VIII Innovation, Restraints of Trade, Grantbacks.

A. Justice Department Guidelines

B. Grant back:TransparentWrap Mach. Corp. v. Stokes & Smith Co. 329 U.S. 637, 67 S.Ct. 610, 91 L.Ed. 563 (1947)

C. Pool with Grant back United States of America v. Associated Patents, Inc. 134 F. Supp. 74; 1955 Trade Cas. ¶ 68,092; 106 USPQ 129 (ED Mich 1955) aff'd sub nom, Mac Inv. Co. v. U.S. 350 U.S. 960, 76 S.Ct. 432, 100 L.Ed. 834 (1956)

D. Cartel and Innovation: U.S. v. National Lead Co. 332 U.S. 319, 67 S.Ct. 1634, 91 L.Ed. 2077 (1947) aff'g 63 F.Supp. 513, (SD NY, 1945)

E. Improvements Cross Licensed: United States of America v. Birdsboro Steel Foundry and Machine Co. 139 F. Supp. 244; 108 USPQ 42; 1956 Trade Cas. ¶ 68,293; (WD Pa, 1956)

F. Common Ownership via Litigation Settlement Clyde M. Noll v. O. M. Scott & Sons Co. 467 F.2d 296, 175 U.S.P.Q. 392; 1972 Trade Cas. ¶ 74,180 (6th Cir., 1972)

G. Reasonableness in Licensing. Baker-Cammack Hosiery Mills, Inc. v. Davis Co.181 F.2d 550, 85 U.S.P.Q. 94 (4th Cir., 1950)

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United States of America v. Associated Patents, Inc.

134 F. Supp. 74; 1955 Trade Cas. ¶ 68,092; 106 USPQ 129 (ED Mich 1955)

Complaint was filed and action was instituted against the defendants under Section 4 of the Act of Congress of July 2, 1890, § 647, 26 Stat. 209, as amended, entitled "An act to protect trade and commerce against unlawful restraints and monopolies", commonly known as the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note, in order to prevent and restrain alleged continuing violations by the defendants of Section 1 of the Sherman Act, it being the further claim of the plaintiff that beginning in or about the year 1933,and continuing thereafter up to and including the date of the filing of this complaint, the defendants have contracted, combined and conspired to restrain unreasonably the aforesaid interstate trade and commerce in machine tools, in violation of Section 1 as aforesaid; further alleging that the defendants are continuing, and threaten to, and will continue the said offenses unless the relief prayed for in the complaint be granted. It is further alleged that the terms of the contracts, combination and conspiracy have been:

(a) That defendants organize API and pool in API their existing and future patent rights relating to machine tools;

(b) That defendants allocate among themselves the manufacture and sale of machine tools according to specified types thereof, so that each defendant has the exclusive right to manufacture and sell specified types of machine tools, and so that each defendant refrain from the manufacture and sale of types of machine tools reserved for exclusive manufacture and sale by any other defendant;

(c) That API refrain from licensing under the pooled patents others than defendants to manufacture and sell any types of machine tools reserved for exclusive manufacture and sale by any of the defendants.

The "machine tools" referred to include power-driven machines, not portable by hand, which are used to cut or shape metal, and includes machine tools of the following types: lathes, shaving machines, drilling machines, boring machines, milling machines, broaching machines, grinding machines, gear producing machines, and screw machines.

It is further alleged that the contracts, combination and conspiracy, and certain of the acts, agreement, arrangements and understandings of the defendants have had the effect, as intended by the defendants, of eliminating, suppressing and restraining competition among the defendants in the manufacture and sale of machine tools in interstate commerce; of eliminating, suppressing and restraining competition among the defendants in obtaining, utilizing and licensing patent rights relating to machine tools; of eliminating, suppressing and restraining competition by others in the manufacture and sale of machine tools, and of denying a purchaser of machine tools access to a free and competitive market therefor.

From the evidence submitted at a rather extended trial, the Court makes the following

Findings of Fact

1. Associated Patents, Inc., hereinafter referred to as "API", is a corporation organized under the laws of the State of Ohio, with its principal place of business at Cincinnati, Ohio. API has functioned solely as a patent holding and licensing company. It has never engaged in manufacturing or other activities. The capital stock of API has at all times been evenly divided between the following five companies or their predecessors in interest: Brown & Sharpe Manufacturing Company, The Carlton Machine Tool Company, DeVlieg Engineering Company, The Lodge & Shipley Company, and the Mac Investment Company.

* * *

8. Charles B. DeVlieg, a resident of Farmington, Michigan, and owner, with other members of his family, of the controlling interest in the DeVlieg Engineering Company and the DeVlieg Machine Company, is an inventor in the machine tool field. Prior to 1933 he had developed three major inventions of general application in the machine tool field known as a backlash eliminator, an automatic power transmission mechanism, and an automatic positioning device. These inventions shall hereinafter be referred to collectively as the "subject matter inventions" and their patents as the "subject matter patents".

9. The machine tools manufactured by defendants as aforesaid are sold and shipped in interstate commerce to states other than the states of origin or where they are manufactured.

10. An essential characteristic of the manufacture of machine tools by defendants and other members of the machine tool industry is the development of improvements, securing patents thereon, the issuing of licenses and the obtaining of licenses on patents owned by other machine tool manufacturers.

* * *

14. On November 29, 1932, Charles B. DeVlieg granted Brown & Sharpe a non-exclusive license on the subject matter inventions for the manufacture, use and sale of machine tools, without specification of particular types of machines. This agreement provided that future improvements on the subject matter inventions developed by either party were to be licensed to the other party. DeVlieg agreed not to license competitors of Brown & Sharpe on these inventions without that company's approval.

15. By an agreement dated May 18, 1933, between Charles B. DeVlieg, party of the first part, and Lodge & Shipley and Carlton, parties of the second part, DeVlieg agreed to assign the subject matter inventions to a corporation to be known as Associated Patents, Inc.

16. By a series of assignments dated June 13, 1933, Charles B. DeVlieg transferred all rights in the subject matter inventions and the patent applications thereon to API.

17. A meeting was held in Cincinnati, Ohio, shortly prior to August 3, 1933, to discuss terms and conditions under which the subject matter patents would be administered by API. * * * The meeting lasted approximately three days. Discussions at the meeting centered on the practice of the subject matter inventions in accordance with a so called "Declaration of Uses" restricting each member of API to the use of the subject matter inventions and future improvements thereon within a given field, non-competitive with any other member. Understandings reached at the meeting in this respect were reduced to a formal agreement dated August 3, 1933, referred to hereinafter as the "API agreement" (Gov. Ex. 12). The agreement was drafted by attorney George Fee, attorney of record for Lodge & Shipley in this case.

18. The principal provisions of the API agreement are as follows:

19. The rights and obligations of the parties as provided in the API agreement created an entirely new and different arrangement for the use of the subject matter patents and future improvement patents than had existed under the original licenses from DeVlieg to the other parties separately. The more important differences between the new arrangement and that which had previously existed are as follows:

20. The purposes of API as evidenced by the provisions of the API agreement were:

21. The purpose of the parties in imposing restrictions upon the granting of licenses on improvements was not to enhance the financial returns from royalties but to insulate members from competition between themselves and from outsiders. Each member by agreeing to restrictions upon the licensing of improvements designed to protect other members from competition was, in turn, assured that licenses upon improvements developed by other members would be similarly restricted.

22. API was in substance and effect merely an agency or instrumentality utilized by the members to effect a network of exclusive cross-licenses among themselves and to control the terms and conditions of any licenses that might be granted to outsiders. The actions and policies of API were controlled entirely by the member companies who directed its activities to serve their individual purposes. Thus, API had no independent control of its own affairs.

23. From August 1933 until July 13, 1953, there was a concert of action in pursuance of a common plan among the defendants herein by which restrictions were imposed upon the manner in which licenses would be issued upon improvements developed by the API members. On July 13, 1953, one of the Courts of Common Pleas for Hamilton County, Ohio, ordered a limited dissolution of the affairs of API and, subsequent to that date, certain of the shareholders of API have filed with the Ohio court having jurisdiction of the dissolution proceedings disclaimers of all claims to assets of API, and of all rights under the API agreement.

24. Concurrent with the execution of the API agreement the members arrived at a general unwritten agreement not to compete in the manufacture of machine tools irrespective of whether or not API patents were utilized. To implement this general agreement not to compete, a number of subsidiary agreements were made from time to time when a new machine designed by one party threatened to conflict or compete with a machine being manufactured by another party, to wit:

(a) In August 1933, Carlton was designing a new drilling machine capable of both horizontal and vertical drilling. This machine threatened to conflict with the horizontal boring, drilling and milling machines being manufactured by Lucas and encroach upon the field reserved to Lucas in its declaration of use in the API agreement. The Carlton machine did not embody inventions covered by API patents. Henry M. Lucas, President of the Lucas Machine Tool Company, visited Carlton's plant and examined the blueprints of Carlton's new drilling machine. Carlton requested drawings of the Lucas machine involved in the conflict. It was subsequently agreed between Lucas and Carlton that there would be no conflict in their respective manufacture of the machines involved.

(b) In March 1934 Charles B. DeVlieg visited the Brown & Sharpe plant in Providence, Rhode Island and because of Mr. DeVlieg's status as a member of API he was shown confidential designs being developed by Brown & Sharpe for a new milling machine called their No. 12. Some time prior to this date Brown & Sharpe and DeVlieg reached an agreement designed to prevent competition between them in the manufacture and sale of milling machines whereby DeVlieg would manufacture only the larger sizes and Brown & Sharpe would manufacture only the smaller ones. This agreement was not limited to milling machines incorporating API patents. On learning that DeVlieg was designing a milling machine of a size which would compete with the Brown & Sharpe No. 12 milling machine, Brown & Sharpe protested to DeVlieg that this was a violation of their agreement. DeVlieg replied that he recognized his obligation not to produce a competing machine and would not do so unless an arrangement could be decided upon at some future date. After Brown & Sharpe's protest, and out of deference to the understanding, DeVlieg did not go ahead with his plans for manufacturing a machine of that size although such a machine had already been designed.

(c) In 1938 DeVlieg was designing a knee type milling machine which incorporated a sliding spindle. Despite the fact that DeVlieg believed that the machine he proposed to produce was entirely within the Declaration of Use allocated to him by the API agreement he nevertheless felt that the understanding among API members required him to obtain from Lucas a letter of approval before going ahead with the production of such a machine. Lucas was the API member whose machine tools would be most nearly competitive with the machine that DeVlieg proposed building.

(d) In 1941 DeVlieg was requested by the War Production Board to concentrate his activities on the production of horizontal boring, drilling and milling machines. After making preliminary drawings and designs for the production of such a machine (which later came to be known as the Jigmil), DeVlieg went to Cleveland for the purpose of consulting with Lucas. DeVlieg sought clearance from Lucas which would permit him to commence manufacturing activities within the field that was exclusively reserved to Lucas by the Declaration of Uses provision of the API agreement. On this occasion he exhibited to Lucas the preliminary drawings for the machine. Subsequently, in July of 1941 when Lucas visited DeVlieg's plant in Ferndale he inspected the work that was being done on the design and development of the Jigmil and asked for and received a set of drawings which he took back to Cleveland. Thereafter in December of 1941 while visiting DeVlieg's plant, Lucas saw the first machine in operation. During this visit the conversation turned to the possibility of competition between the Jigmil as produced by DeVlieg and the horizontal boring, drilling and milling machines manufactured by Lucas. Lucas was at this time producing a combined horizontal boring, drilling and milling machine in which the axis of the spindle was parallel to the bed. The Jigmil as designed by DeVlieg was differentiated from Lucas' product in that the axis of the spindle was at right angles to the bed. On this occasion DeVlieg and Lucas arrived at an understanding the essence of which was that each agreed not to produce the type of combined horizontal boring, drilling and milling machine being manufactured by the other.

25. In 1945 The Lucas Machine Tool Company notified DeVlieg that by incorporating devices covered by API patents into the Jigmil, he was violating Lucas' rights under the API agreement which granted to Lucas the exclusive right to use these inventions in horizontal boring, drilling and milling machines. It also charged that DeVlieg was infringing two other Lucas-owned patents which had not been assigned to API. Lucas also claimed that DeVlieg's Jigmil patent was an improvement within the meaning of the API agreement, and that, accordingly, DeVlieg was obligated to assign it to API.

26. In April, 1947, at a directors' meeting held in Atlantic City, New Jersey, the members of API voted to support The Lucas Machine Tool Company with respect to the claims it was asserting against DeVlieg. A motion was adopted at this meeting which provided that, if necessary, API would bring suit against DeVlieg to enforce these claims, or join with Lucas in such a suit. During the succeeding months various members of API made efforts to bring DeVlieg and Lucas together in order that an out-of-court settlement of the controversy might be reached. Throughout these efforts to effect a settlement both API and Lucas made it an indispensable condition that DeVlieg agree to assign the Jigmil patent to API. The insistence upon this condition caused the attempts to reach a settlement to be unsuccessful.

27. On July 16, 1947, API and The Lucas Machine Tool Company filed suit against DeVlieg in the District Court of the United States, Eastern District of Michigan, Southern Division.

* * *

31. After its formation, API became the owner of seven improvements developed by the members and assigned to it in accordance with the requirements of the API agreement.

32. The whole course of defendants' conduct with relation to the three subject matter patents indicates that they recognized the inventions as highly important, fundamental and valuable contributions to the machine tool art.

Conclusions of Law

1. The Court has jurisdiction of the subject matter hereof and of each of the defendants, and the complaint states a cause of action against the defendants under the provisions of the Act of July 2, 1890, entitled "An act to protect trade and commerce against unlawful restraints and monopolies", as amended, commonly known as the Sherman Act.

2. The API agreement of August 3, 1933, created an arrangement for the exclusive cross-licensing of the subject matter patents and future improvement patents therein through the pooling of these patents in API. The combined effect of the provisions of the API agreement was to impose the following unreasonable restraints:

(a) The parties were restricted in their manufacture of machine tools by being unable to obtain licenses permitting them to incorporate features covered by the subject matter patents or improvements thereon on machine tools not included in their respective fields of use.

(b) Outside parties were restricted in their manufacture of machine tools by being foreclosed from obtaining licenses on the subject matter patents or improvements thereon for any of the types of machine tools included within the fields of use exclusively reserved to API members.

(c) Each of the parties was restricted in the licensing of improvement patents it developed by the requirements that all improvement patents be assigned to API.

(d) Invention and technological development have been discouraged by the limitations imposed on the members' rights to use and license improvement patents developed by them.

3. By their continued adherence to the API agreement defendants have engaged in a continuing conspiracy to unreasonably restrain interstate commerce in the manufacture of machine tools in violation of Section 1 of the Sherman Act.

4. The agreement of 1933 between Brown & Sharpe and DeVlieg concerning the size of milling machines each would manufacture; the agreement of 1933 between Carlton and Lucas with respect to eliminating competition between the types of machine tools each would manufacture; the clearance sought by DeVlieg from Lucas in 1938 to build a bed type milling machine with sliding spindle; and the approval requested by DeVlieg from Lucas in 1941 in order to enable him to go ahead with the building of a Jigmil were integral parts of an over-all conspiracy between the API members by which the manufacturing activities of the member corporations have been confined to the fields of specialization delineated in the Declaration of Uses provision of the API agreement. Since August of 1933, the defendants have been engaged in a combination and conspiracy in unreasonable restraint of interstate trade and commerce in machine tools in violation of Section 1 of the Sherman Act, the purpose and effect of which has been to confine the manufacture of machine tools by each of them to fields of specialization that were not competitive with each other.

5. Plaintiff herein is entitled to relief by way of an appropriate decree of this Court declaring the API agreement to be illegal and void.

6. In view of the litigation pending in the Federal District Court at Detroit, Michigan, between Mac Investment Company and Charles B. DeVlieg, DeVlieg Engineering Company and DeVlieg Machine Company, it is apparent that the DeVlieg group has not been acting in concert with any other members of the combination since the inception of said litigation. And, in view of the disclaimers it is also apparent that certain of the shareholders of API have abandoned the combination brought into existence and continued by the creation of the API agreement. The conduct on the part of the co-conspirators, as evidenced by said litigation and by said disclaimers, lends support to a conclusion that the co-conspirators have withdrawn from the conspiracy. If such conclusion proves to be valid, the conspiracy would have terminated and the granting of an injunction to effectuate such termination would not be necessary. In view of the lack of proof at this time of any threat of future violations, the granting of an injunction against future violations is not appropriate. However, in the light of our observations in the following paragraph, we are unable to decide conclusively as of this writing that the conspiracy has, in fact, terminated.

The order of the Court of Common Pleas of Hamilton County, Ohio, dissolving API and appointing a permanent receiver, contains the following:

"It is further ordered that the Receiver shall not commence any litigation, or take any steps in connection with existing litigation to which Associated Patents, Incorporated, is presently a party, or in connection with the assets which are the subject of such litigation, without permission of this court."

This provision establishes that API has not been completely dissolved, and that it is awaiting the outcome of litigation that has as its subject matter an asset that could be of considerable value to API, and, in aligning itself as a party plaintiff with Mac Investment Company in this litigation, API has kept in existence at least a part of the complained-of combination. Because of this situation, the Court will retain jurisdiction of this matter until the final disposition of Civil Action 6813 pending in the District Court for the Eastern District of Michigan, and also until there is a final disposition of the dissolution proceedings presently pending in the Court of Common Pleas, Hamilton County, Ohio, at which time, upon reapplication by plaintiff, this Court will determine the request for injunctive relief.

An order in conformity with this opinion may be presented.

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United States v. National Lead Co., et al

332 U.S. 319; 67 S. Ct. 1634;

91 L. Ed. 2077; 73 USPQ 498 (1947)

Burton, J. This action was brought by The United States of America, June 24, 1944, in the District Court of the United States for the Southern District of New York, against National Lead Company (a New Jersey corporation, here called National Lead or NL), its wholly owned subsidiary, Titan Company, Inc. (a Delaware corporation, here called Titan Inc. or Tinc) and E. I. du Pont de Nemours and Company (a Delaware corporation, here called du Pont or DP). It is a proceeding in equity instituted under § 4 of the Sherman Antitrust Act, 26 Stat. 209, 36 Stat. 1167, 15 U. S. C. § 4, to prevent and restrain alleged violations of §§ 1 and 2 of that Act, 26 Stat. 209, 50 Stat. 693, 15 U. S. C. §§ 1 and 2. The trial was conducted by Judge Simon H. Rifkind of that court. It began December 4, 1944, and ended March 14, 1945. His opinion was filed July 5, 1945. His 96 findings of fact and two conclusions of law were entered October 2, 1945. After extended consideration of its terms, by the court and by counsel for all parties, the decree was entered October 11, 1945. The opinion and decree are reported in 63 F. Supp. 513-535. The findings of fact, conclusions of law and much of the detailed discussion of the decree are in the record. Separate appeals were filed in this Court, in case No. 89 by the United States, in case No. 90 by National Lead and Titan Inc. and in case No. 91 by du Pont. The three companies are sometimes referred to as "the appellant companies."

* * *

Reference is made to the opinion of the District Court for a recital of the complex facts which it had to consider in order to reach its conclusion that National Lead, Titan Inc. and du Pont each violated § 1 of the Sherman Act, although it found a marked difference between the conduct of National Lead and of its subsidiary, Titan Inc., on the one hand, and that of du Pont on the other. This Court affirms the judgment of the District Court, except as to the original effective dates of certain of its provisions, and our discussion will relate largely to the assignments of error as to the terms of the decree.


The first issue presented to the District Court was that of the participation of National Lead and Titan Inc. in a so-called "international cartel" dating back to 1920, and constituting a combination or conspiracy in restraint of trade and commerce in titanium pigments and compounds, among the several states of the United States and with foreign nations, which combination, after 1933, was alleged to include du Pont. The District Court found such participation. In their brief on appeal in No. 90, National Lead and Titan Inc. said:

"The Government's case was based on a series of closely related agreements made between 1920 and 1944. The agreements have been cancelled and continuation or renewal has been enjoined. The appeals are greatly simplified by the fact that we accept the cancellation and the injunction against continuation or renewal. We submit, however, that the court went too far in forbidding normal and usual contractual arrangements."

Accordingly, the finding of the District Court, as to the participation of National Lead and Titan Inc. in the violation of § 1 of the Sherman Act, is accepted here without further discussion.


The second issue was that of the participation of du Pont in such combination after 1933. The District Court found that du Pont "joined the conspiracy found herein to exist between, NL and its foreign associates. DP's status rights and obligations were different from those of the other members of the combination. DP did not thereafter withdraw." Finding of Fact 73. The District Court, in its opinion, also stated that --

63 F.Supp. at 530, 531, and see the preamble to the decree at 532. This finding is contested vigorously by du Pont and is the principal subject matter of its appeal in No. 91. After careful consideration, we agree with the following conclusion of the District Court:

Id. at 527. It would serve no beneficial purpose to review here the evidence upon which that court based its conclusion. Its opinion analyzes the facts (Id. at 527-531) and, in the light of the record as a whole, we find in those facts the support necessary for the conclusion reached.


Related to these issues was a third. This was whether the contract between National Lead and du Pont was offensive to the antitrust laws apart from the relation of that contract, and of the parties thereto, to the foreign producers. The District Court found that it was and also related it to the international situation. It found that --

Finding of Fact 95, subparagraph 9. In its opinion the District Court emphasized also "the great power they acquired" (Id. at 531) and indicated criticism of limitations originally inserted in certain important licenses, although later removed from them. Id. at 532. Added together, the control of the patents covered by this agreement gave to National Lead and du Pont "domination and control over the titanium pigment business in the U.S." Finding of Fact 79. The District Court referred to the "proliferation of patents" as another "inevitable consequence" of the agreement. Id. at 532. This was explained to mean the great multiplication of related patents, resulting in increasing the difficulty of an attack upon them. The validity of none of the hundreds of patents involved has been litigated.

Id. at 532. Referring to the exchange of patents between National Lead and du Pont, the District Court added:

Id. at 532. These facts are important not only in affirming, as we do, the finding that National Lead, Titan Inc. and du Pont each has violated § 1 of the Sherman Antitrust Act, but also in passing upon the terms of the decree entered in order to prevent future violations of that Act by them.


The remaining issues relate to the terms of the decree. The entire decree, exclusive of its Appendix, is reported at 63 F.Supp. 532-535, and, for reference purposes, is here reprinted in the margin, as there reported.

* * *

In our opinion, the provisions of this decree, to a large extent, are matters lying within the discretion of the District Court as a court of equity whose duty it was to make the remedy as effective as possible. The District Court was confronted with an obligation to give effect to the provisions, on the one hand, of the patent laws granting certain valuable rights in the nature of monopolies to the patentees and their licensees, and also to give effect, on the other hand, to the provisions of the Sherman Antitrust Act prohibiting any combination or conspiracy in restraint of trade among the several states or with foreign nations. We believe that the District Court has not exceeded its discretion in the provisions of this decree but has employed its discretion with commendable fairness having especial regard to the needs of this case. It has succeeded in keeping within the lines of precedent thus far established, although, in this field, such lines cannot be much more than guides. The essential consideration is that the remedy shall be as effective and fair as possible in preventing continued or future violations of the Antitrust Act in the light of the facts of the particular case.

The issues are presented by the assignments of error in the three appeals. They will be considered separately in conjunction with their supporting arguments. In each instance we sustain the present decree.


Request to omit the requirement of the granting of compulsory, nonexclusive licenses at uniform, reasonable royalties and to substitute for that requirement, either a perpetual injunction against the enforcement of the titanium patents presently owned or controlled by the respective appellant companies, or a provision for compulsory licenses to be issued under those patents, free of royalties.

This is the major legal issue in this case.

The material provisions in the present decree are as follows: <

The assignment of error originally made by the Government, in No. 89, as to this point was as follows:

Later the Government moved to amend this assignment of error so that it would read as follows:

* * *

On oral argument, the Government supported its second proposal but indicated that, if that proposal were not satisfactory, it would prefer its original request to the provision for uniform, reasonable royalties now in the decree.

* * *

National Lead * * * argues that "The court erred in refusing to order royalty-free licensing of all patents as defined in the judgment." Accordingly, both proposals have been considered.

While it has been contended that, because of the decision of this Court in Hartford-Empire Co. v. United States, 323 U.S. 386, the District Court was not free in the present case to require the issuance of royalty-free licenses, we feel that, without reaching the question whether royalty-free licensing or a perpetual injunction against the enforcement of a patent is permissible as a matter of law in any case, the present decree represents an exercise of sound judicial discretion.

This is a civil, not a criminal, proceeding. The purpose of the decree, therefore, is effective and fair enforcement, not punishment. An understanding of the findings of fact is essential to an appreciation of the reasons for the decree.

Pure titanium pigment and its compounds represent a product of comparatively recent development but of major commercial value. The District Court found that --

There are four producers of titanium products in the United States -- National Lead, du Pont, American Zirconium (here called Zirconium), which is a subsidiary of Glidden Company, and Virginia Chemical Company (here called Virginia Chemical), which is a subsidiary of American Cyanamid Company. National Lead and du Pont have cross-licensed each other under their respective patents. Zirconium entered the field in 1935 with licenses from National Lead and du Pont, but the National Lead license has been canceled. Virginia Chemical entered the field in 1937 with a license from du Pont.

National Lead has assets of over $100,000,000 and is the largest manufacturer of titanium pigments and compounds not only in the United States but in the world. In 1943 it manufactured and sold 76.5% of the composite pigments and 46.4% of pure TiO² made in the United States. Finding of Fact 3. Du Pont is one of the largest chemical companies in the United States with assets of over $ 1,000,000,000. It is one of the largest manufacturers of titanium pigments in the United States. In 1943 it manufactured and sold approximately 23.5% of the composite pigments and 45.1% of pure TiO² made in the United States. Finding of Fact 9.

National Lead took an early lead in promoting the commercial manufacture and use of titanium pigments. In 1920 it acquired an interest in The Titanium Pigment Company, Inc., which had been organized by the Titanium Alloy Manufacturing Company at Niagara Falls, New York. It made use of a patented process developed by Barton and Rossi. At about that time, a Norwegian chemist, Gustav Jebsen, made similar investigations but along different lines in Norway. He and his associates perfected a patented means for producing relatively pure titanium dioxide by a process much less costly than that in use at Niagara Falls. These associates had not, however, perfected processes for the manufacture of composite pigments. Finding of Fact 33. In about 1922, Joseph Blumenfeld, a chemist and managing director of a French company, obtained patents relating to the manufacture of titanium compounds.

On July 30, 1920, The Titanium Pigment Company, Inc., (affiliated with National Lead) and Titan Co. A/S (representing the Jebsen interests) entered into an agreement which is still uncanceled. Its principles became the basis for more than 60 subsequent agreements and for an international cartel in titanium pigments. The essential features of this agreement are stated in Finding of Fact 44 and in the opinion of the District Court, 63 F.Supp. at 517-518.

[The Court approves the District Court's definitions of "cartels" in footnote 5:

"Cartels have been defined by two of the foremost members and advocates of such bodies. In the words of Sir Alfred Mond, organizer of Imperial Chemical Industries:

Briefly stated, it applied to a licensed field, defined as including all substances containing above 2% of titanium unless containing by weight more than 5% of a metal other than titanium in its purely metallic form. It applied to all apparatus, methods and processes useful in obtaining or manufacturing such substances both in the titanium and in the titanium compound field.

Both parties agreed to grant and accept a license, exclusive of all others including the licensor, under all "existing or future" patents of the licensing party. They divided the globe territorially. The American company was to have the North American continent. The Norwegian company was to have the rest of the world, except that reciprocal, nonexclusive rights of sale were reserved for both companies in South America.

Detailed provision was made for exchange of copies of applications for patents filed by the parties or their other licensees. Neither party was ever to question or contest the validity of any patent of the other under which it was licensed within the field described.

The American company became the exclusive agent for the Norwegian company in North America and vice versa outside of North and South America. Sales were to be at prices and on terms determined by the agent. Notwithstanding these agencies, however, importations of "finished articles" -- that is, paint, paper, rubber, glass, etc. -- containing titanium products of the principal, its licensees or sublicensees, would be permitted provided such products did not constitute such an important part of such finished articles that sales within the agent's territory would interfere substantially with the agent's sales of its own titanium products.

Each party would impart semiannually to the other information in detail as to knowledge obtained in and applicable to the "licensed field," and would permit the other to inspect and study operations in its plants (exclusive of research laboratories). The reciprocal grants of exclusive licenses would extend to December 31, 1936, and thereafter for periods of ten years each, with provision for termination by notice to be given at least five years before the end of any such period. In particular, so long as each company held an exclusive license from the other under this agreement, it would have the right to grant licenses under its own patents, and sublicenses under the other's patents, on the condition, nevertheless, that every such licensee or sublicensee would grant to the party to the 1920 agreement (other than its licensor), its patent rights in the "licensed field" identical in character, territorial scope, and duration to those given by its licensor to such other party under the 1920 agreement, and would impart technical information to such other party in the same manner and to the same extent as its licensor.

In 1929, the obligations of Titan Co. A/S under this agreement were assumed by Titan Inc. and, in 1936, the obligations of The Titanium Pigment Company, Inc., were assumed by National Lead.

Other companies throughout the world joined in carrying out this program to restrain international commerce and to establish an international combination or conspiracy in restraint of trade. The complaint in the present case lists many of these foreign companies as co-conspirators with National Lead, Titan Inc. and du Pont, but it does not attempt to make such co-conspirators parties defendant. The District Court recognized that it did not have jurisdiction over such co-conspirators and found in that circumstance one of its difficulties in effectively restraining National Lead, Titan Inc. and du Pont from further violations of the Sherman Antitrust Act, pursuant to this international as well as domestic program. To accomplish this purpose, the District Court has adjudged these agreements to be unlawful and it has canceled them. In addition, it has enjoined all three defendants, National Lead, Titan Inc. and du Pont, from further performance of any of the provisions of such agreements and of any agreements amendatory thereof or supplemental thereto.

* * *

While this combination and conspiracy in restraint of interstate and foreign commerce thus was developing from 1920 to 1931, with National Lead and Titan Inc. at its center, du Pont was unconnected with it.

* * *

"Both NL and DP in good faith claimed that each infringed certain of the other's titanium pigment patents and both in good faith denied such infringement claiming, among other things, that the patents alleged to be infringed were of doubtful validity. NL and DP agreed in October, 1932, that the validity of the patents claimed to be infringed should not be questioned except as a last resort and that they should try to arrive at a general understanding."

* * *

After extensive negotiations, National Lead and du Pont formulated an agreement in writing, dated as of January 1, 1933, which was executed August 28, 1933. It is summarized in Finding of Fact 73 and in the opinion of the lower court, 63 F.Supp. at 520-521. By its terms, it provided for cross-licensing but did not provide for the exclusive licensing and restrictive territorial and agency agreements specified in the 1920 program. Certain foreign associates of National Lead, particularly Interessengemeinschaft Farbenindustrie Aktiengesellschaft (usually referred to as I. G. Farbenindustrie), insisted upon some such commitment from du Pont or its subsidiary. This insistence never was abandoned. After further negotiations and an exchange of letters, all as set forth in full in the opinion of the District Court, 63 F.Supp. at 528-529, some understanding was reached as to the future conduct of du Pont, or of its subsidiary.

* * *

These findings disclose the special conditions which confronted the District Court in framing its decree. They disclose a vigorous, comparatively young, but comparatively large, world-wide industry in which two great companies, National Lead and du Pont, now control approximately 90% of the domestic production in substantially equal shares. The balance of that production is in the hands of two smaller companies. Each of these is affiliated with larger organizations, not parties to this case. The findings show vigorous and apparently profitable competition on the part of each of the four producers, including an intimation that the smaller companies are gaining ground rather than losing it. Keen competition has existed both before and after the elimination, by the 1933 agreement and understanding, of certain patent advantages from among the weapons of competition. The competition between National Lead and du Pont has been carried into this Court where today National Lead supports the Government's proposal for royalty-free licenses, while du Pont argues strongly for a complete dismissal of the proceedings and contends that, in any event, if there are to be compulsory licenses they at least should require payment of uniform, reasonable royalties as provided in the present decree.

Assuming, as is justified, that violation of the Sherman Act in this case has consisted primarily of the misuse of patent rights placing restraint upon interstate and foreign commerce, that conduct is not before this Court for punishment. It is brought before this Court in order to secure an order for its immediate discontinuance and for its future prevention. That will be accomplished largely through the strict prohibition of further performance of the provisions of the unlawful agreements. Further assurance against continued illegal restraints upon interstate and foreign commerce through misuse of these patent rights is provided through the compulsory granting to any applicant therefor of licenses at uniform, reasonable royalties under any or all patents defined in the decree. Such patents include not only the patents and patent applications listed in the appendix to the decree, but also, among others, all patents which cover any titanium pigments or any process for the manufacture of such pigments issued to, or acquired by, any of the appellant companies within five years from the date of the decree. It applies also to all such patents of which any of the appellant companies shall become the exclusive licensee within such five years with power to sublicense.

On the facts before us, neither the issuance of such licenses on a royalty-free basis nor the issuance of a permanent injunction prohibiting the patentees and licensees from enforcing those patents has been shown to be necessary in order to enforce effectively the Antitrust Act.
* * *

In the absence of a showing to the contrary, it is obvious that some patents should entitle their owners to receive higher royalties than others. Also, it is clear that several patents, each of equal value, ordinarily should entitle their owners to a larger total return in royalties than would one of them alone. It follows that to reduce all royalties automatically to a total of zero, regardless of their nature and regardless of their number, appears, on its face, to be inequitable without special proof to support such a conclusion. On the other hand, it may well be that uniform, reasonable royalties computed on some patents will be found to be but nominal in value. Such royalties might be set at zero or at a nominal rate. The conclusion, however, would depend on the facts of each case.

* * *

For the reasons set forth, the motion of the United States to amend its assignments of error is granted and the judgment of the District Court is Affirmed.

Douglas, J. Dissenting: I cannot agree that royalties should be charged on patents whose misuse has been so flagrant as to persuade us to approve compulsory licensing of all who desire to use the inventions. Nor do I think that the failure to provide for royalty-free licensing may be sustained as an exercise of the judicial discretion of the District Court. That would be the case if the District Court had been free to frame its decree unembarrassed by the ruling in Hartford-Empire Co. v. United States, 323 U.S. 386, 324 U.S. 570. In that case this Court modified an antitrust decree so as to permit "reasonable" royalties on patents which had been ordered licensed without charge to all applicants. The language there used well might lead a court to the conclusion that royalty-free licensing is a remedy unacceptable as a matter of law. In these circumstances it is fair to assume that the action of the district judge in the present case was in deference to the Hartford-Empire rule rather than a reflection of his own judgment.

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United States of America v. Birdsboro Steel Foundry and Machine Co.

139 F. Supp. 244; 108 USPQ 428

1956 Trade Cas. ¶ 68,293; (WD Pa, 1956)

Miller, J.

Findings of Fact

A. Parties and Subject Matter.

1. This is a civil action brought by the United States of America, charging the defendants with violation of Section 1 of the Sherman Act, 15 USCA § 1, and seeking injunctive and other relief. Commerce in "cooling beds" and in certain auxiliary apparatuses ("runin" and "runout" tables used to move material to and from cooling beds), which are devices used in steel manufacture, is alleged to have been unlawfully restrained by the defendants.

* * *

3. Birdsboro, during the period of time covered by the complaint and until on or about December 15, 1954, was engaged in the manufacture and sale of steel and alloy steel castings, rolling mills and hydraulic and special machinery of various types, including cooling beds used in conjunction with rolling mills.

* * *

7. Mesta manufactures and sells various types of rolling mills and other machinery utilized in the steel industry, and sells, and during the period of time covered by the complaint sold cooling beds used in conjunction with rolling mills. It also manufactures and during the period of time covered by the complaint manufactured cooling beds involving much larger parts than the type which are the subject of the Birdsboro-Mesta license agreements described hereinafter.

8. While both Birdsboro and Mesta are machinery builders, their facilities are of a different character in that Birdsboro is particularly well suited to manufacture equipment of small and intermediate sizes, and Mesta is especially capable of manufacturing equipment of very large sizes.

B. The Manufacture of Rolled Steel Products.

9. Steel is formed by casting, forging and rolling processes. In the making of rolled products, the molten metal is first poured into "ingot molds", where it solidifies. The resulting form, known as an ingot, is refined and shaped by successive rolling operations into various forms of semifinished or finished steel products. The first of such rolling operations is performed on either of two types of mills, known as "blooming mills" and "slabbing mills", whence the ingots emerge in reduced forms known as blooms and slabs, respectively. The blooms are subsequently rolled on "bar mills" or "billet mills" into "bars" or "billets", which are in turn rolled on "skelp mills", "seamless tube mills", "rod mills", "structural mills", "rail mills", or "merchant mills". The respective products of these latter mills are skelp (which is further rolled on tube mills), seamless tubing, rods (which may be cold-drawn into wire), structural shapes, rails and merchant bar products. Slabs are rolled on "plate mills" into plate or on "hot strip mills" into what is termed hot rolled strip. Hot rolled strip may be further processed on "cold strip mills" into a product described as cold rolled strip.

Products which are intended subsequently to be hot rolled are called "semifinished products". Products which are not intended subsequently to be hot rolled are called "finished products". Certain of the above mills are used to roll semifinished products, and certain of them are used to roll finished products.

C. Cooling Beds.

10. Except as otherwise indicated by the word "cold", all of the rolling operations recited in Finding 9 are carried on while the steel is hot and plastic. The several rolling operations are not necessarily carried on in immediate succession, or even in the same steel plant. It is frequently necessary to permit semifinished products to cool at various stages in their manufacture, for convenience in storage or handling, prior to their being reheated for further hot rolling. It is also necessary to permit finished products to cool, so that they may be conveniently stored or handled in subsequent coldworking processes. The term "cooling bed" is not a term of art. A "cooling bed" is a place where steel is set to cool. There are many types of cooling beds.

11. Hot steel products may be conveyed to a cooling bed in a variety of ways, one of which is by means of a conveyor table called a "run-in table" equipped with motor-driven rollers.

12. The cooled steel products may be removed from the cooling bed in a variety of ways, one of which is by means of a conveyor table, called a "run-out table", equipped with motor-driven rollers.

13. Neither the run-in table nor any other device for conveying the hot steel products to the cooling bed, nor the run-out table or any other device for removing the cooled steel products from the cooling bed, are parts of the cooling bed itself, as that term is used in the steel industry and as it is used herein.However, such auxiliary devices are part of the subject matter of the conspiracy alleged in the complaint.

14. A few types of steel rolled on merchant mills, when intended for a few end uses, e.g., flat bars ("spring flats") destined to be made into leaf springs, must be cooled slowly subsequent to the final rolling operation. Such slow cooling can be accomplished in various ways, one of which is to place the pieces to be cooled close together in a pack so as to reduce the effective radiating surface and restrict the amount of air which can circulate around the individual pieces. This process is known as "pack annealing". Some cooling beds for finished products contain devices for pack annealing. Cooling beds for semifinished products only do not contain devices for pack annealing.

15. The principal component parts of cooling beds are: (a) the packing mechanism (on some finished product beds), for continuous pack annealing of pieces desired to be slowly cooled, and which can be used for transfer purposes, without pack annealing, when pack annealing is not required; (b) the work-supporting bars, upon which the pieces to be cooled rest while they are cooling; and (c) the under-structure, which is a mechanism to actuate the work-supporting bars so as to cause the pieces being cooled to move across such work-supporting bars during the time of cooling.

D. History of Cooling Bed Manufacture.

16. The provision of cooling facilities for hot steel is necessarily as old as the hot rolling of steel, and cooling facilities have been a part of every installation for hot rolling.

17. Many United States patents have issued, commencing as early as 1872, disclosing various cooling beds and environmental equipment.

18. Over the past fifty years many machinery builders other than Birdsboro and Mesta have made cooling beds for steel manufacturing companies, and some steel manufacturing companies have made cooling beds for their own use.

* * *

G. Advantages of Cooling Beds Embodying Fisk and Peterson Inventions.

27. A cooling bed covered by the Fisk and Peterson patents (herein called a "Fisk-Peterson bed") is a highly versatile bed which is particularly well adapted to cool the variety of products produced by a merchant mill. It can be easily adjusted either to pack anneal or not to pack anneal, as required. The alternately available V-shaped notched and smooth-surfaced work-supporting bars permit the cooling of various shapes of product and enable them to be kept straight while being cooled. The understructure mechanism is economic to operate and permits the product to be carried across the bed at such speeds as the operator may select. The Fisk-Peterson bed thus provided a facility that was very useful to steel-makers, especially to the smaller steel plants which because of a limited demand for a single type of product might wish to roll different products at different times on the same mill.

H. The Situation as between Birdsboro and Mesta Respecting Cooling Beds.

(1) Patents

28. Neither Birdsboro nor Mesta could, independently of the other, make cooling beds containing the advantageous features desired by the trade (Finding 27) without trespassing on patent rights owned by the other, because such cooling beds embodied inventions some of which were covered by patents owned by Birdsboro and some of which were covered by patents owned by Mesta.

In addition, neither Birdsboro nor Mesta individually could build beds embodying certain inventions because patents owned by one of them covering such inventions blocked patents owned by the other:

(a) Neither Birdsboro nor Mesta could build a bed containing the V-shaped alternately-available notched and smooth-faced work-supporting bars: Mesta could not build such a bed because Birdsboro owned the Peterson reissue patent No. Re. 18,996, covering the specific V-bar structure; Birdsboro could not build such a bed because the V-bars were dominated by the broad claims of Fisk patent No. 1,964,147, owned by Mesta.

(b) Neither Birdsboro nor Mesta could build a bed containing the overhead packing device disclosed and claimed in Peterson and Peterson patent No. 2,328,923: Mesta could not build such a bed because Birdsboro owned patent No. 2,328,923; and Birdsboro could not build such a bed because such a device was dominated by the broad claims of Fisk patents, owned by Mesta, especially Fisk patent No. 1,761,470.

(c) Birdsboro could not build a bed containing the overhead packing device disclosed and claimed in Fisk and Peterson patent No. 2,332,905, owned by Birdsboro and Mesta jointly, because such device was dominated by the broad claims of Fisk patents, owned by Mesta, especially Fisk patent No. 1,761,470.

(2) Facilities

29. Fisk-Peterson beds contain thousands of small parts, each weighing from one-half pound to a few hundred pounds. Such a bed may contain between 40,000 and 50,00 parts and weigh 900,000 pounds. The parts must be specially cast and machined. They are not interchangeable, and must be assembled at the manufacturer's plant and fitted and numbered so that when the bed is reassembled at the purchaser's site each part may be relocated in the identical place in the assembly.

30. Since at least 1930, Birdsboro's facilities have been particularly well suited to the construction of Fisk-Peterson beds. It has one foundry devoted entirely to castings ranging from one-half pound to 600 pounds in weight, a wealth of small machine tools, an extensive assembly floor, and an engineering staff which is especially competent in the cooling bed field.

31. Since at least 1930, Mesta's facilities have not been suited to the construction of Fisk-Peterson beds. `Mesta's foundry equipment is large and is adapted to the production of only large castings. Mesta cannot economically make small castings and (except in extreme emergencise) purchases from others all iron castings under 500 pounds and all steel castings under 1,000 pounds, Mesta's machine tools are extraordinarily large. Its shop is crowded, and it does not have floor space for assembling a Fisk-Peterson bed.

32. Although Mesta does not and has not manufactured cooling beds embodying features of the claims of the licensed patents, both Birdsboro and Mesta manufacture and sell, and during the period of time covered by the complaint, have manufactured and sold cooling beds for both finished and semifinished products not embodying the licensed patents.

33. Mesta, to engage in the manufacture of Fisk-Peterson beds, would be required to purchase more land, to build a new foundry, to put in new, small machine tools, and to acquire additional engineering personnel.

34. Since at least 1930, Mesta has been interested in supplying complete merchant mills. These mills involve large parts which are compatible with Mesta's facilities, but in many cases it is difficult for Mesta to obtain the order for the entire mill installation without also taking the order for some of the components containing small parts, notably the cooling bed, which Mesta could not make itself.

I. Summary of Agreements between Birdsboro and Mesta.

35. Defendants have made four agreements relating to cooling beds: (a) Agreement of July 7, 1930. (b) Supplemental agreement of February 24, 1933. (c) Agreement of February 24, 1933. (d) Agreement of August 12, 1942.

Each of the first three agreements -- (a), (b), and (c), above -- was cancelled and terminated more than thirteen years ago, by an express provision in the agreement of August 12, 1942. That agreement still subsists, Birdsboro (Delaware) haveing assumed all rights and obligations of Birdsboro thereunder.

(a) The agreement of July 7, 1930, involved Fisk patent No. 1,761,470, which issued to Mesta on June 3, 1930, and Peterson application Serial No. 389,119, filed August 29, 1929, assigned to Birdsboro, which later eventuated in patent No. 1,834.728 (subsequently reissued as Re. 18,996). The Fisk patent related to the packing mechanism in general, and the Peterson application to the understructure and the work-supporting bars. A cooling bed embodying the several inventions of Fisk and Peterson could not lawfully be made or sold by either Birdsboro or Mesta without a license from the other. The agreement, which is limited to merchant mill cooling beds covered by the Fisk patent or the Peterson application, or by both, conferred on Mesta an exclusive license under the Birdsboro application to sell, and on Birdsboro an exclusive license under the Mesta patent to make.

(b) The supplemental agreement of February 24, 1933, came about after the issuance of patent No. 1,834,728. When that patent issued, it became apparent that Peterson had claimed certain subject matter (claims 9-14 of the patent) disclosed in Fisk's co-pending application Serial No. 426,876 (subsequently patent 1,921,353). These claims related generally to the alternating plunger scheme and related mechanism mentioned in Finding 21(c). An interference, No. 65,389, was declared by the Patent Office. It was determined that Fisk was the prior inventor of the subject matter of these claims, and the interference was settled accordingly. The supplemental agreement -- agreement (b), above -- provided that the subject matter of claims 9-14 should go to Fisk and that the Fisk application should come under the terms of agreement (a), above. Agreement (b) also took claims 23-25 of patent No. 1,834,728 out of the operation of agreement (a) and made them the subject of agreement (c), above. All the other claims of patent No. 1,837,728 remained within the operation of agreement (a).

(c) The agreement of February 24, 1933, agreement (c) above, dealt primarily with the inventorship of the borad idea of having a smooth and a notched surface on the bed and of making one or the other of these selectively available. This broad subject matter was covered by claims 23-25 of Peterson patent No. 1,834,728. In Fisk's pending application Serial No. 529,076 (subsequently issued as patent No. 1,964,147), Fisk claimed the same broad idea. An interference (No. 65,090) was declared by the PAtent Office between those broad claims of the Peterson patent, owned by Birdsboro, and the Fisk application, owned by Mesta. The agreement provided that it should be determined which of Fisk or Peterson was the inventor of the subject matter of those claims. As to merchant mill cooling beds the agreement provided for licensing along the same general lines as agreement (a). In addition, as to cooling beds for installations other than merchant mills, Birdsboro was given an exclusive license to make, use and sell under the broad subject-matter claims.

It was determined that Fisk was the inventor as to the disputed subject matter, and the interference was settled accordingly. Peterson patent No. 1,834,728 was reissued as patent Re. 18,996 with the broad subject-matter claims 23-25 removed. They appear as claims 15-17 of Fisk patent No. 1,964,147.

There remained in the Peterson patent, as reissued, claims to the V-shaped form of work-supporting bars. These claims were dominated by the broad claims awarded to Fisk, with the result that the V-bars could not be constructed without rights under the Peterson reissue patent, owned by Birdsboro, and the Fisk patent No. 1,964,147, owned by Mesta. The claims to the understructure also remained in patent Re. 18,996.

36. In addition to the two interferences referred to in Finding 35, a later interference (No. 80,348) was declared by the Patent Office between Peterson and Peterson Application Serial No. 409,260 (later issued as patent No. 2,328,923) and Fisk Application Serial No. 412,802 (later issued as patent No. 2,328,635). In this third interference priority of invention was awarded to Peterson.

* * *


This is a civil action under § 4 of the Sherman Act, 15 USCA § 4, alleging violation of § 1 of the act, 15 USCA § 1. Injunctive relief, looking to the future, is sought. Therefore, the disposition of the case must ultimately turn upon consideration of the 1942 agreement between defendants and their activities pursuant thereto, that agreement being the only agreement which has existed between defendants, relating to the subject matter of this action, since 1942. See Standard Oil Co. (Indiana) v. United States, 1931, 283 US 163, 182, 51 S.Ct. 421, 75 L.Ed. 926.

As more specifically set forth in the findings, defendants' patents which are here involved were both blocking and complementary. Defendants could, of course, refrain from making any agreement concerning such patents, in which event cooling beds embodying the best features of both defendants' patents could not lawfully be made, used, or sold, competitively or otherwise. Thus, in the absence of an agreement linking the right to use both defendants' patents, neither the public nor defendants could obtain any benefit from the inventions or from the lawful monopoly of the patents during the life of the paents. Therefore, it would seem that some agreement whereby the patent rights may be combined is desirable from the viewpoint of the public interest.

Defendants could, of course, dedicate their patents to the public use, or grant free or cheap licenses to all applicants (of which, with one exception, there have been none), or agree to compete with each other in the production of the patented beds (although Mesta could not feasibly perform such an agreement), or otherwise disclaim the lawful monopoly powers conferred by the patent laws. It may be assumed that it would be of public benefit if defendants, as well as all patentees, would go on inventing and disclosing their inventions without claiming the rewards inherent in the monopoly powers conferred by the patent laws. But patentees are not required by law, nor can they reasonably be expected, to do so.

Plaintiff's position is, in effect, that defendants, with their blocking and complementary patents, must be limited to a choice of the two foregoing alternatives, although no one would benefit from the first alternative, and the second would nullify or greatly impair the value of defendants' lawful monopoly powers. All of the aspects of defendants' agreement and of their activities of which plaintiff complains serve only to show that defendants have combined their patents in such a way as to maintain the monopoly powers conferred by the patents. This, in the opinion of the court, they were entitled to do.

Agreements for exclusive limited patent licenses are not illegal per se, although they do involve a restraint of commerce. United States v. General Elec. Co., 1926, 272 US 476, 47 S.Ct. 192, 71 L.Ed. 362; Brownell v. Ketcham Wire & Mfg. Co., 9 Cir., 1954, 211 F2d 121. That is so because the restraint arises from the patent grant and its lawful transfer. As stated in Bement v. National Harrow Co., 1902, 186 US 70, 92, 22 S.Ct. 747, 756, 46 L.Ed. 1058:

"[The Sherman Act] clearly does not refer to that kind of a restraint of interstate commerce which may arise from reasonable and legal conditions imposed upon the assignee or licensee of a patent by the owner thereof, restricting the terms upon which the article may be used * * *."

The agreement in the instant case involves exclusive cross licenses, although in substance it is not far different from an exclusive licensing of all of Mesta's cooling bed patents to Birdsboro, with no license from Birdsboro to Mesta, but with a rather unusual provision for compensating Mesta for its licenses. Birdsboro was given the exclusive right to make and sell under all the patents, except that Mesta was, in effect, allowed to take a middleman's profit by having the exclusive right to sell cooling beds fo merchant mills. The method for compensating Mesta does not restrain commerce any more than a more typical agreement for the payment of specified royalties. Cf. Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 1950, 339 US 827, 70 S.Ct. 894, 94 L.Ed. 1312. In considering the reasonableness of the provision, it must be remembered that cooling beds are not mass production items; their prices, specifications, dimensions, and uses vary greatly even in the narrow field of beds covered by Fisk and Peterson patents.

Viewing the agreement, however, as one of exclusive cross licensing, it is clear that such an agreement is not illegal per se and may even be desirable. In Standard Oil Co. v. United States, supra, the Court held, 283 US at page 171, 51 S.Ct. at page 424:

In a footnote the Court stated:

The dictum of the court in Blount Mfg. Co. v. Yale & Towne Mfg. Co., C.C., D. Mass., 1909, 166 F. 555, 557, is particularly applicable in this case:

Nor does any illegality inhere in the fact that the licenses granted are limited in their fields of use. See General Talking Pictures Corp. v. Western Electric Co., 1938, 305 US 124, 59 S.ct. 116, 83 L.Ed. 81; Extractol Process, Ltd. v. Hiram Walker & Sons, Inc., 7 Cir., 1946, 153 F2d 264.

This court is not unmindful of the admonition of the Standard Oil case, supra, 283 US at pages 169-170, 51 S.Ct. at page 423:

The agreement here involved is not an agreement between actual or potential competitors in the manufacture of beds of the types covered by the agreement. The court is well aware that cross licensing agreements have been used in some cases to fix prices, to extend patent monopolies to unpatented subject matter, to regiment an industry, or otherwise to restrain lawful competition. See Brownell v. Ketcham Wire & Mfg. Co., supra. But no such illegality appears in this case.

Plaintiff contends that defendants have, under their agreement, given extraterritorial effect to United States patents. This contention is not supported by the evidence. Of course, beds manufactured in the United States for sale elsewhere would come within the terms of the agreement because such manufacture would come within the patent monopoly grants. See Becton, Dickinson & Co. v. Eisele & Co., 6 Cir., 1936, 86 F2d 267, certiorari denied 1937, 300 US 667, 57 S.Ct. 509, 81 L.Ed. 874. There is no evidence, moreover, of any consultation between defendants with respect to a patented bed which was not made and sold in the United States.

Plaintiff particularly complains of the provision of the 1942 agreement for the automatic inclusion of future cooling bed patents under the terms of defendants' agreement. Such provisions can be abused, just as many agreements lawful in themselves can be used unlawfully to restrain commerce. But no such abuse appears here, and provision for future patents is not unlawful per se. TransparentWrap Mach. Corp. v. Stokes & Smith Co., 1947, 329 US 637, 67 S.Ct. 610, 91 L.Ed. 563; Cutter Laboratories, Inc., v. Lyophile-Cryochem Corp., 9 Cir., 1949, 179 F2d 80, 93; United States v. E. I. DuPont de Nemours & Co., D.C., D.Del., 1953, 118 F.Supp. 41, 224-225, probable jurisdiction noted, 1955, 348 US 806, 75 S.Ct. 41, 99 L.Ed. 637.

Plaintiff relies strongly upon United States v. Line Material Co., 1948, 333 US 287, 68 S.Ct. 550, 92 L.Ed. 701, and cases following it, e.g., United States v. New Wrinkle, Inc., 1952, 342 US 371, 72 S.Ct. 350, 96 L.Ed. 417. Line Material involved the problem of price fixing pursuant to patent cross licensing agreements, in the light of United States v. General Elec. Co., supra, following Bement v. National Harrow Co., supra. Of the eight justices who considered the Line Material case, the four concurring justices thought that General Electric should be overruled insofar as it related tp price fixing, the three dissenting justices thought that it and Bement should be followed, and Justice Reed, who delivered the opinion of the Court, thought that General Electric should be distinguished. None of the opinions in Line Material suggests the overruling of Standard Oil Co. v. United States, supra, which held that a cross license between mutually deadlocked complementary patents is, per se, a desirable procedure. Clearly the ratio decidendi of Line Material lay in price fixing, not in cross licensing. As stated in the opinion of the Court, 333 US 315, 68 S.Ct. 564:

"It is not the cross-licensing to promote efficient production which is unlawful. *** The unlawful element is the use of the control that such cross-licensing gives to fix prices."

There is no evidence of price fixing in this case. The only agreement regarding prices is contained in paragraph 5 of the 1942 agreement, which provides that if the prices at which Birdsboro shall sell cooling beds for merchant mills to Mesta for resale are not low enough to enable Mesta "to sell in competition with equipment offered by others", Mesta may build such beds itself or have them built by others. Such an agreement tending to suppress prices of cooling beds for merchant mills to a competitive level is clearly in furtherance of, rather than in opposition to, the purposes of the Sherman Act. Of course, in the field of cooling beds for semifinished products, Birdsboro was given all the patent rights and there was no cross licensing to Mesta.

In the opinion of the court, this case must be decided in accordance with Cutter Laboratories, Inc., v. Lyophile-Cryochem Corp., supra, in which the cross licensing arrangement which the Ninth Circuit upheld seems to have been very similar to that involved here, except that the arrangement in that case would seem to offer a greater opportunity for restraint of commerce than is evidenced here. The court held, 179 F2d at page 93:

In the instant case defendants have not, through their agreement, either acquired a power or evidenced an intent to exclude competition from the cooling bed industry. Cf. United States v. Associated Patents, Inc. D.C., E.D.Mich., 1955, 134 F.Supp. 74, affirmed per curiam sub nom. Mac Investment Co. v. United States, 76 S.Ct. 432. Rather, they have served to increase competition in the cooling bed industry by facilitating the production of beds which could not otherwise have been produced, in an industry of which their Fisk-Peterson beds represent a minor part of the total production. Application of the "rule of reason", cf. United States v. United States Gypsum Co., 1948, 333 US 364, 400-401, 68 S.Ct. 525, 92 L.Ed. 746, to the evidence in this case does not lead to the conclusion that competition has been unlawfully restrained.

As stated in the Cutter Laboratories case, supra, 179 F2d at pages 92-93: