BINKS MFG. CO. v. RANSBURG CORP.

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Argument of W. Donald Mcsweeney

Chief Justice Earl Warren: Number 501, Binks Manufacturing Company, Petitioner, versus Ransburg Electro-Coating Corporation.

Mr. W. Donald Mcsweeney: May it please the Court --

Chief Justice Earl Warren: Mr. McSweeney.

Mr. W. Donald Mcsweeney: -- Mr. Chief Justice.

Before proceeding with my argument, I'd respectfully ask leave of this Court for permission to file a reply brief herein, no later than tomorrow.

We received the answering brief of the respondents only this past Saturday in Chicago.

We've made arrangements to print it overnight and I will make every effort to give the typewritten copy to my opponent this evening.

Chief Justice Earl Warren: You may do that.

Mr. W. Donald Mcsweeney: Thank you, Your Honor.

This is an antitrust case and involves also the misuse of patents.

With the additional point urged in part 5 of our brief that respondent fraudulently procured the Starkey patents.

That 0.5 will be handled in this oral argument by Mr. Meroni.

I will confine myself to the first four points of our brief.

The issues which I shall discuss are a matter of the restraint of trade and monopoly which we say the totality of the conduct of this respondent has brought about and it has achieved a monopoly position today in the field of airless electrostatic spraying and painting.

Secondly, and we say additionally and standing alone, its practices of tying in equipment leases with patent licenses are illegal.

And we say also that it is engaged in a program of compulsory package licensing of patents which standing alone is illegal.

And that it has violated the laws because of its dominant position and its position holding basic patent of requiring in its patent license agreements grant-back clauses of future inventions.

Justice John M. Harlan: (Inaudible)

Mr. W. Donald Mcsweeney: No, I'm not, Your Honor, I think there were erroneous legal tests applied here.

I think I shall demonstrate or even from construing the agreements, you'll find for example with respect to the tie-in argument that ? that the agreement, the so called alternative agreement of theirs compelled a prospective licensee to go back to Ransburg, the respondent to get equipment.

The petitioner, Binks -- Binks Manufacturing Company commenced this action by filing a declaratory judgment action.

It was there or it's been a -- and that was in 1946 -- in 1956, October.

There was a counterclaim filed by a respondent, Ransburg, beyond alleging infringement of the Starkey method patent.

Binks, the petitioner, denied infringement alleged invalidity and misuse of the patent and charged violations of the Sherman and Clayton Acts.

The -- later, when the Starkey apparatus patent issued in June of 1957, it was brought in to the lawsuit in May of 1958.

The District Court found in favor of the respondent Ransburg, on all issues.

And the Court of Appeals affirmed except with respect to the matter of allowing Ransburg attorney's fees and the matter of attorney's fees is not here before this Court, matter of Ransburg's attorney's fees.

Now, the respondent Ransburg is in the business of leasing equipment used in electrostatic spray coating or painting.

There are, and we shall be discussing, two different painting processes which the respondent leads us.

First, which is called the number one process and then later commencing in 1951, they began marketing their number two process.

The number two --- number one process which they commenced marketing in 19 -- approximately 1944, consists basically in employing an electrostatic field for depositing liquid particles delivered or sprayed into the field by a conventional air spray gun.

Justice Charles E. Whittaker: Is the number one process before us?

Mr. W. Donald Mcsweeney: I think the number one process is before us in -- insofar as it's part of the buildup of this monopoly position of their -- the respondent, there's no -- it's before us in that respect.

We alleged that by the position they attained in marketing the number one process, they got ? they got a dominant position there and the impetus from that gave them the dominant position immediately upon marketing the airless process in 1951, Mr. Justice Whittaker.

The number two process, a rotating or centrifugal bell or disk is substituted for the air gun of the number one process.

The number two process commonly referred to as the airless process has no spray gun used in it.

Now, respondent's marketing program, since respondent began licensing its electrostatic spray coating process in 1944, it has combined a patent licensing and an equipment leasing arrangement.

The respondent never sells this equipment.

It always leases it.

And it charges an initial fee ranging from $5000 to $40,000 depending upon the size and type of the installation.

And then in addition, either a minimum monthly fee or a percentage of the cost of the coating material which passes through the process whichever those monthly fees is higher.

As of the time of the filing of this case, the respondent is granted 733 electrostatic coating licenses.

Now that includes airless and with air.

And there 463 still in enforced, it had granted some 337 airless licenses of which beginning of this suit, there 272 still enforced in effect.

Justice William O. Douglas: Can you get the -- the patent licensing without the equipment?

Mr. W. Donald Mcsweeney: Well, that's -- that's the contention we make, Your Honor that you cannot.

Justice William O. Douglas: Just what are the findings on that?

Mr. W. Donald Mcsweeney: The findings are that the that they did not require, that Ransburg did not require as a condition of getting a patent license, the taking of respondent's equipment.

But we or I shall argue and I -- our brief doesn't -- I think we can demonstrate that the so-called alternative agreement which they've printed and stopped commencing in 1953, really gave no choice.

And I'm going to come -- excuse me, Your Honor.

Justice John M. Harlan: Of course, (Voice Overlap) precisely to the contrary.

Mr. W. Donald Mcsweeney: The Court, however, didn't construe, did improperly construe this -- this agreement if the Court please and it's an agreement the -- as a matter of contract law, I believe that this Court can conclude that that agreement has -- requires the potential or prospective licensee to come to Ransburg for the equipment and that there was no freedom of choice there.

And the agreement which I'm going to discuss in a little detail, planned to, is set forth in the record volume 3 at page 31.

It's in --

Justice Charles E. Whittaker: (Inaudible) directly understand that there are two patents involved?

One the 1954 patent, ending in the numbers 536 for a process or a method and another of the 1957 patent, ending in the numbers 417 is for an apparatus?

Mr. W. Donald Mcsweeney: Combination apparatus.

Justice Charles E. Whittaker: Is that correct?

Mr. W. Donald Mcsweeney: Yes, Your Honor.

Justice Charles E. Whittaker: Thank you.

Now, in its marketing program, the respondent prepares a standard printed form of contract.

And these terms have been substantially the same from the time of leasing the number one process up through the leasing of the number two process.

And there are, however, some -- over that period, some 45 different agreements used.

In this agreement, the respondent represents that it is the owner or otherwise has the right to grant licenses under inventions and let his patent pertaining to and covering methods and apparatus used in the number one or the number two process depending on which it's licensing.

But it usually does not spec -- specify the patents or doesn't specifically identify the patents or any inventions.

It has never submitted a -- any license agreement under any specific single patent.

I said, usually because in some seven patents or seven agreements, it has listed patents.

In one of these agreements, it will show in this case, none of the 36 patents listed, was applicable to the system or -- or even to the process that it was licensing.

And then in the agreement -- in the agreements with six other companies, the respondent in at least three -- with at least three of these companies, it included patents which were clearly inapplicable to the process that it was licensing and that will -- I believe, be a significance in our argument on compulsory package licensing of patents.

Now, continuing with the facts, I say in addition to retaining title to the equipment, respondent reserves the right to make changes in the ? in the equipment.

And in consideration of the fees it gets, it agrees to supply replacement parts including staple commodities, as well as it agrees to -- to supply services.

Justice Charles E. Whittaker: When you say staple commodities, do I understand you to mean non-patented things?

Mr. W. Donald Mcsweeney: Yes, Your Honor.

Justice Charles E. Whittaker: Thanks.

Mr. W. Donald Mcsweeney: And there's an exhibit where we list those -- even things like hoses, pliers and that type of common ordinary -- in volume 1 page 182, there's a list, a typical list of those parts.

Justice Felix Frankfurter: Are they conditioned upon the license?

Mr. W. Donald Mcsweeney: Well, you --

Justice Felix Frankfurter: Is the license conditioned upon utilizing those?

Mr. W. Donald Mcsweeney: You don't have to utilize them I suppose, Your Honor, but you have to pay for them in the first place.

Justice Felix Frankfurter: You mean that -- you mean you have to pay for them you have --

Mr. W. Donald Mcsweeney: You yes, Your Honor.

Justice Felix Frankfurter: (Inaudible)

Mr. W. Donald Mcsweeney: Now in addition to these agreements.

Justice Felix Frankfurter: Meaning --

Mr. W. Donald Mcsweeney: -- the respondent was --

Justice Felix Frankfurter: You don't get -- you don't get the patent?

You don't get the license, if you don't pay for those fees?

Mr. W. Donald Mcsweeney: That is correct, Your Honor.

Justice Felix Frankfurter: Alright.

Justice Charles E. Whittaker: Well, do you have to buy those non-patented things from transfers or can you get it from hardware store?

(Inaudible)

Justice Felix Frankfurter: Well that --

Mr. W. Donald Mcsweeney: It's physically possible, Your Honor, to get them there.

Their sachets would be in a hardware store, I suppose I might --

Justice Felix Frankfurter: But my question -- my question --

Mr. W. Donald Mcsweeney: Well, you have to -- yes --

Justice Felix Frankfurter: My question was whether the grant of a license was conditioned upon buying these things or paying for these things.

I got your distinction, but it's thrown away after you buy them --

Mr. W. Donald Mcsweeney: Yes, Your Honor.

Justice Felix Frankfurter: Whether you have to pay for these things from the licensor.

Mr. W. Donald Mcsweeney: Yes, you do, Your Honor.

Now --

Justice Felix Frankfurter: But you've just answer the contrary to Justice Whittaker.

Mr. W. Donald Mcsweeney: Well, you pay in advance.

When you first get the license, you pay a fee which includes an amount which takes care of the replacement parts and the services.

Justice Felix Frankfurter: Well then the answer to my question whether buying for these non-patented bought parts, is a condition to the getting the license, the answer is yes, is that it?

Mr. W. Donald Mcsweeney: It is yes, Your Honor.

I would like to say that in 1953, respondent printed and stopped a so-called alternative agreement, which did not have in it, a provision expressly saying, this you take our equipment.

Justice Felix Frankfurter: Well, is this --

Mr. W. Donald Mcsweeney: It never --

Justice Felix Frankfurter: Is the decree that we're reviewing, if we're asked to review here, is the decree based on a licensing system which requires payment for non-patentable parts.

Mr. W. Donald Mcsweeney: Yes, it does require payment for non-patentable parts.

Whenever you take any equipment from them, you always take --

Justice Felix Frankfurter: But must you take the equipment from them?

Mr. W. Donald Mcsweeney: I say you must, Your Honor.

Justice Felix Frankfurter: Alright.

I just want to be clear.

Mr. W. Donald Mcsweeney: And I'm going to come to that.

There's a big argument in this lawsuit over that very point.

The question is under this alternative so-called alternative agreement, does it compel you -- does it drive you back to Ransburg for your equipment?

You will note that it -- it talks about it -- it says, you get -- you you are -- have the right to use a system as prescribed in the Ransburg drawings, subject to such changes and specifications as Ransburg may make.

That I say, gives Ransburg the power.

Justice Hugo L. Black: What page is that?

Mr. W. Donald Mcsweeney: That's on page -- volume 3, page 18, Your Honor.

Justice Hugo L. Black: Page 18?

Mr. W. Donald Mcsweeney: Oh, excuse me.

The one I referred to before was on page -- commencing on page 31.

That's Exhibit D, runs for about till page 36.

Justice Hugo L. Black: Which part of it has the language which you've just referred?

Mr. W. Donald Mcsweeney: On page 32, Your Honor, paragraph numbered 1, where it says license.

And the last part -- sentence -- last part of that paragraph, it says, you have these licenses -- to use said process as shown in Ransburg volume number blank, subject to such changes therein and such further specifications as Ransburg may prescribe.

Justice William J. Brennan: The lower court did not give him the interpretation you suggest to that provision, could it?

Mr. W. Donald Mcsweeney: I take it they did not, Your Honor or they never could've arrived at the result I'm suggesting here.

This this -- I want to say at this time since we've got into this a little -- I think at preliminary, we must make clear is that, there's no practice to go by under this agreement.

They never put this contract into effect, Ransburg says no one wanted.

There's no -- we don't know what in fact they actually did with this contract.

We know that this is the contract which they said, "Here is the alternative.

If you don't want our equipment, sign this contract."

I say that this contract drives your right back to Ransburg for the equipment.

It's the power they retained if you signed this contract which is the vicious thing, which makes the tie-in in this case.

Justice John M. Harlan: What do you do with finding 66?

Mr. W. Donald Mcsweeney: I say that with finding 66, the District Court just misconstrued or ignored the agreement --

Justice John M. Harlan: Then you are asking us to overturn the (Inaudible)

Mr. W. Donald Mcsweeney: I know --

Justice John M. Harlan: We have to review the evidence.

Mr. W. Donald Mcsweeney: I'm asking you to interpret a contract, a written contract which is before this Court.

And you will then overturn that finding, I -- I believe.

In that respect --

Justice John M. Harlan: You don't want to that.

The finding in the stand is what would contrary to what you were arguing, (Inaudible)

Mr. W. Donald Mcsweeney: It is flatly contrary, but I don't believe it involves your overturning it, Your Honor.

I don't believe involves your determining any basic facts.

Justice John M. Harlan: How do you do that?

How do you live it, did not believe it to be (Inaudible)

Mr. W. Donald Mcsweeney: You can overturn it.

I think it's just a conclusion.

And they've wrongly -- that court has wrongly applied a rule of law in a -- a legal construction of a written contract.

And this Court, I submit, is as -- in a -- an eligible position as -- able a position to construe that contract and to construe it, in a way I suggest, which will in effect, overturn that finding.

Yes, Your Honor.

Justice Felix Frankfurter: I must have misconceived your answer because I got from your answer when you said the power they have drives you back the compulsory paying for this non-patentable things.

The questions of power and question for construction of an agreement which in the power means de facto exercise of coercive influence and that I should think, is in the realm of evidence, isn't that true?

Mr. W. Donald Mcsweeney: Well, the other evidence, yes, Your Honor that that -- what was it done in practice is in other evidence.

Justice Felix Frankfurter: Well --

Mr. W. Donald Mcsweeney: -- because this agreement was never put into effect.

Justice Felix Frankfurter: Well therefore the -- to pursue Justice Harlan's question, therefore that finding I don't know its number, partly rests on reading a document, but also rests on the whole evidence as to what was done under it, isn't that true?

Mr. W. Donald Mcsweeney: I think they're separate -- those are separate matters, Your Honor, because under this contract, this contract which I've referred to was never executed.

No one ever took it.

This is the contract that Ransburg said, if you don't want equipment, take this alternate contract.

So everybody who took that contract, took the contract which had the equipment provision in it.

Justice Felix Frankfurter: But Mr. McSweeney, one can't gather from reading a document that it was never enforced and can't get that from a piece of paper.

That must come from surrounding evidence.

Mr. W. Donald Mcsweeney: Oh, the evidence is --

Justice Felix Frankfurter: And therefore, I'm not saying it isn't fair.

I'm not suggesting it isn't fair.

I don't know a thing about it.

I'm suggesting that we do have to, as Justice Harlan has been pressing you.

We do have to go into the evidence since I'm -- we've (Inaudible)

Mr. W. Donald Mcsweeney: In that respect, you do.

Justice Felix Frankfurter: -- challenge the findings but I can't I cannot understand that we're not to challenge finding, is it, for the 66, which on its face doesn't give the conclusion from which you for which you argued.

And of course, you have to go outside of that finding to find that which appeared on paper or the sham.

That's your point.

Mr. W. Donald Mcsweeney: Yes, that's my point, Your Honor.

Justice Felix Frankfurter: Well, but you don't prove sham merely by reading a piece of paper.

Mr. W. Donald Mcsweeney: Well, I -- the other evidence shows that this was never used.

This contract was never accepted.

Justice Felix Frankfurter: And did the judge find -- so find on that other evidence?

Did the District Court make findings that this contract on which it relied in 66 was a functus, was a fiction?

Mr. W. Donald Mcsweeney: Not that he ever called it that.

Justice Hugo L. Black: What about finding 67, does that have any reference to it?

Im not I don't quite understand whether it does or not.

That says that all of them had required their supplying of the equipment.

Is that what you're talking about?

Mr. W. Donald Mcsweeney: Well, that -- I -- it's true the District Court found that as a requirement, it never was a requirement.

Justice Hugo L. Black: So what I'm as what I've understanding -- I understood you to say that no one had ever signed any, except those that required the equipment and your claim is that they had to do that to get any contract at all, is that it?

Mr. W. Donald Mcsweeney: Oh, my claim is that even had they taken this alternative form of contract, they would have, by the expressed terms of this so-called alternative contract, been driven to Ransburg, to take the equipment.

Justice Hugo L. Black: And there was any finding that says anything about this particular form of contract on which you rely.

Mr. W. Donald Mcsweeney: Well, they there's they don't -- the District Court didn't make any finding with respect to that.

Justice Hugo L. Black: Did you ask did you ask for any?

Mr. W. Donald Mcsweeney: I don't recall.

I don't know if we asked for one.

I didn't get one.

In continuing with respect to certain of the facts which I think are to remain to my argument, I want to mention that in 1951, when the respondent began licensing its number two process, it inserted in its agreements, in all of its agreements with respect to the airless, the number two system, a provision for grant-back -- for the grant-back of any inventions, improvements or patents, domestic or foreign, from any source relating to methods or apparatus involving this airless electrostatic spray coating.

And this grant-back was not restricted to improvements upon the apparatus being licensed and in the extent that during the term of the agreement and for two years, thereafter.

Now, it's true in 1945, respondent used a type of contract which didn't have the grant-back provision in it, but it did not at that time, cancel the outstanding agreements containing grant back.

Justice John M. Harlan: Were there any?

Mr. W. Donald Mcsweeney: There were 133 which remained in effsect, full force and effect through the -- this lawsuit and through the closing of proof and through the time the findings were added.

I noted in respondent's brief the -- it goes outside the record to say they've been eliminated in sometime in 1959.

Well that would have been after these findings were entered.

If they were, it's not in the record, and if they were, I suggest it's too late, as far as it's no purge to do it at that time.

In 19 -- prior to 1953, this form, this so-called alternative form, which supposedly didn't require the licensing of equipment, had never been in existence.

But in 1953 was the first time they printed and stocked such a form.

And that time, they sent letters to their existing licensees, asked him if they'd want to take that kind of equipment.

Now, these existing licensees already had taken equipment from Ransburg and they had paid large sums for it.

They -- they would have had to under the terms of this proposal -- they would've had to return that equipment, but they wouldn't get a refund of their money.

Of course, none of them took advantage of that so-called offer.

Justice William O. Douglas: And you claim that was not enough to purge and that was not --

Mr. W. Donald Mcsweeney: It was not enough to purge and I mentioned that the United States Government has filed in an amicus memorandum here on that point and on the point with respect to the -- that is that they didn't do enough to purge and on the ? on the point with respect to grant that clauses.

Justice Charles E. Whittaker: Mr McSweeney.

Mr. W. Donald Mcsweeney: Yes, Your Honor.

Justice Charles E. Whittaker: Has not the district judge foreclosed you on your argument of tie-ins of parts by finding 65 where it says that, Although much of the specialized equipment required for the practice of the process was and is not available on the open market.

And then has produced the same and furnished it to its licensees in order to be able to market its processes.

It has always been the expressed policy of the defendant and so understood by all its officers that if a prospective licensee prefers to obtain equipment elsewhere, then from the defendant he was free to do so and that reduced fees could obtain a license from defendant without equipment, et cetera.?

Now does --what about that finding in connection with your argument of tie-in on parts?

Mr. W. Donald Mcsweeney: Well, Your Honor, I think that that one the one is not based on any fact in the record, as far as -- I would have two answers to that with respect to this -- that it was not available on the open market.

Secondly, if there was a tie-in -- if it was a condition, the availability on the open market on lack of availability doesn't matter.

That -- if it was -- it had some intrinsic value.

Over and above that of competitors, they wouldn't have had to tie it in.

The question I think is whether they tied it in.

This -- the petitioner here has for many years, been in the spray painting supply business and it sells spray guns and allied equipment.

And it developed a simple electrostatic liquid spraying device or emitter.

And it was capable as its president testified, "I'm ready to supply equipment for an electrostatic spray coating system on order."

And it had interested a prospective customer in buying this.

So the petitioner was if it could have gotten into this market, it was ready, willing and able to supply equipment.

We contend that's where our injury is.

If -- if there hadn't been a tie-in, we would have been able to sell our equipment.

And that's where this conduct impinged upon us and that's why we were injured under the antitrust laws.

We're also urging here in the misuse of patents.

We contend that the first, that the totality of this conduct gave the respondent a monopoly position and it constituted a restraint of trade.

And that monopoly position which it had had because it was the only supplier of this equipment in the market and that's admitted and there was no other supplier of replacement parts or no other service organization when this company went into marketing of its number two process in 1951.

Justice Charles E. Whittaker: (Inaudible) in respondents' brief that they initially came to you, tried to induce your company to do their manufacturing?

Mr. W. Donald Mcsweeney: The evidence shows that they asked us to make something for them in 1944.

I believe, the president of our company testified and didn't or couldn't at that time or didn't want to make one of these items for a voltage pen in 1944.

Justice Charles E. Whittaker: There are findings here I observed that Ransburg decided not to make anything that could be purchased and it would only manufacture what wasn't available on the market.

Is that so or not?

Mr. W. Donald Mcsweeney: That's unsupported in the record, Your Honor.

That's not mine.

Justice Charles E. Whittaker: Not supported by evidence?

Mr. W. Donald Mcsweeney: That's correct.

Now, the amount these -- these licensing fees consisted -- amounted to some on the number two airless system in 1956, the amount of this -- something over $2,200,000.

And the total amount of these fees for the period of 1951 to 1957 was over $8,000,000.

Ransburg said in his brief -- or said they admitted it had some $2,250,000 invested in at leased equipment, figured on a cost basis.

I'm going to pass a common -- we have -- write out in our brief at pages 7 to 9 and he pranks the various activities of the respondent in acquiring when it embarked upon this licensing program of acquiring patents from others.

And acquiring those patents on a non-exclusive basis for the right to sublicense, which we say should -- well, excuse me, they are on exclusive basis, where the -- in their field were the right to sublicense, which was we contend for the purpose of monopolizing this field.

It didn't just take a non-exclusive license.

In each instance, they got an exclusive license.

Now, we say that our injury is that because of the totality of the conduct of respondent we, Binks, are unable to market our equipment in the airless electrostatic field.

Now, specifically with respect to this time, I say it with -- in every instance under the number two airless system and every instance where they actually leased it, a respondent joined a patent license with an equipment lease.

The practice under the number one system prior thereto had been substantially the same.

A few licenses that were without leases, one was in a settlement of a lawsuit, the others were with a few licensees who had previously taken their equipment for use in another system.

Prior to 1953, then the only form -- the standard form had in it a paragraph on equipment leasing.

There were in the company, certain internal memoranda saying, if the -- we have a policy of making available patent licenses without leases.

These were distributed just to their own salespeople and to the distributors.

But at the same time, they were outstanding, these brochures which we've referred in our brief and that are in the record, volume 2 at pages 854 and 862 was given.

The emphasis has placed upon the equipment.

The trade gets the idea if it does business with Ransburg, it must take its equipment.

Now, in 1953 and the Ransburg makes a big point of this, it changed its policy.

We called it in our brief an attempt to purge.

At that time, guess what did it would do?

Well, it wrote to the existing licensees.

All of whom had license -- licenses with leases and said, "You can go to another -- this other form without equipment."

The other form now was this form which I contend, didn't give them that free choice.

Now, these licensees had no reason in -- in the world to do that because they'd already in effect, paid for the equipment.

They wouldn't have to return their equipment without a refund of money.

At that time, for the first time and since after 1953, respondent, Ransburg, prepared a pricing schedule which would give the necessary information to one of its salesmen to price out a license without equipment.

And it did tally salespeople to advise perspective licensees that they had this alternative agreement.

However, no one ever took it.

Now, this alternative agreement in page --

Justice Charles E. Whittaker: Would you tell me, do you contend it was monopolistic or otherwise illegal for them to have a form of agreement requiring the supplying of the apparatus if they gave to the customers a choice to take with it -- the process without it -- without the equipment -- apparatus?

Mr. W. Donald Mcsweeney: I think the practice which they pursued here was illegal because in the setting of this case, they always licensed only with equipment --

Justice Charles E. Whittaker: Wasn't that --

Mr. W. Donald Mcsweeney: -- with equipment lease.

Justice Charles E. Whittaker: Wasn't that as the Court found because the customers so elected thus, between the choices?

Mr. W. Donald Mcsweeney: No, the other choice I say was no alternative, Your Honor.

It forced them to Ransburg equipment.

That -- that agreement --

Justice Charles E. Whittaker: In find -- in finding 70, the Court deals with this.Of -- at record 2003, doesn't it?

Unless the terms upon which defendant would have quoted in number two process non-equipment license, had the request, therefore, have been made were academic until 1954 and then it goes on.

Mr. W. Donald Mcsweeney: Well, it was -- it was academic -- well, I say Your Honor to that that this -- not this -- this so-called alternative agreement didn't really give you any choice.

It says in the agreement, if I may refer again to volume 3, page 32, it's argued -- you'd get -- you get a license and you may use it as shown in Ransburg's drawing.

They draw and then they have the power to make a drawing.

They can draw in -- they can make a drawing which is Ransburg's equipment and only its equipment.

For example, it could draw in the patented apparatus on the Starkey -- enact that apparatus patented.

You'd have to come to Ransburg to get it.

Justice Hugo L. Black: How do we know without a finding that that was the alternate?

The alternate finding seems to be other way.

Mr. W. Donald Mcsweeney: Finding --

Justice Hugo L. Black: I can understand the force of your argument, if you had something to show that this concept was tendered to and they'd say you take this or that because all of the contract seems to have the tie-in probe.

That was --

Mr. W. Donald Mcsweeney: They do --

Justice Hugo L. Black: -- (Voice Overlap) answer (Inaudible)

Mr. W. Donald Mcsweeney: That's right.

It is, Your Honor.

Justice Hugo L. Black: When do you show or how do we find out, except from findings about this alternative that you should give?

Did you -- did you try to ask for anything findings and have them rejected?

Mr. W. Donald Mcsweeney: We never had -- we asked for a lot of findings.

None of them were.

Justice Hugo L. Black: Did you ask for any on this point that were rejected?

Did you ask for a --

Mr. W. Donald Mcsweeney: I don't have --

Justice Hugo L. Black: -- finding to the effect that by reason of there being 300 or whatever it was, contracts all of which, contained the -- tie-in clause, it's nothing but its tie-in clause, did you ask for findings as to the effect of that?

Mr. W. Donald Mcsweeney: I don't know that we did.

I don't know.

Justice Hugo L. Black: And there is none.

Mr. W. Donald Mcsweeney: There is none.

That -- that's right.

Justice Hugo L. Black: Well, it seems to me that you're arguing unless you are challenging the findings and point as to the evidence instead of showing that the findings are wrong.

Mr. W. Donald Mcsweeney: Well, I think that --

Justice Hugo L. Black: I can't quite understand your argument.

Mr. W. Donald Mcsweeney: Starting in 1953, they had two forms of contract.

One, without the paragraph for equipment which is this agreement which I refer to at the record --

Justice Hugo L. Black: Page 32.

Mr. W. Donald Mcsweeney: Yes, Your Honor.

The other is a contract with a paragraph specially -- specifying you take equipment.

Justice Hugo L. Black: That's the time that all contracts they had were of that kind?

Mr. W. Donald Mcsweeney: Yes, Your Honor.

Yes, Your Honor.

Justice Hugo L. Black: The Government seems to argue I assume, that from the fact that all the contracts were of that kind, that it was enough to show that the tie-in contract had to be made.

Is that what you're arguing?

Mr. W. Donald Mcsweeney: I think that that is true and I'm arguing that, but I'm arguing additionally, Your Honor that there was no real alternative.

Justice Hugo L. Black: Will that -- the problem is let's assumed -- you're assuming though that there was no real alternative, with no findings to back it and not showing us the evidence it proves, if I -- unless I'm wrong.

And I'm interested in that point because it seems to me that the --

Mr. W. Donald Mcsweeney: Well, the findings --

Justice Hugo L. Black: (Voice Overlap)

Mr. W. Donald Mcsweeney: The other way -- the findings, the other way are based upon the existence of this so-called alternative agreement.

So if this alternative agreement is not really an alternative, the findings are clearly wrong.

Justice Hugo L. Black: Now, where do we -- where can we know that it's based on the alternative agreement rather than evidence?

It seems to be based on evidence, if the judge heard.

Mr. W. Donald Mcsweeney: Well, the evidence is that these are the only forms available.

When they sent two forms, they only let this out of their company on two instances.

They sent two forms to Binks, petitioner.

Here, they are and they -- they were each one of these -- these types.

Justice Felix Frankfurter: But you -- you argued, at least I understood you to contend that the second alternative wasn't chosen and in fact not a true alternative, isn't that right?

Mr. W. Donald Mcsweeney: That's correct, Your Honor.

Justice Felix Frankfurter: But that, could one gather that merely from reading the alternative -- the piece of paper?

Mr. W. Donald Mcsweeney: I contend you can gather that, Your Honor, from reading the contract itself.

Justice Felix Frankfurter: And on the face of it, that shows that that is no alternative.

Mr. W. Donald Mcsweeney: Absolutely, Your Honor.

That's right.

Justice William J. Brennan: You mean Mr. McSweeney, just those words that you've pointed to us at page 32, subject to such changes therein and the incorporation of the Ransburg's drawing -- drawings, is that all there is?

Mr. W. Donald Mcsweeney: Subject to such changes therein and such further specification as Ransburg may prescribe --

Justice William J. Brennan: Well now, I'm -- what I'm asking is, is that what you tell us shows that there's nothing but a Hobson's choice?

Mr. W. Donald Mcsweeney: That's right, Your Honor.

Well, that coupled -- if we go beyond that, to any practice, I say that shows it in the contract itself.

Justice Felix Frankfurter: That -- that is so only if the specifications which they require were specifications for non-patentable parts.

If they were for patentable parts, then they were there within their right.

Mr. W. Donald Mcsweeney: I don't believe that's true, Your Honor.

They're -- they're giving a license under a method patent here?

They haven't any right to tie-in parts to it.

As I understand the law -- as I understand the B.B Chemical against Ellis, they had a method patent.

They haven't any right to tie-in parts.

The method patent doesn't patent any of their parts.

Justice Felix Frankfurter: No, but the part -- patent may have patented.

Mr. W. Donald Mcsweeney: Then they're combining -- then they're combining two licenses under a compulsory --

Justice Felix Frankfurter: Is that your point?

I thought your point earlier was that there -- it required them to pay for non-patentable facilities, didn't you?

Mr. W. Donald Mcsweeney: That's a further point we have --

Justice Felix Frankfurter: But that --

Mr. W. Donald Mcsweeney: -- Your Honor.

Justice Felix Frankfurter: But now, I --

Justice Felix Frankfurter: -- but as to that, one cannot get that from merely reading the contract can we?

If they leave -- unless they have such coercive monopolistic power, that there is no choice, Hobson's choice, I guess (Voice Overlap) --

Mr. W. Donald Mcsweeney: Well that's the setting of this case, which we argue

Justice Felix Frankfurter: But maybe, but -- but the -- the finding doesn't -- finding -- the finding to which you refer doesn't establish that.

Mr. W. Donald Mcsweeney: Well, the facts if doesn't, it's clearly wrong.

The facts show that Ransburg dominates this airless electrostatic spray coating industry.

That it's the only one in it.

Justice Felix Frankfurter: But for some reason, you've declined to answer Justice Harlan's question that you're not challenging the findings as not sustained by the evidence.

Mr. W. Donald Mcsweeney: I'm challenging the findings, Your Honor.

Justice Felix Frankfurter: Alright.

Mr. W. Donald Mcsweeney: It's not sustained by the evidence, but I'm adding that this Court can construe this contract as a matter of law and rule with me.

There was --

Justice Charles E. Whittaker: Was there or was there not, in this voluminous record, much evidence on the course of practice in daily life, or I guess, this Ransburg Company?

Mr. W. Donald Mcsweeney: There was considerable and the practice with respect to what kind of a contract they ever entered into is all one way.

They always entered into a contract which had in it the provision for leasing equipment.

Justice William J. Brennan: That nobody ever took this alternative agreement.

Mr. W. Donald Mcsweeney: That's right Mr. Justice Brennan.

Justice William J. Brennan: Now, what -- what does the record show?

Don't let -- get back to the findings too far, if you will.

But what is the nature of the evidence which explains why no one took this form of agreement?

Mr. W. Donald Mcsweeney: Well, existing licensees first considered them.

They had already paid a lot of money to get the equipment.

If they took as the letters to them said, they had to return the equipment to Ransburg, but not get a refund.

That alone would keep them from taking it.

Justice William J. Brennan: Anything else?

Mr. W. Donald Mcsweeney: The other, I believe would be that you would recognize from this contract that your -- your so-called alternative contract that you give Ransburg the power to come out and change the drawing, change the specifications after you've got someone else's equipment in there.

They could come out and say, "Well that isn't right.

That's our right to have under this.

Here, we're changing that."

So you can't use Mr. Binks' equipment.

It doesn't meet this drawing.

You've got to -- you want to use our patents, you've got to use our equipment.You've got to use equipment that's in this drawing.

They could've -- and whether they drew it to make them use Ransburg patented equipment or unpatented equipment, they still had the power to keep the licensee from using the equipment of anyone else.

Chief Justice Earl Warren: Is there a finding on that first point that you made Mr. McSweeney that -- that anyone who was to return the property, had to return it without a refund whether he had had -- they'd had only acquired at great expense, and that it would be to their injury?

Mr. W. Donald Mcsweeney: That's uncontested, Your Honor.

Didn't enter a find, there's no contest on that.

Chief Justice Earl Warren: There is not question on that.

Mr. W. Donald Mcsweeney: No question, but that is --

Chief Justice Earl Warren: And to what -- to what extent would they be insured to -- would you (Voice Overlap) --

Mr. W. Donald Mcsweeney: Well, they could've paid anywhere from $5000 to $40,000 in an initial fee, plus the monthly fee, all that would probably -- if they were a big customer, it wouldn't -- they wouldn't be under the minimum monthly fee.

They'd be paying on the amount of paint used.

Could -- they couldn't devise post.

They could lose over well anything from $40,000 up, I don't know how much.

It depends on who it was.

Chief Justice Earl Warren: Mr. Meroni.

Argument of Charles F. Meroni

Mr. Charles F. Meroni: Yes, Your Honor.

If the Court please, this phase of the argument pertains to part 5 of our brief.

To be valid and enforceable, a patent must claim from a background free of thought or inequitable conduct.

This Court has so held in the Keystone, Hazel-Atlas and the precision cases cited in our brief.

Here, the respondent procured the allowance of its patents on the basis of affidavits showing commercial success of the number two system.

But the affidavits neglected to point out that the number two system did not embody what was alleged to be the heart of the Starkey invention.

We say it was those omissions in the affidavits that constituted the perpetration of a fraud on the patent laws.

Though, I might say that in that regard, that the only finding that I've been able to locate pertaining to this, is finding 91 of the findings here and they were all proposed by the defendant for the most part and adopted by the Court.

And that appears at page 1013.

In that finding, the Court held that there was no willful representations of the patent office or withheld from the patent office knowledge of a pertinent prior right.

Well, that has nothing to do with this point, which has to do with the withholding or concealment of evidence as to what the true character of the number two system was.

In the affidavits that were filed, the party Starkey or the respondent, failed to disclose what that system was.

Now, it should be borne in mind that these applications particularly the method case, was pending over 10 years.

It was filed on September 29th, 1944 and it wasn't though issued until August 3rd, 1954.

During that period of time, there were repeated rejections both by the examining staff and by the Board of Appeals.

In the course of their representations, the applicants who were Starkey and Ransburg said to the patent office, and I'm quoting from page 55 of my brief a short sentence, The heart of applicant's invention lies in the concept of employing a single electrostatic field which acts as the soul agent to atomize paint, disperse the particles formed by atomization and deposit those particles on the work.

That statement was repeated constantly and Dr. Miller also admitted, as pointed out on the same page of our brief, that the thing that was considered new when he recorded the Starkey idea was the concept of using electrostatic forces alone to atomize, disperse and deposit these materials.

In other words, they -- they believe it to be new, to use the field by itself, apart from anything else, as the atomizing and dispersing and coding medium.

Now, there's no question here, there's no dispute about the fact that none of the structures shown on the Starkey patents and incidentally, the drawings of the two patents are identical.

One is an apparatus patent that was divided out arbitrarily from the method patent without any requirement of division by the Patent Office.

So that the history of the apparent case which is the method case also carries over to the apparatus case, it being a true division.

Now, there's no question that none of the structure shown in those patents were ever commercialized.

That's unequivocally admitted by the respondent and that with respect, I'd like to call your attention for volume 1, page 199, request for admission 30.

Does defendant admit that it never commercialized by sale or lease, any electrostatic sprayer apparatus of the structure shown in -- in anyone of the figures of either of its earlier process patent number or it's later apparatus patent number?

And the answer was, yes.

Now, for some eight years after the Starkey application was allowed or was filed, only one narrow claim was allowed.

In 19 -- in 1949, the pew patent expired, that was the patent that the respondent acquired from Western Electric Company and which covered the number one system.

Also at that time, the respondent brought forth this number two system, making use of both a centriphical means and a field to affect atomization and spray.

Now, our position, Your Honor, as to that point and which we believe is very critical to this case is shown on page 349 to 351 of volume 1, beginning at the middle of the page at 552 and ending in the middle of page 351.

There it -- there, it is conclusively shown that the number two system did not depend on the field alone for atomization, dispersion and deposition.

Justice Hugo L. Black: Are you arguing then in connection with your charge (Inaudible)

Mr. Charles F. Meroni: Yes, Your Honor.

They -- they fail -- the respondent failed to tell the Patent Office that the number two system did -- did not accomplish coating by the use of the field alone.

Justice Hugo L. Black: So, what do you do with the findings in that 91?

Mr. Charles F. Meroni: There are --

Justice Hugo L. Black: -- or rather 291 (Voice Overlap)

Mr. Charles F. Meroni: Well that -- that makes no finding as to the omissions from the application relative to the commercial number two system.

It pertains to the question of whether or not they omitted telling the Patent Office about earlier priority.

We say that there is no finding on this particular point that we're raising here, under the fraud point.

Justice Hugo L. Black: Did you ask for one?

Mr. Charles F. Meroni: We submitted complete findings to the Court.

Justice Hugo L. Black: Did you ask for finding on this particular thing and are you claiming (Voice Overlap) --

Mr. Charles F. Meroni: My recollection is that we did, although it doesn't appear on this record, because the findings were not adopted by the Court.

Now, there's one other point Your Honor that I'd like to make it my limited time here and that is -- and that is on page 36 of the -- of our opponents' brief, reference is made to the juvenile patent and an argument is there given, which we believe is entirely out of order.

That patent does not appear before this Court and is not certified as a part of this record.

And we believe that the argument on page 36 of respondent's brief should be ignored by this Court.

And we'd like to reserve some time for rebuttal.

Chief Justice Earl Warren: Yes, you may.

You'd better rest your time.

Argument of Elbert R. Gilliom

Mr. Elbert R. Gilliom: May it please the Court --

Chief Justice Earl Warren: Mr. Gilliom.

Mr. Elbert R. Gilliom: -- Mr. Chief Justice.

I would like first to supplement the statement of facts which Mr. McSweeney made briefly and then to treat each of the questions raised by the writ of certiorari in the order in which they appear in the briefs.

The issues before this Court arise out of a series of the events starting back in about 1957.

The Ransburg --

Justice William O. Douglas: But may I -- Mr. Gilliom, may I ask --

Mr. Elbert R. Gilliom: Justice Douglas.

Justice William O. Douglas: -- I haven't found any answer on your part to the two points made by the Government in its amicus brief.

Have you filed a brief other than this main brief?

Mr. Elbert R. Gilliom: No, Mr. Justice Douglas.

We answered the Government's brief at two -- there are two points in our brief in reply to the petitioner's brief.

The first point in which the Government expressed interest was the matter of alleged tying of equipment --

Justice William O. Douglas: Yes, that is --

Mr. Elbert R. Gilliom: -- to the patent licenses --

Justice William O. Douglas: You don't even cite or discuss the Ellis case.

I'm not -- I don't want to divert you from the argument, but just to put you the problems that I have --

Mr. Elbert R. Gilliom: Yes.

I will handle that.

Justice William O. Douglas: Would you -- in due -- due course get to the problems of the Ellis case?

Mr. Elbert R. Gilliom: Yes, I will.

Justice William O. Douglas: And -- and I assume that you start with the assumption that originally there was an unlawful illegal tie-in arrangement.

Mr. Elbert R. Gilliom: No, we do not Your Honor.

That is the very point, in other words --

Justice William O. Douglas: I mean in 1951?

Mr. Elbert R. Gilliom: We -- we --

Justice William O. Douglas: 1950 --

Mr. Elbert R. Gilliom: I beg you pardon?

Justice William O. Douglas: At -- at some -- at some stage.

Mr. Elbert R. Gilliom: No, we do not start with that assumption at all.

In fact, Your Honor, a point that we make in our brief is just to the opposite.

The Government has assumed the effect which did not exist and against it, the expressed findings of the trial court are very clear.

In other words, we do not concede any misuse prior to 1953.

We very empathically state that there was not, our policy was consistent from the time this company was organized until the time of the trial has remained so.

Justice William O. Douglas: Then -- then in your -- as you go along, you might explain for my benefit the -- the function of that untying letter, the letter that gave information on time.

Mr. Elbert R. Gilliom: I'll -- I'll be glad to.

The Ransburg Company started out as the soul proprietorship, manufacturing housewares such as bread boxes, canister sets, waste baskets and so forth.

And they spray painted these products with ordinary conventional spray guns made by the large manufacturers such as the Binks Company.

There was a great deal of waste paint that came from that process, because of the fact that the air blast carried the paint beyond the product and wasted it and had to be exhausted and much of it was not recovered.

It was as a result of experiments started by Mr. Ransburg's sons back in 1937 that they developed this number one process, which was simply using a compressed air spray gun the same type, to atomize the paint.

But combining with it, an electrostatic field which imparted charges to the paint particles and attracted them to the articles of manufacture, thereby, tending to overcome the effect of the air blast and making a more efficient painting operation.

Now, that number one process which has been referred to here as the air type process is not before this Court, we submit for the reason that since 1950 as the trial court found, there have been at least six firms in competition with each other, marketing the air type systems.The Binks Company, representatives testified in this case that there was no obstacle to their marketing, the air type electrostatic systems, since they first became interested in it, but they elected not to do so until 1958.

The issues before this Court are confined to the so-called airless systems or the number two system which briefly is this.

Instead of a compressed air spray gun to atomize the paint, it's atomized either by means of a stationary atomizing head or rotating disks or bells, which feed the paint at a control rate to a zone of atomization at the edge of the head where the power of the electrostatic field itself tears off this atomized particles of paint from the liquid film and disperses it in the form of the spray and deposits it upon the article of manufacture.

The field is maintained in that case directly between atomizing head and the articles of manufacture on the conveyer.

Now, it was on this improved process which in many cases results in almost 100% efficiency in the deposit of paint and therefore, saves a great deal in paint cost as well as labor cost.

It's on this process that these two patents were acquired by application of the Ransburg Company.

One, for the method of painting in that manner and the other with respect to the apparatus, the method patent as I think the Court has observed, was issued in 1954 and the apparatus patent came out in 1957, probably these proceedings were pending in the trial court and was brought in by supplemental pleadings.

Now, when the company brought out these processes for public use, it found as would anyone that had an idea to market, that in order to sell that idea to industry and to persuade manufacturers of consumer goods that this was a better way to paint their products, they have to supply the tools for doing that.

Many of the components of this specialized equipment were not available on the open market.

That was true when the number one system was brought out in about 1944.

It was also true when the number two system came out.

When the number one system came out, there was not a safe voltage supply or power pack.

Justice William O. Douglas: Safe what?

Mr. Elbert R. Gilliom: The voltage supply or power pack.

In other words, the ones that were available for that time for x-ray purposes and so forth put out too much current and were likely to cause a lethal shock or a fire.

The same thing was true with respect to the electrodes and the controls of the electrical equipment.

Ransburg contacted such firms as General Electric Company, a number of others to attempt to interest them in making this special equipment.

Ransburg's interest being in licensing the process, it was not interested in the equipment.

It had no success I'd suppose partially, because that was during the war period and these companies had bigger fish to fry.

As a result, it had to design its own power pack, its own control, its own electrodes and produce them in order to get anyone to take this process or to consider it for their production lines.

The same thing was true when the number two process came out.

These special atomizing heads were not available.

They were absolutely new.

The same thing was true with respect to the accurately controllable paint supply system and that was a very crucial aspect of this rather delicate system.

And the fact is that Ransburg did contact the other large manufacturers among whom were Binks.

The Court asked whether there was any evidence of that supporting finding number 10 and if the Court will refer to volume 3 of the record page 240, Mr. Roche, the president of the Binks Company himself, testified that they sold the equipment in conjunction with the systems that Ransburg put out.

And there is no question but what the spray guns, paint spray boots, air paint exhaust systems, air make up systems and so forth, were sold by companies like Binks.

When the number two system was being marketed, Ransburg had problems with respect to the paint supply which had to be controlled very accurately and it discussed that with the Binks Company among other people, which appears from Volume 1 of the record, page 710 in the testimony of Mr. Rice where he said, they couldn't -- this is talking about the airless system.

He said they couldn't use a standard circulating system or pressure regulators -- regulators that we had used in our line.

They even requested us at one time, to make up a special regulator to operate at the low pressures, if they need it.

Those were the steps that the company took to obtain assistance in getting the equipment necessary to interest industry in this very valuable device.

It ended up that Ransburg itself, although a small concern had to design this equipment with the help of a man who was well-versed in electrical science and had been on a faculty of Purdue University.

As it began the marketing systems and industry began to see the value, Ransburg made this equipment available along with its licenses on a leased basis.

Now, the -- the contact essentially was a written license to use the process as long as the process patent was the only one that Ransburg have.

The contract also said, however, that the company owned inventions and patent applications that have to do with methods and apparatus for electrostatic painting.

So that, whoever took one of the written licenses was licensed not only under the patents it had, but under the inventions and applications that were pending.

Now, the equipment which was made available to these manufactures was entirely at the option of the manufacturers.

The trial court found as a fact and the evidence supports it amply that there never was any requirement on the part of Ransburg, there was never any forcing that anyone take equipment in any instance whatever.

Justice William J. Brennan: Now, this --

Mr. Elbert R. Gilliom: Yes, sir.

Justice William J. Brennan: -- you've spoken now to the process number one or --

Mr. Elbert R. Gilliom: Either one --

Justice William J. Brennan: Either one.

Mr. Elbert R. Gilliom: Either one, that's correct.

In other words, this record can be read from the first page to the last and there is not that first bit of evidence from any licensee or prospective licensee or otherwise, that he ever asked to have this license without equipment and couldn't get it.

That he was ever discouraged from asking for a license without equipment or that the terms upon which an alternative was available, were not fair and adequate.

Now --

Justice Hugo L. Black: During the evidence that the contract on which he relied the form of a contract on which your adversary relied, was offered as this sole alternative to buying the apparatus, the additional apparatus?

Mr. Elbert R. Gilliom: The evidence on that Mr. Justice Black is that up until 1954, no one had ever shown any interest whatever, in a non-equipment license.

And in 1954, after the Ransburg Company had --

Justice Felix Frankfurter: Did you say no -- no one had shown any interest?

Mr. Elbert R. Gilliom: Yes.

Justice Felix Frankfurter: But the non-equipment license was available?

Mr. Elbert R. Gilliom: It --

Justice Felix Frankfurter: Was it denied?

Mr. Elbert R. Gilliom: A non-equipment license has been available as a matter of company policy since the beginning.

Justice Felix Frankfurter: And was known to be available?

Mr. Elbert R. Gilliom: It was known to all the Ransburg personnel to be available and the salesmen were instructed to -- to let their prospects know that.

Yes.

Justice William J. Brennan: But, I gather Mr. Gilliom the reason for this is if I understood what you are telling us, is that this equipment was not generally available --

Mr. Elbert R. Gilliom: That's correct.

Justice William J. Brennan: -- in other places.

Mr. Elbert R. Gilliom: That's correct.

Justice William J. Brennan: And no one had had any interest in manufacturing in the competition with --

Mr. Elbert R. Gilliom: Exactly.

Justice William J. Brennan: Is that it?

Mr. Elbert R. Gilliom: Exactly.

Justice William J. Brennan: Or manufacturing it themselves as they were licensee.

Mr. Elbert R. Gilliom: I think that's correct.

And I believe the reason for it appears from the very fact that in a period of approximately five years, when the number two process was introduced to 1951 up until the time of the trial, there had only been a few entered licenses granted.

I think the simple explanation is that the equipment manufacturers were not interested in that kind of volume.

In other words, this is not a shelf -- a store shelf item, where you can count on so many thousand of year, which would warrant the research and development and everything that's involved in putting an item on the shelf.

Justice Felix Frankfurter: But is there are --

Mr. Elbert R. Gilliom: Each --

Justice Felix Frankfurter: -- any evidence to bearing on Justice Black's question.

Is there any evidence that there would be the active discouragement or that your equipment were forced upon respective licenses?

Mr. Elbert R. Gilliom: None, whatever.

None, whatever.

Justice Hugo L. Black: What else -- but you still haven't quite answer that question.

Whether the evidence shows that this alternative contract was the only one they were offered.

Mr. Elbert R. Gilliom: The evidence --

Justice Hugo L. Black: A form of contract to which you referred on page a hundred and --

Mr. Elbert R. Gilliom: Page 30 -- 32 --

Justice Hugo L. Black: Volume 3.

Mr. Elbert R. Gilliom: The only written form of contract was the one on page 32 or slight revisions of that.

I think in full answer to your question, I would have to go back a little Mr. Justice Black and say this.

That prior to 1953, the Ransburg Company did not prepare form contracts, standard contracts for non-equipment licenses.

In 1953, out of what I would call a super (Inaudible) some caution, they prepared those forms for the first time although no one had ever asked for one or had shown any interest in them, even though it had always been the policy that anyone who wanted a non-equipment license could have it.

But it's applied those forms and there have been one or two revisions since then, but in substance, they have been the same.

So that that is the only form that has ever been submitted to anyone if that is the answer to your question.

Justice Hugo L. Black: And then, have all the contracts that have been signed during all that period of time, required that they buy apparatus from it?

Mr. Elbert R. Gilliom: The contract does not require it.

Justice Hugo L. Black: But does it provide that they do buy it?

Had there ever been any that it did not?

Mr. Elbert R. Gilliom: No.

Each of the contracts with respect to the number two system at least, has included the obligation of Ransburg to supply the equipment on a lease basis.

But at the time of negotiation, the prospective licensee was absolutely free to take either a license without that equipment or to take it, once he --

Justice Hugo L. Black: Well you mean, take -- take the license at the -- under this other form?

Mr. Elbert R. Gilliom: Yes.

Justice Hugo L. Black: Which did provide that -- that were subject to such changes and so forth, as you might make?

Mr. Elbert R. Gilliom: Yes.

If the Court will note though, that language which was referred to by Mr. McSweeney it says, Subject to such changes therein and further specifications as Ransburg may prescribe.

In other words, if a man had a license to use a -- use a unit of somebody else's equipment under this non-equipment license and if there were some aspect of that which would improve operations, Ransburg reserve the right to specify what the change might be.

Not to designate its equipment, but specification, a reasonable specification which could be met by anybody's equipment.

Justice Hugo L. Black: Did -- did your contracts if they did -- if they did sign, provide for the supplying of the (Inaudible) set out on page 187, Volume 1 and was that obtainable at other places?

Mr. Elbert R. Gilliom: That is a -- what might be called a typical shipment memorandum of the items that went to a costumer who had elected to take the license with the Ransburg equipment.

Justice Hugo L. Black: But that -- that shows does it not, a great deal of a -- of an equipment that was -- could've bought on the market.

Mr. Elbert R. Gilliom: Oh yes, yes.

Our point is, however, that the -- that the man who wanted the license under the patent, was not required to take this at all.

But once he had said he wanted it, it was shipped to him, in accordance with this list.

Justice Felix Frankfurter: Was there -- were there -- was there any witness or witnesses produced by Binks who testified that they couldn't get a license from Ransburg, unless they also bought a paper, the things on that list.

Mr. Elbert R. Gilliom: Not one.

Justice Felix Frankfurter: Was there any witness by -- produced by Binks or offered by Binks of purchases who signed the equipment, the facilities that you furnished for getting the license who testified he had to take those facilities or not get the license.

Mr. Elbert R. Gilliom: Not one.

The Binks Company took the depositions of -- as I recall three or four representatives of companies that had dealt with Ransburg and each one of those deponents testified that his company had taken the license with equipment.

Two or three of them said they weren't aware that they could've had a non-equipment license or nobody told them about it.

But they did not say that they were forced or required to take it.

On the contrary, each one of them as the Court found and as we point out in our brief, said that, we went to Ransburg for the equipment.

It was the equipment that we were interested in.

Witness Wallin, who represented the Webcor Company, said that Ransburg advised him in writing that he could've had either one.

The contract with or without equipment and that his company didn't want to get into the engineering that would be involved to get the equipment somewhere else, they wanted to experience company to franchise it and they elected to take it.

But not a single costumer or prospect has testified either in their position otherwise that he felt forced or required to take the equipment or anything else to get a license.

Now, the -- the policy --

Chief Justice Earl Warren: We'll -- we'll recess now.

Print this transcript Transcript: 

Argument of Elbert R. Gilliom

Chief Justice Earl Warren: -- Manufacturing Company, Petitioner, versus Ransburg Electro-Coating Corporation.

Mr. Gilliom, you may continue your argument.

Mr. Elbert R. Gilliom: May it please the Court, Mr. Chief Justice.

At the conclusion of the session yesterday, I had touched on most of the facts I think that bore on the first issue of alleged tie-in of equipment to patent licenses but there are some facts which I would like to bring before the Court that I had no chance to mention yesterday and to pursue that argument briefly and then go to the other points in the order in which they appear in the brief.

The Ransburg Company, as soon as it had had about a year and a half experience with its number two system or process had a cost accounting study made by the firm of Ernst & Ernst, nationally known cost accountants to determine what the proper differential would be if it were to be asked by anyone for one of these licenses without its equipment.

And that differential was determined in such way that the Ransburg Company issued a pricing schedule available to anyone who wanted it in which it eliminated from the initial fee which would otherwise be payable if the equipment reference to license, 60% of that amount.

That was the equivalent of about 150% of the full cost including burden and profit on the equipment which Ransburg furnished when the users wanted it.

So that was completely taken out to permit anybody else to furnish equipment under one of these pure licenses if anyone had been so inclined.

The monthly fees were likewise revised to eliminate all of the element of rent and all of the element of replacing defective parts, which was one -- which was the continuing Ransburg obligation in the equipment license.

Now, when those --

Chief Justice Earl Warren: Well, how many outstanding licenses were there at that time, Mr. Gilliom?

Mr. Elbert R. Gilliom: I think, Mr. Chief Justice that the Government in its memorandum said that there were 100 odd that were outstanding which were entered into prior to 1953 that's why they're more than a --

Chief Justice Earl Warren: And how many -- and how many since?

Mr. Elbert R. Gilliom: Since that time, those that are still in effect, I think total to about 337.

There have been more issued but some of them of course have been terminated by the users when their operations changed for some such thing.

But I think about 337 would be the total.

Now, the -- there was no evidence which was introduced by Binks or otherwise before the trial court that questioned the sufficiency of that price differential and the trial court found that it was a due and proper allowance.

Now, I'd like to come to the contention of the Government at this point with respect to this alleged tie-in.

The Government's memorandum starts out with the assumption on page 3 that there was tie-in in the prohibited sense prior to 1953, and that these letters which were written to Ransburg's licensees in the 1953 were an ineffective attempt at a purge.

As I stated in answer to -- to one of Mr. Justice Douglas' questions yesterday, we have not taken the position at any time that these efforts to inform prospective licensees and present licensees in 1953 that these non-equipment licenses were available, was any attempt at a purge.

There was no occasion for it.

There was no change in the company's policy at that time.

And the trial court so found in finding 65 that it had always been the policy of Ransburg that anyone who might wish a pure license without equipment, installation, supervision or replacement of defective parts could have it.

He had to pay for none of those things if he wanted to get them elsewhere.

And the testimony of the salesmen whom -- whose deposition Binks took was very clear on that point.

Mr. Pleva said, this is in volume 1 of the record at page 627.

“I have never really tried to sell anyone on taking the license without equipment but I always told them it was available that way.”

In other words, he did not limit that to post-1953.

That had always been the policy.

By 1953, the --

Chief Justice Earl Warren: Up to that time, was there -- was there any testimony on the part of anyone that he was required to -- to take the non-patented articles?

Mr. Elbert R. Gilliom: None at all, Mr. Chief Justice.

Chief Justice Earl Warren: There's nothing it the record.

Mr. Elbert R. Gilliom: No, sir.

There was no licensee or prospective licensee that testified by deposition or otherwise after most extensive discovered proceedings in which all of the customer files were opened to Binks that he was forced to require to take anything in order to get a license under the patents.

Therefore, the assumption that the Government makes is entirely unwarranted and the trial court found that the fact was just the opposite and there was no tie-in prior to 1953 and there was no occasion of course for a purge.

I'd like to touch briefly now on this -- on the decision in B.B. Chemical Company versus Ellis.

Mr. Justice Douglas asked a question about that yesterday.

In that case, the Court will recall, the conclusion was reached that the patent owner who had a patent on a process of making insoles for shoes involving a certain cemented webbing, followed a practice of not issuing written licenses to anybody.

A license went by implication when he sold his material to the shoe manufacturer.

And that conduct, the Court found was within the -- the Leitch doctrine and the Carbice doctrine.

In other words, no choice was given to the prospect except to buy that material to get the license.

Now, there was in the Court of Appeals an argument made at that late stage that if somebody had wanted an -- a license without the materials, they would have been willing to grant it.

But the Court of Appeals said that this comes too late, that to say that of this stage of the game because that raises the question of whether when you take into account the subtleties of cost accounting, the license would be a realistic alternative.

In other words, the competitor might be placed at a disadvantage as that Court said by the fact that the patent owner would not make the terms equivalent to the terms under which the patent owner itself with franchise materials.

Now in this case by contrast, long before this case was tried, this policy was established, the cost accounting study was made and an adequate differential was established.

So I think the case is clearly distinguishable on that point.

The Government relies largely in its brief on page 3 in support of its argument, upon the proposition, and I might say the Government has not made any contention if there was any tie-in after 1953.

They relate their charge entirely to the period from the middle 1951 to --

Justice William O. Douglas: How -- how do you --

Mr. Elbert R. Gilliom: -- 1953.

Justice William O. Douglas: -- explain that 1953 letter?

That's the --

Mr. Elbert R. Gilliom: The explanation of that letter appears in the testimony of Mr. Harold Ransburg and he said what the purpose of it was.

Justice William O. Douglas: Where's -- where are you reading?

Mr. Elbert R. Gilliom: Let me find the reference to his testimony.

That is record one, page 464.

In substance, I think there's no question with what the Ransburg Company at that point had been advised by patent counsel to be careful in this program that it did make licenses available to people without equipment if they wanted them.

And that had been its policy for a number of years of course before that, but it was emphasized at that point.

Now, Harold Ransburg said --

Justice Felix Frankfurter: Is there any -- is there any occasion for that emphasis?

Mr. Elbert R. Gilliom: No specific occasion, Mr. Justice Frankfurter, no.

I think it was just that a growing --

Justice Felix Frankfurter: What is the date of this?

19 what?

Mr. Elbert R. Gilliom: This was the middle of 1953 about July as I recall.

Justice Felix Frankfurter: You start to say it was growing.

Mr. Elbert R. Gilliom: Well, I think there was a growing awareness on the part of all persons who had patents and who were exploiting them one way or another of the doctrine of misuse so that they were all being more careful not to transgress the law in that respect.

And I think --

Justice Felix Frankfurter: I was wondering whether --

Mr. Elbert R. Gilliom: -- that was said to the Ransburg Company.

Justice Felix Frankfurter: I don't recall at the moment.

Was there a decision of this Court that -- that naturally would --

Mr. Elbert R. Gilliom: I think not --

Justice Felix Frankfurter: -- make picking more lively.

Mr. Elbert R. Gilliom: I think not at that particular time.

Justice Felix Frankfurter: (Inaudible), wasn't it?

Mr. Elbert R. Gilliom: I think if there was any one decision that might have prompted that, it was the decision in the Cardox case in the --

Justice Felix Frankfurter: And that --

Mr. Elbert R. Gilliom: -- Court of Appeals for the Seventh Circuit, which was -- just before that time.

I think that figured a review of this thing in the minds of those who are responsible for it.

But --

Justice Felix Frankfurter: Our decisions or cases here dealing with that was earlier than 1953.

Mr. Elbert R. Gilliom: Oh, yes.

Yes, much earlier.

Yes, those -- the doctrines were well-established and Ransburg in -- in living by those rules all the time.

But as -- as Harold Ransburg said in his testimony, he thought, as the vice-president of the company, that this was not necessary to do this in 1953.

But that he was -- I beg your pardon.

Justice William J. Brennan: (Inaudible)

Mr. Elbert R. Gilliom: That is on --

Justice William J. Brennan: (Inaudible)

Mr. Elbert R. Gilliom: Mr. Ransburg's testimony is on 463 of volume I, Mr. Justice Brennan or -- and where you'll find.

Justice Tom C. Clark: Where is his explanation?

Mr. Elbert R. Gilliom: I beg your pardon?

Justice Tom C. Clark: Where is his explanation?

I notice he indemnified the matter.

Mr. Elbert R. Gilliom: His explanation is 464 of the next page.

He said that --

Justice William J. Brennan: (Inaudible)

Mr. Elbert R. Gilliom: Yes.

Justice William J. Brennan: (Inaudible) necessary.

Mr. Elbert R. Gilliom: Yes, that's --

Justice William J. Brennan: (Inaudible)

Mr. Elbert R. Gilliom: That's correct.

Justice William J. Brennan: (Inaudible)

Mr. Elbert R. Gilliom: Yes, that's right.

He -- he explained it that way.

Then on the next page, he said that he was hardly in favor of it however because he felt that these salesmen should be reminded periodically with bulletins every year or so that they should not overlook in discussing with their customers this program that these licenses were available.

And he says that, right at the middle of the page there, so that they wouldn't overlook and forget that that was available if anyone should want it.

He says on the next paragraph, “No one had ever asked for a license without equipment.

They might be easily forget that they had been given such advice."

So that was the reason for it.

They've decided at that time that they wouldn't rely upon the salesman's memory to tell these people that these licenses were available and that they would write letters to every customer, every prospect before he executed agreement and say, “This agreement provides for equipment, installation, supervision and replacement of defective parts.

We assume that you want this rather than one that doesn't provide that" and so that they all had written notice.

The sales brochures were changed at the same time so that it said very clearly, “When desired, the equipment will be furnished by Ransburg.”

And the brochure advertised the process or the method, not the equipment.

Chief Justice Earl Warren: And did I understand you that there -- there were no other manufacturers manufacturing these parts?

Mr. Elbert R. Gilliom: No other companies manufactured the equipment as a unit or as a whole.

Of course, the nuts and bolts and things like that were -- were manufactured by other -- other manufacturers but nobody manufactured airless painting equipment as such.

Chief Justice Earl Warren: Well, I was wondering if the provision in the contract on the grant-back provisions had anything to do with the reasonableness of that letter.

Mr. Elbert R. Gilliom: You mean had anything to do with sending the letter out itself?

Chief Justice Earl Warren: Not only on sending it out but as to whether it was affected on the grant-back provision, they were bound to license to the -- to Ransburg --

Mr. Elbert R. Gilliom: Yes.

Chief Justice Earl Warren: -- without any royalty of any kind, every invention of every kind that they made concerning this process, do they not?

Mr. Elbert R. Gilliom: This particular process, that's correct.

Chief Justice Earl Warren: And -- and if there was no one else in the business and they were producing the whole thing, in any inventions that -- that were made by any of their -- their licensees which where all of the people using that in the country.

Wouldn't that have -- have in effect upon whether -- whether the -- the contract to let them buy their parts any place they wanted was effective?

Mr. Elbert R. Gilliom: I wouldn't think so, Mr. Chief Justice for this reason.

The grant-back provision which I had intended to discuss a little later but I had (Voice Overlap) --

Chief Justice Earl Warren: Well, you -- you do it in your own time please.

Don't -- don't go at it now.

Go right ahead.

Mr. Elbert R. Gilliom: So I am -- well then --

Chief Justice Earl Warren: Yes, in your own -- in your own time.

Mr. Elbert R. Gilliom: Thank you.

I'll just -- just to complete the statement of facts with respect to the 1953 transaction.

After it was decided to be sure that all perspective licensees knew of the alternative, it was felt also that the current licensees of which there were 100 odd number two system should know about this thing and so several types of letters were written.

There was a -- a letter written to those who had already entered into agreements that -- but haven't made their payments of their initial fees saying, “If you would prefer not to take this equipment, you can have the license and your initial fee will be appropriately reduced in giving the amount in the same way of the monthly fee.”

Those customers who already have equipment and had paid for it and were using it, there was no offer to rebate any of the initial fee.

Those licenses had been in effect of course for various terms from almost two years on down and it was felt that the initial fee had been earned.

But the customers were told clearly that for any reason they would prefer to change equipment and reduce their monthly fees which were the important aspect of this in the manufactures program that that could be done.

This was not done, however, in any spirit by Ransburg that those people had originally been forced to require to take equipment because the policy had been clear at the time of those licenses were entered into.

Now, the Government --

Justice William O. Douglas: Is it true that what he says that the company put this letter, kind of letter out about once a year?

Mr. Elbert R. Gilliom: Not this type of letter, no.

The bulletin is what he's talking about to the sales personnel, Mr. Justice Douglas.

The sales personnel and all the management personnel got these bulletins about once a year which are referred to in finding 65 reminding them each time to be sure and tell your prospects about this alternative.

The letters to the customers, there -- these bunch of 1953 letters, that was the only occasion when this was done wholesale.

From thereon however, before anybody entered into a license, he got a letter specifically stating what was available.

Now, the Government has relied principally upon one fact in support of its contention that there was tie-in prior -- prior to 1953 and that is that all of these 100 odd licensees had the equipment and I'd simply like to explain how that comes about.

The fact is that they all wanted the equipment.

There is no evidence that anyone was forced to take it and when you realize how these manufactures of refrigerators, bicycles, typewriters became interested in this thing, it's easy to understand why they all took the equipment.

Ransburg's laboratories would design for each of these people a system, these were not shelf items, they had to be designed and engineered for each system, for each application because of the size and the shape of the article, the coating material and other production problems.

They would design this thing in their laboratory, set it up, invite them in to come and see it.

When he saw it operated and he saw the savings that were possible in his business, the thing he said is, “I want that equipment.

When can I get it?”

He didn't want a piece of paper, he couldn't paint with just a license and he wanted the equipment from someone who had experience in furnishing it and that he saw, worked in their laboratory.

And these licensees who were brought by deposition before the Court all testified, “We were interested in the equipment.

We wanted to get a price on the equipment.”

Each one of them said they had never asked for a license and of course, they weren't interested in it.

Justice Felix Frankfurter: What was the price?

The normal price of the equipment?

Mr. Elbert R. Gilliom: The normal price?

Justice Felix Frankfurter: Do you have a conventional price?

Mr. Elbert R. Gilliom: It would vary, Mr. Justice Frankfurter a great deal because some of these installations were quite large, some were smaller.

Justice Felix Frankfurter: These were all custom-made, I gather?

Mr. Elbert R. Gilliom: Yes.

Well, yes, they're custom designed as far as the arrangement and the components were concerned.

Many common components of course were used.

But they were all especially designed and engineered and the actual cost of the equipment plus -- plus profit on it would run from perhaps $2000 of $3000 on up to, it could be more.

Justice Felix Frankfurter: Right.

Mr. Elbert R. Gilliom: But in each case, the non-equipment license reduced the fee by whatever the cost of all odd equipment was if the man wanted the naked license.

Justice Hugo L. Black: I'm a little confused again by your statement, all of these was especially made?

Mr. Elbert R. Gilliom: I -- I said that each --

Justice Hugo L. Black: I looked at the list and some of it seems to be not especially made but --

Mr. Elbert R. Gilliom: Oh, no.

I don't mean to infer that -- that every part in it, every mechanical part was especially made, but the system as a whole had to be designed for the customer.

The relationship to --

Justice Hugo L. Black: I understand that.

Mr. Elbert R. Gilliom: Yes, that's right.

Justice Hugo L. Black: Like you design a heater in a -- in a house, a particular house?

Mr. Elbert R. Gilliom: Yes.

Justice Hugo L. Black: But that doesn't mean that the parts that you were selling were customarily made or especially made for this, does it?

Mr. Elbert R. Gilliom: Not all of them, no.

The atomizing heads were and the paint supply controls were, a number of those things were -- of course there were other things that were not custom-made which Ransburg--

Justice Hugo L. Black: They were about (Voice Overlap) above the things?

Mr. Elbert R. Gilliom: Yes, that's correct.

Justice Hugo L. Black: Now, I was reading here on the page which I don't quite understand where if they accepted the contract to buy the equipment, they had to pay more than they did if they got it without the equipment?

Is that right?

Mr. Elbert R. Gilliom: If they --

Justice Hugo L. Black: Page 467, spelled out an alternative of being either 8400 or 10,400 depending upon what the customer took, whether he got the one with the equipment or not the equipment, is that what it referred to?

Mr. Elbert R. Gilliom: Is that page 4 --

Justice Hugo L. Black: Page 467, right after what you referred us to.Page 450 -- 467, volume 1.

Mr. Elbert R. Gilliom: On volume 1.

Justice Hugo L. Black: I was reading the testimony of Mr. --

Mr. Elbert R. Gilliom: Of Mr. --

Justice Hugo L. Black: I forgot the, Web Carr?

Mr. Elbert R. Gilliom: -- Wallen?

Now, your question is they would pay more in one instance?

Justice Hugo L. Black: Does that mean that if they bought the equipment, they could get one plan and if they bought the -- didn't put by the equipment and get the other.

In one instance, should cost them 8400, in the other instance would cost them 10,400.

Mr. Elbert R. Gilliom: No, it does not.

Justice Hugo L. Black: What does that mean?

If that's the one that Web Carr referred to as ridiculous --

Mr. Elbert R. Gilliom: Oh, I see what you mean.

The way -- that was the letter to Web Carr on the unit which they've had and they had already paid the initial fee as I recall which was earned and they were not interested in changing the equipment for the reduction in the monthly fee.

They said they thought that was ridiculous.

In other words, they wanted to retain their equipment just the way it was.

But in the -- in an initial case, a person who took the license without the equipment would not pay for any equipment whatever.

Justice Hugo L. Black: But did he have to pay more for a license?

Mr. Elbert R. Gilliom: No indeed, he did not.

In other words, what he paid for the license was exactly the same whether he took the equipment or not.

Justice Hugo L. Black: I don't -- that that -- this, it has had me confused, is because I haven't read enough of it and that's the reason I was asking you a question.

Mr. Elbert R. Gilliom: Yes.

Yes, but I think the record is --

Justice Felix Frankfurter: Well, if you elucidate the question put by Justice Black, do you understand that although the facility or the equipment which you furnished or ready to furnish in which the licensees took.

Although it contained some common place parts but if they wanted your equipment, you put the whole thing together.

Mr. Elbert R. Gilliom: Yes, that's correct.

Justice Felix Frankfurter: So that -- so that while they made the conventional things that you could get in every hardware store, the totality for not something you could get in the department store.

Mr. Elbert R. Gilliom: That's correct.

Justice Felix Frankfurter: And therefore you put it together, is that it?

Mr. Elbert R. Gilliom: That is correct, in order -- in other words, to make a working system out of it which is what these people wanted.

Justice William J. Brennan: (Inaudible)

Mr. Elbert R. Gilliom: Yes, that's what it was.

That's where the engineering came in.

In other words --

Justice Hugo L. Black: Well, that's still -- that confuses me a little as putting together.

It's like putting together hammers as I understand and files that you could go out and buy.

You supplied them in a box with the machine.

Mr. Elbert R. Gilliom: That -- that was not the -- the case in this instance.

Justice Hugo L. Black: I'm not talking -- I'm talking about when you supply equipment, it did include thing that is commonly used as hammers and files, did it not? They were not built for this particular machine.

Mr. Elbert R. Gilliom: Yes, that's correct.

They were some parts, although they were minor part.

Justice Hugo L. Black: I understand there was some.

Mr. Elbert R. Gilliom: Yes.

Justice Hugo L. Black: But I'm talking about this did contain, this putting together or simply selling them additional equipment or pats that they could have gone out into any hardware store and bought?

Mr. Elbert R. Gilliom: Yes, they could've done that.

Justice Hugo L. Black: There wasn't any doubt about that?

Mr. Elbert R. Gilliom: No, no.

Justice Hugo L. Black: And when you say putting together, you simply mean that when they -- you sold them this, you supplied these parts that they could've gotten elsewhere and your point -- contention is of course, the findings show that they didn't have to do that but they did it because they wanted too.

Mr. Elbert R. Gilliom: That's correct.

That's correct.

Justice Felix Frankfurter: And even these common placed parts were not disjointedly sold, was it?

Mr. Elbert R. Gilliom: Oh, no, not at all.

They were a part of the -- of a working assembly.

In other words, the working assembly, to paint these man's products had to have common place parts in it and as well the special parts so that the thing would work.

That's what he wanted and had to have.

Otherwise, he'd had to go out and gather it up and try to put it together.

Justice Hugo L. Black: You confuse me again when you say common place things in it.

I have bought some machinery where they sell you the machinery and then they will have a -- a number of things that you could buy elsewhere and you get with it for convenience, I understand that.

Mr. Elbert R. Gilliom: Yes.

Justice Hugo L. Black: That's what you're talking about, isn't it?

You're not talking about parts that were put into the machine itself which they use.

You're talking about things, some of those and some things like hammers and files that they might need in connection with doing the work on that machinery when it started to work.

Mr. Elbert R. Gilliom: I think they got no tools as like hammers and files.

There was one tool called a tube puller which was for removing the -- the tube from the power pack if it became defective and had to be replaced.

But the parts that we're speaking of, Mr. Justice Black were functional parts, a part of this entire painting unit and they were all needed for its function.

Justice Hugo L. Black: I understand that part of it was -- was any of it not?

Mr. Elbert R. Gilliom: Was any of it not common plates?

Justice Hugo L. Black: Not common parts of this machine to be used in it like you would take out a bolt and put it in a wheel?

Mr. Elbert R. Gilliom: Yes, indeed.

In other words, these atomi -- atomizing heads were not common parts.

They -- they were the -- the thing that atomized the paint and there were paint supply controls which were special.

They were not common, they couldn't -- you couldn't go out to buy those somewhere else.

Justice Hugo L. Black: Were there any that were not common that you supply or any that were common that you supplied?

That is --

Mr. Elbert R. Gilliom: Yes.

Yes, there were some.

Justice Hugo L. Black: We're -- we are not to take it on the basis that all of these things that you supplied were a part of this process which they had to use.

But some of them were tools that were useful in connection with it.

Mr. Elbert R. Gilliom: Well, I -- I don't like to differentiate on -- on -- when --

Justice Hugo L. Black: Forget the word tools.

Alright, I -- I don't know of it and I'm -- that's the reason I'm asking you and the questions are confusing.

Mr. Elbert R. Gilliom: They -- they were, let's put it this way.

There were things like hose and a couple of things, things like that.

Justice Hugo L. Black: Alright now, can you buy hose anywhere (Voice Overlap) --

Mr. Elbert R. Gilliom: Yes, you can.

You can buy those anywhere.

Justice Hugo L. Black: Was there any difference in these hose to the other hose they would have bought somewhere else?

Mr. Elbert R. Gilliom: No, that's right.

It's in --

Justice Hugo L. Black: And were the other thing like that.

Mr. Elbert R. Gilliom: That's right and they simply were necessary to make this whole thing work.

That's -- that's where --

Chief Justice Earl Warren: They were a part, they became a part of the -- of the entire product, isn't it?

Mr. Elbert R. Gilliom: That is -- that is correct, yes.

Justice Felix Frankfurter: To repeat my words.

In answer to my question, I asked you whether any of these common placed parts that you could buy at (Inaudible) where ever that old term in New York is.

You could buy anywhere.

Were they disjointed it from the equipment?

And you said no.

Mr. Elbert R. Gilliom: No, they were not.

Justice Felix Frankfurter: Alright.

Mr. Elbert R. Gilliom: As I understand it, with the possible exception of this tube puller which --

Justice Hugo L. Black: Would you explain to me now in answering at what you mean by disjointed, I don't quite understand it.

Mr. Elbert R. Gilliom: Well, I understood, Mr. Justice Frankfurter's question --

Justice Hugo L. Black: Well, tell me what you mean when you answer it that they were not disjointed?

Mr. Elbert R. Gilliom: When I said they were not disjointed, I mean that they were not something set aside from this functioning unit, useful in connection with it.

But they were a part of this unit, they were an operating part.

They had to be running along (Voice Overlap) --

Justice Hugo L. Black: Were they like the spokes of a wheel?

I mean automobile, a part of it?

Mr. Elbert R. Gilliom: Yes -- well yes, I think that would be a fair illustration.

Justice Felix Frankfurter: But in the wheel, they were in the wheel (Voice Overlap) --

Mr. Elbert R. Gilliom: In the wheel, that's right, exactly.

That's -- that's the -- that's the point.

Justice Hugo L. Black: Sold out.

Is that the list that -- that we have had called our attention.

You say that those where like a spokes of a wheel that's a part this process that you had?

Mr. Elbert R. Gilliom: Yes, they were.

There were --

Justice Hugo L. Black: Every one of them, even the hose.

Mr. Elbert R. Gilliom: Even the what?

Justice Hugo L. Black: Hose.

Mr. Elbert R. Gilliom: Yes, it is -- it's a part of the working system.

You -- you couldn't work it without it.

Justice Hugo L. Black: Well, you've got to have a hose?

Mr. Elbert R. Gilliom: Yes.

Justice Hugo L. Black: You got to have a hose if you work on washing machine.

Mr. Elbert R. Gilliom: Surely.

Oh, as I say, these -- these manufactures, in order to have a working system wanted Ransburg to furnish an outfit that would operate the way they have seen it operate in the laboratory.

And this fact is -- I think accented by the fact it's found by the trail court that after these people had been told in 1953 that they could have a licensee either way, 55 of the people who got those letters with full knowledge of it entered into a total of 97 license agreements after that and in every instance, elected to take the equipment.

Now, the time is running so I must go on to I think the next question involved.

The Binks Company -- I want to say first one more fact with respect to these licenses.

The Binks Company is the first company that indicated any desire to furnish airless electrostatic spray painting equipment.

After the Ford Motor Company asked them to make a quote on a unit played in 1955, they did that in January or March.

In January, and again I think in March of 1956 and they quoted on it, subject to Ford indemnifying Binks against liability for infringing the Ransburg patent.

Of course, Ford did not buy it.

Then Binks came to Ransburg and asked for a license to make and sell under the Starkey and Ransburg process patent.

That license -- license was declined by Ransburg for the reason that it would have treated many of the customers unfairly and it did say through Binks, however, “We want you to know that licenses are available to your customers to use our method.”

In other words, it would put Binks' customers on the same footing exactly as the Ransburg licensees so that they could use the Binks' equipment.

And the court below made an expressed finding along that line and we feel that the findings of the Court with respect to this alleged tie-in are amply supported by the evidence and should stand.

Now, going to the second question raised by the petitioner, the alleged tie-in of -- of one license to another or package licensing.

The contention was made that since the Ransburg contract does not list patent numbers, that it has the effect of forcing the licensee to take a license under patents that he doesn't want.

I think it is sufficient to say that this license does not list patent number simply because of the fact these systems are designed individually.

And after a system is designed and identified in a drawing, the user gets the right to use all Ransburg patents, applications or inventions whether the patents have issued or not that are applicable to that particular system, and he does not get a license or paid for a license under any patent that does not apply.

And the Court found in finding 71 that there had never been any request for a license under a specific patent and no one had ever been forced to take a license under any patent which he did not want, so that the rule in American Security Company would not apply.

Justice John M. Harlan: How large the patent used?

Mr. Elbert R. Gilliom: How large is it?

In terms of gross volume?

I think the gross volume at the present time is about -- the record shows was $2.5 million a year from these licenses at the time of trial, it's slightly more than that now as I recall.

Now, going to the license-back clause, this is the third issue raised by the petitioner and one in which the Government has taken an interest.

The Government contends that this was -- this type of clause could be illegal if it had the effect of perpetuating the effective life from a basic patent on page 8 of their memorandum.

Now, this license-back clause had no such effect.

In the first place, it did not require the licensees to convey their inventions to Ransburg.

It simply required during the early period of the field experience and the number of due process when technical information was being freely exchanged by Ransburg with these licensees in an effort to bring this -- this process to its best application in all faces of industry.

During that earlier period, it was felt by Ransburg that any improvements made by these licensees that had the benefit of that early experience and there know-how should be shared by Ransburg and the other licensees.

To do that, a license-back clause of a restricted nature was used only during those early years, about three and a half years.

It was for a non-exquisite license where the right to sublicense and was royalty free and applied only in this particular field of the basic patents.

Therefore, whoever might have developed an improvement and it turned out that none were, no right was ever acquired by this at all.

But whoever might have developed an improvement would have had the right to use it himself, he would have had the exclusive right to it except in this particular field and the only effect would be that Ransburg and its other licensees could use it also.

It would not have prolonged the monopoly of the basic patents because at the time the basic patents expired, Ransburg and the user who developed the improvement would be on the same footing with respect to the use of the process.

So we feel that it was for a reasonable purpose and it was for a reasonable period, it was eliminated from the forms in 1955.

And that it was a -- a reasonable scope and that it involved only improvements in the field of the basic patents and that the license was reasonable because it was usable only in the field of the basic patents.

And as I say, there were -- had been no right acquired under it by Ransburg and the only time that one was tendered, it was declined.

Now, the statement was made in petitioner's brief for the time in this case that some of these are still in effect.

The fact is that in September 1959, all of the one -- of the old provisions in contracts that have been entered into prior to 1955 were cancelled by letter.

Justice John M. Harlan: Does it show why they were eliminated in 1955, Mr. Gilliom?

Mr. Elbert R. Gilliom: Why they were eliminated for the forms?

The record does not have any specific evidence as to why they were eliminated at that time, no.

Justice John M. Harlan: Were you threatened with a government antitrust suit anywhere along the line?

Mr. Elbert R. Gilliom: No, we were not, not at any time.

I might say that the Attorney General's committee, a national committee on the study of the antitrust laws is quoted at page 34 of our brief on this very issue.

That report said, the grant-back of exclusive licenses should be subject to close scrutiny but “on the other hand, grant-back of a non-exclusive license, as in this case, especially with author -- with the authority to sublicense may defuse the benefits to all licensees and thus tend to encourage competitive use of the innovations."

Chief Justice Earl Warren: Well -- well, doesn't that principle dependent upon whether -- whether there's a monopoly position maintained by the parties or not?

Mr. Elbert R. Gilliom: Well of course, I think, Mr. Chief Justice that there is always implicit in this arrangement, a patent monopoly because of the fact that it is in -- in a license agreement that these license-back clauses appear, so that would always be the case.

I think the point is that rather than permitting someone simply to sit-on an improvement, this type of thing results in its being used by more people.

I want to go briefly to the fourth question which is raised by the petition and that is the alleged fraud in the procurement of these Ransburg patents.

Reliance is placed on two affidavits that were filed to the patent office in March 1953.

In those affidavits which were for the purpose of showing the commercial success of the inventions as Ransburg had commercialized them in the number due process, the petitioner says that it was misrepresented that these commercial systems use stationary heads.

If the Court will examine the Haworth in his big affidavits which were in record 4, pages 637 to 642.

It will be found that there was no such representation.

The affidavits referred to the number two system.

The number two system at that time in 1953 was well-known to industry.

The brochures describing these rotating heads had been distributed at the rate of some 10,000 a year and the patent office itself had received a copy of that brochure which is Exhibit IIII in this case, a year and a half before this occurred.

So that not only was it proper to furnish this -- these affidavits but no one was misled.

The inventions of these patents were not limited to stationary heads.

The claims were broader than that and fully encompassed, the commercial systems as Ransburg Marketing Co. (ph).

That was found by both of the courts below.

In conclusion, if the Court please, we feel that in marketing its processes, Ransburg has followed the rules of this Court and the rules of the statutes assiduously and that it has done what the patent system and that Congress have contemplated be -- be done when you have a -- an invention of valued industry.

In other words, it has licensed its inventions and it has left others free to come in and furnish the equipment on a basis which is comparable to its own.

None of these practices gauged separately, is unlawful under any test laid down by this Curt or otherwise.

And in their totality, they have not gone beyond what the legitimate patent monopoly has provided.

We feel that the Ransburg program is one which illustrates the legitimate things that may be done under our patent laws today to bring a significant improvement to industry which is small manufacture worked out in solving his own pinning problems.

And that he is entitled to compete aggressively but lawfully with Binks and all the others who are in the same field.

And he is willing to issue licenses to anyone to use the process and they can get their equipment anywhere they wish.

They are not forced to take anything in order to get those licenses.

If the Court please, we submit that the judgment below should be affirmed.

Chief Justice Earl Warren: Mr. McSweeney.

Argument of W. Donald Mcsweeney

Mr. W. Donald Mcsweeney: Mr. Chief Justice, our position with respect to tie in briefly in answer to Mr. Gilliom.

First, we contend that the agreement which I discussed yesterday without restrictive language is the sole alternative.

But we contend that it is enough for illegality that the respondent had the method of doing business of tie-in its equipment all the time and for that proposition, we site B.B. Chemical against Ellis.

And we also referred -- would stand on the International Salt case in this Court where your -- where this Court said, “The tie-in clause has not been insisted upon in all leases nor has it always been enforced when it wasn't included.”

Now, what the --

Justice Felix Frankfurter: May I -- may I ask you to repeat your phrase, “Had the method of doing business?”

Mr. W. Donald Mcsweeney: This method of doing business which Your Honor was always -- and when they actually did business, they always leased the equipment in conjunction with a patent license --

Justice Felix Frankfurter: Your mean they --

Mr. W. Donald Mcsweeney: -- and they can sell equipment, or either they leased --

Justice Felix Frankfurter: You mean they made it available or they made it a condition of getting the license, which?

Mr. W. Donald Mcsweeney: The practice of doing business, Your Honor, this way and only this way.

That is the same thing that we had in the B.B.-Ellis case.

Justice Felix Frankfurter: Well, if the practice flow from them, if they -- did they -- as a matter of a conclusion to be derived from evidence, did they make it practically necessary to utilize there, what you call method of doing business or did people of their volition say, “We want it done like this.” Which?

Mr. W. Donald Mcsweeney: They made it practically necessary from -- and also they made it necessary from the agreements which they offered by contract.

Justice Felix Frankfurter: Well, I understand that --

Mr. W. Donald Mcsweeney: Practically necessary.

Justice Felix Frankfurter: I -- unders -- understand that the agreements said so, that we can agree.

Mr. W. Donald Mcsweeney: Yes, Your Honor.

And I --

Justice Felix Frankfurter: But the other thing, I should think is very important to differentiate between some compulsion in the practicalities of the situation on the part of the patent owner -- owner or desirability on those -- on the part of those who want to avail themselves of it.

Those are very different things.

Mr. W. Donald Mcsweeney: We -- we contend there was no desirability, Your Honor.

Now, with respect to answering whether this agreement that I discussed yesterday was the sole alternative, I refer the Court to the Ransburg sales bulletin volume 3, page 315, it's dated April 4, 1955.

It tells you what the alternatives are.

It says in the last sentence, “Forms, numbers, so and so and so and so in 437 --

Justice William O. Douglas: What page is that?

Mr. W. Donald Mcsweeney: -- our -- our current forms."

315, Your Honor of volume 3.

And then that letter includes as enclosures therein, the forms that it includes as the form for the airless without so-called without equipment, form number 437 which is set forth as part of the same exhibit at page 339 of the record.

Now, that's their own sales bulletin.

That's the thing they rely on for saying they had a different policy that that they rely on earlier sales bulletins.

Here's a sales bulletin that says, “Salesmen, here are our current forms.”

And that's the form they give them, the same restrictive language subject to such further specifications as Ransburg may proscribe.

As for the question of -- of Mr. Gilliom about active discouragement, there was active discouragement in the Web Carr correspondents in the record, volume 2, page 823.

Now, is anyone else making this equipment?

That seems to be a -- a point of Mr. Gilliom that no one wants.

Well, that's one thing this lawsuit is about, if the Court please.

Binks was ready to produce and deliver this system, not only just the pliers for example but the whole system, the whole spokes and the wheel, the whole wheel.

They could deliver it on order and they couldn't get into the market because of the position and the activities and the practices of Ransburg with respect to some other items of equipment that they were no other in the market of these voltage packs.

I refer the Court to volume 3, page 283, a letter of Ransburg itself to its own people, its own distributors.

We have noticed they say in August 18, 1950, we have noticed that voltage supplies had been advertised which are so supposedly suitable for electrostatic painting.

Then they warned them about using them, “Don't use them.”

On package licensing, if the Court please, there is a finding against this 71 and we contend that finding is clearly erroneous and this is the reason.

We say it's erroneous because this Court has to construe the agreement, the agreements which they enter into and a proper construction of that agreement is that respondent licensed under all of its patents, now, this phrase, "pertaining to and covering methods and apparatus used in airless electrostatic spray coating."

Now, that is regardless of whether those patents apply to the particular system being leased or not.

Justice Hugo L. Black: May I say -- ask you, this -- you refer to this letter on page 283, volume 3?

Mr. W. Donald Mcsweeney: Yes, Your Honor.

Justice Hugo L. Black: That letter says, in the second paragraph that, "However, the prospective customer should wish to use equipment other than ours, it would not be contrary to our policy."

You -- I understood we're referring to that to show that it was their policy to refuse to let people have licenses unless they use their equipment.

And it says that the second paragraph that that is not their policy.

Mr. W. Donald Mcsweeney: No.

Your Honor -- yes that's true.

That's in a letter of August 18, 1950.

I'm referring that to that letter to show, if the Court please, that there was a potentially competitive voltage pack on the market.

I referred earlier to show that -- I refer, Mr. Justice Black, to show that the sole alternative available for the airless system was only the agreement which I discussed yesterday with that restrictive language.

And for that point Your Honor, I referred to page 315 of volume 3.

We can see, we -- the record shows that they put out some bulletins to their salesmen which said -- and this is what they relied and they put out those bulletins to salesmen saying, "Competitors if they should insist, may use their own equipment."

Now, when they formed and printed and start this agreement without a provision for equipment in 1953, then that agreement was the only, the sole alternative, Your Honor.

And I refer to record page 315 for that where they say that forms numbers so and so are our current forms in the event any licensees desire a license only.

Then when you see what the enclosure was, form 437, you find that it is that agreement which is -- contains as I contend this restrictive language which drives the perspective licensee right back to Ransburg to get his equipment.

Thank you.