COMPULSORY PATENT LICENSING UNDER ANTITRUST JUDGMENTS I. INTRODUCTION During the period from August 1941 to January 9, 1959, there were 107 judgments (13 entered in litigated cases and 94 by consent) filed in civil antitrust cases brought by the U.S. Government, in which socalled "patent relief" was obtained against alleged antitrust violators. Generally this relief has been in the form of a requirement that the defendant license, on a reasonable royalty basis, its existing and future patents (those acquired within a specified time after the entry of the judgment) in the field of the alleged violation. In a relatively few instances, but involving two notable judgments-Western Electric1 and R.C.A.2—the defendants have been compelled to license certain of their patents on a royalty-free basis. In a handful of cases, the judgments required the "dedication" of specified patents which had been misused in the antitrust violation. And in a few other cases there have been limited injunctions against the enforcement of misused patents.1 3 The compulsory licensing requirement has become one of the most common forms of relief in antitrust cases. In an address before the Section on Antitrust Law of the American Bar Association, the Chief of the Judgments and Judgment Enforcement Section of the Antitrust Division stated: The ordinary type of relief in cases of patent misuse is in most instances the imposition of a duty upon the patentee to license his patents in the field of the antitrust violation. In the majority of cases the patentee is allowed to charge and receive reasonable royalty. The Justice Department has adhered during the past 15 years to a policy of insisting upon compulsory licensing relief where patents have been involved in the alleged antitrust law violation, or where it regards this kind of relief as necessary to the restoration of a competitive situation. This study was undertaken to determine how effective compulsory licensing in antitrust judgments has been "in opening industry to competition, and what practical problems have arisen in the administration of such compulsory licensing." 1 United States v. Western Electric Co., Inc., and American Tel. & Tel. Co., (Civ. 17-49, D.N.J.), consent judgment entered Jan. 24, 1956. United States v. Radio Corporation of America (Civ. 97-38, S.D.N.Y.), consent judgment entered Oct. 28, 1958. After trial, Judge Forman entered a judgment in United States v. General Electric Company, et al. (82 F. Supp. 753, D.N.J. 1949, 115 F. Supp. 835, D.N.J. 1953), requiring dedication of certain patents in the incandescent lamp field. 4 See for example, United States v. The National Cash Register Co., et al., (S.D. Ohio), judgment entered Jan. 8, 1947, and the judgment entered Apr. 11, 1946 in United States v. Western Precipitation Corp., et al. (S.D. Calif.). Proceedings of the Antitrust Section of the American Bar Association, Apr. 1-2, 1954; p. 115. S. Rept. 1464, "Review of the American Patent System," 84th Cong., 2d sess. As pointed out in our study No. 19 by Dr. Fredrik Neumeyer, "Compulsory Licensing of Patents Under Some Non-American Systems," no appreciable compulsory licensing of patents has actually occurred in this country except as such licensing has been required in antitrust suits brought by the Government. The practical results of these antitrust decrees are, therefore, of great interest to persons primarily concerned with patents as well as to those concerned with antitrust law enforcement. This is the first publication resulting from studies made by the antitrust division and this subcommittee to determine the results of the compulsory licensing provisions of these decrees taken as a group. An appraisal of the competitive effects of specific decrees selected from this group has been made by the George Washington University Patent Foundation, in a research project headed by George Frost and Prof. S. Chesterfield Oppenheim. They have undertaken to answer the broad question of whether competitive developments in the affected industries would have been significantly different, absent these decrees. This subcommittee, however, has made no attempt to assemble the very exhaustive economic data that would be necessary for such a comprehensive judgment, which also involves speculative economic and technological assumptions. The questionnaires which form the basis of the subcommittee's study were designed primarily to elicit the facts which would show what, if any, action was taken pursuant to the compulsory licensing provisions of the antitrust decrees entered prior to June 1, 1957. No selection was made among the antitrust decrees available for study, and questionnaires were sent to all of the defendants who were then subject to a compulsory patent licensing decree. Complete replies were received from the defendants in 81 of these cases. The main aim of this study has been to answer the following factual questions with respect to these 81 cases. (1) To what extent were the compulsory licensing provisions actually used? (2) Did those who availed themselves of these provisions obtain any substantial benefit from them? (3) What were the practical problems encountered in enforcing and complying with these provisions? The answers to these questions have raised other broader questions of antitrust enforcement policy which may be summarized as follows: (a) Are compulsory licensing decrees negotiated by consent before trial relatively ineffective as compared with litigated decrees? (b) Has compulsory licensing relief with respect to unimportant patents sometimes been made to substitute for other more effective nonpatent relief? (c) Has compulsory licensing relief been used where an injunction against enforcement of patent rights would have been more appropriate? (d) Is compulsory licensing, accompanied by a grant-back requirement, effective antitrust relief in any case where the defendant dominates an industry's technology? (e) Are the problems presented to the district courts in exercising detailed supervision of compulsory licensing relief insurmountable? 7 For a brief history of the judicial development of patent antitrust relief see their account in vol. I of the Patent, Trademark, and Copyright Journal of Research and Education, No. 1, pp. 130–138. These policy questions are raised rather than answered here because any answer must depend for its validity upon further facts which are beyond the scope of this study. In collecting the data for this study, the subcommittee corresponded with licensees and potential licensees as well as with defendants. Comments were solicited with respect to the quality of the patents licensed under these decrees, the importance to the licensees of the licensed patents and problems which have arisen in administration. The subcommittee hopes that this study will provide a foundation of empirical data on which future investigations may build in evaluating this form of antitrust relief. However, it has been possible, based on available facts and the comments received from defendant-licensors, licensees, and potential licensees, to draw some conclusions and to formulate some suggestions which the Congress and the Department of Justice may wish to consider now. II. THE NATURE AND PURPOSE OF PATENT RELIEF IN ANTITRUST JUDGMENTS The Antitrust Division of the Department of Justice has the primary responsibility of enforcing the Sherman Act which, together with the Clayton Act, constitutes the basic congressional expression of the national policy that the competitive free enterprise system shall prevail in our economy. The Sherman Act contemplates that both civil and criminal proceedings shall be instituted. The criminal proceeding, usually begun by the return of an indictment, is for the purpose of deterring violations and punishing the wrongdoer. The civil proceeding is for the purpose of eradicating or dissipating the effects of a violation and preventing a continuation or revival in the future. A judgment, following a trial or upon consent of the parties, is entered specifying the acts which the defendants are prohibited from doing and those which the defendants are required to do. A failure to conform to the provisions of the judgment subjects the defendants to punishment for contempt of court. Patents, like any other form of property, have been and may be used in violation of the antitrust laws. Where so used, they may be the subject of antitrust judgment provisions intended to restore competition and cure the effects of the unlawful conduct. Those judgments which provide for compulsory licensing or dedication are usually designed to give others an opportunity to use the patents held by the defendant-licensor. Having been granted access to the patented art, it is assumed that the licensee or beneficiary of the judgment will stimulate competition by the production and sale of the product involved. The report of the Attorney General's National Committee To Study the Antitrust Laws states (p. 255): The Supreme Court has held compulsory licensing at reasonable rates to be within the range of remedies available where necessary to correct past and prevent future violations. By compulsory licensing, the exclusive nature of the patent grant is destroyed-at least until competitive conditions are restored. The result is "a most serious inroad on patent rights." Beyond this erosion, the Court has also recognized 52186-60 the real "difficulty of computing a reasonable royalty." This committee recognizes the problems and administrative difficulties inherent in compulsory licensing at reasonable rates. Yet we believe such remedy is within the Sherman Act's broad power to "prevent and restrain" violations of that law. Where patents have been used to thwart competitive conditions, compulsory licensing should be employed in accord with relevant standards for use of divestiture. Compulsory licensing is appropriate regardless of whether the patents have been used to impose illegal restraints upon domestic or foreign commerce. Judge Ryan, in dealing with the extension of this form of relief to restraints upon international trade, said in the I.C.I. decision:8 We do not accept as correct the proposition that compulsory license of U.S. patents is appropriate only in those instances where required to remove specific restraints upon the manufacture and sale of specified products in the United States caused by the unlawful use of patents to suppress domestic competition. To do so would be to make nugatory the dual aspects of our antitrust laws, which make unlawful restraints placed upon our foreign trade as well as our domestic commerce. It is true that in most cases in which compulsory licensing has been decreed, it has been found that the patents have been unlawfully used to suppress domestic competition. Not many actions have been instituted to suppress restraints upon our foreign trade, resulting from agreement among international industrialists to which Americans have made themselves parties. We have had few suits which have presented a situation similar to that revealed here, and which call for remedies we now find necessary. "Compulsory royalty-free licensing" bars the patentee not only from asserting the exclusive nature of his grant but also from collecting royalties. He retains title to the patent and conceivably depending upon his ability at some future time to show that competitive conditions have been restored, he may again be allowed to collect royalties. Dedication, in contrast, makes all patent rights immediately available to the public. There is considerable controversy, both as to the advisability and as to the constitutional justification for royalty-free licensing and dedication. Nevertheless, both forms of relief have been embodied in antitrust judgments. III. THE PRODUCTS AND INDUSTRIES AFFECTED AND THE PATENTS AND KNOW-HOW MADE AVAILABLE FOR LICENSING UNDER THESE JUDGMENTS As a first step in the making of this study, the subcommittee and the Department of Justice compiled a list of the judgments containing "patent relief." This list, the first one of its kind ever published, is United States v. Imperial Chemical Industries, Ltd., et al. (S.D.N.Y., 1952), “Opinion on Remedies," 105 F. Supp. 215 at p. 221. See, for example, the "majority" and "minority" views in the "Report of the Attorney General's National Committee to Study the Antitrust Laws" (pp. 256-259). |