UNITED STATES v. UNITED STATES GYPSUM CO. ET AL.
No. 13
SUPREME COURT OF THE UNITED STATES
March 8, 1948
333 U.S. 364
Argued November 14-15, 1947.
Bruce Bromley argued the cause for appellees. With him on the brief were George S. Collins, Cranston Spray, Hugh Lynch, Jr., Elmer E. Finck, Nicholas J. Chase, Donald N. Clausen, Herbert W. Hirsh, Charlton Ogburn, Andrew J. Dallstream, Walter G. Moyle, Ralph P. Wanlass, Frederic H. Stafford, Benjamin P. DeWitt, James O‘Donnell, Jr., Joseph S. Rippey, D. I. Johnston and George E. H. Goodner.
The United States instituted this suit on August 15, 1940, in the District Court of the United States for the District of Columbia against United States Gypsum Com
The Attorney General filed an expediting certificate on December 16, 1941, and on September 17, 1942, a three-judge court was constituted to hear the case. By amendment to the complaint the government charged that the article claims of five patents owned by United States Gypsum were invalid and void. The appellees moved to strike the amendment to the complaint or in the alternative for partial judgment dismissing the amendment. On November 15, 1943, the court granted appellees’ motion for partial judgment on the ground that the government had no standing to attack the validity of the patents in an antitrust proceeding. The case thereupon went to trial and upon conclusion of the government‘s case on April 20, 1944, the appellees moved to dismiss the complaint under Rule 41 (b) of the Federal Rules of Civil Procedure upon the ground that on the facts and the law the government had shown no right to relief. On June 15, 1946, the court filed an opinion holding that the motion should be granted, and on August 5, 1946, the court filed findings of fact and conclusions of law and entered judgment dismissing the complaint. The government appealed directly to this Court, 32 Stat. 823, and probable jurisdiction was noted on December 16, 1946. The decisions below are reported as United States v. United States Gypsum Co., 53 F. Supp. 889 and 67 F. Supp. 397. United States v. Line Material Co., decided today, ante, p. 287, will be of value to the reader in considering this opinion.
I.
The appellees are engaged in the production of gypsum and the manufacture of gypsum products, including gypsum plasterboard, gypsum lath, gypsum wallboard, and gypsum plaster. At the time of the alleged conspiracy, appellees sold nearly all of the first three products which were marketed in states east of the Rocky Mountains, and a substantial portion of the plaster sold in the same area. Gypsum products are widely used in the construction industry. In 1939, the sales value of gypsum products was approximately $42,000,000, of which $23,000,000 was accounted for by gypsum board (plasterboard, lath, and wallboard), $17,000,000 by gypsum plaster and the remainder by gypsum block and tile and other products. Over 90% of all plaster used in building construction in the United States is made with gypsum.
Gypsum is found in numerous deposits throughout the country. Gypsum board is made by taking the crushed and calcined mineral, adding water, and spreading the gypsum slurry between two paper liners. When the gypsum hardens, the mineral adheres to the paper and the resulting product is used in construction. Plasterboard and lath have a rough surface and are used as a wall and ceiling base for plaster; wallboard has a finished surface and does not require the addition of plaster.
Since its organization in 1901, United States Gypsum has been the dominant concern in the gypsum industry. In 1939, it sold 55% of all gypsum board in the eastern area. By development and purchase it has acquired the most significant patents covering the manufacture of gypsum board, and beginning in 1926, United States Gypsum offered licenses under its patents to other con
The other corporate appellees are National Gypsum Co., Certain-teed Products Corp., Celotex Corp., Ebsary Gypsum Co., and Newark Plaster Co. Appellee Gloyd is the owner of an unincorporated business trading under the name of Texas Cement Plaster Co. National produced 23% of all gypsum board sold in the eastern area in 1939, Certain-teed 11%, and the other four companies correspondingly smaller amounts. Seven companies which were active when the licensing plan was evolved in 1929 and before have been acquired by other companies, and defendant Celotex entered the industry in 1939 when the licensing plan was fully in effect by acquiring the assets and licenses of American Gypsum Company. The seven individual defendants are presidents of the corporate defendants. The tabulation on the next page lists the corporate and individual defendants, and shows the corporate changes which have taken place.1
Prior to 1912, gypsum board was manufactured with an open edge, leaving the gypsum core exposed on all four sides. In 1912, United States Gypsum received as assignee a patent issued to one Utzman, No. 1,034,746, covering both process and product claims on board with closed side edges, the lower paper liner being folded over the exposed gypsum core. Closed-edge board was superior in quality to open-edge board, as it was cheaper to produce, did not break so easily in shipment, and was less subject to crumbling at the edges when nailed in place. United States Gypsum also acquired a
| Name of firm | Date entered gypsum board industry | Sales of board in eastern area in 1939 | Individual defendants | Companies acquired |
|---|---|---|---|---|
| United States Gypsum Co | 1901 | $10,600,000 | Sewell L. Avery, president, 1920-36; chairman of board, 1936 to date. Oliver M. Knode, president, 1936 to date. | Niagara Gypsum Co. (1929). |
| National Gypsum Co | 1925 | 4,500,000 | Melvin H. Baker, president | Universal Gypsum and Lime Co. (1935); Atlantic Gypsum Products Corp. (1936). |
| Certain-teed Products Corp | 1926 | 2,100,000 | Henry J. Hartley, president | Beaver Products Co. (1928); Beaver Board Co. (1928). |
| Newark Plaster Co | 1937 | 750,000 | Frederick Tomkins, president | Kelley Plasterboard Co. (1937). |
| Ebsary Gypsum Co | 1928 | 670,000 | Frederick G. Ebsary, president | |
| Celotex Corp | 1939 | 585,000 | American Gypsum Co. (1939). | |
| Texas Cement Plaster Co. (unincorporated). | 1924 | 230,000 | Samuel M. Gloyd, owner |
Up to this point there is no dispute as to the facts. The government charged that the defendants acted in concert in entering into the licensing agreements, that
Although the industry-wide network of patent licenses was not achieved until 1929, the government claims that the documentary exhibits show that the process of formulation of the plan began in 1925. On December 12, 1925, Augustus S. Blagden, president of Beaver, sent a memorandum to Sewell Avery, president of United States Gypsum. Beaver had been adjudged an infringer of the Utzman patent, and Blagden and Avery had negotiated terms for settling the suit. Blagden testified that Avery had offered to settle with Beaver by granting Beaver a license with a price-fixing limitation and provision that Beaver should pay damages for past infringement and acknowledge the validity of United States Gypsum‘s patents. In the memorandum Blagden analyzed in detail the consequences that would flow from five possible
Although there is no proof that Avery approved Blagden‘s memorandum, Blagden did accept a license on the terms offered by Avery in July, 1926, and Blagden testified that he talked to a number of representatives from other companies and urged them to accept licenses from United States Gypsum. Frank J. Griswold, general manager of American Gypsum Company, also was active in promoting a scheme of industry-wide licensing. On May 12, 1926, Griswold wrote a letter to the president of American, stating that he had talked to Blagden, and added that “This matter will be discussed by all independent wall board manufacturers at a meeting in Chicago next Wednesday afternoon.” Griswold concluded the letter with the statement: “According to the plans we
Blagden and Griswold did not succeed in persuading other manufacturers to accept licenses in 1926. Universal accepted a license in September, 1926, but there is no evidence that Blagden and Griswold played any part in negotiating the settlement. Griswold suggested to Avery that United States Gypsum offer a shorter term license, but Avery was unwilling to make such a concession. During 1927 Griswold and Blagden continued their negotiations. Griswold and Samuel M. Gloyd, owner of the Texas Cement Plaster Co., corresponded with each other in regard to the licensing proposal. When Griswold informed Gloyd that Atlantic Gypsum Co. had signed a long-term license with United States Gypsum, Gloyd replied that he would apply for a license right away. Previously Gloyd had been trying to secure a shorter term license. Gloyd and Atlantic both signed licenses similar to the original license granted to Beaver.
In January 1928 Certain-teed Products Corp. purchased the assets of Beaver. Certain-teed had previously been making open-edge board and selling it at lower prices than the closed-edge board manufactured by United States Gypsum and its licensees. Certain-teed refused to accept the license agreement of Beaver and United States Gypsum filed suit to compel Certain-teed to accept the license. Certain-teed posted a million dollar bond and commenced to make open-edge board at all Beaver plants. George M. Brown, president of Certain-teed, and Avery had several conferences at which they attempted to compose their differences, but without result. The government introduced in evidence a memorandum written by Brown, dated March 1, 1928, in which Brown expressed confidence that he could make open-edge board and sell it in competition with United States Gypsum,
No settlement was reached between United States Gypsum and Certain-teed in 1928, and no other license agreements were signed. A meeting of representatives of the principal non-licensee manufacturers took place in October, and in November the board of directors of National adopted a resolution authorizing the officials of the company to enter into a license agreement. Besides Certain-teed and National, American, Ebsary, Niagara, and Kelley Plasterboard Company manufactured gypsum board but did not hold licenses from United States Gypsum.
The patent licenses in force at the beginning of 1929 provided that United States Gypsum could fix prices only during the term of the principal Utzman patent, which
“You will remember that Mr. Avery made it very clear to us that if this plan could not be worked out on the Utzman patent that there were other patents available and we were all agreed that the fact that the Utzman patent expires next August is not a practical reason for continuing the conflict.”
Holland also stated: “I am quite sure that Mr. Avery would not be interested in negotiating settlements unless everyone involved was included.” In point of fact, Holland‘s interpretation of Avery‘s views was incorrect; several months later licenses were granted to four unlicensed manufacturers but not to American or Kelley. Other exhibits suggest that the prospective licensees were interested in accepting licenses at the same time. In his letter of January 9, Haggerty wrote as follows:
“The question now in my mind is whether or not the other four board makers, who are outside the license agreement, feel that it would be advantageous to go in without the American Gypsum Company. It would seem to me that the chief value in a meeting would be to discuss that point.”
On May 14, 1929, the board of directors of National held a meeting “for the purpose of discussing the license agree
Two days later National signed the license agreement. On the following day National sent a telegram to Avery as follows:
“Our contract signed and in mail Reeb [of Niagara] ready Stop We are working with Ebsary with hope of everybody being set by Saturday to justify your calling meeting all board makers Monday if you like.”
On May 18 Avery dispatched identical telegrams to United States Gypsum‘s licensees, and to Certain-teed and Ebsary, as follows:
“Mr. Kling [of American] has sent in a contract with material changes and declares he will not attend meeting unless these changes are accepted by us Stop We cannot accept them and regret that the Tuesday meeting will be futile unless other companies wish to proceed as outlined without American license.”
On May 20 Avery wrote Gloyd of Texas Cement Plaster, a licensee since 1927, stating that although American was unwilling to accept a license, officers of Certain-teed, Niagara, Ebsary, and National had expressed themselves favorably “to this adjustment” and “it is not improbable that the matter may be closed at the meeting tomorrow or soon thereafter.”
At the same meeting, Avery explained to the licensees that United States Gypsum had acquired applications for a patent covering so-called “bubble board” and suggested that the licensees take out licenses under these applications. The applications covered a process for making gypsum board by introducing a soap foam in the gypsum slurry which would result in a lighter and cheaper board. Avery subsequently mailed proposed license agreements under the “bubble board” applications to the licensees. George M. Brown of Certain-teed on June 4th acknowledged receipt of the license proposal in a noncommittal reply, but composed a memorandum for his own files in which he commented that the savings resulting from taking a license would be doubtful, and then added:
“They would have a price control of our business, which might be to our advantage and might be to our disadvantage in future. They should be just as anxious to have us use this as we should be to get it if there are to be the benefits that they anticipate in stabilizing the whole industry by making a uniform product and get away from the fierce warfares between different products like we have recently had. The saving is too slight to cause us very great worry even if never permitted to use it and the door will certainly be open later for its use if it has the merit that they believe it has. Under a contract sufficiently liberal, we would proceed at once.”
On June 6th the licensees met again in Chicago to discuss the question of accepting a license under the
“The President stated that the United States Gypsum Company has been working on a plan to stabilize the Gypsum Industry and has offered to license the entire Industry under the new method of manufacturing gypsum wall board known as the ‘Bubble System.’ The license agreements submitted to each of the wall board manufacturers contain price fixing clauses and under the agreements submitted the prices of wall board would be fixed for the whole Industry for the term of approximately seventeen years.”
The board passed a resolution authorizing the executive committee to negotiate a license agreement, “provided that the United States Gypsum Company, by virtue of the agreement with this Corporation and with other manufacturers of gypsum wall board, shall control the price of wall board sold in the United States and its possessions.”
Two days later another conference of licensees was held in Chicago. C. O. Brown, vice-president of Certain-teed, prepared a memorandum for George M. Brown, president of Certain-teed, describing what happened at that meeting. According to the memorandum, National and Universal were unwilling to accept “bubble board” licenses until they had settled their litigation over National‘s infringement of Universal‘s starch patent. That patent included process and product claims on wallboard made with starch. Brown noted that United States Gypsum was working on a proposal to combine the starch and “bubble board” processes; although such a combination would have technological advantages, Brown commented on the fact that the starch patent had already been issued
Another meeting of licensees was held in Chicago on August 6, the day on which the Utzman patent expired. In a memorandum summarizing what happened at the meeting, C. O. Brown said that it had been agreed that Universal would assign the starch patent to United States Gypsum, and the latter company would issue a single license contract covering all patents and patent applications. Brown further reported that “All of the Independent Gypsum Companies are willing to sign on this basis” and that “The Attorneys feel that such a contract would be exceptionally strong and price control could be maintained for the life of the Contract without difficulty.” On August 27 the board of directors of National held a meeting at which the president was authorized to sign a license with United States Gypsum covering the “bubble board” and starch patents “provided that all the present licensees of the United States Gypsum Company enter into a similar license and provided further that in the judgment of the President such action will result in legal stabilization of the markets.”
Soon thereafter, National, Certain-teed, Ebsary, Niagara and Atlantic executed licenses with United States Gypsum, to become effective on the date when Universal‘s receiver transferred the starch patents to United States Gypsum. On November 5 the starch patents were assigned to United States Gypsum, and on the same date
The contracts which became effective in November 1929 were in substantially identical terms. The license with Universal contained preferential royalty terms which were granted as consideration for the transfer of the starch patents; every other license (except that of Texas) provided that if the licensor should subsequently grant more favorable terms to any licensee (except Universal), the same more favorable terms would be granted to the first licensee. Each licensee agreed to pay as royalty a stipulated percentage on the selling price of “all plaster board and gypsum wallboard of every kind” whether or not made by patented processes or embodying product claims. The contract covered fifty patents and seven patent applications, including the starch patent and the “bubble board” applications; the contract was to run until the most junior patent expired. As two “bubble board” patents were issued in 1937, the licenses ran until 1954. The licensees agreed not to sell patented wallboard to manufacturing distributors unless United States Gypsum gave its consent as to each prospective purchaser. As in the previous contracts, United States Gypsum reserved the right to fix the minimum price at which each licensee sold wallboard embodying the licensor‘s patents, the licensor agreeing that such minimum price would be not greater than the price at which the licensor itself offered
In 1934 and 1935 United States Gypsum offered supplemental licenses to practice a patent covering metallized board, which was accepted by almost all licensees, and in 1936 United States Gypsum offered licenses under its perforated lath patent which were also accepted by most licensees. These supplemental licenses contained provisions allowing United States Gypsum to fix the minimum price on board made according to the patents which were licensed.
The government charged that the execution of the license agreements in May and November 1929 marked a turning point in the gypsum industry. The government introduced evidence tending to show that the price of first quality wallboard was raised, that United States Gypsum standardized the type of board sold by requiring its licensees to sell No. 2 wallboard and seconds at the same price as standard wallboard, and standardized the methods of sale so that no licensee could offer more favorable terms to a customer than any other licensee.
Although the license contracts gave the licensor the right only to fix the minimum price at which the licensee should sell, United States Gypsum issued a series of bulletins which defined in minute detail both the prices and terms of sale for patented gypsum board. They are printed on nearly a thousand pages of the record. The bulletins adopted a basing point system of pricing, according to which each licensee was required to quote a price determined by taking the mill price at the nearest basing point and adding the all rail freight from the basing point to the destination. The freight was to be computed on specified uniform billing weights, in order to prevent variations in freight arising from the differences in weight of
It is not practicable to quote one of the hundreds of comprehensive bulletins on prices and terms. The industry accepted directions for distribution of product as corollary to price control, so that prices would not be infringed by variations of seller contracts. The detail of directives is well illustrated by the directive for computation of freight to be added to the mill price and the provision against subtle price reduction. The excerpts below are from the Board License Bulletin of June 10, 1939.3
The government further charged that the defendants had discontinued the production of unpatented open-edge board, eliminated jobbers by requiring jobbers to purchase board at the same price as board sold to dealers, induced manufacturing distributors to observe bulletin prices upon resale of board purchased from licensees, and stabilized the price of gypsum plaster and other unpatented products.
It is undisputed that after 1929 the defendants ceased to manufacture open-edge board; the government claims that production of the unpatented board was discontinued in order to protect the patented board from competition. Prior to 1929 open-edge board had sold at lower prices than closed-edge board, and the government‘s exhibits show that the officers of the corporate defendants realized that there could be no effective stabilization of
The May 1929 licenses required licensees to obtain the consent of the licensor before selling board to manufacturing distributors or to jobbers and a price bulletin issued under those licenses allowed licensees to grant a 10% discount to both classes. The November 1929 licenses, however, eliminated the consent requirement with respect to jobbers, although it was retained with respect to manufacturing distributors.
The jobbers’ discount was continued in bulletins issued under the later licenses until August 8, 1930, when United States Gypsum ordered that the discount be eliminated. Although jobbers could still buy board if they so desired, jobbers could remain in business only by selling to dealers at an advance over the bulletin prices. The court below found that some jobbers were able to remain in business by selling board in odd lots to dealers who did not wish to buy the minimum lot required in the price bulletins. The government points to the definition of “jobber” in the license agreements as “those who do not manufacture but buy and sell plasterboard or gypsum wallboard in straight cars or in mixed cars with other building material and who do not sell at retail,” and points to uncontradicted testimony that jobbers as so defined were eliminated.
II.
Appellees admit that in the absence of whatever protection is afforded by valid patents the licensing arrangements described would be in violation of the
While this issue need not be decided to dispose of this case, it seems inadvisable to leave the decision as a precedent. Hurn v. Oursler, 289 U. S. 238, 240. We cannot agree with the conclusion of the trial court. The United States does not claim that the patents are invalid because they have been employed in violation of the
In an antitrust suit instituted by a licensee against his licensor we have repeatedly held that the licensee may attack the validity of the patent under which he was licensed, because of the public interest in free competition, even though the licensee has agreed in his license not to do so. Sola Electric Co. v. Jefferson Electric Co., 317 U. S. 173; Katzinger Co. v. Chicago Mfg. Co., 329 U. S. 394; MacGregor v. Westinghouse Co., 329 U. S. 402. In a suit to vindicate the public interest by enjoining violations of the
III.
The trial court ruled that, on motion to dismiss pursuant to
We are unable to accept, however, the ruling of the court that declarations of each defendant were admissible only against the defendant making the declaration.7 A consideration of that point really involves the heart of the case since the treatment of the declarations may vitally affect the outcome. Some may have doubts as to whether the agreements and bulletins alone are sufficient to establish a conspiracy but the admission of the separate declarations against all greatly strengthens the government‘s
If the District Court had thought that a plan such as is evidenced by the license agreements and the bulletins was illegal under the
Under its view of the General Electric case, the District Court concluded that only a lack of good faith by defendants in the execution of what that court considered legitimate exploitation of the patents could justify in this case a determination adverse to the defendants.9 The trial
IV.
We turn now to a different phase of the case—the correctness of the findings. The trial court made findings of fact which if accurate would bar a reversal of its order. In Finding 118 the trial court found that the evidence “fails to establish that defendants associated themselves in a plan to blanket the industry under patent licenses and stabilize prices.” The opinion indicates that in making this finding the trial court assumed arguendo that declarations of one defendant were admissible against all. 67 F. Supp. at 500. In examining the finding we
In so far as Finding 118 and the subsidiary findings were based by the District Court on its belief that the General Electric rule justified the arrangements or because of a misapplication of Masonite or Interstate Circuit, errors of law occurred. These we can, of course, correct. In so far as this finding and others to which we shall refer are inferences drawn from documents or undisputed facts, heretofore described or set out,
The government relied very largely on documentary exhibits, and called as witnesses many of the authors of the documents. Both on direct and cross-examination counsel were permitted to phrase their questions in extremely leading form, so that the import of the witnesses’ testimony was conflicting. On cross-examination most of the witnesses denied that they had acted in concert
In Findings 54, 56, 62, 63, 64, 65, 66, 89 and 90, the trial court made findings adverse to the government‘s claim that the defendants conspired to eliminate the production of open-edge board.15 The tenor of those findings is that there was no agreement among the licensees to discontinue the production of open-edge board,
In Findings 75-79, 99-102,16 the trial court considered the problem of jobbers. Those findings state, in effect, that the license agreements were not executed with the intent of eliminating jobbers, that the discontinuance of the jobbers’ discount was an exercise by United States Gypsum of its right to establish a price for a patented product, and that complaints by licensees that other licensees had sold to jobbers at a discount did not establish concerted action to eliminate jobbers. We are unable to agree to these holdings. Since the defendants entered into a common scheme to stabilize the industry, and since the elimination of jobbers was undertaken by United States Gyp-
In Findings 73, 94-97,17 the trial court dealt with the government‘s charge that the defendants had stabilized the price of unpatented gypsum products. Those find-
The trial court made many other findings to which the government objected and yet to determine here whether each is erroneous is unnecessary.18 Perhaps looked at in isolation some of the government‘s charges are not proven with that fullness that would justify our reversal of the finding of the District Court on the point. It may be that in the light of this opinion the District Court will conclude that many such findings are no longer significant in reaching its decision. As to others a different result will be required. Enough has been said as to the findings and the evidence, we think, to enable the District Court to pass upon the facts that may come before it on further proceedings in accord with our present ruling.
V.
The foregoing discussion foreshadows our conclusion. What we have said above under III on the invalidity of the arrangements as tested by the
The General Electric case affords no cloak for the course of conduct revealed in the voluminous record in this case. That case gives no support for a patentee, acting in concert with all members of an industry, to issue substantially identical licenses to all members of the industry under the terms of which the industry is completely regimented, the production of competitive unpatented products suppressed, a class of distributors squeezed out, and prices on unpatented products stabilized. We apply
“The power of Masonite to fix the price of the product which it manufactures, and which the entire group sells and with respect to which all have been and are now actual or potential competitors, is a powerful inducement to abandon competition. . . . Active and vigorous competition then tends to be impaired, not from any preference of the public for the patented product, but from the preference of the competitors for a mutual arrangement for price-fixing which promises more profit if the parties abandon rather than maintain competition. . . .”
The rewards which flow to the patentee and his licensees from the suppression of competition through the regulation of an industry are not reasonably and normally adapted to secure pecuniary reward for the patentee‘s monopoly.
By the record now presented, violation of the
MR. JUSTICE JACKSON took no part in the consideration or decision of this case.
MR. JUSTICE FRANKFURTER, concurring.
In Part II of the opinion the Court confessedly deals with an issue that “need not be decided to dispose of this case.” Deliberate dicta, I had supposed, should be deliberately avoided. Especially should we avoid passing gratuitously on an important issue of public law where due consideration of it has been crowded out by complicated and elaborate issues that have to be decided. Accordingly, I join in the Court‘s opinion, except Part II.
The Court is agreed that the arrangements challenged by the Government as violative of the
It does so because “it seems inadvisable to leave . . . as a precedent” the decision of the trial court that “the government was estopped to attack the validity of the patents in the present proceeding.” But, surely, it is easy
I shall not follow the Court‘s lead and indulge in dicta on the question whether, in a suit like this, the issue of patentability can be contested by the Government. But, as bearing upon the undesirability of announcing dicta on this issue, it is pertinent to point out that the cases on which the Court relies for its pronouncement hardly dispose of the problem. They are cases in which a licensee resisted claims for royalties on what purported to be valid patents. Royalties were refused because there were no patents on which they were owed. Such was the issue involved in Sola Electric Co. v. Jefferson Electric Co., 317 U. S. 173; Katzinger Co. v. Chicago Mfg. Co., 329 U. S. 394; MacGregor v. Westinghouse Co., 329 U. S. 402. Different considerations come into play when the Government seeks a declaration of invalidity. See United States v. American Bell Telephone Co., supra. I am not remotely intimating that the differences are decisive. I am merely suggesting that a due weighing of the differences, in the light of the Bell Telephone case, should await the duty of adjudication. It should not be the undesirable product of deliberate dicta.
The Court refers to Hurn v. Oursler, 289 U. S. 238, 240, as reason for passing on an issue that “need not be decided to dispose of this case,” because “it seems inadvisable to leave the [trial court‘s] decision as a precedent.” As to our problem, Hurn v. Oursler was exactly the opposite from this case. The issue on which this Court pronounced in Hurn v. Oursler was inescapably the issue that had to be decided to dispose of the case.
The issue in Hurn v. Oursler was this: where a suit for infringement of a copyrighted play was brought in a federal court and with it was joined a non-federal cause of action based on unfair competition in regard to that play, has the federal court jurisdiction to pass on the merits of the claim of unfair competition after the court
APPENDIX TO OPINION OF THE COURT.
LICENSE AGREEMENT.
This agreement made this 18th day of October, A. D. 1929, by and between the United States Gypsum Company, an Illinois corporation, of Chicago, Illinois, hereinafter referred to as Licensor, and Ebsary Gypsum Co., Inc. a New York corporation, of Newark, New Jersey, hereinafter referred to as Licensee, Witnesseth, that
2. Licensor has agreed to and does hereby give and grant unto Licensee an indivisible and non-exclusive right, license and privilege of using the process or processes and
It is expressly understood and agreed that the indivisible and non-exclusive right, license and privilege aforesaid is granted upon condition that the Licensor shall have and it hereby reserves the right to determine and fix at any time and to change from time to time during the existence of said patents and so long as said license shall continue, the minimum price or prices at which Licensee shall sell any plasterboard or gypsum wallboard manufactured by Licensee by use of any of the machines or appliances covered by any of said letters patent and which shall embody the inventions and improvements set forth and claimed in any of said patents which are presently issued, or any of said plasterboard or gypsum wallboard manufactured by second parties and which shall embody the inventions and improvements set forth and claimed in either patent number 1,500,452 or patent number 1,230,297, or commencing with the date when
Said minimum price shall not be more than that price at which Licensor determines to sell plasterboard or gypsum wallboard embodying the inventions and improvements set forth and claimed in said patents to its own like trade in the same market.
3. Licensee agrees to pay to Licensor for said disclosures, information and assistance and the agreements of Licensor herein contained, and for the right, license and privilege of using the processes and making and using the machines and/or inventions in the manufacture of plasterboard and gypsum wallboard covered by said patents and applications for letters patent described in said Exhibit A, and for the privilege of manufacturing, using and/or selling plasterboard and gypsum wallboard embodying the inventions and improvements set forth and claimed in said patents and applications for letters patent, an amount (hereinafter for convenience referred to as a license fee or royalty) equivalent to three and one-half per cent (3 1/2%) of the selling price of Licensee of all plasterboard and gypsum wallboard of every kind, whether or not made by the use of said machines and/or embodying the inventions and improvements set forth and claimed in said letters patent or applications for letters patent, manufactured and sold by Licensee between the date hereof and February 10, 1937, the date of the expiration of patent number 1,330,413 mentioned in said Exhibit A, and thereafter an amount equivalent to two per cent (2%) of the selling price of Licensee of all such plasterboard and gypsum wallboard manufactured and sold by it between February 10, 1937, and July 8, 1941, the date of the expiration of said patent number 1,500,452, and thereafter an amount equivalent to one per cent (1%) of the selling price of Licensee of all such plasterboard and gypsum wallboard manufac-
5. It is expressly understood and agreed that the license herein granted shall be personal to the Licensee, and that the same or any right herein or thereunder shall not be sold or assigned or transferred without the written consent of Licensor, or transferred by operation of law; Provided, However, that the same may be assigned by Licensee to any company acquiring all the assets and business or all the capital stock of Licensee, on condition that Licensee shall first obtain an agreement in writing from any such assignee agreeing to assume all the obligations of Licensee under this agreement and to be bound by all the terms and conditions hereof and shall deliver such agreement to Licensor. Licensee agrees not to sell all of its assets and business or all of its capital stock or to transfer and convey its plasterboard and/or wallboard business, or its assets used in connection therewith, without requiring the purchaser or purchasers thereof to assume, in writing, all the obligations of Licensee hereunder, and to agree to be bound by all the terms and conditions of this contract, and deliver such agreement to Licensor.
6. Licensee agrees to keep separate full and accurate books of accounts and records showing the exact quantity of all plasterboard and gypsum wallboard manufactured and sold by it, as well as a separate record of all plasterboard and/or gypsum wallboard sold by it in bundles, . . . .
7. Licensor, or its duly authorized representative, shall have the right at all reasonable times during business hours to inspect the books of account and records of Licensee referred to in the next preceding paragraph
9. Having regard for the fact that there are or may be certain manufacturers of plaster or gypsum products, jobbers or other wholesale distributors of such products, who do not or may not manufacture gypsum wallboard or plasterboard but who desire or may desire to have gypsum wallboard or plasterboard manufactured for them, it is understood and agreed that Licensee may manufacture for jobbers (being those who do not manufacture but buy and sell plasterboard or gypsum wallboard in straight cars or in mixed cars with other building material and who do not sell at retail) gypsum wallboard or plasterboard embodying the inventions and improvements set forth and claimed in said letters patent or in any letters patent after the same shall have been issued, granted for or upon any of the said applications and may with the written consent of first party manufacture for any such other manufacturer or other wholesale distributor, gypsum wallboard or plasterboard embodying the said inventions and improvements; Provided, However, that the said license fee or royalty to be paid to Licensor as hereinbefore provided shall be based upon all gypsum wallboard and plasterboard manufactured for and sold and invoiced to such other manufacturer, jobber or wholesale distributor and upon the regular selling price of Licensee of such plasterboard or gypsum wallboard to its regular dealer trade at the time of such sale and invoice, and shall not be based upon the price at which plasterboard or gypsum wallboard is sold and invoiced by Licensee to such other manufacturer, jobber or whole-
12. In the event that either party shall at any time neglect, fail or refuse to keep or perform any of the conditions or agreements herein to be kept by it and performed, then the other party, at its election, may serve upon the party in default written notice of intention to terminate this license, which notice shall specify the alleged neglect, failure or refusal, and if within thirty (30) days from the date of delivery of said notice the party in default shall not cure the default specified in said notice, then the other party may cancel and terminate this agreement by notifying the party in default in writing of its election so to do, without the necessity of any court action; . . . .
15. In case Licensor shall, subsequent to the effective date hereof, grant to any other person except Abel Davis and Eugene Holland, receivers of the Universal Gypsum & Lime Co. or their successors or to the said Universal Gypsum & Lime Co., any license under said patents or applications for letters patent set forth in Exhibit A and paragraph 4 hereof for the manufacture, sale or use of gypsum plasterboard or gypsum wallboard or bundles thereof, embodying the claims or inventions set forth and claimed in said patents or said applications, or shall grant any right under any such license, upon terms more
MITCHELL ET AL., MEMBERS OF THE CIVIL SERVICE COMMISSION, v. COHEN.
NO. 130.
Argued January 6, 1948. — Decided March 8, 1948.
Notes
“54. The fact that for the privilege of using the patents, royalties are fixed in the license agreements at an amount equivalent to a designated percentage of the selling price of the licensees of all gypsum board manufactured by them, whether or not patented, does not establish an agreement to make only the patented product and does not establish that the license agreements were executed in bad faith. The patents were numerous and covered not only the patented board but machines and processes in the manufacture of board, and the rights and privileges granted were of great value to the manufacturers of gypsum board. This royalty provision is in effect a provision for a percentage of gross sales, and as such is but a convenient means of measuring the amount to be paid for the privilege of using the patents. It might with equal propriety have been a lump sum. This provision in the license agreements was not an attempt to impose a royalty upon an unpatented product, nor was it intended to drive open-edge board off the market, nor did it have that effect.”
“89. The defendants did not by any of their operations under the license agreements, nor did they by any agreement or understanding, accomplish any improper standardization of gypsum board or its method of production, as charged by the Government.”
“75. The license agreements were not executed with an intent to effectuate improper restriction upon the distribution of gypsum board, plaster or miscellaneous gypsum products, specifically, to ‘eliminate’ jobbers through the discontinuance of a sales discount.”
“77. There was no agreement or understanding between any of the parties to the license agreements in the instant case whereby jobbers would be eliminated from the gypsum board distributive system. Nor was there any understanding or agreement that jobbers’ discounts would be discontinued. The issuance of the bulletin of August 8, 1930 (Exhibit 430) making the price to jobbers the same as to dealers was the exercise of the right of USG to establish a price for the patented product.”
“73. There was at no time any understanding or agreement among any of the parties to the respective license agreements that the prices would be raised or fixed upon plaster or any unpatented gypsum product. Nor were the license agreements in the instant case executed with an intent to raise, maintain and stabilize the prices of unpatented materials such as plaster and miscellaneous gypsum products. The parties to the respective license agreements knew that the licensor‘s right to fix minimum prices was limited to the prices on patented board manufactured and sold by the respective licensees.”
...
“95. The Bulletin provision that ‘Any sale of patented products, though ostensibly made at or above the minimum price established by licensor, will nevertheless be considered a violation of the provisions of the license if licensee directly or indirectly reduces the actual price charged by licensee below such minimum price . . . by reducing the price of other products . . .’ is but part of a larger provision concerning rebates and allowances made for the purpose and with the effect of reducing the licensee‘s price on patented board below the minimum price therefor—a price protective provision. It was not a device to raise, maintain or stabilize the price of plaster or miscellaneous gypsum products, and it was not applied by the defendants to that end. Nor did it have that effect. On the contrary the provision in question was a proper price protective measure reasonably designed to secure to USG the pecuniary reward of its patent monopoly. In operation, it was not used to raise, maintain or stabilize the price of unpatented materials.”