PART 4

PATENTS AND COPYRIGHTS

CHAPTER XIV

EFFECT OF PATENTS AND COPYRIGHTS

§162a. A patentee is given by law the exclusive right, for a limited period, to "make, use, and vend" the invention, or license others to do so.1 The holder of a copyright is given the "sole right and liberty of printing, reprinting, publishing, and vending" the copyrighted article for a term of years.2

§163. These grants of privileges by Congress are, however, subject to the legislative power of the state to some extentat least in the absence of any more explicit action by Congress. Thus the right given by letters patent to vend a patented improvement for burning oil was subject to the legislative power of a state which condemned the device as dangerous. So the existence of the Bell Telephone and subsequent telephone patents, which the Central Union Telephone Company was entitled to use in Indiana, did not avoid an act of the Indiana legislature providing for the regulation of rates to be charged by telephone companies.

§ 164. An important question which has arisen under the Patent and Copyright Acts is this: How far may the sale of or the license to use, the patented article, or the sale of a copyrighted article, be made subject to conditions or stipulations which, if not adhered to, will avoid the license or the sale and cause the continued use to be an infringement?

1-Rev. Stats. § 4884.

2-1 Stat. at Large by Peters, chap. 15, p. 124. See also, R. S. 4952; Act Mar. 4, 1909, c. 320,

$1.

3-Patterson v. Kentucky, 97 U. 8. 501 (1878).

4-Hockett v. State, 105 Ind. 250, 257 (1885).

§ 165. When, for instance, the patentee of the fundamental Bell telephone patent, which gave to the patentee a monopoly of the telephone business down to 1893, leased telephone instruments to telephone companies, it attempted to impose the restriction that the instrument should not be used by telegraph companies other than the Western Union. When telegraph companies other than the Western Union attempted to compel the Bell Telephone Company to render service, they were met with the defense that this was forbidden by the stipulation and conditions of the license and lease in question. This defense failed. When the instruments were put into use, by lease or license, in a given public service business, the conduct of the business was required to be in compliance with the rules of law relating to that business-one of which was that all members of the public were entitled to be served without discrimination. The license to use the invention could not be so restricted as to interfere with this rule.

§ 166. More recently, attempts have been made to sell or license the use of a patented article with a stipulation that the vendee or licensee, and those who take from them, shall use, with the patented article, only certain unpatented accessories sold by the vendor or licensor.6 Licenses have provided, both as to patented articles and copyrighted articles, that they shall not be resold by the vendee or licensee or anyone taking from

5-State v. Bell Telephone Co., 36 Oh. St. 296 (1880); Commercial Union Telegraph Co. v. New England Telephone & Telegraph Co., 61 Vt. 241 (1888); Missouri v. Bell Telephone Co., 23 Fed. 539 (1885); State ex rel. Postal Telegraph Cable Co. v. Delaware & Atlantic Tel. & Tel. Co., 47 Fed. 633 (1891); Delaware & Atlantic Tel. & Tel. Co. v. Delaware, 50 Fed. 677 (1892); Bell Telephone Company v. Commonwealth, 3 Atl. 825, 827 (Pa. 1886); Chesapeake & Potomac Telegraph Co. v. Baltimore & Ohio Telegraph Co., 66 Md. 399, 416 (1886), 7 Atl. 809 (1887); State v. Ne

braska Telephone Co., 17 Neb. 126, 22 N. W. 237, 239 (1885); Postal Cable Telegraph Co. v. Cumberland Telephone & Telegraph Co., 177 Fed. 726 (1910); Bement v. National Harrow Co., 186 U. S. 70 (1902) (semble); Heaton-Peninsular Button Fastener Co. v. Eureka Specialty Co., 77 Fed. 288 (1896) (semble); Metropolitan Trust Co. v. Columbus Co., 95 Fed. 18 (1899) (semble).

6-Henry v. A. B. Dick Co., 224 U. S. 1 (1912); Motion Picture Patents Co. v. Universal Film Manufacturing Co., 243 U. S. 502 (1917).

them for less than a certain price. In suits based upon the Patent and Copyright Acts to enjoin the use of the patented or copyrighted article where these stipulations have been violated by remote holders with notice the United States Supreme Court has decided against both the patentee and the holder of the copyright. These cases proceed primarily upon a construction of the Patent and Copyright Acts-namely, that the right to "vend" or "license" does not include the right to place upon the use by the licensee or vendee or others the conditions or restrictions in question. Underlying this, however, is the idea that there is something contrary to public policy in such conditions and stipulations; that they are, apart from any question of patents or copyrights, subject to condemnation because they are illegal restraints of trade or attempts at monopoly; and that the right to "vend" and "license" under the Patent Act and the right to "vend" under the Copyright Act must be subject to the further rule that no stipulations or conditions shall be attached to the sale or license of the patented article which would be illegal if attached to a non-patented or non-copyrighted article. An effort has already been made elsewhere to show that there is, upon a proper balancing of all the interests, no ground for holding the stipulations or conditions in question void when attached to an unpatented or uncopyrighted article.9

§ 167. How far does a patent which controls the carrying on of a given business during the life of the patent justify a combination of units in that business which, except for the patent, would be illegal? 10

§ 168. It is safe to say that a patent will not justify a combination which is arranged to extend beyond the life of the

7-Bobbs-Merrill Co. v. Straus, 210 U. S. 339 (1908); Bauer v. O'Donnell, 229 U. S. 1 (1913); Straus v. Victor Talking Machine Co., 243 U. S. 490 (1917).

8-See cases cited supra notes 6 and 7 except Henry v. A. B. Dick Co., 244 U. S. 1 (1912); which sustained the suit of the patentee, but is now overruled.

9-Ante 88 33-39, 44 et seq.

10-Bement v. National Harrow Co., 186 U. S. 70 (1902) [1246] is often cited in this connection; but it does not in the least touch the problem, because only a single contract was involved. The record did not disclose any combination for the court to pass upon, and the single contract before the court was unobjectionable even if there had been no patent.

patent.11 It seems quite as clear that if the control of the business is secured by the union or purchase of competing patents, it will not only not be justified, but an additional ground for illegality will exist.12 Since each patent gives the patentee a monopoly for seventeen years of the use and disposal of his invention, the field is absolutely closed to all others. It follows that the union of the only two properties which can be used to carry on a given business would make an actual monopoly. A union of two out of three or even a union of any number out of any other number would produce an illegal attempt at monopoly. The right to vend or license the use of an invention is subject to the general rules of law against monopoly to this extent, at least that after property in an invention has been created and an exclusive privilege of vending or licensing given, it must, like other property, be kept out of combinations with other properties which constitute a monopoly or an attempt at monopoly in the business.

§ 169. If the patents or copyrights cannot be said to be of so fundamental a character as to exclude others from the business, they can hardly be used to justify a combination of competing units which has a preponderant position and an intent to monopolize by excluding others by unfair and illegal methods of competition.1

13

§ 170. Suppose a single fundamental patent gave to the patentee a monopoly of doing a given business for seventeen years. Would that fact justify the combination, limited to the life of the fundamental patent, of units in the business which

11-Strait v. National Harrow Co., 18 N. Y. S., 224 (1891)..

12-Blount Mfg. Co. v. Yale & Towne Mfg. Co., 166 Fed. 555 (1909); National Harrow Co. v. Hench, 83 Fed. 36 (1897); National Harrow Co. v. Hench, 84 Fed. 226 (1898); United States v. New Departure Mfg. Co., 204 Fed. 107 (1913); Vulcan Powder Co. v. Hercules Powder Co., 96 Cal. 510 (1892); State v. Creamery Package Mfg. Co., 110 Minn. 415 (1910).

13-Straus V. American Publishers Association, 231 U. S. 222 (1913) [1273].

Where, however, the patents are not competing but are supplementary to each other-all being used together for the purpose of manufacturing a given commodity-there is no objection to the assembling in a single manufacturing unit many valuable patents: United States v. Winslow, 227 U. S. 202 (1913).

would otherwise be illegal solely because it was an attempt to monopolize?

§ 171. In Standard Sanitary Manufacturing Co. v. United States 14 it appeared that the business of manufacturing enamel ironware had been carried on by many competitors when the Arrott patent was issued which provided for so superior a process that it controlled the business. Competitors attempted to compete, but the effectiveness of the patent was such that the great majority were forced into a combination which was effected by license contracts to use the patents. These license contracts provided, among other things, for the elimination of all competition between the units combined so far as the fixing of prices was concerned. The United States Supreme Court held that the combination was without justification. The Patent Act which gave an exclusive right to vend or license the article patented did not give any special privilege to use that right for the ulterior purpose of forcing competitors into a combination which except for the patent would be illegal.

§ 172. Suppose there had been no one at all in the business when the invention was made-as in the case of the telephone. Suppose the holders of a single fundamental telephone patent which gave a monopoly of the telephone business had organized that business for the period of the life of the patent as a combination of operating units, each a separate and distinct corporation, with separate and distinct bodies of stockholders with all competition between them eliminated under the terms of the license contract to use the patent. Would such a combination have been legal? Could a distinction be made between the using of a fundamental patent to suppress a competition which existed before the patent and to force those units which had previously competed into a combination, and the using of a existed but which was organized on the basis of combining sepfundamental patent to create a business which had not before arate units which were not premitted to compete?

14-226 U. S. 20 (1912) [1136].