General Talking Pictures Corporation v. Western Electric Company (305 U.S. 124)/Opinion of the Court

In this case, we affirmed on May 2, 1938 (304 U.S. 175, 58 S.Ct. 849, 82 L.Ed. 1273), the judgment of the Circuit Court of Appeals (2 Cir., 91 F.2d 922), which held that petitioner had infringed certain patents relating to vacuum tube amplifiers. On May 31st, we granted a rehearing (304 U.S. 587, 58 S.Ct. 1051, 82 L.Ed. 1548), upon the following questions which had been presented by the petition for certiorari.

1. Can the owner of a patent, by means thereof, restrict the use made of a device manufactured under the patent, after the device has passed into the hands of a purchaser in the ordinary channels of trade, and full consideration paid therefor?

2. Can a patent owner, merely by a 'license notice' attached to a device made under the patent, and sold in the ordinary channels of trade, place an enforceable restriction on the purchaser thereof as to the use to which the purchaser may put the device?

Upon further hearing we are of opinion that neither question should be answered. For we find that, while the devices embody the inventions of the patents in suit, they were not manufactured or sold 'under the patent(s)' and did not 'pass into the hands of a purchaser in the ordinary channels of trade.'

These are the relevant facts. Amplifiers embodying the invention here involved are useful in several distinct fields. Among these is (a) the commercial field of sound recording and reproducing, which embraces talking picture equipment for theatres, and (b) the private or home field, which embraces radio broadcast reception, radio amateur reception and radio experimental reception. For the commercial field exclusive licenses had been granted by the patent pool to Western Electric Company and Electrical Research Products, Inc. For the private or home field the patent pool granted non-exclusive licenses to about fifty manufacturers. Among these was American Transformer Company. It was licensed 'solely and only to the extent and for the uses hereinafter specified and defined * *  * to manufacture *  *  *, and to sell *  *  * only for radio amateur reception, radio experimental reception and radio broadcast reception *  *  * licensed apparatus so manufactured by the Licensee. * *  * '

The license provided further: 'Nothing herein contained shall be regarded as conferring upon the Licensee either expressly or by estoppel, implication or otherwise, a license to manufacture or sell, any apparatus except such as may be manufactured by the Licensee in accordance with the express provision of this Agreement.'

Transformer Company, knowing that it had not been licensed to manufacture or to sell amplifiers for use in theatres as part of talking picture equipment, made for that commercial use the amplifiers in controversy and sold them to Pictures Corporation for that commercial use. Pictures Corporation ordered the amplifiers and purchased them knowing that Transformer Company had not been licensed to make or sell them for such use in theatres. Any use beyond the valid terms of a license is, of course, an infringement of a patent. Robinson on Patents, § 916. If where a patented invention is applicable to different uses, the owner of the patent may legally restrict a licensee to a particular field and exclude him from others, Transformer Company was guilty of an infringement when it made the amplifiers for, and sold them to, Pictures Corporation. And as Pictures Corporation ordered, purchased and leased them knowing the facts, it also was an infringer.

The question of law requiring decision is whether the restriction in the license is to be given effect. That a restrictive license is legal seems clear. Mitchell v. Hawley, 16 Wall. 544, 21 L.Ed. 322. As was said in United States v. General Electric Co., 272 U.S. 476, 489, 47 S.Ct. 192, 196, 71 L.Ed. 362, 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.' The restriction here imposed is of that character. The practice of granting licenses for a restricted use is an old one, see Providence Rubber Company v. Goodyear, 9 Wall. 788, 799, 800, 19 L.Ed. 566; Gamewall Fire-Alarm Telegraph Co. v. Brooklyn, C.C., 14 F. 255. So far as appears, its legality has never been questioned. The parties stipulated that 'it is common practice where a patented invention is applicable to different uses, to grant written licenses to manufacture under United States Letters Patents restricted to one or more of the several fields of use permitting the exclusive or non-exclusive use of the invention by the licensee in one field and excluding it in another field.'

As the restriction was legal and the amplifiers were made and sold outside the scope of the license, the effect is precisely the same as if no license whatsoever had been granted to Transformer Company. And as Pictures Corporation knew the facts, it is in no better position than if it had manufactured the amplifiers itself without a license. It is liable because it has used the invention without license to do so.

We have consequently no occasion to consider what the rights of the parties would have been if the amplifier had been manufactured 'under the patent' and 'had passed into the hands of a purchaser in the ordinary channels of trade.' Nor have we occasion to consider the effect of a 'licensee's notice' which purports to restrict the use of articles lawfully sold.

Affirmed.

Mr. Justice ROBERTS took no part in the consideration or decision of the case.

Mr. Justice BLACK, dissenting.

Almost a century ago, this Court asserted, and time after time thereafter it has reasserted, that when an article described in a patent is sold and 'passes to the hands of a purchaser, it is no longer within the limits of the monopoly. It passes outside of it, and is no longer under the protection of the act of Congress. * *  * Contracts in relation to it are regulated by the laws of the State, and are subject to State jurisdiction.'

A single departure from this judicial interpretation of the patent statute was expressly overruled within five years, and this Court again reasserted that commodities-once sold-were not thereafter 'subject to conditions as to use' imposed by patent owners. In result, the judgment here is a second departure from the traditional judicial interpretation of the patent laws.

As a consequence of the return to the interpretation of the patent statutes previously repudiated and expressly overruled, petitioner is enjoined from making full use of, and must account in triple damages for using, tubes and amplifiers which he owns. He became the owner of the tubes by purchase from various retailers authorized by respondents to sell in the open market. He became the owner of the amplifiers by purchase from a manufacturer who-having the complete right to make them-had contracted to sell only for limited uses. The departure here permits the patentee-by virtue of his contract with the manufacturer-to restrict the uses to which this purchaser and owner may put his tubes and amplifiers.

Transformer Company was authorized by the patentee to make and to sell amplifiers. It did make such amplifiers-of a standard type usable in may fields, they became its property when made, were sold to and became the property of petitioner. The prior opinion in this case, both courts below and the opinion on this rehearing, all refer to the transaction between Transformer Company and petitioner as a sale. Even the very contract authorizing the Transformer Company to make and sell the amplifiers provided 'That for the purpose of this agreement all Licensed Apparatus shall be considered as 'sold' when the Licensed Apparatus has been billed out, or if not billed out, when it has been delivered, shipped, or mailed.'

Notice to the purchaser in any form could not-under the patent law-limit or restrict the use of the amplifiers after they were sold and knowledge by both vendor and purchaser that the articles were purchased for use outside the 'field' for which the vendor had been given the right to sell, made the transaction between them no less a sale. Had petitioner-after making the purchase-decided not to use these amplifiers in the forbidden fields, or had they been destroyed prior to such use, certainly the mere state of mind of the parties at the time of sale would not have made them both infringers.

Indeed, petitioner could use the amplifiers at all only in combination with tubes which it purchased on the open market from retailers authorized by respondents to sell. Therefore, even if the state of mind of vendor and purchaser were material, Transformer Company could be considered an infringer only because it sold a commodity which might-depending on possible events after the sale-be used in infringing combination with another lawfully purchased commodity. The patent law was not intended to accomplish such result.

Petitioner has persistently contended throughout this litigation that no existing trade practice permits a patentee under guise of a 'license'-to extend his monopoly to commodities after sale, and has not stipulated otherwise. Neither stipulation nor practice could justify extension of patent monopoly beyond the limits of legality fixed by Congress and recognized by this Court for over three-quarters of a century. 'The statutory authority to grant the exclusive right to 'use' a patented machine * *  * is precisely the same, as the authority to grant the exclusive right to 'vend' *  *  * .' A widespread practice of restricting the resale price of articles described in patents did not prevent this Court from holding that once the statutory right to vend has been exercised 'the added restriction is beyond the protection and purpose of the act.' Similarly, a 'common practice *  *  * to grant written licenses *  *  * restricted to one or more *  *  * fields of *  *  * use' cannot prevent the application of 'that line of cases in which this court has from the beginning held that a patentee who has parted with a patented machine by passing title to a purchaser has placed the article beyond the limits of the monopoly secured by the patent act.'

Mr. Justice REED joins in this dissent.