LEAR, INC. v. ADKINS

First, it is important to show in this case that Lear never properly raised or preserved the question of whether licensee estoppel violates either the patent laws or the antitrust laws.

Although Mr. Wallace for the Government referred the Court to pages 25 to 28 of one of Lear's reply briefs where Lear had quoted the constitutional standard for invention and the sections of the patent laws dealing with validity.

He did not read far enough from that portion of the brief.

In that section after quoting those provisions what Lear was arguing was only that the federal laws including the constitutional standard had to be applied in determining the question of validity.

That portion did not in any way assert that the doctrine of licensee estoppel was invalid and that it violated either the patent laws or the antitrust laws.

In fact, at page 75 of that same brief, Lear had a separate section dealing with the doctrine of licensee estoppel in which Lear conceded that the doctrine was applicable in this case unless it fell within one of two exceptions.

One being termination and the other being repudiation.

I have Xerox copies of the brief that Mr. Wallace referred to pages 18 to 26 and I have handed them to the Clerk this morning for this Court to consider if it's so desires.

Now, I offer now a copy to the Government.

Justice William O. Douglas: What page is that?

Mr. Peter R. Cohen: It's 18 through 28.

In fact, the Government concedes in its amicus brief that the issue of whether or not the doctrine of licensee estoppel violates either the patent laws or the antitrust laws was not timely raised or preserved in this case.

At page 8, the Government says as follows, “This Court need not be deterred from reaching this issue, licensee estoppel by the fact that petitioner's contentions in the state courts were directed primarily to attempting to carve out an exception to the doctrine rather than to its overturn.”

Because of this Court's decision upholding the doctrine at Automatic Radio Co. versus Hazeltine it would have been futile for the petitioner to argue broadly to the state courts that federal law bars the states from applying the doctrine of patent licensee estoppel.

Moreover, Lear has conceded in the state court system that the rule of licensee estoppel was applicable unless Lear fell within one of two state exceptions.

The best statement of this concession appears at page 109 of Lear's answering brief in the California District Court which is quoted at page 120 of the appendix before this Court and which states as follows, “it is a recognized principle of law that when a license agreement provides a grant of a right to either manufacture, use or sell a product incorporating a patented invention, the licensee is estopped to contest the validity of the license patent only so long as the licensee is operating under the license.”

This is not only the modern rule as plaintiff likes to call it but as also the old rule as well.

This rule was set out in the 1939 case of the Armstrong Co. versus the Shell Company of California which was a California Court opinion.

Lear then goes on to say this estoppel as only so long as the licensee operates under the license agreement.

This estoppel arises not because of the expressed terms in the agreement but because the licensee is using and enjoying the benefit and protection of the right covered by the agreement and should not be permitted to reap the benefits of the agreement and at the same time contest the validity of the patents to show failure of consideration for the agreement.

Justice Hugo L. Black: What appendix are you reading from?

Mr. Peter R. Cohen: Appendix number 1 to the briefs on the merits and this appears at page 120.

Justice Hugo L. Black: Page 20?

Mr. Peter R. Cohen: 120.

Justice Hugo L. Black: 120.

Mr. Peter R. Cohen: 120.

Justice Hugo L. Black: Appendix number 1?

Mr. Peter R. Cohen: It should be volume 1, appendix volume 1.

Justice Potter Stewart: There's no question and I gather that the Supreme Court, the state court did rely on the estoppel to dispose of this case to some extent.

Mr. Peter R. Cohen: Yes it did rely on it to assert --

Justice Potter Stewart: And your point is that no one ever really raised the question of whether federal law forbade the state court to rule that way?

Mr. Peter R. Cohen: That's correct.

It was never raised in the state system whatsoever.

Justice Potter Stewart: What about the passage in the brief that was read to us yesterday?

Mr. Peter R. Cohen: The passage in the brief that was read to you yesterday was dealing primarily in fact exclusively with the constitutional standard and the patent laws insofar as they concern the standard for invention.

There was nothing said there about licensee estoppel and particularly nothing said about whether it violates either the antitrust laws or the patent laws.

That section was dealing solely with the validity question and what the standard was for determining the validity of a patent.

I think this is clear from page 28 where after quoting the constitutional provision and the patent standard set forth in Sections 101, 102, 103 and subsequent sections.

They conclude that this test must be applied in determining validity but there's no statement there concerning licensee estoppel or whether those standards have to be applied in determining whether the doctrine of licensee estoppel violates either the patent laws or the antitrust laws.

Justice Hugo L. Black: I don't exactly understand what it is, you say that they did not raise with specificity.

Mr. Peter R. Cohen: Well, I'm saying they did not raise with any specificity was the question of whether the doctrine of licensee estoppel per se violates either policy of the antitrust laws of the policy of the patent laws.

This question was never raised in the trial court --

Justice Hugo L. Black: Well, --

Mr. Peter R. Cohen: -- or in the Appellate Courts.

Justice Hugo L. Black: -- did they raise the question of what law governs state or federal in the trial of the case?

Mr. Peter R. Cohen: Not on this issue because this issue was never raised.

It was -- I assume just conceded that the doctrine was applicable whether or not it was state law.

But in trying to --

Justice William O. Douglas: What decided -- we can decide it here.

Mr. Peter R. Cohen: If it was decided assuming it is essential to the decision and it is essential to the decision only in a very narrow respect but I would assume that if it hadn't been properly raised that would not be properly before this Court.

Justice Hugo L. Black: Even if the Court decided it?

Mr. Peter R. Cohen: I would assume that the Court had decided it as a question of state law because it was not raised as a federal question and in trying to carve out exceptions to the doctrine in that Lear had claimed that either terminated or repudiated the agreement Lear stated that these were state exceptions to the doctrine.

So that I would gather that it was more or less assumed all the way along the line that what was being applied was a state doctrine since it was never questioned under the federal laws in any way.

Justice Hugo L. Black: You say assumed all along the line has been at legal controversy for years haven't it in all the courts?

Mr. Peter R. Cohen: It has been a controversy before this Court, yes but it arose in this case in the context that Lear conceded the applicability of the rule and then contended only that they fell within two so-called state exceptions that they had either terminated the agreement --

Justice Hugo L. Black: Do you mean they conceded that the state law governed on that point?

Mr. Peter R. Cohen: They conceded that the doctrine of licensee estoppel was applicable without saying any place in the state system whether it was state or federal but by the fact that they tried to use so-called state exceptions to come without the rule.

They probably also conceded that it was a state doctrine although I admit that it was never specified which one it was.

Justice Hugo L. Black: Do you mean they conceded that point?

Mr. Peter R. Cohen: Yes, Your Honor.

Justice Hugo L. Black: Licensee was barred because he has been involved in licensee leaving the validity of the patent?

Mr. Peter R. Cohen: That's right.

What they conceded --

Justice Hugo L. Black: But is that in the pleadings?

Did they do that in an absence?

Mr. Peter R. Cohen: No, they did not do that in the pleadings.

They did this in a brief on appeal and also in a brief in the trial court in which they conceded the applicability of the doctrine of licensee estoppel and so that to bring themselves within two exceptions thereto.

Justice Hugo L. Black: (Voice Overlap) but conceded the validity of it under any law, should they ever concede the validity of it under any law?

Mr. Peter R. Cohen: I would have to assume they did because they never questioned that it was applicable.

Justice Hugo L. Black: Assume (Voice Overlap) where in the record can I find it?

Mr. Peter R. Cohen: I can refer you to page 120 of the appendix.

Justice Hugo L. Black: Is that all?

Appendix number 1.

Mr. Peter R. Cohen: Appendix number 1, yes and also --

Justice Byron R. White: Volume 1?

Mr. Peter R. Cohen: Volume 1, yes.

Justice Byron R. White: I think one, that's what you read before?

Mr. Peter R. Cohen: That's correct.

Justice Hugo L. Black: But I've read that a moment ago and I didn't -- maybe I thought maybe I have the wrong one.

Mr. Peter R. Cohen: On page 120, Your Honor.

Justice Abe Fortas: Well, that wouldn't certainly preclude us, would it?

Assuming that they have not press the point below would that wouldn't preclude us from deciding the issue, would it?

This is not an issue that this is about us claiming the issue of law, law appearing something is any such thing as one could readily imagine.

Mr. Peter R. Cohen: Well, I would assume that under the procedural rules that have been laid down by this Court that unless the issue is timely raise as a federal question, it is too late to raise it in this Court.

Now, it went through the entire California system without any question to the applicability of the doctrine.

There was no federal question presented, rather there was only an attempt to carve out state exceptions to this rule on the theory that Lear had either terminated the agreement by sending notice of termination or had repudiated the agreement.

And on both those issues, Lear took the position that that was state law and since they were applying it to the doctrine of licensee estoppel I would assume that they also --

Justice Abe Fortas: Well, I don't want to take more of your time but certainly there were plenty of federal questions raised below and your point, I take it is that assuming that this particular argument was not made below.

Is it too late to make this particular argument here?

Mr. Peter R. Cohen: Well, I think it is because the only federal questions that were raised below were in connection with the application of the federal standards for patentability which never really became an issue in the California Supreme Court because it applied the doctrine licensee estoppel.

So, unless, the Court can reach the issue of licensee estoppel, it can't go any further than that.

And if that's decided solely on a state ground as a matter of state contract law then the federal patent issues which were raised never arise in this case.

Justice Abe Fortas: You said if I understood you that the estoppel claim the estoppel of the patentee related only the part of the issues in this case, is that right?

Mr. Peter R. Cohen: Yes, that is on the party of the issues.

Justice Abe Fortas: Will you tell us about that sometime in the course of your argument.

Mr. Peter R. Cohen: What the other issues are?

Justice Abe Fortas: Yes.

Mr. Peter R. Cohen: The other issue was primarily the construction of the contract and Lear's attempts to avoid the contract by saying that it either terminated or repudiated.

And thereby get itself into the federal court system in a pure suit for infringement and the California Supreme Court devoted a good part of its time to determining whether or not they had terminated the contract.

Justice Abe Fortas: Do you agree or disagree that this contract has to be construed and applied solely from the point of view of the patent -- of a patent contract -- patent license contract?

Mr. Peter R. Cohen: No, I don't think it does because I don't think it is in the pure and technical sense, a patent contract.

It relates to patent events to a certain extent but it is more concerned with a bargain for the disclosure of an invention in return for the payment of a royalty for the disclosure of that invention.

That is the real basis of that bargain which I will get to as I get further in to my argument.

Now, just as the issue relating to the question of licensee estoppel is not properly before this Court, in my opinion, similarly the issue of patent validity is not before this Court for several reasons.

First, if the issue of licensee estoppel is not before this Court, it cannot reach this dependent question.

Second, the issue of validity was not one of the five questions presented in Lear's petition for certiorari.

It is also third, not a necessarily included question under Rule 23 (1) (c).

Fourth, the California Supreme Court did not consider the issue of validity and under settled procedural rules of this Court will not normally pass on questions in the first instance without the lower courts having first undertaking to decide those issues.

In fact, the Government urges at page 26 of its amicus brief that if the issue of validity must to be reached that the case should be remanded to the California Supreme Court for consideration of this issue.

Consequently, in my view because the doctrine of licensee estoppel was never properly raised as a federal issue and the doctrine of the validity of a patent is consequently not before the Court.

The result should be that this petition be dismissed as improvidently granted.

Justice Byron R. White: What makes you think that the court below decided on state grounds?

Mr. Peter R. Cohen: Well, what I think it was doing, was using --

Justice Byron R. White: What makes them decide?

Mr. Peter R. Cohen: That it decided on state grounds because it did so in connection with the construction of an agreement and although it used the words licensee estoppel or the doctrine of licensee estoppel.

It was really using those words as a shorthand method of summing up what it had already determined on the contract namely --

Justice Byron R. White: You said that ruling -- I mean you said (Inaudible)

Mr. Peter R. Cohen: That's right.

Justice Byron R. White: What are the cases decided that Walker cites?

Mr. Peter R. Cohen: I would assume that Walker cites probably state cases and federal cases as well.

Justice Byron R. White: That would be?

Mr. Peter R. Cohen: I would assume he does but in those cases it may well have been that what the federal court was doing was applying local line at diversity case on a contract action line.

First, they wouldn't know that reading the case but --

Justice Byron R. White: Let's assume for the moment (Inaudible), we have to assume the probability of (Inaudible).

Now with a question like this of federal government, were we just supposed to assume that the state court didn't know that?

Mr. Peter R. Cohen: Well, when you say that federal law governed that the doctrine is a federal doctrine rather than a state doctrine licensee estoppel.

I've been assuming all along that the doctrine is one of state --

Justice Byron R. White: Federal law that govern this is whether or not (Inaudible).

Mr. Peter R. Cohen: Oh!

I think federal limitations would have to control the doctrine.

This Court has held that but that is only in a misused situation.

Justice Byron R. White: What if the state court said, licensee estoppel applies in this situation must be complied that within the federal doctrine the internal rule applies in the situation?

Mr. Peter R. Cohen: Well, I think what it was doing was saying was one interpreting the contract and then saying as a shorthand method that what they're really saying is licensee estoppel really means that Lear has estopped to question the bargain that it freely entered into in that in making the bargain, it did not make conclusive validity of the patent one of the considerations for the bargain.

And therefore, since failure of -- since invalidity of the patent, would not cause a failure consideration.

It should not be a defense.

In other words, the party has never bargain with respect to the validity of the patent.

And therefore, it should not be a defense if it's invalid because it could not affect the bargain of the parties.

Justice Byron R. White: (Inaudible)

Mr. Peter R. Cohen: Correct.

Justice Byron R. White: And it's only a question of whether the state law will apply because of federal law?

Mr. Peter R. Cohen: Whether they may go too far because of an overriding federal policy but we're confined to the narrow situation and there's no misuse of the patent.

I think it remains just a state question until there is some transgression of the antitrust laws.

Justice Potter Stewart: What was that?

Mr. Peter R. Cohen: Well, perhaps that patent laws but I don't really see how patent laws come in to play here especially in the context of this case because the bargain was really not for “patents or patent rights” the essence of the bargain as I will get to it in a minute was that Lear received a disclosure from Adkins of an idea, discovery and invention for which they agreed to pay him as long as they continue to use it subject to three conditions subsequent.

Now, those conditions subsequent were, one, if no patent issue.

Two, if a patent issue with claims which did not cover the inventions they were using in the 2156 California gyro and the Michigan steel gyros.

And three, if the patent was held invalid in third party action.

So, although they tie this escape hatches to what might happen under the patent laws they were really just a way of reducing Lear's liability under the agreement to continue to pay until the expiration of the patent.

And since none of these conditions has occurred, there of course belong to the party.

Justice Byron R. White: Oh!

Yes but didn't the license agreement just cover patented or patentable device?

Mr. Peter R. Cohen: Well, it did say that in paragraph 2 (a).

Justice Byron R. White: Well, we just ignore that?

Mr. Peter R. Cohen: No, no I'm not suggesting you ignore that.

Justice Byron R. White: Well, nobody have to determine then, doesn't somebody before Lear is liable have to determine that these devices were either patented or patentable?

Mr. Peter R. Cohen: I think you first have to read paragraph 2 (a) with paragraph 1 (b) in order to determine what Lear was in effect licensee --

Justice Byron R. White: So you say that Lear -- do you say that by doing that Lear may be force to pay even though it's determined that none of the devices are patentable?

Mr. Peter R. Cohen: No, I'm not saying that at all.

I'm saying that when you read paragraph 2 (a) with paragraph 1 (b) what Lear licensed was the invention disclosed or intended to be disclosed and by use of the words if patentable they were bargaining for what the patent office might do or what some third party might do to the patent and third party adjudication.

But they were not bargaining that they themselves could contest the validity of a patent and thereby avoid the bargain.

In other words, they were saying in effect that if the patent does an issue or if the claims don't cover what we're making or third party holds it invalid and therefore it can use it free that we should also be able to use it free.

And under those conditions only we can terminate but the validity between us is decided by what the patent office will do in the first instance in issuing or not issuing a patent.

I think that was --

Justice William O. Douglas: Get back to the -- that's the question of federal law.

The patent is a federal creation.

The State of California couldn't issue a patent, could it?

Mr. Peter R. Cohen: No, there's no question about that.

Justice William O. Douglas: So, we're dealing with a federal -- in the federal domain right from the beginning?

Mr. Peter R. Cohen: We're not for this reason in my view and that is when they tied their bargain to patentability.

They were tying it --

Justice William O. Douglas: To a federal concept?

Mr. Peter R. Cohen: -- to that standard for -- but only for one purpose not to control the rights vis-a-vis Adkins and Lear but to likely or out of the contract in the event that a patent didn't issue and somebody else could therefore use it.

In other words, their bargain was, we will pay you for this invention which we have an inclusive right to use subject to conditions subsequent which are if no patent issues or if the claims are not substantial and don't cover the inventions we're making -- the devices we're making or if it's held invalid in third party adjudication.

But only subject to those three conditions can we get out.

Other than that, our bargain is founded upon your disclosure Mr. Adkins of the invention and our use of the invention for which we agreed to pay the royalty.

So that the patent laws are really not involved in this bargain except to the extent that Lear's escape hatches --

Justice William O. Douglas: But our decisions have -- go right in the face of what you've said because our decisions wholly cannot -- the parties by private agreement cannot enlarge the concept of the patent.

Mr. Peter R. Cohen: I'm sure that's true, they cannot tie something else to the patent or broaden their rights on the patent where they are dealing per se with a patent right.

But the party is here, we're not concerned in the initial basis of the bargain with the patent laws.

The basis of the bargain was the right to use the --

Justice William O. Douglas: Well, we have the words of the contract for us to construe those (Voice Overlap) --

Mr. Peter R. Cohen: I would think in the first instance it would be a question of state law for the California Supreme Court to construe what --

Justice William O. Douglas: Really, what for?

Contract that relating to patents as a state question?

Mr. Peter R. Cohen: Insofar as it relates to what the consideration for the contract is (Voice Overlap) --

Justice William O. Douglas: Could you give a memorandum to us on that because we do not have a lot of cases in this field and this is the first time anybody has stood there and had the temerity to make that suggestion?

Mr. Peter R. Cohen: I think I have outlined the cases in my brief the one that comes to mind in particular is this Court's opinion in the case of Brulotte versus Thys where the Court was considering the use of a patent to exact a royalty after the expiration of the patent by tying it to the license of the patent and where the Court when faced with the question of what would happen if the parties have made a contract for a machine which was not patented whether or not this would involved federal law.

And the Court there said, “The sale or a lease of unpatented machines on long-term payments based on a deferred purchase price or on use would present wholly different considerations.”

Those arrangements seldom rise to the level of a federal question.

So I assume that what the Court is saying where the parties are contracting with respect to something which is an unpatented invention.

They are free to make any bargain they care to make about it as long as --

Justice William O. Douglas: That's not this case.

This is something that is assumed to be patented or patentable.

Mr. Peter R. Cohen: Yes but as I'm trying to say when they used the word “patented or patentable” on paragraph 2 (a), 2 (a) expressly refers to 1 (b) for further definitions of the term used and it defines claims as including the invention disclosed or intended to be disclosed in specification of the application and that Lear is taking a license of the invention which Adkins disclosed or intended to disclose not with the claims under the patent.

So that he merely used the specifications to define the invention rather than to take a license of claims under an application.

Justice William O. Douglas: Well, barely in part I might understand that but I must submit I don't --

Mr. Peter R. Cohen: Perhaps --

Justice Abe Fortas: Well, the difficulty I have with your argument perhaps is what is really going on here is that you seem to have a contract here that depends upon the patent law and the special rights flowing from patent and I think it's under the patent and then you, you hear this on what I've been trying to get at then you come here and seems to me in what you're saying at least in large part is that even if the patent is invalid you're still entitled to those same rights on a contract basis without reference to the patent.

That's kind of a heads you win tails, the other side loses or tails of patent system loses.

Mr. Peter R. Cohen: No, I'm not really saying quite that.

I'm saying that as interpreted by the California Supreme Court the basis of the bargain between Adkins and Lear was not a federal patent right.

Justice Abe Fortas: Well, that's what I'm trying -- you're saying this certainly looks like a patent agreement.

It does -- got all the terminology of a patent agreement with respect to the exhibit C rights it's –- purports to give the other party and exclusive right to the use of it, it smells like a patent agreement.

And as I understand it what you say here is that even if the patent aspects unlawful as a matter of federal law, you can resort to state contract law and still collect the same amounts of money and certain practically the same rights.

Mr. Peter R. Cohen: I don't believe --

Justice Abe Fortas: Maybe I misunderstand you but that's what I've been trying to get at in my questions here to see whether that is in fact that they are in now based on your colloquy with Justice Douglas.

It seems to me that indeed that is your theory.

Mr. Peter R. Cohen: No, I don't think that's my theory perhaps I'm not stating as I should be stating but what I'm trying to get across is that the basis of the bargain between Adkins and the Lear was not the grant by Adkins to Lear of a federal patent right.

It was rather indeed disclosure by Adkins of an invention --

Justice Abe Fortas: Well, then it's peculiarly drafted contracted in the --

Mr. Peter R. Cohen: I don't think there's any question about that it's a probably unique contract.

I doubt if there will even be another one like it because of the way the contract arose.

Justice Byron R. White: I know, it's certainly included the right of use whatever it disclose?

Mr. Peter R. Cohen: Oh!

Yes including disclosed or intended to be disclosed.

Justice Byron R. White: It anticipated the patent and certainly there was a patent in this case the damage accrued might be February 5, 1960.

Mr. Peter R. Cohen: That's right.

It did anti --

Justice Byron R. White: And so the contract -- and the question to this is going to relate it to federal patent?

Mr. Peter R. Cohen: Yes, I don't deny related to the federal patent but the question is the way it related to that federal patent.

As the California Supreme Court held, Lear was not concerned prior to the issuance of the patent with particular claims in the application, what they were licensing was the invention either disclosed or intended to be disclosed in the specifications without regard to the claims for which they agreed to pay until final patent office action.

And that further when final patent office action occurred if a patent issue they would have to continue to pay regardless or whether that patent was valid or not valid because that was no part of the bargain between the parties but however if the patent did not issue then they would have the right to seize paying further royalties because in that situation then a third party would be free to use the invention also.

Justice Byron R. White: Do you mean that this contract could've been included the promise by Lear to use in connection with this disclose the device, some other device that the seller wanted Lear to use?

Mr. Peter R. Cohen: You mean could Lear have used it together with something else?

Justice Byron R. White: Could -- would the contract be valid just because of it was valid under state law?

Mr. Peter R. Cohen: Well, in that situation, I would assume that since Adkins had no control over what Lear used it for that it would no rise to the level of a federal question.

Justice Byron R. White: Do you mean you can tie something to this --

Mr. Peter R. Cohen: No, no I think I'm saying just the opposite.

Adkins could not and did not tie this --

Justice Byron R. White: Because there's some federal law though.

Mr. Peter R. Cohen: Well, because then if you tie something in whether the contract involves a patent or not I would assume you get involved with the antitrust laws.

For example, you can have conspiracies to violate the antitrust laws that don't involved patents.

Similarly, I would assume you can have agreements which violate the antitrust laws irrespective other patents involved.

Justice Thurgood Marshall: Mr. Cohen, do you see any difference if this contract it terminated at the issuance of the patent with instruction to renegotiate or the one you have here which continues after the patent issue?

Do you see any difference in those two contracts?

Mr. Peter R. Cohen: You mean where they had agreed in the first instance that if a patent issue or did not issue they would renegotiate it?

Justice Thurgood Marshall: Yes.

The reason I mentioned it is --

Mr. Peter R. Cohen: Yes.

Justice Thurgood Marshall: -- I think it is some significance that this runs pass the patent and you say it had nothing to do with the patent?

Mr. Peter R. Cohen: No, I didn't say it having nothing to, I said, it was tied to it to allow certain escape hatches to Lear to get out of the bargain if certain events occurred.

Justice Thurgood Marshall: That's all?

Mr. Peter R. Cohen: In my view, that's all and in the view of the California Supreme Court if I interpret their opinion correctly that's all they were involved with.

Justice Thurgood Marshall: I guess the patent is just incidental.

Mr. Peter R. Cohen: The patent was not incidental, it was involved to the extent that Lear's escape clauses are conditions subsequent were tied to what might happen in the patent office or in some --

Justice Thurgood Marshall: Well, then --

Mr. Peter R. Cohen: third party adjudication.

Justice Thurgood Marshall: -- I assume you giving us a job of finding out how far patent is involved in the agreement?

Mr. Peter R. Cohen: That's correct.

Justice Thurgood Marshall: And if it is involved to a certain degree then you're in trouble and we are left with the job of finding out how far it is involved, is that what you're doing?

Mr. Peter R. Cohen: I'm trying to tell you in my view how far I think it is involved and I think it is involved only to the extent that the condition subsequent under which Lear can avoid the payment of further royalties are tied to the patent laws.

Justice Thurgood Marshall: And no more?

Mr. Peter R. Cohen: And no more.

Justice Byron R. White: Well, I suppose is that California Court was reporting to follow federal law you would be saying that they would've come up with the same result?

Mr. Peter R. Cohen: Well, I don't see how they could be following federal law in this area.

Justice Byron R. White: Would they can on the patent -- on license estoppel, don't you think they would've come up for the same result?

Mr. Peter R. Cohen: I really don't know what they would've come up with had the question been presented as one of federal law.

Justice Byron R. White: You're not -- you don't argue that the cases in this Court recognize license estoppel?

Mr. Peter R. Cohen: Well, I they recognized licensee estoppel, the Automatic Radio versus Hazeltine case is probably the best example of it.

That's the most recent decision in which the doctrine of licensee estoppel per se was upheld in 1950 after first finding that there was no patent misuse.

The cases go all the way back to Kinsman versus Parkhurst in 1855.

Justice Byron R. White: Well, so if the federal -- if the Supreme Court of California then purporting to follow up federal law would it not the same result.

Mr. Peter R. Cohen: Well, that's what I'm not so sure because I'm not so sure that in the cases that we've been talking about the Hazeltine and the Kinsman and all the other cases that they weren't applying that this Court wasn't saying that this state doctrine of licensee estoppel there's nothing wrong with it as long as you don't use it to transgress the antitrust laws in some way.

I think that's what they're after and I think that's what the Hazeltine opinion makes clear that assuming that a patent right is involved, as long as that patent right is not misused either by price fixing or tie-ins or conspiracies to restrain trade.

Then, the doctrine of licensee estoppel can be applied and in fact should be applied.

I would assume it is being applied to enforce the bargain of the parties.

Justice Hugo L. Black: Suppose California legislature had enacted the bill and the Government had signed it as a law to this effect, can this state any person who signs a license agreement well have must pay even though the patent is bold and has been so held by the Supreme Court of United States?

Mr. Peter R. Cohen: I think that would probably interfere with their right to contract freely with each other because the parties of course --

Justice Hugo L. Black: But do you think that would be a valid law?

Mr. Peter R. Cohen: No, I don't think it would.

Justice Hugo L. Black: Why in that, what happened then, why isn't that if that was the question here?

Mr. Peter R. Cohen: Because the parties --

Justice Hugo L. Black: Could have done this?

Mr. Peter R. Cohen: Because the parties here at the outset when they made this bargain in 1955 were free to contract as they wished.

They could've provide it in the contract that --

Justice Hugo L. Black: Well, we're free to contract under the others so far as to say that you're not only can contract but it's gone despite the fact if it hasn't gone, that would leave him free to contract.

Mr. Peter R. Cohen: Well, I thought that in the hypothetical you post, you were saying that the laws that they could not contest validity.

Justice Hugo L. Black: Well, then -- what he shall pay what he has agreed to pay even though the patent is void and so held under laws of United States.

Mr. Peter R. Cohen: Well, that forecloses the parties from bargaining as to whether they deem the validity of the patent to be material or not.

So, for that reason, I would say that law is probably invalid.

However, in this case in 1955, Lear could very easily had it been concerned with the question of validity inserted a clause in the agreement saying, we reserve the right to contest the validity of this patent if it issues --

Justice Hugo L. Black: But why should you --

Mr. Peter R. Cohen: -- and if it's invalid we don't have to pay.

Justice Hugo L. Black: (Voice Overlap) if the federal law gives it to him and deprives him of the obligation of paying where the services of a void patent?

Mr. Peter R. Cohen: I don't think the federal law gives in that right.

Justice Hugo L. Black: That's right.

That's right.

So you get back to that question.

Mr. Peter R. Cohen: No, no and I don't think it gives them that right because what the parties we're dealing with here was not the patent laws and the patent rights per se.

They were dealing with the disclosure of an invention for which Lear agreed to pay.

At the time it was disclosed it was secret, they didn't know about it.

Justice Hugo L. Black: We'll suppose now that a discovery which he had but the law has found out there was no discovery and therefore he did nothing after all.

Why would any person be deprived of raising that because of some contract he has made?

Mr. Peter R. Cohen: Because I understand --

Justice Hugo L. Black: And contracts his right away to raise it?

Mr. Peter R. Cohen: I think he can contract to purchase a bear idea or a discovery regardless of whether it's patented or patentable.

This is a question of state contract law and what's consideration for a contract.

Justice Hugo L. Black: Except when it gets into the patent fee?

Mr. Peter R. Cohen: Well, that maybe where this Court is trying to go to say that you must engraft upon every agreement which deals with something which is capable of being patented a provision that the parties cannot make a bargain unless they condition it first on obtaining a patent and second condition that upon the patent being valid.

Now, that maybe where the Court wants to go but I would submit that that's a very harsh result to take away from the parties the free right to make any contract they wish with the respect to an idea or a discovery even if it doesn't arise to the dignity of something that is patentable under the federal patent laws.

Justice Hugo L. Black: But if you're saying they have agreed to by something just to show they want to buy and agreed to pay it but you have to fall back here in your case do fall back in all of your pleadings on a patent.

Mr. Peter R. Cohen: The fall back on the patent for one reason and that is to show that Lear did not come within the conditions subsequent it said if a patent did not issue, they didn't have to pay for the royalties.

That's the only extent to which we rely on the patent in this case other than the fact that the claims cover the 2156 California --

Justice Hugo L. Black: But if we were to hold if the patent is void and that the man doesn't have to pay it there is no estoppel that can be raise with reference to it and that's all we held, what would you say would be the right in California the parties --

Mr. Peter R. Cohen: Well, I think --

Justice Hugo L. Black: -- in this case?

Mr. Peter R. Cohen: -- in this case I think that even if you overturn the doctrine of licensee estoppel and held the patent to be invalid that that would not end Adkins' rights under this contract because it is interpreted by the California Supreme Court the parties themselves were not concerned with the validity or invalidity of the patent and therefore since they did not make this a part of their bargain.

Justice Hugo L. Black: Why do you say that, exactly that?

Mr. Peter R. Cohen: It appears at page 182 of appendix 1 in footnote 17.

Justice Hugo L. Black: Appendix 1 -- 182?

Mr. Peter R. Cohen: Yes, Your Honor.

And reading from footnote 17, California Supreme Court states, “Lear states that the license extended only to validly patented claims, however, the provisions of the agreement setting forth the scope of the license do not so state.”

The validity of the patent was adverted to in the agreement only in connection with the right to terminate if the patent “was subsequently held invalid.”

And the Court goes on to say that page 209 of that appendix the cause is based on rights emanating from a written agreement and the patent itself is referred to only for the purpose of determining whether Lear used the invention therein set forth.

I think that makes a pretty clear that what the California Court was saying that even if the patent was invalid it would not cut off Lear's right or Lear's obligation to pay royalties in this case because they weren't bargaining between themselves Adkins and Lear for a conclusively valid patent.

Justice Abe Fortas: Mr. Cohen, in what respect what can you point to in this contract that distinguishes it really from the ordinary sort of contract in some of the circumstances where a party has an item for which he has filed the patent application and he makes contract with somebody else for the use of that item.

Now, it seems to me that your case and perhaps the decision of the California Court depend upon your argument rather than the decision of California Court depend upon establishing that a fundamental proposition which goes to the intention of the parties which is that somehow someway this is not to be looked at as an ordinary agreement with respect to an article before which patent application has been filed and which is subject to the federal patent law but somehow someway this contract is to be read in terms of the intention of the parties and then as an agreement for the use of any an invention without reference to patentability.

Certainly, the contract, when you look at the contract it looks like an ordinary patent -- ordinary agreement under the patent laws.

Mr. Peter R. Cohen: I don't think there's any question about that it's only couch in terms of the normal formal patent license agreement.

Justice Abe Fortas: Yes.

Mr. Peter R. Cohen: But I think you can distinguish it in this way, taking the typical situation first a holder of either an application for a patent or a patent would go to a manufacturer and say, the manufacturer was either using or intending to use what he thinks is covered by the application of the patent.

Let's say you either pay me a royalty or I will sue you for infringement of this patent.

And in that situation which is the typical situation the force behind the bargain is the threat of the supposed patent right and that is probably the main force in causing the bargain to be made assuming or leaving to the one aside the desirability the parties to settle but still the main force is the same.

It's the existence or the expected existence are the patent right under the federal law.

This case did not arise that way.

It arose rather with an agreement dated December 29, 1951 between Adkins and Lear which is one page in length as copied verbatim at page 11 of the appendix in which Adkins agreed to disclose the Lear “all ideas inventions and discoveries which he might conceive of which Lear agreed expressly would be Adkins property and Adkins then agreed to license it to Lear for a mutually satisfactory royalty.”

This agreement made no mention of patents, patent rights or patentability to the contrary.

The existence of a patent or patent right under this agreement was totally irrelevant then pursuant to that agreement Adkins went to work for Lear and did invent something which they wanted and when it look to Lear like it was going to be commercially successful they said to themselves, well, we have to do something about this first agreement because under state law he will collect that reasonable royalty.

So the result was that they begin negotiation with them that went over a three-year period and resulted in this license agreement.

Justice Abe Fortas: It was too bad, wouldn't it?

Mr. Peter R. Cohen: Well, I don't think it is yet.

Justice Abe Fortas: Not yet?

Justice Potter Stewart: Mr. Cohen, was he -- was Mr. Adkins, as I understood it from the brief, he was not represented by counsel in the drafting of that 1951 letter agreement, is that correct?

Mr. Peter R. Cohen: That's right.

He was not represented by counsel.

Justice Potter Stewart: How about in the negotiations that led up to the agreement that's an issue here?

Mr. Peter R. Cohen: Well, the California Supreme Court of course said that he was represented by counsel.

However, as I stated in the brief he was not in fact represented by counsel.

Justice Potter Stewart: That's what I understood you to say in the brief then I saw in the California Supreme Court's opinion that's different implication.

Mr. Peter R. Cohen: Right, now actually what happened there was at the time Adkins joined Lear he did have one issue of patent and he started negotiations with the lawyer with Lear with respect to that issue of patent which had nothing to do with this case.

Thereafter, Adkins and Lear started discussing this license agreement which Adkins alone negotiated with Lear and in the course of so doing they merged that other agreement with this one.

So that there were several parts of the same agreement, so he was initially represented on another face of it nothing to do with this particular invention.

I think it's also --

Justice Abe Fortas: Alternatively then I think I have some illumination that really what you're urging upon us is that we construe the patent license agreement which is the agreement upon which this litigation has been conducted as if that incorporated the spirit and substance and motivation of the -- and they show one page agreement between Adkins and Lear.

That's about what it comes down to.

Mr. Peter R. Cohen: It comes down to that yes together with additional considerations which I think make it clear under the terms.

I'm not on the 1951 agreement, but the 1955 agreement exactly what Lear received.

Justice Abe Fortas: Well, that's what I haven't got is and perhaps it's in the brief and I don't want to divert your argument and I don't recall it in your brief.

What I haven't got is what is there in this agreement in the what I call a license agreement that enables us to disregard the fact that it's patent license agreement?

Mr. Peter R. Cohen: Basically, an analysis of all the considerations that Lear was bargaining for and that Adkins was giving up with reference to the first agreement.

Not of which considerations had anything to do with either the power of force behind the patent or patent application or a patent or a patent right except to the extent that conditions subsequent where title Lear's obligation to pay royalties.

That's the only extent that --

Justice Abe Fortas: Well, that would cut pretty far one because practically every patent license agreement involves the same kind of -- involves a licensee of know-how and I suppose there are great many that involved facts somewhat like this in terms of the background of the patent license agreement itself which you really -- it's possible that the argument is that an invitation to this Court to supersede some aspect that at least the federal patent law where the parties had a relationship of employer or employee during the period of invention.

Mr. Peter R. Cohen: I would suggest that this is not the typical case and probably would never come up again for one practical reason that most if not all corporations when they employ an inventor make him sign an agreement in advance of his coming to work that whatever he invents will belong to the company.

This is the atypical situation because they signed an agreement exactly to the contrary.

Justice Abe Fortas: Well, that's the motion on appeal of the case.

Mr. Peter R. Cohen: Well, perhaps it's not but it's also the key to understanding the consideration which flowed from Adkins to Lear and vise versa under the 55 agreement which concededly was couched in terms of a formal patent license agreement.

And if I may just dwell on that for another moment, I'd like to analyze if I could exactly what the considerations are that Lear received under this 1955 agreement.

First, --

Justice Hugo L. Black: That's the last one, isn't it?

Mr. Peter R. Cohen: Sorry?

Justice Hugo L. Black: The 55 (Voice Overlap)?

Mr. Peter R. Cohen: The 55, yes sir.

First, Lear received the exclusive uncontested and immediate right to use the secret idea discovering invention which Adkins had disclosed until final patent office action.

Note, that I say exclusive and not nonexclusive because the license agreement was in fact expressly exclusive contrary to what the Solicitor General states in his brief, it started out as an exclusive license not a nonexclusive license.

Second, Lear received the cancellation of the letter agreement that December 29, 1951 under which his liability to Adkins was far broader than under the agreement that replaced it.

Under that agreement pursuant to California law, particularly a case known as Desny versus Wilder which is California Supreme Court case cited in my brief.

Based on that agreement, the Court would find that there was an implied contract between the parties for Lear to take the mutually satisfactory royalty which it would have determined was a reasonable royalty and under that agreement, Lear would be bound to pay as long as Lear use the device without any escape hatches or condition subsequent termination clauses whatsoever.

And that brings to the third point.

Third thing that Lear got under this agreement was the right to seize payment of “for the royalties” if no patent issued or if it issue which claims which did not cover the gyros in issue or some third party held it invalid.

And fourth and equally important, there were two additional agreements signed concurrently with this license agreement which are attached to Lear's answer and are on appendix A at pages 40 to 45 wherein Lear in addition to receiving the right to use the invention disclosed in the patent application also received a release from Adkins of all other and different ideas, discoveries and invention which he may have created for the year past, present and future as long as he work for the year.

So that this was the consideration that Lear was concerned for and was bargaining for as the California Supreme Court recognized it was not bargaining in addition for a conclusively valid patent under which it could say that the patent was invalid and therefore we don't have to pay.

Its sole rights were under the very carefully drawn condition subsequent.

I think it's also important in this case to understand that when Adkins went to work for Lear in January of 1952 after signing this first letter agreement, he went to work for what the president of Lear Incorporated described his “coffee and cake money” which was $650.00 a month.

Thus, Adkins real reward under this initial bargain was to be dependent upon his successors and inventor and after spending approximately six months experimenting with a bearing on as a self-aligning type bearing he concluded that that approach to the problem would not work after which he conceived of the invention which is the subject matter of this case and fully disclosed it to Lear both to its executive personnel, to its technical personnel in Grand Rapids both in writing and orally.

Now, after Adkins made this disclosure, Lear at its Michigan plant in Grand Rapids began experimenting also with a self-aligning principle which Adkins had rejected and experimented with this principle for roughly 13 months at which time they were intending to put the self-aligning principle into what we're now calling the Michigan Steel gyros.

In fact, they had set up on production ready to go with the self-aligning principle in it.

And after a limited production run, it was determined that it would not work in production quantity.

As a result of which, the technical personnel at Michigan held what Mr. Shepple who was the head of that section referred to as a midnight meeting and decided to use Adkins' invention in the steel gyros as the only solution to the problem at a critical time period when they had to get it to production with it.

The result was that between 1955 and 1963, Lear amassed sales in excess of $67 million effectively eliminating all competition in this market.

Now, all that we're asking here is that the Court recognizes that the California Supreme Court did that the primary consideration for the bargain had nothing to do with the validity of the patent.

It was solely the right to use this valuable invention and the other additional considerations which I have outlined subject to Lear's rights to terminate on these conditions subsequent which we're very carefully drawn to provide that they would not be as broad as Lear as now urging and the California Supreme Court in fact found they were not as broad.

Justice Potter Stewart: You're telling us that this was more analogous to simple compensation for his services to the company, is that right?

Mr. Peter R. Cohen: That's correct.

When you view it in entire context with the first agreement in the history of what Adkins was doing and what Lear needed then I think it puts it in the context that this is his true reward for disclosing this invention --

Justice Potter Stewart: This is his compensation for it --

Mr. Peter R. Cohen: And although that --

Justice Potter Stewart: -- services that he contributed for the company which proved to be well worth (Voice Overlap) --

Mr. Peter R. Cohen: Enormous value, exactly.

And in drafting the 55 agreement as the Supreme Court found, they were aware of these considerations.

And the Supreme Court in fact outlined all these various considerations which they got in reaching its conclusion that they were not bargaining for the right to say that the patent was invalid and therefore we don't have to pay.

Justice Abe Fortas: Well, did you say that Mr. Adkins was not represented by counsel in drafting of this agreement?

Mr. Peter R. Cohen: Yes, Your Honor.

As I said before, the Supreme Court stated that he was although the actual fact and I put the citations in the appendix was that he was not where as Lear was represented not only by House counsel but also by outside patent counsel and in fact conducted negotiations with them for three years and did not get serious in concluding this agreement until after sales began to mount up when they figured they better hurry up and get it done before he went back under the first agreement under which their liability was far more broader.

Justice Hugo L. Black: Does that have any relevance to the issue?

Mr. Peter R. Cohen: I think it has a relevance to the issue because if you take the state contractual construction ground then the validity or invalidity of the patent is not a defense in this case because the parties were not bargaining for a valid patent.

They were bargaining for the disclosure and this was Adkins' compensation for making that disclosure to him.

You must take this case in the context of the history of the case.

This is what makes it unique from virtually every other patent situation.

In the normal situation, it's the pressure of the existence of an application or a patent which forces the bargain.

Here, the pressure was not the patent rights or the patent laws.

Here, the pressure was the first agreement and all the consideration that Lear had received under the first agreement and additionally the consideration act and gave up under the second agreement which I have outlined.

Justice Hugo L. Black: Do you put it in the reliance on the clause that this should be governed by the clause of State of California?

Mr. Peter R. Cohen: Well, I think in the interpretation of the contract that's exactly what they meant that in construing the contract it is to be governed by the laws of the State of California.

Justice Hugo L. Black: And that's the one though where they did have a lawyer before they had that.

Mr. Peter R. Cohen: Lear had lawyers, no question about that.

Both house counsel and outside patent counsel who advise them extensively in the Supreme.

Chief Justice Earl Warren: But Adkins did not?

Mr. Peter R. Cohen: Adkins did not in negotiating this agreement except at the initial stage with respect to one other segment of it which is not an issue which Adkins' lawyer drafted and then had nothing to do with the agreement thereafter so that the terms that we're concerned with were drafted exclusively by Adkins without counsel representing.

Justice Hugo L. Black: What is this thing used before it?

Mr. Peter R. Cohen: It is used in a gyroscope to accurately position the bearings which support the gimbal in coaxial and parallel relationship.

Justice Hugo L. Black: In the manufacture of what?

What is the basic thing they make?

Mr. Peter R. Cohen: A basic thing is a gyroscope which is used in the guidance of aircraft.

Basically, the --

Justice Hugo L. Black: Very widely used, is it not?

Mr. Peter R. Cohen: It's very widely used, yes.

An airplane has to have at least two of them, one to tell you direction and one to tell altitude and the gyro is mounted very carefully, gyro is a rotor basically involves a rotor which is mounted in gimbal rings so that in can move in three degrees of freedom.

And the accuracy of the alignment of the bearings that hold the gimbals determined the accuracy of the signal which the gyro produces over a 1 to 5 to 10 ratio for example.

Justice Hugo L. Black: A few minutes ago, you referred to $67 million about something, what was that?

Mr. Peter R. Cohen: That was the gross that Lear received from sales of products which incorporated Adkins' invention both the 2156 gyro and the --

Justice Hugo L. Black: $67 million?

Mr. Peter R. Cohen: $67 million.

Justice Hugo L. Black: How many other companies were making the design?

Mr. Peter R. Cohen: No of the companies were making it then and no other companies are making it now.

Justice Hugo L. Black: In making anything like this?

Mr. Peter R. Cohen: Well, there are the companies making gyros.

Justice Hugo L. Black: That's what I've thought.

Mr. Peter R. Cohen: But as the Government states in its brief, Lear is the leading competitor in the gyro business for one reason.

They have an exclusive on Adkins' invention which they're using in their gyros which amassed the sales in just a period of 1955 to 1963 of an excess of $67 million.

Now, I would like to spend a few moments if I might on the question of how the 2156 California gyro and the Michigan steel gyros are assembled and the result in structure because I think there may be some confusion in the mind of the Court after yesterday's argument.

Preliminary, despite Mr. Wallace's statement that there are two patents involved in this case, they are not there is only one patent application and one patent.

This one patent application or there's one patent contains claim number 9 which covers both the 2156 California gyro and the Michigan steel gyro as I will hereinafter explain.

Justice Hugo L. Black: The same thing?

Mr. Peter R. Cohen: They're the same thing, yes.

They are assembled in the same way.

The function is the same.

The result in structure is the same.

There is no material difference whatsoever in these gyros.

In both gyros, the assembly procedures as follows: bearing cups are placed on the ends of the mandrel.

The cups are held on the mandrel not by screws as Mr. Hale may have implied but rather are held on the mandrel by the tight fit of the bearing cup with respect to the mandrel.

Then, the bearing cups are coated with cement and the two gimbal halves are placed over the mandrel holding the bearing cups.

Each gimbal half has a center hole and when it is closed down on this mandrel the bearing cups position themselves in the hole where when the cement dries the bearing cups are then left in the relationship which they were in on the mandrel.

Once, the cement dries it's taken apart, the mandrel is removed and the screws which hold the gimbal to the mandrel are also removed and formed no part of the invention.

So, that the result in structure is a structure consisting of a pair of three elements which achieves coaxial and parallel alignment without relationship to the parallelism of the end bells or the coaxial alignment of the receiving holes.

That, I suppose is an over simplification but that's the essence of this invention and that was used in both the 2156 California gyro and also in the Michigan steel gyros in the same way.

In fact, as Mr. Shepple who I have referred to before stated and he was the head of the steel gyro development program the assembly finished structure.

The result are the same in both gyros and the principle is the same in both gyros.

Thus, the remaining question is whether claim 9 which was on a chart presented by Mr. Hale yesterday.

Question is whether that claim covers these gyros.

Lear concedes that it covers the 2156 gyros and because there are no material differences between the 2156 California gyro and the Michigan steel gyros it also covers the Michigan steel gyros.

This is what the jury found and this is also what the California Supreme Court held stating in fact that the evidence was uncontradicted that claim 9 covers the Michigan steel gyros.

Justice Abe Fortas: Well that, that point is contested by Lear?

Mr. Peter R. Cohen: Yes.

Justice Abe Fortas: Isn't it?

Mr. Peter R. Cohen: Yes, it is --

Justice Abe Fortas: And they say that claim 9 does not cover the Michigan steel gyros?

Mr. Peter R. Cohen: That is correct.

That is their contention.

However, the California --

Justice Abe Fortas: When they say that there was -- that there's no evidence to support the jury's verdict?

Mr. Peter R. Cohen: I don't know if they're saying that that --

Justice Abe Fortas: What do they say?

Mr. Peter R. Cohen: What they're saying that as they view the Michigan steel gyros.

It is not covered by the claims.

However, they do not view the Michigan steel gyros the same way as the five witnesses who testified on the subject including their own witness has viewed it.

All five witnesses testified that the Michigan steel gyro is assembled and exactly the same way as the 2156 gyro that the alignment if achieved by the permissive cooperation between the bearing cup at both ends and the receiving --

Justice Abe Fortas: Well, the California Supreme Court reinstated the jury verdict?

Mr. Peter R. Cohen: Yes, it did.

Justice Abe Fortas: -- on this?

Mr. Peter R. Cohen: And it did so after --

Justice Abe Fortas: Where the special findings, special verdict by the jury?

Mr. Peter R. Cohen: No, there was not.

But the issue --

Justice Abe Fortas: But there were -- are the instructions challenged?

Mr. Peter R. Cohen: No, the instructions are not challenged as far as I'm aware at least on the issue of infringement that they're challenged.

They were challenged in some other respect on various other matters but not on infringement.

And as the California Supreme Court found the evidence was uncontradicted and compel the conclusion that the claim 9 covered the Michigan steel gyros.

And I've set forth most of that testimony in the appendix, five witnesses, Mr. Lee, Shepple, Adkins, Carpenter and I believe Charleston.

If I may, I will get back for just a moment to the -- this Court's opinion in the Automatic Radio versus Hazeltine case as I read that opinion and assuming we're concerned with the doctrine of licensee estoppel in this case, this Court has held that where there is no misuse of the patent such as the Court found in sole in Katzinger as price fixing and as the Court found in Mercoid as a tie-in then the doctrine of licensee estoppel maybe applied in and in fact should be applied and that's what was done in that case.

Taking it back to the foundation, I would like to read one quote from this Court's opinion in United States versus Harvey Steel and I think it's particularly applicable to the bargain of these parties.

There, this Court said, “The United States was dealing with a matter upon which it had all the knowledge that anyone had that it was contracting for the use of a process which however much it may now be impugned the United States would not have used when it did but for the communications of the claimant and that it was contracting for the process which it actually used a process which has revolutionized the naval armor of the world.”

This language can be read directly on our case as to what they were in fact contracting for.

Chief Justice Earl Warren: Is there any patent in that case ultimately?

Mr. Peter R. Cohen: Yes, there was a patent.

Chief Justice Earl Warren: There was a patent.

Mr. Peter R. Cohen: And the Court found that there was both a patent and a process and that principally what the Government was wanting to use was the process or the know-how or the disclosure of how to do it.

And they entered into the contract which again looked like a formal patent license agreement on that basis and the Court said that where what you were after was the disclosure of the idea, it should not be a defense if the patent is invalid because you receive everything you bargained for it.

Chief Justice Earl Warren: What is that case?

Mr. Peter R. Cohen: That was United States versus Harvey Steel.

Chief Justice Earl Warren: Harvey Steel.

Justice Abe Fortas: Suppose we hold in this case that there is no showing of abuse, patent abuse and suppose we reiterate what you assert to be the doctrine of that the licensee having agreed I take it that it will not attack the validity of the patent in the circumstances.

Suppose we reiterate that it is estopped from attacking it, does that dispose of this case?

Mr. Peter R. Cohen: Yes, I think that would dispose of this case if the doctrine of estoppel is affirmed as I see that's the end of this case.

Justice Abe Fortas: Well, doctrine of estoppel that being no evidence of patent abuse here.

Mr. Peter R. Cohen: That's correct.

Justice Abe Fortas: And the doctrine of estoppel here being an agreement of the part being based upon an agreement of the parties which is in the contract, is it?

Mr. Peter R. Cohen: Yes, sir.

Justice Abe Fortas: That the patent will not be -- that the validity of the patent will not be attacked?

Mr. Peter R. Cohen: That's right that it will not be a part of the bargain and need not the consideration they're bargaining for one with respect to the other --

Justice John M. Harlan: There's no express agreement to that effect, is there any?

Mr. Peter R. Cohen: No, there is no express agreement but the California Supreme Court in construing the contract stated that that was the construction that had to be placed on (Voice Overlap) --

Justice Abe Fortas: That's derived from the -- I suppose primarily from the expressed provision in the contract as you argue it from the expressed provision in the contract that if upon suit of a third party that patent is found to be invalid then certain consequences follow, and I suppose you derive make it to the implication from that the parties have agreed that the licensee may not challenge the validity of the patent.

Mr. Peter R. Cohen: I think that's what they were saying, yes that they have narrowly limited their rights to terminate this agreement and that particular conditions subsequent was designed to apply only when some third party adjudicated the patent to be invalid in which case that third party could use it free then Lear could too but that was it's only escape hatch so to speak.

Justice Abe Fortas: It is fairly customer specified isn't in as I recall in patent license agreements cover not to by the licensee not to attack the validity of the patent?

Mr. Peter R. Cohen: I really can't answer that Your Honor I just don't know how frequently they're doing, how frequently they don't.

I would assume if the licensee was concerned about it, he would expressly reserve the right to contest the validity and make an express part of the bargain.

Justice Potter Stewart: Well, if there -- if they want a provision in the agreement with respect to termination if the patent is held invalid?

There weren't any provision like that at all.

You could argue I suppose that it's totally irrelevant where the patent is valid or invalid and that even if the patent was declared invalid this -- the obligation of the license goes on.

Mr. Peter R. Cohen: I would think the answer to that is probably --

Justice Potter Stewart: If you contracted for the use of the process why you contract for the use of it, was it patent or not?

Mr. Peter R. Cohen: That's correct.

Justice Potter Stewart: But now, you do have a provision in the contract that says termination if it's held invalid?

Mr. Peter R. Cohen: Yes, but that provision as the California Supreme Court construed it was drawn to permit Lear which had an exclusive license to terminate in the event that some third party adjudicated it to be invalid and therefore acquired the right to use it free.

Justice Potter Stewart: So, the license agreement seems to me does have some critical part of it but depended upon the existence of the patent?

Mr. Peter R. Cohen: But to the sole extent that Lear's rights to terminate and avoid its bargain are tied to the -- what the patent office would do what some third party might do, did not give Lear the right to do it.

In other words, it is tied in a limited way to what might happen under the patent laws but only in a very limited way.

It doesn't form a part of the consideration.

It forms only the conditions subsequent under which Lear can get out of the bargain.

Now, assuming the sake of argument only that the doctrine of licensee estoppel has to be overturned then the question becomes what happens to this case thereafter.

Now, although Lear urges that this Court then delve into the issues of validity of the patent and itself determine the issue, the Government concedes that in that situation the case should be remanded to the California Supreme Court which has not yet considered the issue of validity.

It is the policy of this Court that lower courts first be given the opportunity to pass on questions before this Court reviews them.

Otherwise, in this case, the result would be since there are no new or noble patent issues involved but this Court would be sitting and performing a function performed by the Court of Claims for instance that, the right of ordinary review rather than reviewing questions of law.

Moreover, even if the patent was held invalid that would not in the case, that would still be additional things that have to be considered such as the proper cut-off date for the payment of royalties if the patent is held invalid.

And on this issue, the Government also concedes in its amicus brief that the resolution of this issue where the license is exclusive would depend upon state considerations of fairness between the parties.

Similarly, we would have in this case the right to pursue the second cause of action.

The second cause of action was an alternative cause of action which existed for the idea, discovery and invention as and unpatented and unpatentable invention.

And we took the position under that second cause of action that if the license agreement for some reason failed either because of a failure or consideration or because of some illegality or for some other reason that Adkins was under one of these theories pleaded there entitled to recover the reasonable value of what he in fact convey to Lear when he disclosed the idea.

Now, although it's been contended that Mr. Adkins waived the second cause of action in its entirety he did not in fact do so of the trial court had held that Mr. Adkins have waived the entire cause of action but on the writ of mandate proceeding, the District Court of Appeal reversed and compelled the trial court judge to enter an amendment to the judgment stating that the second cause of action had not been waived for what Adkins had disclosed to Lear insofar as related to the subject matter of the patent application.

I believe that concludes my presentation.

Chief Justice Earl Warren: Mr. Hale.

Argument of C. Russell Hale

Mr. C. Russell Hale: Mr. Chief Justice, may it please the Court.

This morning we spent a lot of time on something that we had no trial on.

The trial court limited us to the express terms of this license agreement.

We -- pardon me.

We endeavor to present evidence leading up to the consummation of this agreement, a background material, the trial court excluded, expressly excluded all of that.

The trial court said, you're here on an agreement or you're here on something else, why are you here on?

It required Adkins to elect.

Adkins wanted to go in under the idea, discovery, invention and common law.

The trial court says, you can't ride both those horses.

You have to pick the agreement or the common law, which are you on?

And Adkins picked the agreement.

Justice Hugo L. Black: Was the court right on that?

Mr. C. Russell Hale: I think it was Your Honor.

The two causes of action are antagonistic to one another, they are I might say mutually exclusive as I indicated yesterday the common law relies upon secrecy, nondisclosure.

Patent law relies upon disclosure.

There was an agreement, Adkins pleaded the agreement and that's what we're here on.

Now, for example this --

Justice Hugo L. Black: Under a court rule.

Mr. C. Russell Hale: Sir?

Justice Hugo L. Black: Under a court rule, was it wrong for the court to say that they can have both feeds?

Mr. C. Russell Hale: No, I thought I'm in complete agreement with the Court's decision and that has not been overturned Your Honor.

That was the way the thing went up all the way.

Now, this is enabled the presentation of numerous incorrect statements as to the facts because they're just not in the record.

Now a lot of the facts, of this Court heard this morning, are not in the record because the trial court won't let us put them in the record.

For example, today, you heard that Adkins alone negotiated with Lear and this is set forth in Adkins' brief at page 15, he gives a couple of reporters transcripts citations and I ask this Court to read those two citations and see if Adkins was represented by counsel or not.

They don't say.

Now, at the trial, we tried to present evidence concerning this as I pointed out and it was excluded.

Exhibit U is down in the record, in the archives.

We made an offer of proof of exhibit U at our -- at the reporter's transcript 1018.

Exhibit U says, I have read over the license agreement and I found it to be generally in good shape.

However, prior to submitting it to my lawyer for his comments and interpretation of certain legal phraseology I would like to go into certain details.

Justice Hugo L. Black: Whose evidence was that?

Mr. C. Russell Hale: This was exhibit U presented by Lear, it was not admitted because the trial court says, I'm not going to let you go into the details of this agreement.

Justice Hugo L. Black: Who was it said he wanted to submit it to his attorney?

Mr. C. Russell Hale: Oh!

Pardon me Your Honor.

This is written by Adkins to Mr. Bloomberg who was a lawyer for Lear.

So, this was a communication by John Adkins concerning the license agreement directed to Lear and it says prior to submit again.

Now, Adkins is saying, prior to submitting it to my lawyer for his comments.

Now, this is dated November 26, 1954.

There are several other pieces of -- this is not an evidence Your Honor, this was for identification only but it is down here in this -- in the archives and I just want to point out that this one of the things that we've been going into today that that we never had trial on.

I don't consider this part of the record.

I considered it improper for Adkins to say he wasn't represented by legal counsel when things that were excluded from the evidence show that he was.

Justice Hugo L. Black: What you're arguing is that if that is irrelevant fact it is not in this record as shown to be of fact.

Mr. C. Russell Hale: That is correct Your Honor.

But it was stated as a fact this morning that's why I'm bringing it up.

Now, another point I would like to discuss is --

Chief Justice Earl Warren: Who conducted the negotiations, who conducted the negotiation day by day?

I understood him to say that it was about three years that took to bring about this agreement.

Now, who from day to day negotiated on each side was --

Mr. C. Russell Hale: You'll find nothing in the record that clarifies that for the Court and I simply feel.

Chief Justice Earl Warren: But it embarrass it much I would think on the -- on whether he is represented by counsel or not as this statement that you put in the record now that wasn't in the record, that's the reason I asked you.

Mr. C. Russell Hale: Yes.

Well, Your Honor we were not permitted to go into that.

There simply no record on it.

Chief Justice Earl Warren: And you have no idea?

Mr. C. Russell Hale: Well, I have some idea but I don't believe it's proper for me to tell the Court my ideas.

I think we're here on the record.

Chief Justice Earl Warren: You've told us what isn't in the record there.

Mr. C. Russell Hale: Well, I gave you this as an example to show we're discussing things this morning that aren't before the Court.

Chief Justice Earl Warren: Well, why don't you give us the rest of it then?

Mr. C. Russell Hale: Alright.

Your Honor, Adkins was an employee of Lear.

He would go to Lear from time to time and discuss this.

There wasn't any hurry about this agreement.

They were negotiating it arguing back and forth and this was a very leisurely thing.

He dropped in and chat about it and go away and say, I'll talk to my lawyer about it.

Three months later, he'd come back and say something else and it was just that sort of thing.

Chief Justice Earl Warren: Just an employee dealing with an --

Mr. C. Russell Hale: Yes.

Yes, Your Honor.

Chief Justice Earl Warren: -- employer involving what admittance.

Mr. C. Russell Hale: Yes, Your Honor.

Now, another thing much of the argument today has been based upon the discussion of these idea, discoveries, and inventions apart from patent rights.

Well, again, the record shows that this issue was eliminated at the outset of this action and no evidence was permitted on this.

We're talking about things that we don't have the record on.

We simply we're not permitted to go in to this sort of thing.

Justice Abe Fortas: Well, is the one page agreement to which Mr. Cohen referred in the record?

Mr. C. Russell Hale: No sir, Your Honor it has the same status in the record as this document I've just read it to the Court.

The one page agreement is reprinted as the very last document in the big appendix.

It was never admitted.

Justice Abe Fortas: Was that reprinted by stipulation to you counsel?

Mr. C. Russell Hale: Mr. Adkins designated for inclusion in the record if you will notice we say exhibit 7 for identification only.

This document was never admitted and the reason it was never admitted is the trial court said, we're going to trial on the agreement of exhibit 8 and nothing else is material, nothing else is permitted.

Justice Hugo L. Black: When you've been saying it's not in the record, do you mean it's not in the record that submitted to us for how consideration or if that's what you mean, how could you say it is here on the bottom, that U exhibit that you're talking about?

How did you, you said exhibit U is share in some things.

Mr. C. Russell Hale: Yes.

Justice Hugo L. Black: In this Court?

Mr. C. Russell Hale: Yes.

Yes, Your Honor.

Justice Hugo L. Black: Well, it was often you say but was not admitted in evidence?

Mr. C. Russell Hale: Yes, Your Honor.

Justice Hugo L. Black: That's what you mean when you say it's not in the record?

Mr. C. Russell Hale: Yes, Your Honor.

Justice Hugo L. Black: On each on of them?

Mr. C. Russell Hale: Yes, Your Honor.

We were never permitted to develop a record of any kind going -- leading of the thing -- leading up to the consummation of this agreement.

Justice Abe Fortas: I don't believe that one page -- my question may not have been clear.

I don't believe that one page document to which you referred is the one page document to which Mr. Cohen referred --

Mr. C. Russell Hale: Yes, sir.

Justice Abe Fortas: I thought he referred to a one page agreement between Lear and Adkins with respect to inventions --

Mr. C. Russell Hale: That's --

Justice Abe Fortas: -- which --

Mr. C. Russell Hale: I think we're both referring to the same thing Your Honor --

Justice Abe Fortas: The same document?

Mr. C. Russell Hale: Would you so agree Mr. Cohen that we're referring – he's referring to the pleadings and I'm referring to the exhibits.

Justice Abe Fortas: I see, thank you.

Rebuttal of Peter R. Cohen

Mr. Peter R. Cohen: Because I'm referring to exhibit A attached to the complaint which is the same document and which was admitted in the answer.

Well, it's incorrect to that extent.

Chief Justice Earl Warren: Was submitted in the record?

Mr. Peter R. Cohen: Oh!

Yes, it's in the record because it attached the complaint and the answer admits that the party signed this agreement.

Chief Justice Earl Warren: Yes.

Justice Hugo L. Black: Well, was admitted as evidence?

Mr. Peter R. Cohen: No, it was admitted --

Justice Hugo L. Black: Or admitted for identification only?

Mr. Peter R. Cohen: It was admitted for identification only.

Justice Hugo L. Black: So, it is not in the record here we have considered it?

Mr. Peter R. Cohen: Yes.

You can consider it because it was --

Justice Hugo L. Black: Consider it for what?

Mr. Peter R. Cohen: -- to the complaint as an exhibit and the --

Justice Hugo L. Black: That was offered that's not admitted?

Mr. Peter R. Cohen: Well, in California you do not have to offer something into evidence which is admitted once it is admitted in the answer --

Justice Hugo L. Black: But it might be admissible and relevant that it might not, did the Court hold that was admitted as a relevant piece of evidence?

Mr. Peter R. Cohen: No, it did not because I was trying to get to another subject with it but in the answer it was admitted that Lear had signed this agreement and the California Supreme Court in fact considered it in its opinion.

Justice Potter Stewart: It's on page 11 of appendix, volume 1 and it is exhibit 1 to the complaint that was filed and as I understand it the answer did not deny that part of the allegations of the complaint?

Mr. Peter R. Cohen: That's correct.

Rebuttal of C. Russell Hale

Mr. C. Russell Hale: No, that's beyond question Your Honor but the trial court excluded it because license agreement, paragraph 13 of the license agreement says, this agreement supersedes and cancels the agreement which has been brought.

Chief Justice Earl Warren: Very well.

Mr. C. Russell Hale: Thank you Your Honor.