United States v. Chemical Foundation, Inc.

Background

The United States sued to undo sales of enemy-owned patents, trademarks, and copyrights that the Alien Property Custodian had transferred to the Chemical Foundation during and after World War I. The Government alleged that domestic chemical manufacturers conspired to buy those patents cheaply through the Foundation and that the sales were procured by fraud on the President and the Custodian. The Foundation had been formed to hold seized patents, grant non‑exclusive licenses to American manufacturers on equal terms, and advance chemical production; it paid $271,850 and key sales were later confirmed by a presidential order of February 13, 1920. Two lower courts found no fraud and upheld the transfers.

Reasoning

The central question was whether the Trading with the Enemy Act, as amended, allowed the President and the Custodian to authorize private sales of seized enemy property and whether the orders and ratification were valid. The Court explained that the statute vested the Custodian, under presidential supervision, with broad powers to manage and dispose of seized property "as though he were the absolute owner," and that the President could adopt or alter sale procedures in the public interest. The delegation of authority to an officer who signed the Polk orders was held valid. The Court accepted the lower courts’ factual findings of no fraud, concluded the President’s ratification covered the transfers, and rejected arguments that criminal conflict rules or ordinary fiduciary-sale rules voided the transactions.

Real world impact

The decision leaves the Foundation’s purchases intact and confirms that, in wartime, the Government may create and direct an instrumentality to hold and license seized enemy patents for American industry. It also removes the trial court’s direction for a money judgment against the United States for certain costs, limiting recovery of those expenses against the Government.