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UNITED STATES v. UNITED STATES GYPSUM CO.

November 15, 1943

UNITED STATES
v.
UNITED STATES GYPSUM CO. et al.



The opinion of the court was delivered by: STEPHENS

STEPHENS, Associate Justice.

This action, commenced by the United States, hereafter for convenience referred to as the Government, on August 15, 1940, is for equitable relief under Section 4 of the Sherman Act. The complaint charges that the defendants have been engaged in a combination and conspiracy in restraint of trade and commerce in gypsum products in violation of Sections 1, 2 and 3 of the Act. *fn2" It is alleged that the combination and conspiracy have been carried out in connection with certain patent license agreements based on patents owned by the United States Gypsum Company covering the manufacture of gypsum board. Upon these license agreements the defendants themselves rely as properly establishing prices and terms of sale of gypsum board within the doctrine of United States v. General Electric Company, 1926, 272 U.S. 476, 47 S. Ct. 192, 71 L. Ed. 362. On March 12, 1943, the Government was permitted by an order of this court to amend its complaint by adding a paragraph 46(a) attacking the validity of the patents upon which the license agreements are based. The paragraph is in the following terms:

 "46a. Many of the patents mentioned and described in said license agreements by which the said combination has been, and is being carried out in part, are process or machine patents. The article and product claims of Roos patents No. 2,017,022, No. 2,079,338, No. 2,080,009, No. 1,914,345, and No. 1,938,354 mentioned and described in said license agreements, and said patents, are each invalid and void for each of the following reasons: (a) there is no real invention or novelty in the claims of said patents; (b) the claims of said patents disclose no patentable invention in view of the prior art at the time the respective applications were filed; (c) the alleged inventions described in the claims of said patents were shown and described in printed publications in the United States more than two years prior to the filing of the respective applications; (d) the alleged inventions described in the claims of said patents are inoperative and devoid of novelty or utility; (e) the alleged inventions described in the claims of said patents were abandoned by the inventor and he was guilty of laches before the respective applications were filed; (f) the alleged inventions described in the claims of said patents were not reduced to practice until after other inventors had invented and reduced the same to practice and applied for patents thereon; (g) the said alleged inventions are described in ambiguous and not in properly clear, concise and exact terms and; (h) the defendants have been informed of the invalidity of the claims of the said patents and have unreasonably failed to file in the United States Patent Office any disclaimer of such claims. The said patents mentioned and described in the said license agreements, even assuming they are valid, are not basic article or product patents and do not singly or all together cover completely the business of mining and selling gypsum, or cover completely gypsum board, which is one of the forms in which unpatented gypsum is sold by the defendants, but at most constitute minor additions to the established and unpatented art of making gypsum board and afford no legal justification for the said combination."

 The order allowing this paragraph a be added to the complaint was made expressly without prejudice to the right of the defendants to question the legal sufficiency of the allegations, and it was urged by counsel for all parties that a ruling upon this question should be made prior to the commencement of trial in order that counsel might be advised as to the necessity of preparation for attack upon, or defense of, the validity of the patents. The defendants accordingly filed this motion to strike or for partial judgment. The motion is one, pursuant to Rule 12(f) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, to strike paragraph 46(a) upon the ground that the allegations thereof are immaterial and impertinent to the issues in the case; and the motion is made, in the alternative, under Rules 12(b) and 56(b) for partial judgment dismissing that part of the Government's claim contained in paragraph 46(a) upon the ground that as a matter of law the Government may not attack the validity of the patents in this proceeding in the manner attempted. It is conceded that the five patents mentioned in the paragraph were issued by the Commissioner of Patents, sometimes hereafter referred to as the Commissioner, and that none of them has heretofore been held invalid by any court. The dates of application and issuance of the Roos patents are: No. 2,017,022, application filed August 20, 1924, pattent issued October 8, 1935; No. 2,079,338, application filed January 19, 1925, patent issued May 4, 1937; No. 2,080,009, application filed October 16, 1926, *fn3" patent issued May 11, 1937; No. 1,914,345, application filed July 7, 1932, patent issued June 13, 1933; No. 1,938,354, application filed March 15, 1933, patent issued December 5, 1933. The patents are each in the usual form, set forth in the margin. *fn4" It is not charged by the Government in its complaint that the issuance of the patents was obtained by fraud or any other wrongful act. What the Government asserts, in essence, is that, for the reasons set out in paragraph 46 (a), the Commissioner erred in issuing the patents. It is to be noted further that the attack upon the validity of the patents, in this aspect of the case, is not upon the ground that they are invalid because being used in violation of the Sherman Act; it is the converse, that the Sherman Act is being violated, through the license agreements, because the patents upon which the agreements are based are invalid. It is also to be borne in mind that, while this is not an independent cancelation proceeding, but an antitrust suit in which the Government contends that the patents are invalid, nevertheless the Government is seeking a judicial determination that the Patent Office erred in issuing the patents and that they are for that reason invalid. This was conceded in the oral argument. And the Government's prayer asks cancelation of the provisions of the license agreements, asks that the defendants be perpetually enjoined from entering into any license agreements containing similar provisions, and that the defendants be enjoined from bringing any action for infringement of any of the patents now owned or controlled by them, and from attempting to collect royalties or license fees or profits for the use of the patents now owned or controlled by them, until it is made to appear to the court that all improper practices have been abandoned and the consequences of all misuses of the patents have been dissipated, and that the defendants be enjoined from entering into any license agreements relating to gypsum products without first obtaining the consent of the court. Accordingly, so far as the effect upon the defendants and the patents is concerned, the distinction between this suit and an independent cancelation proceeding is not substantial.

 The essential question raised by the motion is whether or not the Government, in an antitrust proceeding prosecuted by its Department of Justice, can seek a determination that the Commissioner erred in issuing patents relied on by the defendants as a foundation for license agreements, and that the patents are therefore invalid, it not being charged that the action of the Commissioner was obtained by fraud. *fn5" The question involves inquiry into the authority of the Government to question its own action, and into the power of the court to review an administrative determination.

 I.

 No statute answers the question. The Act of June 25, 1910, 36 Stat. 851, 35 U.S.C.A. § 68, providing that whenever an invention covered by a United States patent is used or manufactured by the United States itself without license of the owner, or lawful right, the owner's remedy shall be by a suit against the United States in the Court of Claims for compensation and that in such suit the United States may avail itself of any defense that might be pleaded by a defendant in an action for infringement, contemplates, when read in connection with Rev. Stat. § 4920 (1875), 35 U.S.C.A. § 69, a defense based upon the ground that the patent was erroneously granted -- thus allowing the Government to question the action taken by its own official, the Commissioner of Patents. Cf. Richmond Screw Anchor Co. v. United States, 1928, 275 U.S. 331, 48 S. Ct. 194, 72 L. Ed. 303. But this statute is obviously not pertinent here. The Government is not in this case defending against accusation of infringement.

 II.

 There is no controlling judicial decision directly in point. In United States v. Porcelain Appliance Corp., unreported (N.D. Ohio E.D. Sept. 9, 1926), an antitrust proceeding to dissolve an allegedly illegal combination, the court denied a motion to strike from the Government's bill allegations pertaining to the validity and scope of patents. The court reasoned that, while the suit was not one to cancel patents and it was probably beyond the scope of all possible issues to decree patents or patent claims to be void, it was conceivable that patents invalid or limited in nature, in view of the prior art, might be wrongfully used in building up an illegal combination, and that whether the case was of such nature as to permit or require inquiry into questions of validity or scope of patents could not be determined adversely to the plaintiff on a motion to strike out. The court did not, however, discuss the essence of the matter, i.e., the question whether the Government can raise an issue as to the validity of its own action in granting patents, and the case is not, therefore, of persuasive value; and, as it is a District Court decision, and is from another jurisdiction, it is not controlling.

 Other cases principally relied upon by the Government are the following, which are here enumerated, for convenience, in the order in which they will be discussed: United States v. Standard Oil Co., D.C.N.D.Ill.1929, 33 F.2d 617, reversed on other grounds, 1931, 283 U.S. 163, 51 S. Ct. 421, 75 L. Ed. 926; Crosby Steam Gage & Valve Co. v. Manning, Maxwell & Moore, Inc., D.C.D.Mass.1943, 51 F.Supp. 972; Sola Electric Co. v. Jefferson Electric Co., 1942, 317 U.S. 173, 63 S. Ct. 172; United States v. Socony-Vacuum Oil Co., 1940, 310 U.S. 150, 60 S. Ct. 811, 84 L. Ed. 1129; United States v. Univis Lens Co., 1942, 316 U.S. 241, 62 S. Ct. 1088, 86 L. Ed. 1408; Ethyl Gasoline Corp. v. United States, 1940, 309 U.S. 436, 60 S. Ct. 618, 84 L. Ed. 852; United States v. Masonite Corp., 1942, 316 U.S. 265, 62 S. Ct. 1070, 86 L. Ed. 1461; United States v. American Bell Telephone Company, 1897, 167 U.S. 224, 17 S. Ct. 809, 42 L. Ed. 144. In United States v. Standard Oil Co., an antitrust injunction suit alleging restraint of trade by virtue of agreements dealing with the right to use patented processes and apparatus, a master certified to the District Court the question of the admissibility of evidence offered by the Government to show lack of patentability in respect of two patents, and the court directed that the evidence be received. Later, in considering the master's report, which was favorable to the defendants on all issues, including that of validity of the patents, the District Court did not pass upon the patent validity question, stating that it was "divided respecting the right of the government to attack the validity of the patents in these proceedings. * * *" (33 F.2d at page 623). Otherwise, the District Court reversed the decision of the master on the merits and the defendants then appealed to the Supreme Court which reversed the District Court. But the Supreme Court likewise did not pass upon the question of patent validity. The case therefore constitutes no ruling of any value, on the question now before this court. In Crosby Steam Gage & Valve Co. v. Manning, Maxwell & Moore, Inc., the United States was allowed to intervene in an action brought by a patentee to collect royalties, the defense in the action being that the license agreement had been validly terminated by the defendant because it violated the Sherman Act and because the patents upon which it was based were invalid. This decision again, however, constitutes no direct ruling except that a court may properly exercise its discretion to allow Government intervention in such an action as described.The court did not rule that the Government as intervenor would be allowed to introduce evidence to the effect that the patents were invalid. Indeed, it appears from the opinion that the Government had informed the court that if allowed to intervene it would be chiefly concerned with directing the attention of the court "first to the operation of this and similar license contracts made by plaintiff, and second to the form of decree which the Government deems appropriate." (51 F.Supp. at page 973). It is clear from the opinion that the court did not have in mind in allowing the intervention, and was not ruling upon, the question now before this court, i.e., whether the Government can attack the validity of patents which the Government itself has, through its Commissioner, granted. Sola Electric Co. v. Jefferson Electric Co. holds that if the price fixing provisions of a patent license agreement are, if not within the protection of a lawfully granted patent monopoly, violations of the Sherman Act, a patent licensee sued for royalties may offer evidence of invalidity of the patents upon which the license agreement is founded, notwithstanding rules of estoppel, whether local or Federal, which would otherwise forbid him, because of his license agreement, to do so. But this is not a ruling that the Government itself may in a Sherman Act proceeding attack the validity of patents which it has issued through the Commissioner. The attack in Sola Electric Co. v. Jefferson Electric Co. was by a private party. In respect of United States v. Univis Lens Co., Ethyl Gasoline Corp. v. United States, and United States v. Masonite Corp., the reliance of the Government in the instant case is upon mere dicta uttered in cases decided in terms of the question whether licensing and price fixing arrangements were or were not within the proper limits of a patent monopoly, but in which no question of validity of patents was raised.

 In United States v. American Bell Telephone Company, [167 U.S. 224, 17 S. Ct. 820, 42 L. Ed. 144] the Government relies in particular upon the following language in the opinion of Mr. Justice Brewer:

 "Suits may be maintained by the Government in its own courts to set aside one of its patents not only when it has a proprietary and pecuniary interest in the result, but also when it is necessary in order to enable it to discharge its obligations to the public, and sometimes when the purpose and effect are simply to enforce the rights of an individual. In the former cases it has all the privileges and rights of a sovereign.The statutes of limitation do not run against it. The laches of its own officials does not debar its right. Van Brocklin v. Tennessee, 117 U.S. 151 [6 S. Ct. 670, 29 L. Ed. 845]; United States v. Nashville, Chattanooga &c. Railway, 118 U.S. 120 [6 S. Ct. 1006, 30 L. Ed. 81]; United States v. Insley, 130 U.S. 263 [9 S. Ct. 485, 32 L. Ed. 968]. But when it has not proprietary or pecuniary result in the setting aside of the patent; is not seeking to discharge its obligations to the public; when it has brought the suit simply to help an individual; making itself, as it were, the instrument by which the right of that individual against the patentee can be established, then it becomes subject to the rules governing like suits between private litigants. * * *" (167 U.S. at pages 264, 265, 17 S. Ct. at pages 819, 820, 42 L. Ed. 144). (Italics supplied).

 When read alone this language seems to lend aid to the Government's contentions in support of paragraph 46(a), but when read in the context of the opinion and decision as a whole it is clear that it is not in conflict with the holding of the Supreme Court in the case. The holding is that while the Government may, in a direct cancelation proceeding, attack a patent on the ground that it was obtained by fraud, it may ...


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