illegal arrangements, it is advisable to require the defendants to license whatever machinery patents they have without possessing the correlative right to demand licenses in return. As a practical matter, prohibition against demanding reciprocal licensing upon the part of the defendants will exclude the defendants only from the right to the developments made by independent lamp producers and machinery manufacturers, for they are entitled under the judgment to demand licenses from each other. Were General Electric granted the right of reciprocity, since it would be the overwhelmingly largest source from which to demand licenses, once again it would be in a position of being able to channel all developments through itself. Therefore, the proposal of General Electric for reciprocal licensing will be declined. Precedent for this refusal is found in United States v. United States Gypsum Co. (340 U.S. 76, 93-94 (1950)). The Government would deny to General Electric as to future patents the right to condition its compliance with a request for patent licenses upon an applicant's agreement to license General Electric under any, some, or all of its patents. Such a provision was not included as to existing patents, but as was noted, all the other defendants are subject to existing patent dedication requirements, and therefore no requirement for reciprocity was necessary in order to permit any defendant to obtain licenses from any other defendant. As to future patents, however, unless a provision providing for reciprocity is included, all of the defendants other than General Electric as well as independent producers will be able to acquire licenses from General Electric, but General Electric will be unable to acquire licenses from them. This is an unnecessary boon to these other defendants. As a result of the provisions relating to dedication or licensing of existing patents, both the defendants and the independent firms will be assured of access to the technical developments of General Electric up to the date of the decree, for which, in the case of the independents, they will not have to surrender any patent licenses of their own. While it is advisable to permit competitors to have access to General Electric patents developed within 5 years of this judgment, it would not seem necessary to prevent General Electric from asking for licenses from an applicant in return. General Electric's proposal that it be permitted to condition licensing of its patents upon receipt of a license or licenses from an applicant will, therefore, be accepted as to future patents. In the above excerpts the court referred to a consent judgment previously entered into by Westinghouse, another defendant in the case. In that judgment, dated April 10, 1942, Westinghouse was directed to issue licenses under its patents relating to lamps, lamp parts, or lamp machinery, royalty free, except that a reasonable royalty might be charged if the licensee did not agree reciprocally to license Westinghouse upon a royalty-free basis under any patents relating to lamps, lamp parts, or machinery owned or controlled by such licensee. Thereafter, several licenses were issued under this judgment, for the most part to companies much smaller than Westinghouse. A license as to lamp machinery, for example, was issued to the Save Electric Corp. of Toledo, Ohio, the Dura Electric Lamp Co., Inc., Newark, N.J., the Herzog Miniature Lamp Works of Long Island City, New York, and the Jewel Incandescent Lamp Co. of, East Newark, N.J. Licenses were also issued with respect to incandescent and fluorescent lamps to the Warren Lamp Co. of Warren, Pa., the Dura Electric Lamp Co., Inc., and Sunray Electric, Inc., a Delaware corporation. In each agreement which Westinghouse executed with the above companies, there appears a provision requiring reciprocal licensing. Most of these provisions state that the license is granted by the licensor (Westinghouse) subject to the condition that contemporaneously with the agreement, the licensee reciprocally license Westinghouse under any patents or applications therefor owned or controlled by the licensee both on April 10, 1942 (the date of the judgment), and on the date the agreement was executed. The reciprocal licensing provision was limited to the product or products under which the licensee had obtained a license from Westinghouse. Thus, while each of the licensees obtained the patents of Westinghouse (and only those), Westinghouse on the other hand was eligible to obtain patents from all the companies to which it gave a license (if they had any patents). Each licensee could obtain the patents of other members of the industry only if it entered into a separate licensing arrangement with each company. The above comments are not intended to describe how the Westinghouse consent judgment in fact operated. They are merely intended to indicate how a serious competitive situation might be perpetuated by reciprocal licensing, assuming the defendant is a dominant firm in its industry, as the court found would have been the case as to General Electric Co. In United States v. Aluminum Company of America (91 F. Supp. 333, 409-410 (S.D.N.Y. 1950)), Judge Knox considered certain provisions in licensing agreements from Alcoa to Reynolds and Kaiser, which required the latter to grant Alcoa nonexclusive licenses on improvements. Judge Knox held that the grantback clauses were not consistent with the existence of effective competition in the aluminum industry, stating: With regard to this crucial technological matter, Alcoa, by virtue of the grantback, enjoys a marked advantage over its competitors. It will have exclusive control of its own improvements. It will also have free use of any improvements made by Reynolds or Kaiser, whereas, as between the latter two firms, only the inventing company will stand to benefit. Thus, the efforts of either Reynolds or Kaiser may serve to improve Alcoa's position, and do harm to one of the other two concerns. The Antitrust Division has recently attempted to minimize the dangers lurking in reciprocal licensing, when the defendant is a dominant company, in the final judgment entered October 28, 1958, in United States v. Radio Corporation of America. (Civil 97-38 (S.D. N.Y.).) After requiring reciprocal licensing of patents, the judgment provides: (v) An applicant shall be required to grant to RCA a license provided for in (i), (ii), or (iii) of this subsection (D) only under a patent (a) which is being licensed (or under which a license is being offered) to any manufacturer or user other than the applicant with respect to radio purpose apparatus of the same general character or kind as that for which a license from RCA is applied for or granted; or (b) the use of which by any other person than the applicant is being knowingly allowed or suffered in any way, including by failure to assert such patent against any person infringing it, with respect to radio purpose apparatus of the same general character or kind as that for which a license from RCA is applied for or granted; and (c) covering an invention which is being utilized by RCA with respect to radio purpose apparatus of the same general character or kind as that for which a license from RCA is applied for or granted. However, these provisions only give assurance that the defendant, by virtue of reciprocal licensing, will not gain access to patents not available to other companies in the industry. The applicant for an RCA license is still made to surrender the privilege, otherwise implicit in his own patent rights, of excluding RCA from the practice of his invention, even if he licenses others. Such a right of exclusion is a traditional means by which a small enterprise is able to compete with a company holding a monopoly position. The judgment in the RCA case also contains provisions concerning a group of patents relating to color television. These provisions, which reflect a different approach to the problem of dissolving monopoly power, are designed to dissipate RCA's dominance in the color television field: (C) Notwithstanding the provisions of subsection (B) hereof, RCA is further ordered and directed to place the patents listed in exhibit A to this final judgment (and any and all domestic patents which RCA may own or control issuing on any invention the use of which is required in order to comply with the color television technical standards adopted by order of the Federal Communications Commission, provided such invention is contained in a patent application filed in the U.S. Patent Office prior to the date of entry of this final judgment) in a color television patent pool which all persons engaged in the manufacture of radio purpose apparatus shall be free to join, without regard to whether such person has any patent, or has the right to license any patent, on condition that such person also places in said pool, to the extent that it has the power to do so, such domestic patents applicable to color television apparatus as it may have the right to license issued on or before the date of entry of this final judgment (and any and all domestic patents which such person may acquire the right to license issuing on any invention the use of which is required in order to comply with the color television technical standards adopted by order of the Federal Communications Commission, provided such in- Here RCA's competitors are also compelled to surrender exclusive rights to gain access to RCA's color television technology but the surrender is made to a pool which will make the patents available to all comers on a royalty-free basis. It may be doubted whether such a pool will increase competition within the color television field but it should at least end RCA's monopoly control. On the other hand, in the radio field, the grant-back provisions tend to assure the continuance, rather than dissipation, of RCA's patent dominance. The A.T. & T. decree, alluded to above, has been exhaustively analyzed in the report on consent decree program of the Department of Justice made by the Antitrust Subcommittee of the House of Representative's Judiciary Committee. The criticisms made there will not be repeated here, but should be studied by anyone interested in the provisions discussed here. That decree illustrates the anomalous effects upon technological competition which may result when compulsory patent licensing relief is substituted for divestiture of more basic monopoly power, as a remedy for monopolization of an industry. The complaint in that case charged that the Western Electric Co. had acquired an illegal monopoly of the business of making and selling telephone equipment and supplies. This monopoly was alleged to have been acquired and maintained by a conspiracy between Western Electric and A.T. & T. A.T. & T. owned and controlled Western Electric. So long as such ownership and control continued there was ample reason to suppose that Western Electric would continue to be the principal supplier of such equipment, as A.T. & T. was the principal customer for such equipment. When a customer owns its principal supplier, competing suppliers may hardly expect to win that customer's patronage by competitive efforts. The principal relief sought was therefore the separation of Western Electric from A.T. & T. The complaint asked for patent relief only as an accompaniment to this divorcement of Western Electric from A.T. & T. There was no claim that compulsory patent licensing would dissolve the alleged monopoly. Nothing in the complaint suggests that Western Electric had achieved or maintained its monopoly by actually excluding others from the use of its patents. It had in fact pursued a general policy of licensing its patents to anyone who had patents in which Western Electric was interested, if he would license Western Electric under his patents. Western Electric was thus using its patent position for the purpose of gaining access to the technology of others rather than as a means of excluding others from its technology. Its very large patent portfolio had, however, an implied infringement suit threat which was a substantial inducement to independent manufacturers of telephone equipment to cooperate rather than compete with Western Electric. One obvious way to end Western Elec-tric's use of patents to protect its monopoly position would have been to prohibit Western Electric from enforcing its patent rights against actual or potential telephone equipment competitors until such time as Western Electric's monopoly position in that field had been dissipated. This was and is a legally sanctioned form of injunction, comparable to that used in prior Government decrees, and to the judicial refusal to enforce patent rights which occurs in private patent litigation, when the rights are found to have been misused.29 The decree which was actually entered did not disturb the economic base of Western Electric's monopoly power. It left intact the ownership and control of Western Electric by A.T. & T. Instead of dissolving this tie the decree required the defendants to license all of their patents, most of them royalty free, but upon condition that the defendants could require grantbacks from the applicant. Since the defendants had always been more interested in acquiring patent rights than royalties, the net effect of the decree was to validate both the economic base of the Western Electric manufacturing monopoly and one of the patent licensing practices which it had used in aid of that monopoly. The adverse impact of such a decree upon the competitive benefits implicit in the patent system is plain. As Mr. Justice Douglas pointed out in his dissent on the National Lead case, supra, such grantback provisions enable the large established companies to strengthen their possess. 30 In any case Western Electric's competitors could not hope to sell to A.T. & T. the kind of telephone equipment Western Electric was supplying. The only way in which these independents could compete with Western Electric for A.T. & T.'s business was to develop a patented product that Western Electric could not make. Western Electric had precluded that kind of competition by using its tremendous portfolio of patents in the telephone equipment field to obtain patent licenses from any other manufacturer who had a product A.T. & T. might want. Instead of stopping that practice this decree legalized it. A.T. & T., through the then head of the Bell Laboratories, publicly proclaimed in 1939 while testifying before the Temporary National Economic Committee that: I don't think that if you were to abolish the patent system tomorrow, or if you were to greatly circumscribe it by its fundamentals in some way-I am not talking about procedural methods-it would make one iota of difference to the Bell System with regard to the work it did itself for the development of communication, because we do not do work for the sake of taking out patents. He was correct in his assumption that Western Electric's monopoly position did not rest alone upon its patent rights. He was overlooking the fact, however, that telephone equipment patent rights in the hands of someone who might compete, rather than cooperate, with "For a discussion of the development of the "misuse" doctrine, see the staff report of House Judiciary Subcommittee No. 5, 84th Cong., 2d sess., "Antitrust Problems in the Exploitation of Patents," p. 23. 30 U.S. v. National Lead Co., 332 U.S. 319, 369. |