Automatic Radio Manufacturing Co. v. Hazeltine Research, Inc.

Background

Hazeltine Research is a research company that assigned a nonexclusive license covering 570 patents and 200 applications related to radio broadcasting equipment. Automatic Radio is a manufacturer that signed a ten-year license in September 1942 allowing it to use any of those patents for its “home” products. The agreement called for royalties measured as a small percentage of selling price, with a $10,000 minimum per year. Hazeltine sued to recover the minimum royalty for the year ending August 31, 1946; the District Court granted summary judgment for Hazeltine, the Court of Appeals affirmed, and the Supreme Court reviewed questions about patent misuse and whether the licensee could attack the patents’ validity.

Reasoning

The Court addressed two central questions: whether the percentage-of-sales royalty was an improper extension of the patent monopoly, and whether the licensee could challenge the patents in a royalties lawsuit. The Court found the so-called “tie-in” cases inapplicable because Hazeltine did not require purchases of unpatented goods, did not forbid other manufacturing, and did not condition licenses on separate grants. The affidavit alleging refusal to license separately was inadequate. The Court held that measuring royalties by a percentage of sales is a lawful way to price the privilege to use current and future patents, and declined to allow the licensee to contest patent validity in this suit. The Court also treated a restrictive marking provision as moot after Hazeltine authorized a different notice form in 1945.

Real world impact

The decision upholds licensing practices that set royalties based on sales and limits a licensee’s ability to avoid contractual payments by attacking patents in a royalties suit. It favors licensors who license large patent groups and enforces agreed royalty and reporting obligations.

Dissents or concurrances

Justice Douglas (joined by Justice Black) dissented, warning that charging royalties on unpatented products can extend patent monopolies and arguing licensees should be allowed to challenge patent validity to protect the public interest.