Automatic Radio Mfg. Co. v. Hazeltine Research, Inc.Automatic Radio Mfg. Co. v. Hazeltine Research, Inc.
Lead Opinion
This is а suit for royalties alleged to be due under a patent license agreement between the defendant, Automatic Radio Manufacturing Company, Inc., a Massachusetts corporation (hereinafter called Automatic), and the plaintiff’s assignor, Hazeltine Corporation, a Delaware corporation. Plaintiff Hazeltine Research, Inc., is an Illinois corporation organized as a wholly owned subsidiary of Hazeltine Corporation. Hazeltine Electronics Corporation, another wholly owned subsidiary of Hazeltine Corporation, conducts the research program about to be mentioned. We shall refer to these corporations collectively as Hazeltine.
For many years Hazeltine has engaged in a program of 'radio reseаrch, as a result of which it has developed many patented inventions. Other patents have been acquired by it through various business arrangements. At the time of this suit, Hazeltine owned, or had the right to grant licenses under, five hundred and more patents and approximately two hundred patent applications, chiefly pertaining to radio and television. As one of the largest licensors in the radio field, it has granted non-exclusive licenses to radio manufacturers, permitting them to use any or all of Hazeltine’s patents, in return for a royalty payment of a fixed percentage of gross sales of various types of radio equipment.
Automatic first became a licensee of Hazeltine in 1935. It defaulted on its royalty obligations under the first two agreements with Hazeltine. However, in each instance a settlement was reached, and the relationship continued. The present contract between the parties became effective September 1, 1942, to run ten years, subject to an option of earlier termination by the licensor upon the happening of certain specified events. Automatic was given a nontransferable, non-exclusive license, under a schedule of enumerated patents and all other patents with respect to which Hazeltine should acquire the right to grant licenses during the period of the agreement. The license authorized Automatic to utilize such patents in the manufacture and sale of certain described radio, phonographic, and other equipment, “limited to use in homes, use for educational purposes and private noncommercial use”. Automatic agreed to pay royalties expressed in terms of a specified percentage of the selling price of each piece of the enumerated types of equipment manufactured and sold by the licensee, whether or not any of such patents were actually used in the manufacture of the particular apparatus. In any case, the agreement called for a minimum royalty payment of $10,000 per year.
The contract, in Article VI further provided — and appellant makes much of this — • that the licensee “agrees to mark all licensed apparatus manufactured and sold by Licensee hereunder, in readily legible form, with the statement ‘Licensed by Hazeltine Corporatiоn only for use in homes, for educational purposes, and for private, non-commercial use, under one or more of the following patents and under pending applications followed by the word ‘Patent’ and the numbers of the patents which are, in the opinion of Licensor, involved in apparatus of the types licensed hereunder manufactured by one or more licensees of Licensor. The marking required by this section shall be affixed to said licensed apparatus by attaching plates bearing the required marking or by affixing said marking on said apparatus in some other form equally permanent and apparatus not bearing such marking is not licensed.”
It was found by the district court that the contract was executed in New York, and that at least part of the performance thereunder was due in New York. The concluding article of the contract provided that it was to be “governed by and interpreted in accordance with the laws of the State of New York.”
Because of wartime restrictions on the production of radio sets for private use, Hazeltine waived demand for payment of the minimum annual royalties from September, 1942, through August 30, 1945. Upon refusal of Automatic to pay royalties thereafter, Hazeltine filed its complaint in the present case on April 9, 1947. Plaintiff prayed for a judgment that Automatic pay to Hazeltine the minimum sum due under the contract for the year ending August 31, 1946, with interest; that an accounting
After Automatic’s answer was filed, both parties filed motions for summary judgment and submitted supporting affidavits. , A hearing was held on the motions, and the district court concluded that the case was one appropriate for the application of summary judgment procedure since there was “no genuine issue as to any material fact”. Haze'ltine’s motion was granted and Automatic’s motion denied. D.C.,
On June 21, 1948, an “Interlocutory Judgment” was entered, in which it was adjudged and decreed as follows :
(1) That the license agreement between the parties dated as of September 1, 1942 “is gоod and valid at law and in full force and effect.”
(2) That plaintiff recover from defendant as minimum royalty under the license agreement for' the year ending August 31, 1946 the sum of $10,000 with interest, “and that execution may issue therefor.”
(3) That plaintiff recover such further sums as are due from the defendant at the date of this judgment under said license agreement, and that the case be referred to a Master to take and state an account thereof.
(4) That “a permanent injunction issue out of and under the seal of this Court directed to defendant, its officers and agents, enjoining and restraining them and each of them throughout the continuance in force of said license agreement from breaching such provisions of Articles IV and V thereof as relate to defendant’s obligation to plaintiff to pay royalties and to keep records and render statements from which the proper amounts of such royalty payments may be determined.”
This court has jurisdiction to entertain the present appeal.from such judgment, pur-
suant to provisions of the Judicial Code now found in
Automatic raised, and the district court considered, numerous defenses. In examining the judgment of the district court, we confine our attention only to those matters presented in this appeal. In its brief, Automatic has enveloped the case in an atmosphere of overreaching and chicanery hardly warranted on the record. A lengthy affidavit executed by one of counsel for Automatic, and filed by Autоmatic in support of its motion for summary judgment, contains many sweeping claims • and charges, but the affidavit was made for the most part “on • information and belief”, and not on personal knowledge, as required by Rule 56 (e), Federal Rules of Civil Procedure, 28 U.S.C.A.
I. Patent Misuse
Appellant has advanced a variety of defenses to sustain the proposition that Hazeltine has so misused the monopoly of its patent grants as to have disentitled itself to any relief under the present complaint.
Restrictive Use Notices. — Automatic argues that the requirement in the license agreement that licensed apparatus be marked with a “restrictive use” notice, as above stated, constitutes such a misuse of the patent as to render the agreement unenforceable. This contention must be rejected on the authority оf General Talking Pictures Corp. v. Western Elec. Co., 1938,
We must conclude from the decision in the General Talking Pictures case that a license agreement is not necessarily invalid because the licensee is granted a restricted right to make and vеnd a patented apparatus for use limited to a particular, described field, and is required by the agreement to affix to the licensed apparatus a notice of such restricted use. There may be circumstances under which a notice of restricted use would be inoperative and unenforceable as against subsequent purchasers, but that problem is not presented in the case at bar. And it is to be noted that the judgment from which this appeal is taken does not even command Automatic, the licensee, to comply with the term of the agreement requiring it to attach the restrictive use notices to the licensed apparatus sold by it.
General Talking Pictures Corp. v. Western Elec. Co. has not been overruled by the Supreme Court. Appellant contends that the case was wrongly decided, and that the authority of the case has been more or less undermined by subsequent decisions of the Supreme Court on related subject matters. From our examination of the later cases we are not satisfied that this is so; at any rate, we decline to speculate on whether the case would now be followed by the Supreme Court. If the case is to be overruled, that must be done by the Supreme Court. Meanwhile, it is our duty to follow it.
In fact, it appears that none of the radio apparatus made and sold by Automatic has been marked with the restrictive use notice required by Article VI; in other words, Automatic has consistently ignored this provision of the agreement. Automatic makes the curious suggestion that its own breach of this term of the contract affords an independent ground for relieving it of the obligation to pay the stipulated percentage royalties. The argument is based upon the provision of Article VI that apparatus not hearing the restrictive use notice “is not licensed”; and therefore, Automatic argues, since “no licensed apparatus for which royalties are due under the contract has ever been made or sold”, the district court erred in requiring an accounting of percentage royalties. Under the foregoing circumstances, no doubt Hazel-tine would have had an election to proceed against Automatic on the theory of infringement. But the above contract provisions are for the benefit of the licensor, who may choose to waive them. Notwithstаnding the failure of Automatic to attach the restrictive use notices, Hazeltine is entitled to insist upon the performance by Automatic of its contract obligation under Article IV to pay as royalties a percentage
Royalty Payments. — It has been pointed out above that' the license agreement gave Automatic the right to make use of any of Hazeltine’s patents, and required Automatic to pay royalties measured by a percentage of the selling price of all radio apparatus of specified types manufactured and sold by Automatic, whether or not any particular apparаtus in fact utilized any of the inventions of the Hazeltine patents, with a minimum royalty payment of $10,-000 a year. There is no valid objection to this sort of agreement; the parties are free to bargain as to the basis upon which the royalties are to be computed. H-P-M Development Corp. v. Watson-Stillman Co., D.C.N.J., 1947,
A different problem would be presented if the license agreement had provided that, in part consideration for the right to make use of Hazeltin’s patents, Automatic agreed not to compete in the commercial field in the manufacture and sale of any radio apparatus of the types enumerated, even though such apparatus did not embody any of the inventions covered by Hazel-tine’s patents. Such an agreement might be unenforceable as constituting an unlawful attempt to extend the monopoly of licensor’s patents beyond the limits of the patent grants. But as we read the license agreement in the case at bar, Automatic would not break the agreement by manufacturing and selling for unrestricted use radio apparatus which in fact does not embody any of the inventions covered by Hazeltine’s patents. This is true notwithstanding the fact that Automatic, in making such a sale, would be required by Article IV, Section 1, of the agreement' to pay to Hazeltine the stipulated percentage of the selling price as royalty for the right to utilize the patents covered by the license agreement.
Duress. — Automatic’s brief states that its affidavits “assert the license was signed only in fear of disastrous litigation. If it was, in fact, coerced into taking a license under invalid patents having no application to any radio set made today, the patents were obviously misused.” Not all economic pressure constitutes “duress” rendering a contract voidable. The defense of duress is discussed in 5 Williston, Contracts, § 1606, Rev. Ed., 1937, where it is pointed out that the pressure exerted must be wrongful; that a threat to resort to civil litigation is not such duress as to justify rescission of a transaction induced thereby even though there is no. legal right to enforce the claim, provided the threat is made in good faith, that is, in the belief that a possible cause of action exists. Neither Automatic’s answer nor its amended answer set up duress as a defense. Not
Monopoly. — Automatic has claimed that Hazeltine’s alleged monopolistic practices should preclude its recovery here. Its answer alleged as a defense that Hazeltine “in an illegal endeavor to eliminate all competition and secure an unlawful monоpoly in violation of the antitrust laws of the United States, acquired the approximately 425 United States letters patent and the approximately 120 applications for United States letters patent * * * from its employees” (and from other corporations and persons). From Automatic’s somewhat nebulous generalizations, it is difficult to ascertain the precise nature of its argument on this score, though it does concede that the mere accumulation of patents, however great in number, is not illegal per se. Cf. Transparent-Wrap Machine Corp. v. Stokes & Smith Co., 1947,
In most other respects, it appears that the defense of monopolistic practices is merely the assembling under a different heading of matters we have already considered. The district court correctly ruled that,' even assuming arguendo that Hazel-tine was еngaged in an unlawful scheme to maintain a monopoly, the license contract in suit was not an integral part of it; that the license agreement, being itself a valid contract, will not be rendered unenforceable by collateral activities of the plaintiff in violation of the anti-trust laws. 2 Restatement, Contracts § 519 (1932); 5 Williston, Contracts § 1661, Rev. Ed., 1937; 2 Walker, Patents § 409, Deller Ed., 1937. See also Bruce’s Juices, Inc., v. American Can Co., 1947,
II. Alleged Invalidity of Hazeltine’s Patents
Until recently, it had generally been thought to be settled law that, in a suit for рatent royalties under a license agreement, the licensee was estopped from challenging the validity of the licensor’s patent. United States v. Harvey Steel Co., 1905,
Until we receive further light and leading from the Supreme Court, we are disinclined to extend the holdings in the Katzinger and MacGregor cases so as to throw into the discard altоgether the long line of earlier cases disallowing a licensee to challenge the validity of the licensor’s patent. It is not uncommon for the parties to a patent infringement suit, in which there is a genuine issue as to the validity of the patent, to make a settlement of the litigation by an agreement under which the patentee gives a license to the alleged infringer in consideration of the payment of a stipulated royalty. Indeed, the license, agreement in suit seems to have been by way of settlement of earlier litigation between the parties. It is not apparent to us that the public interest would be served by rendering such common-sense business settlements nugatory, which would be the result of a ruling that the licensee could reopen the issue of validity when sued for the stipulated royalty.
In the case at bar, where a large number of patents were covered by a single license agreement containing no price-fixing stipulation, the result would be particularly awkward if it were held that the licensee may defend by putting in issue the validity of all these patents. Although Automatic’s motion for summary judgment and its supporting affidavit make the general statement that none of Hazeltine’s ■ patents covered by the license are valid, no concrete attempt was made to buttress these assertions, and the district court concluded: “Furthermore, the defendant does not purport to contest the validity of all plaintiff’s patents.” D.C.,
III. Eviction
Questions of direct attack upon validity 'aside, Automatic relies on the defense of eviction which, as we understand its attempted application here, is in substance a dеfense of failure of consideration. The argument is based upon these circumstances: At various times in the past, Hazeltine brought infringement suits against third parties based on one or more of eight of the patents licensed under the agreement in suit. Only one of these eight patents was ever passed on by the Supreme Court, and its judgment of invalidity did not extend to all of the claims of this patent. Of the other seven patents, lower courts held all of the claims of two invalid, and some of the claims of the remaining five were also held invalid. Two additional patents sued on by Hazeltine were held by a lower court not to have been infringed. Some of these patents were litigated before the effective date of the agreement in suit and some after. The record is clear that Hazeltine informed Automatic of the aforesaid Supreme Court judgment of invalidity before the present license agreement was executed, but Automatic alleges that it was then unaware of the judgments of invalidity or non-infringement of the other patents litigated before that date.
Although Automatic did not in this court rely on a defense of fraud or misrepresentation, Automatic does claim that the aforesaid ten patents litigated adversely to Hazeltine were the ones in which Automatic had been chiefly interested; that the judgments against Hazeltine demonstrate the worthlessness of these patents, and that consequently there has been a failure of consideration relieving Automatic of its obligations under the license agreement.
It may be that the defense of eviсtion or failure of consideration raises a question of local law. The court below correctly ruled that, in so far as local law is controlling, the local law properly applicable under the circumstances of this case is that of the State of New York. See Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 1941,
In our opinion the defense of eviction is insupportable on several grounds.
The mere fact that' Automatic may have regarded ten particular patents, out of the more than 700 patents and patent applications covered by the license agreement, as the most important ones licensed, in no sense means that both parties regarded those patents as the “substance” of the agreement and contrаcted accordingly. The record offers no significant suggestion that such was the case, and the district court concluded that Automatic “has not made any serious effort to show eviction here and could not show it”, and that Automatic got “by the contract, what it bargained for, namely, the right to use whatever patents are available for use in plaintiff’s large collection.” D.C.,
Even if Automatic had properly presented this defense, we do not think it could be sustained where a non-exclusive license is concerned. Without attempting a
To hold that a non-exclusive licensee may base a defense of eviction on lower court judgments of invalidity in suits between the patentee-licensor and third parties would seem inconsistent with the principles recognized in Triplett v. Lowell, 1936,
Nor do we find that any different rule prevails in the State of New York. It is true that in Hazeltine Research, Inc., v. DeWald Radio Mfg. Corp.,
IV. Repudiation
On September 18, 1947, several months after the filing of the complaint in the present case, Automatic wrote a letter to Hazeltine formally advising the latter, without more, that Automatic “has repudiated and terminated the License Agreement”. Automatic asserts that this notice of “repudiation” extinguished its contract obligation to pay royalties. Perhaps a sufficient answer to this contention is that no such defense was set forth either in Automatic’s answer or amended answer, or in its counter motion for summary judgment. Furthermore, giving every indulgence to Automatic’s contention, such repudiation could operate only prospectively, and would not affect the judgment for minimum royalties for the contract year ending August 31, 1946, nor would it affect Automatic’s liability for percentage royalties due for the period up to the date of such “repudiation”. In addition to that, so far as it may be a question of federal law, in the absence of a cancellation option in the agreement, or of a substantial default by the licensor, the licensеe cannot by any such unilateral notice of repudiation terminate its contract obligation under a license agreement having several years yet to run. St. Paul Plow Works v. Starling, 1891,
The cases which have suggested the existence of some such doctrine of unilateral repudiation have explained that the licensee may announce unequivocally “that he no longer recognizes thе binding force of the agreement, and that he will thereafter manufacture or use the article covered by the patent under a claim of right, founded upon the alleged invalidity of the patent, and in hostility to and defiance of the authority of the patent and the license, so that the licensor can thereafter proceed against him for an infringement of the patent, if he choose so to do.” Martin v. New Trinidad Lake Asphalt Co., supra, D.C.N.J., 1919,
The judgment of the District Court is affirmed.
Notes
It appears that among the other licensees of Hazeltine are General Eleetrie Corporation, Westinghouse Electric , Corporation, and Radio Corporation of America. R.C.A. paid approximately one million dollаrs in royalties to Hazeltine during the years 1937-1947.
See 2 Walker, Patents § 384, Deller Ed. 1937.
Dissenting Opinion
(dissenting).
In my view the decisive question on this appeal is the enforceability of a licensing agreement requiring the licensee to pay royalties even though in fact he does not make any use whatsoever of any invention embodied in a patent owned by the licensor. Such agreements as I see it necessarily have the effect of expanding a patent beyond -the legitimate confines of the monopoly granted therein, and for many years the Supreme Court, because of the public interest dominant in the patent system, has held licensing agreements having that' effect unenforceable in spite of the business convenience or even necessities of the parties. Morton Salt Co. v. Suppiger Co.,