United States v. Line Material Co.

Background

The United States sued two patent owners and ten manufacturers, saying their cross-license deals fixed the sale prices of certain patented electrical devices and restrained interstate trade. The patents at issue involved two related fuse cutout inventions (one dominant, one an improvement) and a housing patent. Line and Southern made cross-licenses and Line issued sublicenses to several manufacturers; a fixed price schedule took effect January 18, 1941, and devices made under these patents amounted to about 40.77% of the relevant market.

Reasoning

The central question was whether two or more patentees in the same field may combine their separate patent rights to control sale prices. The Court accepted that a single patentee may, under past precedent, limit a licensee’s resale price in some circumstances, but found a different result when separate patentees combine to fix prices through cross-licenses and sublicenses. The Court held such combined arrangements go beyond the patent monopoly and violate Section 1 of the Sherman Act. It reversed the District Court’s dismissal and ordered the case sent back for an appropriate decree.

Real world impact

The decision makes cross-licensing schemes that jointly fix sale prices unlawful and exposes similar licensing networks to antitrust suits. It affects patent owners, manufacturers, and licensees who relied on coordinated price provisions. The ruling reversed the lower court and remanded for entry of relief against price-fixing arrangements. The majority proceeded while assuming earlier General Electric precedent still existed, but found the patentees’ combined price control unlawful.

Dissents or concurrances

A concurrence urged overruling the prior General Electric rule as inconsistent with the Constitution and antitrust policy; a dissent defended General Electric and Bement as controlling and said the licenses here were comparable and lawful.