Leitch Manufacturing Co. v. Barber Co.

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Leitch Manufacturing Co. v. Barber Co.
Seal of the United States Supreme Court.svg
Supreme Court of the United States
Argued December 14, 1937
Decided January 3, 1938
Full case nameLeitch Manufacturing Co. v. Barber Company
Citations302 U.S. 458 ( more )
58 S. Ct. 288; 82 L. Ed. 371; 1938 U.S. LEXIS 76; 36 U.S.P.Q. 35
Case history
PriorBarber Asphalt Co. v. Stulz-Sickles Co., 89 F.2d 960 (3d Cir. 1937)
Court membership
Chief Justice
Charles E. Hughes
Associate Justices
James C. McReynolds  · Louis Brandeis
George Sutherland  · Pierce Butler
Harlan F. Stone  · Owen Roberts
Benjamin N. Cardozo  · Hugo Black
Case opinion
MajorityBrandeis, joined by Hughes, McReynolds, Sutherland, Butler, Stone, Roberts, Black
Cardozo took no part in the consideration or decision of the case.

Leitch Manufacturing Co. v. Barber Co., 302 U.S. 458 (1938), is a 1938 decision of the United States Supreme Court extending the tie-in patent misuse doctrine to cases in which the patentee does not use an explicit tie-in license but instead relies on grants of implied licenses to only those who buy a necessary supply from it. [1]

Contents

Background

Facts

Barber Asphalt Company acquired Hayden U.S. Patent No. 1,684,671, covering a "Method of preventing evaporation from concrete during curing." The patent describes a process for improving the curing of concrete by retarding the evaporation of water from poured concrete, as in a roadway. The process involves preparing a mixture of bitumen, soap, and water, which forms bituminous emulsion, and spraying this on freshly laid concrete. This forms an insoluble film on the surface of the concrete and by keeping the water in the concrete mixture from evaporating, facilitates a chemical reaction in which water molecules react with calcium hydroxide and other ingredients to form calcium-silicate hydrate. The result is reduced cracking and stronger concrete. [2]

Barber made and sold bituminous emulsion. The product was long known and not patented, and it has many uses besides the patented process. Leitch Manufacturing Company also made and sold bituminous emulsion. Barber's method of exploiting the patent was to sell bituminous emulsion for road building use. It did not make road builders pay a royalty for employing the patented method. It does not grant to road builders a written license to use the process, nor require them to agree to use only Barber's bituminous emulsion when practicing the process. Under U.S. patent law, when a patent owner sells supplies to customers with the understanding that they will use the supplies to practice the patent, the customers get an implied license to use the patent. " On the other hand, the Barber Company sues as a contributory infringer a competing manufacturer of this unpatented material who sells it to a road builder for such use." [3]

Leitch used Stulz-Sickles Company as a jobber to sell bituminous emulsion to the Standard Bitulithic Company, which used the patented process in road construction, and Barber and Stulz-Sickles knew that Standard would so use it. [4]

Lower court rulings

Barber sued Leitch and Stulz-Sickles. The district court found the patent invalid as anticipated by prior art. [5] On appeal, the Third Circuit reversed (2-1). It found the patent valid and rejected the defense that Barber committed patent misuse by engaging in a tie-in of unpatented supplies, in violation of the rule set out in Carbice Corporation v. American Patents Development Corporation . One judge dissented: "The appellant seeks to restrain the sale of an unpatented ingredient used by it in its process. No patent could have been obtained for bituminous emulsion, a staple article of commerce, and the fact that it is used in the patented process does not entitled the appellant to a monopoly therein. Carbice." [6]

Ruling of Supreme Court

Justice Brandeis Brandeisl.jpg
Justice Brandeis

Justice Brandeis delivered the opinion for a unanimous Court, reversing the Third Circuit. The first sentence of the opinion telegraphed the result: " The question for decision is whether the owner of a process patent may by suit for contributory infringement suppress competition in the sale of unpatented material to be used in practicing the process." [7]

Brandeis recognized that Barber did not grant licenses on the process subject to a condition that the licensee buy bit3em from Barber. " But it adopts a method of doing the business which is the practical equivalent of granting a written license with a condition that the patented method may be practiced only with emulsion purchased from it. . . . Thus, the sole purpose to which the patent is put is thereby to suppress competition in the production and sale of staple unpatented material for this use in road building. [8]

The case was settled by Carbice, irrespective of the absence of a formal tie-in condition: "That the patent did not confer upon the Barber Company the right to be free from competition in supplying unpatented material to be used in practicing the invention was settled by the rule declared in the Carbice case." [9]

Barber argued that Carbice and Motion Picture Patents were inapplicable "because it has not entered into any contract or agreement aimed at expansion of the patent monopoly" while in those cases:

the attempt to secure the "partial monopoly of an unpatented material, outside of and apart from the patent monopoly" was made by contract or notice, whereas the Barber Company has made no attempt, "by contract, notice or otherwise, to expand its patent monopoly by limitations, or to reserve or create any monopoly in emulsion outside of, and apart from, its patent monopoly," that "its customers for emulsion have no more than the unconditional license to use implied by law and are under no restriction," and that neither the defendant nor its customers "has any relation with the patent owner." [10]

The Court said, "The distinction upon which the Barber Company . .  rests is without legal significance," because "every use of a patent as a means of obtaining a limited monopoly of unpatented material is prohibited. . . . It applies whatever the nature of the device by which the owner of the patent seeks to effect such unauthorized extension of the monopoly." [11]

Subsequent developments

La Fera Greco case

In Barber Asphalt Co. v. La Fera Grecco Contracting Co., [12] the Third Circuit held that when Barber sold bituminous emulsion to purchasers for a royalty of 2 cents per gallon over the market price, and gave the purchaser a right to use the patented process, while requiring the users of bituminous emulsion purchased from other sources to pay a royalty of 1 cent per square yard of concrete surface over which the bituminous emulsion is spread, the sales practice puts such a burden upon the user of bituminous emulsion purchased from other sources as to prevent free competition. The theory was thatr it was impossible for customers to equalize the royalty of 2 cents per gallon paid by the purchasers from Barber and that required for the use of the patented process by those who purchased the bituminous emulsion elsewhere; this was because a gallon of the bituminous emulsion might be spread over a surface varying from 5 to 20 square yards in practicing the patented process. Consequently, if the product purchased from others were used economically by the purchaser so as to cover 15 or 20 years of concrete, the license fee required would be so great that he could not afford to purchase the product from anyone other than the patentee. The Third Circuit said: "The contractor who does not purchase his emulsions through the Johnson-March Thompson middleman channel is faced with the economic anomaly that upon spreading his emulsions sparingly his cost is increased; thickly, the cost is reduced."

Dehydrators case

In Dehydrators, Ltd. v. Petrolite Corp. , [13] the owner of a process patent supplied an unpatented product called Tret-O-Lite Turkey Red Oil at a single price that combined a charge for the use of the process and a charge for the product supplied. The patentee ran afoul of the Leitch case, even though it had publicly offered to any persons who preferred to procure the unpatented product elsewhere the alternative of an unrestricted license to practice the process, upon payment of a royalty based on the difference between the cost of the unpatented product on the open market and the patentee's sale price for the same unpatented product. The court said:

If the appellee had been more interested in promoting or exploiting its patent than in selling its Tret-O-Lite it would have been a very simple matter to fix a royalty fee of so many cents per gallon whether purchased from the appellee or from outsiders. Indeed, no other course on the part of a patentee who is selling a commercial product to use in the patented process he owns would seem to quite meet the claim that the practice of combining the price of a royalty and of the product in the same unit without separation tends to promote a monopoly in the product if the patent monopoly is not waived. [14]

Related Research Articles

In United States patent law, patent misuse is a patent holder's use of a patent to restrain trade beyond enforcing the exclusive rights that a lawfully obtained patent provides. If a court finds that a patent holder committed patent misuse, the court may rule that the patent holder has lost the right to enforce the patent. Patent misuse that restrains economic competition substantially can also violate United States antitrust law.

General Talking Pictures Corp. v. Western Electric Co., 304 U.S. 175 (1938), was a case that the Supreme Court of the United States decided in 1938. The decision upheld so-called field-of-use limitations in patent licenses: it held that the limitations were enforceable in a patent infringement suit in federal court against the licensee and those acting in concert with it—for example, a customer that knowingly buys a patented product from the licensee that is outside the scope of the license.

Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), is a decision of the United States Supreme Court in which the Court reaffirmed the validity of the patent exhaustion doctrine, and in doing so made uncertain the continuing precedential value of a line of decisions in the Federal Circuit that had sought to limit Supreme Court exhaustion doctrine decisions to their facts and to require a so-called "rule of reason" analysis of all post-sale restrictions other than tie-ins and price fixes. In the course of restating the patent exhaustion doctrine, the Court held that the exhaustion doctrine is triggered by, among other things, an authorized sale of a component when the only reasonable and intended use of the component is to practice the patent and the component substantially embodies the patented invention by embodying its essential features. The Court also overturned, in passing, the part of decision below that held that the exhaustion doctrine was limited to product claims and did not apply to method claims.

<i>Aro Manufacturing Co. v. Convertible Top Replacement Co.</i> 1961 United States Supreme Court case

Aro Manufacturing Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961), is a United States Supreme Court case in which the Court redefined the U.S. patent law doctrine of repair and reconstruction. The decision is sometimes referred to as Aro I because several years later the Supreme Court readdressed the same issues in a second case in 1964 involving the same parties—Aro II.

United States v. Univis Lens Co., 316 U.S. 241 (1942), is a decision of the United States Supreme Court explaining the exhaustion doctrine and applying it to find an antitrust violation because Univis's ownership of patents did not exclude its restrictive practices from the antitrust laws. The Univis case stands for the proposition that when an article sold by a patent holder or one whom it has authorized to sell it embodies the essential features of a patented invention, the effect of the sale is to terminate any right of the patent holder under patent law to control the purchaser's further disposition or use of the article itself and of articles into which it is incorporated as a component or precursor.

United States v. General Electric Co., 272 U.S. 476 (1926), is a decision of the United States Supreme Court holding that a patentee who has granted a single license to a competitor to manufacture the patented product may lawfully fix the price at which the licensee may sell the product.

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Patent infringement in Canadian law

Once an invention is patented in Canada, exclusive rights are granted to the patent holder as defined by s.42 of the Patent Act. Any interference with the patent holder's "full enjoyment of the monopoly granted by the patent" is considered a patent infringement. Making, constructing, using, or selling a patented invention without the patent holder's permission can constitute infringement. Possession of a patented object, use of a patented object in a process, and inducement or procurement of an infringement may also, in some cases, count as infringement.

Adams v. Burke, 84 U.S. 453 (1873), was a United States Supreme Court case in which the Court first elaborated on the exhaustion doctrine. According to that doctrine, a so-called authorized sale of a patented product liberates the product from the patent monopoly. The product becomes the complete property of the purchaser and "passes without the monopoly." The property owner is then free to use or dispose of it as it may choose, free of any control by the patentee. Adams is a widely cited, leading case. A substantially identical doctrine applies in copyright law and is known as the "first sale doctrine".

Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942), is a patent misuse decision of the United States Supreme Court. It was the first case in which the Court expressly labeled as "misuse" the Motion Picture Patent/Carbice tie-in defense to a charge of patent infringement and created the present blanket remedy in infringement cases of unenforceability of the misused patent. The decision re-emphasized that misuse can be found without finding an antitrust violation.

Carbice Corp. v. American Patents Development Corp., 283 U.S. 27 (1931), is a decision of the United States Supreme Court extending the patent misuse doctrine against tie-ins to cases in which patents were used to tie the purchase of unpatented elements of patented combinations. The Court had previously held that it was unlawful to require the purchase of supplies as a condition of a patent license, where the supplies were not claimed as part of the patented combination.

Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917), is United States Supreme Court decision that is notable as an early example of the patent misuse doctrine. It held that, because a patent grant is limited to the invention described in the claims of the patent, the patent law does not empower the patent owner, by notices attached to the patented article, to extend the scope of the patent monopoly by restricting the use of the patented article to materials necessary for their operation but forming no part of the patented invention, or to place downstream restrictions on the articles making them subject to conditions as to use. The decision overruled The Button-Fastener Case, and Henry v. A.B. Dick Co., which had held such restrictive notices effective and enforceable.

Brulotte v. Thys Co., 379 U.S. 29 (1964), was a Supreme Court of the United States decision holding that a contract calling for payment of patent royalties after the expiration of the licensed patent was misuse of the patent right and unenforceable under the Supremacy Clause, state contract law notwithstanding. The decision was widely subjected to academic criticism but the Supreme Court has rejected that criticism and reaffirmed the Brulotte decision in Kimble v. Marvel Entertainment, LLC.

Ethyl Gasoline Corp. v. United States, 309 U.S. 436 (1940), was a decision of the United States Supreme Court that limited the doctrine of the Court's 1938 decision in General Talking Pictures Corp. v. Western Electric Co. Beginning with the 1926 decision in United States v. General Electric Co., the Supreme Court made a sharp distinction between (i) post-sale restraints that a patentee imposed on purchasers of a patented product and (ii) restrictions (limitations) that a patentee imposed on a licensee to manufacture a patented product: the former being illegal and unenforceable under the exhaustion doctrine while the latter were generally permissible under a lenient "rule of reason." Thus, under the General Talking Pictures doctrine, a patent holder may permissibly license others to manufacture and then sell patented products in only a specified field (market), such as only a particular type of product made under the patent or only a particular category of customer for the patented product. The Ethyl decision held, however, that a patent licensing and distribution program based on both the sale of a patented product and licenses to manufacture a related product was subject to ordinary testing under the antitrust laws, and accordingly was illegal when its effect was to "regiment" an entire industry.

Henry v. A.B. Dick Co., 224 U.S. 1 (1912), was a 1912 decision of the United States Supreme Court that upheld patent licensing restrictions such as tie-ins on the basis of the so-called inherency doctrine—the theory that it was the inherent right of a patent owner, because he could lawfully refuse to license his patent at all, to exercise the "lesser" right to license it on any terms and conditions he chose. In 1917, the Supreme Court overruled the A.B. Dick case in Motion Picture Patents Co. v. Universal Film Mfg. Co.,

<i>Button-Fastener case</i>

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B.B. Chemical Co. v. Ellis, 314 U.S. 495 (1942), is a United States Supreme Court decision involving the patent misuse doctrine and the extent of remedies a court should award after finding a misuse that the patentee alleges it has now discontinued. The Court ruled that to be able to enforce the patent against infringement the patentee must show that it has fully abandoned its unlawful practice and that the consequences of that practice have been fully dissipated. This was a companion case to Morton Salt Co. v. G.S. Suppiger Co. decided on the same day.

The Mercoid cases—Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661 (1944), and Mercoid Corp. v. Minneapolis-Honeywell Regulator Co., 320 U.S. 680 (1944)—are 1944 patent tie-in misuse and antitrust decisions of the United States Supreme Court. These companion cases are said to have reached the "high-water mark of the patent misuse doctrine." The Court substantially limited the contributory infringement doctrine by holding unlawful tie-ins of "non-staple" unpatented articles that were specially adapted only for use in practicing a patent, and the Court observed: "The result of this decision, together with those which have preceded it, is to limit substantially the doctrine of contributory infringement. What residuum may be left we need not stop to consider." The Court also suggested that an attempt to extend the reach of a patent beyond its claims could or would violate the antitrust laws: "The legality of any attempt to bring unpatented goods within the protection of the patent is measured by the antitrust laws, not by the patent law."

Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176 (1980), is a 1980 5–4 decision of the United States Supreme Court limiting the patent misuse doctrine and explaining the scope of the 1952 amendment of the patent laws that resurrected the contributory infringement doctrine in the wake of the Mercoid cases. The Mercoid cases and a few predecessor cases had denied relief against patent infringement to patentees who were deriving revenue from the sale of unpatented products used as supplies for patented combinations or as components of patented combinations, even when the unpatented products were specially adapted for use with the patented combinations and even when they lacked any utility other than that use. The patentees used contributory infringement suits or threats of such suits to enforce their business model, which the Mercoid cases outlawed.

United States v. United States Gypsum Co. was a patent–antitrust case in which the United States Supreme Court decided, first, in 1948, that a patent licensing program that fixed prices of many licensees and regimented an entire industry violated the antitrust laws, and then, decided in 1950, after a remand, that appropriate relief in such cases did not extend so far as to permit licensees enjoying a compulsory, reasonable–royalty license to challenge the validity of the licensed patents. The Court also ruled, in obiter dicta, that the United States had standing to challenge the validity of patents when a patentee relied on the patents to justify its fixing prices. It held in this case, however, that the defendants violated the antitrust laws irrespective of whether the patents were valid, which made the validity issue irrelevant.

References

The citations in this article are written in Bluebook style. Please see the talk page for more information.

  1. ↑ Leitch Mfg. Co. v. Barber Co., 302 U.S. 458 (1938).
  2. ↑ See Concrete#Curing.
  3. ↑ 302 U.S. at 460-61.
  4. ↑ Barber Asphalt Co. v. Stulz-Sickles Co., 89F.2d960 , 964( 3d Cir. 1937).
  5. ↑ Barber Asphalt Co. v. Stulz-Sickles Co., 14F. Supp.212 ( D.N.J. 1936).
  6. ↑ Barber Asphalt Co., 89 F.2d at 965.
  7. ↑ 302 U.S. at 459.
  8. ↑ 302 U.S. at 460-61.
  9. ↑ 302 U.S. at 461.
  10. ↑ 302 U.S. at 462-63.
  11. ↑ 302 U.S. at 463.
  12. ↑ Barber Asphalt Co. v. La Fera Grecco Contracting Co., 116F.2d211 (3d Cir.1940).
  13. ↑ Dehydrators, Ltd. v. Petrolite Corp., 117F.2d183 ( 9th Cir. 1941).
  14. ↑ Dehydrators, 117 F.2d at 187.
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