Macgregor v. Westinghouse Electric & Manufacturing Company/Opinion of the Court

This case, like that of Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U.S. 394, 67 S.Ct. 416, this day decided, involves the right of a patent licensee to defend a suit for royalties only under a licensing agreement which contains a price-fixing provision. Certain subsidiary questions are also raised.

Westinghouse Electric & Manufacturing Company owned Jones' Patent No. 1,651,709. The invention claimed was a brazing 'solder comprising copper and phosphorous as the main and essential constituents.' Westinghouse sued MacGregor for infringement. The litigation was settled, and MacGregor took a license from Westinghouse authorizing MacGregor to make, use, and sell solder containing the constituents described in Westinghouse's patent claim. MacGregor agreed to pay 10% royalties on the net selling price of the solder. Sections 5 and 6 of the license agreement. Set out below, required MacGregor to sell the solder for no less than the price Westinghouse charged its own customers. MacGregor paid royalties on solder he made and sold which contained only phosphorous and copper. Later he began to make and sell solders composed of phosphorous, copper, and tin, or phosphorous, copper, and silver. For a time he paid royalties on these. But he also applied for and obtained patents on these two latter solders which added tin and silver respectively to the phosphorous-copper combination. MacGregor then declined to pay royalties on these solders on the ground that they were not covered by Westinghouse's patent. Westinghouse brought this suit for an accounting and payment of unpaid royalties in a Pennsylvania State court. MacGregor filed an answer denying liability and a counterclaim. His answer asserted that the solders which were described in his patents were not covered by Westinghouse's patent. He alleged that the effort of Westinghouse to make him pay royalties on these solders constituted an unlawful exercise of Westinghouse's patent monopoly and that Westinghouse should not be allowed to recover in the courts for this reason. In a counterclaim, he maintained that by inadvertence and mistake he had paid royalties on solders covered by his own patents. He charged that if the Westinghouse patent should be construed to cover these latter solders, it was invalid. He further contended that the price-fixing provision was a violation of the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note, and the Clayton Act, 15 U.S.C.A. § 12 et seq., and constituted an unlawful use of Westinghouse's patent monopoly which rendered the whole license agreement illegal. In his counterclaim MacGregor asked, not only for judgment for refund of the royalties alleged to have been inadvertently paid, but also for damages on account of the illegal restraint imposed upon him by the agreement.

The State trial court declined to consider the validity of the patent, holding that it was presumed to be valid, and that MacGregor as a licensee had no right to challenge it. Assuming the patent and all the claims in it to be valid on this theory, the State court found the claims broad enough in scope to cover all the solders manufactured and sold by MacGregor. The trial court did not give a like presumption to the validity of the patents issued to MacGregor, but held that the solders covered by those patents infringed the presumptively valid patents of Westinghouse. The State supreme court affirmed. 350 Pa. 333, 38 A.2d 244. It agreed with the trial court that MacGregor was estopped to attack the validity of Westinghouse's patent. It recognized that there could be no estoppel in the present case under our decision in Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. 165, but for its interpretation of the Sola decision as applying only to suits in which the licensee sought affirmative relief to enforce compliance with the price-fixing provision. Since no such relief was asked in this case, the State supreme court felt that there was no existing controversy which involved the price-fixing provision-that the questions of their effect and validity were 'moot.' Thus it assumed, as did the petitioner in E. Katzinger Co. v. Chicago Metallic Mfg. Co., supra, that a royalty agreement was severable from price-fixing covenants. For the reasons stated in today's Katzinger opinion we hold that the covenant to pay royalties was not severable from the covenant to sell at fixed prices. Since MacGregor invoked federal law to sustain his challenge to the validity of the patent, the alleged misuse of the patent, and the price-fixing covenant, his contentions raised federal questions not governed by state estoppel or contract severability rules. Sola Electric Co. v. Jefferson Electric Co., supra, 317 U.S. at pages 176, 177, 63 S.Ct. at pages 173, 174, 87 L.Ed. 165; Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 66 S.Ct. 101. Accordingly, we hold as a matter of federal law that the State supreme court was wrong in affirming the judgment in this cause on the ground that the licensee, MacGregor, was estopped to offer proof of his allegation of invalidity. This error will require, as the State court anticipated, that the cause be remanded for a new trial to determine the validity of Westinghouse's patent. For we do not think that the present state of this record justifies acceptance of MacGregor's contention that we should now pass on validity of the patent. If it be determined on remand that the patent is invalid, there is no question but that, as MacGregor contends, the price-fixing agreement violates the anti-trust laws. E. Katzinger Co. v. Chicago Metallic Mfg. Co., supra; Sola Electric Co. v. Jefferson Electric Co., supra, 317 U.S. at page 175, 63 S.Ct. at page 173, 87 L.Ed. 165; Scott Paper Co. v. Marcalus Co., supra.

But there are alternative federal questions raised here by MacGregor upon which decision might turn even though Westinghouse's patent be held valid. MacGregor pleaded that the price-fixing agreement so effectively wiped out all competition to Westinghouse in the manufacture and sale of these solders that the whole license contract should be held illegal as a violation of the Sherman and Clayton Acts. MacGregor also contended that the license contract should be held unenforceable in the courts on the ground that Westinghouse had attempted to use it to extend the patent's scope beyond its lawful coverage. But since the cause must again be tried in the State court we shall not pass on either of these contentions at this time.

The judgment is reversed and the case r manded to the Supreme Court of Pennsylvania for proceedings not inconsistent with this opinion.

Reversed and remanded.

Mr. Justice FRANKFURTER, with whom concur Mr. Justice REED, Mr. Justice JACKSON and Mr. Justice BURTON, dissenting.