Citation Numbers: 95 F. Supp. 771
Judges: Bondy
Filed Date: 11/14/1950
Status: Precedential
Modified Date: 11/26/2022
This is an application for the determination of a reasonable royalty for a nonexclusive, non-assignable license to make, use and vend semi-rimless spectacle mountings under United States Letters Patent Reissue No. 21,255 (hereinafter called the Gagnon patent). The application is made by American Optical Company (hereinafter called American), owner of the Gagnon patent, at the request of Shuron Optical Company, Inc. (hereinafter called Shuron), applicant for a license under that patent, pursuant to provisions of the final judgment entered September 17, 1948, on consent, in this civil anti-trust action. The judgment cancelled a number of patent licenses and agreements and ordered compulsory licensing of numerous patents, including the Gagnon patent, on a uniform and reasonable royalty basis.
Article VI(D) of the judgment provides: “Upon application for a license under the provisions of this Section, the defendant to whom application is made shall state the royalty which it deems reasonable for the patents to which the application pertains. If the parties are unable to agree upon a reasonable royalty, the defendant may apply to this Court for the determination of a reasonable royalty, giving notice thereof to the applicant and the Attorney General, and he shall make such application forthwith upon request of the applicant. In any such proceeding, the burden of proof shall be upon the defendant to whom application is made to establish by a fair preponderance of evidence, a reasonable royalty, and the Attorney General shall have the right to be heard thereon * *
Upon the application of Shuron for a license under the Gagnon patent, American proposed a royalty of 40 for each mounting covered thereby. This rate not being acceptable to Shuron, it called upon American to apply to the court for the determination of a reasonable royalty. American thereupon instituted this proceeding. The Attorney General, having been notified, stated that the government did not wish to take any position with respect to the royalty controversy between American and Shuron.
American contends that 40 per mounting has become the “established” royalty for a license under the Gagnon patent because it has been “paid by such a number of persons as to indicate a general acquiescence in its reasonableness by those who had occasion to use the invention.” Rude v. Westcott, 130 U.S. 152, 165, 9 S.Ct. 463, 468, 32 L.Ed. 888. Whether established or not, however, American further contends that 40, representing 1.4 per cent, of the selling price of the mounting to wholesale distributors ($2.85), is a reasonable royalty. Shuron denies that any royalty has been established for a license under the Gagnon patent and asserts that a reasonable royalty for such a license is zero.
Shuron has conceded for purposes of this proceeding that the Gagnon patent is valid and covers “Numont” mountings manufactured by it. Its claim that the patent is worthless is predicated on its contention that Gagnon’s invention did not make any contribution whatever to the practical spectacle art but was “of the most trifling
Shortly after the consent judgment can-celled all outstanding licenses under the Gagnon patent (other than a paid-up license issued some years before to the Bausch & Lomb Optical Company), nine of fifteen potential Gagnon licensees accepted the royalty rate of 4<j; proposed by American, and received licenses. When it became known that Shuron intended to cause the initiation of the present proceeding, the other prospective licensees suspended negotiations for licenses pending the result of the proceeding.
Owing to the reluctance of the members of the optical industry to divulge their sales figures, the court has not been informed as to the amount of sales of semi-rimless spectacle mountings by each optical manufacturer. Counsel, however, have stipulated that the nine companies which have executed Gagnon licenses since the consent judgment accounted for slightly less than 25 per cent, of the total volume of sales of semi-rimless mountings in 1947; that sales of such mountings by the companies, including Shuron, which have not executed licenses constituted slightly more than 25 per cent, of the total; and that sales by American and Bausch & Lomb together constituted approximately 50 per cent, of the total. It has further been stipulated that the largest sellers of semi-rimless mountings in 1947 were American, Shuron and Bausch & Lomb, in that order, and that the nine licensees ranked, 4th, 5th, 6th, 7th, 9th, llt’h, 12th, 15th and 16th in relative volume of semi-rimless sales in that year.
American urges that the nine licensees, comprising 60 per cent, of those who had occasion to consider taking a license under the patent, represent a fair cross section of the industry and are a sufficient number to show general acquiescence in the reasonableness of the royalty rate. See Rude v. Westcott, supra; 3 Walker on Patents (Deller’s Ed. 1937), § 823, p. 2158. Shuron maintains that the nine licenses were tainted by duress and hence are not probative of true market value.
Even if American actually represented to prospective licensees that it would sue them for infringement if they practiced the Gagnon invention without taking a license, such a representation is always implicit in negotiations for a patent license and does not constitute duress. And American’s promise to some of the optical manufacturers that they would receive the benefit of any subsequent court reduction of the royalty was merely declaratory of its obligation under the uniform royalty provision of the consent judgment.
While there is nothing in the record to substantiate Shuron’s charge of duress, the court is nevertheless of the opinion that under the circumstances the nine licenses do not establish a royalty for a license under the Gagnon patent. It is claimed that the nine licensees were in a stronger bargaining position than the ordinary applicant for a patent license by reason of the fact that under the consent judgment they could have compelled American to resort to the courts (as Shuron (lid) if they were dissatisfied with the terms offered them. However, those nine licensees did slightly less than 25 per cent, of the total volume of business in semi-rimless mountings. While it can not be assumed that each of the nine accounted for only 2.8 per cent, of such business, it may be inferred that a number of them had too small a financial stake in the matter to warrant the expense of litigating the reasonableness of the 4$ royalty, especially when they had the right to cancel their licenses on 30 days’ notice and were assured that any later reduction in the royalty rate would inure to their benefit. Moreover, the prospective licensees may have been at some disadvantage in conducting their negotiations with American because they were already using the patented invention in the manufacture and sale of semi-rimless mountings. The court, therefore, is not satisfied that those licenses,
In 1932, American, as exclusive licensee of the Ful-Vue Sales Company, with the right to sublicense, granted Shuron and other optical manufacturers a license under the so-called Ful-Vue patents (hereinafter called the Ful-Vue license). These patents covered spectacle mountings in which the temple hinges were located substantially above the normal line of vision.
In August, 1938 American, as exclusive licensee of the Uhlemann Optical Company with the right to sublicense, licensed Shuron and others under the so-called Uhlemann patents relating to semi-rimless mountings, at a royalty of 20 for each mounting. Mountings covered by the Uhlemann patents and also embodying the Ful-Vue feature were to be known as “Numont Ful-Vues” (hereinafter referred to as Numont mountings). Simultaneously, American fixed 60 as a royalty rate for approved Numont mountings under the Ful-Vue license. Thus the overall royalty rate paid by licensees on Numont mountings was 80, 60 under the Ful-Vue license and 20 trader the Uhlemann license.
Shortly after the appearance of the Numont mounting Shuron began to manufacture a new type of Ful-Vue semi-rimless mounting known as the “Sureset Ful-Vue Rimway” under the Ful-Vue license and a license granted by the Bay State Optical Company dated September 22, 1939 which included Nerney Patents No. 1,747,904 and No. 1,984,541. In October, 1940 American acquired these Nerney patents from Bay State and granted licenses thereunder to other optical manufacturers (hereinafter called the Rimway licenses). Because it was the first company to introduce the Rimway mounting Shuron had been given a preference by Bay State and paid a royalty of only 1.80 per unit under its license from Bay State, whereas all other licensees paid 3¢. The total royalty generally paid by licensees on Rimway Ful-Vue mountings was 11¢, 8¢ under the Ful-Vue license and 3¢ under the Rimway license.
On November 23, 1939 an agreement, supplemental to the Ful-Vue license, was entered into between Shuron and American whereby the latter added the Gagnon patent, Emons Patent No. 2,041,638 (owned by the Ful-Vue Sales Company) and two Canadian patents to the original package of basic Ful-Vue patents. Although American was under no obligation to do so, it made these additions without increasing the existing Ful-Vue royalty. Similar agreements were consummated with the other Ful-Vue licensees.
On December 10, 1946, the date of the expiration of the last of the basic Ful-Vue patents, American announced to its licensees that their Ful-Vue licenses would “remain in effect” and that they would continue to have rights under the Emons patent, but that it had decided not to charge royalties or impose terms under that patent. Royalties under the Ful-Vue license (which included a Gagnon license) were to be payable only on semi-rimless mountings and were fixed at 40 per unit as of January 1, 1947. From that date until September 17, 1948, when the consent judgment was entered, licensees, including Shuron, paid American this 40 royalty under their Ful-Vue licenses both on Nu-mont and on Rimway mountings. In addition, they continued to pay 20 on Numont mountings under the Uhlemann licenses and 30 (1.80 in the case of Shuron) on Rimway mountings under the Rimway licenses.
American contends that it is clear from this royalty history that the only patent under which the Ful-Vue royalty of 40 was charged from January 1, 1947 to September 17, 1948 was the Gagnon patent, thereby attributing no importance to the presence of the Emons and Canadian patents and certain trade-mark rights in the Ful-Vue package.
Despite American’s express waiver of royalties under the Emons patent, its inclusion in the package can not be over
Though the record does not disclose the value of the Canadian patents, the court can not assume that they were worthless.
In addition, semi-rimless manufacturers obtained the right to use the registered trade-marks “Ful-Vue” and “Rimway” by virtue of their Ful-Vue licenses. “Ful-Vue” had been used by optical manufacturers for a number of years to designate articles manufactured under the original Ful-Vue patents. Conceding that when the last of those patents expired in December, 1946 it was doubtful that former licensees under the patents could have been prevented from continuing to use “Ful-Vue” as a trademark, (see Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 117-118, 59 S.Ct. 109, 83 L.Ed. 73), optical manufacturers did not have any absolute assurance that interference would not be attempted if they can-celled their Ful-Vue licenses. The possibility of interference was only foreclosed by the consent judgment enjoining the owner of the mark from interfering with any non-deceptive use thereof. As for the trade-mark “Rimway”, American contends that Shuron used its own trade-mark “Shurset” to describe mountings of the Rimway type. The fact of the matter is that Shuron’s designation for such mountings was “Shurset Ful-Vue Rimway”. Moreover, it does not appear that any of the other manufacturers of Rimway mountings used “Shurset” in conjunction with the Rimway designation. It can not reasonably be supposed that the “Ful-Vue” and “Rimway” trade-marks were totally devoid of value to the licensees who used them and that their inclusion in the Ful-Vue package did not provide any inducement to pay a royalty of 40.
The royalty history of the Gagnon patent from late 1939, when it was originally added to the Ful-Vue package, to December 31, 1946, shortly after the expiration of the basic Ful-Vue patents, also lends some support to- Shuron’s position in this proceeding. During that entire seven-year period American extended to all its semi-rimless Ful-Vue licensees free licenses under the Gagnon patent. American suggests that the semi-rimless mounting was an untried innovation in 1939 and hence that the time was not propitious to increase the overall Ful-Vue royalty rate. Assuming this to be so, no reason has been advanced why American continued its royalty-free licensing policy long after the semi-rimless mounting had become a commercial success. Though the sales figures have not been made available, it has been stipulated that
Shuron argues at great length that properly construed the Gagnon patent covers only the Numont and not the Shurset Rimway mounting, and as such is practically worthless; further, that if American’s broader construction be accepted, Gagnon is anticipated by the prior art, particularly Nerney. Whether Shurset Rimway infringes Gagnon can be determined -in an appropriate proceeding. It need not be, and is not, determined here. For present purposes it suffices to observe that credit for the commercial success of semi-rimless spectacles does not belong to Gagnon alone. The popularity of the Nu-mont mounting is at least partially attributable to the Uhlemann design patent, and it is abundantly clear that the success of the Rimway construction is in no small measure due to the inventiveness of Nerney, who preceded Gagnon. At the same time, Gagnon’s contribution to the art, even if it be limited, as urged by Shuron, to the “formation of a rearwardly curved arm ending in an integral temple hinge as an integral continuation of the brow arm of a semi-rimless spectacle” (in short, the Numont mounting), can not be dismissed as “trivial” or the “shadow of a shade”.
In the last analysis, however, the most reliable indication of the reasonable value of a license under the Gagnon patent is furnished by its royalty history. For seven years American licensed the patent without exacting any royalty, despite the fact that over that period semi-rimless mountings came to enjoy increasing commercial success. Thereafter, American charged its semi-rimless licensees 4¢ for a package which, in addition to the Gagnon patent, included the Emons and Canadian patents and the right to use the trade-marks “Ful-Vue” and “Rimway”. Finally, after the consent judgment wiped the slate dean, nine optical companies agreed to pay a 4¢ royalty.
Bearing in mind that under the consent judgment the burden of proof is on American in this proceeding, the court is not satisfied that 4¢ is a reasonable royalty solely for a license under the Gagnon patent. . Licensees never paid such a price prior to the consent judgment, and it would seem manifestly unfair to require them to pay it now,
Judgment should be entered accordingly.
. In January, 1947 the prevailing selling price to wholesale distributors of Numont and Rimway mountings was approximately $2.65 per unit. The present price at which American sells these mountings to wholesalers is $2.85, or an increase of about 7½ per cent, over the 1947 price. A proportionate increase in a 4¢ royalty rate would yield a royalty of 4.3¢, an insignificant change in a royalty based on the selling price.