Lear, Inc. v. Adkins – Oral Argument – November 20, 1968

Media for Lear, Inc. v. Adkins

Audio Transcription for Oral Argument – November 21, 1968 in Lear, Inc. v. Adkins

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Earl Warren:

Number 56, Lear Incorporated, petitioner, versus John S. Adkins.

Mr. Hale.

C. Russell Hale:

Mr. Chief Justice and may it please the Court.

We’re assembling a few exhibits that we expect to demonstrate to the Court to make a point during the argument.

This case is here on writ of certiorari to the Supreme Court of the State of California.

In simplest form, the case is concern where the patent license agreement between petitioner Lear and respondent Adkins and the validity and enforcement under this agreement of patent rights, a patent which ultimately issued to respondent.

The Supreme Court of California has upheld this license agreement to the practical effect that the patent is immune from challenge of validity and also to the practical effect that established federal criteria need not govern the determination of the scope of the patent when it’s enforced under the agreement in question.

What we’re asking this Court is to rule that the patent laws and the protection afforded by them cannot be so extended by private agreement between individual parties.

We’re asking that this Court rule that patent rights cannot be so extended under state law so as to render the validity and interpretation of the scope of the patent immune to the criteria of the federal patent laws.

Abe Fortas:

Well, does the so-called Michigan — does the so-called Michigan patent here really — Michigan device really involved a question under the patent law?

C. Russell Hale:

Yes, Your Honor —

Abe Fortas:

As distinguished from the California, I think I’ve got it straightened.

The Michigan device up to during the — up to the time of term notice of termination any way was not patented, was it?

C. Russell Hale:

No, Your Honor.

Abe Fortas:

And was it patented on — up through the stipulated time or the cut off or purposes, cut off on damages for purposes of this litigation?

C. Russell Hale:

No, Your Honor.

There were — there was one patent.

It was directed to the device that has been identified as the California model 2156 gyros.

Abe Fortas:

Now, that was the so-called California?

C. Russell Hale:

Yes, sir.

Abe Fortas:

I’m talking all about Michigan which —

C. Russell Hale:

Yes.

Abe Fortas:

— last legs on someone, I don’t want to anticipate your argument (Voice Overlap).

C. Russell Hale:

But Your Honor mentioned that —

Abe Fortas:

Don’t bother to answer me now but as you go along, I trust you will.

C. Russell Hale:

Yes, Your Honor.

Abe Fortas:

I brought it up at this time because the nature of your opening statement but it’s bothered me since I first studied this case whether in the extent to which this is truly a question involving the patent laws of the United States or whether at least so far as the Michigan patent is concerned, it’s a contract question perhaps under antitrust laws generally.

I don’t want —

C. Russell Hale:

Yes Your Honor.

Abe Fortas:

— to interfere with your plain argument but I — that is the basic problem in my mind in this case.

C. Russell Hale:

Yes, sir.

Well, Your Honor that really highlights the federal issues that are before this Court, in that, there was one patent and it disclose essentially the structure of the California Model 2156 gyros.

The Michigan structure was independently developed a different facility in view of the procedures that were used in assembling the California gyros and the Michigan gyros.

The Michigan gyros were originally included as coming within the scope of the patent application and hints the agreement.

So, an interpretation of the scope of the patent application that patent are very basic to this questions that’s before the court likewise, whether or not Lear has the right to challenge the validity of this patent raised it very basic federal issues before this Court.

The California Supreme Court based decisions solely under the terms of a license agreement that was entered into between the parties in 1955 and the California Supreme Court felt that we’re not concerned with defenses which might be available to Lear in determining questions of validity and infringement.

California Supreme Court apparently felt that the agreement was supreme.

It need not be concerned with the details of federal law that control patent matters.

The Court even went so far to say valid claims are not required.

But we submit that parties should — it’s against pubic policy for parties to collaborate and export patent rights regardless of validity.

Under the circumstances of this case if Lear and Adkins had so desired, it could’ve join forces, paid no attention to whether or not the patent was valid or not but enforced it by this year economic power and that public interest certainly would not be served by such an arrangement.

The California Court also when so far as to say it doesn’t matter how this patent was obtained to the patent office, patent every issues below, that’s all we’re concerned about.

We don’t care whether new matter was added in violation of the federal rules, decisions of this Court for example.

The California Court said we’re not concerned if whether or not fraud has practiced on the patent office.

We submit that those raise very basic federal issues Your Honor.

Such a decision results in extension of patent rights far beyond the rights that would be available in an infringement action.

It also permits individual states to employ standards and patent matters that differ from state to state.

For example, as matters stand today the law in California concerning licensee estoppel is exactly contra to the law in the State of Michigan knowing the State of Minnesota as stated by the Minnesota Supreme Court in 1954 in the case of Crew versus Flanagan which is cited in our briefs.

The ultimate result of the decision of the California Supreme Court is the enforcement of the patent which the trial court in California found to be invalid as a matter of law for failure to meet the constitutional standard required for patentability.

We submit that an agreement basing a decision solely upon an agreement whereby patent rights are so extended is against public policy, against the policies and provisions of both the patent laws and the antitrust laws.

If an agreement can be employed to circumvent the constitutional standard required for patentability, i.e. uniform federal standards cannot be maintained in the 50 states and this is sticking example of one state that is out of step with some other states.

The most significant dates and events that are involved in this case are set forth in the chart that I have behind the lectern and I will refer to these dates during my argument.

The Adkins’ patent application in the subject matter ensued was filed in February of 1954.

The agreement was entered into in September 1955.

It is the first document in appendix 2 of the record which we reproduce.

The rights and the obligations of the parties under this agreement are based on the claims are set forth in the patent application which was filed by Adkins in 1954.

And only to the extent that the claims are patentable, the agreement is very explicit in this regard.

Lear agreed to pay royalties on its products that employ the invention that is defined by the claims that are patentable.

Now contrary to the repeated assertions of Adkins that the agreement was based upon the secret ideas discoveries and unpatentable things, the California Supreme Court expressly based its decision on Adkins’ patent rights under this agreement.

For example in appendix 1 at page 192 the California Supreme Court said, the agreement clearly sets forth that royalties are to be paid only for patented or patentable claims which Lear utilized in its products.

C. Russell Hale:

Now, although the agreement and the patent applications covered several devices and features only the feature of bearing alignment, supporting bearings and alignment for rotatable devices involved in this action.

The technical subject matter is almost identical with that which is before this Court many years ago in Singer versus Cramer which is cited in our briefs.

Now, the patent application and the patent which is ultimately issued are also reproduced in appendix 2 at pages 18 and 32, the circumstances under which this dispute arose once that Adkins was employed by Lear in 1951 under an agreement which permitted him to retain title to certain inventions.

This was covered by a preliminary agreement which is not — which is never admitted in evidence because it was superseded and cancelled by the 1955 agreement which is item number 2 in my chart.

Lear had two facilities that at that time one was in California and the other one was in Michigan and Adkins did his work in the California facility and he developed along with other Lear employees this Model 2156 gyros.

At the same time, Mr. Cureston in Michigan was developing the so-called Michigan gyro and in 1955, Lear started manufacturing and selling both of these devices and they are both employed in military equipment almost exclusively in military equipment.

And when the license agreement was consummated, the patent application was directed primarily to the way the devices were assembled.

And as I mentioned earlier in response to Mr. Justice Fortas’ question, the two products were included as covered by the agreement at that time because of the similarity of the methods.

In 1957, Lear conducted a search of prior art and it found that this method couldn’t be patentable to Adkins that call the prior art to his attention and at that time, it renounced any further liability on the Michigan steel gyros, that’s item number 3.

Now, the patent application was rejected several times and amended several times and one amendment of particular importance is that of December 1958 prior to this amendment, the application was directed to the characteristic features of the Model 2156 gyros.

Subsequent to this amendment, it was directed primary that the characteristic features of the Michigan steel gyros.

For example, prior to the amendment the application did not say one word about removable bearings yet subsequent to the amendment, the application contains such wording and Adkins has relied very heavily on that added wording in briefs before the California Supreme Court and also before this Court emphasizing this very feature that was added by amendment many years later.

In early 1959, the claims directed to bearing alignment were under adjudging by the patent office, all of them were under adjudging.

The application have been pending for five years, Lear not received what it bargains for under this executory contract which has some patent rights.

So, on the April 8, 1959 —

Abe Fortas:

Well, is that — are you talking now about both of them?

C. Russell Hale:

Yes, Your Honor.

I’m talking about the entire agreement which the agreement — the Lear’s position as of 1959, April 1959 was that we have stopped paying royalties as of 1957 because —

Abe Fortas:

On what?

C. Russell Hale:

On the Michigan steel gyros but they continued to pay royalties on the California gyros.

Abe Fortas:

So, I just have a greatest difficulty in this case when you talk about both of them together —

C. Russell Hale:

Yes, Your Honor.

Abe Fortas:

— because I understand what I’ve read in the briefs, there are differences in fact that maybe material in a way with respect to California and Michigan.

C. Russell Hale:

Yes.

Abe Fortas:

Now, that charge you got up there relates only to Michigan, does it?

C. Russell Hale:

Well, not — no, Your Honor.

As of this day —

Abe Fortas:

Yes that the license —

C. Russell Hale:

— 1955 the two products were listed in this contract.

Abe Fortas:

Right.

C. Russell Hale:

As of this day, Lear said, our search reveal, you cannot possibly get the claims covering the process.

So, we’re going to seize paying royalties.

We (Voice Overlap) —

Abe Fortas:

On Michigan?

C. Russell Hale:

On the Michigan.

We’re going to continue on the California Model 2156 and right here is where we come into the scope question of enforcement of the patent under state laws, Your Honor.

As of this day, Lear said, we don’t seem to be getting anything.

We’ve been carrying this agreement for years, no patent is issued, we don’t think it’s going to be any good once it does issue.

So, we’re going to terminate the agreement and Lear served the notice of termination —

Abe Fortas:

As to both.

As to both?

C. Russell Hale:

As to both.

As to the whole work, Your Honor.

Under expressed provisions of the agreement, one of the agreements says, Lear shall have the right on 90 days prior written notice to terminate any of the licenses in this agreement.

And Lear said, “All right, we have the right, we terminate the whole works.”

Abe Fortas:

Well, that right as to terminate was that confined to situation in which patent did not issue?

C. Russell Hale:

No Your Honor, that provisions appears in Section 2 (a) of the license agreement, it’s on page 4.

If I may direct your attention to the specific, it’s on page 4 of appendix A (2), the large one.

Section paragraph 2 (a) the very last sentence, it’s about two-thirds of the way down to page.

It says, “Lear shall have the right on 90 days prior written notice to Adkins to terminate any one or more of the licenses herein granted.”

That issue is held against in state court?

C. Russell Hale:

That’s —

Construction?

C. Russell Hale:

Yes, Your Honor.

The — well, the state court upon considering that specific pair of that specific sentence said, “We find an implied condition that requires that you manufact — that you seize manufacturing these devices before you can terminate.”

Now, this did not arise below in the trial level.

The trial court said, “The agreement is — was terminated, Lear exercised its rights.”

Intermediate Appellate Court said the same thing.

California Supreme Court found this implied condition and it is our position Your Honor that such an implied condition is most certainly contrary to the purposes and provisions of the patent and antitrust laws.

This is a circumstance that arose only upon the decision of the California Supreme Court.

C. Russell Hale:

So, as of April 8, 1959, it was Lear’s position that the entire agreement was cancelled which covered both of the products.

Now, some eight or nine months later Adkins pushed his patent through the patent office, they issued in early 1960 and the complaint was filed on the same day.

The complaint searched first cause of action asserting breach of license agreement of exhibit 8 and unjust arrangement and at the second cause of action misappropriation of Adkins’ ideas discovers an inventions in violation of his common law rights.

Now, the second cause of action was dismissed and was never tried.

The trial court took and ruled that Lear terminate the license agreement by this notice in 1959 and the jury returned the verdict for Adkins on the basis of both products, the California of 2156 and the Michigan steel gyros.

The trial court granted Lear’s motion not standing the verdict concerning the Michigan steel gyros and it left to direct the verdict concerning a California gyros stand.

Trial court said that Lear has not stopped to contest validity with respect to the Michigan steel gyros because they were independently developed also because the claims of the patent do no cover the Michigan steel gyros.

And also patent is invalid or as that trial court is concerned is failing to meet the constitutional standard required for patentability relying upon the A&P case of this Court.

Well, the Intermediate Appellate Court of California ruled generally along the same line.

I won’t discuss it because that decision has rendered a nullity of when the California Supreme Court takes the case.

California Supreme Court held that this termination was ineffective because of this implied condition that we’ve just mentioned.

It then adopted the defense of licensee estoppel which was asserted by Adkins and held that Lear was estopped to contest the validity of the patent and was liable for royalties.

It also used some criteria in ascertaining the scope of the invention and infringement that we feel are clearly in violation of decision of this Court for example.

But under the decision of the California Supreme Court, Lear has two alternatives.

One is to pay the royalties regardless of the patent invalidity and failure consideration.

Or seize manufacturing the devices, it’s deprived of the alternative of continuing a manufacture of the products purportedly covered by the claims of Adkins’ patent application in challenging validity.

And this renders any licensee that challenges validity vulnerable to suit of infringement and imposition of damages which maybe a much greater magnitude and than those imposed under an agreement.

So, a licensee has to be very well advised before he wants to take such a step.

Well, now, the issues are the major questions before this Court are —

Abe Fortas:

Well, don’t you have to treat the Michigan steel gyro problem as license to use know-how or none patent that I recall —

C. Russell Hale:

No Your Honor.

Abe Fortas:

How do you — why do you talk about that one in the terms of patent law?

That’s a question I put to you initially and it’s still bothers me.

C. Russell Hale:

Well, Your Honor you’re going to that to the crux of one of the issues in this case and that is on any common law rights involved here patents and common law the rights are mutually exclusive.

Abe Fortas:

Well, that’s what I’m trying to get at.

C. Russell Hale:

Yes, sir.

Abe Fortas:

Because I really don’t understand it and I couldn’t — I just entangle it from your brief.

C. Russell Hale:

Yes sir.

Well, Your Honor the agreement is explicit.

And this agreement superseded cancelled all other agreements.

C. Russell Hale:

Lear for example, wanted to go in to things of that nature and it presented and exhibit U for admission and evidence under an offer of proof at Reporter’s Transcript 1018 where Adkins says in representations leading up to the license agreement is impossible for me to give Lear a license on claims which may not be allowed or are not patentable.

Now, evidence along as this line was excluded by the trial court, the trial court said, “You’re under this agreement and this agreement limit you to patented or patentable things and not secret ideas, not discoveries, nothing unpatentable is covered.”

And as a matter of fact Your Honor, there was a waiver just before trial of all causes of action other than the issues raised by the license agreement.

So, all ideas or out of picture, know-how out of the picture, the license agreement doesn’t mention know-how in any place nor does it mention ideas.

The only thing it mentions are things that are patented or patentable and hence, we submit that brings that directly under the federal criteria concerning patent matters.

Well, the major questions before this Court are the enforceability of such an agreement containing a restraint which is outside the scope of the rights provided in the patent laws.

Number 2, the applicability of licensee estoppel under the circumstances of this case and as the general principle whether the claims of Adkins’ patent application are really unpatentable and invalid as a matter of law like the Superior Court of the State of California held.

And there is question number 4, whether the ground rules in enforcing a patent under a license agreement are the same as they are in enforcing a patent in an infringement action.

And the California Supreme Court didn’t use the same ground rules.

Otherwise, they could’ve never held that the Michigan steel gyros are covered by the claims of the patent.

Well, as to question number 1, enforceability of such an agreement, the requirement that Lear sees manufacturing the products covered by the license agreement in order to terminate is not an act granted by the patent laws.

Their tendency of patent application provides no vested rights in fact the patent may never issue and this we submit is similar to the situation in Brulotte versus Thys where this Court held that an agreement which attempts to extend patent rights beyond the 17-year period, patents are good for 17 years and if the patent is attempted to be extended beyond that period, it’s an improper use of patent rights.

We submit that the very same considerations apply here where the patent rights are attempted to be extended before they really issue.

We submit that this, such a provision which is at California Supreme Court found was implied in the agreement, renders it unenforceable.

Such an unwarranted extension of patent rights is particularly objectionable here where products affected are military equipment.

This is because of the policy embodied in 28 U.S.C. 1498 which permits use by the Government of all inventions without possibility of injunction.

It also safeguards Government from payment of royalties on species patents because validity can always be attacked.

Now, with reference to the second major question concerning estoppel, the Government has filed a brief as amicus curiae are urging that this Court should complete reject any doctrine of licensee estoppel and advised that counsel for the Government, Mr. Wallace will direct his oral argument to the broad grounds and accordingly I will discuss the circumstances of this case.

Under the circumstances of this case, Lear specifically renounced any liability.

It renounced liability with respect to the Michigan steel gyros in 1957.

It renounced liability under the whole agreement as of 1959.

This placed Adkins in the position that he could’ve charged Lear as an infringer if he had so desired.

He elected to bring suit for royalties and he relies very heavily on the Hazeltine case in support of his position.

When the Hazeltine case, there was no renouncement of the license agreement prior to the suit against Hazeltine.

They just didn’t pay royalties, didn’t make royalty reports, this is all brought out in the lower court decisions.

Under the Hazeltine case, the license order didn’t have the right to sue for infringement.

It was an outstanding agreement.

The party simply had not paid royalties.

Here, Lear has renounced and Adkins had a choice.

He chose to proceed under the agreement and the various cases cited in our brief, show that under such circumstances where there is a renouncement, assertion of pay or consideration, Lear has the right to challenge the validity of that patent.

C. Russell Hale:

The Dale Tile Company case is his one along this line and —

Why was the Hazeltine judgment covered the issue?

C. Russell Hale:

The amount of the judgment on the California Model 2156 gyros was a little over $16,000.00.

On the Michigan steel gyros, it was — well, it was almost $900,000.00.

It was $888,000.00 I believe.

Now, that was as of 1963 Your Honor and which was a period agreed upon for accounting purposes only.

And of course that the same thing applies today, it’s been going on Lear is doing the same thing today, it was during 1963.

With defense of failure of consideration as well established defense in contract matters and that’s what Lear asserted.

And that’s a defense of record in the trial court, in the pleadings and we submit that the doctrine of licensee estoppel should not override such a well-known and undisputed defense.

Second circumstance of this case was that the license to Lear was granted under patent application.

That was altered by amendment, numerous amendments were filed in this application and as I pointed out one of major importance was filed in December 1958 which change the tender of face.

Patent issue with claims Lear never seen it invoked the rule of estoppel under such circumstances gives the license order of a patent application the right to change the gist of his invention, covered products that weren’t originally considered to be covered.

It — in essence places the licensee at the mercy of the licensor with no mean to readdress.

Now we submit that licensee estoppel should not apply if the agreement is based upon a patent application which is in fact changed — which is in fact amended from time to time after execution of the agreement.

The third circumstance of this case is that the — has I’ve already mentioned the license agreement as construed by the California Supreme Court embodied and implied condition for termination that requires Lear to seize manufacturing the products of the agreement in order to terminate it.

As this Court held in MacGregor versus Westinghouse, the rule of licensee estoppel cannot be used as a shield to preclude investigation of the validity of a patent where in the absence of a valid patent it would be a restraint of trade and certainly that’s a circumstance here.

The requirement that Lear seize manufacturing the devices as a restraint a trade and in licensee estoppel should not be implied as a shield to prevent Lear from defenses concerning this issue.

Anyone of these three circumstances is sufficient to override any estoppel if an adversity job of the doctrine still survives and Mr. Wallace will discuss that on behalf of the Government.

Now, Lear’s third and fourth questions relate to the validity and the scope of Adkins’ patent, these are always interrelated because the patent of certain scope then claims must not read on the prior order otherwise, it’s rendered invalid.

And these two questions require an understanding of the bearing supporting apparatus of the Michigan steel gyros and that California Model 2156 gyros and I think perhaps this will help clarify some of the questions that Mr. Justice Fortas was raising earlier.

The alignment arrangements if I may ask the Court to refer to figure 9 of Lear’s reply brief at page 50.

The two alignment arrangements are shown there in simplified form.

Hugo L. Black:

Whose reply brief did you say?

C. Russell Hale:

Lear’s reply brief Your Honor.

It’s the gray covered, very small brief towards the end at page 50.

You will find two figures illustrating Adkins’ patent and one figure illustrating the Michigan steel gyro.

Now, Adkins’ patent shows a bearing supporting apparatus which implies a cone-shaped seat in a gimbal housing and spherical shape bearing couch.

And the patent states that those elements are shown at both the top and bottom of the figures concerning Adkins’s patent and I will elaborate on that little more in the moment.

The patent states, the bearings may be aligned by placing them on a jig or mandrel and then placing them in the bearing or seeding elements as we’ve illustrate.

When the mandrel is rotated, it causes the bearings to become align and this is accommodated by the engaging surfaces between the cylindrical shape bearing cups in the cone-shaped seats, in view of their different curved shapes.

C. Russell Hale:

I’m purporting more or less from the patent I believe exactly from it.

Now at the trial, we use this demonstration to illustrate the two types of services we’re talking about the cone-shaped seat are the two seats in the framework that’s shown on figure 9 and the segment — the other members are spherical shape, they’re portion of spear and we’ve illustrated this by a piece of a croquet ball.

This shows the type of action that Adkins used in order to achieve alignment.

It provides angular and the so-called angular tilt that you’ll see referred to in the briefs due to the two surfaces that are involved that accommodate this kind of movement.

Now, we have a model here in Court showing the alignment of the bearings and accordance with Adkins’ patent, this was demonstrated at the trial and I think it’s essential if the Court will bear with me.

I believe it’s essential for thorough understanding of the issue of scope — scope of the patent, definite patent and patent application that are involved in this action.

So, Mr. Hartz will demonstrate this model, it’s approximately four times the actual size of the actual parts in reality.

It shows a cone-shaped seat like the paddle that I just demonstrated.

It has bearing caps with a spherical surface.

This is the spherical surface much like the croquet ball and that I demonstrated.

It has bearings for mounting in the bearing caps which ultimately go into the seats which in the framework.

Potter Stewart:

Mr. Hale, I want to be sure I understand the relationship between what’s being demonstrated here and the diagrams of page 50 of the reply brief.

Is this the — what is it?

C. Russell Hale:

This is the left hand portion Adkins’ patent.

Adkins’ patent and the 21 — the California Model 2156 gyro was very similar Your Honor.

As the cone-shaped member here, the spherical shape member here or receiving bearing element there, this is very much like the top thing that shown on the first one as you can see it and there’s a small cut away there.

Potter Stewart:

Yes.

C. Russell Hale:

Now, the patent says these bearings are sled on a jig or mandrel which may be a cylindrical rod.

This jig or mandrel simply an assembly to which is taken after later and we will demonstrate that.

The bearings are then placed into the bearing caps and then they in turn of course were in the framework in their cone-shaped seats.

The mandrel is rotated and due to the nature of the engaging surfaces which permit this type of movement alignment is achieved.

As soon as that’s done, some of it is placed around there to hold them in place.

The patent states that other arrangements can be used like screws or welding what have you.

Thereafter, the jig is removed then the gyro is then ready to put together in final form.

Now, the alignment of the Michigan steel gyros is illustrated in the right — corner right hand corner of figure 9 and we will now demonstrate that.

Here is the jig which appears in the center of figure 9.

This is taken from exhibit O and it was admitted in evidence and is part of the assembly procedure that’s been throughout this trial.

Here’s the little mandrel or jig as actually employed in production in the Michigan steel gyro.

You will notice that one end has a little bearing cap on it and the other hand I will put one on right now.

This fits snuggly and not only that but they are fixed by a screws and washers so that they are absolutely rigid those bearing caps when there are mounted on this.

C. Russell Hale:

And they are now in alignment right now no matter what you do with them.

Those bearing caps are in the alignment and will stay that way.

No angular motion, no tilt, bearing alignment.

Potter Stewart:

Now, where is the mandrel?

C. Russell Hale:

The mandrel is this portion here Your Honor and here are the two bearing caps.

We have a larger model little piece here for the Court to see.

Potter Stewart:

Now, what’s an arbor, is that the same with the mandrel?

C. Russell Hale:

Yes, Your Honor and these terms have all been used interchangeably.

I feel compelled to use them, more or less interchangeably.

Potter Stewart:

Mandrel or arbor or jig, all three mean the same thing?

C. Russell Hale:

Yes, Your Honor.

Now, here’s the characteristic structure of the bearing caps in the Michigan steel gyros.

It’s a total — the total thing has been sometimes characterizes as a cylindrical top cap placed in a loose hole, loosely fitting hole.

And here, it’s loose.

I’m going to assemble that and show the Court just exactly how the alignment is achieved.

Again, this is approximately four times scale.

Potter Stewart:

And where is that — is that actual scale, the actual four —

C. Russell Hale:

This is four times —

Potter Stewart:

Four times.

C. Russell Hale:

For the benefit —

Potter Stewart:

In his right hand is the?

C. Russell Hale:

Actual.

Potter Stewart:

Actual.

C. Russell Hale:

No sir, Your Honor we have here in Court the actual housings that those — that the mandrel goes into if I may demonstrate the — it goes into a loose hole on this end, the loose hole on this end.

The thing is submitted in place or well that what have you and then the mandrel can be removed.

It’s ready for final assembly and here are the packages as ready.

If you’ll —

Potter Stewart:

And that’s the actual size that you have in your hand?

C. Russell Hale:

Yes, Your Honor that’s right out the production.

For the characteristic of alignment in the Michigan steel gyros still uses a mandrel like the California Model 2156 but that that’s about the end of the resemblance and that mandrel is taken out not used — Adkins tried to get claims covering the procedure for alignment.

C. Russell Hale:

The way I just demonstrated on the Model 2156, he tried and tried and tried and he was turned down every time on his method claims and they cancelled those.

We submit that puts him in the public domain and he cannot now claim that the method is the same to employ the same thing.

California Supreme Court said it wasn’t obligated to look at the file history concerning these aspects because the claims that were presented in that application were brand new.

It represented down to very end of the prosecution.

Well, we submit that that’s not the law, the criteria that’s been established by this Court and many other court say you have to look at the whole file history in order to ascertain what the claim really mean.

The California Supreme Court actually — well, in interpreting the scope of Adkins’ patent, the California Supreme Court said, “The device of submitted in bearing caps using a mandrel procedure constitutes the essence of Adkins’ invention as described in his application.”

Well, that’s the essence of his invention, it’s in the public domain because he cancelled that the method in a mandrel procedure, the language I’ve just quoted from is in appendix (a) (1) (192).

Now, this is one of the criteria that we feel that the California Supreme Court applied in improperly.

And other major thing was that the California Supreme Court states that alignment of bearing caps in either Adkins or the steel gyros can be accomplished only by the angular displacement of the two caps to the access of the mandrel.

Well, if it please the Court, it’s impossible for either these two caps to be displaced to the access of the mandrel.

It’s an absolute physical impossibility and we submit that that’s a major error.

If I may indulge the Court, I would like to refer now to our opening brief.

I believe that’s blue at figure 4 which is opposite page 57.

This figure 4-2 sets forth the main claim of Adkins’ patent application and the patent which issued which illustrated here.

I will refer to the figures since the print is a little small here and I would like to point out that the letters A, B and C identify the three elements of this invention and Adkins admits that those three elements are old, old in the art.

He simply says, they have a new cooperative relationship but when he applies his new cooperative relationship he didn’t talking about things in the claim.

And it’s the claim that defines the invention.

Now, this is one of the exhibits employed in the trial court, and I use it only for the purpose of illustration.

It’s the left hand figure of exhibit 4-1 and I just referred the Court to.

I would like to point out that the color code on all of these things is the same, red means bearing caps and so forth.

And you’ll see here a red element of bearing cap designated A, a bearing proceeding frame B, and means for holding that bearing cap in place designated C.

Now, the bearing receiving element is in a sloppy hole and loosely fitting hole just like the Michigan steel gyros.

And alignment is achieved by use of this feature.

Now, I will rely —

Potter Stewart:

And this is what prior argument?

C. Russell Hale:

Yes Your Honor.

This goes to the issue of validity and scope if Adkins’ claims read on this Michigan steel gyros I just demonstrated.

They also read right on this —

Potter Stewart:

On this one patent which is prior?

C. Russell Hale:

Yes Your Honor and also on several others and if I may Mr. Chief Justice I believe I have about five minutes left, I’d like to reserve it.

Earl Warren:

You may.

Mr. Wallace, it seems you’re next.

Lawrence G. Wallace:

Mr. Chief Justice and may it please the Court.

The United States believes that the time has come for this Court to hold that the most fundamental policies of the federal patent and antitrust laws forbid the application in state or federal courts of doctrines of estoppel which result in court enforcement of invalid patent monopoly.

Byron R. White:

Was that issued necessarily decided in a —

Lawrence G. Wallace:

We believe that was —

Byron R. White:

— and it is necessarily here?

Lawrence G. Wallace:

We believe it is necessarily —

Byron R. White:

Unavoidably?

Lawrence G. Wallace:

We believe that it is before this Court and if you like Your Honor I’ll turn directly to that problem since respondent raises this contention in its brief in this Court.

Respondent contends that the estoppel issue is not before this Court because Lear never claimed in the state courts that federal law gave it the right to contest that validity of the patent.

But in our examination of the briefs that have been certified to this Court is a part of the record.

We see that Lear did make this claim based on federal law in the briefs.

I believe the clearest example can be found on pages 25 through 28 of Lear’s reply brief in the District Court of Appeal in California which under California practice also becomes the brief in the Supreme Court, litigants are forbidden from filing new briefs in the Supreme Court of California.

This portion of Lear’s brief has not been reproduced in the printed appendix but it has been certified by the clerk as a part of the record and it is on file with the clerk in this Court.

And let me just summarize for you why I think this is a clear example and the Government thinks this is a clear example of the petitioners having raised the federal issue before the state courts.

Beginning on page 25 of that reply brief, the petitioner refers to the provisions of Article 1 of the Federal Constitution.

Potter Stewart:

Do we have that in these papers that we have including the appendix or anywhere?

Lawrence G. Wallace:

No, they have not — this is not been reprinted in the appendix.

Potter Stewart:

So, we do not have that in all this —

Lawrence G. Wallace:

You don’t have it among your papers.

That is correct sir.

But it is on file with the clerk here as the part of the record that was not printed in the printed appendix.

Hugo L. Black:

That is on file here?

Lawrence G. Wallace:

It is on file with the clerk of this Court, yes Mr. Justice but it was not printed in the appendix.

Beginning on page and this is pages 25 through 28 of that brief, the reply brief before the state appellate courts.

Beginning on page 25, Lear referred to and quoted from Article 1 of the Federal Constitution, the patent clause and then elaborated some of the provisions of the Patent Code which Congress has enacted and then in the course of this particular contention said, “A license or contract concerning patent applications and patents have more than the usual two interested parties.”

Patents from their inception have been designed to promote the progress of science and we’re instituted for the public’s benefit and not as a reward for the inventor citing an opinion of this Court Kendall against Winsor in 21 Howard.

This is followed by quotations from two other federal cases, one an opinion of this Court, the Precision Instrument Manufacturing Company case in 324 U.S. and then a Ninth Circuit case.

And then finally at the conclusion of this portion of the argument, the contention was put this way.

Lawrence G. Wallace:

In the present action, the trial court expressly found that plaintiff’s patent attempts to cover something that is in the existing fund of public knowledge and something that would be obvious to one skilled in art.

Thus, plaintiff’s patent is invalid.

It does not provide protection for any device or product and its validity with respect to the 2156 gyros can be contested by defendant and also by everyone else because of the public interest which is involved.

Hugo L. Black:

What page is —

Byron R. White:

The California Supreme Court for instance decision on Lear’s ability to count that?

Lawrence G. Wallace:

Yes, it did.

It explicitly held that the patent estoppel doctrine is applicable and —

Hugo L. Black:

Can I ask you first to give me the pages of that brief and which you just read.

Lawrence G. Wallace:

The pages —

Hugo L. Black:

25?

Lawrence G. Wallace:

— are 25 through 28.

Hugo L. Black:

Alright, thank you.

Lawrence G. Wallace:

Of the reply brief submitted by Lear in the District Court of Appeal.

This is the brief that refers to civil actions numbers 28624 and 30089.

There were numerous briefs but this is the reply brief, it’s the brown covered brief.

Hugo L. Black:

Of Lear?

Lawrence G. Wallace:

Of Lear in the District Court of Appeal and also in the Supreme Court of California.

Now on page 191 of the first volume of the reprinted appendix where you have the opinion of the Supreme Court of California, you have the holding in very explicit terms right in the middle of page 191, the doctrine of licensee estoppel is applicable and Lear is foreclosed from challenging the validity of Adkins’ patent.

Now, we are off the view —

Is there any difference for that or the broad statement of course is that a question of state law or federal law?

Lawrence G. Wallace:

Well, we are of the view that since the question of federal law was presented to the Court and the Court rejected that contention by applying the doctrine of estoppel that this necessarily meant that the California Supreme Court passed on the question of federal law.

Now, in the pages that I referred you to in the brief before the California Court we’re of the view that because only federal authorities are cited throughout these three and a half pages and the arguments ends at that point.

A new point is taken off.

These — the clear intendment of these pages of the brief is to raise this issue as a federal claim and this was sufficient under the standard which this Court applied in Braniff Airways, Incorporated against the Nebraska State Board of Equalization in 347 U.S. where the clear intendment was to assert a federal claim, no precise terminology need be followed in presenting that claim so long as the state court does pass upon it.

Now, it is true that this reply brief raising the issue was concerned only with the aspects of the case relating to the so-called California gyro and not to the Michigan gyro.

But it is also true that the state’s Supreme Court consolidated all aspects of the case to gather into one appeal and into one opinion.

And thus, had this federal claim before it and passed upon it for purposes of the entire case.

But even in the absence of consolidation in the court below, the issue of licensee estoppel would still be before this Court because a part of the judgment awarded is for royalties for manufacture of the California gyro, the claimed invention with respect to which this point was specifically raised.

Byron R. White:

What if you — what about — what if Lear was (Inaudible)?

Lawrence G. Wallace:

Well, in that case, the issue of the validity of the patent is still undecided.

Lawrence G. Wallace:

The petitioner has submitted this issue to this Court — this Court in its discretion could pass upon it or could remand the case for consideration of that and other issues that may still remain in the case by the state courts.

Byron R. White:

(Inaudible)

Lawrence G. Wallace:

It’s on page 191 of volume 1 of the appendix, of the printed appendix; right in the middle of the page.

It follows also that the doctrine of licensee estoppel is applicable and Lear is foreclosed from challenging the validity of Adkins’ patent.

Byron R. White:

(Inaudible)

Lawrence G. Wallace:

Well, this is necessary to the decision, yes sir as we read the California decision.

Therefore, the United States believes that the issue is before this Court and we have addressed ourselves to the issue of whether the licensee estoppel doctrine should now be eliminated in view of the weight and the teaching of this Court’s decisions in recent years which have required exceptions to the doctrine and which otherwise have closely confined court enforcement to monopolies to the limited scope authorized by the federal patent laws.

Under our patent system unlike that of some European countries, patent monopolies are granted in essentially ex parte non-adversary administrative proceedings and as this Court and other courts and indeed Congress had have frequent occasion to observe this system results in the issuance of numerous patents for articles which do not meet the requisites standard of invention upon later investigation, an adversary investigation.

Therefore, as we show in our brief the public interest is strongly dependent under our patent system on the availability of opportunities for private litigants to expose invalid patent monopolies before the courts in order to free the public from their economic effects.

In many instances, a licensee may be the only potential litigant who combines the requisite knowledge with the requisite incentive to mount that challenge.

The practicalities of the business situation may well have induced to licensee to enter into the license agreement even though he had doubts about the validity of the patent or had not had time to investigate the question of validity.

For example, a Government contractor such as the petitioner must assure himself before he submits his bid that he will be able to perform the contract.

And this means that he must have a legal right to make and sell every component required.

When some of those components are covered in issued patents or in patent applications, the pressure to enter into license agreements would seem obvious.

The basic vise of the estoppel doctrine is that it converts those licenses into incontestable devices for the economic effectuation of invalid patent monopolies.

Now, it is instructive to remember that this Court’s early recognition of the doctrine of patent licensee estoppel in the 1855 case of Kinsman against Parkhurst and as we point out in our brief, it was a recognition not a holding there.

This occurred 35 years prior to the enactment of the Sherman antitrust law, when the patent laws were not yet viewed as it carefully confined exception to the broad interdiction of monopolization in the antitrust laws.

And this Court’s first significant limitation of the estoppel doctrine in Pope Manufacturing Co.against Gormully occurred in 1892 two years after the enactment of the Sherman law.

Later, in the Sola Electric, Katzinger, and MacGregor cases discussed in our brief, this Court held that the estoppel doctrine may not be applied when the license agreement contains a price fixing clause.

And in Scott Paper Company against Marcalus Company, the Court held that an assignor cannot be estopped from showing that he was not infringing the assigned patent because he was using only the prior art of an expired patent even though in the circumstances; this amounted to a showing that the patent he assigned had been anticipated and was therefore invalid.

In his perceptive and candid dissenting opinions in those cases, Mr. Justice Frankfurter pointed out they have the general doctrines of assignor estoppel and licensee estoppel really could not withstand the rational of those decisions.

And ultimately would have to yield to the same considerations of the public interest that govern the Court’s decisions in those cases.

But several years later, a majority of the Court tersely re-endorsed the general doctrine of the licensee estoppel in the Hazeltine case and said that the previous cases meant that estoppel is forbidden only if the license attempts to enlarge the patent monopoly through price fixing for example.

But as Mr. Justice Douglas joined by Mr. Justice Black asked in dissent in that case, what more egregious enlargement of monopoly is there from the standpoint of public harm than the attachment of a patent monopoly to an unpatentable article.

The majority opinion did not answer that question, the question remains unanswered and United States submits the question is unanswerable.

More recently in the Sears, Roebuck against Stiffel and Compco cases, this Court held that the states cannot confer upon the originator of the design, the power to exclude others from copying that design that the power to exclude is the exclusive province of the federal patent laws and can attach only to a valid federal patent.

Now, the power to exclude others for making, using or selling which is conferred by a patent is often utilize by the patentee conditionally in order to read economic rewards from the patent.

Or he excludes others from using the product unless they buy it from him or he excludes others from making and selling the product unless they pay him and agreed upon royalty.

This is precisely the power to exclude which the decision below has given to the respondent even if his patent is invalid.

And California has thus used the doctrine of licensee estoppel to trespass upon the domain of the federal patent laws and to enlarge the impact on the economy of patent monopoly rights.

Lawrence G. Wallace:

From that, which is authorized by the federal laws just as the Illinois law of unfair competition had been used in Stiffel and Compco to trespass upon the federal domain and enlarge monopoly powers.

In those cases, this Court held that the states must be confined to remedies that are compatible with the policies of federal law such as the requirement of labeling in that factual context.

And likewise here, we have argued in the concluding pages of our brief that the states may device remedies to do equity between businessmen which do not conflict with federal law, but the state should be barred from sacrificing the public interest by applying doctrines of estoppel that result in enforcement of monopolies that are not authorized by a federal law.

Only last term in the Perma Life Muffler’s case this Court reiterated that we are dealing here in an area in which the Court has often indicated the inappropriateness of invoking broad common law barriers to relief where litigation serves important public interests.

And so, the United States asked this Court in this case to relieve the people of this country of the burden of having to pay royalties for the use of non-inventions and to give the people what the Constitution and the Laws of the Congress say is rightfully theirs, the free use of all the technology that is in the public domain.

Abe Fortas:

Well, assuming that the Michigan patent here is invalid and assuming that petitioner can avail itself of that point, is that in your judgment dispose of the claim with respect to compensation for the use of the Michigan device?

Lawrence G. Wallace:

The United States has not really formulated a position on that question but I —

Abe Fortas:

Well, your — you’re doing something more than asking us to make a ruling in the abstract, aren’t you?

Lawrence G. Wallace:

Well, of course the California — there’s no problem in California device at all.

Abe Fortas:

(Voice Overlap) about the —

Lawrence G. Wallace:

With respect to the Michigan device, —

Abe Fortas:

There’s no question about the California, validity of the California patent, is there in this case?

Lawrence G. Wallace:

Yes.

There was estoppel applied with respect to both patents and Lear was estopped from contesting the validity of either patent and the judgment reflects royalties for the use of both patents.

Abe Fortas:

But the judgment as have been in adjudication that the Michigan patent is invalid in this case there hasn’t, has it?

Lawrence G. Wallace:

No, there has not because —

Abe Fortas:

But there was such an (Voice Overlap) —

Lawrence G. Wallace:

— because the trial court held Lear estopped from the outset with respect to that.

Abe Fortas:

There was an adjudication — wasn’t there an adjudication, was it in the intermediate court?

Lawrence G. Wallace:

It was at the trial court that the Michigan device was held to be invalid.

Abe Fortas:

Invalid at the trial court.

So, that we do have that difference in the posture of the case in any event between these two patents and you, you made no study of the impact of accepting your theory with respect to whether a claim survives?

Lawrence G. Wallace:

Well, I’ve made a study of it but the United States has not taken a position with respect to that question subject —

Abe Fortas:

Well, you have made a study that’s helpful to us.

Thank you.

Byron R. White:

Well, isn’t true that both of the — that no royalties were payable except on patented or patentable articles under this agreement?

Lawrence G. Wallace:

The agreement so stated and the basis for the royalty payments having been awarded in the judgment of the California Court is that Lear was estopped to contest the validity of either patent.

Earl Warren:

We’ll recess.