UNITED STATES v. SINGER MFG. CO.

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Argument of Daniel M. Friedman

Chief Justice Earl Warren: Number 438, United States, Appellant, versus Singer Manufacturing Company.

Mr. Friedman.

Mr. Daniel M. Friedman: Mr. Chief Justice and may it please the Court.

This case is on a direct appeal from a judgment of the District Court for the Southern District of New York dismissing after trial, a Government antitrust case against the Singer Manufacturing Company.

The District Court concluded that the Government had failed to prove the existence of the conspiracy charge and of the Government’s other contention with respect to a certain agreement is being an unreasonable restraint of trade have not been established.

The principal question in the case is whether certain actions taken by the appellee, Singer and a competing Swiss manufacturer of sewing machines, a company called Gegauf, by which a key patent governing the particular type of machine involved here was transferred from the Swiss company Gegauf to the Singer Company because both parties believed that Singer would be better able to enforce this patent against the common competitive enemy of both, Japanese manufacturers of sewing machines that was selling them in this country for lower prices, whether this, together with subsequent action that the two took to enforce the patent, a matter to an illegal conspiracy and combination and restraint of trade.

There's a second issue in the case which is whether a provision in the cross-licensing agreement that Singer and the Swiss firm, Gegauf entered into by which each party agreed to facilitate the allowance to the other of the broadest possible patent claims, its self-constituted and unreasonable restraint of trade.

Now, this case involves a particular type of household sewing machines, something called the machine-carried multiple cam zigzag machine.

Justice William J. Brennan: Is that it?

Mr. Daniel M. Friedman: Yes, sir.

I'll -- I'll call it --

Justice William J. Brennan: [Inaudible]

Mr. Daniel M. Friedman: No, I'm afraid not, Mr. Justice.

I can't operate a sewing machine, but the wonderful thing about this machine, the zigzag type of sewing machine is that without any particular skill by the operator, the housewife can make the most remarkable patterns, these so-called zigzag patterns.

I have --

Justice William J. Brennan: Can you sew?

Mr. Daniel M. Friedman: No, I'm afraid not.

If I could sew, if I could operate a sewing machine, I can do that.

I have here the first one, I don't know whether the Court can see it, these are some of the patterns made on the particular machine involving this case.

The Court will notice in contradistinction to the usual straight stitch, these -- there's all sorts of zigzags.

One goes up, has a die, up and down and so forth.

I also -- this is part of the record in the case, I also have another one not made on this machine but made on a more advanced Italian machine which I brought here because the stitches are much larger and also much more reliable.

And I'll hold this up to the Court, you'll notice that really quite remarkable stitches that can be done.

And under this type of a machine --

Justice William J. Brennan: Is that the Vigorelli [Inaudible]?

Mr. Daniel M. Friedman: This is one of the Vigorelli machines, an advance Vigorelli machine, not the one that was the subject matter of this particular situation.

The --

Justice Arthur J. Goldberg: [Inaudible] Vigorelli.

Mr. Daniel M. Friedman: No, we are not -- no, we are not attacking at all the arrangement with Vigorelli.

We are not attacking the cross-licensing agreement itself between Singer and Gegauf.

We are attacking the provision to facilitate the broadest possible patent claims.

We are attacking the transfer of the patent and we are attacking the subsequent actions, the latter three, the latter two and three as elements of the overall illegal conspiracy.

Justice Arthur J. Goldberg: [Inaudible] Vigorelli and Gegauf [Inaudible] --

Mr. Daniel M. Friedman: Gegauf.

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: The differences -- you mean, why we're not attacking Vig --

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: Well, I can put -- state very simply.

In the case of the arrangements with Vigorelli, it was just a cross-licensing.

It was not a transfer of the patent.

In addition to that, the -- our arrangement with Vigorelli was not in terms of an agreement to facilitate the allowance of the broadest possible patent claims.

It was an agreement merely to settle interference proceedings before the Patent Office.

And finally, the reason we're not attacking it here is we don't think there's anything in the record that establishes that the agreement with Vigorelli in anyway related to an attempt to exclude the Japanese competitors.

That's the basic reason, I believe.

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: Well, I think --

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: I think -- Mr. Justice, we think there's two aspects of the case as I shall develop.

At the point that Singer entered into the cross-licensing agreements, both with Vigorelli and with Gegauf, at this point Singer was concerned that the machine which it had been developing might be infringing these patents and it wanted to free itself from the threat of being an infringer.

It was, if I may use the phrase, this was a defensive alliance, an attempt to protect themselves so they could make their own machine, but when you get to the situation which forms the guts, if I may say, of this case, Singer shifted from the defensive to the offensive.

Singer then begun its campaign not to ensure itself protection that it could manufacture free of the threat of infringement by Gegauf but it begun this -- went -- entered into this joint program we think with Gegauf, to enable it to exclude its competitors.

Note, in the one hand, it was going against its competitors, in the -- situation which Your Honors alluded, it was attempting to protect itself.

Now, the --

Justice John M. Harlan: Can I ask you a question?

Is this a factual case that we have to -- for you to prevail, do we have to overturn [Inaudible]?

Mr. Daniel M. Friedman: I don't think so, Mr. Justice.

I don't think so.

We have, I think no basic quarrel with our opponents as to what was done in this case and my statement of the case will be based on the documentary evidence and upon the findings of the District Court.

Justice John M. Harlan: Did you accept the findings?

Mr. Daniel M. Friedman: With one or two minor exceptions.

We don't of course accept the ultimate finding that there was no conspiracy but --

Justice John M. Harlan: [Inaudible]

Mr. Daniel M. Friedman: With one or two minor exceptions, we do accept the findings, but we think that findings and the undisputed documentary evidence point to the contrary conclusion to that reached by the District Court.

Now, I --

Justice Arthur J. Goldberg: Let's assume [Inaudible].

Mr. Daniel M. Friedman: No, Mr. --

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: No, Mr. Justice.

If that were all we had in this case, we wouldn't be here.

We recognize of course that what a patent gives you is the right to exclude, that's what the patent law say a patent did.

Justice Arthur J. Goldberg: You may buy another.

Mr. Daniel M. Friedman: And you may buy another patent and presumably, when you buy another patent, one of the things you are buying is the right to exclude.

We recognize that and if all we had in this case was that Singer acquired the Gegauf patent and it did it because it wanted to use it against the Japanese, we would not contend that applies.

But we contend here that we are far more than that.

We don't just have, as I shall develop, the simple purchase in sale, a simple transaction.

Here, we think here, a joint program.

Here, we have a series of relationships between them, all directed to this common aim.

Now, I'd just like to indicate briefly since there would be some discussion here as to precisely what is involved in this case.

This thing that I hold before me, this model, is a model of the key mechanism involved in the patent of this case.

This is the multiple cam device.

The Court will notice that there is on this side of the device a series of metal discs or cams, and the outside of each one of these has different protrusions of different sizes and different shapes.

There's also attached to this a little finger-like called a cam follower which can be moved from one cam to the other.

As this revolves, the cam follower bounces back and forth following the configurations of the cam.

And this movement is transmitted by a mechanism to the needle.

And the result of this is that as the cam goes around and it's transmitted, the needle, while it's going up and down at the same time is moving laterally back and forth.

And that's how the zigzag stitches are made.

It goes in effect like this, up and down.

And the beauty of this device is this machine carried the cams, all being together here that the housewife may select a large variety of patterns by the simple expedient of turning dials and selecting one cam or the other.

And there shall here before the Court, this is a model of the machine.

The cams are in here and now they can see it.

In here, it's transmitted to the needle here which goes up and down, and with zigzags from side to side laterally as the cloth is going through.

Now, the Singer Company at the present time is the sole American manufacturer of this multicam machine-carried machines and --

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: With one -- with one minor exemption, yes and this particular type of machine in the year 1959 represented about 45% of Singer's total sales of household sewing machines in the United States, roughly about $45 million.

Now, before turning to the facts, I would like to discuss one matter which in a sense is lurking in this case.

Singer makes a great deal of the fact that in the sewing machine industry, the Japanese manufacturers have made a remarkable achievement in getting into the American market.

It points out that the Japanese have been vigorous competitors, that they have now gained a major share of the American market.

That they are undercutting prices and that other manufacturers in America of sewing machines are going out of business.

And from these facts, Singer suggests that what it did was permissible here because it was done to protect an American industry.

As it puts it in these circumstances, any restraint it imposes is not an unreasonable restraint.

We think that the answer to this is that the antitrust laws do not permit American manufacturer to justify, otherwise illegal conduct because of the fact that this is done to protect it from foreign competition.

The Sherman Act permits as designed to protect both domestic and foreign competition.

And if in fact, as a matter of national policy, it is considered desirable that some steps should be taken in order to protect this American industry from foreign competition, this is not the way to do it.

There are other ways to deal with this problem, particularly under the Tariff Act.

It may also be dealt with -- through international agreements doing action by the Executive branch.

But we don't think the fact that the lower priced Japanese machines are making serious inroads into business of the American companies, justifies in any way what Singer has done in this case in an attempt to proceed and to stop this competition.

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: They do, Mr. Justice.

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: Oh, sure -- surely not.

Each -- we say a competitor should compete as vigorously as possible, as vigorously as possible.

If Singer is able to undersell the Japanese firm, if Singer can manufacture a better machine, the customers feel that despite their higher prices, they prefer the Singer machine as this time, we do say that this American company and its Swiss competitor cannot enter into a joint course of dealing for the purpose of using their combined power against the Japanese.

Now the -- I like now to turn to the facts of the case.

The story that we are going to tell basically fits into three phases.

The first phase involves the cross-licensing agreement between Singer and Gegauf.

The second phase involves the transfer of the patent from Gegauf to Singer and the third phase involves certain actions the parties took after the transfer.

The background of the case is just quite simple.

In late 1955 and early 1956, Singer Company had pending before the United States Patent Office an application basically the four gadgets that I've shown the Court earlier covering machine-carried multiple cams which it hoped would be granted and which will protect this machine which had already developed and which was then in the process of towing up to manufacture.

In 1955, it had settled certain patent disputes with the Italian firm, Vigorelli, by entering into a cross-licensing with it.

And it had reason to believe that its patent application which is known as the Harris patent would have priority in the United States over the applications filed by other manufacturers.

In January 1956, it learned to its great consternation that the Gegauf Company had on file a patent application in the United States which had a priority date, nine days earlier than the Singer application.

And it was of the view that if this matter came to a head, the chances are that Gegauf would prevail over it.

It was afraid that -- it was informed that its application was ready for issuance and it was afraid that when the patent office came to examine its application preliminary to issuance, they would quickly discover that the Gegauf patent was also pending, covering the same invention.

And that they would then be what the Patent Office describes as an interference proceeding which is a proceeding by which the Patent Office determines which of two competing applicants for a patent claim is the first inventor and therefore entitled to the invention.

And it was afraid as I've indicated that it would come out second best in this conflict with Gegauf.

Justice John M. Harlan: Well, what year was this?

Mr. Daniel M. Friedman: This was early in 1956.

In January -- it found out in January and it therefore decided to seek a cross-licensing agreement with Gegauf which would free its machine from the threat that Gegauf might ultimately obtain a patent which would cover this machine.

And in April of 1956, the cross-licensing agreement was signed.

In a contemporaneous memorandum written by Mr. Waterman, the Vice-President of Singer who conducted the negotiations with Gegauf explaining why this agreement was entered into, he made the following statement, page 10 --

Justice John M. Harlan: [Inaudible]

Mr. Daniel M. Friedman: -- on page 1062, Mr. Justice.

As --

Justice John M. Harlan: [Inaudible]

Mr. Daniel M. Friedman: The second in the sum -- I'm sorry, in the second volume.

It's Government Exhibit 24 and it's this first full paragraph on page 1062 in volume 2.

Mr. Waterman said, Gegauf's big fear is that the Japanese machines coming into the United States will be sold at a lower price than his machines will be because of their low price labor.

I think its fear is well founded and we did not do anything to cause them to be other than along the line that he was thinking.

Because one of the strong points of our argument for an agreement between our two companies is in order to fight against this Japanese competition and they're building a machine that in anyway reads on the patents of ourselves and of Bernina and Bernina, I might add is the trade name for Gegauf which are in conflict.

In other words, he emphasized that the purpose of the agreement was in order to fight against this Japanese competition.

Then down at the bottom of page 1063 in the top of 1064, Mr. Waterman also told them that Singer was prepared to fight with them, they're going to litigate with them if they didn't reach an agreement and as he said that, we left them no doubt that we're going to offer objection to the issuance of their patents, not only in the United States but in other countries where they have pending applications.

And we let them know that we thought we could knockout their claims, but then in so doing we were probably going to get hurt both of us.

The result of this was the cross-licensing agreement which is set forth in the following two pages of the record 1066 and 1067.

The actual cross-licensing agreement itself which we are not attacking is set forth in paragraphs two and three, and it took the form of an agreement by Singer and Gegauf not to attack each other on the basis of the patents listed in the agreement, which included the Gegauf patent application to Harris and certain others.

In addition to that, and we are attacking paragraph one of the agreement, contains two sentences.

In the first one, Singer and Gegauf agreed not to do anything, which might restrict each other's claims in any country relating to the subject matter of these patent applications.

And the second paragraph, each undertook in accordance with the laws and regulations of the Patent Office concerned to facilitate the allowance in any country of claims as broad as possible as regards the subject matter of the patents and patent application referred to above, in other words, not just these particular patents but the subject matter, the whole subject matter of this machine-carried multiple cams.

Now, at the time this agreement to facilitate the allowance to the broadest possible claims was entered into, Singer and Gegauf, as far as this patent is concerned, were merely applicants.

They didn't have this patent.

At this time, the Japanese of course were not infringers of any patent and Singer, Gegauf and the Japanese all had the equal right to sell this machine in the United States until any patent issue.

Necessarily, any broad patent which would issue, as a result of this agreement, would define the scope of what conduct the competing Japanese might engage and the broader of the patent, the greater the likelihood of course that more and more of the Japanese machines would turn out to infringe this patent.

And the agreements that they made to help each other in obtaining broad patents, we think, must be considered in the light of the statement which I have just read to the Court, that the reason -- one reason for this agreement was to fight against the Japanese competition.

Now, we think that the purpose of this provision is very plain.

Each of these people was concerned about the Japanese competition they wanted to insure that one or both of them would get the broadest possible patent which would be the most effective method for opposing the Japanese.

Now, at the time the that Singer entered into the cross-licensing agreement, the record shows that it gave consideration to purchasing the Gegauf patent, decided not to do it, however, for various business reasons.

The following week, Singer met with Vigorelli with whom it had entered into a cross-licensing the year before and they had a conversation with Vigorelli's lawyer, who asked them what the patent situation was in the United States and they told Vigorelli that they'd entered into this cross-licensing agreement but they're going to have a terrible time they thought Gegauf would have a hard time enforcing it.

And they indicated to Vigorelli's lawyer that they thought they could do a better job in enforcing this patent and Gegauf could.

Vigorelli's lawyer asked whether they would have any objection to passing this information on to Gegauf, Singer replied he wouldn't but they wanted to be sure it didn't appear that it was coming from Singer.

And Vigorelli's man said, “Don't worry about that” and this information was passed on to Gegauf.

That was in the Spring of 1956.

That summer, Mr. Gegauf's son came to the United States on a visit and Singer had a conference with him.

And young Mr. Gegauf expressed to Singer his concern that he had seen a great many Japanese sewing machines in the United States.

Singer in turn pointed out to young Mr. Gegauf that in view of the large number of importers, it would be very difficult for Gegauf to enforce this patent effectively against these Japanese machines and he asked -- Singer people asked young Gegauf whether he thought his father would be interested in selling the patent to Singer.

That was in the summer of 1956. Early in September, Gegauf wrote to Singer in response to this suggestion, and this letter is set forth at page 1079 of the record again in volume 2.

It's a short one page letter marked “confidential” in which after thanking the Singer Company for the courtesies they had shown to Mr. Gegauf, the last paragraph, Gegauf stated, “We agree that something should be done against Japanese competition in your country and maybe South America and therefore looking forward to your early reply.”

Within two days, Gegauf indicated that this was what they had in mind in the next page of the record at 1080, Singer replied -- I'm sorry, Singer replied to Gegauf, “We do believe it may be possible that we can both strengthen our positions with respect to the Japanese competition which you mention and I hope that we can again meet and discuss our respective situations.”

They did have a meet --

Justice William J. Brennan: May I ask you, [Inaudible] among these competitors to put the Japanese competition [Inaudible] in an effort to broaden the patent to make it more difficult to the Japanese competition for the possible infringement by Japanese?

Mr. Daniel M. Friedman: No, I think it's somewhat different than that, Mr. Justice.

Our theory is this, that there was an overall conspiracy, concerted action that these two competitors embarked in a common course of conduct, the purpose of which was to eliminate the Japanese competition.

What they did, what they did --

Justice William J. Brennan: Overall conspiracy -- this overall conspiracy independent of the patent.

Mr. Daniel M. Friedman: Yes -- indep -- no.

The conspiracy related, I would say, to eliminating the Japanese by the use of the patent.

Justice William J. Brennan: [Inaudible]

Mr. Daniel M. Friedman: The needs.

Justice William J. Brennan: To affect an overall conspiracy [Inaudible] --

Mr. Daniel M. Friedman: Well, I -- no, no.

To put it back -- put to -- to handicap in as much as possible as to this -- as to this machine.

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: No.

That would not, but --

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: Pardon?

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: Well, I say that all of the circumstances have to be looked at.

I would suggest Mr. Justice another, another analogy which we think would be a violation of the Sherman Act.

If Singer came to Gegauf and said, “We are both concerned with the Japanese competition and something ought to be done about it.”

And Gegauf said, “Yes” and Singer said, “Well now, look, you've got a better patent than we have but you don't -- just can't enforce it.

Why don't you give it to us so that we can enforce it?”

And Gegauf said, “Well, that seems like a splendid idea.”

We've got some problems but they finally negotiated the thing out and then Gegauf -- Singer did enforce it and Gegauf cooperated in this enforcement and we think it -- when they did that, and I think that's what this record shows --

Justice Arthur J. Goldberg: Well, if that is the importance of the record here.

Does this record say that [Inaudible] the purchase of this patent, you don't deny that [Inaudible] --

Mr. Daniel M. Friedman: That's right.

Justice Arthur J. Goldberg: And Gegauf is trying to get the best price he could and then bargain [Inaudible] --

Mr. Daniel M. Friedman: Yes.

Justice Arthur J. Goldberg: [Inaudible] isn't that correct?

Mr. Daniel M. Friedman: That is -- but I have to end -- I say that that is -- that is correct but that is only part of the story I think, Mr. Justice.

Justice Arthur J. Goldberg: [Inaudible] and what Singer does to help Gegauf [Inaudible] --

Mr. Daniel M. Friedman: Unless to the -- not unless to the -- infringed on -- in restraining American trade but if co --

Justice Arthur J. Goldberg: [Inaudible] arrangements between Gegauf and Singer relating to Singer's [Inaudible], it might restrain business in Europe [Inaudible] --

Mr. Daniel M. Friedman: That would -- that's correct.

But Mr. Justice, I have to emphasize and this is I think the key to the case, when Singer was able to persuade Gegauf to sell the patent to it, he spoke of bargaining about the price but the lever that Singer used to persuade Gegauf to sell was that it was to Gegauf's interest to have the patent in Singer's hands to enforce it against the Japanese.

I would like to emphasize precisely what happened.

Justice William J. Brennan: May I ask – I gather [Inaudible]

Mr. Daniel M. Friedman: Well, does the ultimate finding -- of course, that there was no conspiracy.

Justice William J. Brennan: But if there was -- there was -- was there a finding [Inaudible]?

Mr. Daniel M. Friedman: I tell -- may I -- I think I can fairly state what the District Court held here.

The District Court held that each of these agreements contained the whole understanding between the parties.

The Court also held that there was no agreement at the time of the transfer of the patent that Singer would use it against the Japanese.

He said these people had an attitude of hostility and suspicion.

They bargain out at arm's length and they did nothing improper.

Justice William J. Brennan: [Inaudible] you accept that --

Mr. Daniel M. Friedman: We didn't think -- we think we can accept that Mr. Justice because we think that even without any express agreement that what they did here did amount to putting together a combination in conspiracy in violation of the Sherman Act.

There's no need for an express --

Justice William J. Brennan: Relates in one way to the Japanese [Inaudible] --

Mr. Daniel M. Friedman: Related to the Japanese --

Justice William J. Brennan: [Inaudible] that there was no actual conspiracy to --

Mr. Daniel M. Friedman: That's --

Justice William J. Brennan: [Inaudible]

Mr. Daniel M. Friedman: That's correct and our answer to that, Mr. Justice is that the facts, the facts, the undisputed facts as shown by the documents and as found by the District Court, do show a conspiracy as a matter of law.

Justice William J. Brennan: [Inaudible] that would reject it.

Mr. Daniel M. Friedman: Of course, of course, but that we think is a question of law, Mr. Justice.

That's a question of law and not a question of fact as to which the findings are supportable, sustainable unless clearly erroneous.

I'd like to come back as to --

Justice John M. Harlan: The master issue in this case surely is the purpose of these arrangements, isn't it?

Were they entered into for the purpose of restraining trade or were they entered into for legitimate purposes to protect the patent position of the Singer Company?

Mr. Daniel M. Friedman: That I think --

Justice John M. Harlan: And your findings of the District Court are against you on that and I don't yet understand how you can escape the District Court's findings and accept them and still argue your case [Inaudible]

Mr. Daniel M. Friedman: Well, we are -- we do not accept the District Court's finding that this was a perfectly legitimate business arrangement.

We do -- we do not challenge the finding that there was no agreement, particular, specific agreement between the parties not expressed in a written docu -- relationships they entered into.

We say that you don't have to have such an agreement with the joint course of conduct which they entered into in order to go against the Japanese as enough as a matter of law to establish a violation of the Sherman Act.

I'd like to just refer to the basis, to the arguments, the way in which Singer was able to persuade Gegauf to sell the patent to it.

We start with a year after they had held their first meeting in October at which Singer was unwilling to pay the $250,000 that Gegauf had requested.

There was a series of letters in which suggesting that now -- that the Gegauf patent had issued -- I'm sorry, now that the patents were about to be issued and that the interference had been settled, it would be appropriate to discuss mutual enforcement of the patents.

And throughout these discussions, the argument that Singer made against the transfer and in -- I'm sorry, the argument that Gegauf made, against the transfer and in support of its high price was two-fold.

First, it said, “We can get a lot more than the $125,000 we're asking by licensing this patent.”

Singer's reply to that was, “Don't look at this as though -- treat this as though this is just the money you're getting out of this.

Look at this as insurance.

Look at what we're doing for you.”

Secondly, Gegauf suggested that if Singer did get the patent and that if Singer did enforce it against the Japanese in the United States, all that this would do, would be to drive the Japanese to Europe.

And that in Europe, this would be down to Gegauf's detriment and Singer against it on the contrary, on the contrary, we will be able to give the Japanese such a blow in this country by enforcing our patent against them, you won't have to worry about that.

And as the District Court found in this case that Singer continued to drive home the point that Gegauf stood to benefit more by enforcement of the patents in the United States and it stood to lose because the possible danger of the Japanese coming to Europe and the sale was made.

Now, we think that when these negotiations are looked at in the light of the undisputed documentary evidence and what the Court found, several things are clear.

First, there can be no doubt that Gegauf was induced to sell the patent to Singer and at this price below what they were asking because Singer convinced Gegauf that Singer would be better able to enforce this patent against the Japanese than Gegauf and it was to the mutual interest of both of them that Singer should do it.

It's also we think quite clear that even though there was no expressed agreement by Singer to enforce the patent against Gegauf that both of them understood that this was precisely what was going to be done, there was no need to enter into any agreement on the part of them that Singer would enforce the patent.

This was the reason that Singer made quite clear they wanted to purchase the patent and this was the argument it used in inducing Gegauf to sell it to it.

Justice Arthur J. Goldberg: And then Singer would be entitled to [Inaudible] would it not, the license of the Japanese now [Inaudible].

Mr. Daniel M. Friedman: I would think it would be under the terms of its agreement.

I think that Gegauf would be terribly disappointed.

Justice Arthur J. Goldberg: You'd think that this is only what?

There would be no agreement [Inaudible] --

Mr. Daniel M. Friedman: It would be contrary to the basic whole plan of the arrangements between the parties, indeed Mr. Justice.

Justice Arthur J. Goldberg: While you're pointing the fact that the inducement [Inaudible] an equal sense quite not to do it?

Not that -- likely the Japanese?

Mr. Daniel M. Friedman: Well, I think it was the clear implication not alone was the purpose of this thing weren't going to license the Japanese.

The purpose of this whole course of conduct was to go against the Japanese.

Indeed, I think it's significant but after the agreement was entered into and the patent was assigned, Singer licensed Sears Roebuck to import a machine from Germany and Sears -- they did it because Sears was a good costumer, and Sears paid Singer substantial royalties.

And when Gegauf found out about it, it wrote to Singer complaining because they said, “Why did you license this other German firm, maybe Sears would have taken from us, you should have given us the opportunity to get that.”

And that --

Justice Arthur J. Goldberg: That then violates the agreement, as I take it?

Mr. Daniel M. Friedman: I think no.

I don't think there was -- had been any agreement for breach of contract they would have at length but it certainly violates the whole spirit of the relationship between them and the purpose which they entered into this.

I'd like also to invite the Court's attention to a letter that Gegauf wrote to Singer in the summer of 1958 at page 1128.

This was after the patent had been assigned after it had issued and after Singer had brought the first infringement suit against the Japanese.

And in this letter, Gegauf in telling about some discussions he had with the firm called Pfaff, which had been allowed to be licensed under the assignment agreement said about the next to the last paragraph, halfway down, in these discussions with Pfaff, “I did not mention of course that you intend to proceed against the Japanese on the basis of your patents and ours, what happened already in the meantime.

According to my opinion, the Japanese can be hit only if we succeed in preventing them manufacture of certain machines for reasons of patent rights.”

I said if we succeed, once again, this letter we think clearly and it shows that Gegauf was aware that Singer was planning to institute these proceedings against the Japanese, that it view itself participating in this campaign and then it was see -- saw the whole thing as a joint program, the design to protect them against the Japanese.

Now, the assignment of the patent to Gegauf to -- I'm sorry by Gegauf to Singer, was not the end of the joint cooperative endeavors of this parties.

After the patent was issued to Singer in the summer of 1958, so I've indicated Singer brought an infringement suit against the principal Japanese manufacturer which is still pending and in January of 1959, it filed a complaint with the Tariff Commission under Section 337 of the Tariff Act.

That's the provision of the Tariff Act which permits the Tariff Commission to recommend to the President and the President to bar imports into this country where the importation of articles in commerce results in unfair competition or in unfair acts to the detriment which will result in destroying or substantially eliminating an industry efficiently operated in the United States.

The purpose of this proceeding, the complaint before the Tariff Commission, requested the President to issue an order barring from the United States all infringing machines which violated the so-called Gegauf patent which Singer now had.

And while it's true that it sought relief against all infringing machines which under the theory of the case would have to do before the statute, the District Court found that in bringing this proceeding, Singer had been motivated by the deluge of infringing Japanese imports and that the principal threat of Japanese machines came from the Japanese import -- I'm sorry, principal threat to the Singer machine came from the Japanese imports and not from European production.

Now, during the course of this proceeding, the Tariff Commission raised the question with Singer whether in view of the provision in the agreement for the transfer of the patent which reserved to Gegauf the right to license this German firm Pfaff, whether in fact Pfaff had been licensed because the Tariff Commission takes the position it will not direct exclusion of a foreign product if in fact the American manufacturer is permitting licenses under the patent.

Singer told that it hadn't been, but Singer was afraid that this answer was not convincing to the Tariff Commission.

So Singer wrote to Gegauf saying that the only way they could satisfy the Tariff Commission, that there had been no license to Gegauf, was to delete Gegauf's name from the agreement.

Gegauf wrote -- I'm sorry, to delete Pfaff's name from the agreement, Gegauf wrote back that it was agreeable to help Singer as much as possible in its fight in the United States, imposed a condition that wanted a certain guarantee of immunity from Singer, which Singer reluctantly gave them and then the agreement was signed deleting the reference to Pfaff.

And the last document I'd like to refer the Court to, is at page 1206 of the record, paragraph number four of that document.

This was an affidavit which Gegauf executed contemporaneously with the signature of the agreement, which deleted Pfaff's name from the assignment and it shows we think beyond any question that Gegauf and Pfaff was still -- Gegauf and Singer were still cooperating in this campaign against the Japanese.

To read -- the language reads, “at the request of Singer and for helping them in their fight on the United States market against foreign competitors, I have today signed this contract.

” Now, I've indic -- already indicated our basic theory of the case on this issue.

The Sherman Act requires that each competitor compete on his own.

The competitors cannot join hands, cannot combine forces against a common enemy.

I think this Court put it very well in a somewhat different context in the Associated Press case when it stated that the Sherman Act was specifically intended to prohibit independent businessmen from becoming associates in a common plan which is bound to reduce their competitor's opportunity to buy or sell the things in which the groups compete.

This principle -- this basic principle of the Sherman Act, that a competitor must act individually, was applied by the District Court in the National Lead case to hold that competitors cannot agree with each other not to license under their patents.

And we think that in this very case, the same principle requires the conclusion the when you have two competitors and have a common enemy, one competitor cannot transfer the patent by agreement with the other where the reason for the transfer is because the other competitor is better able to enforce it than the first against their common enemy and thereafter the two continue to cooperate in this joint campaign.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: Yes.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: No.

That's right Mr. Justice, because I think the basic distinction which the Sherman Act draws is between individual action by a businessman and between concerted action.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: Yes but that -- that is right but the con --

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: Pardon Mr. Justice, I think the significant point is that the concerted action in our case relates to the enforcement of the patent against the Japanese, the combining to go against the common enemy and your --

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: Well, I think in the Sherman Act, the purpose for which acts are done is very significant, yes.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: That's right because it's each and doing independently.

But when they have -- each one has let --

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: I think that is the touchstone under the Sherman Act, Mr. Justice.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: No, I think Mr. Justice, all that the District Court found was at that the time of the sale, there was no agreement then and there that they would enforce it against the Japanese competitors.

I don't read the District Court as finding that there was no -- well, he did find, we do challenge the finding and make the finding at one point that there was no unity of interest or common design.

We do challenge that.

We think that finding is contrary to the evidence.

We think the evidence unequivocally shows a common design and common character.

Justice John M. Harlan: I will turn the question around, I asked you about the purpose and motive.

What errors of law did the District Court made for each of these [Inaudible]

Mr. Daniel M. Friedman: I think the error of the District Court -- the error of law that the District Court made was that as a matter of law, this kind of concerted action by two parties, amounts to a conspiracy.

Justice John M. Harlan: Well, the District Court -- I mean you -- do you think that the District Court did not recognize that if two competitors get together to block the entry of a foreign competitor that that doesn't violate the Sherman Act?

Mr. Daniel M. Friedman: I think the District Court held that in order for that to violate the Sherman Act, something more would be required, that is an express under -- undertaking, an express agreement by Singer that it would do what the parties indicated they planned to.

Justice John M. Harlan: You mean that a conspiracy in this kind of situation has to be by express agreement rather than inferred from facts?

Mr. Daniel M. Friedman: But it -- well, it seems to be -- it seems to be the tone of the District Court's opinion.

As we read it, this seems to be the finding because otherwise, otherwise we don't see how all of this evidence, all of these joint dealings when put together can be said not to amount to an illegal conspiracy.

Justice John M. Harlan: Well, I want to be very frank with you.

My trouble is that, I think if you said it frankly that you didn't think the findings made with the District Court was supported by evidence, that I could understand, but I can't understand up today at least, how you can accept the findings of the District Court and still --

Mr. Daniel M. Friedman: Well, but this --

Justice John M. Harlan: I can't find out what your point is.

Mr. Daniel M. Friedman: We say that -- as we read the findings of the District Court, what the District Court said is, for example let's take the agreement of signing patent, the District Court said all you had was an agreement from Gegauf by which -- between Gegauf and Singer, by which Gegauf sold the patent to Singer.

He said there was no other agreement express or implied other than that set forth in the transaction.

There was no agreement by which Singer in effect agreed with Gegauf that it would enforce the patent against the Japanese.

We say that such an agreement is not necessary in the circumstances shown here to establish a violation.

Justice John M. Harlan: But it all depends upon the motive and the purpose of the --

Mr. Daniel M. Friedman: Well, we do attack -- we do attack, Mr. Justice, we do challenge defiant to the extent that the District Court found that the sole purpose here was a legitimate one, a lawful business purpose, we do attack that.

Justice John M. Harlan: Well, that's a very basic crucial finding in this case, isn't it?

Mr. Daniel M. Friedman: Yes.

Justice John M. Harlan: I mean, given that finding, unupset, can you prevail in this case?

Mr. Daniel M. Friedman: No, I suppose we have to (Inaudible) --

Justice John M. Harlan: I think you've got -- I think you've got to overturn the basic findings, that's where I started out with and I was surprised --

Mr. Daniel M. Friedman: Well, we all -- but I think the basic finding --

Justice John M. Harlan: I'm not saying that you can't do it.

I'm not --

Mr. Daniel M. Friedman: Yes.

I think the base -- to whatever extent, we have to overturn the basic finding.

The findings are very narrow findings.

This is not a situation where there are large numbers of finding.

Justice John M. Harlan: No, but it is a very crucial finding.

It's the finding.

It's the basic finding in which your position seems to me has to meet.

Mr. Daniel M. Friedman: Well, as I say, I think that on this record there's no doubt that what the purpose and the motive of this transaction is --

Justice Arthur J. Goldberg: That was your purpose or effect.

Would be enough if you're able to show that it's necessary effect [Inaudible] --

Mr. Daniel M. Friedman: I would say -- I think probably so, Mr. Justice because let me give you as an example.

I suppose the -- in the sense, you might say the effect of an agreement to sell a patent from one to the other with the determination on the part of the acquirer that he is going to enforce it against his competitors, this might be said to have an anticompetitive effect.

So, I would not attempt to argue that merely because the effect is likely to be in our competitive facts or not.

Justice Arthur J. Goldberg: You have to show a purpose.

Mr. Daniel M. Friedman: I think so.

I'd now just like to turn to the second aspect of this case which is the validity of the provision in the cross-licensing agreement by which Singer and Gegauf undertook to facilitate the allowance in any country of claims as broad as possible and as I say, we think this agreement -- this provision was not only set the stage and has the beginning of the conspiracy but also itself for the illegal restraint of trade.

I just --

Justice Arthur J. Goldberg: How can this differ by the noninterference?

Mr. Daniel M. Friedman: Well, I'd like to come to that, Mr. Justice.

This in effect, as I take it is an agreement that they will not in any way fight each other in the interference.

Now, the nature of an inter --

Justice Arthur J. Goldberg: And that is the --

Mr. Daniel M. Friedman: Pardon?

Justice Arthur J. Goldberg: Would you think [Inaudible] --

Mr. Daniel M. Friedman: I'm not -- I'm not -- I don't understand you.

We don't contest the validity of agreement not to -- well, I think it depends on the circumstances which I'd like to come to.

In the normal practice in an interference proceeding is after an examiner has determined that the claim which is sought is patentable, a preliminary investigation.

He then searches the file to see if any other claims are on issue for the same invention and if he concludes that two inventors have claims pending the matter is put it into interference and the purpose of the interference proceeding is to determine who is the first inventor and entitled to the invention.

Now, if there's no issue as to the validity of the patents as to their scope, there's obviously no strong public interest in determining which of the two inventors gets it and indeed in that kind of situation, it's in the public interest we think to settle these disputes before the Patent Office.

But under the practice before the Patent Office, when an interference is declared, the junior applicant for the patent not only may attempt to show that the senior claimant, the one who has filed first has in fact -- in fact is not the inventor, he may attempt to attack the patent of the senior claimant.

He can contend that the patent is too broad or he can contend that it's invalid.

Now, the significance of the latter is two-fold.

From his point of view, this means, if he doesn't think he can prove he is the inventor, if the patent is invalid he at least can prevent the man who has priority of invention in keeping him from patenting the invention.

But from the point of view of the public interest, this is far more important because this is one of the few checks that exist under our Patent Office procedure against the issuance of unduly broad or invalid patent.

Most Patent Office procedures are ex parte.

The Patent Offices that are well-known, the patent examiners unfortunately are over worked.

They do the best job they can, but I think the Court knows that the very large number of patents that after preliminary inquiry had been issued by the Patent Office have been subsequently invalidated by the courts.

Now, in this case, we think that when parties to a proceeding before the Patent Office, at a time when the interference hasn't even been declared, get together and agree that they will facilitate and help each other in obtaining the broadest possible claims.

And I'm not saying parenthetically there is a question in this case as to the District Court held that the only provision which applies in the United States is the second sentence of the first paragraph which I think my adversary is going to stress and the first one doesn't but we don't think this makes any difference because we think that an agreement to facilitate the allowance of the broadest possible claims necessarily also covers the obligation in the first sentence of not restricting the claims of the others.

And I will -- I will just also mention in passing because he may stress this that they made a claim that we have waived any attack on the first -- second sentence of the first paragraph.

We deal with that in our brief, but let me come back to the thing that we think is the basic vice in this situation.

When you have an agreement by which two applicants before the Patent Office, two people whose claims are pending and where the interference hasn't even been declared and they agree with each other that each will facilitate the allowance of the broadest possible claims to each other, this necessarily can lead to the issuance of broad claims that are illegal and I think I can demonstrate this graphic dramatically by the very facts in this case.

Let met tell the Court what happened; at the time that this agreement was entered into, the Patent Office had notified both of the parties that the claim of each of them was ready for interference and suggested a particular wording of a claim, this is the Patent Office practice for interference between them.

Each of them had accepted the claim and this is obviously the claim they had reference to when they stated -- recited in the agreement that interference proceedings were about to open.

After the agreement was entered into, two weeks afterwards, the Patent Office itself advised these people that the claim that the Patent Office had proposed was too broad.

It was too broad because the Patent Office had discovered an earlier patent which in fact covered this invention.

An earlier patent, it had not previously discovered that it had been issued in 1912 and what the Patent Office did and said in view this earlier patent, we now suggest a much narrow -- a narrower claim which the parties then accepted.

Now, if the Patent Office had not had the good fortune to turn up this 1912 patent in its search, the inevitable effect of this agreement is that this invalid patent would presumably have issued.

This Court stated in the Precision Instrument case that applicants before the Patent Office have an uncompromising duty to report to it all facts concerning possible fraud or inequitableness underlying the applications and issues.

And we think it's a violation of that uncompromising duty when two applicants for a patent whose claims have not even put in interference, agree at the outset that they will do everything to facilitate the allowance of the broadest possible claim.

Justice John M. Harlan: Was there evidence that there was suppression of some kind here as a result of this agreement?

Mr. Daniel M. Friedman: No, no.

Mr. Justice, there was no evidence of any suppression in this case, but we think that the --

Justice John M. Harlan: The agreement has a tendency to further that --

Mr. Daniel M. Friedman: That is correct.

Justice John M. Harlan: That's your point.

Mr. Daniel M. Friedman: That's why we're attacking the agreement because we think this is the inevitable and the likely consequence of such.

Justice Arthur J. Goldberg: [Inaudible]

Mr. Daniel M. Friedman: Yes, and we think all that that means, Mr. Justice is that since it referred to more than one country that in doing this, they would observe the requirements of the particular country's Patent Office involved.

I'd like to reserve the balance of my time.

Chief Justice Earl Warren: You may.

Mr. Pettit.

Argument of Arthur E. Pettit

Mr. Arthur E. Pettit: Mr. Chief Justice Warren, and may it please the Court.

I'm not sure whether there is a clear concept of what this case is all about.

I like to stress at the very beginning that it involves fundamentally one thing and one thing only and that is the acquisition and enforcement by Singer, Gegauf patent number one, a patent which covered machine which it invented, developed, manufactured and sold and there is no other element that's involved here now.

This case started out and the Government started it.

It alleged that there were of course agreements and understandings outside of the written agreements.

It alleged that these agreements and understandings were made to Vigorelli and Gegauf.

It alleged that the agreements were to have transferred from Gegauf, two Gegauf patents to be used in combination with three Singer patents against the Japanese and the Japanese only and there was a complete pooling charge.

Now the Government has lost on every single issue.

The trial court found and after, you can see a very extensive examination, that there was no agreement or conspiracy of any kind, no agreement or understanding made in connection with anyone of the three acquaintances.

It was not as counsel stated that the trial court found that merely in connection with the assignment agreement.

There was no outside agreement.

It found in respect to the Vigorelli license agreement, in respect to the Gegauf license agreement and in respect to the Gegauf assignment agreement.

In each instance separately, it found that there was no understanding or agreement of any kind between Gegauf and Singer as to the use of the patent, whether it would be licensed, whether it would be enforced or anything whatever to do with Singer's use of the patent.

Justice John M. Harlan: How long does this case take the charge Mr. Pettit?

Mr. Arthur E. Pettit: 22 days it occupied; there are over 900 exhibits.

The counsel before the trial court occupied at least 19 sessions and I think more in pre -- pre-trial conferences.

It sat in on the drawing of stipulation which occupies a very substantial number of pages in this record.

The counsel marked at the directions of the court, every single letter and submitted it.

They crossed mark them.

Government counsel marked in red, defense counsel marked in blue, every single line that was considered significant by either party in any document.

Those documents were submitted to the trial court.

They were argued for nine days and I can assure you there's no significance that any counsel connected with the case thought there was in any of those documents that was not called to the attention of the trial court.

There's been probably as exhaustive and as careful an analysis of all the documents, as it's possible for a trial court to give to a case.

It had also before it the testimony of the chief and principal negotiator who attended every conference who is not Mr. Waterman as stated by Mr. Friedman but was Mr. Stanford, a counsel and a patent counsel.

He attended every single conference.

He was on the stand for a large number of days and was cross -- cross-examined handling by the Government.

On the basis of all these testimony and of all of this experience, the trial court found not only that there was no agreement and no conspiracy.

It used the word that it had no significance except respect to the depth of its feeling.

Having found in several occasions before that there was no agreement of any kind and no understanding it came to a point later where the Government is trying to relate a provision in the agreement to an underlying conspiracy to pool patents.

The trial court said, “This is probably the fourth time it came to it, we have before found that there absolutely was no agreement or conspiracy.”

Now, obviously, it absolutely doesn't add much except as a matter of feeling because if there was no agreement or no conspiracy, there was none.

But when the trial court in this opinion after stating several times, says, “Absolutely, no agreement or no conspiracy”, you know the intensity of his feeling with reference to all of this testimony.

I do not deem that it's possible to read the record in this case or read the statement of facts that we prepared without coming to the same conclusion because there just literally is nothing to the Government's case in any respect.

Our -- I'm sorry that our brief is so long but after all this phase covered a period of four years.

It involved not only the three contracts between Singer and Gegauf, it involved a cross-license agreement with Vigorelli, with Mr. Smith, license agreement with Sears and many other agreements.

All of these had to be gone into in addition to many other considerations for the purpose of determining the attitude, purpose, intent of these parties in dealing throughout.

Now, the Government would have you believe that the trial court was under the impression that if it found that there was no agreement, that that settled the case.

Then we'd have another Parke-Davis case where the trial court was under the impression that if there was not an agreement, it settled it, and there could be no conspiracy and no combination without it.

The trial court to the contrary, went into every single argument that the Government put up, trying to show that even outside of the agreement, there were a -- or was a what you would call a combination or a conspiracy between these two parties to get to a particular result.

The court spent pages on it and you can find it and I can cite in the reference to 1693 and 1694, 1705 to 1740, are literally pages of the Court's opinion dealing with various facts that the Government raised in trying to show that there was a concerted action, unity of purpose, common design.

There was hardly any combination of words that could be used, that the Government didn't use in this case because it soon found that it was hopeless to find any agreement, whatever, between Singer and Gegauf.

The trial court made the very express finding that there was no common purpose and no unity of purpose here, whatever.

And it found that the sole purpose and Singer's sole interest in acquiring this patent was to protect its own product.

Now, if I may just add one word so we could bear with it and I want to point out that nothing is involved in -- with respect to the restraint of any trade whatever other than a sewing machine that infringes Gegauf patent number one.

There's no -- there's no argument.

There's need no allegation now.

There's no contention, whatever, that the purpose was to exclude other machines.

The phrase has been used.

They use it through their brief frequently, Japanese competitors, but when it's analyzed, it is always in reference to Japanese competitors selling infringed sewing machines.

Print this transcript Transcript: 

Argument of Arthur E. Pettit

Chief Justice Earl Warren: United States, Appellant versus the Singer Manufacturing Company.

Mr. Pettit, you may continue your argument.

Mr. Arthur E. Pettit: Mr. Chief Justice Warren, may it please the Court.

I would like to make clear one point concerning the defendant’s intention that maybe this need not be done, but I want to make sure.

Mr. Justice Harlan asked Mr. Friedman on Friday whether it was the government’s contention that the Trial Court did not realize that an agreement could be implied from the facts.

Mr. Friedman answered that that seemed to be the tone of the opinion and I think even affirmatively said, yes.

But after another question, he corrected that and he stated that the Trial Court had found that there was no express agreement and that there was no implied agreement.

The government accepts these findings and there is therefore no contention from the government in this case that the Trial Court overlooked the possibility of inferring an agreement from the facts.

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: I said before the Trial Court and I say here with pleasure that Singer wished to obtain this patent in order to enforce it.

It had obtained an order to enforce it and having obtained it, it has tried to enforce it.

Its every purpose was to obtain this patent and by the use of it, exclude machines infringing that patent.

No other machine, no other competitor, only those who are dealing in infringing machines.

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: That's correct.

There had never been any question on that from the beginning.

I stated that at the opening of the trial and I state it here.

Now --

Justice Byron R. White: Mr. Pettit isn't it true that the Gegauf patent dominated the Singer patent for multicam machines?

If you have not -- if Gegauf had wanted to that they had stopped you from making your multicam machines?

Mr. Arthur E. Pettit: Yes, indeed.

That was the whole trouble.

The Gegauf patent was as Mr. Friedman said nine days ahead of Singer's Harris patent and it discovered this during negotiations with Vigorelli.

It was therefore in the position in which a machine which it had itself invented, developed was producing and selling could be excluded by Gegauf from the United States market.

Justice Byron R. White: But he first got a license.

Mr. Arthur E. Pettit: That's the first thing that they did, was to –-

Justice Byron R. White: Was this a renewable license or a perpetual license?

Mr. Arthur E. Pettit: Complete license for the life of the patent.

Justice Byron R. White: Was that license --

Mr. Arthur E. Pettit: So once that agreement was made, Singer had a license under which it could operate for the duration of the patent.

Justice Byron R. White: So it is true then that the acquisition of the patent was motivated by another purpose other than to --

Mr. Arthur E. Pettit: To be able to manufacture, yes indeed.

The purpose of the acquisition was to protect the Singer's machines.

Justice John M. Harlan: Was it an exclusive or non-exclusive?

Mr. Arthur E. Pettit: It was a non-exclusive license.

And Singer had cross-license, they cross-licensed their respective patents.

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: No, I did not --

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: White, yes.

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: No, White is a company that formerly manufactured it in the United States and it went out of business because of manufacturing, because of the influx of the Japanese machines.

It now buys these machines from the manufacturers in Japan and distributes them in the United States.

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: It would.

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: Well, I of course do not know what this particular machine that they're advertising, but they have of course been importing, did import during these years infringing machines.

There are machines that are multiple-cam machines that are not infrangible.

Unknown Speaker: That's not infringing.

Mr. Arthur E. Pettit: Certainly.

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: And I would like in connection with that to just give a little background on this.

Immediately or say in 1947, the Japanese imported no sewing machines into this country.

And before the war, they had imported none, one year one machine another year one machine.

But few imports they had, had been to countries adjacent to Japan, they were imports into those countries.

They started with none in 1947 and by 1959; they were importing 1,100,000 machines per year.

The affect of that was utterly disastrous to the sewing machine manufacturing industry in the United States.

When it started, there were seven manufacturers in addition to Singer.

When 1959 arrived, there was not one single manufacture of sewing machines left in the United States.

Singer alone survived with one minor exception of a company that manufactures for a particular company on specifications, but does not manufacture to sell Gegauf.

With that exception, every single manufacturer had been put out of business by this competition.

Now I think that the purchase of this patent must be viewed in that light.

Singer survived it, but it survived it solely because it was so well established, so big and had such resources that it could survive this delegate.

It's percentage of the market went down from -- by competing -- I'll get to the exact figures here, if I may, just one minute from -- they went down from 57% to around 30%.

Their manufacturing of machines, their portion of the market also went down the same way in the manufacturing in the United States.

They resorted to bringing in machines from abroad to a very large extent, bringing in as many as 193,000 in one year.

Now it has survived that and it has come back to a certain degree, but not to what it was and as of the last year, the Japanese had over 60% of the sewing machine market in the United States.

Justice John M. Harlan: Of course, the government will argue that while that maybe very unhappy, that's what the Sherman Act permits and is intended to accomplish?

Mr. Arthur E. Pettit: That is correct, but it also -- my answer to that would be, that it is intended also to permit companies to use reasonable means to protect themselves in their own business.

Justice John M. Harlan: Well, I'd like to ask you a question as to that.

Am I correct in understanding that the District Court found that other than these patent arrangements there is no a collateral understanding and no arrangement, formal or informal, between Gegauf and your clients to keep these Japanese machines off the American market?

Mr. Arthur E. Pettit: That is correct.

It found it expressly and several different times.

It said that there was absolutely no agreement, no conspiracy, no arrangement of any kind between Singer and Gegauf and that --

Justice Arthur J. Goldberg: [Inaudible]

Mr. Arthur E. Pettit: There is no such correspondence that I know.

Justice Arthur J. Goldberg: [Inaudible] communication.

Mr. Arthur E. Pettit: Well, he referred to a communication from Gegauf saying that Gegauf had not disclosed that Singer was proceeding on Singer's then owned patents.

He did not point out that that information came to Gegauf from a letter that Gegauf had received from Singer.

So Gegauf was merely saying that he had not disclosed to certain people in Germany that Singer had brought these actions on these patents and in doing it, he referred to your patent and ours, but by that purely colloquial he meant the patent that used to be ours and the information that these actions, that this action when brought came to him by a letter from Singer.

So there is no statement there that he knew these actions were going to be brought, but I think that's immaterial.

I don't think there is any question whatever that he knew that Singer was going to enforce the patent when it got it.

Now, Singer had said to Gegauf that the reason Singer wanted the patent was that Singer could enforce it better than Gegauf could.

Singer was paying Gegauf $90,000 for the patent.

Singer was manufacturing a machine that was under it and there were infringers coming in.

Now, it's no secret.

I think the man who just has normal intelligence could not help but note that Singer was going to enforce the patent [Inaudible], he would otherwise would not be paying $90,000 to get it, its just simple.

And I say that that is the fact that anyone would have known and that Gegauf did know and that there is absolutely nothing wrong in the discussions that took place that merely recognized what the fact of the life were, of course it was going to that.

But it is crystal clear that Singer was protecting itself at every minute from getting into any entanglement with Gegauf and any kind of an agreement express, implied or otherwise that Singer would operate with these patents in a particular way.

Singer wanted to get the patents in order to be the complete owner of it.

The correspondence will show that time-after-time it referred to the fact that it wanted become the complete owner.

At one point, it was pointed out that the advantage of making a purchase and paying it and not paying all these works that they would be true with Gegauf.

Now the Trial Court has gone through all of those and has found that they are clear and you remember my saying the other day that he said, absolutely, there was no agreement, no understanding of any nature whatsoever.

Justice Arthur J. Goldberg: [Inaudible]

Mr. Arthur E. Pettit: Well, I would say that the basic agreement was not for one you just mentioned it was the license agreement itself and that is another point that the Trial Court has made a finding on.

It made the finding that the purpose of the license -- of the cross-license agreement which of course came first, that the purpose of the cross-license agreement was to obtain a license.

That was the essence of it, that's what the party's consider was important.

Now I would come to that whole point, because it is a separate point and I would -- I intend to refer to it later.

Justice Arthur J. Goldberg: Well there are three -- there are three basic agreements.

Mr. Arthur E. Pettit: There are two agreements.

In the cross -- in the first agreement was of April 16 1956, in which the cross-license agreement was entered into.

In that agreement there was the clause that was designed to be the normal non-litigating clause.

It said we will not litigate with each other.

They have tried to construe that into a sinister provision.

There was nothing sinister whatever about it.

It was merely intended to put in the usual provisions for not litigating, when they had settled their litigation or prospective litigation by entering into the cross-license agreement.

As you pointed out the other day Mr. Justice Goldberg, there is a provision in there that this is to be done in accordance with the laws and regulations of the State involved.

Now that is briefed and quite completely on several different points in our briefs.

The government itself concedes that there was nothing improper with the cross-license agreement and it only picks up this clause to say that that isolated in standing alone is itself an illegal agreement.

In connection with that I'd like to point out that the government's argument before the Trial Court was that the first sentence of that clause was illegal.

That was the sentence that provided that neither party would do anything to restrict the scope of the claim of the other.

Now, they overlooked the fact that in various European countries there are proceedings, special types of proceedings that are known as proceedings to restrict the scope of claims.

It is quite clear that that provision was intended to take care of that situation.

The man who drafted this provision, he didn't draft it, but who put it into final shape was Stanford, who had prepared similar agreements with, had prepared similar agreements with Vigorelli, who subsequently prepared another agreement with Masonite.

He found in the draft that was submitted by Gegauf, a provision that would have stopped any interference.

Now he deliberately redrafted that and divided them into two sections with the concept that he was getting exactly the same result with this provision as he was getting with the Vigorelli agreement.

An agreement that Mr. Friedman and the Government has consistently said, is almost a model of perfection in making the reach of the agreement not to restrict, go to those countries that had that type of procedures.

Now the Trial Court went into this.

It heard the testimony of the people, yet held that that clause was intended to cover the foreign countries and not to apply to the United States.

In the course of making its argument before the Trial Court, it expressively told the Trial Court that that was the only provision in the cross-license agreement that it considered to be illegal.

It set it up, it quoted the sentence in quote, in the entire time of this discussion we cannot find one single instance in which the Government even set forth in full the second sentence of this clause.

Justice John M. Harlan: Can you tell me quickly what pages of the record, referring to this episode, this clause, to not run into your argument, we'll do it later.

Mr. Arthur E. Pettit: Where it sets forth the clause?

The clause is set forth at 1067.

Justice John M. Harlan: Well I've got the clause, but the testimony on the basis of which the District Court, there is no evidence to show this is and they do apply to United States.

Mr. Arthur E. Pettit: That's Mr. Stanford's testimony and I'll find in just a minute and I will give it to you but it is testimony of Mr. Stanford.

Justice John M. Harlan: No don't stop now.

Mr. Arthur E. Pettit: The Government both in it's -- in the document submitted just before the trial and in another one the post trial brief just after this, as I say, expressly told the Court that that was the only provision that it being illegal.

Now it raises before this Court for the first time the argument that the second sentence is illegal.

It seems rather strange system to me that the Court -- that before the Trial Court the Government can just frankly say that it doesn't conceive that there is anything illegal and then when it loses in the point that it is making, it comes before this Court and asks that the Trial Court to be reversed in the ground that it did not find the clause illegal, which it told the Trial Court it didn't contend as illegal.

Furthermore, the clause is clearly not illegal.

They never say that there is a clause that says that we will facilitate the allowance of claims as broad as possible, but this is in accordance with the laws of the country and patent office involved.

It couldn't be clear from the evidence that Singer was wanting a valid patent and not an illegally broad patent.

There certainly is no compulsion in the finding that -- compulsion to find that when a person says a patent is broad as possible he means one beyond the reach of the law and into the prior art.

And more than one says to get to particular destination as soon as possible, he doesn't mean necessarily there is no compulsion to find that he means by violation of all the law without reference to anybody that stands there.

Now when they ask, when they provide that they should get and support and facilitate and there's nothing but facilitate, claims as broad as possible, I think that without anything else, it would be construed as meaning within the limits of the law and within the permission of the prior art.

Otherwise, you are saying that they are flatly making an agreement to support illegal claims.

The evidence is quite clear that they didn't.

Stanford testified, Stanford wrote letters during the period in which he pointed out the necessity of getting a valid patent.

The government makes a strange argument in connection with this.

It seems to imply, but it doesn't say so.

It has never once said that it construes this as requiring either company to support an illegal claim, yet it seems to imply.

And at the same time, it argues that the reason they did that was that Singer wanted to fight this tremendous Japanese influx of sewing machines.

Now the last thing in the world the Singer would want would be an invalid patent in order to use it against the power as terrific as the Japanese exports.

The Japanese sewing machine industry has been the second, third or fourth largest export industry in Japan for ten consecutive years.

Justice John M. Harlan: Does the record show any -- has the record got any evidence in it that by price manipulation or in any other way Singer tried to keep Japanese machines out of this country?

Mr. Arthur E. Pettit: None, whatever.

This case involves absolutely nothing.

No predatory practices of any means, nothing in the world except the acquisition and enforcement of this one patent to protect its machines.

Justice John M. Harlan: Quite from actual efforts, is there any indication that the party had that sort of thing in mind?

Mr. Arthur E. Pettit: None whatever.

The evidence is clear that there was nothing about it.

There is not even any claim of any predatory practice of any kind, price control, division to territories, anything.

This case is solely a case of the acquisition of a patent by Singer to enforce that particular patent.

Now the background for that too is rather important.

This machine and this mechanism was actually invented by Johnson, member of the experimental department of Singer.

As is so often the case, inventions come from two, and three and four people at the same time.

It turned out that the patent the Singer had lost by nine days, otherwise it would have and had the patent on this machine itself.

Now in the meantime, this was to be its prime machine.

It had spent $9 million on it by 1959.

In 1959, 45% of its entire sewing machine revenue came from this machine.

There is nothing unusual to buy the patent that someone else has just beaten them too from nine days that covers squarely the mechanism in that in order to protect that mechanism.

And I just cannot believe, I don't think I've ever heard it said that there was no predatory practice, it wasn't a question of trying to exclude competitors or try to exclude other kind of machines and the Court found, that's another finding that the government has faced with, the Trial Court found that Singer's sole interest was the protection of its ‘401' machine.

Unknown Speaker: [Inaudible]

Mr. Arthur E. Pettit: For making the same kind of mechanism that you are making, that is correct.

Now, I would like to address myself for a moment to the government's claim that the evidence in this case is, was it expressed at clear overwhelming that there was joint action for a common purpose.

Now I said when you look at the claims they are making, you'll find out that they have made everyone of them to the Trial Court and that the Trial Court has found against them in each instance.

I think first, just to illustrate this, a claim that is basic to the government's entire argument.

It is that Gegauf contributed a large sum through giving the excess value of its patent to Singer on the understanding that Singer would then enforce that patent and would thus cripple the Japanese, so that the Japanese couldn't compete in Europe.

Now you will notice that the objective was not to protect Gegauf in the United States.

This had been and was the objective as expressed by the Government before the Trial Court that it was to protect and help Gegauf in the United States, but it ran into the situation that Gegauf sent into the United States just 1,600 machines in a year 1957; that he was a small company and expressed the philosophy.

He did not want to grow.

He thought to pick up the small companies and got into difficulty by trying to always enlarge and enlarge.

He had his tools, he had his equipment, they were fully employed, he didn't want to get bigger, and that's his prime interest was in Europe.

That sort of blew up in the argument that there was a great motive and incentive for Gegauf to enter into conspiracy to get the benefit in the United States of selling additional machines.

Now the Government with that finding there, and I don't believe that one would be inclined to reverse it or say there was no evidence to -- substantial evidence to sustain it, and they realize that.

They now make quite a different argument.

They now say that the objective was to cripple the whole sewing machine industry and Japan so that it couldn't compete in Europe.

Now let's see, what this industry is and how it's going to cripple it and see if we think that the Trial Court had no substantial basis for disregarding that claim.

As I have just said, Japanese sewing machine is second, third or fourth for ten consecutive years as the biggest exporters.

All the machines, infringing machines set into the United States in the years 1957 and 1958 represented 1.8, 2.4 and 1.8 of the total exports of sewing machines in Japan throughout the world.

Furthermore, if – would have enforced the patent completely, that doesn't mean that even that percentage would have been lost or they have been crippled, because they can just as easily make non-infringing machines as they have.

In 1957 they didn't make a single non-infringing machine.

In 1958, over 8% of their imports of the multicam machines were non-infringing.

In 1952, they were 59, they were 32%, and the number imported of non-infringing was 500% of the number that had been imported in the year before.

There is no reason in the world why they can't manufacture non-infringing machines, they are on the market.

In fact the Japanese are manufacturing and importing as Mr. Friedman conceded on Friday.

Therefore, we have the spectacle of Gegauf being inspired in the disagreement not to keep these particular machines going to Europe, that didn't help the Government and he was afraid.

One of his objections to this agreement was that the machines imported in the United States might be sent to Europe.

That has some velocity backup, but that wouldn't help the Government, because that's no motive for Gegauf to go into an agreement.

Gegauf would have been hurt by that, so the Government has to find something better than that and it finds that the motive was to injure or as it puts it cripple the sewing machine industry.

It says that Gegauf gave excess value.

The excess value it says was a magnificent value of this patent over and above what Singer paid for out of $90,000.

What's its evidence of this value?

His evidence is that Gegauf, when it first started suggested that they would like to have $1 million.

When they put the document and evidence and showed that, the Trial Court said, well, we think may be as New York Counsel suggested that you ask for million dollars and see what you could get.

Well, it was not without pressure that we put in a letter later showing that, that is just almost exactly what happened, you can just see it from the latter complaint.

Trial Court's reaction to that it didn't bother the government.

It decided that the Gegauf had said to Singer.

When it was asking Singer $125,000 for the patent, well we can get many times $125,000 each year, Gegauf sells to patent to Singer in trying to get Singer's pricing.

So, the government accepts Gegauf as its valuation expert and attributes this tremendous value to it, and so argues that Gegauf contributed a tremendous valuable patent far in excess of the $90,000 paid for it, in order to get Singer to enforce the patent, cripple the whole sewing machine industry in Japan, less than 1.8% of their exports.

Now the government and the Trial Court dealt with that in its reference to probably the counsels have suggested it to do it.

With reference to one additional item it maybe an express finding, that the fact that it sold a series.

In fact that in two years, the government pointed out in two years, Singer got a considerable amount of money out of this, almost twice, so just about twice what it paid for.

The government -- the Trial Court dealt with this argument.

It said the fact that in two years Singer received almost twice as much from Sears Roebuck licenses Gegauf collected from the sale of its patent to Singer, does not buttress the conclusion gone with the government, that Gegauf was willing to part with a valuable property right at a low price in exchange for action for by Singer against their common competitors.

Justice Hugo L. Black: What page is that?

Mr. Arthur E. Pettit: That is 1706, 1707.

Now the government stands before this Court and just it either asked that defining that, that is no substantial evidence, no substantial evidence supporting the Trial Court or in the alternative, and I'm, not sure which, that the Trial Court thought all these facts were so convincing, just as the government does, but didn't understand that you could have an implied win. I don't think there is any basis for the government's contention whatever.

Now another point –-

Justice Hugo L. Black: Was Sears Roebuck the only [Inaudible]

Mr. Arthur E. Pettit: Sears Roebuck was the only licensee.

There was, call your attention to one point, I would mention later if I get to it and I doubt.

There was a right in Gegauf to permit one company in Japan to shift machines into the United States, in Germany to ship machines to Pfaff, to ship machines into the United States, he never gave that right, nothing is ever done about it except to eliminate it from the contract at a later date, that is one of the -- another one of the facts that the government relies upon and I'll refer to it in just one minute.

The government as another one of its facts that it wants this to Court to act upon, is that there were some kind of a -- I don't know what to call it, whether to call it a phantom agreement or some kind of an obligation, but they can see that there is no agreement express or implied and yet they say that Singer was so bound to Gegauf by some kind of an obligation that he couldn't possibly license Singer, couldn't license without getting Gegauf's consent.

Now how they worked that out at the time that they concede that there was no agreement expressed or implied, and I don't know but they do, and they were very dramatic about it before the Trial Court and said to the Trial Court, Singer, talking about the double cross, he said, Singer couldn't pull a stunt like that and the Trial Court leaned over said, why couldn't it? They're in business to make an honest dollar, by honest legitimate means.

Therefore he ended completely their philosophy that there was any acquisition or any obligation whatever not to license.

The Trial Court expressly found that there was no restraint whatever upon Singer's right to license.

Now in another point, another place in the government's brief where it is riding on another point, it expressly states that there is no restraint upon the right of either to license and yet it stands before this Court when it's arguing on one point, it argues that there was a restrain on licensing which the Trial Court found just to the contrary.

On the cross agreement this is another that they argue shows cooperation.

When Singer -- after Singer brought its Tariff Commission action.

The Tariff Commission asked whether there were any licenses and Singer explained the Sears Roebuck license and why it had given it.

And I might say incidentally that the reason for that is the Tariff Commission doesn't like to ask -- act as just an enforcement agency.

If you're going to license your patent well go ahead and do it, but if you're going to protect yourself and be -- and protect an industry and that what's you say when you go before your Tariff Commission, that you were there to protect an industry from unfair competition and one of the methods of unfair competition is to use your patents, infringing -- your patents and then sell infringing patents to the products – suggestion to the competition.

The government -- the Tariff Commission asked this question, Singer explained the circumstances under which it had granted the license to Sears Roebuck.

They ask whether there was -- whether Pfaff had a license because the facts the agreements where there to show this arrangement with Gegauf.

Singer said that it did not, but after all Singer couldn't be the final word on that because Gegauf was the final one and although it hadn't been permitted yesterday, it could be permitted today or tomorrow.

It wrote Gegauf a letter asking Gegauf if he would eliminate the provision about Pfaff from the agreement.

The government first uses Singer's -- the finding about Singer's motive in doing that was to help it in the Tariff Commission proceeding.

It converts that into a finding that that's the reason Gegauf ultimately did it, but I just point out the finding was that, that was Singer' s motive in write off, not that it was Gegauf's motive in agreement.

Gegauf ultimately agreed, but through exercise first of a bludgeoning power over Singer.

And the license agreement then entered into between them, Gegauf suggested that the provision be put in that they would disclose on execution of the agreement any previous licenses or arrangement that had been made with respect to the patents.

This was Gegauf's idea. Gegauf had outstanding a license to Phoenix in Germany.

He didn't disclose it to Singer.

He didn't disclose it when Singer purchased the patent.

It was a very broad license applying to any of the rights, any of these patents.

There was an argument that Gegauf made and possible to sustain it depending upon the intention of the parties, that it applied only to Germany but if you read the wording you wouldn't think so.

So finding himself in a position where Singer now needed something from him, he took advantage of it to compel Singer to indemnify him from any liability that he might have incurred by selling this patent to the Singer and bear in mind he sold it without telling Singer about this outstanding license.

He then demanded that Singer give him indemnification from any liability whatever to Phoenix.

Singer obviously was annoyed, but it had no choice and it entered into an indemnification agreement that was protected from any claim against Phoenix.

Now when you see all these backgrounds that doesn't -- this background, it doesn't show this willing [Inaudible] standing by waiting to jump in and help Singer, when he did it, he did it on his own terms.

And the Trial Court considered this whole affair, it's written its opinion about it and it's what it finds, is further evidence that the arms length dealing which it characterized all Singer's dealings with Gegauf.

Now here is again a very contrast between what the Court finds and what the government is now urging this Court to go into and find just the reverse, and it has just item after item, in which that kind of a thing is asked to this Court, and when you look at them, you not only will prove I believe that there is no basis for saying there is no substantial evidence supporting it.

I don't see how the conclusion could be other than what the Trial Court found itself, even if the decision was to be de novo.

The government on the law point argues that there is a joint effort, joint purpose and it uses mostly the parallelism cases.

But I want to point out that there is no question of any parallel action here.

Gegauf first owned this application and when it owned it, it was free to do with it whatever it wanted to.

There was no economic power forcing Gegauf, there were no economic power Gegauf enforcing Singer.

When Singer acquired the patent, it was free to what it wanted to do with it.

This is not a question of competing patents.

It's a question of competing applicants for the same patent and with the winner being willing to sell that patent to Singer, because Singer wanted it.

Now they make great store over the fact that Gegauf anticipated that it would be enforced and they say that he didn't need an agreement, of course, he would enforce it.

So you're just as bad whether you have an agreement or not.

If you buy a product that can be used only for one purpose and you hope it will be used for that purpose that becomes joint action for a common purpose.

Now I think that the Parke, Davis case pretty clearly shows although the express finding wasn't on that point.

It shows that if there is anything in the world that's left now, it is the right of a man to hope, if all he does is hope that people will maintain prices and he does nothing what else, but to state his price and then takes no other step, but hope that they will do it, he is not violating the law.

It takes some kind of an action to tackle that before there is any violation.

And I think that applies here, and that's in price maintenance, which is a far more touchy situation and an unreasonable or reasonable restraint with the acquisition of the patent.

There is no economic power here of either of these parties over the other and I think the Government is faced with the fact that if it's dealing with a conspiracy as distinguished from combination, there is no agreement of any kind express or implied and I think that ends the conspiracy portion of it.

If it is dealing with a combination as distinguished from the conspiracy, I think that in every combination case you will find that there is some element of a power of coercion.

You will find two or more people having some power, economic or otherwise, which permits them without any justification or any right other than their own power to cause other people to act in a desired method, such as taking away the merchandise from them or other controls that you might have owned.

There is no suggestion even of an economic power of Gegauf over Singer.

Singer had made no agreements, no power; Singer is free to do what it wanted to.

I cannot see that a mere hope or expectation even if it existed would count as a violation of the law.

And the fact is that the Trial Court has found that Gegauf had no interest in the United States market, so even the concept of a hope or an expectation is entirely beside the point and it is not correct and the Court has found against it.

It found expressly that Gegauf's interest was in Europe and was not in the United States.

Justice Byron R. White: [Inaudible]

Mr. Arthur E. Pettit: It get involves and I think what you are probably talking about is the ability to take information from two cams at the same time.

That is in the --

Justice Byron R. White: This was over and beyond the Gegauf patent, wasn't it?

Mr. Arthur E. Pettit: Well I suppose that's the right way of saying it.

It is an addition, it is different; it's not in the Gegauf patent.

That was intended along with Johnson at the same time the other -- it's all part of one mechanism and his invention covered two features.

Justice Byron R. White: The major part of the Johnson's patent was dominated by the Gegauf?

Mr. Arthur E. Pettit: That's right, the major part of the patent --

Justice Byron R. White: How about the Japanese issue -- the Japanese was not going to complete with that machine, it was different than that one.

Mr. Arthur E. Pettit: I don't quite understand the question, I answered it this way.

The Japanese --

Justice Byron R. White: I was wondering what kind of power that Singer acquired from Gegauf?

Did it require some -- acquire the power to exclude machines although competing, but they were machines which Singer was not making?

Mr. Arthur E. Pettit: No, indeed, no indeed.

It had acquired -- there was the Gegauf that is just one claimant.

It was the claim for this multi-cam mechanism that is in there, the static cams, a cam follower, it can be retracted; it can manually be shifted to select one cam from the other.

That was the same idea that was in Vigorelli, the same idea that was in Gegauf, the same idea that was in Johnson.

There is nothing else in the Gegauf patent whatever.

So the answer I think to your question is that Singer obtained no power to do anything other than stop the manufacturing of the precise mechanism that Johnson had invented and was incorporated in the Singer --

Justice Byron R. White: It didn't get anything -- it didn't get anything if it wouldn't have had if Gegauf's patent never existed and they would have had the same --

Mr. Arthur E. Pettit: If the Gegauf's patent had never existed, they would have had the same concept in their Harris patent that Mr. Friedman conceded.

Justice Byron R. White: And with that patent they could have --

Mr. Arthur E. Pettit: The same machine, I mean it would have been, that will be the same Singer, if you exclude a machine that has the stack of cams with a single cam follower retractable and movable.

Justice William J. Brennan: But your point is that's the only Japanese machine that could be excluded namely --

Mr. Arthur E. Pettit: That is--

Justice William J. Brennan: One that embodied that --

Mr. Arthur E. Pettit: That is --

Justice William J. Brennan: Particular cam --

Mr. Arthur E. Pettit: Exactly right, there is no -- it could not exclude any other type of machine and no one ever was made to exclude any other type of machines and Singer had no desire to exclude the patent.

Justice William J. Brennan: And I gather that Gegauf -- that Gegauf was -- asking you, I guess to say again what you've already said to Mr. Justice White, if get your position correctly, it is that Gegauf added nothing whatever to that.

Mr. Arthur E. Pettit: Gegauf added nothing to the Singer mechanism.

Justice William J. Brennan: That's in respect of any operation --

Mr. Arthur E. Pettit: Nothing whatever.

Justice William J. Brennan: Mechanism will exclude the Japanese machine.

Mr. Arthur E. Pettit: Nothing whatever.

Gegauf was the simple claim based on this one mechanism -- I'm telling you why and how clear that is true.

Gegauf claim came from the Singer Harris patent.

Now Singer drew its claim covering this mechanism of the single cam products, stack and cams with single follower.

That claim was taken word-for-word and suggested to Gegauf and when Gegauf had the nine-day hire order, it got the precise claim and you can see them in the -- I think it was 133 which is, we have set forth in the record.

There is the tabulation that shows how these claims go just word-for-word and what happened is and I say this is a competition for the same claim, it is not competing patents.

Justice Byron R. White: I think that you are simply saying that in order to the government [Inaudible] here you will have to make it legal -- the near acquisition of a patent by a competitor from another --

Mr. Arthur E. Pettit: That is exactly, I cannot see --

Justice Byron R. White: There is nothing that was done here as anymore than what is normally consumed in acquisition of a patent.

Mr. Arthur E. Pettit: That's right.

I will go --

Justice Byron R. White: Whether they say anything about excluding Japanese or not if they've been absolutely silent necessarily of the -- the necessary results and it was and would have vendor exclude competitor.

Mr. Arthur E. Pettit: Absolutely, there is no point in getting the patent, so now they will pay $90,000 and get a patent and not use it, that's how much stands for that.

Now I will go further, I never like to take the point to this and true in the case, but I would say that if Gegauf and Singer had sat down at a table, had talked this whole thing over, had concluded that Singer could do a better job than Gegauf and had entered into a written agreement under which Gegauf would sign its patent to Singer and Singer would agree to enforce the patent.

Now I'm leaving out of this any restrictions on licensing.

Singer would agree to enforce the patent.

There is nothing whatever that will be illegal with it.

From time immemorial the owner of the patent has agreed to enforce it.

There is no reason why the owner of the patent shouldn't agree to enforce it.

Otherwise anyone is paying a license is just paying license while they let other people go and use it free in charge.

I don't know the lawyer has drawn any license agreements that hasn't put in agreement that one party or the other will enforce the patent.

Now as long as 50 years ago in that Vertube case, this Court decided that there was nothing wrong in the owner of a patent conveying it to and in having and reserving license and then having the new owner agree to enforce a patent.

Justice Byron R. White: Is this between competitors?

Do you have any case of this Court --

Mr. Arthur E. Pettit: That's

Justice Byron R. White: -- indicating that one competitor needs only [Inaudible] to his other competitors?

Mr. Arthur E. Pettit: Frankly and you ask whether they were competitors, I do not know.

In case cited on page 125 of our brief, but I would not see that it makes slightest difference on it, because after all if the manufacture -- if the owner of the patent can license a competitor, it seems to follow that he not only has a right to it, but he is almost obligated to enforce it.

And I would see it wouldn't make the slightest difference that if he found the other fellow was a better enforcer, that he could convey it him and ask him to enforce the patent, because after the object of the patent is to give a monopoly, that's all it is.

That's the subject matter that's covered for that particular patent.

The very purpose is to give the monopoly and as long there is nothing wrong in the license, certainly there can be nothing wrong in agreeing to enforce the patent so that the licensee can get the benefit of it.

And I cannot see any possible argument that would prevent a person from owning a patent, transferring it to his licensee because the licensee could enforce it better.

As a matter of fact the financial strength is the one that determines who is the one that agrees to enforce it time after time, it's almost --

Justice Byron R. White: Is this an acquisition of an asset of a competitor though?

Mr. Arthur E. Pettit: Yes I suppose that it is an acquisition of an asset of the competitors.

Justice Byron R. White: And I think [Inaudible]

Mr. Arthur E. Pettit: Right, not much of a competitor.

Now I think this competitive business can be overdone by just not realizing what the facts are.

Gegauf wasn't much of a competitor.

Gegauf sent into this country 1,600 machines.

Singer was selling at the rate of 150,000 machines a year.

Justice Byron R. White: It had an asset however to put Singer out of business [Inaudible]

Mr. Arthur E. Pettit: Before he got the license.

Justice Byron R. White: Yeah, business.

Mr. Arthur E. Pettit: Before he got the license.

Justice Byron R. White: Is not much of a competitor to have that kind of a.

Mr. Arthur E. Pettit: Well that would be true whether it's competitor or not, I mean competitor or non-competitor could have --

Justice Byron R. White: Because you have this competitor.

Mr. Arthur E. Pettit: Yes but --

Justice Byron R. White: You got a patent on a sewing machine.

Mr. Arthur E. Pettit: You got a patent on a mechanism that would have been very embarrassing for Singer if it hadn't got the license on it.

That is certainly, and that's one reason that it worked so hard to get it.

Now after that, came the acquisition of the patent.

Finally I would like to just -- two minutes I may have, if that's what it is, I would like to point out that the Trial Court also went into the market and found that this machine competes not only with multiple cam machines, but it competes with all kinds of machines, replacing cam machines, manually operated machines, straight stitch with the zigzag attachments on it.

There is nothing unreasonable in restraint of this, if in all other respects, the enforcement of this patent was felt someway subject to restraint, which I think it is not.

Still the market here is such a small portion of the market in which it competes that I think if you would even find a relevant market basis that there is nothing wrong in this small portion of market.

It's in the testimony compared to all the machines, and finally, bear in mind that this whole machine is a sewing machine.

This should not be conceived off as a zigzag sewing machine.

This machine is used and testimony shows that 90% for sewing.

It would like saying that an automobile with a heater was for the purpose of getting warm.

Now the machine is to sew it and straight stitch and 90% of all the sewing is done on this machine is straight stitch.

The pattern companies do not even issue patterns with the zigzag designs.

I mean all the patterns companies, if you go to pattern companies you get patterns for dresses they are all straight stitch.

This is a -- this is just a little pricing thing, that is at sales point, a good sales point, but it doesn't convert it from a sewing machine.

It's still fundamentally and entirety a sewing machine and it's used for that purpose.

It's insignificant in the making of dresses by the way.

Thank you.

Should I just answer Mr. Justice Harlan as to where this testimony is?

Chief Justice Earl Warren: Yes you may.

Mr. Arthur E. Pettit: It begins at R-502.

Chief Justice Earl Warren: We will recess now.

Argument of Daniel M. Friedman

Mr. Daniel M. Friedman: Mr. Chief Justice and may it please the Court.

In my brief rebuttal time, I just like to refer to two items.

The first is the question raised by Mr. Justice White in his colloquy with Mr. Pettit with respect to precisely what Singer's position was in connection with the acquisition of the Gegauf patent and the power to enforce this patent against infringing machines.

The machine which Singer invented and was developing its 401 machine which had been of the stand before the recess, was a machine which had a stack of cams and two followers capable of combining intelligence.

That was the invention covered by the Johnson Patent.

The Gegauf patent was a more basic invention.

It covered the concept of a stack of cams and a single follower.

Now Singer, once it got the Johnson Patent of course, could have enforced that Patent against all machines which infringed the machine it had invented.

When Singer says it had to acquire the Johnson -- the Gegauf patent, in order to protect its invention, I think what it really means is it had to acquire another patent because machines which it could not exclude under its patent was so similar and it felt was so competitive with its machine that it was necessary for it to get this additional patent, not because it needed it to protect infringes of its machine, but to protect itself against the infringes who infringe the competing machine.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: But Mr. Justice, at the time it acquired the patent, it already had the license.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: That is true before it got the license.

But once it got the license, it was free and after it had the license to manufacture.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: Oh!

Yes.

Before they had the license, it's clear they would have -- they could not have manufactured their machine free of the threat of infringement from --

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: No, Mr. Justice, and if I may just conclude --

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: No, this doesn't.

We do not contend the mere acquisition.

We do contend and we think does present to this Court the legal issue in this case and we think parenthetically that basically the District Court recognized that in this case there was this cooperative endeavor that Singer intended to enforce the patent and the Gegauf so understood and sold it to them because of that understanding.

We think the legal question presented here is, whether when one competitor assigns a patent to another, because it believes and understands that the other can enforce it more effectively than it can itself and then implements this purpose.

In the subsequent course proceeding, we think this presents a basic legal question whether such action taken together to achieve a common purpose is enough to establish a conspiracy and combination in violation of the Sherman Act.

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: Mr. Justice, this was the first agreement.

This was the cross-licensing agreement, and we rely on that insofar as it has the provision under which each agrees to facilitate the allowance to the other of the broadest possible claims, but then we go beyond that and we are also --

Justice Byron R. White: [Inaudible]

Mr. Daniel M. Friedman: No, it was nothing that changed the effect of this.

There was an implementation we think of this agreement by the other two agreements to which we refer.

Justice Hugo L. Black: [Inaudible]

Mr. Daniel M. Friedman: Mr. Bowman is I believe an official representative of Singer's in Italy.

Justice Hugo L. Black: [Inaudible]

Mr. Daniel M. Friedman: He is the representative of Singer's in Italy.

Mr. Justice Black, we rely not only on the first agreement, but on the second agreement, which is the basic patent assignment agreement and finally on the third agreement, which I referred to on Thursday deleting Pfaff from the second agreement from the assignment agreement.

Thank you.