UNITED STATES v. HUCK MANUFACTURING CO.
Argument of Turner
Chief Justice Earl Warren: Number 8, United States, appellant, versus Huck Manufacturing Company et al.
Mr. Turner: Mr. Chief Justice, May it please the Court.
This is a direct appeal under the Expediting Act from a final judgment of the District Court dismissing the Government’s Civil Antitrust suit against Huck Manufacturing Company and Townsend Company the appellee is here.
I shall recount the facts substantially stated in the Government's brief.
The complaint alleged that two companies had violated Sections 1 and 2 of the Sherman Act by restraining trade and conspiring to monopolize the manufacture and sale of patented lock vaults which were metal fastening devices used principally in the construction of aircraft.
More precisely, the charge was the clock, the patentee in Townsend, its licensee, had agreed that Townsend would sell patent products at the prices and on the terms and conditions fixed by Huck.
And that Huck would issue no additional licenses under its patent.
In earlier criminal proceeding, involving the same charge have been dismissed by another district judge in the conclusion of the Government's case on the ground that the facts established did not constitute violations of Section 1 of the Sherman Act without evidence that what was obtained by defendants by their alleged agreements was more than a normal and reasonable reward to a patentee.
By stipulation of the parties, the record in the criminal case was introduced into evidence as a Government's case in cheat in this civil action.
And on that record, the District Court granted defendant's motions to be dismissed, although, the defense has not yet put in its case, Huck and Townsend have vigorously denied and do vigorously denied the existence of the oral agreement to fix prices which the Government's proof purported to show and maintain the exclusivity of Townsend's license in which the Government's proof also purported to show.
The District Court made no finding on the existing --
Justice William J. Brennan: I didn't quite hear Mr. Turner what you said about the -- what disagreement was about the exclusivity of Townsend's license?
Mr. Turner: Well, the Government put an evidence Mr. Justice attending to show that there was a mutual agreement between the patentee on the one hand and the licensee on the other.
Justice Potter Stewart: That there should be license with nobody else.
Mr. Turner: Whereby that patentee would license no one else, so long as the licensee abided by the patentee's prices.
Now, the District Court made no finding on the existence of this agreement.
But on the assumption and if we read the opinion that an agreement did exist, the Court concluded and I quote here, “That upon the evidence submitted, the case at bar is in all material respects, the same and ruled by the decision in US v. General Electric.”
And a court further ruled and I again quote, “There is no violation of the Sherman Act by Huck's establishment of the prices, terms, and conditions of sale for the patent lock vaults and the following thereof by the licensee Townsend or it is established law under the General Electric case that it is not a violation of the Sherman Act for licensee to follow the terms, prices, and conditions of sale or patent owner by agreement to do so.”
Now, the Government in its appeal has contended that decision of the court below should be reversed for either of two reasons.
First, and our main reason that the decision of this Court in US v. General Electric that a license to make a patented article on conditions of the licensee maintains its prices at a level set by the patentee does not in and out of itself violate the Sherman Act, that's the Rule in General Electric was erroneous and should be overruled.
Or secondly, that in any event, the General Electric decision should not be interpreted to protect an agreement by a patentee, not to grant additional licenses as long as its licensee follows the prices which he sets.
Justice Potter Stewart: Oh, yes.
Mr. Turner: Now, before turning to a consideration of the issues -- these issues on the merits, I should like to discuss briefly and all the way, we'll have to come back to it again, a question raised by defendant and fairly read, namely whether in the circumstances of this case it is appropriate for the Court to consider the issue whether the General Electric decision should be overruled.
That issue was raised by the following facts.
Subsequent to the entry of the judgment below and the filing of the notice of the Notice of Appeal, the District Court granted defendant's motion to supplement the record by adding two pretrial orders.
These orders had been drafted by the Court in 1962 submitted to counsel, the suggestions and signed by the judge, but contrary to belief of all counsel had not been entered on the record.
The Government did not object to this much of the motion by defendant.
In addition, however, at the request of the defendants and although the Government's vigorous objection, the District Court added the following statement to one of the pretrial orders and I again I quote, “On October 15, which is the date of the pretrial hearing, reporting on the applicability of the General Electric case.
The Government stated that it is not attempting to have a doctrine set in the General Electric case overruled and stated only that facts in this case do not follow in that doctrine.
That the doctrine is a still good law but does not apply as the actions in this case are illegal without the application of the doctrine and that it will write a letter by December 29 describing in what way the facts of this case differed from the facts of the General Electric case.”
That letter was subsequently written and was incorporated in the record.
Chief Justice Earl Warren: Is that consistent -- is that consistent with your position here today?
Mr. Turner: Mr. Chief Justice, we accept this finding of the District judge because on this record, we do not feel we can reasonably maintain that it is clearly erroneous.
Well, after --
Chief Justice Earl Warren: Well, but I mean --
Mr. Turner: Yes.
Chief Justice Earl Warren: I mean as your -- is your approach to this case for the purpose of overruling General Electric are they consistent with that representation that you made to the trial court?
Mr. Turner: No, sir.
It is not.
Chief Justice Earl Warren: Well, why do -- why are we proposed to withhold with a situation where you say one thing to the trial court in order to get a judgment and come here and say the opposite?
Mr. Turner: I like to set forth briefly Mr. Chief Justice the reason why we feel it is appropriate for the Court to consider this issue here.
We, of course, would not think of the defending this is ordinary good practice.
Chief Justice Earl Warren: I beg pardon.
Mr. Turner: We would, of course, not think of defending this as standard practice and we are not happy that it occurred.
Let me now talk about the issue about.
Chief Justice Earl Warren: About what?
I can't hear you.
Would you speak up a little louder.
Mr. Turner: Yes, I'm sorry.
Chief Justice Earl Warren: Just speak up a little louder, please.
Mr. Turner: Well, Mr. Chief Justice these appellees, I believe agreed in their motion to affirm what is involved here is a question not of jurisdictional part of the Courts considering the issue but whether in the circumstances it should.
We believe that the pertinent issues which would principally for a pertinent findings which would particularly foreclose the Court from considering the issue are not present.
The issues it is whether the failure of the Government to attack General Electric below makes it unfair to appellees to consider the issue here.
And second, and this is a closely related question, does the failure of the Government to raise the issue below deprive this Court of any significant record material which would materially assist this Court or would've materially assisted this Court in deciding the issue presented.
Chief Justice Earl Warren: Yes.
But I wasn't questioning that.
Mr. Turner: Yes.
Chief Justice Earl Warren: And it isn't a question of failing to -- failing to present the matter before but you have just read us that portion of the order which says that --
Mr. Turner: That's right.
Chief Justice Earl Warren: -- the Government stated that it is not attempting to have the doctrine set in the General Electric case overruled and stated only the facts in this case do not fall within that doctrine.
That the doctrine is still good law but as not applied as the actions in this case are really doing so forth.
That isn't just question of not raising, it isn't the question (Voice Overlap) --
Mr. Turner: That's right.
Chief Justice Earl Warren: -- misleading the Court.
Justice William J. Brennan: Was that in the -- in the criminal side of the sentence?
Mr. Turner: No, this is on -- this is on the still sides, sir.
This is the part of the record in the civil case.
This occurred after the judgment in.
Justice William J. Brennan: But it took a same position in the criminal side too?
Mr. Turner: Well, the Government as I say below when the defendants proposed that this particular language be inserted, proposed it very strongly on the ground that it did not reflect the position that the Government trial counsel had in fact taken in the pre-trial hearing.
This statement is taken almost verbatim from a memorandum on the meeting apparently taken by the Judge Lockeford, and that was the basis apparently on which the judge granted the defendant's motion to assert this.
As I say we are in a rather difficult position where we did not agree that this was a correct statement below but it is rather hard for us to maintain here that that finding was clearly erroneous.
I can honestly say that we believe it is doubtful in fact the Government did not do this but I really can't do much better than that.
Justice Potter Stewart: So, in other words we do have to proceed on the premise that that was -- what was represented to the (Inaudible).
Mr. Turner: I think that is -- I think that is fair.
That is right and -- and it is my job to persuade you that despite this the issue should be reached.
Justice Potter Stewart: Right.
Justice Hugo L. Black: (Inaudible)
Mr. Turner: Yes.
The Government has attacked the General Electric case repeatedly over the years.
This is not here a novel position on the part of the Government.
Justice Hugo L. Black: But the --
Mr. Turner: I might know that in some of the cases in the past, at least one, and I think a fair rating of the second case would lead to two that that substantially this has been done -- occurred before that is or that is in the Gipson case -- U.S. Gipson case and inline material, the Government in its -- before the court below and in its trial brief now urged conviction or judgment as a case may have been on the basis that the facts alleged went beyond the scope of General Electric.
It did not attack -- it did not say that it was asking the District Court to overrule the General Electric case in one of those cases inline material the trial court brief -- the trail brief of the Government did not speak finally of the General Electric case.
They did not say that it was taken the position, that the decision should be overruled.
And I must say in fairness to --
Justice Hugo L. Black: No, they did not?
Mr. Turner: Well in both the cases, the Government argued before this Court that GE should be overrule and as you know, in the one case, the issue was not reached and inline material where as four judges concurred on the ground that should be overrule of the deciding vote by Justice Reed did not take that position beside decisive opinion on this question did not take that position.
And I must say in neither of those cases was this point urged that is a point of waiver anything like that urged by the appellees and of course appellees are earnestly pursuing the issue here.
Justice Tom C. Clark: They had three as I remember that it would adhere strictly to General Electric in my material witness, before the court?
Mr. Turner: That's correct sir.
Justice Tom C. Clark: And a report to senate --
Mr. Turner: The report incurred as I recall Justice Reed wrote the opinion for the Court with which four justices concurred but wrote a separating concurring opinion saying they would've held the way that the Court held on the basis of General Electric should be overruled.
Justice Tom C. Clark: Then at the time that you try this case but two of your dissenters of the Court had passed on?
Mr. Turner: That's correct.
Justice Tom C. Clark: There's only two left here.
I suppose, you see how it used to be done there, and figure out these (Voice Overlap) --
Mr. Turner: I hope to have some replacement sir.
Justice Tom C. Clark: Thank you.
Mr. Turner: Let me say again, that I will eventually, and I have to deal fully with the question of waiver.
I just want to say again at this point that the Court is free if it thinks it appropriate to consider this issue and we urge that the issue isn't sufficient importance that it should, and further that we urge that it is not -- would not be unfair to the appellees to do so and finally that the failure to do so has not deprived this Court anything of any particular use.
Now, in connection with this, I will say further at this point the Government did contend below as it's now contending that the General Electric Rule should not be extended to cover the case whereas here according to the Government's allegations the patentee agreed not to grant additional licenses as long as the licensee abides by its prices.
That is to say, the Government did take the position below.
And of course again does here that a combination of an exclusive license with a Price Fixing Clause should not come within the ambit of GE's protection.
Now, as I read the appellees brief to agree or substantially agree that position raises almost all, if not all of the relevant, the factual legal considerations that a outright attack on the GE Rule does because it virtually destroys GE and I must say this in all candor.
If, as appellees urge and we do not agree on this point, the GE Rule is confined to a Price Fixing Clause in a single license and the Government urged below that where the license is exclusive the Price Fixing Clause is unlawful.
What is left of General Electric is very hard detect?
So, at least insofar as the unfairness issue is concerned we believe that the Government's position below put appellees to the kind of proof which they urge now that they should have had an opportunity to put in.
But beyond this, and this is really the most important part that what I want to say, at least for the moment with you.
We contend that the relevant, factual and legal issues raised by the GE Rule are simply not issues on which any record would have provided this Court with any material help and it is for that reason that I think it is appropriate now, although I will come back again to the question of the Court and as of dealing with the issue, appropriate now to take a careful look at the merits because if we are right on this, we think the Court should take this opportunity to overrule the General Electric case.
Justice Potter Stewart: I suppose Mr. Turner, it's clear isn't it -- if the Court should agree with you today, the case would be remanded.
Mr. Turner: Of course.
Justice William J. Brennan: For a profile on the factual issue --
Mr. Turner: Of course.
Justice Potter Stewart: Mr. Turner, to word or not anything that there's such agreement?
Mr. Turner: Of course.
There has been no finding really by the District Judge -- (Voice Overlap) it was in assumption.
Justice Potter Stewart: -- hypothesis?
Mr. Turner: -- and of course, what we asked for even on the assumption that you would overrule General Electric is not a final judgment but simply a reversal on -- and a remand with directions to the Court to proceed in accordance with the ruling that the General Electric Rule is no longer a good law.
Justice William J. Brennan: Well, about that Mr. Turner --
Mr. Turner: Yes?
Justice William J. Brennan: -- how long this patent had to run?
Mr. Turner: It has sir about two years to run I believe.
Justice William J. Brennan: It's been after a law suit (Inaudible) years.
Mr. Turner: I have no idea what will happen to the lawsuit.
Justice William J. Brennan: I discover you didn't do anything?
Mr. Turner: The defendants at the least have the opportunity to put in the additional proof.
It's conceivable that the additional --
Justice William J. Brennan: Yeah, this case decided that we all will be moving?
Mr. Turner: What the eventual outcome of the case might be Mr. Justice Brennan, I don't think really has an important bearing on whether the Court --
Justice William J. Brennan: Well, I have one case now I wonder if it has any bearing and whether we ought to reach the question in light of these strains of --
Mr. Turner: I would say not sir.
I think, you know, if the issue is important one and you are convinced by what else I have to say that you should reach it, I would not think that the eventual possibility of the case would wash out should a deterrent.
Chief Justice Earl Warren: We'll recess now.
Mr. Turner: Mr. Chief Justice, may it please the Court.
I had insist suggested that I proceed to a discussion on the merits of the GE Rule because I think, the merits of the position that as we see them have a very strong bearing on the question of whether or not the Court should decide that issue.
I will give only the brief as of historical reviews because the Court is quite familiar with these cases.
The problem of the right of a patentee to insert a price fixing limitation in a license has been with us for over 60 years.
When it first came to this Court and they met the hero, the Court decided that it was alright.
Apparently, on the basis that since the patent granted a monopoly and that the whole purpose of the patent statute was monopoly that any restrictions otherwise not contravention of public policy would be alright if it all they did was maintain that monopoly.
Intervening decisions between the Beament case and General Electric where the Beament Rule was reaffirmed, cast considerable doubt on the proposition that Beament was still a good law.
I think probably motion picture patents was most significant.
In that case, the Court held that it was not within the right of the patent -- not within the patent right to license or sell the patented product on condition that the licensee or purchaser by other non-patented items from the patentee.
The Court said that any such agreement or any restrictions in connections with the contract of license or sale would be decided by general law.
They were not logically a part of patent grant.
Now, whatever maybe said about the reasoning motion picture patents as I say, it indicated a fundamentally different approach to the general area of patent licensing restrictions.
Subsequent cases, reasserting the proposition that a patentee could not impose resell price restrictions on purchases from him and the development of other law in the -- in the tying area suggested that when the issue came to this Court again, it would decide the other way but it did not as we know.
Now in General Electric, the Rule was reaffirmed on the basis that the restriction was as the Court put it normally and reasonably adapted to secure the patentees pecuniary reward.
Again, subsequent cases, all demonstrated a considerable lack of confidence to say the least in the Court's view and the GE Rule, it was not in any significant decision.
The basis for absolving price fixing restrictions and in Mason -- pardon me, inline material four judges of this Court were prepared to overrule General Electric.
Now, I think it's fair to say that now if not at an earlier point.
it is clear that neither that the Beament case nor the General Electric case provided an adequate underpinning for the result because they did not deal with what may now be seen to be the real questions and those questions are these.
First, whether the grant of the rights to price fix and a license makes any detectable contribution to the main purpose of the patent laws, a proposition which the Beament case and GE simply assumed.
Second, whether if it does not and I believe it is clear that it does not make any contribution to patent policy at all.
If promotes or detracts from a pro-competitive fallacy which is the core of the antitrust laws.
Now, as I say we believe a careful examination of these questions which is clearly to conclusion that GE was wrong and if this Court sees fit to deal with issue should over -- it should be overruled.
Now, first, we maintain that contrary to what was assumed in General Electric, the decision whether or not permitted patentee to put a Price Fixing Clause in his license makes no detectable contribution of the purpose the patent law whatsoever and they end up to treat the issue as one of reconciling patent law and anti-trust law is itself a mistake.
The purpose of the patent law, main purpose as this Court has repeatedly said is to encourage inventive efforts.
The devotion of time and expenditure to invention by offering a reward, the right to exclude all others from making using or selling the subject matter of the invention, so that the only possible impact of the decision of GE issue, on the purpose of the patent statute, would be that if it -- it would be enhancing a reward and thus attraction inventive efforts which might otherwise would not take place.
We believe that, its' quite clear, that this simply does not exist.
For one thing, and I wish at this point to cast no reflections of the patent system, we do not really know if the patent statute itself makes a net contribution to the flow of innovations.
We know that much research would go on without the patent grant because of competitive pressures and because people are motivated by reasons other than pecuniary as Professor Machlup, who studied the issue about as much as anyone has said, “none of the empirical evidence at our disposal and none of the theoretical arguments presented either confirms or confutes the belief that the patent system has promoted the progress with technical arts.
No economist on the basis of present knowledge could possibly state uncertainty that the patent system as it now operates, confers a net benefit or a net loss on the society.
Now, setting this aside, it is clear that whatever the reward, it is that the patent statute confers, the right to insert a Price Fixing Clause in a license, particularly, if this is limited to a single license which is the basis on which appellees proceed here is of marginal value.
It is un awfully thin slice but whatever the pie is and it is of marginal value even after the patent is obtained in light of the right that the patentee has to charge any royalty up to what the patent is worth.
The right to limit the number -- and the right to limit the number of licensees thus minimizing the likelihood of vigorous price competition.
But what it is worth after the fact is not relevant to the question of the bearing of this issue on the patent statute.
The real question is, to what extent if any, is it considered when the prospective decision by the inventor or the corporation as the case maybe is made.
Now, here it seems clear that a company contemplating research or an inventor contemplating individual efforts is dealing with such in-determinant figures that such a marginal aspect of the patent right is what is involved here could not have any decisive influence.
In important respect, what the patent law creates is something like a lottery, promising rich rewards to the few who make out, in this respect even a substantial reduction in the value of the eventual payoffs or maximum payoffs, would make no difference.
To use a simpler example, anyone who will put up $1 to win a $1,000 is very likely to put up the same dollar to win 500.
A fortiori to win 975 which is my example is probably more what the loss of the right to price fix would reflect.
Therefore, as the Government's view and we believe we are correct again, that the question here is not one of reconciling patent law with anti-trust law but rather whether given the fact that the patent statute gives the patentee the right to exclude all others.
The right to price fix any license will promote anti-trust policy in some way.
Now, look at in this way, and we believe this is the only way that it can be looked at reasonably.
The GE Rule is a wise Rule only if all of the following propositions are true or probably true.
First, that the availability of the right to insert a price fixing provision in a license induces licensing in a significant number of cases where without that right, licensing would not take place.
If it does not do that, it makes no contribution to competition under any circumstances and what you have is simply a gratuitous restriction that must represent in that loss.
Second, even if it induces licensing in a significant number of cases, we must believe that in cases where it is so induced, licensing will more often than not over the long run produce a better competitive situation and if licensing had not taken place, an issue which I will again shortly discuss.
Third, even if there is a net gain in this respect, we must believe that that net gain, if any and we don't think there is any, out ways the economic losses that result on price restrictions imposed in situations where licensing would have taken place anyway, and the economic cost to society of the elicit use of price fixing for cartel purposes, in cases which it imports when agencies either cannot detect, lack the resources to prosecute or able to terminate only or after the arrangements have lasted for some time.
It is, I believe which we hope to support that it is highly, unlikely that these prepositions are correct that whatever reasoned analysis we can bring to bear on the basis of present knowledge, suggest to the contrary that the GE Rule does more harm than good.
But that in any event, no record which might have been developed in this case would have been any material help in shedding light on those propositions.
Now, first, does the GE Rule induce licensing in a significant number cases, where otherwise no licensing would take place?
We do not think so, but we do not pretend to know.
We do know this?
In many cases, patentees have not and would not license even with the opportunity to the price fix.
This tendency not to license, in fact, appears to be strongest and one would suppose it would be in those cases which perhaps we fear the most when we talk about what good the GE Rule might do.
Namely, the case where the patent is extraordinarily strong and promises to the patentee, a high assurance of the 17 year of monopoly, in fact with nobody coming around to be him.
It is interesting to note in this connection that the Alcoa case often cited as one of the unfortunate consequences of licensing is a case where precisely that was true.
Despite the availability of the right to put a Price Fixing Clause in license Alcoa never licensed anybody in the hope which turned out to be well founded that nobody within 17 years could invent around them and that they would have established in almost impregnable monopoly position.
Justice Hugo L. Black: (Inaudible)
Mr. Turner: They did license during the war Mr. Justice.
I believe under the provisions of defense legislation and thereafter under the terms of the decree entered by the District Court in the Alcoa case if my recollection is correct, they were directed to license then existing patents to their competitors, who had arisen during and after the wars as a result of sale of surplus plans.
Justice Hugo L. Black: After that?
Mr. Turner: That's right.
Their original basic patent the one which they never did licensed are collection of patents, my memory is not too clear on it, go way back.
I think the last basic patent expired somewhere around 1915, and by that time their position was so strong that they in effect had a domestic monopoly until the post war.
Now, how about those cases where patentee is do consider licensing?
Let me note again, the value of the right to put in Price Fixing Clause is no more than a marginal right.
Whatever the value is can be converted into a higher royalty.
Some higher royalty would measure the value to the patentee, and the right is decisive to the patentee or decisively influences his decision to license only when he translates it into such a high royalty that no one will pay it.
Now, if GE applies only to a single license, the difference between price fixing and the protection which a patentee gets from a higher royalty plus a considerable confidence that only two producers will not compete very vigorously in price, a common industrial phenomenon is very small.
Now, whatever maybe said for this, it is perfectly clear that in this case and in all other cases in which patentees face the decision whether to license are not, there are many other potent reasons for a licensing which have been and would be decisive even if the price fixing right were taken away.
Take a look at the facts of this case.
The trial judge found as a matter of fact or appeared to that the principal reason or one of the main reasons why Huck license (Inaudible) was a demand by Huck's customers and potential customers for a second source.
In order to minimize shortages, speed deliveries and avoid the danger that labor dispute might shut down the only supplier.
These reasons would have been -- did exist and would exist whether the price fixing right were present or not and they are a powerful inducement to a company like Huck to license.
Secondly, there maybe expanding demand or excess demand which can be met more quickly by licensing other producers than by internal expansion of facilities, which is to say the patentee can profit more quickly and at a greater rate by licensing rather than by its own internal expansion.
Also, licensing gives additional income without having to make capital expenditures and thus running the risk of heavy capital losses in the event of declining demand in the future, whether because the commodity is no longer wanted or because someone has invented rounding and has come up with a better substitute.
Let me repeat the point the enormous advantage of any patentee in licensing is that he does not risk capital losses.
Now, finally there are some reasons which again we're apparently present in this case and are probably in almost certain present in all cases of what somewhat last repute but they should be mentioned.
And that reason is that the would be licensee, if not given a license may invent around the patent or may in litigation establish the invalidity of the patent or lack of infringement, so the patentee will have a competitor with no royalty.
Also, that the licensee may slow down the development or terminate the development of competing goods, if he has the protection a license.
In short, even where licensing is beneficial or neutral as in the case of expanding or excess demand.
It seems to us that in most cases the patentee is likely to license without price fixing.
He's still retains the right to pick his licensee carefully.
There's little likelihood of price competition in a situation of exist or expanding demand and unless the cost advantage of a licensee is decisive and as I pointed out, he can avoid that by picking another licensee, all of the reasons, the advantages that he has for licensing will still exist, or he does it for the other reasons that I suggested to forestall competitive innovation, to forestall litigation which maybe fatal to his patent or to his claim of infringement that those reasons may still compel him to license but it should be added and this is a matter, I will get to shortly in more detail.
It's quite clear there's no public interest in encouraging him to do so.
Summing up, looking at the matter as best as we can.
Given the marginal value of the GE Rule in the single license case and the strong reasons for licensing anyway, we believe it is fair to say that the best guess seems clearly to be that the GE Rule will induce licensing in a relatively small number of cases.
Now, would we know any more about this if the issue were thrown open for record evidence?
We think the answer is clearly no.
The question raise is one of probabilities which if answerable at all, would be answerable only on the basis of careful studies of a statistically significant and statistically representative number of cases.
No such studies exist and it seems highly unlikely that they are feasible in a forceable future.
I think we might get a good inkling as to this later point by asking by asking the question, what would we have learn in this case?
If the GE Rule had put in the question and defendants and or the Government would have attempted to put in a record.
I presume that defendant Huck would have testified that price fixing was vital to the decision, although, we would have a nice dilemma in view of the fact that he then can still vigorously resist the preposition, if there was any such agreement.
I suppose the defendants will always testify to this fact.
But such testimony is clearly worthless unless backed up by objective evidence and of what kind?
Well, here, there was some evidence that Townsend was more efficient and that Huck feared this but Huck might still have relied on higher royalty.
And Huck clearly had many reasons for licensing which I have already recounted which appeared in the record, which may well have been decisive.
Indeed, as I just suggested that Huck vigorously denies that any price fixing agreement existed and it did license.
And the District Court appeared to find that it did so for reasons wholly apart from price fixing as it would have to do.
Now, all of these factors are present in this case.
They are going to be present in any case and the question we ask is, how can any confident judgment be reached as to what the result would have been in view of the (Inaudible) and non-quantifiable nature of the considerations involved?
And if this is so, for the individual case, how could any economic study of a statistical nature of any value ever be conducted?
Now, let me turn to the second --
Justice John M. Harlan: Can I ask you a question?
Mr. Turner: Yes, sir.
Justice John M. Harlan: Is there any way of trying obviously (Inaudible)?
Mr. Turner: I do not know the answer to that question Mr. Justice.
It is the question of reliance is an important one.
It seems to us that to the extent that reliance has been put on the GE Rule, despite good reasons to believe that it has not been the solidest of precedents that this could be taken care of in two ways.
One in any Government action, the Government could as it has here simply request the future injunction against the continuation of the agreement or an injunction against or decree that the clause if it's in the contract, it's unlawful.
In treble damage actions when and if such cases would arise, this Court could then decide whether an overruling of GE should or should not be given prospective effect and the Government feels it would be very appropriate case as was done in the case last year arising out of Knapp v. Ohio –- would be a very appropriate case for the Court to apply the ruling only prospectively.
That would take care of that problem.
Chief Justice Earl Warren: But if you can answer that question, does that indicate that we should have the guidance of the court below in exploring that matter before it comes to us as a matter of first impression?
Mr. Turner: Mr. Chief Justice, if I understand the question was whether we knew how many people had relied?
Chief Justice Earl Warren: That's the one perhaps --
Mr. Turner: Yes.
Chief Justice Earl Warren: That's just one passes of it.
There are others too, aren't they?
Mr. Turner: That's right.
Which I have been endeavoring to deal with and I have more to go.
Chief Justice Earl Warren: Yes.
Mr. Turner: On this one, I don't suppose that it could be answered Mr. Chief Justice because a lot of these agreement, we don't know how many people have these agreements without discovering them and we do discover them from time to time and almost invariably bring suit.
But I don't think the question how many people have these agreements would -- is a question that could be got at.
We would be no better off, by thinking question raised below, an endeavor, may to fond out, than we are now.
People, who suspect the validity of any such agreement, are not likely broadcast it, and how many unknown agreements there are?
I don't think I know and I don't think could be readily discovered.
Now, I've asked the question whether the GE Rule seems likely to induce people to license in any significant number of cases where the otherwise would not.
But I'd like to go to the question which is also essential as I indicated -- essential support to GE and that in cases where price fixing does induce licensing, will the situation more often than not be better then if the patentee deprived of the right to put in a Price Fixing Clause didn't license at all?
Now, we know to say the least that licensing will not always produce a better situation.
For reasons that were set forth in the Court's opinion in Masonite and concurring opinion in Line Material and fears then expressed by the Court which really materialize in this case here, and will always be present, namely that the patentee may license simply to forestall competition which might otherwise develop.
Now, licensing is most likely to be beneficial, as I believe, I mentioned before in a case of strong patent promising a 17 year monopoly or more but these are rare and as I mentioned before where such a situation exists, the patentees are simply not likely to license anyway.
So, price fixing is most likely to be utilized where the patents are weak, less basic, and here there is a less to be gained from licensing and less to be lost from no licensing.
Now, whatever assessment is made, I have not covered all of the considerations and I probably haven't.
Here, again, I submit that no record would help, look again at this case and ask yourself if it would really have been possible in any decisive or even barely satisfactory way to answer the question whether it would've been better in the long run if Huck had not licensed or whether as it did to, it did licensed.
We have evidence in the record in the form of fears expressed that Townsend, if not given a license couldn't be in around the Huck's patent or beat it in litigation.
Now, perhaps more light could be shed on this issues on what might have happened if there had been a full range of testimony on the validity of the patent, and the likelihood in the light of the full range of the patent that are in the field that research would produce a substantive.
But these issues are difficult at best and again, an answer in anyone case gives no answer whatsoever to probabilities which is the critical question.
Now, finally does the net gain so far and we believe if you had to make an estimate, that there's a net loss so far, from the GE Rule, out way the cost of permitting price fixing by any per se rule of per se legality in situations where licensing would've occurred anyway and that therefore the price fixing right is at risk gratuitous and added restriction serving no purpose at all.
And in those cases and we know that these exist, pages of this Court in past where the license is taken not so much for the patent but for the price fixing, and for the advantage that is gained by cementing an anti-competitive arrangement.
Justice John M. Harlan: (Inaudible)
Mr. Turner: Yes, sir.
I can't recount all the instances but my understanding is that the Government from time to time over the years has endeavored to overrule GE by statute.
Justice John M. Harlan: Without success?
Mr. Turner: Without success.
Though further on the point, I would suggest that this should not be of any great influence, the GE Rule as the Court made the Rule legislation in this area, the whole anti-trust area either way, it just doesn't happen very often.
What we have in anti-trust statute, what we have in patent statute is something is very hard to mount sufficient alignment political forces to get change one way or the other.
I think it fair to say that the -- in this connection that the failure of Congress to overrule the GE does not necessarily represent a positive judgment –-
Justice William J. Brennan: Mr. Turner, you say just --
Mr. Turner: -- that should not.
Justice William J. Brennan: -- that --
Mr. Turner: I beg your pardon?
Justice William J. Brennan: You said is GE is a judge maybe?
Mr. Turner: Yes, sir, it is.
Unless one supposes which -- unless one takes the approach it was taken in the Motion Picture Patent’s case that really all restrictions beyond the bare terms of the patent grant as a matter of statutory interpretation or simply beyond the scope of the patent grand and would be treated under ordinary general law but that too, I suppose is a judge made law, that's what I mean by it.
But certainly, let me put it this way that the General Electric is certainly not compelled by reading the patents.
Justice William J. Brennan: Assuming the judge made in the sense to the Rule of charitable immunity is – likely as the judge may rule with it?
Mr. Turner: No.
I mean in this sense though that the GE Rule is certainly not compelled by the terms of the patent statute if anything, the information would be to say otherwise and it is judge-made in the sense, I suppose that any issues statutory interpretation as judge made that is an area where there is a reasonable cause for dispute.
Justice Byron R. White: Like the per se Price Fixing Rules, is that it?
Mr. Turner: Yes, in the sense.
Well, Mr. Justice White I suppose in the sense all anti-trust laws is judge made.
Justice Byron R. White: And that's what I got from this.
Mr. Turner: Yes.
Chief Justice Earl Warren: At least (Voice Overlap) --
Mr. Turner: I --
Chief Justice Earl Warren: -- of the case?
Mr. Turner: I don't know whether to pursue that any further I don't know where it takes me.
Justice Hugo L. Black: Anyway, it's not like Wilcox, the tax statute.
Mr. Turner: Mr. Justice, there are lot of things I don't know in tax cases or whatever.
Justice Byron R. White: You and I both.
Mr. Turner: Now, I have come as I indicated the final question as to whether there any net gain in the GE Rule in terms what we knew.
We believe that again the probabilities are as best we can speculate that the losses exceed the gains but again we would insist and I don't think I have to labor the point now that it's hard to conceive of any record would provide any further enlightenment upon this.
No decisive proof could be ever being gotten without a full survey, all instances in which licensing has occurred, what would have happened if had not occurred, instances, where price fixing was gratuitous and as and we suggest that such information is simply not available.
Now, I would like before concluding on this to deal specifically with one of the points raised by appellees and that is the suggestion and it is certainly a possibility that the removal of the protection afforded by the GE Rule might conceivably produce concentration or add the concentration in some industries by causing a small producer, who would otherwise stay in business to sell out.
Now, as I say this is a possibility but I would like to examine the question whether it is anything worth pausing over one.
First point, I would make is that a higher royalty will connect to small producer in every case where the value of this patent as measured by what the licensee is prepared to pay exceeds the cost disadvantage that the patentee operates under.
Whereas this is not so, the patentee may license a less efficient producer, he may license no one, or he may indeed sell out his patent to the more efficient producer or someone else.
Now, how can we asses the consequences of this?
If he licensees to a less efficient producer, the public in terms of the price that it pays will lose nothing because the price would presumably if it is set by anyway.
If he licenses no one for such time as his inefficiency lasts, there is indeed a temporary loss of output which might otherwise have been produced.
If he never does become more efficient, it is common guard in variety anti-trust law that he probably ought to go out of business.
And if he does sell out to the more efficient producer that too has much to recommend it, at least the public gets the benefit of lower prices and resources are being utilized by those best to able to utilize them.
Moreover, to the extent that patent accumulations are purchase of patents by normal -- counter company is a problem, we have perfectly adequate ways of dealing with this under the anti-trust laws.
I've raised an issue which this Court has not decided but I can suggest what the Government's position would clearly be that Section 7 of the Clayton Act applying to the acquisition or all of any or any of the part of the assets of a company includes within this comprehension patents.
And if the Government has a good cause of action under Section 7, if a dominant firm in an industry acquires patents which further its dominance.
So in short, any serious consequences resulting from this seem to us to see the controllable in other and more satisfactory ways.
Now, let me try to conclude on the merits as we see them, the Court has three choices, a case by case approach to the issue raised here, a rule like GE that a single license Price Fixing Clause is a per se lawful and third position we defend that should be held unlawful per se.
Justice Potter Stewart: You rule out the choice that more than a single price -- more than the price fixing with the single licensee is open to it?
Mr. Turner: This way is around a difficult problem, Mr. Justice Stewart.
I think we would have to say that faced with a choice between allowing GE to reply to a wide number of licenses, to plurality of licenses and to a single license only, we would have to accept the latter.
But this is a difficult question because if the GE rational is correct the Single License Rule cuts before it.
And the issue -- and the case in which we're most worried namely that of monopoly, obviously, if there's advantage to be gained in preserving a competitive structure.
That advantage is multiplied by multiple licensing.
There's also an issue of equity involved.
I mean, if you would affect in the patent case if as we doubt the patentee is going to license anybody.
You condemn to death those licensees who can't get the patent, so it's a very troublesome issue.
Justice Potter Stewart: Was GE itself involved in the single licensee, did it not, in that case?
Mr. Turner: It -- it did insofar as price fixing is concerned.
In fact, there were some licenses to smaller companies --
Justice Potter Stewart: But in this issue it would involved --?
Mr. Turner: That -- that is correct.
Justice Potter Stewart: And this case involves at least according to your theory --
Mr. Turner: That's right.
Justice Potter Stewart: -- exclusive license?
Mr. Turner: That's right.
Justice Potter Stewart: Do you say that the as I understand to your brief and your argument the law and the Federal Court -- the other Federal Court has been pretty clear in whitening down the GE Rule to the single licensing?
Mr. Turner: It's by on means clear, I mean, there's still dispute and each one of those limitations raise a serious questions.
A good case can be made in theory for the proposition that the GE Rule is sound, it ought to extend not only to controlling the price of an end product, but to controlling the price of an unpatented end product in which the patented component is very important.
Again, if there is any merit in Rule.
In theory, it would extend.
Now, let me again hasten to saying that if the Government would never be caught supporting that proposition, but the tendency of the decisions has been debarked to rule in.
We believe very simply that and we don't think on this the appellees would disagree that a case by case Rule makes no sense at all but you subject in effect, there's no law at all because the issues are so indetermined.
And in light of what we know, in light of the inability really to get any significant further information by virtue of a record that here the presumption should clearly be in favor against a restriction so anti-competitive in nature.
Once the issue has gotten in anti-trust context, once it is realized that it is not a question of accommodating the patent statute and its strictly anti-trust question, we believe the answer should be cleared.
Justice John M. Harlan: How many suits are pending in the lower court are waiting the outcome of this case?
Mr. Turner: I think -- I do not know for sure Mr. Justice because I don't know the private cases.
To the best of knowledge, there is no government case currently pending that involves the Rule.
Now, there's one other issue the Government has urged that the -- even if GE hasn't overruled that a combination in an exclusive license and Price Fixing should be held beyond the scope of GE.
I treat this issue with considerably less enthusiasm.
I think it is what it leaves of the GE Rule is very little.
If the position has a merit I think the merit is in terms of the arguments that I just made namely that the case for GE is so painfully weak that it ought in any of that to be restricted as narrowly as possible.
Therefore, we urge that the case be reversed.
I'm sorry, I didn't have time to get back on this matter.
Chief Justice Earl Warren: Mr. Lyons.
Argument of Dennis G. Lyons
Mr. Dennis G. Lyons: Mr. Chief Justice, may it please the Court.
I shall get it a little into the facts of the case as presented by the record and review the time sequence of the Government's waiver of any intent to question the General Electric Rule in this case because that time sequence is a very important matter.
I will also discuss why it is inappropriate from the procedural stand point for the Court to reconsider General Electric on the present record and I also plan to point out some of the serious economic questions which would have to be resolved if General Electric is to be overruled and as to which proof could be made one way or the other and on which there is simply no record to proof whatsoever.
Mr. Pomeroy will address himself to the Government's suggestion that there are certain pressing practical needs that require the overruling or the reconsideration of the General Electric case at this juncture and he may also briefly reply to the argument which Counsel made at the very end, if it is oral argument to the effect that even if General Electric is not overrule, there is something in this record that goes beyond the General Electric Rule.
In this case, there were a simultaneous indictment and a civil complaint brought against Huck, the owner of the lockable patents and Townsend, its licensee.
The criminal case was also brought against the Presidents of the two companies.
Before either case was tried there were pretrial conferences in the civil case in October of 1962.
There was pretrial conference in the civil case on the first of October and there the judge indicated some concern as to just what the issues were before him. Specifically and of course the defendants were very interested in these too, the question was whether the Government was seeking to have the General Electric case overruled.
Counsel for the Government said that they were not in a position of that conference to say “yes or nay” to that question that they would have to confer presumably of their superiors in anti-trust division in Washington.
There was a resumed pretrial conference in the civil case, a brief one, on October 15 two weeks lately, when the Governments attorneys reported back as to what the position was as to the overruling of General Electric and as to what their position would be on that matter.
The first pretrial, the pretrial irrelevant to the first conference says, “After a restudy of the facts, the Government will advice defendants of its position.”
This is on Page 767 and 768, “As to applicability of the General Electric case decision if any to this case.”
And now the report of what happened on October 15th.
On October 15, reporting on the applicability of the General Electric case, the Government stated that it is attempting to have the Doctrine set in the General Electric case overruled and stated only the facts in this case do not fall within that Doctrine.
That the Doctrine is still good law but does not apply as the actions in this case are illegal without application of the Doctrine.
And that it will write a letter by December 29 describing in what way of the facts of this case differ from the facts of the General Electric case.
The Government did write such a letter and that letter appears on Page 779 of the record, it's a letter signed by -- on behalf of the 11 jurors and the Assistant Attorney General in charge of in anti-trust division and the letter itself well, not contain a statement quite as strong as that that the pretrial order recites still makes it perfectly clear that all the Government is charging is that the acts of the defendants went beyond the sanction by the General Electric case.
Certain another statements in the record reinforce this.
In the Government's trial brief, the summary of the Government's contentions were simply in terms of contentions that were made to effect that the conduct that was charge here went beyond that permissible under the General Electric case.
And in the colloquy of Government counsel on the motion to dismiss appearing it 698 of the record the remarks are all to the same effect.
At this point after the October pretrial conferences, the criminal trial took place.
The criminal trial took place before judge and the jury took place on February and March of 1963.
The Government did not challenge the General Electric case in the criminal case.
In fact, I think the very fact that they brought the criminal case on first indicates that overruling General Electric was not any part of their designs in this case as it was tried in the District Court and that it was completely remote from anyone's thinking.
Very difficult to say that you could challenge conduct which was within the scope of an existing Supreme Court decision and in both criminal pains and penalties down upon the parties for following it and this of course was a prosecution against individuals, as well as against the corporations.
The basic transcript of record that we have before us is the transcript that was developed in the criminal case, we shall come in a moment to why that is so here.
And of course in the criminal case, there was no challenge whatsoever made to the General Electric case.
The Government put evidence in the criminal case, the basic patent license that was involved here.
I was somewhat surprised to hear Counsel say that the parties here denied that there was any price fixing and that price fixing considerations motivated them and the original licensing.
Actually, there is a Price Fixing Clause in the patent license.
The patent license starts on the 469 of the record and there is a two year Price Fixing Clause provided in paragraph 12 of the patent license.
Justice William J. Brennan: Is there anything on exclusive license?
Mr. Dennis G. Lyons: Yes.
There -- there is also a two-year exclusivity period which is provided for the same length of time.
Justice William J. Brennan: What Section is that?
Mr. Dennis G. Lyons: That Section 12 (a), 12 (b) is the price restrictive -- 12 (a) is the exclusivity.
Those two provisions expired by their terms in September of 1956 and we do not understand the Government be contending here that a price restriction which expired back that which is over nine years ago could now be the basis of an injunction.
Their cases as I understand it that there was a continuing price restriction here beyond the two-year period and that that if General Electric is overruled could be the subject matter of this case.
It could be the reason why there is any real controversy presented here.
The Government did not present any evidences to what the relevant market was here – whether there were extent to which there were substitute products for lock bolts, the extent to which Lock Bolts gave a party that was able to lawfully manufacture them and the sort of dominance in the general fastener market.
The Government in fact objected when the defense managed to get in some proof as to the existence of substitute products for Lock Bolts.
Now, the governments in this case had a gentlemen, who I think we could refer to us who as their star witness.
It was a Mr. Robert Looker, who was the step son of Mr. Lou Huck, who is the founder of Huck Manufacturing Company, the patentee here actually is Mr. Huck who is the inventor.
He had been an officer of Huck until 1956 when he left and formed his own company, he left about four years after his father -- his step-father died.
Mr. Looker testified and he chose to identify the time of this as a meeting that was held in 1954 prior to the time that party is entered into this written patent license agreement.
He testified that at that meeting, there came a time when the Executives asked their lawyers to step out of the room and that the Presidents of the two corporations agreed that while the patent license itself would only provide perhaps for a two-year exclusivity and a two-year Price Restrictive Clause that those features of the license would continue for -- and this is alternatively given for the life of the patents or for the life of the license.
Mr. Looker at this time, at the time you testify to this had a trouble damage suit on file against the defendants.
It was based on the failure of Huck to license the company that Mr. Looker had gone to under the Huck patent.
Naturally, it would be an important ingredient in Mr. Looker's case that there be an exclusive feature in the agreement of this exclusive feature be a continuing one because he left Huck about the time that the two-year period expired and that it was unlawful.
And there is a considerable correspondents that was brought up in the record showing that Mr. Looker was the Justice Department's informant in this matter and that in fact as the District Court found, he initiated the filing of this action by the Justice Department.
There was given an evidence even in connecting with the Looker's testimony, in fact, some of these are Government direct exhibits which contained contradictions.
There was given an evidence say considerable number of memoranda that Mr. Looker wrote.
He was a great writer of memoranda that were completely inconsistent with the story that there was a continuing price restriction.
He wrote a lot of memoranda saying that in September 1956, the price restriction will expire.
In September 1956, we'll be free to license anybody.
At close of the criminal case, criminal case was tried to a jury.
The district judge took the case away from the jury and he held that even crediting Looker's testimony that under the General Electric case, there was no proof of any violation of the Sherman Act made out, and he granted the judgment of acquittal.
Incidentally the Government, I'm sure inadvertently in their the brief refers to the district judge in the criminal case as believing Mr. Looker's testimony when he says that the Government showed such and such at least prima facie.
Now since he was sitting with the jury, there was no issue as to whether he believed the Government or not, at this point, that was a function for the jury.
In order for him to take the case away from the jury, he had to rule as a matter of law that even accepting Mr. Looker's story on its face that there was no violation of law, and in fact there is none under the General Electric case.
Justice Hugo L. Black: He did base it on --
Mr. Dennis G. Lyons: Yes, he did.
The party is then after the criminal case was done, entered in to stipulation that the testimony submitted by the Government, in connection with the criminal case, would constitute the Government case in chief in the civil case and now would constitute the whole case in chief.
And they also agreed that there would be a motion filed under Rule 41 (b), the motion for judgment at the end of the Government's case.
At this point, we still have the Government disclaiming that they said in the October 1962 conferences any intention to question the General Electric case.
In fact, we have their express statement under this good law and it was on this basis that the stipulation was entered into.
It was on this basis that the motion to dismiss under Rule 41 was filed.
The civil case was before a different judge in the District Court Judge Machrowicz, he made an independent analysis of the record and he came to the same conclusion as did the judge in the criminal case as to the issues of law.
As to the issues of facts, since he did have an independent fact finding function, he was sitting without a jury.
He made certain findings which make it quit clear that he was not accepting Mr. Looker's testimony but that he was finding once again that even if you believe Mr. Looker, there was still no violation of the Sherman Act because of the General Electric Rule.
Justice Potter Stewart: Mr. Looker didn't testify in this case?
But all he only had was the record?
Mr. Dennis G. Lyons: All he had was the record.
He did not have the opportunity to see Mr. Looker on the stand.
There was no cross-examination of them.
He couldn't have seen Mr. Looker's demeanor when the contradictory memoranda were shown to him and how he would have reacted to that sort of things that a finder of fact, I'm sure would be interested in seeing in a case of this sort.
Justice Potter Stewart: You had no live witness in this case, did you?
Mr. Dennis G. Lyons: There were no live witnesses in the civil case.
It was simply the transcript of the Government's briefs in the criminal case.
Justice Potter Stewart: So, any findings of the facts were just based on the --
Mr. Dennis G. Lyons: On his analysis of the --
Justice Potter Stewart: Of the record?
Mr. Dennis G. Lyons: -- of the record.
He found that there was not any showing of any continuing agreement on prices between the parties after September of 1956 that was the time when the two-year Clause from the written patent license expired.
He found that while generally Townsend did charge in the period after ‘56, the same prices as Huck, there were some instances of price competition between them.
He also found that Huck had in fact declined license, a number of license applicants, both before and after the end of two year period.
He also found that its refusals were undertaken in the exercise of Huck's own discretion and without any participation by Townsend, the licensee.
In fact, he found that Huck license took concerns to make Titanium lock bolts which were lock bolts of the sort that Huck did not manufacture, that Townsend did not manufacture.
The extent to which our lock bolts made of that metal which compete with the lock bolts which they did manufacture was not shown in the record.
And on the basis of this, in citing the General Electric case, the district judge granted the motion under Rule 41 of the Clause of the Government's case.
There was no cross-examination of the Government's witnesses in the civil case.
There were no proofs put on, on behalf of the defendants.
There was no reason for the defendants to try and make an economic case showing how in the metal fastener industry, the General Electric Rule might be a matter of significant economic benefit to the small producers to the small producer of patented items which they would've been at perfect liberty to do, had the Government been challenging the General Electric case?
There was no reason for the parties to get very fully into the question of --
Justice William J. Brennan: This is an argument I don't understand because the case has been tried is it?
When take this -- if we should agree with the Government, the first year to go back, then for trial, wouldn't it?
Mr. Dennis G. Lyons: Well, it depends what the issues are Your Honor.
If the Court should hold the General Electric as bad law and should be overruled, then of course, we wouldn't have any opportunity to make an economic case to the District Court to the effect of the General Electric case was good law and should not be overruled because --
Justice William J. Brennan: Oh, yes.
Mr. Dennis G. Lyons: -- that would be out of the District Court's hands.
But my point is that had the Government given us some sort of notice of the position that they are going to take in this Court, in fact, that they had not represent it to contrary, there would've been an opportunity in the District Court to build a record that would've been meaningful to this Court and would've afforded a full factual and economic showing of the reasons why the General Electric Rule makes sense, particularly, in terms of the small business patentee.
Justice William J. Brennan: I don't see, and maybe that's not quite my point, excuse me, point of view but what kind of a -- I don't see the piece can be anything beyond the speculative assertions, in any event, what kind of a factual record could you have built?
What kind of the price suppose had the testimony of the economist, maybe some statistics that --
Mr. Dennis G. Lyons: Presumably that would've been factual.
We could've called the buyers for the large companies that are the consumers of metal fasteners and the aviation industry, and the trailer industry, and the automotive industry, and we could have questioned as them as to their practice as to requiring second source, when a small (Voice Overlap) --
Justice Potter Stewart: (Voice Overlap)
Mr. Dennis G. Lyons: -- with a --
Justice Potter Stewart: If you can have price fixing as a second source?
Mr. Dennis G. Lyons: It's -- as far as the patentee is concerned, I think, the ability to make sure that his second source, that his licensee does not compete price wise with him is a very important thing in his consideration as to whether it's not his second source.
Justice William J. Brennan: It's not the type of thing that we usually do in the antitrust case -- you don't -- on the bank case, we don't ask for advice of people on how they think that should be?
Mr. Dennis G. Lyons: Well, I think in that situation you have a case where Congress pretty clearly established a judgment and --
Justice William J. Brennan: On price fixing they don't ask the views on others good or bad.
Mr. Dennis G. Lyons: Well, in the White Motor case, if Your Honor recalls, there was a summary judgment granted.
Justice William J. Brennan: That was more than price fixing though.
Mr. Dennis G. Lyons: No, it was more than price fixing but it was an attempt to -- in effect to set up a new per se Rule.
Justice William J. Brennan: But what I'm getting at is if we agreed with Government on the General Motors, it should be overruled -- everything would go back for a trial.
I'm getting at the point of the prejudice that -- you may --
Mr. Dennis G. Lyons: Concerning things that go back for a trial Your Honor.
Justice William J. Brennan: Yeah.
Mr. Dennis G. Lyons: -- the basic factual questions as to whether there was after 1956, this sort of agreement would go back to the trial but the sort of proofs that the Court indicated that it wanted in the White Motor case that it was deprived of by the summary judgment procedure there.
Those could not be put in because the issue would already have been decided.
In fact, we would not have had an opportunity to put in the factual and economic material as to where the second source price restrictive license helps.
Justice William J. Brennan: You mean that client instantly would agree with Government there should be a per se Rule of Conduct?
Mr. Dennis G. Lyons: Right.
Justice William J. Brennan: But not other one?
Mr. Dennis G. Lyons: Well, there already is a Rule that restricts these agreements very narrowly and this agreement was very carefully scrutinized in the District Court before both district judges.
If the Government's position is nakedly here that there should be a per se Rule without regards of the strength or weakness of the patent, without regards of the number of licensees, without regard to the size of the patentee in the sort of industry that he is functioning in.
The sort of people who are his customers without regard to any of these factors --
Justice William J. Brennan: With all that if we didn't -- those parts per se, I thought Mr. Turner suggested there were alternatives, he recognized and he did not have to go as far the per se Rule necessarily existed, and if we didn't and we did not would all these become relevant (Voice Overlap) --
Mr. Dennis G. Lyons: Well, he mention this --
Justice William J. Brennan: -- case by case?
Mr. Dennis G. Lyons: He mentioned the certain alternatives.
One of the -- I think the law has already gone virtually to the point where the only question is whether there will be a per se Rule.
I don't -- I think that -- you ignore as equilibrium than the last step, Your Honor.
Justice William J. Brennan: Did I understand you to say that they are not presently fixing prices?
Mr. Dennis G. Lyons: They are not presently fixing prices.
There is no showing that they --
Justice William J. Brennan: You could present that evidence in order to avoid the injunction?
Mr. Dennis G. Lyons: They could on the other hand that presents say question of fact Mr. Looker is testifying that they are presently fixing prices.
He says back in this --
Justice William J. Brennan: If you get a trial although when you went back if Mr. Justice Douglas suggested.
Mr. Dennis G. Lyons: You would get a trial on that but you would have any -- never had any opportunity to present the economic questions as to whether there should be a per se Rule in this area or not.
That is what would be taken out of the case and that was what the -- taken out of the case by the procedure that the Government has followed here.
Justice William J. Brennan: That would be within our competence to send it back to a trial to that?
Mr. Dennis G. Lyons: It certainly would Your Honor.
Now, as to that whether --
Justice Potter Stewart: I wonder if that kind of evidence was before the Court, and it decided the General Electric case?
Mr. Dennis G. Lyons: I'm not familiar with the extent to which the Government proves in that case where or much better –-
Justice William J. Brennan: As I read --
Mr. Dennis G. Lyons: -- than they were in this case, Your Honor.
Justice William J. Brennan: As I read the record in that case, the Court merely took judicial notice or something?
Mr. Dennis G. Lyons: I don't believe that at the time of the General Electric case there was a very full development of the economic issues.
On the other hand that is -- that was 1926 and this 1965.
I will pretend it were --
Justice Hugo L. Black: In Line Material was it?
Mr. Dennis G. Lyons: Yes, there was Your Honor.
There -- the Government there indicated in the District Court's dissatisfaction with the Rule of the General Electric case and in fact, the District Court there made a lot of findings that were only made on the alternative that the Supreme Court would overrule the General Electric case.
Justice Hugo L. Black: But I think that this was where any economic facts as to what the effect of overruling General Electric would be in that case, was it?
Mr. Dennis G. Lyons: I don't know if the parties put them in or I think the record might have been limited again in that.
Justice Hugo L. Black: Well, that's all is just the irrelevant markets may?
Mr. Dennis G. Lyons: Well, the --
Justice Hugo L. Black: Any of it recovered things like that --
Mr. Dennis G. Lyons: There's no showing in this case even of the irrelevant markets.
The Government in fact has expressly claimed in this case that proof of the irrelevant market is not part of its case and the judge in the criminal case with some amazement recited that fact and that was again their position in the civil case that they didn't even have to show that part.
Justice Hugo L. Black: Of course, since the case went off on General Electric, you could raise all that and then reach out.
Mr. Dennis G. Lyons: Well, I don't think we could raise it if there is a per se Rule Your Honor.
Justice Hugo L. Black: I don't understand that per se, what do you mean by that?
Mr. Dennis G. Lyons: That the Rule that the patentee may under certain circumstances fix the prices that which his licensee will sell the patented item.
Would henceforth be held to be a per se violation of the Sherman Act that were the same -- the same as if there were no patent.
Justice Hugo L. Black: That's right.
So then you already have a per se Rule on price fixing and we wouldn't be announcing any per se Rule.
We would just be announcing that patents do not have -- patentees do not have that right.
Mr. Dennis G. Lyons: Well, I think there would be a per se Rule as far as patent agreements between patentees and licensees.
It's a certain anew and very material extension of the per se regime to this area where there has not been a per se regime before.
Justice Hugo L. Black: Because it's been -- I would say the exception to the Rule, hasn't it?
Mr. Dennis G. Lyons: Well, that of course comes together to the question which is first section of the Act.
What you have here are two statutes, the antitrust laws and the patent laws which are as the Court said in the Simpson case and probably -- None of these options that are available to patentee is available to a person who doesn't have patent.
When you are in the patent situation, you start with the very basic point that the -- that patentee if he chooses and if he can make a stiff, need not have any competitors whatsoever.
He can simply sue anybody who makes the infringing devices which certainly as of the case in an unpatented item, that is the basic distinction between the cases.
And from that for the last 63 years, the Court has had the Rule that the patentee made within certain various circumscribed limits, restrict the prices of which the licensee sells the patented item.
Getting into the procedure --
Justice Byron R. White: Excuse me just a minute.
If the Government has waived its right to raise this matter here, I don't suppose it makes so much difference as to the record made in the lower court or not on which a decision could be made of in the General Electric case?
Mr. Dennis G. Lyons: Well this, I think goes to the whether you should believe the Government of its waiver or not.
Justice Potter Stewart: Well, that's right, I mean,-- if it's waived then it's waived though it doesn't make any deference about the record.
On the other hand, if there is -- if there's no record, it doesn't make much deference even if the Government has it waived that's right.
What about – we might agree with you as was the record made but agree with them, if they haven't waived it, which of that I suppose, there would be remand do make a record on the GE point.
Mr. Dennis G. Lyons: I assume that would be the result Your Honor.
Justice Byron R. White: Is that what you're urging here or not?
Mr. Dennis G. Lyons: No.
We're urging the Government should be held to its waiver and that the Court should not reexamine these issues and in fact, it should summarily affirm without getting into the question of the continuing validity of the General Electric Rule.
Justice Byron R. White: What if it was waived for another case?
Mr. Dennis G. Lyons: Waive for another case, if this problem is such a serious problem, presumably, they'll be one along pretty soon.
There hasn't been one in the last 15 years but if it is serious problem, I'm sure they'll be a case quite soon.
Although, I guess then we would have to be started in the District Court because the counsel had said that they have no case pending presently that would be affected by the result of this case.
Most of these subsidiary arguments, that we are making really go to the point that the Government should be held to the very conscious and very deliberate waiver which had made in the lower Court.
The waiver which might presumably was participated in as a senior level in the Justice Department which we can infer from the fact that the lawyers out in field had to recess for a couple of weeks and get advice on the question.
I would think that the rather than for the defendants to have to show in this case that there's a reason that the Government should be held to its waiver.
I would think that the Government should have come forward and affirmatively shown some reasons, why it is in the interest of justice that it be relieved from its waiver?
That after all is what Rule 16 which is the Rule about pre-trial orders says that the issue is framed by the pre-trial order govern the subsequent proceedings in the case unless modified in the interest of justice.
And I would think the burden of showing that would be the Government's burden.
We have shown you also in response to questions the two respects in which the defense relied upon the waiver.
It relied upon the waiver first as to the basic factual matters as to whether it would permit the transcript of the criminal case to be received an evidence, as to whether it would permit it to be received as the sole evidence of the Government, and as further as to the matter of whether they would have the separate cross-examination in the civil case of the witnesses who had been called in the criminal case.
On all these respects, the defense in reliance upon the Government's waiver chose to stand on the transcript of the criminal case being the exclusive record of the Government's case.
Justice Potter Stewart: That would not be -- you're not stuck with that choice in the event that we accept the Government's position of this case.
Are you -- the whole trial would start again and surely that the stipulation or agreement whatever it was would go right out the window, isn't it?
Mr. Dennis G. Lyons: I would hope it would as to the factual matters.
I don't think the Government has ever conceded in its briefs that it would and the thing we have to argue that out in the District Court.
Once again that, of course, simply covers the factual what I call the basics facts as to who had done in this cases as to whether they were evenly as basic evidentiary things that the --
Justice Potter Stewart: I understand that will not solve here --
Mr. Dennis G. Lyons: And doesn't solve the problem as to whether -- whether this is the sort of record on which the Court should make an important announcement in the anti trust field and in fact in which the Court should overrule 63 years of several precedents.
Justice Byron R. White: What if the Government had them in the District Court, Mr, Lyons, and if that you said the -- what we urge that the General Electric is no longer good law and what the District Court supposedly have done --
Mr. Dennis G. Lyons: I think at that point the --
Justice Byron R. White: -- probably they say that we would take at the Supreme Court with me, is that it?
Mr. Dennis G. Lyons: No.
I think the District Court, I'm sure can do the arithmetic in the from the Line Material case as well as the Assistant Attorney General did and I'm quite sure the District Court would have received any economic evidence, and that the parties wanted to put forth.
Certainly, the defense would had to have tendered that evidence and certainly the defense would have.
Justice Byron R. White: But I'm just wondering about that Mr. Lyons, that that's a lengthy business, the district judge after all, in citing the cases, no matter what the arithmetic maybe, the authority is still outstanding.
I would suppose the District Court would say, well, this is just what has been suggested to take to Supreme Court.
Why should I waste my time making a record, still a good law?
Mr. Dennis G. Lyons: I would think then -- if he had done that -- the appropriate thing, once the Government had indicated its desire to get into this question.
If the Court wanted to get into it, I think the appropriate thing would've been for the Courts merely to reverse the District Court's order for which so advised and to order the District Court to take proofs, just as the Court did in the White Motor case, where the district judge went on a summary judgment case.
Justice William J. Brennan: If that what is done here?
What's the bearing of -- you said this patent on its copy is together?
Mr. Dennis G. Lyons: If that is correct Your Honor.
The basic patents here will expire two years from next Sunday, November 21, 1967 and --
Justice William J. Brennan: Which should not be any short proceeding, I gather?
Mr. Dennis G. Lyons: I would think that even then the proceeding with respect to the ascertainment of Looker's credibility.
There might well be further proofs for the discovery on that in the further hearing.
I think even if the remand were that limited, there would be considerable question as to whether we might not get into a mootness position on that but certainly, if we're going to get into a full case on the economic rights and wrongs of the General Electric Rule.
I think if the Government had started where it should have in this case and started trying this in 1961 which is when the complaint was filed.
On the basis that they are now urging, that that could've been done or if the areas one, in which there are considerable abuses and the Government can find another cases to bring, it might well try to chose a case where there was a little more than six years to go on the basic patents at the time that the complaint was filed.
I think these are all relevant considerations.
Actually, it's only because you have a very strong patent here I think that you have practiced under it this late is 17 years of the life of the patent.
Justice Hugo L. Black: That you say the Simpson don't you agree?
Mr. Dennis G. Lyons: Yes, we agree Your Honor.
Justice Hugo L. Black: How do you construe that like the Justice Stewart or how do you construe the reference to General Electric?
Mr. Dennis G. Lyons: Well, I construe the reference to General Electric there as saying that the Court had no reason to reexamine one of the two holdings of the General Electric case and that is the holding on the price restrictive license.
The Court there reconsidered and in effect overruled the other holding in the General Electric case, the so-called, I think, Class B License as it is called.
The consignment and (Inaudible) agency arrangement, whereby General Electric had a system of retail price maintenance on the light bulbs.
But the other holding in the case has to do with the license to Westin House, the manufacturer license.
Justice Hugo L. Black: Not unless you are risk taking, there, I thought that the Court held that where you had consignment coupled with, of course, tactics, that it might be a violation of the statute.
Mr. Dennis G. Lyons: The Court did not --
Justice Hugo L. Black: Well, they didn't say that the license itself was made?
Mr. Dennis G. Lyons: No.
On the other hand, to the extent that Simpson case is the reaffirmation of the other holding in the General Electric case to the effect that the manufacturing license is permissible, we, of course, willingly accept this.
On the other hand, it's the question of the court, to answer itself.
Justice Potter Stewart: The Union Oil case didn't have anything to do with the issue in this case, did it?
Mr. Dennis G. Lyons: I don't think it does, Your Honor.
Justice Potter Stewart: Alright, go ahead.
Mr. Dennis G. Lyons: Because of the fact that there is just a short time left to run on these patents, this Court in effect is being asked to do a great series of things here.
It's being asked first, to relieve the Government of the conscious waiver that it made in the District Court.
Second is being asked to decide in a fairly major antitrust problem without an economic record of any sort.
Second is being asked to do that in a case that may well become moot before the relief stage can be reached.
Finally, is being asked to do that in a case where the opinion of the Court renders maybe simply an advisory opinion because there –- it has not yet been a District Court that is accepted -- district judge that accepted Mr. Looker's testimony and the district judge in the civil case here indicated grave reservations about it.
So, the matter what the Court maybe being urged to do here and to overcome very considerable procedural barriers and very considerable barriers imposed by, we submit, maintaining an orderly system of litigation and an orderly system of pre-trialing antitrust cases.
May simply be a render in advisory opinion, if there had been a full record generated in this case on the economic question, there are a number of topics that we would've proposed to put proof in on.
Justice Byron R. White: Mr. Lyons, if there -- was there are good deal of -- United States in the record on the GE case?
Mr. Dennis G. Lyons: I don't believe the economic proofs were extensive there, Your Honor.
As I --
Justice Byron R. White: Well, there any?
Mr. Dennis G. Lyons: I think because of the fact that there are number of issues involved and because of the fact that the Government there was attacking the practice.
You had a pretty broad scope of the way that light bulbs were marketed.
And of course, there was one concern in the General Electric that was obvious on the face of that that by no means obvious in this case.
In the General Electric situation, you're dealing with three of the very basic patents on electric light bulbs.
It was, I think impossible to make electric light bulbs in the 1920's without infringing those patents.
It is very hard to say that there are substitutes for electric light bulbs of any sort of feasible sort.
It would be rather hard to say as by as the 1920' that gas light was a substitute.
On the other hand, what you have here is just one form of metal fastening among a lot of forms in metal fastening.
If the aircraft manufacturers and the trailer manufacturers, and the bus manufacturers don't like the way that these fasteners work or that they don't like the fact that there's only one source for them or if they don't like the prices that they're being charged.
They can go in to nuts and bolts.
They can go into rivets.
They can go into a variety of other specialized fasteners that would not infringe the patents here.
This is a matter that we were able to get into some extent in the record but to as to which the Government objected very strongly and the proofs were very limited.
Justice Byron R. White: Well, do you suggest that General Electric is more of the decision that it is no better than the economic evidence record that it supports them with?
Mr. Dennis G. Lyons: I think these days Your Honor.
Antitrust cases would come to recognize and I think this is definitely a good trend, they have to have -- we're dealing with two statutes here which have the basic economic purposes.
It's a question of reconciling them.
I don't think we can sit down and treat this like a law school examination and trying to do things from the nature of the patent laws and to do things from the nature of the antitrust laws.
I think we have to see at least in one industry, at least in the metal fastener industry, if that's the industry that the Government wants to make a test case.
I think we have to see how this form of restriction works out, whether in the light of the fact that the patentee could as a legal matter exclude all others from manufacturing the devices in question, whether in the light of that fact which is one of the starting points in this case.
There's a net gain for competition here in the fact that because the patentee can create this second source on an acceptable basis.
That form of a fastener then can be post by the large buyers in the airplane industry and the buyers in the bus industry, and the buyers in the truck industry, and that this patentee can therefore have the rewards of the patent system.
But he doesn't have to license -- that he doesn't have to sell his patent to someone else and that we are then remitted to the Government bringing some other sort of lawsuit to try and commit that.
Justice Potter Stewart: I am still little puzzled, more than a little puzzled as to what the nature of that evidence would be?
Mr. Dennis G. Lyons: I think there would be evidence as to what their usual requirements of buy-in corporations are in the present day economy, the extent to which they demand second sources.
The extent to which they demand second sources, when the first source is a small business corporation, I'm sure they don't demand the second source if one of the GM component divisions comes forward with the new component.
But it's -- there is some evidence on this record that when Huck Manufacturing Company, which is a small company, came forward with a new method of fastening that the Government and the other large buyers wanted a second source.
I think then we --
Justice Potter Stewart: And then, I suppose would have to be coupled with testimony either from Mr. Huck or somebody else that the only -- that there wouldn't have been a license without price fixing, that I would have to follow.
In other words, the second source could not have been provided, or would not have been provided without price fixing.
Mr. Dennis G. Lyons: Well, you have to look into the reality (Voice Overlap) --
Justice Potter Stewart: Price fixing is a very good thing and I'm sure you get that to a lot businessman and lot of cases.
Mr. Dennis G. Lyons: But you don't get -- you probably would in a number of cases but the fact of the matter remains here that this businessman had the right to keep a second source from going into business, whereas --
Justice Potter Stewart: Yes.
But there would have to be --
Mr. Dennis G. Lyons: -- whether if this kind of business it is not (Voice Overlap) and of course the -- that evidence is not -- the evidence of the business when it is not conclusive without this other means of contradicting this.
And if the Government wants to bring some creativity to the matter, presumably, make an economic case too or they could try to make one.
The suggestion I have to make on the present record is that the Government might be asserting here that it is impossible to make that an economic case because it never has tried and they didn't try here, for some reason or other, it waived the question below.
But if it had not, I assume that the Government is in a position to put on proofs of that matter and that we are not restricted to the more speculative arguments that the Government has put forward in its brief.
Justice Byron R. White: Mr. Lyons, do you think it would make any difference in your argument if the origin of the price fix was the demand of the licensee, the patentee was not interested at all in the price fix, except it just couldn't get a licensee without a price fix, would that make any difference in your argument?
Mr. Dennis G. Lyons: Well, I think that might in a particular case.
Again, I think it's a -- it's actually is an exception to the General Electric case that the -- in fact the Government tried to make out a case of that here, that if you get into a situation where the licensee becomes dominant, where the licensee is starting to call the shots, but that can go outside the General Electric Rule, if the privilege is essentially the patentees and that it's for his benefit that the Rule exists.
I think the method to what we would have shown, would have been that despite the name of the General Electric case, the General Electric Rule at this point is so limited that the very large manufacturing companies will happen to own patents, have no real use for it.
The main use comes in the case of the smaller patentees and it would -- the various restrictions that the Courts have engrafted on the General Electric case, basically are the ones that make it in unsuitable vehicle for a dominant producer of a large corporation that has considerable economic muscle from using the General Electric privilege.
What's left of the General Electric Rule and the General Electric Rule is still practiced under.
There have been several private lawsuits in the last 15 years which revealed that there were single second source licenses with Price Restrictive Clause and as far as I know, the Government has not attacked any of them.
And there are other applications which are never challenged as I understand it.
This is --
Justice John M. Harlan: Can I ask you a question?
You argued your case and I understand on the premise that if the Government has held in what you call its waiver, the result is an affirmance?
Mr. Dennis G. Lyons: That's right Your Honor.
Justice John M. Harlan: What about the question of this alleged side agreement which has not been tried out?
Mr. Dennis G. Lyons: Well, in that --
Argument of Thomas W. Pomeroy, Jr.
Mr. Thomas W. Pomeroy, Jr.: Should there be a remand on that because I suppose it might be argued that independently, the General Electric case, the price fixing here was a result of this alleged agreement which had no relation of the fixing of a condition, the condition of the patent?
Rebuttal of Dennis G. Lyons
Mr. Dennis G. Lyons: Mr. Pomeroy, will get into this a little further but fact of the matter is that the oral agreement was before -- the alleged oral agreement was before the written agreement.
And in effect to what it was, was an agreement that while the face of the license would say in Clause 12, that there would be a price restriction for two years and an exclusivity feature for two years, really what the parties mentioned what they would live up to and in effect what is their agreement was that those two Clauses would run for the life of the patent license.
So in effect, the -- what you had according to Looker's testimony was an oral 17-year or I guess there were 13 years then left in the patent, an oral 13-year General Electric license.
So on our review, if the Court holds the Government to its waiver and doesn't require into the continued validity of General Electric, there should be an affirmance without respect to whether there was the oral agreement or not.
Chief Justice Earl Warren: Mr. Pomeroy.
Rebuttal of Thomas W. Pomeroy, Jr.
Mr. Thomas W. Pomeroy, Jr.: Mr. Chief Justice and if the Court please.
As Mr. Lyons said in answer to Mr. Justice Harlan's question I was going to speak a little bit about this question of the so-called oral agreement or side agreement and I'll be glad to speak about as much as time permits but I don't really see the necessity for it in the light of the way my Brother for the Government has pitched the case here this morning because he said in his oral argument that he viewed point two of the Government's brief with something less than enthusiasm.
And actually as it's put in the brief, I sort of got that impression because it's only three pages out of the very considerable number of pages at the -- in the lower Court, it is quite true that this side agreement was looked upon as more or less the (Inaudible) might say, it was really what the Government was shooting for as an elicit, non-general electric type of price fixing and non-patent kind of price fixing almost in effect.
But as it has developed on appeal, this appeal is pitched almost entirely on the naked question there to sustain or to overrule General Electric and not on this other matter.
Now, as of -- just to pursue that just one step further as in this and as to repeat clearly what Mr. Lyons said, the court below and the witness Looker, I should say, that witness Looker and the court below construed this oral agreement to make the price fixing for the life of the patent.
And also to keep the patent exclusive for the same period, merely a supplement to or a minimum power to the written agreement which was a normal and straight forward ordinary kind of patent license agreement which is in the record as GX 17 and which appears at page 469 of the record here, and as was brought out in an answer to a prior question, I'm quite -- to the contrary of the impression which Mr. Turner gave that there was some effort to conceal this arrangement, it is set forth in an extensive -- in paragraph 12 of the written agreement and the gist and the thrust of the Looker testimony really was that for some reason or another the parties orally agreed to make this not just the two-year deal but a 13-year arrangement.
Justice Potter Stewart: Including the exclusivity with the real time?
Mr. Thomas W. Pomeroy, Jr.: Yes, Mr. Justice Stewart.
Justice Potter Stewart: Both aspects.
Mr. Thomas W. Pomeroy, Jr.: -- perfectly aspect of the market.
Justice Potter Stewart: More extended for the life of the patent?
Mr. Thomas W. Pomeroy, Jr.: That is correct.
Justice Potter Stewart: And the Court found as to be the fact?
Mr. Thomas W. Pomeroy, Jr.: No, the Court did not -- except Mr. Looker really -- he said this Mr. Looker testified that he did not find --
Justice Potter Stewart: That was true?
Mr. Thomas W. Pomeroy, Jr.: -- that what Looker testified too was a fact because there were so much obvious inconsistency in the Looker testimony.
His testimony was carefully structured, you might say and it was so belied by other documentary evidence namely that licenses were considered after -- immediately after the two-year period by Huck and so forth that it does -- it didn't seem to (Inaudible) but there was no countervailing evidence.
And I think when the Government says that, we the appellees were denying this arrangement.
It is true that we were denying the Looker version of the thing but of course, no testimony ever went into the record on that and our position against it as disposed only by the answer in the case and by our cross-examination of Mr. Looker.
Justice Potter Stewart: I don't want to waste your time and I'm asking you the information.
Mr. Thomas W. Pomeroy, Jr.: You're correct.
Justice Potter Stewart: -- information, the way the case was tried below, of course, as I understand was the Government's theory that this agreement not to license anybody else went beyond General Electric and for that reason is not covered by any other.
Now, the Court holding in your favor must have done so either by just disbelieving Looker and therefore holding, if there was no such side agreement or B that there was one or even if there was one, still it was covered by General Electric in which did the Court do.
Mr. Thomas W. Pomeroy, Jr.: I think it was B Your Honor.
They said that -- I think the Court looked at it as if the written agreement itself had provided for price maintenance for the life of agreement of the patent license, in the patent rather and for exclusiveness for the same period of time.
That was just an oral amendment or supplement and the Court said that under GE, this is alright.
The Court went further to say that the -- in the post two-year period, there was no evidence whatever that Townsend, the licensee whom I was represented -- do represent, was encroaching the patentees' position as the one who should decide whether or not to grant additional licensees.
There's absolutely nothing in the record at all to show any kind of consultation on this subject or control by the licensee, of who else should be admitted or whether anybody else should be admitted.
And in fact as the record show the couple of Titanium manufacturers were admitted as licensees in this period.
The points that Mr. Lyons has made I think almost complete the case, Your Honor, except to say that in addition to asking you to overrule long standing precedent where there's been a waiver that this wasn't being attempted and we're as we say, the record was willfully inadequate.
The Government is also saying that you should do this because the case involved, General Electric has been so devitalized that it might as well now be buried and we respectfully dissent from this conclusion.
General Electric has not in fact been weakened.
It has been, I think defined and be limited and clarified by the decisions of this Court in New Wrinkle and Masonite, Line Material and Gipson, all cases in the 1940's.
And these basic cases plus a number of lower court cases in the same general period has served very adequately to clearly set forth what General Electric does not permit.
General Electric does not permit predatory attempts at cartelization of industries or regimenting of an industry, as this Court called it in the Gipson case and these attempts apparently have now falling by the way side.
At the same time that these cases that I referred to, were being decided in this Court.
There were the congressional amendments introduced which had Mr. Justice Harlan inquired about.
These were all in the 1940's and it is of course true that this may have been the judge-made law, judge-made rule but certainly Congress could have spoken to them, to the problem had it wanted to.
Especially when it was recasting the entire patent code, but it felt that not to do so and I suggest it may well seem fit not to do so because of the clarification, clarity that emerged from New Wrinkle and Gipson and Masonite and Line Material.
There wasn't any need for further legislation at that time.
So the scope of GE is well settled.
To speak for just one other point, the Government has said that the case has been a pernicious breeder of litigation over the years and that this is another reason why it should be taken into the per se area where litigation is perhaps simpler for the government at least.
But in their brief, we have no reason to doubt it.
They cite only three cases in the last decade where this question has been presented and in the prior of seven years, in fact, to Line Material in 1946, there are only four other cases as I recall it.
Five others perhaps and out of these -- six out of the total of eight have been settled by consent decree.
Only one went to trial that was Preznoff or perhaps there were two that went to trial.
But in any event, there's been no space of litigation in this area and there is no reason that we can see why per se should be invoked here against the 60 year old precedent.
Thank you, sir.