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Citation: 49 Antitrust L.J. 755 1980

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THE RELATIONSHIP OF PATENT LAW TO


ANTITRUST LAW*
DONALD W.

RUPERT

I. INTRODUCTION
The antitrust laws have been described as "a comprehensive charter of
economic liberty aimed at preserving free and unfettered competition as
the rule of trade."' From this description it can be safely stated that these
laws have evolved to assure freedom from grievous injury to both corporate and individual economic prosperity. However, the "free and unfettered competition" theory underlying the antitrust laws appears, on the
surface at least, to contradict Article 1, Section 8, clause 8 of the United
States Constitution, which gives Congress the power to "promote the
progress of science and useful arts, by securing for limited times to
authors and inventors the exclusive right to their respective writings and
discoveries." (emphasis added). In the patent context the question may,
therefore, be simply posed: Are the fundamental precepts of the antitrust laws at odds with the constitutionally mandated exclusive right given
to inventors to protect their discoveries?
In answering this question, it should be first understood that the "patent laws", 35 U.S.C. 101, et seq., enacted by Congress pursuant to its
constitutional authority, do not give an inventor a monopoly in anything,
notwithstanding the liberal use by numerous courts and commentators of
the term "monopoly" in patent related matters. Indeed, a patent gives the
inventor only the right to exclude others from manufacturing, using, or
selling the patented article for a finite period of time. This exclusivity
should not be construed as a "monopoly" in the antitrust sense. Rather,
"the term 'monopoly' connotes the giving of an exclusive privilege for
buying, selling, working, or using a thing which the public freely enjoyed
prior to the grant. Thus, a 'monopoly' takes something from the people.
An inventor deprives the public of nothing which is qnjoyed before his
*This paper, in large measure, explores the antitrust implications of patent licensing and
technology transfer under United States law. The reader is cautioned, however, that
licensing practices which have been held valid by courts in the United States may not be
appropriate, or legal, in certain foreign countries. The author recommends that before any
license or transfer agreement drafted to comport with United States law is utilized in foreign
countries, the applicable laws of these countries be investigated.
'Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958).

SOURCE MATERIALS

discovery, but gives something of value to the community by adding to the


sum of human knowledge."'
In the context of technological innovations, there are generally three
ways in which an inventor or company may give "something of value to
the community." The first occurs by an absolute and irrevocable dedication of the invention to the public, such as by publishing a scientific paper
which describes, in detail, the invention and thereafter not pursuing
patent rights, or by obtaining a patent and then dedicating that patent to
the public. The second method involves maintaining the invention as a
trade secret but providing to the public the "fruits" of that trade secret. A
prime example of this would be the Coca-Cola soft drink product.
Although the formula has been maintained as a trade secret, the product
made using that formula has been and is enjoyed by many. The third
method of giving something to the public is through the use of the patent
system. Thus, the invention is disclosed to all, may be used by anyone,
subject, of course, to the patent owner's right to exclude others from
manufacturing, using, or selling the patented invention, and may indeed
be improved upon by anyone, subject again to the patent owner's rights in
the underlying patent.
In this latter method of adding to the "sum of human knowledge" many
patent owners choose to rely on well-established contract principles in
order to achieve broad dissemination of the invention while, at the same
time, acquiring a reasonable return on their research and development
efforts. It is in this context in which the patent and antitrust laws overlap,
and it is in this context in which this paper will review what can be done
with a patent and what should be avoided.
As a first step in understanding the patent/antitrust interface, it is
appropriate to briefly review the ex parte administrative procedures, or
prosecution, carried on in the U.S. Patent and Trademark Office.3 To
initiate the patenting process, an inventor files a patent application in the
U.S. Patent and Trademark Office. The application must include certain
specific portions, including an abstract, a written description of the invention, one or more claims, the required filing fee, and a declaration by the
inventor that he believes himself to be the original and sole inventor (or,
in the case of joint inventors, that they believe themselves to be the
'United States v. Dubilier Condenser Corp., 289 U.S. 178,186 (1933). See also Lear, Inc. v.
Adkins, 395 U.S. 653 (1969).
3
While it has been suggested that in the patenting process "patent solicitors" march on
with "an antlike persistency" with "apparently always but one outcome," it should be realized
that patent prosecution is more than merely translating scientific findings into legal prose.
Lyon v. Boh, I F.2d 48, 49-50 (S.D.N.Y. 1924).

PATENT LAW AND ANTITRUST LAW

original and joint inventors) of the claimed subject matter. In certain


instances, the application may also contain drawings in order to clarify the
invention.
At some point in time after filing, the application will be reviewed by a
patent examiner who determines if the described invention meets the
criteria of patentability found in, among others, 35 U.S.C. 102, 103,
and 112. Thus, the examiner will undertake an independent review of the
"prior art" of which he is aware or to which he has access, and he may
reject the application (i.e., refuse to issue the patent) on certain legal
grounds construed in association with the prior art which comes to the
examiner's attention.4 It should also be noted that each patent applicant is
under a duty to disclose to the patent examiner relevant prior art of which
he is aware which may have an impact upon the patentability of the
invention (this duty is sometimes referred to as the "duty of candor" or
the "duty of full disclosure") and failure to fulfill this duty may be grounds
for invalidating the issued patent.5 If there is no prior art which would
preclude the patentability of the invention from a legal standpoint (as
interpreted by the patent examiner), the Patent Officer must grant the
patent. (35 U.S.C. 102.)
II. OVERVIEW-THE PATENT/ANTITRUST INTERFACE
The scope of the patent grant is defined by the allowed "claim" or
"claims" in the issued patent. Any attempt to expand the granted scope or
to use the patent as leverage to take advantage outside the scope of the
grant is referred to as "patent misuse", regardless of whether there is a
substantial lessening of competition or other effects necessary to a finding
of antitrust violation.6 While there are some types of misuse which may
preclude enforcement of the patent but do not rise to the level of an
antitrust violation, for present purposes, patent misuse will be confined to
those types of misuse that will arguably support an antitrust violation,
such as improperly tying the use of a patent under license to the purchase
4
"'Prior art" is a term of art which may be defined as everything that has ever been
invented, discovered or published since the beginning of the world until the time of the
applicant's invention. There are, however, certain legal exceptions to this definition which
are not relevant in the present context. It is generally held that a patent applicant has
constructive knowledge of all prior art to which his invention pertains.
5
See Kayton, Lynch, & Stern, Fraud in Patent Procurement: Genuine & Sham Charges, 43
GEO. WASH. L. REV., 1 (1974) for an informative article on patent "fraud." This "fraud"
occurs in many different contexts (e.g., having knowledge of but failing to disclose relevant
prior art, disclosing selected data showing the merits of the invention while withholding data
that shows the opposite, etc.).
6
Morton Salt Company v. Suppiger Co., 314 U.S. 488 (1942).

SOURCE MATERIALS

of an unpatented item, the use of the patent to control or restrict prices,


etc.7 It is this area which has warranted considerable antitrust attention.
Indeed, in 1969, the Supreme Court considered the distinction between the concept of "patent misuse" and "antitrust violation" and, in
Zenith Radio Corporation v. Hazeltine Research, Inc., 395 U.S. 100, 140,
(1969), stated:
[I]f there was such patent misuse, it does not necessarily follow that
the misuse embodies the ingredients of a violation of either Section 1 or
Section 2 of the Sherman Act, or that Zenith was threatened by a
violation so as to entitle it to an injunction under Section 16 of the
Clayton Act.'
As may be apparent from Hazeltine, three separate questions generally are
presented in connection with patent misuse, viz., (1) whether a patent
misuse occurred, (2) the nature of the misuse, and (3) whether the
misuse constituted an antitrust violation.' It should, however, be borne in
mind that patent misuse, in and of itself, does not invalidate a patent.
Rather, the misuse is an affirmative defense available to prevent enforcement of the patent rights. Thus, if the patentee can show that the misuse
no longer exists (i.e., that the misuse has been "purged"), the patent rights
may again be enforced. 0
A.

AcQUISITION OF PATENT RIGHTS

Patent rights may be acquired in the same manner that tangible property is acquired, for example, by "personal" efforts (i.e., invention, followed by patenting), purchase, gift, exclusive or non-exclusive license,
assignment, etc.
For those individuals or corporations engaged in research and development efforts, the acquisition of a patent by grant as the result of internal
research has without more never been held to violate the antitrust laws.
"The mere accumulation of patents, no matter how many, is not in and of
itself illegal."" However, this statement may not reflect the current state
7

See, e.g., Transitron Electronic Corp. v. Hughes Aircraft Co., 487 F. Supp. 885 (D. Mass.
1980).
8
Citing, among others, Morton Salt Company v. Suppiger, 314 U.S. 448 (1942); and
REPORT OF THE ATTORNEY GENERAL'S NATIONAL COMMITTEE TO STUDY THE ANTITRUST LAWS

254 (1955).
9
Bendix Corp. v. Balax, Inc., 471 F.2d 149, (7th Cir. 1972), cert. denied, 414 U.S. 819
(1973).
'"See, e.g., McCullough Tool Co. v. Well Survey, Inc., 343 F.2d 381 (10th Cir. 1965), cert.
denied, 385 U.S. 990 (1966).
"Automatic Radio Manufacturing Co. v. Hazeltine Research, Inc., 339 U.S. 827, 834
(1950). Accord, United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 333 (D.
Mass. 1953), affd per curiam, 347 U.S. 521 (1954); United States v. Aluminum Co. of
America, 148 F.2d 416, 431 (2d Cir. 1945).

PATENT LAW AND ANTITRUST LAW

of the law. Indeed, the existence of several consent decrees presents


strong indications of a reasonable apprehension that where a company
has amassed a patent portfolio which threatens undue maintenance of
industry domination, even though the patents have been acquired
through internal research, it may be appropriate to require licensing of
those patents in order to develop a competitive structure in that
industry. 12
Furthermore, even though patents have been accumulated through
internal research, certain activities occuring during the prosecution of the
patent may set the stage for a subsequent antitrust violation. Thus, if a
patent has been obtained by intentional fraud on the patent office, this
fact may support a charge that the patentee has violated Section 2 of the
Sherman Act, provided that the other elements of a Section 2 allegation
(including, among others, an analysis of the relevant markets, and an
examination of the exclusionary power of the fraudulently procured
patent claim) are proved. 3 In addition, the assignee of a patent
fraudulently obtained who maintains and enforces the patent with knowledge of its infirmity would appear to be similarly liable under Section 2 of
the Sherman Act. 4 Likewise, if two or more companies conspire to enforce a patent which they know to be invalid, a violation of Section 1 of the
Sherman Act may be found. 5
One of the main concerns in the purchase or license of patent rights
which must be investigated is the position within the relevant market of

"2 United States v. International Business Machines Corp., 1956 Trade Cas. 68,245
(S.D.N.Y. 1956); United States v. Radio Corp. of America, 1958 Trade Cas.
69,164
(S.D.N.Y. 1958)
3
Walker Process and Equipment, Inc., v. Food Machinery and Chemical Corp., 382 U.S.
172 (1965). See also American Cyanamid Co. v. FTC, 363 F.2d 757 (6th Cir. 1966), which
discusses a violation of section 5 of the Federal Trade Commission Act. Significant Developments: Blonder-Tongue Laboratories, Inc. v. Univ. of Ill. Foundation, 422 F.2d 769 (7th
Cir. 1970) remanded on other grounds, 402 U.S. 313 (1971); Chemtronics, Inc. v. Beckman
Instruments, Inc., 428 F.2d 555 (5th Cir. 1970), cert. denied, 439 F.2d 1369 (1970); CarterWallace Inc. v. Riverton Laboratories, Inc., 304 F.Supp. 357 (S.D.N.Y. 1969), affd, 433 F.2d
1034 (2d Cir. 1970); Brown v. Myberg, 314 F. Supp. 939 (S.D.N.Y. 1970); Bendix Corp. v.
Balax, Inc., 421 F.2d 809 (7th Cir.), cert. denied, 166 U.S.P.Q. 65 (1970); Acme Precision
Products, Inc. v. American Alloys Corp., 347 F. Supp. 376 (W.D. Mo. 1972), rev'd on issue of
damages, 484 F.2d 1237 (8th Cir. 1973); SCM Corp, v. Radio Corp. of America, 318 F. Supp.
433 (S.D.N.Y. 1970); Kolene Corp. v. Motor City Metal Treating, Inc., 440 F.2d 77 (6th
Cir.), cert. denied, 404 U.S. 886 (1971).
4
Cf. Walker Process and Equipment, Inc. v. Food Machinery and Chemical Corp., supra
note 13.
5
Cf. United States v. Union Camp Corp., Crim, Act. No. 4558 (E.D. Va., filed November
30, 1967) (indictment charged fraud on the court in maintaining a patent infringement suit
on a patent known to be invalid).

SOURCE MATERIALS

the acquiring company. 6 Thus, acquisition of patents by purchase or by


exclusive license" covering products or methods which can be used in a
specific market by a company holding a dominant position in that market
may be used as evidence of monopolization or attempted monopolization
under Section 2 of the Sherman Act. However, there would seem to be a
lesser degree of liability if the patent rights are obtained through nonexclusive licenses under similar circumstances."
In addition to purchase and license, patent rights may be acquired (and
accumulated) through the use of patent grantbacks or assignment of
improvement patents. In the typical grantback situation, a patentee
licenses his patent and the licensee agrees to assign to the patentee all
inventions made, for example, during the term of the license. The improvement patent assignment provision is similar to a grantback except
that it is narrower in scope, i.e., the licensee may be required only to assign
those patents which improve upon the original patent under which the
licensee is permitted to practice. Of obvious importance in either situation
is the scope of the grantback provision. Thus, if Company A grants to
Company B a license to manufacture incandescent light bulbs under
Company A's patent, it may be a patent misuse and a violation of the
antitrust laws if Company B is required to grant back to Company A
patents related to other types of illumination devices which were invented
by Company B during the term of the license. 9 A grantback provision
requiring assignment of only improvement patents is less objectionable,
and a provision merely granting back a non-exclusive license under
improvement patents with a reasonable royalty going to the improvement
patentee would generally be considered to be valid. 0
6
1t should also be noted that acquisition of patents by purchase or by exclusive license is
probably subject to challenge under Section 7 of the Clayton Act. United States v. Lever
Brothers Co., 216 F. Supp. 886 (S.D.N.Y. 1963). Cf. United States v. Columbia Pictures, 189
F. Supp. 153 (S.D.N.Y. 1960); Dole Valve Co. v. Perfection Bar Equipment, Inc., 318 F.
Supp. 122 (N.D. Il1. 1970), rev'd award of attorneys'fees,458 F.2d 1200 (7th Cir. 1972). See also,
Turner, Patents, Antitrust, and Innovation, 12 ANTITRUST BULL. 277, 282 (1967).
' 7There is a definite distinction between exclusive and non-exclusive patent licenses. The
true exclusive license permits the licensee to exercise the full range of patent rights including
prohibiting even the patent owner from manufacturing, using, or selling the patented item
or process. Any license which conveys less than the full patent rights is properly deemed a
non-exclusive license.
8
See United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 333 (D. Mass. 1953),
affdper curiam, 347 U.S. 521 (1954); Kearney & Trecker Corp. v. Giddings & Louis, Inc., 452
F.2d 579 (7th Cir. 1971), cert. denied, 405 U.S. 1066 (1972).
"9See Transparent-Wrap Mach. Corp. v. Stokes & Smith Co., 320 U.S. 637 (1947). The
Department of Justice has made clear for a number of years that it questions the need for

and appropriateness of executive grantback provisions. U.S. DEPT. OF JUSTICE, ANTITRUST


DIVISION, ANTITRUST GUIDE FOR INTERNATIONAL OPERATIONS, p. 42-45, January 26, 1977.
2

0See United States v. Minnesota Mining & Mfg. Co., 1969 Trade Gas. 72,865 (N.D. I11.
1969) (Consent Decree para. VI(g)) and United States v. International Bus. Mach. Corp.,

PATENT LAW AND ANTITRUST LAW

B.

THE NONUSE OF PATENTS

It is a general proposition that a patent owner has the right not to use
the patented invention and simply rely on his patent rights. However, a
distinction should be made between a reasonable nonuse and outright
suppression.2 Thus, if a patent owner makes a business decision based
upon reasonable considerations that it is not economically feasible for him
to practice the patented invention, such nonuse would be permissible and
the patent should be fully enforceable against others. However, if the
nonuse is based upon other considerations (for example, a collusive
agreement to suppress patented inventions either to "fence in" the technology or to "block in" a competing technology), antitrust violations may
exist.

22

Likewise, the nonuse issue may arise where a single company in a given
technological field acquires substantial market power in that field
through an aggregation of patents owned by others (e.g., acquisition by
exclusive licenses). A decision to suppress patents, in this context, may be
evidence of monopolization. 3
III. ANTITRUST CONSIDERATIONS IN
PATENT LICENSING
Patent licensing is an area in which perhaps most attorneys practicing
business-related law would feel comfortable because it seems to be nothing more than contract drafting. Lest there be a misunderstanding,
however, patent licenses must be drafted with studied care because serious antitrust considerations are pervasive. Patent licenses may include,
among others, provisions related to royalties, territorial and marketing
restrictions, price restrictions, and patent use restrictions. Failure to consider adequately these issues from an antitrust standpoint may contribute
to an antitrust violation, and failure to consider them from a patent point
of view may contribute to patent misuse. The following discussion will
outline in some detail what can be accomplished and what should be
avoided in the typical patent license.
A.

ROYALTY PROVISIONS

Once the patent owner decides to license a patent, the first business
question usually addressed is how much royalty can be obtained. In
1956 Trade Cas.
68,245 (S.D.N.Y. 1956) (Consent Decree, para XI(g)); but see United
States v. General Elec. Co., 82 F. Supp. 753, 815, (D.N.J. 1949), modified, 115 F. Supp. 835

(D.N.J. 1953).
"Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908).
22
See Hartford-Empire Co. v. United States, 323 U.S. 386, 431 (1945).
23
Cf. United States v. Aluminum Co. of America, 91 F. Supp. 333, 386 (S.D.N.Y. 1950).

SOURCE MATERIALS

general, a patent owner can charge whatever royalty rate that can be
agreed to with a prospective licensee. "A patent empowers the owner to
exact royalties as high as he can negotiate with the leverage of that
monopoly." 4 The negotiated royalty may be grounded upon any reasonable basis so long as no unlawful purpose or intent is involved. Licenses
which provide, for the convenience of the parties, that a licensee will pay
royalties based upon its total production or total sales regardless of
whether any patents are actually being used by the licensee (a "total-sales"
royalty) are valid absent coercion on the part of the licensor. 5 Likewise,
varying or "sliding scale" royalties which increase or decrease with the
volume of a licensee's sales or production have also been upheld by the
courts.26
It should, thus, be apparent that the royalty provision of the patent
license can be as simple or as complex as the parties desire. For example,
assuming Company A has a patent on the proverbial "widget" and Company B has a license to manufacture and sell widgets under the patent, the
royalty could be based upon one cent per widget manufactured; one cent
per widget sold; five percent of the gross sales of widgets; five percent of
the net sales of widgets; five percent of the first $500,000 of net sales of
widgets, four percent of the next $250,000 of net sales, etc.; two cents for
each widget manufactured in excess of 10,000, with no royalty for the first
10,000 widgets manufactured, and so on. Thus, the exact royalty base
depends in large measure on the intent of the parties and the imagination
of the attorneys.
As previously noted, a patent owner can generally charge whatever
royalty rate can be negotiated with a prospective licensee. However,
patent owners who license competing licensees must be wary of the effect
that the royalty base or rate may have. If the royalty base or rate creates
discriminatory royalty obligations among competing licensees such that
competition among the licensees is injured, an unfair method of competi24
Brulotte v. Thys Co., 379 U.S. 29, 33 (1964); see also American Photocopying Equip. Co.
v. Rovico, Inc., 384 F.2d 813 (7th Cir. 1967), cert. denied, 390 U.S. 945 (1968).
2
1Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969); Automatic Radio
Mfg. Co., Inc. v. Hazeltine Research, Inc., 339 U.S. 827 (1950); Glen Mfg. Co. v. Perfect Fit
Indus., Inc., 420 F.2d 319 (2d Cir. 1970); Beckman Instruments, Inc. v. Technical Development Corp., 433 F.2d 55 (7th Cir. 1970), cert. denied, 401 U.S. 976 (1971); Plastic Coating
Lens Co. v. W.R.S. Contact Lens Labs, Inc., 330 F. Supp. 441 (S.D.N.Y. 1970). But see Note,
Total-Sales Royalties Under the Patent-Misuse Doctrine: A Critique of Zenith, 76 MICH. L. REV.
1144 (1978), suggesting that total-sales royalties should be condemned as patent misuse.
6
United States v. E. I. duPont de Nemours & Co., 118 F. Supp. 41 (D. Del. 1953), affd on
other grounds, 351 U.S. 377 (1956); United States v. General Elec. Co., 82 F. Supp. 753 (D.N.J.
1949), modified, 115 F. Supp. 835 (D.N.J. 1953).

PATENT LAW AND ANTITRUST LAW

tion in violation of Section 5 of the FTC Act, and patent misuse, may
exist." This is not, however, to say that different royalty rates may not be
charged. The test is whether the rate charged the first licensee is discriminatory when measured against that charged the second licensee, taking
into consideration such things as the market serviced by the licensees,
their business and manufacturing capabilities, etc.
However easy it is to articulate such considerations, their application in
practice is difficult. Thus, in Laitram Corp. v. King Crab,Inc., 244 F. Supp. 9
(D. Alaska 1965), the Court held that where one licensee had to pay
royalties at a rate twice that of a second licensee, the rates were discriminatory and patent misuse occurred. There the royalty rates were based on
the number ("yield") of shrimp cleaned by the patented machine. One
licensee was cleaning twice as many shrimp as a second licensee and was
charged a "double" royalty. The Court concluded that because the higher
paying licensee's shrimp were, on average, half the size of those cleaned
by the lower paying licensee, the royalties being charged were discriminatory when measured against the processed yield of shrimp.
Quite often a company will license a number of patents at the same time
(the "package license"), thus raising the question of whether a package
license must provide for a diminution of royalties where the various
patents in the package expire at different times." The absence of such a
provision in a package license may suggest the existence of coercion which
can constitute patent misuse and a violation of Section 1 of the Sherman
Act. 9
As sometimes happens in either the single or package license situation,
the license agreement provides for the payment of royalties after the
expiration of the patent or patents being licensed. A provision of this type
is improper if it attempts to achieve an unlawful extension of the patent
rights." However, a fixed sum royalty spread over a number of years
which extends beyond the life of the licensed patent is not a patent misuse

"LePeyre v. FTC, 366 F.2d 117 (5th Cir. 1966); Laitram Corp. v. King Crab, Inc., 244 F.
Supp. 9 (D. Alaska 1965); Peelers Co. v. Wendt, 260 F. Supp. 193 (W.D. Wash. 1966). But see
Bela Seating Co., Inc. v. Poloron Prod., Inc., 438 F.2d 733 (7th Cir. 1971), cert. denied, 403
U.S. 922 (1971).
2
1Compare Rocform Corp. v. Acitelli-Standard Concrete Wall, Inc., 367 F.2d 678
(6th Cir.
1966), with Well Surveys, Inc. v. Perfo-log, Inc., 396 F.2d 15 (10th Cir.), cert. denied, 393 U.S.
951 (1968).
"American Security Co. v. Shatterproof Glass Corp., 268 F.2d 769 (3d Cir.), cert. denied,
361 U.S. 902 (1959).
3
Brulotte v. Thys Co., 379 U.S. 29 (1964); Pipkin v. FMC Corp., 427 F.2d 335 (5th Cir.
1970); Shields-Jetco, Inc., v. Torti, 166 U.S.P.Q. 397 (D.R.I. 1970).

SOURCE MATERIALS

and is enforceable if simply a means to accommodate the licensee's


method of royalty payment."
B.

PRICE LIMITATIONS AND RESTRICTIONS

At one time, a patent owner could lawfully restrict the price at which a
patented product could be sold by a manufacturing licensee. 2 However,
in today's "price" conscious environment, one would be well advised to
exclude any type of pricing provision in a patent license agreement. And
while the General Electric doctrine has not been specifically overruled, its
scope has been so modified and narrowed as to be virtually extinct.3
Thus, the grant of multiple licenses, each containing price fixing provisions, is not covered by the General Electric doctrine and, without more,
violates Section 1 of the Sherman Act. 4 It has also been held that the
GeneralElectric doctrine does not permit a patentee to control the price of

an unpatented article through the license of a patent covering the process


used to make the unpatented article,35 but the courts are divided over
whether a patentee may by license regulate the price of an article only part
of which, albeit a valuable and essential part, is covered by the patent. 6 As
a practical matter, no experienced counsellor would advise a patentee to
seek to control the price of the licensee's product, and the GeneralElectric

doctrine is today primarily of historic interest only.


C. FIELD OF USE LIMITATIONS
In the patent context, the phrase "field of use" refers to all of the

possible uses to which the patented product or process could be put (i.e.,
3

"Huyck Corp. v. Albany International Corp., 193 U.S.P.Q. 200 (N.D. Ala. 1977). It would
seem to be unwise to combine, for example, a patent and trademark license without clearly
delineating the royalty rate for the patent and the trademark because the entire royalty
provision may be unenforceable if it is determined that the provision unlawfully extends the
patent right. See Modrey v. American Gage and Machine Co., 339 F. Supp. 1213 (S.D.N.Y.
1972) rev'd on other grounds, 478 F.2d 470 (2d Cir. 1973).
3
United States v. General Elec. Co., 272 U.S. 476 (1926).
"Indeed, the Antitrust Division has twice sought to have the Supreme Court overrule
GeneralElectric, and both times a divided court (4-4) refused to do so. United States v. Line
Material Co., 333 U.S. 287 (1948); United States v. Huck Mfg. Co., 382 U.S. 197 (1965).
'Newburg Moire Co. v. Superior Moire Co., 237 F.2d 283 (3rd Cir. 1956); see also United
States v. U.S. Gypsum Co., 340 U.S. 76, 84 (1950).
3
Cummer-Graham Co. v. Straight Side Basket Corp., 142 F.2d 646 (5th Cir.), cert. denied,
63 U.S.P.Q. 358 (1944); Barber-Colman Co. v. National Tool Co., 136 F.2d 339 (6th Cir.
1943); Cf. American Equip. Co. v. Tuthill Bldg. Material Co., 69 F.2d 406 (7th Cir. 1934).
Contra, Straight Side Basket Corp. v. Webster Basket Co., 82 F.2d 245 (2d Cir. 1936).
mTwo different district courts took conflicting views with regard to the same patents and
licensees. Compare General Elec. Co. v. Willey's Carbide Tool Co., 33 F. Supp. 969,977 (E.D.
Mich. 1940) with United States v. General Elec. Co., 80 F. Supp. 989, 1004-05 (S.D.N.Y.
1948); see also United States v. General Elec. Co., 82 F. Supp. 753,813 (D.N.J. 1949), modified,
115 F. Supp. 835 (D.N.J. 1953).

PATENT LAW AND ANTITRUST LAW

field of use restrictions are generally dependent upon the scope of the
licensed patent claims). Thus, a patent claim which covers the widget as an
article of manufacture may be licensed under varying field of use restrictions related to all possible uses of the widget." Accordingly, field of use
restrictions contained in patent licenses may permit a licensee to perform
under one or more of the possible fields of use but not under others. As
stated by the Supreme Court in General Talking Pictures Corp. v. Western
Electric Co., 305 U.S. 124, 126 (1938):
[W]here a patented invention is applicable to different uses, the owner
of the patent may legally restrict a licensee to a particular field and
exclude him from others ... "
It is of interest to note that in 1970 the Antitrust Division announced its
intention to challenge certain field of use restrictions. "Where field of use
licenses divide fields among licensees who could otherwise be expected to
compete, it is likely that we will bring a case challenging the restrictions."39
To date, however, there appear to be no reported cases on this point.
Today, it seems unlikely that field of use restrictions would properly be
characterized as per se violations of Section 1 of the Sherman Act. The
Antitrust Division has recognized that "there may be good reason for a
licensor to reserve to himself a well-defined field of use out of the various
potential applications for his invention."4 Under the rule of reason test,
however, an exclusive license, expressly permitted under 35 U.S.C. 261,
coupled with a field of use limitation, may support an inference of
anti-competitive intent.4
D.

TERRITORIAL PROVISIONS

Section 261 of 35 U.S.C. expressly provides for the licensing of patent


rights in the United States or any specified partthereof. It has been generally
"Somewhat analogous to field of use restrictions are provisions in license agreements
which attempt to prevent sales of a patented product in bulk or under generic names.
Licensees so restricted would not be able to sell the patented product (e.g., a drug) in any way
other than in dosage form or under specified trade names. Such bulk sale restrictions have
been uniformly held to be illegal and unenforceable. See, e.g., United States v. Glaxo Group,
Ltd., 302 F. Supp. 1 (D.D.C. 1969), 328 F. Supp. 709, rev'd on other grounds, 410 U.S. 52
(1973); Carter Wallace, Inc. v. U.S., 449 F.2d 1374 (C.C.P.A. 1971).
"8See also Atlas Imperial Diesel Engine Co. v. Lanova Corp., 79 F. Supp. 1002 (D. Del.
1948).
39
Remarks of B. B. Wilson, The Legitimate and Illegitimate in Patent and Know-How
Licensing before the Lawyers Institute of theJohn Marshall Law School, February 20, 1970.
Cf. Hartford-Empire Co. v. United States, 323 U.S. 386 (1945).
4
See Remarks of B. B. Wilson, The Legitimate and Illegitimate in Patent and Know-How
Licensing, supra, note 39.
4
See Remarks of R. W. Donnem on The Antitrust Attack on Restrictive Patent License
Provisions before Joint Meeting of the Michigan Antitrust Law Section and the Michigan

SOURCE MATERIALS

presumed that territorial limitations within the United States are legitimized by this provision. 41 As may be expected, however, the territorial
restrictions in a patent license are only enforceable against the licensee; a
provision in the license that purports to impose a territorial restriction on
sales beyond the licensee (a vertical restriction) has been found to be a per
se violation of the antitrust laws. 43 And other territorial restrictions designed to implement broader division of markets between the parties to
the license may also be condemned under the antitrust laws.44
E.

QUANTITY LIMITATIONS

There are only a few cases which deal with a patent owner's right to
restrict the quantity of goods manufactured by the licensee, and in these
cases quantity limitations have been held valid in the absence of some
unlawful purpose. 45 Because quantity limitations are analogous to price
and field of use restrictions it would seem that if such a case arose today
the prevailing law in those areas would be applicable.
F.

REFUSAL TO LICENSE

As previously noted, there is no requirement that a patent owner use


the patent. Likewise, there is no obligation on the part of the patent owner
to grant licenses under the patent so long as the decision not to grant
licenses is made unilaterally 46 and is grounded on some "rational basis.." 47
Patent Trademark and Copyright Law Section at Michigan State Bar Convention, September 25, 1969.
42Brownell v. Ketcham Wire & Mfg. Co., 211 F.2d 121, 128 (9th Cir. 1954). Merck & Co. v.
Smith, 155 F. Supp. 843, (E.D. Pa. 1957); affd, 261 F.2d 162 (3d Cir. 1958); Blohm & Voss
AG. v. Prudential-Grace Lines, 346 F. Supp. 1116 (D. Md. 1972), rev'd on other grounds, 489
F.2d 231 (4th Cir. 1973).
4'American Indus. Fastener Corp. v. Flushing Enterprises, Inc., 362 F. Supp. 32 (N.D.
Ohio 1973).
44United States v. National Lead Co., 63 F. Supp. 513 (S.D.N.Y. 1945), affd, 332 U.S. 319
(1947); United States v. Imperial Chem. Indus., Ltd., 100 F. Supp. 504 (S.D.N.Y. 1951). But
see United States v. Westinghouse Elec. Corp., Civil Action No. C 70-852-SAW (N.D. Cal.,
filed April 22, 1970). It is also not uncommon to combine a patent license with a trade secret
license in the same document. While the validity of territorial restrictions in a joint patenttrade secret license have apparently not been addressed by the courts, territorial restrictions
imposed in pure trade secret licenses have been upheld when the restrictions are ancillary to
the grant of the trade secret technology. Shin Nippon Koki Co. Ltd. v. Irvin Indus., Inc., 186
U.S.P.Q. 296 (N.Y. Sup. Ct. 1975).
"United States v. E.I. duPont deNemours & Co., 118 F. Supp. 41.(D. Del. 1953), affd on
other grounds, 351 U.S. 377 (1956); Q-Tips Inc. v. Johnson & Johnson, 109 F. Supp. 657
(D.N.J. 1951), affd, 207 F.2d 509 (3d Cir. 1953), cert. denied, 347 U.S. 935 (1954).
46
Sylvania Indus. Corp. v. Visking Corp., 132 F.2d 947, 958 (4th Cir. 1943); Cf.United
States v. Colgate & Co., 250 U.S. 300 (1919).
47
Compare Bela Seating Co. v. Poloron Prod., Inc., 438 F.2d 733 (7th Cir. 1971) with Allied
1969).
Research Prod. Inc. v. Heatbath Corp., 300 F. Supp. 656 (N.D. Ill.

PATENT LAW AND ANTITRUST LAW

On the other hand, if the refusal or failure to license results from a


combination between the patent owner and third parties, both patent
misuse and violations of Section 1 of the Sherman Act would be present."
G.

PACKAGE LICENSING

A "package license" refers to a license under a number of patents, i.e., a


patent package. This term should not be confused with "label license"
which refers to an express or implied license stated on the label of a
container of patented or unpatented goods. Voluntary package licensing,
designed for the convenience of the parties to the licensing agreement
and involving no element of coercion and no condition of the acceptance
of another and different license, appears to be valid and enforceable. 9
One should note, however, that the package license may give rise to
antitrust and patent misuse problems if the package license attempts to
prolong the life of one or more of the licensed patents which expire
during the term of the license. In this regard, special attention should be
given to the manner in which the royalty rate of a package license is
calculated since a set royalty running to the life of the last expired patent
in the package may evidence an attempt to extend the life of previously
expired patents.
Furthermore, compulsory (or mandatory) package licensing, which
may be suggested by the failure of the licensee to offer separate royalty
rates on each of the licensed patents or by the failure of royalties to
decrease during the term of the license upon expiration of some of the
licensed patents, coupled with the absence of a provision for termination
of the license at that time, may constitute patent misuse and an illegal
tying arrangement under Section 1 of the Sherman Act. 50 Recently,
however, an apparent exception to the illegality of compulsory package
licensing has surfaced in the area of "blocking patents," which are valid
5
patents covering interdependent parts of the same product. '
H.

LICENSEE ESTOPPEL

At one time it was felt that a party who voluntarily obtained a license
under one or more patents would thereafter be estopped from testing the
48
Jones Knitting Corp. v. Morgan, 361 F.2d 451 (3d Cir. 1966); United States v. Parke,
Davis & Co., 362 U.S. 29 (1960).
4
Automatic Radio Mfg. Co. v. Hazeltine Research, 339 U.S. 827 (1950).
50
American Securit Co. v. Shatterproof Glass Corp., 268 F.2d 769 (3d Cir.), cert. denied, 361
U.S. 902 (1959); Rocform Corp. v. Acitelli-Standard Concrete Wall, Inc., 367 F.2d 678,
679-80,681 (6th Cir. 1966); Hazeltine Research, Inc. v. Zenith Corp., 239 F. Supp. 51 (N.D.
I11. 1965), affd on this point, 388 F.2d 25 (7th Cir. 1967), affd, 395 U.S. 100 (1969).
5
nternational Mfg. Co. v. Landon, 336 F.2d 723 (4th Cir. 1964), cert. denied, 379 U.S. 988
(1965). See also notes 28-31 and the accompanying text, supra.

SOURCE MATERIALS

validity of those patents. This is no longer the case? Subsequent to Lear, it


has been held that the inclusion in a patent license of a provision to the
effect that the licensee will not contest validity does not amount to "patent
misuse."53 It should also be noted that the Lear doctrine applies to exclu4
sive as well as non-exclusive licenses?
IV. TYPICAL ANTITRUST CONCERNS
A.

TYING ARRANGEMENTS

Section 1 of the Sherman Act has been interpreted to prohibit so-called


"tie-in" arrangements in which:
(1) two distinct products are involved;
(2) the seller will not sell one product (the "tying product") unless a
second (the "tied" product) is also purchased (or at least is not purchased
from anyone other than the seller);
(3) the seller has sufficient "economic power" in the tying product
market to appreciably restrain competition in the tied product market;
and
(4) a "not insubstantial" amount of commerce is affected by the
arrangement.5
While these four requirements must be met in any tie-in situation, it
should be appreciated that when the tying product is patented or copyrighted, the requisite economic power is presumed.56
2

S Lear, Inc. v. Atkins, 395 U.S. 653 (1969).


53
Kearney & Trecker Corp. v. Giddings & Lewis, Inc., 452 F.2d 579 (7th Cir. 1971), cert.
denied, 405 U.S. 1066 (1972).
"Beckman Instruments, Inc. v. Technical Dev. Corp., 433 F.2d 55 (7th Cir. 1970), cert.
denied, 401 U.S. 976 (1971).
55
Northern Pac. R.R. Co. v. United States, 357 U.S. 1, 5 (1958).
56
United States v. Loew's, Inc., 371 U.S. 38 (1962). The presumption of requisite economic
power was extended by the Ninth Circuit in Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th
Cir. 1971), cert. denied, 405 U.S. 95 (1972), to trademarks:
Just as the patent or copyright forecloses competitors from offering the distinctive
product on [sic] the market, so the registered trademark presents a legal barrier against
competition.
It is not the nature of the public interest that has caused the legal barrier to be erected
that is the basis for the presumption [of sufficient economic power] but the fact that such
a barrier does exist. Accordingly, we see no reason why the presumption that exists in
the case of the patent and copyright does not equally apply to the trademark. (Id. at 50,
footnote omitted.)
Recently, however, some courts and commentators have questioned the soundness of
putting trademarks in the same category as patents and copyrights for the purpose of

PATENT LAW AND ANTITRUST LAW

Thus, a patent owner who, through a tying arrangement, uses the


leverage of its patent to extend the patent rights beyond the scope of the
claims may commit patent misuse and violate Section 1 of the Sherman
Act if any substantial amount of commerce is involved, whether the
arrangements are express or implied and whether the tied article is
patented or unpatented 7
Quite early, the Supreme Court was confronted with the issue of
whether a patent owner may license another to manufacture and sell the
patented item and by notice attached to the item limit its use by the
purchaser to a use in conjunction with another item which is not only not
part of the patented item but which is not patented itself.58 As the Supreme Court cogently stated in Motion Pictures:
Whatever right the owner may have to control by restriction the materials to be used in operating the [patented] machine must be derived
through the general law from ownership of the property in the
machine, and it cannot be derived from or protected by the patent law,
which allows a grant only of the right to an exclusive use of the new and
useful discovery which has been made,-this and nothing more.
...

It is argued as a merit of [the patentee's] system of sale ... that the

public is benefited by the sale of the machine at what is practically its cost
and by the fact that the owner of the patent makes its entire profit from
the sale of supplies with which it is operated. This fact, if it be a fact,
instead of commending, is the clearest possible condemnation of, the
practice adopted, for it proves that under cover of its patent the owner
intends to and does derive its profit, not from the invention on which
the law gives it a monopoly, but from the unpatented supplies with
which it is used, and which are wholly without the scope of the patent
monopoly, thus in effect extending the power to the owner of the patent
to fix the price to the public of the unpatented supplies as effectively as
he may fix the price on the patented machine. 9
presuming sufficient economic power to appreciably restrain competition. See Anderson v.
Home Style Stores, Inc., 58 F.R.D. 125 (E.D. Pa. 1972); Capital Temporaries, Inc. v. Olsten
Corp., 506 F.2d 658 (2d Cir. 1974); Carpa, Inc. v. Ward Foods, Inc., 536 F.2d 39 (5th Cir.
1976). See also Basic Antitrust Problem Areas and Their Significancefor Trademark Owners and

Practitioners,
67
57

TRADEMARK REP.

255, 268-69 (1976).

International Salt Co. v. United States, 322 U.S. 392 (1947); Morton Salt v. Suppiger Co.,
314 U.S. 488 (1942); International Bus. Mach. v. United States, 298 U.S., 131 (1936).
5
Motion Pictures Patent Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917).
59
1d., 243 U.S. at 513-17. In a dissent, Mr. Justice Holmes, at 519-20, stated:
I suppose that a patentee has no less property in his patented machine than any other
owner, and that, in addition, to keeping the machine to himself, the patent gives him the
further right to forbid the rest of the world from making others like it. In short, for
whatever motive, he may keep his device wholly out of use ....
So much being
undisputed, I cannot understand why he may not keep it out of use unless the licensee,
or, for the matter of that, the buyer, will use some unpatented thing in connection with
it. Generally speaking, the measure of a condition is the consequence of a breach, and if
that consequence is one that the owner may impose unconditionally, he may impose it
conditionally upon a certain event ....

SOURCE MATERIALS

In Morton Salt, supra, note 57, the plaintiff, who manufactured a


patented machine that dispensed salt, and licensed canners to use the
machine only in connection with salt purchased from the plaintiff, was
denied infringement relief against a defendant who manufactured and
sold a machine that infringed the plaintiff's patent.
Of course, there are certain accepted justifications for tying arrangements. And while thesejustifications have generally not been presented in
patent related cases, they would appear to be equally valid in that context.
Thus, in United States v. Jerrold Electronics, 187 F. Supp. 545 (E.D. Pa.
1960), affd per curiam, 365 U.S. 567 (1961), the Supreme Court approved
a tie-in of an engineering service contract to the purchase of highly
complex equipment, but only during the early, developmental stages of a
business in which the technology was innovative and unproven. However,
as the technological knowledge became more widespread and definitive,
the Supreme Court indicated that such restraint would thereafter not be
justified.'
Tying arrangements may also be found to exist in the label license
situation. Some patent owners put label licenses on the containers of
unpatented goods which they sell for use, for example, in their patented
combinations or patented methods. Such a label license permits the
manufacture, use, and sale of the patented combination or method to the
extent that the unpatented contents of the label licensed container are
employed or consumed in the patented combination or method. However, a sale of an unpatented staple of commerce accompanied by an
implied (label) license to practice a patent had been held to constitute a
tying arrangement per se violative of Section 1 of the Sherman Act and,
therefore, a patent misuse. 6 ' The same court stated that the patentee who
does not affirmatively offer, or express a willingness to offer, a licensing
program separate from the label license attached to a staple article of
commerce runs the risk that an implied tying arrangement exists and that
misuse of the patent has occurred.
There is currently pending before the United States Supreme Court an
extremely important case, the result of which should clarify the patent/
'See also Susser v. Carvel, 332 F.2d 505 (2d Cir. 1964) (suggesting that a tie-in to control
product quality and hence goodwill may, if factually proven, be justified); FTC v. Sinclair
Refining Co., 261 U.S. 463 (1923) (permitting a tie-in as the best practical method of
preserving the integrity of Sinclair's gasoline products and hence protecting the public
goodwill); Siegel v. Chicken Delight, supra, note 56, (suggesting, in dictum, that a "tie-in"
may be justified where specification of the tied product would result in a disclosure of trade
secrets. However, a trade secret defense has apparently never been asserted successfully.)
6
Rex Chainbelt Inc. v. Harco Prod., 512 F.2d 993 (9th Cir.), cert. denied, 423 U.S. 831
(1975).

PATENT LAW AND ANTITRUST LAW

antitrust interface in label licensing situations. Dawson Chemical Co. v.


Rohm & Haas Co., (Supreme Court Docket 79-669). Rohm & Haas is the
owner of a United States patent which describes and claims a method of
selectivity controlling weeds and crops by applying to the weeds and crops
a certain chemical compound ("propanil"). Propanil, a nonstaple item of
commerce, is itself not patented. Rohm & Haas does not itself practice the
patented process but makes propanil and sells it in containers which
include instructions for use to perform the patented process. By operation of law, purchasers of propanil thus receive an implied license to use
the patented method. Rohm & Haas has refused to grant any other
licenses under its patent, so that the only way it has been possible for users
to obtain a license to perform the patented process has been to buy
propanil from Rohm & Haas. For several years Dawson sold propanil for
weed control purposes and requested from Rohm & Haas a royaltybearing license under the patent. Rohm & Haas, however, refused, stating that licenses would be granted only with purchases of propanil from
Rohm & Haas. In the district court, Dawson was granted summary judgment and that court dismissed the case, holding that Rohm & Haas had
misused its patent." The U.S. Court of Appeals for the Fifth Circuit, 599
F.2d 685 (5th Cir. 1979), reversed and remanded for a trial on the merits,
holding that the activities of Rohm & Haas were permitted under 35
U.S.C. 27 1(d) and did not amount to patent misuse. Oral argument in
the Rohm & Haascase was held April 21, 1980. Thus, the Supreme Court
is likely to decide before the end of the present term whether the grant of
a license to practice a patented process may be conditioned upon the
purchase of an unpatented, nonstaple material from the patent owner.
B.

RESTRICTIONS ON THE LICENSOR

In a case involving a broad spectrum of anticompetitive conduct, an


agreement by the patent owner giving its license a veto power over the
63
selection of additional licensees was found to violate the Sherman Act.
However, the rule of reason and not a per se approach is applied in this
context.'
A licensee "restriction" allowing the licensor to grant further licenses,
but only in the form of sublicenses of his first licensee, has been found to

Rohm & Haas Co. v. Dawson Chemical Co., Inc., 191 U.S.P.Q. 691 (S.D. Tex. 1976).
United States v. Krasnov, 143 F. Supp. 184 (E.D. Pa. 1956), affdper curiam, 355 U.S. 5
(1957); see also United States v. Besser Mfg. Co., 96 F. Supp. 304, 310-11 (E.D. Mich. 1951),
affd, 343 U.S. 444 (1952).
'Moraine Prod. v. ICI America, Inc., 538 F.2d 134, (7th Cir.), cert. denied, 429 U.S. 941
(1976).
6

SOURCE MATERIALS

be legal.6" This arrangement assured "a commission" to the licensee in the


form of payments to the licensee from the sub-licensees.
C.

RESTRICTIONS ON PURCHASERS

In general, the first authorized outright sale of a patented product


"exhausts" the patent rights. 6 If a patentee attempts to impose express
restrictions on the right of a vendee to use or dispose of the product,
antitrust concerns arise. However, it is not necessarily patent misuse or
violation of Section 1 and 2 of the Sherman Act for a patent license to
provide that licensees, who can use the patented item without restriction
upon payment of a higher, but fair, royalty, can use the patented item
only in a restricted field of use if purchased at a lower price.67 On the other
hand, resale restrictions placed upon the unpatented product of a
licensed process has been found to be a per se violation of the Sherman
Act.

6
1

D.

CRoss-LICENSING ARRANGEMENTS

A cross-license is an agreement in which all or part of the consideration


for licensing one patent is a license under another. When multiple rights
of several owners are involved, an arrangement for the interchange of
such rights is called a patent pool. By itself, a cross-licensing agreement
laws and indeed can convey substantial prodoes not violate antitrust
69
competitive benefits.
Cross-licensing arrangements can violate the Sherman Act, however,
where they result in the regimentation and elimination of competition in
an industry; where they limit each party to the pooling arrangement to a
particular field of use or to a particular territory; where they result in
price fixing; where they are entered into for the purpose of excluding a
competitor from the marketplace; or where they include limitations on
the resale of unpatented goods."
65

Congoleum Indus., Inc. v. Armstrong Cork Co., 366 F. Supp. 220 (E.D. Pa. 1973), affd,
510 F.2d 334 (3d Cir.), cert. denied, 421 U.S. 988 (1975).
'United States v. Univis Lens Co., 316 U.S. 241, (1942).
67
Carter Wallace, Inc. v. United States, 449 F.2d 1374, (Ct.C1. 1971).
'United States v. Glaxo Group, Ltd., 328 F. Supp. 709, (D.D.C. 1971), rev'd on other
grounds, 410 U.S. 52 (1973). This case involved a patent pool which was held per se violative of
section 1 of the Sherman Act.
6
The same may be said for the licensed exchange of trade secrets. See Shin Nippon Koki
Co. Ltd. v. Irving Indus., Inc., 186 U.S.P.Q. 296 (N.Y. Sup. Ct. 1975).
7
"See Hartford Empire Co. v. United States, 323 U.S. 386 (1945); United States v. Line
Material, 333 U.S. 287 (1948); United States v. New Wrinkle, 342 U.S. 371 (1952); United
States v. Imperial Chem. Indus., Ltd., 100 F. Supp. 504 (S.D.N.Y. 1951); United States v.

PATENT LAW AND ANTITRUST LAW

C.

ENFORCEMENT OF PATENT RIGHTS THROUGH LITIGATION

As noted, the patent laws give the patent owner the right to exclude
others from the manufacture, use, or sale of the patented item or process.
Section 1338 of Title 28, U.S.C., gives the federal district courts exclusive
jurisdiction in the trial of patent infringement matters. Section 284 of
Title 35, U.S.C., provides for treble damages at the discretion of the
Court, and Section 285 of Title 35, U.S.C., permits an award of attorneys
fees in "exceptional cases." There is nothing inherently improper in
bringing lawsuits against those believed, in good faith, to be infringing the
patent claims, and the patentee, in the belief that its patents are valid and
infringed, has the right to protect its rights by notifying the trade of the
alleged infringements.7'
On the other hand, the institution of patent infringement suits in bad
faith can constitute evidence of monopolization or attempted monopolization.72 And, in Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th
Cir. 1979), cert. denied, 204 U.S.P.Q. 880 (1980), the Ninth Circuit stated
that while the filing of one or more patent infringements suits may be
evidence of an attempt to monopolize under Section 2 of the Sherman
Act, the patent owner should be entitled to a presumption that the
litigation was instituted in good faith, with the presumption being rebuttable only upon clear and convincing evidence.
A patent infringement suit should not be brought until the patentee has
first examined the item thought to be infringing (or has at least requested
permission to inspect the allegedly infringing device) and has in good
faith determined that it actually does infringe."
VI. GOVERNMENTAL ENFORCEMENT OF THE
ANTITRUST LAWS AGAINST PATENT OWNERS
In general, the Antitrust Division of the Department of Justice has
brought few suits over the years involving patents. However, a Patent
Unit has existed within the Antitrust Division for quite some time.
National Lead Co., 63 F. Supp. 513 (S.D.N.Y. 1945), affd, 332 U.S. 319 (1947); United States
v. Singer Mfg. Co., 374 U.S. 174 (1963); United States v. Glaxo Group Ltd., 328 F. Supp. 709
(D.D.C. 1971).
7 8 DELLER'S WALKER ON PATENTS, (2d Ed.), 645, at 211 (1973).
72

Otter Tail Power Co. v. U.S., 410 U.S. 366 (1973); cf Laitram Corp. v. King Crab, Inc.,
244 F. Supp. 9 (D. Alaska 1965); Wahl v. Rexnord, Inc., 481 F. Supp. 573 (D.N.J. 1979).
75
See United States v. Besser Mfg. Co., 96 F. Supp. 304 (E.D. Mich. 1951), affd, 343 U.S.
444, (1952). Those contemplating the filing of patent infringement suits would be well
advised to consult White, PatentLitigation: Procedures & Tactics in 3 PATENT LAW & PRACTICE

(1979), for perhaps the leading work on the intricacies of patent litigation.

SOURCE MATERIALS

It has been generally held that compulsory licensing is an appropriate


remedy in antitrust actions where patent licensing abuses are proven and
the compulsory license is required to effectuate relief."4 However, even in
cases where the defendant has not engaged in abusive practices in the use
of its patents, compulsory licensing may be necessary in order to reduce
the defendant's "monopoly" power which it has acquired as a result of its
other business practices.75 Likewise, broad injunctive relief is always available to prevent reccurence of patent abuses."
The Antitrust Division has, in certain cases, sought invalidation of
patents.77 And, under present law, the governmental challenge of patent
validity is not limited to instances in which the existence of the patent is
relied upon as a defense to an antitrust allegation.
Finally, in 1966 the Sixth Circuit held that Section 5 of the Federal
Trade Commission Act confers jurisdiction on the FTC to determine
whether the particular use of a patent constitutes an unfair trade
practice.79 In this case, it was determined that the FTC had authority to
order compulsory licensing of the patents in suit at reasonably royalty
rates. In this regard, it is apparently the FTC's position that it has the
power to order even royalty-free licensing."0 However, only one court
appears to have agreed with the FTC in a litigated matter.8 '

74
Besser Mfg. Co. v. United States, 343 U.S. 444 (1952) (concerted price fixing in patent
licenses); United States v. National Lead Co., 332 U.S. 319 (1947) (concerted pooling of
patents to restrict trade); Hartford-Empire Co. v. United States, 323 U.S. 386 (1945) (same).
75
United States v. United Shoe Mach. Corp., 110 F. Supp. 295 (D. Mass. 1953), affd per
curiam, 374 U.S. 521 (1954).
7
'See United States v. Ward Baking Co., 376 U.S. 327 (1964); United States v. Glaxo
Group, Ltd., 302 F. Supp. I (D.D.C. 1969), rev'd on other grounds, 410 U.S. 52 (1973).
77See United States v. Chas. Pfizer & Co., Civil Action No. 1966-69 (D.D.C. filed July 15,
1969).
78
United States v. Glaxo Group Ltd., 302 F. Supp. 1 (D.D.C. 1969), rev'd, 410 U.S. 52
(1973). See also Lear, Inc. v. Adkins, 395 U.S. 653 (1969).
79
American Cyanamid Co. v. FTC, 363 F.2d 757 (6th Cir. 1966).
8
See American Cyanamid Co., [1963-1965 Transfer Binder] TRADE REG. REP. (CCH)
16,527 (1963).
81
United States v. General Elec. Co., 115 F. Supp. 835 (D.N.J. 1953).