Rocform Corporation v. Acitelli-Standard Concrete Wall, Inc. , 367 F.2d 678 ( 1966 )

EDWARDS, Circuit Judge.

This is a patent infringement action brought by plaintiff-appellant Rocform Corporation against defendant-appellee Acitelli-Standard Concrete Wall, Inc. The patent in suit is No. 2,526,529, issued October 17, 1950, for a “Prefabricated Wall Form” for pouring concrete basement walls. The patent in suit will expire October 17, 1967.

Plaintiff claims defendant infringed the patent by employing it in pouring basement walls without paying any license fee.

In defense, defendant Acitelli claimed invalidity of the patent and denied infringement. Defendant also defended by alleging that Rocform had misused its patent. This appeal is derived from a trial in the United States District Court for the Eastern District of Michigan wherein testimony was taken on the misuse issue only, after defendant had conceded (for purposes of that hearing) that the patent was valid and infringed.

At the conclusion of this hearing the District Judge entered lengthy findings of fact and conclusions of law, finally concluding:

“In this action for infringement of a patent by defendant, the defense of misuse of the patent in suit, by attempting to extend patent monopoly beyond the expiration date of the patent, has been established and is a valid defense.

“Due to misuse of the patent in suit by plaintiff, as owner thereof, this action will be dismissed for want of equity.”

On appeal plaintiff-appellant Rocform contends that this record discloses no coercion; that there is no evidence of misuse of the patent, and that mandatory package licensing of “interlocking” patents is not a misuse.

The record in this appeal shows that Rocform had signed standard licensing agreements with 189 builders. Acitelli had been one of these, as an individual builder; but after incorporation his company came into possession of a set of Rocform forms which it proceeded to use without a license. Rocform offered to license defendant, but only under its standard license agreement, which offer defendant refused.

The virtues of the patent in suit in its use in housebuilding are that it allows a builder to set forms for pouring concrete basement walls rapidly and then disassemble and reemploy substantially all of the fixtures and material from that set of forms for other jobs. The District Judge found that the system gave its users a competitive advantage.

Plaintiff Rocform did not issue licenses under this patent (or any of its other patents), but did license builders to build under “The Rocform System.” The District Judge who heard this case described this license agreement in his findings:

“Under provisions of the license agreement,

“Licensor grants to licensee a nonexclusive license to use the Rocform System in accordance with terms thereof, agrees while the agreement is in effect to sell to licensee all necessary Rocform panels and hardware and to replace and repair without charge worn out or damaged hardware, and authorizes use of the words ‘Rocform System’ in promotion and advertising;

“Licensee agrees to pay for the equipment and to pay a license fee for each basement he casts (license fees vary from approximately $10.00 to $25.00 per basement cast, depending on size);

“It is acknowledged and agreed that ‘certain features, hardware and accessories used in and being a part of the Rocform System’ are covered by patents and licensor stipulates that any further improvement in the system shall be made available to licensee for use under the agreement;

“The agreement and license is revoked, remanded and terminated upon default in payments or in any condition imposed by the license on use of the system.”

The District Judge also pointed out that the patent in suit had an early termination date (October 17, 1967), but the Rocform standard license agreement provided no reduction of license fees or termination date (except with penalties on the licensee’s default). After a careful review of the license and its use, he concluded:

“The license is, in the view of this Court, primarily a patent license and other features thereof are only incidental to the grant of use of patents. Upon a careful reading of the license agreement it is apparent that the prime consideration for the license fee is the grant to use the Rocform System which cannot be used without using the patent in suit and other patents. The services which are included in the consideration for the license are disproportionate to the license fees stipulated therein.”

We regard this language and the District Judge’s other findings as holding that plaintiff-appellant employed the patent in suit so as to coerce (or attempt to coerce) this defendant to purchase the Rocform System and thus to purchase other patents and unpatented materials and services.

We have reviewed the basic findings of fact of the District Judge against the record. In our view there is substantial evidence to support them and they are not clearly erroneous. In this situation we cannot properly set them aside. Toledo Scale Corp. v. Westinghouse Electric Corp., 351 F.2d 173 (C.A. 6, 1965); Graver Tank & Mfg. Co., Inc. v. Linde Air Products Co., 336 U.S. 271, 69 S.Ct. 535, 93 L.Ed. 672 (1949), rehearing granted, 337 U.S. 910, 69 S.Ct. 1046, 93 L.Ed. 1722 (1949), aff’d, 339 U.S. 605, 70 S.Ct. 854, 94 L.Ed. 1097 (1950).

But appellant contends that some (if not all) of the District Judge’s findings of fact are really interpretations of the license agreement and hence that they should not be reviewed under the clearly erroneous rule. Crosley Radio Corp. v. Dart, 160 F.2d 426 (C.A. 6, 1947). To the extent that our affirmance depends upon interpretation of that document, we have inspected and considered it and agree with the interpretations placed thereon by the District Judge.

This brings us to the legal conclusions in this case. Plaintiff-appellant contends that the license agreement (even if properly described above) was a mandatory packaging agreement for interlocking patents related to producing one product and hence valid under International Mfg. Co. v. Landon, Inc., 336 F.2d 723 (C.A. 9, 1964), cert. denied, 379 U.S. 988, 85 S.Ct. 701,13 L.Ed.2d 610 (1965); see also Standard Oil Co. (Indiana) v. United States, 283 U.S. 163, 171, 51 S.Ct. 421, 75 L.Ed. 926 (1931).

The District Judge, however, did not find this standard licensing agreement illegal per se because it represented mandatory patent package licensing. He found plaintiff’s license agreement illegal because it contained no termination clause and hence represented an attempted illegal extension of the patent in suit.

In the recent case of Brulotte v. Thys Co. the Supreme Court said:

“A patent empowers the owner to exact royalties as high as he can negotiate with the leverage of that monopoly. But to use that leverage to project those royalty payments beyond the life of the patent is analogous to an effort to enlarge the monopoly of the patent by tieing the sale or use of the patented article to the purchase or use of unpatented ones. See Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 60 S.Ct. 618, 84 L.Ed. 852; Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 664-665, 64 S.Ct. 268, 88 L.Ed. 376, and cases cited.” Brulotte v. Thys Co., 379 U.S. 29, 33, 85 S.Ct. 176, 179, 13 L.Ed.2d 99 (1964).

In the instant case the District Judge said: “Upon expiration of the patent in suit the consideration for the grant of the license becomes substantially devaluated. * * * ” The District Judge’s findings make it clear that the patent in suit which expires in 1967 is the most important consideration for the license.

We believe that the District Judge was correct in viewing this licensing agreement as an illegal attempt to extend the patent in suit. It contains no termination clause running to the benefit of the licensee. See 3A Corbin, Contracts § 761 (1960). After the expiration of the patent in suit, Rocform’s licensees would continue to pay the same fees as are provided during the life of the crucial patent.

The dissent in this case asserts that appellee is not entitled to claim patent misuse absent proof of a demand for the patent in suit as a separate item.

Clearly, where a licensee seeks relief from a patent package contract which he has signed voluntarily, he should be able to show a demand by him (and a refusal!) for the desired patent or patents as a separate item or items. Automatic Radio Mfg. Co. v. Hazeltine Research, 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312 (1950). Such a demand is not, however, held essential to a defense of misuse when the patentholder seeks equitable relief from infringement while still pursuing the illegal practice. Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363 (1942).

On this point the District Judge said: “If defendant’s hands be unclean in that it made no bona fide application to plaintiff for licensing, or for any other reason indicated by the facts in this case, such uncleanliness will not render plaintiff’s hands clean if it is attempting to unlawfully extend its patent monopoly.”

Cf. American Securit Co. v. Shatterproof Glass Corp., 268 F.2d 769, 776 (C.A. 3, 1959), cert. denied, 361 U.S. 902, 80 S.Ct. 210, 4 L.Ed.2d 157 (1959).

The dissent also contends that a flat price for use of a number of patents is permissible practice up to the termination date of “the last necessary patent.”

We believe this is too broad a contention. We do not deal here (as did the Supreme Court in Brulotte v. Thys Co., supra) with the sale of a piece of machinery which incorporated a number of patents. Rather we deal with a licensing arrangement where one important patent (about to expire) is grouped with others of longer duration for “leverage.” Cf. American Securit Co. v. Shatterproof Glass Corp., supra.

We believe such a contract, when it contains no diminution of license fee at the expiration of the most important patent and contains no termination clause at the will of the licensee, constitutes, in effect, an effort to continue to collect royalties on an expired patent. Brulotte v. Thys Co., supra; American Securit Co. v. Shatterproof Glass Corp., supra.

Since, however, the patent is presumptively valid and the complained of extension would not take place until October 17, 1967, we have considered the propriety of granting plaintiff relief from infringement until the defendant could show damage from the illegal extension. We have concluded, however, that there is no merit in employing the equity powers of the federal court to force defendant to enter into an agreement which is plainly illegal, even if the damages therefrom be future ones.

In Morton Salt the United States Supreme Court said:

“It is a principle of general application that courts, and especially courts of equity, may appropriately withhold their aid where the plaintiff is using the right asserted contrary to the public interest. Virginian Ry. Co. v. System Federation, 300 U.S. 515, 552, 57 S.Ct. 592, 601, 81 L.Ed. 789; Central Kentucky Natural Gas Co. v. Railroad Commission, 290 U.S. 264, 270-273, 54 S.Ct. 154, 156, 157, 78 L. Ed. 307; City of Harrisonville, Mo. v. U. S. Dickey Clay Mfg. Co., 289 U.S. 334, 337-338, 53 S.Ct. 602, 603, 77 L.Ed. 1208; Beasley v. Texas & Pacific Railroad Co., 191 U.S. 492, 497, 24 S.Ct. 164, 165, 48 L.Ed. 274; Securities & Exchange Comm. v. United States Realty Mfg. Co., 310 U.S. 434, 455, 60 S.Ct. 1044, 1053, 84 L.Ed. 1293; United States v. Morgan, 307 U.S. 183, 194, 59 S.Ct. 795, 801, 83 L.Ed. 1211.” Morton Salt Co. v. G. S. Suppiger Co., supra at 492, 62 S.Ct. at 405.

The license agreement can, of course, readily be amended. It seems clear to us that the District Judge was correct in denying plaintiff the use of the equity powers of the court until and unless it purges itself of the practice identified above as representing patent misuse. Preformed Line Products Co. v. Fanner Mfg. Co., 225 F.Supp. 762 (N.D. Ohio, 1962), aff’d, 328 F.2d 265 (C.A. 6, 1964), cert. denied, 379 U.S. 846, 85 S.Ct. 56, 13 L.Ed.2d 51 (1964); B. B. Chemical Co. v. Ellis, 314 U.S. 495, 62 S.Ct. 406, 86 L.Ed. 367 (1942).

Affirmed.