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AIR KING PRODS. CO. v. HAZELTINE RESEARCH

November 16, 1950

AIR KING PRODUCTS CO., Inc.
v.
HAZELTINE RESEARCH, Inc.



The opinion of the court was delivered by: GALSTON

The action is brought pursuant to Title 28 U.S.C.A. § 2201, for a declaratory judgment of invalidity and non-infringement of patent rights, and of the nonenforceability of asserted contract rights; and the defendant, pursuant to the provisions of Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A., has moved for partial summary judgment in its favor upon issues separately to be tried under the order of the court entered on or about August 14, 1950. See the court's opinion reported in D.C., 10 F.R.D. 381.

The following relief is sought:

1) That the license agreement between the parties be declared valid and in full force and effect, and enforceable by Hazeltine, as prayed for in the counterclaim.

 2) That Air King, as licensee under the license agreement, be declared estopped from contesting the validity of the licensed patents.

 3) That under the license agreement the plaintiff be required to account for and pay royalty at the rates specified in Article IV. sec. 1, upon all radio and television receiving sets and apparatus as described in Article III, sec. 2, sold by Air King during the license term, and that alleged issues of patent infringement or coverage are immaterial and not subject to adjudication in this action.

 4) That Air King has breached the agreement and has failed to render reports regarding its sales for all purchases subsequent to May 31, 1949; has failed to pay defendant royalties upon any of its sales subsequent to April 1948, except a payment for the month of May 1948, and that upon plaintiff's report to the defendant for the period ending May 31, 1949, Air King's indebtedness to Hazeltine for unpaid royalties amounted to $ 33,939.19 for that period.

 It is urged that partial summary judgment under Rule 56 is appropriate because no genuine issue of fact is believed to exist on any material point.

 It is to be observed that the license agreement between the parties is similar in all essential terms to that which has been before the courts in other actions, and in which the validity of the license agreement has been sustained, Automatic Radio Manufacturing Co., Inc., Petitioner, v. Hazeltine Research, Inc., 339 U.S. 827, 70 S. Ct. 894, affirming 1 Cir., 176 F.2d 799, and more recently Hazeltine Research, Inc., v. Admiral Corp., 7 Cir., 183 F.2d 953. What was said in the Supreme Court opinion is applicable here.

 'This is a suit by respondent Hazeltine Research, Inc., as assignee of the licensor's interest in a nonexclusive patent license agreement covering a group of 570 patents and 200 applications, against petitioner Automatic Radio Manufacturing Company, Inc., the licensee, to recover royalties. The patents and applications are related to the manufacture of radio broadcasting apparatus. Respondent and its corporate affiliate and predecessor have for some twenty years been engaged in research, development, engineering design and testing and consulting services in the radio field. Respondent derives income from the licensing of its patents, its policy being to license any and all responsible manufacturers of radio apparatus at a royalty rate which for many years has been approximately one percent. Petitioner manufactures radio apparatus, particularly radio broadcasting receivers.

 'The license agreement in issue, which appears to be a standard Hazeltine license, was entered into by the parties in September 1942, for a term of ten years. By its terms petitioner acquired permission to use, in the manufacture of its 'home' products, any or all of the patents which respondent held or to which it might acquire rights. Petitioner was not, however, obligated to use respondent's patents in the manufacture of its products. For this license, petitioner agreed to pay respondent's assignor royalties based upon a small percentage of petitioner's selling price of complete radio broadcasting receivers, and in any event a minimum of $ 10,000 per year. It further agreed to keep a record of its sales and to make monthly reports thereof.' Automatic Radio Mfg. Co., Inc. v. Hazeltine Research, Inc., 339 U.S. 827, 829, 70 S. Ct. 894, 895.

 The agreement between the parties is dated as of July 1, 1941 and binds the parties for a ten year period.

 The defenses of Air King to Hazeltine's counterclaim are essentially similar to those which were held insufficient in law not only in Automatic Radio Mfg. Co., Inc., v. Hazeltine Research, Inc., supra, and Hazeltine Research, Inc., v. Admiral Corp., supra, but also in Hazeltine Research v. DeWald Radio Mfg. Co., 276 App.Div. 1001, 95 N.Y.S.2d 772.

 The defense to the counterclaim that the license agreement must fall because of misuse of patents by Hazeltine was unsuccessfully urged in the actions cited. Still Air King charges that Hazeltine amassed a vast number of patents in the field of radio and television, not for use, but for the purpose of collecting royalties on patent-free industry products; that the agreement sought to be enforced by Hazeltine requires the payment of royalties on the entire gross production of home television and radio sets made or sold by the plaintiff without regard to whether the defendant owns or controls any patent covering such sets, and even if Hazeltine has or controls no patents whatever covering such sets.

 In Automatic Radio Mfg. Co., Inc., v. Hazeltine Research, Inc., supra, the Supreme Court rejected the same defense, saying: 'The mere accumulation of patents, no matter how many, is not in and of itself illegal. See Transparent-Wrap Machine Corp. v. Stokes & Smith Co., 329 U.S. 637, 67 S. Ct. 610, 91 L. Ed. 563. And this record simply does not support incendiary, yet vague, charges that respondent uses it accumulation of patents 'for the exaction of tribute' and collects royalties 'by means of the overpowering threat of disastrous litigation.' We cannot say that payment of royalties according to an agreed percentage of the licensee's sales is unreasonable. Sound business judgment could indicate that such payment represents the most convenient method of fixing the business value of the privileges granted by the licensing agreement. * * * We hold that in licensing the use of patents to one engaged in a related enterprise, it is not per se a misuse of patents to measure the consideration by a percentage of the licensee's sales.' Automatic case, 339 U.S. 827, 834, 70 S. Ct. 894, 898.

 Also on the subject of misuse, Air King in its complaint alleges that the license is invalid because it requires the licensee to apply to radio and television sets made by it a notice purporting to restrict the uses to ...


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