United States v. General Electric Co.

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United States v. General Electric Co.
Seal of the United States Supreme Court.svg
Argued October 13, 1926
Decided November 23, 1926
Full case nameUnited States v. General Electric Co.
Citations272 U.S. 476 ( more )
47 S. Ct. 192; 71 L. Ed. 362; 1926 U.S. LEXIS 974
Case history
Prior15 F.2d 715 (N.D. Ohio 1925) (affirmed)
Holding
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.
Court membership
Chief Justice
William H. Taft
Associate Justices
Oliver W. Holmes Jr.  · Willis Van Devanter
James C. McReynolds  · Louis Brandeis
George Sutherland  · Pierce Butler
Edward T. Sanford  · Harlan F. Stone
Case opinion
MajorityTaft, joined by a unanimous Court

United States v. General Electric Co., 272 U.S. 476 (1926), is a decision of the United States Supreme Court holding (per Chief Justice Taft) 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. [1]

Contents

Background

GE's patent on the tungsten filament lamp, US Pat 1,018,502 - one of the patents that the Supreme Court said completely covered the manufacture and sale of incandescent light bulbs J&Hpat.jpg
GE's patent on the tungsten filament lamp, US Pat 1,018,502 – one of the patents that the Supreme Court said completely covered the manufacture and sale of incandescent light bulbs

GE owned three patents that “cover[ed] completely the making of the modern electric lights with the tungsten filaments.” [2] GE accounted for 69% of total manufacture and sale of incandescent light bulbs, and Westinghouse, 16%. [2] GE licensed Westinghouse to manufacture and sell light bulbs on the condition that Westinghouse should sell at prices that GE fixed and changed at its discretion. [3]

GE tungsten filament lamp embodying the invention of US Pat 1,018,502 - one of those involved in the 1926 US v GE litigation TungFil.jpg
GE tungsten filament lamp embodying the invention of US Pat 1,018,502 – one of those involved in the 1926 US v GE litigation

Supreme Court opinion

The Court pointed out that GE had not sold the light bulbs to Westinghouse but rather had granted Westinghouse a license to manufacture and sell the bulbs under GE’s patents. It was well settled that, under the exhaustion doctrine, “where a patentee makes the patented article and sells it, he can exercise no future control over what the purchaser may wish to do with the article after his purchase. It has passed beyond the scope of the patentee's rights.” [4] On the other hand, “the question is a different one…when we consider what a patentee who grants a license to one to make and vend the patented article may do in limiting the licensee in the exercise of the right to sell.” [5] If all that the patentee does is grant a license to make, the Court said, the licensee only gets an implied license to use the article and not one to sell it. That raises the question of what happens if the patentee also licenses sale:

If the patentee goes further and licenses the selling of the articles, may he limit the selling by limiting the method of sale and the price? We think he may do so provided the conditions of sale are normally and reasonably adapted to secure pecuniary reward for the patentee's monopoly. One of the valuable elements of the exclusive right of a patentee is to acquire profit by the price at which the article is sold. The higher the price, the greater the profit, unless it is prohibitory. When the patentee licenses another to make and vend, and retains the right to continue to make and vend on his own account, the price at which his licensee will sell will necessarily affect the price at which he can sell his own patented goods. It would seem entirely reasonable that he should say to the licensee, "Yes, you may make and sell articles under my patent, but not so as to destroy the profit that I wish to obtain by making them and selling them myself." He does not thereby sell outright to the licensee the articles the latter may make and sell, or vest absolute ownership in them. He restricts the property and interest the licensee has in the goods he makes and proposes to sell. [6]

That is the core of the opinion in the case, and the rule for which the GE case is usually cited today: the patentee may impose any conditions in a manufacturing license that “are normally and reasonably adapted to secure pecuniary reward for the patentee’s monopoly.” [7]

The decision also upheld price fixing restrictions that GE imposed in agreements with agents for sale of bulbs that GE had manufactured. The Court ruled: “The owner of an article, patented or otherwise, is not violating the common law or the Anti-Trust Act by seeking to dispose of his articles directly to the consumer and fixing the price by which his agents transfer the title from him directly to such consumer.” [8]

Subsequent developments

The U.S. Department of Justice has been trying to overturn the 1926 GE decision almost since it was first handed down, and has twice seen it upheld by an equally divided 4–4 Supreme Court. [9]

Subsequent decisions of the Court, however, have repeatedly circumscribed the scope of the dispensation that the 1926 GE case offers. [10] It does not apply when several patentees pool their patents [11] or when the patentee has multiple licensees. [12] It does not apply when the patentee-licensor is not itself a manufacturer licensing competitive manufacturers. [13] It does not apply to a price-fix on an unpatented product made by a patented machine or patented method. [14]

The United States Court of Appeals for the Federal Circuit has continued to rely on what is termed, above, the core of the opinion. In Mallinckrodt, Inc. v. Medipart, Inc. , the Federal Circuit relied on GE as the basis for its ruling that the patentee’s post-sale restrictions were not prohibited under the exhaustion doctrine. The Federal Circuit’s Quanta decision relied for its rationale on Mallinckrodt, and thus on GE. But the Supreme Court’s reversal of that decision in Quanta Computer, Inc. v. LG Electronics, Inc. has created uncertainty about the continuing authority of this line of precedent and has left this area of law unsettled.

In its initial brief in the Quanta case, as amicus curiae, the United States had pointed to the "seeming anomaly" between the two lines of authority that the GE case addresses. [15] One line is represented by the Supreme Court's "exhaustion" cases such as United States v. Univis Lens Co. [16] and Quanta. Another line is reflected by such decisions and GE and General Talking Pictures Corp. v. Western Electric Co. The Mallinckrodt case seemed to expand the scope of the second line of authority at the expense of the first, but now Quanta may be reversing the direction of expansion. This area of law may thus remain unsettled for several years.

Early in 2015, the Federal Circuit called for en banc briefing and argument of whether the Mallinckrodt case should be overruled, in light of Quanta. [17] In February 2016, the Federal Circuit, in a 10–2 decision, reaffirmed Mallinckrodt.[ citation needed ]

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.

The exhaustion doctrine, also referred to as the first sale doctrine, is a U.S. common law patent doctrine that limits the extent to which patent holders can control an individual article of a patented product after a so-called authorized sale. Under the doctrine, once an authorized sale of a patented article occurs, the patent holder's exclusive rights to control the use and sale of that article are said to be "exhausted," and the purchaser is free to use or resell that article without further restraint from patent law. However, under the repair and reconstruction doctrine, the patent owner retains the right to exclude purchasers of the articles from making the patented invention anew, unless it is specifically authorized by the patentee to do so.

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.

<i>Mallinckrodt, Inc. v. Medipart, Inc.</i>

Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, is a decision of the United States Court of Appeals for the Federal Circuit, in which the court appeared to overrule or drastically limit many years of U.S. Supreme Court precedent affirming the patent exhaustion doctrine, for example in Bauer & Cie. v. O'Donnell.

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.

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.

A post-sale restraint, also termed a post-sale restriction, as those terms are used in United States patent law and antitrust law, is a limitation that operates after a sale of goods to a purchaser has occurred and purports to restrain, restrict, or limit the scope of the buyer's freedom to utilize, resell, or otherwise dispose of or take action regarding the sold goods. Such restraints have also been termed "equitable servitudes on chattels".

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".

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.,

The Button-Fastener Case, Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., also known as the Peninsular Button-Fastener Case, was for a time a highly influential decision of the United States Court of Appeals for the Sixth Circuit. Many courts of appeals, and the United States Supreme Court in the A.B. Dick case adopted its "inherency doctrine"—"the argument that, since the patentee may withhold his patent altogether from public use, he must logically and necessarily be permitted to impose any conditions which he chooses upon any use which he may allow of it." In 1917, however, the Supreme Court expressly overruled the Button-Fastener Case and the A.B. Dick case, in the Motion Picture Patents case.

Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. ___ (2017), is a decision of the Supreme Court of the United States on the exhaustion doctrine in patent law in which the Court held that after the sale of a patented item, the patent holder cannot sue for patent infringement relating to further use of that item, even when in violation of a contract with a customer or imported from outside the United States. The case concerned a patent infringement lawsuit brought by Lexmark against Impression Products, Inc., which bought used ink cartridges, refilled them, replaced a microchip on the cartridge to circumvent a digital rights management scheme, and then resold them. Lexmark argued that as they own several patents related to the ink cartridges, Impression Products was violating their patent rights. The U.S. Supreme Court, reversing a 2016 decision of the Federal Circuit, held that the exhaustion doctrine prevented Lexmark's patent infringement lawsuit, although Lexmark could enforce restrictions on use or resale of its contracts with direct purchasers under regular contract law. Besides printer and ink manufacturers, the decision of the case could affect the markets of high tech consumer goods and prescription drugs.

National Lockwasher Co. v. George K. Garrett Co., 137 F.2d 255, is one of the earliest or the earliest federal court decision to hold that it is patent misuse for a patentee to require licensees not to use a competitive technology. Such provisions are known as "tie-outs."

United States v. New Wrinkle, Inc., 342 U.S. 371 (1952), is a 1952 Supreme Court decision in which the Court held that a claim of conspiracy to fix uniform minimum prices and to eliminate competition throughout substantially all of the wrinkle finish industry of the United States by means of patent license agreements was, if proved, a violation of § 1 of the Sherman Act. That one of the defendants, a patent-holding company, abstained from manufacturing activities, did not ship goods in commerce, and engaged solely in patent licensing did not insulate its activity from § 1. Making these license contracts for the purpose of regulating distribution and fixing prices of commodities in interstate commerce is subject to the Sherman Act, even though the isolated act of contracting for the licenses occurs within a single state. Patents give no protection from the prohibitions of the Sherman Act when the patent licensing agreements are used to restrain interstate commerce and fix prices of goods shipped in commerce.

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.

United States v. Westinghouse Electric Corp., 648 F.2d 642, is a patent-antitrust case in which the United States unsuccessfully tried to persuade the court that a patent and technology licensing agreement between major competitors in the highly concentrated heavy electrical equipment market—Westinghouse, Mitsubishi Electric (Melco) and Mitsubishi Heavy Industries (MHI)—which had the effect of territorially dividing world markets, violated § 1 of the Sherman Act. The Government had two principal theories of the case: (1) the arrangement is in unreasonable restraint of trade because its effect is to lessen competition substantially by precluding the Japanese defendant companies from bidding against Westinghouse on equipment procurements in the United States, when they are ready, willing, and able to do so; and (2) the arrangement is an agreement—explicit or tacit—to divide markets, which is illegal per se under § 1. Neither theory prevailed.

<i>United States v. Krasnov</i>

United States v. Krasnov, 143 F. Supp. 184, was a 1956 district court patent–antitrust decision that the United States Supreme Court affirmed per curiam without opinion. The district court granted the Government's summary judgment motion because it concluded:

That the defendants in combination controlled the market and had the ability to and did drive competitors from the business of manufacturing knitted fabric slip covers is abundantly clear from the record. That the defendants in combination fixed and maintained prices is likewise crystal clear. That the defendants in combination and cross-licensing created a situation in the industry which, particularly by agreement for joint action respecting the patents, effectively hindered newcomers in the field, is also established beyond peradventure of doubt. That the harassing suits against competitors, previously discussed in some detail, were designed as and were actually only harassing suits is clear from an examination of the correspondence between the parties and the Court feels that such conclusion in inescapable from an objective analysis of the documents. All of these actions taken in concert constitute a clear violation of the Sherman Anti-Trust Act and the Government has established to the satisfaction of the Court that the combination and conspiracy above referred to represents an unreasonable restraint of trade and commerce among the several states of the United States in the manufacture and sale of ready-made furniture slip covers, is unlawful, and in violation of Section 1 of the Sherman Anti-Trust Act. Further, the Government, in the opinion of the Court, has effectively demonstrated that the defendants combined and conspired not only to restrain trade unreasonably but also to monopolize trade and commerce among the several states of the United States in the manufacture and sale of ready-made furniture slip covers, in direct violation of Section 2 of the Sherman Anti-Trust Act. The Court also feels that by documentary proof the Government has established that the defendants have used patent rights unlawfully in instituting, effectuating and maintaining the aforesaid combination and conspiracy which likewise constitutes a clear violation of the Sherman Anti-Trust Act.

United States v. Line Material Co., 333 U.S. 287 (1948), is a decision of the United States Supreme Court limiting the doctrine of the 1926 General Electric decision, excusing price fixing in patent license agreements. The Line Material Court held that cross-licenses between two manufacturer competitors, providing for fixing the prices of the licensed products and providing that one of the manufacturers would license other manufacturers under the patents of each manufacturer, subject to similar price fixing, violated Sherman Act § 1. The Court further held that the licensees who, with knowledge of such arrangements, entered into the price-fixing licenses thereby became party to a hub-and-spoke conspiracy in violation of Sherman Act § 1.

Rubber Co. v. Goodyear, 76 U.S. 788 (1869), is an early decision of the United States Supreme Court recognizing the right of a patent owner to license another person to practice the invention only in a limited field, and holding that such a licensee committed patent infringement when it made and sold products of the invention outside that field.

References

  1. ↑ United States v. General Electric Co., 272 U.S. 476 (1926). PD-icon.svg This article incorporates public domain material from this U.S government document.
  2. 1 2 GE, 271 U.S. at 481.
  3. ↑ 271 U.S. at 488.
  4. ↑ 271 U.S. at 489.
  5. ↑ 271 U.S. at 489–90.
  6. ↑ 271 U.S. at 490 (emphasis supplied). However, in Adams v. Burke , 84 U.S. (17 Wall. ) 453 (1873), the patentee Adams assigned the right to make, use, and sell the patented product (a coffin lid) within a ten-mile radius of Boston to another, who manufactured the patented product and sold it to Burke. Burke then took the product more than ten miles from Boston and used it in his undertaking business to bury a customer. Adams sued Burke for patent infringement, but the Supreme Court held that the exhaustion doctrine freed Burke from infringement liability.
  7. ↑ See, e.g., General Talking Pictures Corp. v. Western Electric Co. , 305 U.S. 124, 127 (1938) (“As was said in United States v. General Electric Co., 272 U.S. 476, 489 (1926), the patentee may grant a license ‘upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure.’”), quoted in Mallinckrodt, Inc. v. Medipart, Inc. , 976F.2d700 , 704-05( Fed. Cir. 1992).
  8. ↑ GE. 271 U.S. at 488 (emphasis supplied).
  9. ↑ United States v. Huck Mfg. Co. , 382 U.S. 197 (1965); United States v. Line Material Co. , 333 U.S. 287 (1948).
  10. ↑ Robert A. Lipstein & Ryan C. Tisch, RPM in IP: RIP to Per Se?, Competition Law 360, The Newswire for Business Lawyer (April 9, 2007), at 2 (“courts have nibbled away at [General Electric], leaving it a narrow rule surrounded entirely by wide exceptions”).
  11. ↑ SeeLine Material, supra.
  12. ↑ SeeNewburgh Moire Co. v. Superior Moire Co., 237F.2d283 ( 3d Cir. 1956).
  13. ↑ United States v. New Wrinkle, Inc. , 342 U.S. 371 (1952) (licensor is patent holding company and licensees are manufacturers). See alsoRoyal Indus. v. St. Regis Paper Co., 420F.2d449 , 452( 9th Cir. 1969).
  14. ↑ SeeCummer-Graham Co. v. Straight Side Basket Corp., 142 F.2d 646 (5th Cir. 1944); Tuthill Bldg. Material Co., 69F.2d406 , 409( 7th Cir. 1934).
  15. ↑ For a more detailed discussion of this issue, see the article on Quanta v. LGE .
  16. ↑ United States v. Univis Lens Co. , 316 U.S. 241 (1942).
  17. ↑ See Mallinckrodt—Continued viability questioned.
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