited States, taking into account the

conditions of Wartime production. In any -such suit.

the, United States may avail itself of any and all d

' fenseg, general or special, that might be pleaded by a ©

_« defendant in an action for infringement as set forth in|

title sixty of the Revised Statutes, ‘or_otherwise.’’

goes as far as is required constitutionally. y

"In the usesof the term *‘licénsed invention’’ rather than

“‘invention’’ Congress had in mind the Act of June 25,1910, -

C; 423, 36 Stat. 851 as amended July 1, 1918,-C. 114, 40 Stat.

705, 35 U. S. C. Section 68 which provides for the use of _ .

any patented device by the “Government and for the recov-

ery of fair compensation for.such use by action in the Court

of Claims. Prompt and speedy fulfillment of the Govern-

uient’s needs for war preparation and prosecution made it

necessary. for the Government to calt upon licensees who

were in production on patented war equipment for quan-

tities of licensed equipment vastly in excess of anything . °

contemplated when their license agreements with their

peacetime royalties were negotiated. Congress, recogniz-

ing these facts, and because time did not permit proceeding

with unlicensed manufacturers under said 1910 Act, as

amended in 1918, passed the Royalty Adjustment Art to

reduce the royalties accruing to the licensors under ‘such

conditions to fair and just sums, and to place at least the

ete 6

* Emphasis ours.

&

24

licensed manufacturers on the same footi g as if they were

unlicensed and. manufacturing for the Government under

'o the Act of 1910 as amended in 1918 comniéncing. from the’

> * the Court of Claims or the Distri

‘time that royalties remained unpaid when the Royalty Ad-

_justment Act was invoked. ~ 4 5

To accomplish this end it providéd a. right of action in

| Courts to detertnine

-- fair and just compensation for the nanufacture,/ use, sale

or other disposition of the licensed inventions, ‘purchased,

from licensees who were equipped t) produce the patented

inventions. Provision of this right of action in Section 2

’ . of the Royalty Adjustment Act secufed theAic ‘ensor against

unfair, unjust, and arbitrary dest uetion or modification |

of the stipulated royalty rate by a ministrative order and

secires to the licensor a right of suit for the full stipulated

royalty rates deemed. fair and just ;and Congress intended:

the Courts in such actions to awatd up to the stipulated —

royalty rates under said Section 2.) . :

We submit that the hearings onyH. R. 7620 before the:

Committee on Patents of the Hobse of Representatives

clearly indicate that such was the intention of the propon-

ents of the Royalty Adjustment Adt and of the Congress.

, The, fact that full compensation |may not be obtainable

except ‘by ‘Court action subsequent; to' the exercise of the -

‘Government’ s sovereign rights is in material, since the pro-

vision for ‘subsequent judicial review is all that the Consti-

tution requires even where the sc word of compensation

exists, Crozier v. Krupp, 224 U. 8.}290. In this case, Mr.

Chief Justice White held that the a termination of reason-

able compensation relating to a patent could be left for the

’ future saying at page 306: BS:

««* * * Indisputably the. duty to make compensation

does not inflexibly, in the absence of constitutional pro-

visions requiring it, exact, first, that compensation :

should be made previous to the taking—that i is, that the

amount should be ascertained and paid in advance of

_ the appropriation—it being sufficient, having relation

to the nature and character of he property taken, that -

| & :

adequate means be provided for a inssseiile just and

: prompt ascertainment and payment of the compensa-

tion; second, that, again always having reference to the

nature -and character of the property taken, its value

and the surrounding cireumstances, the duty. to pro-

vide for payment of ompensation may be adequately Ae

fulfilled by an assumption on the part of government

of the duty to make prompt payment of the ascertained

‘compensation—that is, by the pledge, either expressly

or by necessary implication, of the public good faith to

that end.”’ .

: - ‘87

F urther une for this proposition is found in the case

of Yakus v. United States, 321 U.S. 414, in which. Mr. Chief

. Justice Stone in upholding the Emergehcy Price Control

Act of January 30, 1942, 56 Stat. 23, ¢. 26, 50 U. S. C. Appx.

Supp. If $$ 901 et seq., 11 FCA Title 50, Appx. 25, §§ 1 et

seq., as amended by the Inflation Control Act of October 2,

1942, 56 Stat. 765, e. 578, 50 USC. Appx. Supp. II, §§ 961 ee

sety., 11 FCA Title 50, Appx. 43, $$ 1 et seq., = page 442:

“Our decisions leave no doubt that when

ize- suunmary action subject to later judicial review of

its validity.” It may insist on the immediate collection .

of taxes. Phillips v. Commissioner of Internal Reve-

* nue, 283 U.S. 589, 595-597, 75. L.Ed. 1289, 1296-1298,

51 8. Ct. 608, and cases cited.” It may take possession:

_of property presumptively abandoned by its owner,

prior to determination of its actual. abandonment, An-

derson Nat. Bank v. Luckett No. 154, decided February.

28, 1944 (321-U. S. 233, ante 692, 648. Ct. 599, 151 ALR.

824), For the protection of public health it may order

the sunimary' destruction of property, without prior

‘notice or hearing. North American Cold Storage Co.

v. Chicago, 211 US 306, 53 L. Ed. 195,29 S. Ct. 101, 15

_ Ann. Cas. 276; Adams v. Milwaukee, 228 U. 8. 572, 384,

57 L. Ed. 971, 977, 33 S. Ct. 610. It may summarily re-

quisition property immediately needed for the prosecu-

tion. of the war. Compare United Statek v. Pfitsch,

256 US 547, 65 L ed 1084, 41 S Ct 569. As a measure

of public protection the property of alien enemies may

be seized, and: property believ ed to be owned by ene-

a

\

ae justified by

‘~.. corhpelling public interest the legislature a author-.

a

mies taken without prior determination 6f its true own-:

ership. Central Union Trust (o. vy. Garvan, 254 US

594, 556, 65 L. Ed. 403, 41S. Ct. 214; Stoehr v. Wallaee, -

200 8. Ct. 239, 245, 6.L. Ed. 604, 612,898. Ct. 293. Simi-

> larfy public necessity in time.of war may justify allow-

ing tenants to-remain in possession against the will of

the landlord, Block v. Hirsch, 256 US 185, 65 Lo Ed..

- 865, 41 S.Ct. 458, 16 ALR 165; Marcus Brown Holding -

Co. v.. Feldman, ‘256 US 170, 65 L. Ed. 877, 41 S. Ct.

465. Even the personal liberty of the -citizen may be

~ “temporarily restrained as a measure.of public -safety.

Hirabayashi v. United States, 320 US 81, 87 L. Ed. 1774,

_ 63.8. Ct. 1375,. supra; ef. Jacobson v. Massachusetts,

197 US 11, 49 L. Ed. 643, 25 S. 455 358, 3 Ann. Cas. 765..

Measured by these standards we’ find no denial of due

process under the.cireumstances in which this Act was

-. adopted and must be applied, in its denial of any judi-

| oa stay pending determination of a regulation’s va

idity.”’ G

We, therefore, submit that it is immaterial] whether the.”

| ex “Act of October 31, 1942 be deemed an exercise of the re-:

Served Constitutional powers of the Federal Government, |

a taking of a contract: under eminent domain in the exercise

of the war powers, or. the taking or appropriation of a pat-

ented invention under eminent’ domain in the exercise of

the war powers, for full and complete compensation is pro-

vided by.the act. = Sane

‘Furthermore the fact that the Act gives the Government, _

the right to attack validity does not affect the constitution-

~ ality of the: Act since the right to attack validity was in fact

nyailable to respondent as decided by this Court in, the ease

of Scott Paper Co. v. Marcalus Mfg. Co., et al, Docket No.

54, decided November 13, 1945, 326 U.S.. -, 90 L.. Ed. 88,

as particularly set forth in the hereinbefore «quoted section -

of this-ease.” This Court’s decision in Sinclair & Carroll

Company, Ine, v. Interchemical Corporation, 325 U. S. 327

sets-forth the public policy considerations which are in-

. volved in questions of validity of patents and whieh are the —

_ basis of the decision in the Scott Paper Company case.

°

,

: ee Need

_(b) Even assuming that the ‘Act of October 31, 1942 (56

Stat. 1013, 35 U. S. C. Supp. ITI, $$ 89-96) when invoked to |

set a zero royalty as was done here effects a taking of. the

contract or a taking of an invention under the sovereign

power of the Federal Government, the Act is constitutional

since it provides for fair and just compensation for the

tnanufacture, use, sale, or other disposition of the licensed .

invention. That Congress intended the relief provisions of

this Act to give a licensor the exact equivalent of the right”.

of suit.against the licensee seems clear from the- language

itself, since. there is no estoppel against the licenseé attack-

. ing validity, Scott Paper Co. v. Marcalus Mfg. Co., et al,

Docket No. 54, decided November 13, 1945, 326 U. S. —~,

. 90 L. Ed. 88..°The courts, it is submitted, must. presume

this to’be the ease Richmond Screw Anchor Co. v. United i

States, 275 U.S. 331 in which Mr. Chief Justice Taft said, ,

page 331; . ue

‘‘*-* * The intention and purpose of Congress in the

Act of 1918: was to stimulate contractors to furnish:

what was needed for the War, without fear of becom-

ing liable themselves for infringements to inventors or

the owners or assignees of patents. ‘The letter of the

‘ Assistant Secretary of*the Navy, upon which the Act

-of 1918 was passed, leaves no doubt that this was the

occasion for it. To accomplish. this governmental pur:

pose, Congress exercised the power to take away the

. right of the owner of the patent to recover from the

contractor for infringements. This is not a case of a .

mere declared immunity of the Government frony lia-

bility for its own torts. It is an attempt to take away

from a private citizen his lawful claiin for damage “to

his‘ property by another private person whiich but for

this Act he would -have against the private wrongdoer.

' This result, if 3477 Rev. Stats. applies and avoids the

_ assignment, would seém to raise a seriou&question as -

_ to the constitutionality of the Act of 1918 under the

Fifth Amendment to the Federal Constitution. We

must presume that Congress in the passage of the Act

of 1918 intended to secure to the owher of the patent

the exact equivalent of what it was taking away from

him. e® @ @9» : , '

98 -

CONCLUSION.

We submit, therefore, that the Act of October 31,°1942 is

not unconstitutional because of its retroactive application

to-any royalties that might have been due petitioner prior

to the passage of the Act, provides full and complete re-

dress for the Government’s use of the licensed invention ir-

respective of the theory upon which the Act is based, is a

constitutiona) and proper exercise of the sovereign war

powers under the Federal Constitution, and should be up-

held. feats Mya

Respectfully submitted,

WiuuiaM A, Srravcn,

Ae Counsel for Respondent.

J. Marruews Neate, ae

Srravcn & Horrmay,

» Of Counsel for Respondent.

,

29

APPENDIX A.

The Royalty Adjustment Aet of October 31, 1942-(56

Stat. 1013, 35 U. S. C., Supp. III, §§ 89-96) reads as follows:

Be it enacted by the Senate and House of Represen- |

tatives of the United States of America in Congress —

assembled, That, to aid in the successful prosecution

of the War, whenever an invention, whether patented

or unpatented, shall be manufactured, used, sold or

' otherwise disposed of for the United States, with li-

cense from the owner thereof or anyone having the

right to grant licenses thereunder, and such license °

includes provisions for the payment of royalties the

,Tates or amounts of which are believed to be unreason-

able or excessive by the head of the department or -

agency of the Government which has ordered such man-

ufacture, use, sale, or other disposition, the head of

the department or agency of the Government concerned

shall give written notice of such fact to the licensor —

and to the licensee. Within a reasonable time after

the effective date of said notice, in no event less than .

ten days, the head of the department or agency of the:

_ Government concerned, shall by order fix and specify

such rates or amounts of royalties, if any, as he shall |

determine are fair and just, taking into account the .

conditions of wartime production, and shall authorize

_ the payment thereof by the licensee to the licensor on

account of such manufacture, use, sale, or other dispo-

— Provided, however, That the licensee or li-

censor, if he so requests within ten days from and .

iifter the effective date of said notice, may within

thirty days from the date of such request present in

writing or in person any facts or circumstances which

may, in his opinion, have a bearing upon the rates or _

amounts of royalties, if any, to be determined, fixed

and specified as aforesaid, and ye | order fixing and

specifying the rates and amounts o royalties shall be

issued within a reasonable-time after such presenta-

tion. Such licensee shall not after the effective date

of said notice pay to the licensor, nor charge directly —

or indirectly to the United States a royalty, if any, |

in excess of that specified in said order on account of

such manufacture, use, sale, or other disposition. The

30

licensor shall not .have any remedy by way of suit,

set-off, or other legal action against the.licensee for

the payment of any additional royalty remaining un-

paid, or damages for breach of contract or otherwise,

but such licensor’s sole and exclusive remedy, except

as to the recovery of royalties fixed in said order, |

__Shall be as. provided in section 2 hereof. Written .

notice as provided herein shall be mailed to the. last

known address of the licensor and licensee and shall

_be effective upon receipt or five days after the mailing - HW

~ thereof, whichever date is the earlier.

Sec. 2.. Any licensor aggrieved by \any order issued

pursuant to section 1 hereof, fixing and specifying the

maximum rates or amounts of royalties under a license

issued by him, may institute suit against the United :

- States in the Court of Claims, or in the District Courts

of the United States insofar as such courts may have

concurrent jurisdiction with the Court.of Claims, to

recover such sum, if any, as when added to the royal-

ties fixed and specified in such order, shall constitute |

fair and: just compensation to the licensor for the

manufacture, use, sale, or other disposition of the li- .

censed invention for the United States, taking into ac-

count the conditions of wartime production.. In any

such suit the United States may avail itself of any and

_all ‘defenses, general or special, that might -be pleaded

by a defendant in an action for infringement as: set

forth in title sixty of the Revised Statutes, or other-

wise. os

Sec. 3. The head of. any department or agency of

the Government which has ordered the manufacture,

use, sale, or other disposition of an invention, whether

patented or unpatented, and whether or not an order

has been issued in. connection therewith pursuant to

section 1 hereof, is authorized and empowered to enter

into an agreement, before suit against the United

States has been instituted, with the owner or licensor

of such invention, in full settlenient and compromise

of any claim against the United States accruing to such

owner or licensor under the provisions of this Act or

any other law by reason of such manufacture, use, sale,

or other disposition, and’ for compensation to be paid

31

such owner or licensor based upon future manufacture,

usé, sale, or other disposition of said invention.

Sec. 4. Whenever a reduction in the rates or

amounts of royalties is effected by order, pursuant to

section 1 hereof, or by compromise or settlement, pur-

suant to section 3 hereof, such reduction shal} inure ©

to the benefit of the Government by way, of a corre-

sponding reduction in the contract price to be paid di-

rectly or indirectly for such manufacture, use, sale, or

other disposition of such invention, or by way of re- ©

fund if already paid to the licensee. ae

Sec. 5. The head of thé department or agency of the |

Government concerned is further authorized, in his dis-.

cretion and under such rules and regulations as he may

-prescribe, to delegate and provide for the delegation —

of any power and authority conferred by this Aet to

such qualified and responsible officers, boards, agents,

or persons as he may designate or appoint.

_ Sec. 6. For the purposes of this Act, ‘the.manufac-

ture, use, sale, or other disposition of an invention,

whether patented or unpatented, by a contractor, a sub-

contractor, or any person, firm, or corporation for the

Government and with the authorization -or consent of

the Government shall be construed as manufacture,

use, sale, or other disposition for the United States

and for the purposes of the Act of June 25, 1910, as

amended (40 Stat. 705; 35 U. S. @. 68), the use or —

manufacture of an invention described in and covered

by a patent of the United States by a contractor, a sub-

contractor, or any person, firm, or corporation for the

Government ‘and with the authorization or consent of

the Government, shall be construed as use or manu-

facture for the United States.

Sec. 7. This Act shall apply to all royalties directly

or indirectly charged or chargeable te the United

States for any supplies, equipment, or materials to be

delivered to or for the Government from and after.

the effective date of the notice provided for in section

1 hereof. This Act shall also apply to all royalties

charged or chargeable directly or indirectly to the

United States for supplies, equipment, or materials al-

32

ready delivered to or for the Government which royal-

ties have not been paid to the licensor prior to the ef-

fective date of the notice provided for in section 1

hereof. Sections 1 and 2 of this Act shall remain in

force only during the continuance of the present war

and for six months after the termination thereof, ex-

cept that as to rights acerued or liabilities incurred

prior to termination thereof, the provisions of this

Act shall be treated as remaining in force and effect

for the purpose of settling, sustaining,. qualifying, or —

defeating any suit or claim hereunder.

Sec. 8. The head of each department or agency of

the Government may issue such rules and regulations

and require such information as may~be necessary and

proper to carry out the provisions of this Act. The

provisions of section-10 (1) of an Act approved July

2, 1926 (44 Stat. 787), as amended, and title XIII of

Public Law 507, Seventy-seventh Congress, shall be ap-

plicable to the owner, licensor, or licensee of an inven-

tion, whether patented or unpaténted, manufactured,

used, sold, or otherwise disposed of for the United

States, and the term ‘‘defense contract’’ as used in

said Act shall mean dnd include an agreement for the

payment of royalty, regardless of the date of such

agreement, under or by virtue of which royalty is di-

rectly or indirectly paid by the Government or in-

cluded within the contract price for property. sold to

-or manufactured for the Government.

Sec. 9. Nothing herein contauied shall be deemed to

preclude the applicability of Section 403 of Public Law

528, Seventy-seventh Congress, as the same may be

Q heretofore or hereafter amended so far as the same

may be applicable.

Sec. 10. If any provision of this Act or the appli-

eation of any provision to any person or circumstances

shall be held invalid, or if any provision of this Act

shall be inoperative by its terms, the validity or ap-

plicability of the remainder of the Act t abel not be af.

fected thereby.

APPENDIX B.

- The Act-of June 25, 1910, as amended by the Act of July

1, 1918 (36 Stat. 851, 40 Stat. 705; 35 U: S. C. § 68) reads

as follows: :

Whenever an invention described in and covered by

_ a patent of the United States shall hereafter be used

or manufactured by or for the United States without

license of the owner thereof or lawful right to use or

manufacture the same, such owner’s remedy shall be

by suit against the United States in the Court of Claims

for the recovery of his reasonable and entire compen-

sation for.such use and manufacture: - Provided, how-

ever, That said Court of Claims shall not entertain a

suit or award compensation under the. provisious of -

this Act where the claim for compensation is based on

the use or manufacture by or for the United States

of any article heretofore owned, leased, nsed by, or in

the possession of the United States: Provided further,

That in any such suit the United States may avail it-

self of any and all defenses, general or special, that

might be pleaded by a defendant in an action for in-

. fringement, as set forth in Title Sixty of the Revised

Statutes, or otherwise.

!

34

APPENDIX C.

§36. Same; examination of invention, and issuing of

| patent aah :

On the filing of any such application and the payment

of the fees required by law, the Commissioner of Patents

shall cause an examination to be made of the alleged new

invention or discovery ; and, if on such examination it shall

appear that the claimant is justly entitled to a patent under

the law, and that the same is sufficiently useful and impor-

tant, the commissioner shall issue a patent therefor. R. S.

§ 4893.

§ 40, Same; contents and duration

Every patent shall cantain a short title or description

of the invention or discovery, correctly indicating its na-

ture and design, and a grant -to the’ patentee, his heirs or

assigns, for the term of seventeen years, of the exclusive

right to make, use, and vend the invention or discovery (in-

cluding in the case of a plant patent the exclusive right to

asexually reproduce the plant) throughout the United

States and the Territories thereof, referring to the speci-

- fication for the particulars thereof. A copy of the specifica- _-

tion and drawings shall be annexed to the patent and be a

_part thereof. R.S..§ 4884; May 23, 1930, c. 312, § 1, 46 Stat.

1) uy |

$68. Suit for unlicensed use-of invention by the United

States; compensation for; Government employees

__ Whenever an invention described in and covered: by a pat-

ent of the United States shall be used or manufactured by .

or for the United States without license of the owner thereof

or lawful right to use or manufacture the same, such own-

er’s remedy shall be by suit against the United States in

the Court of Claims for the recovery of his reasonable and

entire compensation for such use and manufacture. The

’ Court of Claims shall not entertain a suit or award com-

pensation under the provisions of this section where the

39

claim for compensation is based, on the use or manufacture

by or for the United States of any article owned, leased,

used by, or in the possession of the United States prior to

June 25, 1910. In any such suit the United States may

avail itself.of any and all defenses, general or special, that

might be pleaded by a defendant in an action for infringe-

ment, as set forth in this chapter, or otherwise. The ben-

efits of the provisions ef this section shall not inure to any

patentee who, when he makes such claim, is in the employ-

ment or service of the Government of the United States,

‘or the assignee of any such patentee. This section shall

not apply to any device discovered or invented by such em- —

ployee during the time of his. employment or-service. June

25, 1910, c. 423, 36 Stat. 851; July 1, 1918, ec. 114, .40 Stat.

705.

°