Louis Brandeis

“ There is no provision in any of the agreements which restricts the freedom of the primary defendants individually to issue licenses under their own patents alone or under the patents of all the others; and no contract between any of them, and no license agreement with a secondary defendant executed pursuant thereto, now imposes any restruction upon the quantity of gasoline to be produced, or upon the price, terms, or conditions of sale, or upon the territory in which sales may be made. ”

“ Ordinary or straight run gasoline is indistinguishable from cracked gasoline and the two are either mixed or sold interchangeably. Uner these circumstances the primary defendants could not effectively control the supply or fix the price of cracked gasoline by virtue of their alleged monopoly of the cracking processes, unless they could control, through some means, the remainder of the total gasoline production from all sources. ”

“ The alleged effect of these provisions is to enable the primary defendants, because of their monopoly of patented cracking processes, to maintain royalty rates at the level established originally for the Indiana process.
The rate of royalties may, of course be a decisive factor in the cost of production. If combining patent owners effectively dominate an industry, the power to fix and maintain royalties is tantamount to the power to fix prices. ”

“ Meanwhile, since the phenomenon of cracking was not controlled by any fundamental patent, other concerns had been working independently to develop commercial processes of their own. Most prominent among these were the three other primary defendants, the Texas Company, the New Jersey Company, and the Gasoline Products Company. Each of these secured numerous patents covering its particular cracking process. Beginning in 1920, conflict developed among the four companies concerning the validity, scope, and ownership of issued patents. ”

“ The violation charged is an illegal combination to create a monopoly and to restrain interstate commerce by controlling that part of the supply of gasoline which is produced by the process of cracking. Control is alleged to be exerted by means of seventy-nine contracts concerning patents relating to the cracking art. ”

“ The violation of the Sherman Act now complained of rests substantially on the making and effect of three contracts entered into by the primary defendants. The history of these agreements may be briefly stated. For about half a century before 1910, gasoline had been manufactured from crude oil exclusively by distillation and condensation at atmospheric presure. When the demand for gasoline grew rapidly with the widespread use of the automobile, methods for increasing the yield of gasoline from the available crude oil were sought. ”

“ These rulings were not disturbed by the Court.↑ The District Court also dismissed, upon the master's findings and recommendation, a supplementary petition against two additional defendants which charged that certain patents had been secured by fraud and that a conspiracy had been entered into to injure the owner of a competing cracking process. The United States did not appeal from this order.↑ The Court apparently accepted, as accurate, the Government's estimates of cracked gasoline production, and stated: 'It is the actual production rather than 'cracking capacity' that is significant. ”

“ An interchange of patent rights and a division of royalties according to the value attributed by the parties to their respective patent claims is frequently necessary if technical advancement is not to be blocked by threatened litigation. [5] If the available advantages are upon on reasonable terms to all manufacturers desiring to participate, such interchange may promote rather than restrain competition. ”

“ Where domination exists, a pooling of competing process patents, or an exchange of licenses for the purpose of curtailing the manufacture and supply of an unpatented product, is beyond the privileges conferred by the patents and constitutes a violation of the Sherman Act. The lawful individual monopolies granted by the patentstat utes cannot be unitedly exercised to restrain competition. ”

“ First. The defendants contend that the agreements assailed relate solely to the issuance of licenses under their respective patents; that the granting of such licenses, like the writing of insurance, New York Life Insurance Co. v. Deer Dodge County, 231 U.S. 495, 34 S.C.t. 167, 58 L. Ed. 332, is not interstate commerce; and that the Sherman Act is therefore inapplicable. This contention is unsound. Any agreement between competitors may be illegal if part of a larger plan to control interstate markets. ”

“ The only restraint thus charged is that necessarily arising out of the making and effect of the provisions for cross-licensing and for division of royalties.
The Government concedes that it is not illegal for the primary defendants to cross-license each other and the respective licensees; and that adequate consideration can egal ly be demanded for such grants. But it contends that the insertion of certain additional provisions in these agreements renders them illegal. ”

“ Various patent exchanges existing in the radio industry are detailed in the Report of the Federal Trade Commission on the Radio Industry (1923) , c. II, Appendices. See, also, Ann. Rep. Federal Trade Comm. ”