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MERCOID CORPORATION v. MID-CONTINENT INVESTMENT CO. ET AL.

decided: January 3, 1944.

MERCOID CORPORATION
v.
MID-CONTINENT INVESTMENT CO. ET AL.



CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

Stone, Roberts, Black, Reed, Frankfurter, Douglas, Murphy, Jackson, Rutledge

Author: Douglas

[ 320 U.S. Page 662]

 MR. JUSTICE DOUGLAS delivered the opinion of the Court.

This suit was brought by respondent, Mid-Continent Investment Co., against petitioner, Mercoid Corporation, for contributory infringement of the Cross combination patent No. 1,758,146, issued May 13, 1930, for a domestic heating system. Mercoid in its answer denied contributory infringement and alleged that Mid-Continent should be barred from relief because it was seeking to extend the grant of the patent to unpatented devices. The alleged improper use of the patent was also the basis of a counterclaim filed by Mercoid in which it was averred that Mid-Continent and its exclusive licensee under the patent, respondent Minneapolis-Honeywell Regulator Co., who was brought in as a party plaintiff, had conspired to expand the monopoly of the patent in violation of the antitrust laws. Mercoid asked not only for declaratory relief but for an accounting and treble damages as well. The District Court found that Mercoid did not contribute to the infringement of the Cross patent; that respondents had conspired to establish a monopoly in an unpatented appliance beyond the scope of the patent and in violation of the anti-trust laws; and that respondents were in no position to maintain the suit because of that conspiracy. Mercoid was granted an injunction but its prayer for damages was denied. The Circuit Court of Appeals affirmed the judgment of the District Court in disallowing damages

[ 320 U.S. Page 663]

     under the counterclaim. In all other respects it reversed that judgment, holding that Mercoid was guilty of contributory infringement under the rule of Leeds & Catlin Co. v. Victor Talking Machine Co. (No. 2), 213 U.S. 325, and that Carbice Corp. v. American Patents Corp., 283 U.S. 27 and Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, did not bar recovery as the District Court had thought. 133 F.2d 803. The case is here on a petition for a writ of certiorari which we granted because of the public importance of the questions presented.

The controversy centers around the license agreement between Mid-Continent and Minneapolis-Honeywell. By that agreement Minneapolis-Honeywell received an exclusive license to make, use, sell, and to sub-license others to make, use, and sell the Cross combination patent No. 1,758,146. The royalty payments under the license, however, were to be based only upon sales of the combustion stoker switch which was an element of the combination patent embodied in the patented article but which was itself unpatented. The license agreement was construed by the Circuit Court of Appeals to mean that the royalty payments were to be made only on switches used for fire maintenance purposes under the Cross patent. And Minneapolis-Honeywell in advertising its stoker switches stated that the "right to use" the Cross system patent was "only granted to the user" when the stoker switches of Minneapolis-Honeywell were purchased from it and used in the system. Neither Mid-Continent nor Minneapolis-Honeywell manufactures or installs heating systems under the Cross combination patent. There was ample evidence to sustain the findings of the District Court that respondents endeavored to use the license agreement so as to prevent the sale or use of combustion stoker switches in these heating systems unless they were the switches made by Minneapolis-Honeywell and purchased from it or its sub-licensees.

[ 320 U.S. Page 664]

     The patent is a combination or system patent, covering a domestic heating system which comprises three main elements -- a motor driven stoker for feeding fuel to the combustion chamber of a furnace, a room thermostat for controlling the feeding of fuel, and a combustion stoker switch to prevent extinguishment of the fire. The room thermostat functions to supply, or discontinue the supply of, heat by closing or then opening the circuit to the stoker motor at the required temperatures. The combustion stoker switch, or holdfire control, is responsive to a low temperature in the furnace causing the stoker to feed fuel so as to prevent the furnace fire from going out. The control of the combustion stoker switch is said to be effective in mild weather when the room thermostat may not call for heat for a considerable period.

Mercoid, like Mid-Continent and Minneapolis-Honeywell, does not sell or install the Cross heating system. But the Circuit Court of Appeals found that Mercoid manufactured and sold combustion stoker switches for use in the Cross combination patent. And we may assume that Mercoid did not act innocently. Indeed the Circuit Court of Appeals said that it could find no use for the accused devices other than in the Cross combination patent. And it assumed, as was held in Smith v. Mid-Continent Investment Co., 106 F.2d 622, that the Cross patent was valid. But though we assume the validity of the patent and accept fully the findings of the Circuit Court of Appeals, we think the judgment below should be reversed.

[ 320 U.S. Page 665]

     Ever since Henry v. A. B. Dick Co., 224 U.S. 1, was overruled by Motion Picture Co. v. Universal Film Co., 243 U.S. 502, this Court has consistently held that the owner of a patent may not employ it to secure a limited monopoly of an unpatented material used in applying the invention. Carbice Corp. v. American Patents Corp., supra; Leitch Mfg. Co. v. Barber Co., supra; Morton Salt Page 665} Co. v. G. S. Suppiger Co., 314 U.S. 488; B. B. Chemical Co. v. Ellis, 314 U.S. 495. In those cases both direct and contributory infringement suits were disallowed on a showing that the owner of the patent was using it "as the effective means of restraining competition with its sale of an unpatented article." Morton Salt Co. v. G. S. Suppiger Co., supra, p. 490. The Court has repeatedly held that to allow such suits would be to extend the aid of a court of equity in expanding the patent beyond the legitimate scope of its monopoly. It is true that those cases involved the use of the patent for a machine or process to secure a partial monopoly in supplies consumed in its operation or unpatented materials employed in it. But we can see no difference in principle where the unpatented material or device is itself an integral part of the structure embodying the patent.

The grant of a patent is the grant of a special privilege "to promote the Progress of Science and useful Arts." Const., Art. I, § 8. It carries, of course, a right to be free from competition in the practice of the invention. But the limits of the patent are narrowly and strictly confined to the precise terms of the grant. Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 456; United States v. Univis Lens Co., 316 U.S. 241, 251. It is the public interest which is dominant in the patent system. Pennock v. Dialogue, 2 Pet. 1; Kendall v. Winsor, 21 How. 322, 329; Adams v. Burke, 17 Wall. 453; Motion Picture Co. v. Universal Film Co., supra, pp. 510-511; Morton Salt Co. v. G. S. Suppiger Co., supra; United States v. Masonite Corp., 316 U.S. 265, 278. It is the protection of the public in a system of free enterprise which alike nullifies a patent where any part of it is invalid (Marconi Wireless Co. v. United States, 320 U.S. 1, 58; and see General Electric Co. v. Wabash Corp., 304 U.S. 364, 372) and denies to the patentee after issuance the power to use it in such a way as to acquire a monopoly which is not plainly within

[ 320 U.S. Page 666]

     the terms of the grant. The necessities or convenience of the patentee do not justify any use of the monopoly of the patent to create another monopoly. The fact that the patentee has the power to refuse a license does not enable him to enlarge the monopoly of the patent by the expedient of attaching conditions to its use. United States v. Masonite Corp., supra, p. 277. The method by which the monopoly is sought to be extended is immaterial. United States v. Univis Lens Co., supra, pp. 251-252. The patent is a privilege. But it is a privilege which is conditioned by a public purpose. It results from invention and is limited to the invention which it defines. When the patentee ties something else to his invention, he acts only by virtue of his right as the owner of property to make contracts concerning it and not otherwise. He then is subject to all the limitations upon that right which the general law imposes upon such contracts. The contract is not saved by anything in the patent laws because it relates to the invention. If it were, the mere act of the patentee could make the distinctive claim of the patent attach to something which does not possess the quality of invention. Then the patent would be diverted from its statutory purpose and become a ready instrument for economic control in domains where the anti-trust acts or other laws not the patent statutes define the public policy.

The instant case is a graphic illustration of the evils of an expansion of the patent monopoly by private engagements. The patent in question embraces furnace assemblies which neither the patentee nor the licensee makes or vends. The struggle is not over a combination patent and the right to make or vend it. The contest is solely over unpatented wares which go into the patented product. Respondents point out that the royalties under the license are measured by the number of unpatented controls which are sold and that no royalty is paid unless a furnace covered

[ 320 U.S. Page 667]

     by the patent has been installed. But the fact remains that the competition which is sought to be controlled is not competition in the sale of the patented assembly but merely competition in the sale of the unpatented thermostatic controls. The patent is employed to protect the market for a device on which no patent has been granted. But for the patent such restraint on trade would plainly run afoul of the anti-trust laws. If the restraint is lawful because of the patent, the patent will have been expanded by contract. That on which no patent could be obtained would be as effectively protected as if a patent had been issued. Private business would function as its own patent office and impose its own law upon its licensees. It would obtain by contract what letters patent alone may grant. Such a vast power "to multiply monopolies" at the will of the patentee (Chief Justice White dissenting in Henry v. A. B. Dick Co., supra, p. 53) would carve out exceptions to the anti-trust laws which Congress has not sanctioned. Mr. Justice Brandeis, speaking for the Court, stated in the Carbice case that "Control over the supply of such unpatented material is beyond the scope of the patentee's monopoly; and this limitation, inherent in the patent grant, is not dependent upon the peculiar function or character of the unpatented material or on the way in which it is used." 283 U.S. p. 33. We now add that it makes no difference that the unpatented device is part of the patented whole.

That result may not be obviated in the present case by calling the combustion stoker switch the "heart of the invention" or the "advance in the art." The patent is for a combination only. Since none of the separate elements of the combination is claimed as the invention, none of them when dealt with separately is protected by the patent monopoly. Leeds & Catlin Co. v. Victor Talking Machine Co. (No. 1), 213 U.S. 301, 318. Whether the parts are new or old, the combination is the invention

[ 320 U.S. Page 668]

     and it is distinct from any of them. See Schumacher v. Cornell, 96 U.S. 549, 554; Rowell v. Lindsay, 113 U.S. 97, 101. If a limited monopoly over the combustion stoker switch were allowed, it would not be a monopoly accorded inventive genius by the patent laws but a monopoly born of a commercial desire to avoid the rigors of competition fostered by the anti-trust laws. If such an expansion of the patent ...


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