United States v. National Lead Company/Dissent Douglas

by Harold Hitz Burton

United States Supreme Court

332 U.S. 319

United States  v.  National Lead Company

 Argued: Feb. 3, 4, 5, 1947. --- Decided: June 23, 1947

Mr. Justice DOUGLAS, with whom Mr. Justice MURPHY and Mr. Justice RUTLEDGE concur, dissenting in part.

I cannot agree that royalties should be charged on patents whose misuse has been so flagrant as to persuade us to approve compulsory licensing of all who desire to use the inventions. Nor do I think that the failure to provide for royalty free licensing may be sustained as an exercise of the judicial discretion of the District Court. That would be the case if the District Court had been free to frame its decree unembarrassed by the ruling in Hartford-Empire Co. v. United States, 323 U.S. 386, 65 S.Ct. 373, 89 L.Ed. 322; Id., 324 U.S. 570, 65 S.Ct. 815, 89 L.Ed. 1198. In that case this Court modified an anti-trust decree so as to permit 'reasonable' royalties on patents which had been ordered licensed without charge to all applicants. The language there used well might lead a court to the conclusion that royalty-free licensing is a remedy unacceptable as a matter of law. ^[1] In these circumstances it is fair to assume that the action of the district judge in the present case was in deference to the Hartford-Empire rule rather than a reflection of his own judgment. ^[2]

The Hartford-Empire case presented the first instance, so far as I am aware, of the incorporation of a royalty free licensing provision in an antitrust decree. Since the question is one of the greatest importance in the administration of the antitrust laws, and was not considered by the full Court, ^[3] I think it remains an open one, except as applied to the Hartford-Empire case, and we are free to consider whether that case should be followed under the facts and circumstances here presented.

In the Hartford-Empire case the Court stressed the fact that Congress had notspecifical ly authorized forfeiture of patents in antitrust actions. It thought that 'if, as we must assume on this record, a defendant owns valid patents, it is difficult to say that, however much in the past such defendant has abused the rights thereby conferred, it must now dedicate them to the public.' 323 U.S. at page 415, 65 S.Ct. at page 387, 89 L.Ed. 322. The difficulty with that argument is that it proves too much. For the Court was at the same time sanctioning compulsory licensing, a most serious inroad on patent rights. The patent law gives to the patentee or his assignee the 'exclusive right to make, use, and vend the invention or discovery * * *.' R.S. § 4884, 35 U.S.C. § 40, 35 U.S.C.A. § 40. If the antitrust court could not interfere with patent rights, then it could not order licensing on any terms, for mandatory licensing is hardly consistent with exclusive rights. Again, if the failure of Congress specifically so to provide prevents a court from directing royalty free licensing, then by the same token the failure to provide for compulsory licensing is a bar to that relief also.

It is thus clear that the criterion for choosing the appropriate antitrust remedies cannot be found in Congressional silence. The task of putting an end to monopoistic practices and restoring competition is one of magnitude and complexity; Congress has authorized use of the broadest powers of equity to cope with it. Under a statute providing more detailed remedies than do the antitrust laws, we have held that an equity court may mould additional ones. See Porter v. Warner Holding Co., 328 U.S. 395, 66 S.Ct. 1086, 90 L.Ed. 1332. And its powers under the antitrust laws, though not specifically enumerated, are ample to thwart the plans of those who would build illegal empires, no matter how imaginative their undertakings or subtle their techniques. The power of the court is not limited to the restraint of future transgressions. The impairment of property rights is no barrier to the fashioning of a decree which will grant effective relief. United States v. Union Pacific R. Co., 226 U.S. 470, 476, 477, 33 S.Ct. 162, 165, 57 L.Ed. 306. Divestiture or dissolution may be ordered in spite of hardship, inconvenience, or loss. United States v. Crescent Amusement Co., 323 U.S. 173, 189, 65 S.Ct. 254, 262, 89 L.Ed. 160. Devices or instrumentalities which may be used for legitimate ends may nevertheless be outlawed entirely where they have been employed to build then monopoly or to create the restraint of trade. United States v. Crescent Amusement Co., supra, 323 U.S. at pages 187, 188, 65 S.Ct. at page 261, 89 L.Ed. 160. For the aim of the decree is not only to prevent a repetition of the unlawful practice but to undo what was done, to neutralize power unlawfully acquired, to prevent the defendants from acquiring any of the fruits of the condemned project. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 78, 31 S.Ct. 502, 523, 55 L.Ed. 619, 34 L.R.A.,N.S., 834, Ann.Cas.1912D, 734.

If that is to be done here, I think we must do more than forbid further expansion of the existing monopolistic situation. The defendants have unlawfully acquired control and domination over this industry to the exclusion of competitors. This control was obtained in part through the unlawful acquisition and use of patents. As stated by the District Court, 'These patents, through the agreements in which they are enmeshed and the manner in which they have been used, have, in fact, been forged into instruments of domination of an entire industry. The net effect is that a business, originally founded upon patents which have long since expired, is today less accessible to free enterprise than when it was first launched.' 63 F.Supp. 513, 532. If defendants are allowed royalties on those patents, they do, indeed, reap dividends from their unlawful activities. As stated in a dissent in the Hartford-Empire case, 'Every dollar hereafter, as well as heretofore, secured from licenses on the patents illegally aggregated in he combina tion's hands is money to which the participants are not entitled by virtue of the patent laws or others. It is the immediate product of the conspiracy.' 323 U.S. at page 443, 65 S.Ct. at page 400, 89 L.Ed. 322.

But beyond that is the effect on the industry. Here defendants have been in a commanding and impregnable position. They have dominated the field and suppressed competition. If competition is to be restored strong measures must be adopted to provide the maximum opportunity for new ventures to compete with the established giants of the industry. It is here that the major vice of permitting royalties on the licensed patents becomes apparent. Each dollar of royalty adds a dollar to the costs of the new competitor and gives the established licensor another dollar with which to fight that competition. As stated by National Lead in its brief before this Court:

'National and du Pont not only compete with their licensees but dominate the titanium industry. A requirement of uniform, reasonable royalties in no way frees competition because, no matter what the royalty may be in this industry a licensee required to pay more than its licensor will be at a competitive disadvantage.'

'Compulsory licensing alone would not be enough to restore the industry to a healthy, competitive condition. If National and du Pont are permitted to receive royalties on their existing patents, they will still be in position to dominate the industry.'

If National Lead, the world's largest producer of titanium pigments, expects to find itself at a competitive disadvantage as a result of reasonable royalty licenses, what can be the probable fate of newcomers or existing independents of small statute? ^[4]

The decree approved by the Court stops short of granting effective relief. Divestiture is refused. Compulsory licensing is ordered, but only to those who are willing reciprocally to license use by the defendants of their patents. In this additional respect the decree will enable the large established companies to strengthen their dominant position. To get the benefits of the decree an independent must give up one of his few competitive advantages-the exclusive right to use such patents as he may possess. These provisions, plus the additional requirement of royalties on the misused patents, even though those royalties be 'reasonable,' greatly increase the odds against restoration of competition in this industry.

Except as to the matters mentioned, I join in the opinion of the Court.

Notes

1. 'That a patent is property, protected against appropriation boty by individuals and by government, has long been settled. In recognition of this quality of a patent the courts, in enjoining violations of the Sherman Act arising from the use of patent licenses, agreements, and leases, have abstained from action which amounted to a forfeiture of the patents.
2. He, indeed, stated on argument of a motion to determine reasonable royalties: 'I would have liked to go along on the question of royalty-free patents, but I felt that I hadn't been given the green light on that.'
3. The Hartford-Empire decision was four to two on this point.
4. It must be remembered that one of the consequences of the unhealthy monopolistic condition in the industry has been a dearth of the ordinary patent litigation. The burden of testing potentially invalid patents will thus be placed on the first enterprise unwilling to pay the royalties.