63d Congress 1 1st Session J SENATE j Document 1 No. 151 REVISION OF THE PATENT LAWS THE OLDFIELD BILL BEING A REPORT AND PAPERS RELATING TO HOUSE BILL 23417, AS REVISED AUGUST 8, 1912, BY A COMMITTEE OF THE PATENT LAW ASSOCIATION OF CHICAGO, AND RESOLUTIONS OF THE ASSOCIATION PRESENTED BY MR. BRANDEGEE August 4, 1913. — Ordered to be printed WASHINGTON GOVERNMENT PRINTING OFFICE 1913 CONTENTS. Page. Report of the committee 5 Resolutions of the association 14 Brief analysis of the bill (paper by Mr. Hill) 16 The proposed amendments as to the term of patents (paper by Mr. Gillson) 26 The compulsory license feature of the bill (paper by Mr. Barnett) 31 Provisions of the bill restricting the resale of patented articles and reme- dies for violation (paper by Mr. Lane) 37 The antitrust provisions of the bill (paper by Mr. Wiles) 42 2 D. OF D. AUG 14 1913 Ox Patent Law Association of Chicago, February 15, 1913, To our memhers and those interested in the patent laws: The accompanying report and papers upon the Oldfield bill (H. E. 23417 and Report No. 1161) were prepared by a committee appointed by the association and were read and discussed at meetings called for the purpose. The committee's report was received by the association at its annual meeting January 24, 1913, at which time, after a full discussion, the resolutions appearing on page 19 were unanimously adopted. George P. Barton, President, Charles B. Gillson, Secretary, Monadnock Building, Chicago. 3 REPORT OF THE COMMITTEE APPOINTED TO CONSIDER THE PROVISIONS OF HOUSE BILL NO. 23417 AS REVISED AUGUST 8, 1912, KNOWN AS THE OLDFIELD BILL. To THE Patent Law Association or Chicago : Your committee beg leave to report that they have given careful consideration to the provisions of the above bill, to the report of Mr. Oldfield thereon, and to a digest of the hearings before the House Committee on Patents on certain of the subjects covered by the bill. Your committee appends hereto as a part of its report copies of five papers dealing with the bill as a whole and with the four sub- stantive matters contained therein in detail, which were presented to the association at a series of informal meetings. These papers, which have been printed and distributed to the members of the asso- ciation, are as follows: By Mr. Hill, " A brief analysis of the bill." By Mr. Gillson. " The proposed amendments as to the term of patents." By Mr. Barnett, " The compulsory license feature." By Mr. Lane. " Resale restrictions and remedies for violation." By Mr. Wiles, " The antitrust provisions." For a detailed discussion of the bill, we refer to these papers. This report, after a brief reference to the several subjects matter of the bill, will deal only with the broader aspects of the question. THE FOUR substantive FEATURES OF THE BILL. I. Patent term. The Oldfield bill amends the present statute regarding the term for which patents are to be granted so as to subtract from the 17-year period now fixed by law all time in excess of two years which the applicant occupies in the prosecution of his application. This amend- ment, if passed in its present form, would have no effect upon the life of any patent granted within two years from the date of the original application, but it would shorten the life of any patent granted more than two years after the date of the application to the extent of the time in excess of two years consumed % the applicant, exclusive of the period consumed by the office in its actions and by interferences or appeals therein. lib would seem from the language of the proposed amendment that it would take from the applicant whatever time was necessary in perfecting and taking his appeal from the decision in the office, but would not subtract from the term the time consumed by the office in deciding upon such appeal. 5 6 KEVISION OF THE PATENT LAWS. II. Compulsory licenses. The Oldfield bill provides for compulsory licenses, the avowed object being to prevent the shelving of competitive patents. The theory of the amendment seems to be that an inventor may hold more than one patent relating to the same subject matter so long as he does not contract or agree with others to suppress one or more of his patents. The report justiifies this by an argument that the inventor is presumably meritorious and impecunious, and must enlist outside aid to bring his inventions before the public, but assumes that the assignee of a plurality of patents relating to the same industry is attempting to create a monopoly of monopolies and that such owner- ship is without justification. Of course, the bill ignores a large class of cases where the inventor himself takes out numerous patents relat- ing to the same industry and manufactures under some, but not all, of them. It does not operate against the individual patentee unless and until it has been shown he has agreed with some one else to sup- press one of his patented inventions or that he is suppressing a com- petitive patent acquired by assignment from another. The bill provides as the method of affecting compulsory licenses a suit in equity and imposes upon the court the duty of fixing the terms of the license including the matter of license fee. An appeal lies from the decree of the district court to the court of appeals. The period of suppression is calculated from the date of the origi- nal application, and is fixed at three years. In passing we may call attention to the fact that the application in many instances might be pending for the whole or the greater portion of that time, with the result that compulsory license might be demanded under a patent immediately after its issuance. The compulsory license feature does not apply to patents granted prior to the passsage of the act. III. Suits against furchasers^ lessees., or licensees of patented articles. The Oldfield bill takes away from the owner of a patent the right to commence an action for infringement against any licensee, lessee, or purchaser from or under such owner on account of a breach of the contract of sale or of the lease or license. The effect of this amend- ment would seem to compel the owner of a patent or of any interest in a patent to resort to an action upon his contract, whether expressed or implied, and takes away from him the remedy by suit for in- fringement, and compels resort to the State courts, unless there be diversity of citizenship and the necessary jurisdictional amount is involved. IV. Antitrust provisions and price restrictions. The Oldfield bill contains an elaborate series of provisions, the declared purpose of which is to remove the exemption as to patented articles from the Sherman law. The bill not only subjects patented articles to all of the limitations and prohibitions of the Sherman law, but it imposes restrictions upon dealing in patent property which are not imposed by the Sherman law upon un})atented articles. REVISION OF THE PATENT LAWS. 7 PROPOSITIONS ON WHICH THE OLDFIEM) BILL, IS BASED. The bill and the report are predicated upon the following propo- sitions. We quote from the latter : (1) There is widespread dissatisfaction with the operation of our patent laws; (2) the rapid growth of trusts and combinations whose business rests largely in patents; (3) there is an insistent demand for a revision of the existing laws affecting patents. The report states that at the 27 public hearings the only subjects considered were those covered by sections IT and 32 of the original bill corresponding to sections 1 and 2 of the substitute bill. These subjects are the patent term, compulsory license, and price restric- tions. The report states that the investigation by the committee disclosed that the existing dissatisfaction with our patent system is due to a variety of causes, but that two causes entirely distinctive in char- acter are principally operative: (1) The abuses of the rights granted by patents, and (2) the defects of our present system or administer- ing the patent law in the Patent Office and in the courts, and the report states that — No complete remedy for existing evils is possible without removing by adequate legislation these two great causes of dissatisfaction. After stating that the investigation before the committee was con- fined to the abuses incident to the use of patents, and specifically to the fixing of resale prices, the limitation of the right to use a patented article in connection with an unpatented article supplied by the patentee and the suppression of patented inventions, the report de- clares : As a remedy for these evils it was proposed to limit the absolute right now vested in the owners of patents under which they determine to what extent and in what manner the use of the patent, or patented article, shall be permitted. With this in view, it was proposed to take away specifically the right recog- nized by the lower Federal courts to fix under the patent law prices at which articles shall be sold at retail, and also to take away the right recently con- firmed in the mimeograph case to prohibit patented machines from being used otherwise than in connection with unpatented materials furnished by the vendor or licensor. The purpose of the bill to entirely change the character and extent of the property rights of a patentee and to convert his ownership into a limited privilege upon condition instead of a monopoly is thus plainly declared. There were no hearings before the Oldfield committee upon the antitrust sections of the bill, but these provisions in substance were copied from the Lenroot bill, which had been considered before the House Judiciary Committee and failed of approval. After the hear- ings before the House Committee on Patents these antitrust pro- visions were incorporated in the Oldfield revision and reported favor- ably by a bare majority of the committee, without any public hearing thereon. That the Oldfield bill is mainly an antitrust bill is admitted by the author in his report, where he says : The bill herewith submitted consists, therefore, largely of provisions making specific application of the Sherman Antitrust Act to businesses involving pat- ents and tlie means for their effective administration by the courts and other- wise. 8 KEVISION OF THE PATENT LAWS. The Oldfield bill does not profess to deal with the defects due to the administration of the patent sj^stem in the courts, and it does not deal with the defects in the administration of the Patent Office, except as to the dela3^s of the applicant in prosecuting his application, which it seeks to correct by shortening the term of the patent where the delay is excessive. committee's view of the alleged defects of the patent system. Your committee has given careful consideration to the statements and arguments of the report, and has considered the evidence ad- duced before the House Committee on Patents at the hearings. As ^ 1 a result, we find no sufficient basis for the statements that there is a *■ " widespread dissatisfaction with the operation of our patent laws " ; that " the business of trusts and combinations rests largely on pat- ents " ; and that " there is an insistent demand for a revision of the existing laws affecting patents." On the contrary, your committee is of the belief, founded upon the experience of its individual members, ' and upon all the information obtainable, that the operation of our patent laws has given in the past, is now giving, and will continue to give, general satisfaction; that the business of the so-called trusts, with few exceptions, is not founded or dependent on patents; and that there is no intelligent demand, insistent or otherwise, for a gen- eral revision of the patent laws. Even if it were true, as declared by Mr. Oldfield, that a revision of the patent law is demanded, the bill does not meet that demand, for it is in no sense a revision of the patent laws; it does not meet the stated or recognized defects in their administration, and your committee believes that the alleged evils which it attempts to state and remedy are harmless compared with those which would follow from the passage of this bill. When the subject is fully understood your committee believes that it will be found that the criticisms of the patent system are directed : First. Against the procedure in the Patent Office which involves or permits delays, entails expense, and results in the grant of invalid or inadequate patents. Second. Against the procedure in the courts which likewise in- volves or permits delays, entails great expense, and produces con- flicting decisions. Responsibilty for the first of these defects rests chiefly with Con- gress, which has refused the oft-repeated requests of the office and demands of the patent lawyers for the necessary funds to bring the work of the Patent Office up to the highest possible standard of efficiency. Your committee believes that the ground of complaint against the administration of the patent system within the Patent Office can be removed by a few simple amendments to the present law, and by increasing the funds and facilities of the office. The complaint as to the administration of the patent law in the courts is directed chiefly against the expense and uncertainty of result. That patent litigation is expensive, and that the result is uncertain, and the decisions conflicting must be admitted. We submit, however, that patent litigation is no more expensive than other litigation involving questions of equal importance and monetary value. REVISION OF THE PATENT LAWS. 9 Uncertainty of result and nonuniformty of decision are attrib- utable to a variety of causes. No two patent cases are or can be alike in their subject matter or attendant facts. Therefore, it is not to be expected that an3^ fixed rules of decision will ever be laid down. Insufficient consideration by the trial courts is due chiefly to lack of time in those circuits where the bulk of patent cases are tried. Erroneous decisions are due frequently to lack of experience by the judge or from an inaptitude or disinclination to try patent cases. There are some defects in the present modes of procedure, and no doubt abuses in the taking of testimony. Your committee believes that the remedy for these defects has been in the hands of the courts, but has not been exercised under the present equity rules, and that until the effect of the new equity rules upon the practice shall have been ascertained no amendment of the statutes relating to procedure is advisable. There is a pressing need for additional district judges in some of the circuits, and the operation of the new rules will make this need imperative. THE ALLEGED EVILS OF THE PATENT SYSTEM AND SUGGESTIONS FOR THEIR REMOVAL. We will noAv briefly consider the specific matters covered by the Oldfield bill and suggest remedy for such of them as appear to need correction. First. As to delay by applicants in the prosecution of applications. Your committee submits that the e^ils of this practice are greatly overstated by Mr. Oldfield. Our system of examination has always included a fixed period within which the applicant for a patent must respond to an action by the office. Undoubtedly this, or some equiva- lent provision, is necessary. The fixed period, however, gives the applicant the right, and puts it within his power to unduly delay the prosecution of his application. But this right is seldom exercised to the hurt of the public, and is often essential to the securing of the rights of the inventor. The Oldfield bill leaves the fixed period un- touched, but seeks to penalize undue delay by subtracting from the term of the patent. The principal objection to this plan is the un- certainty and inconvenience arising from the necessary calculations as to the time to be deducted and the granting of patents for unequal terms and for fractions of a year. The practice in some countries is to require the Patent Office to fix in each case the time within which amendment must be made, or other action taken by the applicant. We believe that a more careful investigation should be made before changing the present system, and that consideration should be given to the question whether the evils found to exist could not be remedied by conferring upon the Com- missioner of Patents the poAver and imposing the duty of dealing with pernicious delays and frivolous and unresponsive amendments, such as are given to the courts in dealing with dilatory pleas and vexatious delays. The delays in the Patent Office are not all on the part of the applicant. At the present time appeals to the board are not reached for six months, and the decisions are usually not rendered within three months from the date of hearing. Many of the examining divi- sions are behind in their work, and the actions in many cases are 10 KE VISION OF THE PATENT LAWS. unsatisfactory. All this is due to lack of men and facilities, and the inventor is the principal sufferer. Second. The compulsory license provision. As to the compulsory license feature of the bill, we do not find from the evidence adduced before the House committee, nor from any other source of information, sufficient justification for a resort to this scheme, which is wholly antagonistic to the basic principles of the American patent system. The Oldfield bill, in providing for compulsory licenses, seeks to introduce the idea of a working requirement ; but does it by indirec- tion, possibly because of the apprehension that a direct require- ment would be unconstitutional. The declared purpose of the compulsory license section is to pre- vent the restriction of competition by the suppression of inventions. However laudable this purpose may be, its accomplishment by the machinery of the Oldfield bill would possibly defeat the very purpose of the constitutional provision (art. 1, sec. 8), in that it would dis- courage instead of " promote the progress of science and the useful arts." The provision discriminates between classes, as the compulsory license clause is effective only against assignees of patents and those original inventors who enter into an agreement or obligation to sup- press an invention. No assignee, whether the owner of one or a plurality of patents, will be permitted to refrain from practicing an invention which would compete with anything else he is manufacturing without be- coming subject to the compulsory license section. Any original inventor might, however, take out any number of patents and sup- press any or all of them while continuing to manufacture articles with which they would compete, and yet not be amenable to the compulsory license. Most of the useful inventions are made by engineers and high- grade mechanics, who are employed because of their inventive abil- ity, who receive high salaries, and secure promotions or an interest in the business in consideration of the improvements they make in connection with the business in which they are employed. Large sums of money, sometimes fabulous amounts, are spent in developing these improvements, and the patents therefor are assigned in whole or in part to the employer, who furnishes the capital. In the course of the development alternative forms of construction or processes of manufacture are produced. Sometimes these developments are in the nature of improvements on but are subordinate to a basic patent owned by the employer. It would almost certainly follow that a compulsory license law would discourage effort to develop the best method by the devising and trying out of various methods, apparatuses, or machines for accomplishing a given result. The law would probably operate to suppress many valuable inventions, possibly more than it would liberate by compulsory license. It may result that a manufacturer who develops a business will be unwise to permit any employee to take out patents for his or its benefit for any improvements which he can not immediately practice. He may perhaps own a controlling patent in his line of manufac- ture. From time to time improvements may be made in his factory REVISION OF THE PATENT LAWS. 11 by his employees. Some of these improvements being alternative constructions, he will be disposed to give the preference to some and withhold others. Within three years after the date of application for a patent on the improvement not put into practice a competitor may demand and secure a license under this patent. When such a license is decreed under an alternative but subordinate patent, the question arises, whether the licensee obtains a right to use the specific structure covered by the license, notwithstanding that it is covered by the broad claims of a patent owned by the enforced licensor and under which he is operating. Will the principle of easement give to the licensee the right of way across the claims of the controlling patent, and the manufacturer, therefore, find himself without other protection than the limited claims for the specific form of the device which he is manufacturing? If so, his dominating claims become a dead letter, not only as against the particular licensee but as against all other manufacturers who may demand licenses under the patents which have been withheld. Whatever may be urged in favor of the compulsory license system and however laudable the purpose of its proponents, your committee submits : That the principle of compulsory license is antagonistic to the theory of our patent system; That it is doubtful whether its application would not suppress more inventions than it would liberate ; That it raises the question whether a person procuring a compul- sory license would not have the right to use inventions covered by broader patents owned by the person from whom the compulsory \ license was demanded ; i That if it did not have this effect the compulsory license would be i ineffective in many instances; i That the bill is objectionable in that it makes the grant of a com- i pulsory license mandatory upon a showing of a certain state of facts, / leaving the court with no discretion, even though the grant of a license in a particular case might be inequitable if not unconscion- able ; That the bill discriminates between owners of patents, exempting such owners if they are inventors and have not contracted to sup- press their inventions while making all other owners subject to com- pulsory licenses ; That the bill as drawn would not prevent practical suppression wherever the owner of a patent was able to work it to any extent, thereby making it possible for rich manufacturers or owners to sup- press without liability; and That the bill is uncertain in many of its provisions and would undoubtedly give rise to extensive and prolonged litigation. The idea of compulsory license and price restriction is borrowed from the English law, and the Oldfield report assumes, if it does not state, the superiority of the British system. On the other hand, many intelligent Englishmen prefer our system. But no intelligent understanding of the two systems can be had without considering the principles on which they are founded. The theory of the patent system of the United States is that pat- ents are to be granted only to the original and first inventors ; that the law conveys an absolute monopoly (by the provisions for excluding 12 KEVISION OF THE PATENT LAWS. everyone but the owner of a patent) during which the patentee shall onjoy that which he has created ; and that the consideration for this limited grant is the encouragement thereby afforded to the making of inventions and the benefit which the public derives from the right to use the thing invented without charge after the expiration of the period of monopoly. The Oldfield bill, in its provision for compul- sory license, we submit, subverts the foundation principle of our patent law, and unless we are prepared to change the entire policy of the patent system we can not give our indorsement to its pro- visions. The basic idea of the British patent system is to encourage the in- troduction within the realm and continued supply thereafter of new manufactures. Following this thought patents were granted to any- one, whether inventors or importers, who introduced such new arti- I cle, and it was consonant with that idea to provide for compulsory licenses and in other ways to insure the supply of the article from the very beginning of the grant. In short, the British idea was to encourage the introduction of new manufactures or articles of com- merce ; the basic idea of our constitutional provision Avas to promote the progress of science and the useful arts by encouraging the in- vention of things not theretofore existing and as a part of the com- pact an absolute monopoly was promised to such inventors for a lim- ited period, to be fixed by the Congress. We submit that the English system affords no just criterion for the compulsory-license feature of the Oldfield bill. Third. Kesale-price restrictions and limitation of right to sue for infringement. The considerations above stated apply to the question of resale- price restriction. If a patentee has a monopoly in the making, using, and selling of an article, and has the right to suppress the invention wholly and to exclude others wholty, it follows that he has the right to suppress it in part or to admit others on such terms and condi- tions as he may fix. Of course it may be argued that under the con- stitutional provision it is still within the province of Congress to fix conditions and limitations affecting the exclusive right which the Constitution mentions, but the reasoning of all of the decisions up to the present time points to the conclusion that when the Constitution used the word " exclusive '' it meant just that, and that the constitu- tional provision could not be avoided by fixing conditions and limita- tions upon the exclusive right which impaired or lessened its scope. This, of course, does not mean that patent property like other prop- erty is not subject to other provisions of the Constitution and to the laws of the land, as for example to the police power of the States and the laws relating to the conservation of the public health and the public morals. But the provisions of the Oldfield bill, at their face value, take away from the owners of patented property the right of contract which is enjoyed by owners of unpatented property. We can not see any justification for prohibiting the patentee from fixing in the terms of his contract as one of the conditions of a license the price at which the article shall be resold, if that be necessary to the preservation of his monopoly and if the restriction be imposed as a condition of the license. Whether the owner of a patent should have the right to restrict the selling price of a patented article after he has parted with its REVISIOI^ OF THE PATEXT LAWS. 13 possession and received the full price which he demanded upon sell- ing it by mere notices or labels attached to the article itself is a ques- tion which can not be treated adequately in this report. But if there be evils arising out of these practices they could be cured by a simple amendment to the effect that such notices, labels, and the like should not constitute a contract between the owner of the patent and the ultimate purchaser, which would entitle such owner to maintain suit for infringement. It has been an established principle of the law for a century that the courts will enjoin the meddling interference of a stranger with the rights of contracting parties, and the courts have enjoined third parties from inducing one party to a contract to break his agreement with the other. The Oldfield bill takes away from the owner of a patent the right of injunction based upon an act of contributory infringement consisting in inducing a party to a con- tract to break his contract obligations as a purchaser from the owner of a patent. Stated in another way, the Oldfield bill proposes to take away from the owner of a patent the right to bring his suit against a contributory infringer whose infringing acts not only con- stitute contributory infringement, but also induce the violation of a contract with knowledge of such contract, while the right to bring suit against contributory infringement where no contract question is involved is left unimpaired. Your committee can see no reason iu public policy, from the standpoint of economics, or as a matter of equity, why the owner of a patent shall not be left the right to com- mence an action for infringement against his licensee who exceeds or varies from the terms and conditions of his license. The Oldfield bill proceeds upon the theory that a suit for injunction or for " in- fringement," as it is termed in the bill, is based upon the contract, whereas in truth the suit is brought for an infringement of the rights of the patentee by an act outside of the contract and not authorized by it. A consideration of the character of the patent grant, bearing in mind that it must be exclusive or it is valueless, demands that the right to restrain violations shall be left unimpaired. This because any other remedy is wholly ineffective, induces the breach of agree- ments, leaves the owner of a patent practically remediless no matter how aggravated the circumstances of the violation may be, and results in a multiplicity of suits for damages where a single action followed by an injunction would prove effective. Fourth. The antitrust features of bill. It would unduly extend this report to consider separately the ob- jections to the antitrust features of the Oldfield bill. Your com- mittee wishes again to call especial attention to the analysis by Mr. Hill and Mr. Wiles in the separate papers accompanying this report, but we unite in saying here that these provisions appear to us to be unwarranted, unfair, and clearly class legislation, because: (a) They single out the owners of patent property and place upon them restrictions and limitations which do not apply to the owners of other property. (h) Because they attach to the fact that a patent is used in con- nection with a business in restraint of trade the conclusive presump- tion that the restraint is unreasonable, whereas no such presumption applies where a patent is not used. (c) Because they introduce as penalties a denial of a right of action where a patent is involved and also the forfeiture of the pat- 14 REVISION OP THE PATENT LAWS. ent. These penalties are drastic in their nature, repugnant to the principles of our Government, and subversive of the constitutional right of the citizens of this country. {d) If any amendment of the character under discussion to the Sherman laAv is to be made, it should be of general application and not confined to contracts or businesses involving the use of a patent {e) In view of the recent decision of the Supreme Court in Stand- ard Sanitary Manufacturing Co. v. United States (226 U. S., 20), it is apparent that under the law as it now stands it is adequate to reach unlawful combinations seeking to operate under the guise of patents. Your committee has considered the brief prepared by the Patent Law Association of Washington upon the Oldfield bill and commends to the members of this association its careful study in connection therewith. We especially call attention to the appendix to the brief above mentioned, w^hich contains the gist of the testimony adduced at the hearings before the House Patent Committee. The printed report of these hearings makes a large volume, and the labor of con- densing the testimony has been well performed b^^ the writers of the brief. Your committee is not and we believe this association should not be put in a position of being antagonistic to all amendments to the pat- ent laws. On the contrary, we advocate the passage of such laws as will increase the efficiency and perhaps the authority of the Patent Office. To this end we think that the Patent Office should be given more room, a larger examining corps, better salaries to the officials who pass upon the patentability of inventions, and power to control and expedite the prosecution of applications before the office, and that there should be restriction of the number of appeals within the office. These measures were in part provided for in the original bill, but were not considered at the hearings and were wholly eliminated in the revision. We further believe that the number of Federal judges in those cir- cuits where the bulk of patent cases are tried should be increased, especially in view of the recent equity rules adopted by the Supreme Court, which will have the effect of imposing additional labor upon the courts in the trial of patent cases. If the number of judges shall be suitably increased and due regard shall be had in their appoint- ment to their qualifications to try patent cases, the evils which are complained of with respect to the administration of the patent law in the courts would be largely obviated. We recommend the adop- tion of the following resolutions: Resolved; That the Patent Law Association of Chicago after due considera- tion of House bill No. 23417, known as the Oldfield bill, including the report of Mr. Oldfield accompanying said bill, the testimony adduced before the House committee on certain features of the bill (specifically the section relating to compulsory licenses and the section relating to resale restrictions), and the reports by its committee specially appointed to consider and report on said bill, is opposed to the passage of the said bill as a whole, and to the enactment of any of its provisions in their present form and recommends in lieu thereof: 1. That further and careful consideration be given to the needs of the Patent OflJce. In this connection we refer to the report of the President's EflRlciency Commission, rendered December 10, 1912, in regard thereto. .2. That„consideration be given to the necessity for additional district judges i4^certaSi?^jtiircuits. KEVISION OF THE PATENT LAWS. 15 3. That the members of this association confer with their clients and acquaint them and the public with the provisions of the Oldfield bill and the action of this association thereon, and also with the conditions affecting our patent sys- tem, to the end that any measure designed to affect or modify the patent law may receive due consideration with regard to the interests of the inventors, manufacturers, and the purchasing public. 4. That no legislation, especially no legislation of the revolutionary character of this bill, be enacted affecting the patent system of this country without full hearing upon the amendments in the form in which they are reported to Con- gress for enactment. Respectfully submitted. Chables C. Linthicum, John W. Hill, Louis K. Gillson, Otto R. Barnett, Wallace R. Lane, Russell Wiles, Committee, January 14, 1913. BRIEF ANALYSIS OF THE OLDFIELD BILL (NO. 23417) AS AMENDED AUGUST 8, 1912. [By John W. Hill.l Gentlemen : As one of the committee appointed at the meeting of the Patent Law Association, on November 22, 1912, in accordance with the resolution of November 21, authorizing the creation of a committee to gather information relative to bills before Congress amendatory of the patent laws, I have been assigned the duty of presenting to this body, as briefly as may be and without argument, my interpretation and understanding of the features of House bill No. 23417, pending in the second session of the Sixty-second Con- fess, generally known as the Oldfield bill. This bill was originally introduced on April 16, 1912, and was referred to the Committee on Patents and ordered to be printed. On August 8, 1912, Mr. Oldfield, from the Committee on Patents, submitted his report, together with an amendment to the original bill, which consisted in striking out all after the enacting clause, and submitting substantially a new bill. This amended bill was ''committed to the Committee of the Whole House on the state of the Union and ordered to be printed." The amended bill under consideration is printed as Union Calendar No. 370, H. R. 23417, Report No. 1161. The latter report refers to the report of the committee above men- tioned. The title of the bill is, "A bill to codify, revise, and amend the laws relating to patents." Notwithstanding the' title, it is not a codification, and a portion of the bill is particularly directed to and intended in aid of "An act approved July 2, 1890, entitled 'An act to protect trade and com- merce against unlawful restraint and monopolies,' " as frequently ap- pears in the bill. This is what is generally known as the Sherman Act, and is set forth in 26 Statutes at Large (209, 219), and 28 Statutes at Large (570), found in volume 7 of Federal Statutes annotated, page 336, et seq. In order to secure a clear understanding of the object and pur- poses of the bill, it therefore becomes necessary to carefully study the Sherman Act. Inasmuch as the intent of the enacting body has much to do with the interpretation of a statute, it is important, so far as is possible, to also gain an understanding of the viewpoint and purpose of the sponsor of the bill, and this may be secured from a careful reading of Mr. Oldfield's report. "Without in any way impugning his motives, or attacking his sin- cerity, it may be said that he approaches the subject in a distinctly antagonistic or hostile spirit, as is clearly shown throughout his whole report. 16 EE\^SION OF THE PATENT LAWS. 17 As one illustration, we may quote from his report on page 14. where, in discussing the particularly drastic features of section 5 of the bill, he says : In other words, a patent is so dangerous an instrument that its mere use in such a combination should be held conclusive evidence of the unreasonableness of the restraint exercised. I do not quote this for the purpose of prejudicing anyone against Mr. Oldfield's position, but for the purpose of clearly indicating what that position is. Another thing that may indicate his viewpoint is the seizure and forfeiture clause in section 4 of the bill in respect to patents. It would seem that the inevitable effect of this must be that this seizure and forfeiture of patents, which Mr. Oldfield favors, is a distinct and additional penalty for any breach of the trust law by those who own patents. With this introduction we may take up the bill. The bill is apparently intended to cover three substantially distinct points. First. The amendment under present section 4884, limiting the life of patents to 19 years from the date of filing the application, but in no case to a longer period than IT years. Second. Compulsory license. Third. That portion in aid of the Sherman Act, and obviously intended to prevent the use of patents to aid in evasion of the anti- trust law. We may take these up in the order presented in the bill. LIMITATION or THE TERM OF PATENTS. The obvious intent of this part of the section is to speed the course of the application in the Patent Office, and to prevent the burying of applications for a term of years by taking advantage of the time allowed for responding to office actions. Just what effect an act of this kind would have upon the defenses in a patent suit is not clear. Whether the office would be required to certify the time actually consumed by the Patent Office, or the courts in supporting the application, or the time involved in inter- ference proceeding, and in some cases all of them, or whether those matters would be left open as matters of defense in seeking to limit the term of a patent, is problematical. The bill, however, is clear as to the intent, and this portion of the section requires no further explanation. COMPULSORY LICENSE. This portion of the act provides that any person may apply in the district court of the district wherein the owner of a patent, or any interest therein, has a residence or established place of business, and file a bill in equity, setting forth briefly the facts and circumstances. The court shall thereupon hear the person applying for the license and the owner of the patent. It is then provided that if the ap- plicant shall allege and prove to the satisfaction of the court that the invention is being withheld or suppressed by the owner, or those claiming under him, for the purpose or with the result of preventing S. Doc. 151, 63-1 2 18 KEVISION OF THE PATENT LAWS. any other person from using the patented process, or making, using, and selling the patented article, in competition with any other article patented or unpatented, which is made, used, or sold by the owner of the patent, or those under him, and the applicant shall also prove that the patent was filed in this country more than three j^ears before the filing of the bill in equity, the court shall order the owner of the patent to grant a license in such form and on such terms as the court ma}^ deem just, i^rovided that this provision shall not apply to the original inventor, who has not obligated himself or empowered an- other jDerson to hold such invention. An appeal by the aggrieved party is provided for, as in other patent cases. The law is man- datory. The important features of this part of the section are : First. That the district court has jurisdiction in any district wherein the owner of the patent, or the owner of any interest therein, has a residence, or an established place of business. The second point is that if a manufacturer is putting a structure or device upon the market, whether patented or otherwise, and he shall own a patent upon a similar device which, if marketed, would anywhere stand side by side or come in competition with the article put out, he must also manufacture the patented article, or upon the facts being shown the court will order him to license a com- plaining party, who may then manufacture and sell the patented device in competition with the owner. The only exemption from this is that the original inventor is not subject to it, provided he has not obligated himself or empowered another person to suppress or withhold the patented invention. The effect of this on business, I believe, is obvious. THE ANTITRUST FEATURES OF THE BILL. The second section of the bill, so marked (the third feature), pro- vides for the amendment of present section 4899, and the first clause thereof is a copy of that act. The next two paragraphs are apparently inspired by the decision of Henry v. Dick. One paragraph specifically provides that no pur- chaser, lessee, or licensee of a patented article sold bj^ the owner of a patent or owner of any interest therein, or one having authority to sell, shall be liable for infringement of the patent because of any breach of the contact, while the second provides that a licensee under the patent shall not be liable for infringement of the patent because of any breach of the license contract. Mr. Oldfield devotes several pages to the discussion of this section. Henry v. Dick is familiar to the members of this association, and the line of argument by Chief Justice White is substantially that by Mr. Oldfield in his report. The apparent result and obvious purpose is to throw all action for breach of contract in patent matters, license or otherwise, into the State courts, depriving the litigant of the right of protection by the Federal courts, except in cases where diverse citizenship and the necessary jurisdictional amount can be shown. The obvious effect will be to deprive the licensor or the seller of one familiar element of security, which, as a general rule, is more effective in guaranteeing faithful performance on the part of the pur- chaser or lessee than any ordinary penalty for breach of contract. REVISION OF THE PATENT LAWS. 19 Section 3 provides that the foreign owner of a United States pat- ent — that is, anyone who is not domiciled within the United States — shall within three months after filing his application for letters pat- ent or the acquirement of his interest in the patent appoint some person in the United States upon whom process or notice of any proceeding brought under the provision of the act may be observed. As Mr. Oldfield points out, without a provision of this kind a compulsory license could not be successfully enforced, as title to all patents that are held in nonuse could be transferred to some non- resident and be beyond the reach of the law. Section 4 sets forth that no patent shall be used to restrain unrea- sonably, or to monopolize, or to attempt to monopolize any part of trade or commerce * * * except in such articles as and to the extent that they embody the invention or discovery so patented. It also provides that no patent shall be used as a part of any com- bination in restraint of trade, and monopolize, etc., and winds up with the statement that — Any patent used in any manner prohibited by this act may be condemned by like proceedings as are provided by law for the forfeiture, seizure, and con- demnation of property imported into the United States contrary to law. This section is probably aimed at the decision in Henry v. Dick. Section 5 and the balance of the bill, it would seem, ought more properly to be introduced as a general bill, for if the features thereof are desirable they should not be tacked onto a patent bill. They ought to cover all trade, whether in patented articles or otherwise, with possibly a provision that the monopoly of a patent should not protect the owner or owners thereof in the acts prohibited by the statute. It would seem that the only section in the latter part of the bill that might properly be admitted as a patent section, and be applicable only in the consideration of patent matters, is section 12, which pro- vides that the defendant may set up as a defense in any infringe- ment suit, the fact that the defendant, or the real party in interest at the time of the infringement, or at the beginning of the suit, was engaged in carrying on business in violation of the provisions of the antitrust act. This has been attempted as a defense a number of times, and I believe it may be considered settled at the present time that the courts will not consider this a defense in an infringement suit, as the law now stands. Section 5 refers particularly to the antitrust or Sherman Act, and provides that if it shall appear that any combination was entered into, existed, or exists which was or is in restraint of trade, and that any patent has been used in connection therewith, or to secure that result, such restraint shall be conclusively deemed to be unrea- sonable and in violation of the act as to any party thereto who, in carrying on business in which such combination relates or in connec- tion therewith, offends as to any of the particular provisions therein mentioned and labeled from {a) to (l)^ inclusive. They are: {a) This paragraph particularly refers to fixing the reselling or leasing price. (b) Particularly restricts any provision to restrain the purchaser or vendee from freely purchasing any other article from any other 20 BEVISION OF THE PATENT LAWS. person or using any other article obtained from any other person. That is, as in the ca'^se of Henry v. Dick, and similar cases. (c) Particularly refers to and prevents the vendor from requiring from the vendee, as a condition of sale, any other patent or a license thereunder or interest therein to prevent competition. (d) This paragraph makes it illegal to attempt to restrain com- petition by making any discrimination in the price based upon whether the vendee purchases from the vendor articles of a particular quantity or at aggregate price, but provides that it shall not apply in dealing in wholesale quantities. This clause would appear to apply to general dealing and ought not to be limited to dealing in patented articles alone, if such clause is desirable. (e) Provides that a vendor of a patented article shall not attempt to prevent or restrain competition by refusing to supply to any person requesting the same, such patented article, or by seeking to supply the same only upon terms or conditions in some respects less favorable than are accorded to any other person. Broadly speaking, this would appear to do away with exclusive licenses and agencies and to force the dealer in patented articles or the manufacturer to sell the same to anyone and every one insisting upon it, on the most favorable terms he had supplied or sold anyone else, notwithstanding what the vendor's interests be or what licenses, exclusive or otherwise, he had given, or what interference it might make with the arrangements he had made to supply the market. (/) Is similar to (e)^ and would seem to eliminate exclusive licenses and agents in any territory, and to provide anyone desiring to begin business in such exclusive territory with effective means to force the vendor or manufacturer to supply him with the patented articles on as favorable terms as he had supplied the exclusive agent. (g) Is of the same tenor in dealing with — certain persons or classes of persons, or to those doin^t business in certain dis- tricts or territories — and, like (/) and (e), is intended to force competition by enabling those desiring so to do to compel the manufacturer to supply them with the patented article on as favorable terms as he has supplied it to anyone else or in any other territory or district. (h) This paragraph provides that no one shall do business directly or indirectly under any other name than his own, and seeks to pre- vent any evasion of the law in this respect. Mr. Oldfield, in referring to it in his report, i^articularly refers to the custom practiced by the Standard Oil and Tobacco Trusts. (/) This i^aragraph provides that the vendor of a patented article shall not seek to attemi:>t to destroy competition by giving away patented articles or selling them at a price below the cost of produc- tion and distribution. This is evidently aimed to prevent the familiar practice of fre<>zing out the little fellow by selling below cost, and is also referred to by Mr. Oldfield as a custom of the Standard Oil and i obacco Trusts. U) This paragraph particularly prohibits securing information of the business of a competitor by bribery, or through an agent or em- ployee, or through a State or Federal official, or " by any illegal means whatsoever." ^ ^ t^ REVISION OF THE PATENT LAWS. 21 ^K It would seem that the question of patents ought not to enter into ^^This alleged abuse, and it is difficult to understand why a drastic fea- ture like this should be limited to and tacked onto a patent bill, carrying as a penalty the forfeiture of the patent, and wherein those who are so fortunate as not to own patents would not be subject to any penalty whatever. {k) The matter included in this clause is similar to that in para- graph (e), but refers more particularly to the price upon raw or manufactured material which he controls and which is required by a competitor. This is peculiar, as it prohibits the vendor of any patented article from fixing an unreasonably high price upon raw or manufactured material not subject to a patent which he controls, and which is re- quired for producing a competitive article, with a view of preventing competition with the patented article. AYhat the patent has to do with it is not clear, unless the penalty of forfeiture is depended upon. If he owns the raw or unpatented mate- rial, it would seem that he ought to have the right to sell it for such price as he can get in the market, and not be forced to sell it to a competitor at a lower price than he could otherwise secure, and for the purpose of aiding a competitor. (l) This is a blanket clause, and its meaning is clear from the clause itself. It reads as follows : If a vendor of any patented article attempts to prevent or restrain comx)eti- tion by use of any unfair or oppressive means or methods of competition. In other words, Mr. Oldfield, after pointing out the importance of making the law specific, so that business interests may fully under- stand it, seeks to throw in this blanket clause, which leaves it as in- definite as it was before, except for those specific things mentioned. This is clearly shown in his report at the bottom of page 15. Section 6 provides that whenever after the institution of proceed- ings in equity under section 4 of the Sherman Act (the section giving circuit courts jurisdiction to issue restraining orders and prohibi- tions to restrain violation of the act, and wherein the Attorney Gen- eral is directed to bring such suits) and it appears to the court in any preliminary hearing that there is reason to believe, or upon final hearing the court shall find that any combination was entered into or exists in restraint of trade, and that as a result the defendants, or any of them, have the control of supplying the market with any patented article reasonably required in the manufacture or pro- duction of any other, or for general consumption, and that there is no adequate opportunity to immediately substitute any other article therefor of equal utility, the court shall have the power, by order or injunction or otherwise, to authorize the sale at a price to be fixed by the court, until some other adequate substitute can be provided. It is provided, however, that when said patented article is being sup- plied to any person under contract and the price is thus fixed, such price shall prevail unless or until the contract is declared void or expires. (Attention is called in this connection to clause {d) of sec- tion 9, hereinafter mentioned, providing for voiding contracts.) Mr. Oldfield submits in his report that the above section is par- ticularly aimed at the practices charged against the United Shoe 22 REVISION OP THE PATENT LAWS. Machinery Co. It is not clear, however, why the section should be limited to owners of patents, and why it should not include other lines necessarily factors in business, such as banks, for example. Section 7 makes no reference to patents or pat-ent matters. The section is im.portant in that it provides that any action by the Gov- ernment where the defendant is found guilty " shall to the full extent to which the facts and issues of fact or law were litigated, and to the full extent to which such fact, judgment, or decree would constitute m any other proceeding an estoppel as between the Unite(J States and such defendant, shall also constitute conclusive evidence of the same facts as against such defendant, and be conclusive as to the same issues of law in favor of any other party in any other proceed- ing under the Sherman Act. In other words, the finding of fact by the court shall be conclusive in any action brought by any other part}^ for damages or otherwise. Mr. Oldfield frankly admits that this is the purpose and explains his understanding of the present weaknesses in cases against trusts. The real significance of this section can not be grasped without considering section T.of the Sherman Act, which reads: Any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or declared to be un- lawful by this act may sue therefor in any circuit court of the United States in the district in which the defendant resides or is found, without respect to the amount in controversy, and shall recover threefold damages by him sus- tained and the costs of suit, including a reasonable attorney's fee. Under the above section, diversity of citizenship, or any specific amount in controversy, are not requisite, and service may be on the defendant where found. If, then, the Attorney General, on behalf of the Government, has found the defendant guiltj^, and the Oldfield Act makes that finding conclusive in other suits by other parties, as in section 7 of the Oldfield bill, the result is apparent. If this is desirable, it would appear unnecessary to confine it to patent matters, or make it a part oi a bill " relating to patents." Section 8 is along the lines of section 7, in that it provides that when in any suit by the Government a judgment or decree inter- locutory, or final, has been entered, finding that defendants, or any of them, have violated sections 1, 2, or 3 of the act by making use of any patent, any persons deeming themselves injured may intervene and be made a party and damages established, as in an independent suit, under section 7 of the Sherman Act above quoted. In such suit the court may grant orders of attachment, appoint a receiver, or take such other proceedings conformable to equity as may be necessary to insure satisfaction of any claim. Such intervention, however, shall not delay the disposal of the principal proceeding, nor abridge any rights to bring separate and independent action under section 7 of the Sherman Act. If, however, a party shall proceed by both methods, the court may order an election. Such intervening petition, or original suit, may be brought at any time within three years after the final decree of judgment entered in the civil proceedings brought by or on behalf of the Government establishing such violation, provided the claim is not barred at the time of the passage of this act. Section 9 provides that when any proceeding is had under section 4 of the Sherman Act, and it shall appear that any patent has been REVISIOX OF THE PATENT LAWS. 23 used in any manner prohibited by this act in connection with any combination, and such combination has been adjudged illegal under section 1 or section 2 of the Sherman Act, the court shall have juris- diction, {a) To partition '* any property " owned by the company, among the owner, or groups of owners, or if owned by one or more corpora- tions, among the stockholders thereof in proportion to their interests. {b) To sell such property, either as a whole or in parcels, as may be deemed necessary, to pay debts or incumbrances thereon, " or to re-create conditions in harmony with the law," and may forbid said owners, or if the owners be one or more corporations, forbid the stockholders from purchasing . at such sale, and may prescribe the conditions of sale. (c) To make such restraining orders or prohibitions as may be necessary or proper " to re-create conditions in harmony with the law," including prohibitions of any acts, conduct, methods, or devices enumerated in"the act as indicating unreasonable restraint. (d) '• To declare void as against the defendants, or any of them, any contract entered into as part of the condition found to be in re- straint of trade." The relief granted in section 9 is specifically stated to be in addi- tion to, and not exclusive of other relief permitted by law, or by the Sherman Act. Your attention is particularly directed to clauses b and c of this section, in which the former gives the court jurisdiction to order the sale of the property of the alleged trust to re-create conditions in harmony with the law, and the latter jurisdiction to make re- straining orders and prohibitions necessary to re-create conditions in harmony with the law. Both these clauses are apparently designed to give the court very broad powers unhampered by the language of the act. It would be a matter of judicial discretion as to what those " conditions " may be. The court alone may determine that, and the act itself ap- parently offers little limitation of this vast power. Section 10 provides that when in any proceeding in equity under section 4 of the Sherman Act it shall appear that any patent has been used in any manner prohibited by the act, then any person who has been injured or is threatened with injury in his business or property by the defendants or any of them, by reason of anything forbidden or declared to be unlawful by the Sherman Act, and any State of the United States may at any time intervene in said suit to protect his interests, or if the intervener be a State, the interests of the citizens of such State, and any person interested or the State may, after final decree in such case, petition said court for protection or redress in case of any violation of said decree, and the court shall have power to take such action as may be appropriate. Section 11 provides that whenever in any proceeding under section 4 of the Sherman Act. it shall be alleged that the defendants, or any of them, have entered into a combination which was or is in restraint of trade, and that in connection therewith any patent is used in any manner prohibited by the act, no department or official of the United States shall, unless and until such allegation shall be found on final decree to be unfounded, enter into a contract with any such defendant for the purchase or supply, or purchase from any such 24 KEVISION OF THE PATENT LAWS. defendant, or any other person, any article, or any article manu- factured by such defendant, or any subsidiary or controlled com- pany, association, or firm, except so far as required so to do by some existing contract unless — First. The article so manufactured is reasonably necessary for the purpose of the Government, and no adequate opportunity exists to substitute any other article of equal utility and reasonable price. Second. The officer authorized to make contracts or purchases of that nature shall, after full investigation and before such contract or purchase is made, have certified in Avriting to the facts set forth in the preceding paragraph, and have filed with or mailed to the department of justice and the commissioner of corporations copies of such certificate. The language of this section is called to your attention. It will be noted that no proof is required, but upon a district attorney bringing action under section 4 of the Sherman Act against any corporation, the mere allegation is sufficient to prohibit the Government or any department thereof from entering into any con- tract with the defendant, or directly or indirectly purchasing from such defendant any article or any article manufactured by said de- fendant, or by any subsidiary or controlled association or firm, imless — First. It is reasonably necessary for the Government, and there is no opportunity to secure a substitute of equal value at a reasonable price, or Second. An officer authorized to make contracts or purchases shall investigate and report to the department of justice and the commis- sioner of corporations. Why this drastic section should be limited to cases in which a patent is involved, or patented articles provided, is not clear. The injustice of it would seem to be apparent from even a casual reading. Section 12 has already been alluded to, and is the section which provides that the fact that the complainant is a combination in re- straint of trade may be set up as a defense in any patent suit for infringement. Section 13 is simply a section of definitions, which explain them- selves. From reading Mr. Oldfield's committee report, it is apparent that he is incensed by the difficulties presented and outcome of the suits of the Government against the Standard Oil and Tobacco Trusts, which he mentions many times in his report, and is impressed with the fact that greater power is apparently necessary to make such actions effective. He has thus taken the first opportunity, which is apparently this bill, to include those powers, with the result that his bill to regulate patents includes measures, which, if desirable, should b^ of general character and ought not to be limited to patents alone. The result is, that if the bill is enacted into a law it will inflict severe penalties upon all who may be unfortunate enough to own or do business under patents, from which penalties those who have no patents are exempt. The parts that apply particularly to patents, if they are desirable, it would seem, could be framed in short, brief acts that would be clearly understood, while those parts that are of a general nature should be so framed as to cover all lines of business, whether or not EEVISION^ OF THE PATENT LAWS. 25 patents are involved, and if deemed necessary, a short or brief state- ment that the monopoly of a patent should not save the owners thereof from the effects of the general law. Forfeiture of the patent would appear to be harsh and unnecessary. If it is provided that a suit will be abated or a bill dismissed for want of equity upon showing that a patent has been employed in restraint of trade, it is probable that without waiting for the action of the Attorney General the defendant would search all sources to produce evidence which would be effective in protecting them, and thoroughly and completely prevent the improper use of patents in the manner suggested, by trusts or illegal combinations. The constitutionality of the bill and the forfeiture clause has not been considered in this hasty analysis. November 29, 1912. *rHE OIDFIELD BILL, H. R. 23417, AS REVISED AUGUST 8, 1912. [By Louis K. Gillson.] Brief Analysis of Paragraph 1 of Section 1. This paragraph, relating as it does to the term for whch patent protection shall be granted, involves no constitutional question, as Congress is given authority by the Constitution to determine the limit of time during which the inventor shall have the exclusive control of his invention. The first paragraph of section 1 of the bill reads as follows : That secton forty-eight hundred and eighty-four of the Revised Statutes be, and the same is hereby, amended so that the section shall read as follows: " Sec. 4884. Every patent shall contain a short title or description of the invention or discovery correctly indicating its nature and design, and shall have annexed thereto and made a part thereof a copy of the specification, claims, and drawings of the application therefor, to which it shall refer for the particulars of the invention or discovery, and contain a grant to the patentee, his heirs or assigns, of the exclusive right to make, use, and vend the invention or discovery throughout the United States and all Territories and possessions under the jurisdiction thereof for the term of seventeen years. But every patent granted for an invention shall be so limited as to expire nineteen years from the date of the filing in this country of the application upon which the patent was granted, exclusive of the time actually consumed by the Patent Office or the courts in considering the application and, where the application has been involved in interference, of the actual time in which it has been so involved; and in no case shall the patent be in force more than seventeen years." Section 4884 of the Revised Statutes in its present form reads as follows : Every patent shall contain a short title or description of the invention O) discovery, correctly indicating its nature and design, and a grant to the patentee, his heirs or assigns, for the term of seventeen years of the exclusive right to make, use, and vend the invention or discovery throughout the United States and the Territories thereof, referring to the specification for the par- ticulars thereof. A copy of the specification and drawings shall be annexed to the patent and be a part thereof. It will be seen that the first sentence of the section under con- sideration differs from the present statute only in the order of phrases, inconsequential variations in wording, and the inclusion within the territorial scope of the patent of the insular and any other possessions of the United States. The last sentence of the paragraph under consideration is a radical modification of the present law as to the term for which patents may be granted. While the iT-year term is retained, it is subject to curtailment to the extent that the time occupied by the inventor in the prosecution of his application exceeds two years; any period during which the application may have been involved in interference, however, not being taken into account. 26 1 I KEVISION OF THE PATENT LAWS. 27 Under sections 4885 and 4894, both of which are to remain in force, the applicant has the privilege of delaying his response to any office action for a period not to exceed one year, and to delay the payment of the final fee for a period of not to exceed six months from the date of allowance ; but he can avail himself of the privileges granted by these statutes only to the extent of two years in the aggregate without shortening the term of his patent ; that is to say, following the statement of the bill, no patent shall continue in force for a longer period than 19 years from the date of application, exclusive of the time consumed by the examination on the part of the Patent Office and by interferences. Apparently the term of the patent is to be defined within the grant, whether it be for IT 3^ears or for a less period. AA^ien, therefore, the date of issue is more than two years subsequent to the date of appli- cation, it will be necessary for the Patent Office to compute the time elapsing between the date of each office action and the date of receipt of a responsive action by the applicant, and if these several periods shall aggregate more than two years the excess shall be deducted from the iT-year period and the term of the patent stated accordingly as being for a given number of years, months, and days. It is quite conceivable that errors in computation may occur, and it is more than probable that the term as fixed by the Patent Office will often prove to be unsatisfactory to the applicant. If any cor- rections become necessary they can doubtless be made b}^ certificate. In connection with litigation arising near the close of the term for which a patent is granted, the date of expiration of the patent will doubtless frequently be called into question and the difficulties and expense of patent litigation will thereby be increased. It may be a question, also, whether in the case of a patent granted on a renewal application, the expiration of the patent must be within 19 years from the date of the original application. Section 4897 of the Re- vised Statutes provides that — Any person who has an interest in an invention or discovery, whether as inventor, discoverer, or assignee, for which a patent was ordered to issue upon the payment of the final fee. but who fails to make payment thereof within six months from the time at which it was passed and allowed, and notice thereof was sent to the applicant or his agent, shall have a right to make an application for a patent for such invention or discovery the same as in the case of an original application. But such second application must be made within two years after the allowance of the original application. In these cases it has been the practice to state in the patent the date of the original application and the date of renewal, and the renewal has consisted of a mere petition, the original drawings, specification, and oath being used. If, however, the part}^ in interest elects to avail himself of the right conferred by section 4897 to file a new application for the patent, it would seem to follow that the patent when issued would be granted on that application. As the bill under consideration provides that " every patent granted for an invention shall be so limited as to expire 19 years from the date of filing in this countr}^ of the application upon which the patent was granted," why should not this term be computed from the date of the second instead of from the date of the first application? That there is some ground for this view is indicated by the penalty imposed by section 4897, whereby the patent is not effective against any article or thing made before the date of its issue. 28 REVISION OF THE PATENT LAWS. If, then, there is any room for this contention, why may we not expect that the next applicant who may wish to delay the issue of his patent will prolong the prosecution of his original application as long as he may see fit, and then forfeit it by failure to pay the final fee and file a new application ? The machinery by which the term of a patent is to be determined is cumbersome, to say the least, and we ma}^ now turn to the report of the committee to ascertain Avhy it is deemed necessary. On page 1 of the report it is said : There is widespread dissatisfaction with the operation of our patent laws. On page 2 we read : The committee's investigation disclosed that the existing dissatisfaction with our patent system is due to a variety of causes, but that two causes entirely distinct in character are principally operative: (1) The abuses of the rights granted by patents; (2) the defects of our present system in administering the law in the Patent OflSce and in the courts. That the readjustment of the term is prompted mainly by the second ground of complaint against the system, viz, the manner of administering the law in the Patent Office, is apparent from the fol- lowing, which is the only statement in the report on the subject now under consideration: Section 1. The first part of this section ending with the word " years," in line 3, on page 52, is an amendment of the existing law. The new feature is embodied in lines 3 to 11 by which it is provided that every patent shall be limited to 19 years from the date of filing the application exclusive of the time actually consumed by the Patent Oflace or the courts in considering it. This provision is aimed at the procrastination that has become proverbial on the part of applicants for patents. Under the existing law an applicant can fritter away years in correspond- ence, each time delaying many months before replying to letters concerning trivia] details. The effect of this is practically to prolong the duration of the monopoly. In some instances the preliminary proceedings have been drawn out over a course of 12 or 15 years. The telephone and automobile patents, both of which have a well-known judicial history, are notorious instances of this practice. Under the amend- ment now proposed this practice of delay will be eliminated. The applicant is allowed two years within which to present the merits of his claim to a patent. Certainly this is enough. When he files the application he is familiar with the merits of his invention as well as with the history of the art. In the course of two years, with reasonable diligence, he can present his case and answer the objections that are raised against his application. Of course the applicant ought not to be charged with any delay for which he is in no way responsible. Hence the time consumed by the Patent Office or by the courts or interference proceedings is not to be computed as a part of the two years allowed to prose- cute the claim. It is submitted that the conclusion of the committee that procrasti- nation on the part of applicants for the purpose of delaying the issue of patents is a common evil is hardly warranted by the facts. That procrastination does sometimes occur is unquestionably true, but aside from the two instances referred to in the rejDort, viz, the Ber- liner patent and the Selden patent, there have been very few cases, indeed, which have attracted general attention or which have resulted to the serious disadvantage of the public. It is significant that in one of the two cases specifically referred to in the report, the effort to unwarrantably and unreasonably prolong the period of patent protection availed nothing. In the Berliner case the Supreme Court found that the charge that the prosecution of REVISION OF THE PATENT LAWS. 29 the application had been unwarrantably delayed was unfounded and that in point of fact the applicant had repeatedly urged earlier con- sideration of his case. In the case of the Selden patent the applicant evidently had an early appreciation of the ultimate development of the automobile art, and seizing upon a feature which he believed would be essential to that development, although not able himself to propose a practical embodiment of it, he filed an application for patent and endeavored to keep it alive until others should successfully work out the diifi- culties. The real problems involved in the construction of a prac- tical automobile having been solved by others, this applicant puts the case in condition for allowance and secures a patent under which he endeavors to control the entire industry. The proposed change in the law was doubtless prompted by the following statement of the court of appeals in Columbia Motor Car Co. V. C. A. Duerr & Co. (the Selden case, 184 Fed., 892) : . But the patentee acted wholly within his rights. He merely took advantage of the delays which the law permitted him. He followed strictly the statutes and rules of procedure, and the courts can not exact a greater measure of diligence from him. When the patent was granted under the authority of the law, it became entitled to the consideration accorded to any other patent. If the statutes and rules permit unnecessary delays, they should be changed ; but we reject the view that this court owes any duty to relieve against their operation. This patent, even if it be useful only for tribute, must be viewed without prejudice and with absolute judicial impartiality. The elaborate opinion delivered by the court in this case suggests the thought that in order to free itself from any possible charge of prejudice based upon the long delay in the Patent Office it viewed the various lines of defense very much more critically than might have been expected in the case of a patent which many feel should have been held invalid on demurrer. The few flagrant attempts to unwarrantably prolong the term of a patent may call for legislative remedy; but whether all of them constitute a sufficient foundation for the radical change proposed, involving, as it does, cumbersome machinery, certain to work to the disadvantage of a vast number of well-intentioned applicants and certain to give rise to controversies in the Patent Office and in the courts, is very questionable. It is not a fair presumption that every applicant who delays the prosecution of his application for a period of two years is without justification for his course and is seeking an undue advantage. In the case of inventions broadly new the applicant is usually much in advance of his time. Even though it may be that in the case of these radical departures necessity was the mother of the invention, the fact is that the public in many instances had not realized the exist- ence of the necessity. There is imposed upon the inventor, in addi- tion to the problems of proper construction and manufacture, the conduct of a campaign of education before the public can be induced to recognize and accept the invention. In such cases, therefore, the term of 17 years is all too short, and no imposition is practiced upon the public if the inventor seeks to make the date of commence- ment of his patent protection substantially coincident Avith the date of recognition of his invention by the public. Nor is it true in the case of every applicant, as stated in the report of the committee, that " when he files the application he is familiar 30 REVISION OF THE PATENT LAWS. with the merits of his invention as well as with the history of the art." The early patents to Westinghouse on the air brake contained in- congruities. Referring to them, a prominent law^^er, now deceased, who represented a defendant sued by the Westinghouse Co., remarked that the solicitors who took out the patents should not be too severely criticized, for undoubtedl}^ Mr. Westinghouse himself had a very in- adequate conception of the scope of his invention until after his patent had actually issued. The same might doubtless be said of very many other inventors, as it is a common experience, in connection with the soliciting of patents, that the full scope of the invention is ascertained both by the inventor and the solicitor only after repeated actions. An amendment of section 4884 which would prevent the repetition of the histories of the Berliner and Selden applications may be jus- tified, but it should be at once simple and direct and of such nature that it will not work hardship to well-intentioned inventors. Better that some opportunity for an imposition be permitted to remain than that all should be held down by a close restriction and that the ma- chinery of the law be made cumbersome and uncertain in its action. While perhaps not Avithin the scope of a mere analysis of a pro- posed bill, it is suggested that if the present law as to term must be changed, due consideration should be given to that large class of in- ventors who will suffer by a hard and fast rule imposing a limitation to the period of prosecution, especially when this period is limited to the short space of two years. In some countries the patent office indicates in each action the date Avithin which response must be made by the applicant, and upon a proper showing this time is usually enlarged. By such a provision the abuses complained of might be controlled without doing injustice to those inventors who would suffer by a too hasty prosecution of their applications. December 3, 1912. I I THE OLDFIELD BILL— COMPULSORY LICENSES. [By O. R. Barnett.] Under this heading the bill presents virtually two phases, (1) the section which in terms relates to the specific grant of licenses by order of court under certain conditions, and (2) the sections which, by depriving the patent owner of his full right to enforce limitations in license grants by enjoining unwarranted practice of the invention outside of the terms of the license, virtually result in the grant of a broader license, for which broader license the patent owner is limited to such compensation as he may recover in the way of damages for violation of the limitations of the express license. 1. The provisions which specifically provide for the grant of com- pulsory licenses are found in the proposed amendment of section 4884 of the Revised Statutes. These provisions read as follows : The district court wherein the owner of a patent or of any interest therein has a residence or established place of business shall have jurisdiction to com- pel the granting of a license under such patent under the circumstances herein- after set forth. The person applying for such license shall file a bill in equity setting forth briefly the facts and circumstances, and the court shall thereupon hear the' person applying for such license and the ow^ner of the patent. If the applicant shall allege and prove to the satisfaction of the court that the patented inven- tion is being withheld or suppressed by the owner of the patent, or those claim- ing under him, for the purpose or with the result of preventing any other per- son from using the patented process, or making, using, and selling the pat- ented article in the United States in competition with any other article or process, patented or unpatented, used, or made, used, and sold, in the United States by the owner of the patent or those claiming under him or authorized by him, and also allege and prove that the application for said patent was tiled in this country more than three years prior to the filing of such bill in equity, the court shall order the owner of the patent to grant a license to the applicant in such form and upon such terms as to the duration of the license, the amount or royalty, the security for payment thereof, and otherwise as the court, having regard to the nature of the invention and the circumstances in the case, deems just : Provided, however, That nothing herein contained shall be construed to authorize the court to compel the granting of a license by the original inventor who has not obligated himself or empowered another person to suppress or withhold such invention. From the order of the district court granting or refusing such license appeal may be taken by the party aggrieved to the circuit court of appeals in the same manner and form as in other cases arising under the patent laws : Provided, That the provisions of this section shall not apply to any patent granted prior to the passage of this act. It will be noted that this radical departure from the traditional patent system of this country is drastic in its nature. The court has no discretion to grant or refuse a license, provided the state of facts specified in the proposed amendment is established. It appears from the report accompanying this bill that this phase of the proposed amendment to our law is directed to — the evils arising from owners of patents suppressing the same or prohibiting their use in order to prevent competition with other patented or unpatented 31 32 REVISION OF THE PATENT LAWS. articles sold by said owners of patents * * * Widespread evils of which just complaint is made are due mainly to the abuses of the patent, either by making it the means of securing a monopoly more extensive than that covered by the patent or through accumulating competing patents and suppressing part of the same. Continuing, after discussing the opening paragraph of the section as to the term for which piatents shall be granted, the report says : The remainder of this section is new and has for its object preventing what is popularly known as shelving competitive patents. Buying up patents for the purpose of precluding competition has been and is a practice of industrial con- cerns, and the harm of it has been recognized and dealt with in almost every industrial nation except the United States. In one form or another the laws of Great Britain, of Canada, of Germany, vnd of France, as well as many other nations, lodge in the respective Governments the power to liberate the manu- facture, sale, and use of all patented articles. That patents in the United States are bought up in large numbers for the purpose of suppressing competi- tion can not be doubted. It has been the subject of comment in the public press for years. The report then refers to certain of the barbed-wire, straw-stacker, spring-toothed harrow, and paper-bag cases, as conspicuous instances which have been before the courts. Continuing, the report says : Capital seeking to control industry through the medium of patents, proceeds to buy up all improved patents pertaining to a particular field. The effect of this it to shut out competition that would be inevitable if the various patents were separately and adversely held. We thus apprehend clearly the known evils to which this section is directed, and while it further appears from the report that Mr. Old- field considers that the exception as to the original inventor saves the section from any objectionable scope, it is at least open to serious question as to whether he has fully apprehended the possible and reasonably probable effect of this amendment in its present sweeping form. If, for example, the owner of a patent grants territorial licenses to various persons, one of whom is selling a competitive article which is not patented, which he finds he can market to better advantage than to pay royalties under his license, or if one of the licensees devises and patents a simpler competitive device or a better one, for which reason this particular licensee discontinues marketing the original patented device, would not the case come squarely within the ])road provisions of this section, without any fault on the part of the owner of the patent ? It would seem that this would be clearly a case where one claiming under the owner of the patent has withheld or suppressed the patented invention with the result of preventing any other person from using the patented invention in competition with some other article, whether patented or unpatented, which is being sold by such particular licensee. The statute provides that where the specified facts are alleged and proven the court shall order the owner of the patent to grant a license to the applicant. In such case would the court be obliged to order a license coextensive with the United States or coextensive only with the territory in which the expressly granted license was not being operated under or coextensive with such parts of the country as were not covered by the territorial licenses then existing which were being worked? Again, it is a matter of common knowledge that patented inven- tions, and entire arts, indeed, are frequently developed either by firms or partnerships who employ men of inventive ability for that REyiSION OF THE PATENT LAWS. 33 purpose, or who back them financially and take a joint interest in the inventions. Such employers, whether individua:ls, firms, or corporations, or such copartnerships of the inventor, certainly are not the oriofinal inventor, and therefore the compulsory license pro- vision would apparently apply to them as to all inventions which may be thus developed at their expense and owned in whole or in part by them. Equitably, such individuals, firms, or corporations^ stand in the same position as the original inventor, and may en- counter the same difficulties as he in commercially developing the patented inventions, especially if, as is frequently the case, they develop several inventions, and it takes all of their energy and capital j to commercially promote some one of them. Another class of cases where this statute would apply is where there is no lack of capital or enterprise on the part of the actual owner of a part or all of the patent titles, but where after years of experiment and the expenditure of much capital a business has been developed in the course of which the inventions have been perfected and various alternative and potentially competitive forms have been developed and patented. Must the individual or corporation which perhaps has accomplished the seemingly impossible, and in so doing has actually developed, created, and patented at its own expense a large line of patents — must such a patent owner there- upon market not only the perfected forms of the invention but also all other operative forms which said owner has thus demonstrated and brought out or as an alternative must he submit to granting licenses under those forms of the invention which the patent owner himself does not see fit to put on the market either because to do so would be a commercially undesirable multiplication and complica- tion of the business, or because some one form is considered to be the i perfected embodiment of the invention. Instances will readily occur where a competitor who has sat by and allowed the enterprising manufacturer to expend his money in such development work may obtain a license under some one of the forms of invention which the patent owner has developed, and may then, by adding his own im- provements, develop a formidable competition which will make it impossible for the enterprising manufacturer to recover in profits the vast sums which he has expended in developing a new art. As a concrete and possible extreme case I have in mind one con- cern which undertook to develop automatic machinery in a certain industry and for years struggles with a seemingly impossible prob- lem and actually expended over $500,000 before success was in sight. A considerable part of this expenditure represented inventions which were developed and patented and many of which were not used in the finally perfected form of the machine. Under the Oldfield bill this company could be compelled to grant licenses under any of these patented inventions which are not embodied in the final form of the machine, and with such license or licenses as a foundation, and the knowledge of this company's success and how it was obtained, it would be a relatively simple matter for competitors who had been at no expense in the development of this art to bring out a machine which would actively compete with the machine now on the market, and thereby keep the margin of profit so close that the company S. Doc. 151, G3-1 3 34 KEVISIOI^ OF THE PATENT LAWS. wliich had spent half a million dollars in developing a neAv machine would probably never get its money back. I recall a similar instance in developing automatic machinery for the manufacture of electric light bulbs. This was held for years by those skilled in the art to be a problem impossible of solution. But with the knowledge that if it could be solved the company would for the full life of its patents control every invention in this field which it might devise, money was poured out like water until success was finally attained. Here again the perfected machine is the out- come of years of experimentation and invention during which several alternative and practical machines have been developed and patented by this same company. Again, I have in mind an inventor who, starting with nothing, revolutionized an art in 10 years, during which time, advancing from one invention to a still better form, he has taken out nearly 100 patents in this art, many of which were practiced for a while only to be discarded by him as he advanced to a more perfected form of device. These instances suggest the inquiry as to whether, if the patent law is to be amended so as to prevent the buying up of patents merely for their suppression, it should not be much more carefully guarded in the interests of legitimate owners and developers of patented in- ventions as distinguished from mere purchasers, for purposes of sup- pression and monopoly, of patents which have been previously de- veloped and patented by others. •2. We next come to a consideration of what I think may be legiti- mately termed the indirect compulsory or involuntary license, for such I think would be one of the necessary results of certain other amendments proposed by the Oldfield bill. Thus the amended section 4899 provides that any purchaser, lessee, or licensee of a patented article sold by the owner of the patent or by the owmer of any interest therein or by any person having author- ity to sell the same shall be liable to an action for infringement of the patent because of any breach of the contract of sale or of any pro- vision thereof; also, that no licensee shall be liable to an action for infringement of the patent because of a breach of such license or of any provision thereof. It therefore appears that, if a territorial license be granted and the licensee thereupon operates outside of the territory granted to him, he can not be proceeded against as an infringer, but may only be sued for damages. In other words, the patent owner will be com- pelled by the operation of the statute to virtually extend the license to the entire territory of the United States, at the option of the licensee. In like manner, a license granted on condition, for the protection of the licensor's own business, that articles furnished to the licensee shall be resold only at a specific price, becomes, by opera- tion of law, a license to resell at any price. A sale, lease, or license of a patented machine for use in a certain art which will not compete with or affect the business of the licensor or of some other licensee in a different art becomes by operation of law a license to use the given machine in any manner which the licensee may see fit. An inventor obtained a patent on a machine designed primarily for use in the refining of cottonseed oil. This machine gave a marked advantage to the patentee's company, and because of such advantage EEVISIOK" OF THE PATENT LAWS. 35 I ^H was of great profit in that art to the patentee. It developed, liow- ^■•ever, that there was a demand for it in the manufacture of oleo- ^■'margarine, and also a demand for it in the manufacture of soap. ^■He sold certain of these machines with an express license limiting ^B their use to the manufacture of oleomargarine, as appears from the ^■license plate on each machine, and others which were expressly and ^^Bin like manner limited for use in the manufacture of soap, thereby ^B preserving to the patentee the advantage which the invention gave ^B his company in the refining of cottonseed oil. But, under the Oldfield " bill, the purchasers of these machines might, if they saw fit, use them in the refining of cottonseed oil, or otherwise to the injury of the pat- entee, leaving him no recourse but a suit for damages and without any | right to enjoin such licensed use as an infringement of the patent. I ' submit that this clearly results in indirectly forcing in effect a com- pulsory license as to matters beyond the express license. In the report of the committee it appears that this section is di- rected at the alleged harmful practices which have grown up under the doctrine pronounced in the Heaton Peninsular Button Fastener case and finally affirmed by the Supreme Court in the A. B. Dick case; and the report states that^ — the section does not outlaw the restrictions or chanicterize them as illegal in any manner, * * * rpj^^ only possible effect of this section is to declare that the breach of such restrictions shall not give rise to action for infringement of the patent. * * * -pQ permit the action for infringement in the class of cases described is to ignore and override the jurisdiction of the State courts in a realm where they have exercised jurisdiction from the beginning. Reverting, then, to the fact that the conditions as to use, etc., were not supported by the Supreme Court until the Dick decision in March, 1912, the report says: The question is not what use has been made, but what use will be made, of this newly declared privilege. It easily can be converted into a plausible justi- fication of commercial practices that have been outlawed in every State in the Union. * * * Some doubt has been expressed as to whether or not section 2 would apply to existing patents. Undoubtedly it would. Applied to existing patents, the law would not conflict with any provision of the Constitution. 3. Somewhat in the same line of an involuntary license by opera- tion of law^ would seem to be the result of section 12, to the effect that— it shall be a complete defense to any suit arising cut of any contract or for the infringement of any patent that the plaintiff or the real party in interest * * * at the time of the alleged infringement, at the time of the beginning of said suit, was engaged in carrying on business in any manner or to any extent in violation of the provisions of this act. When we come to consider the sweeping and minute antitrust pro- visions of this act and the fact that even if this act become law there must necessarily be for years many instances where, until adjudicated by the courts, it is a very serious question whether contracts or trans- actions entered into with good faith do constitute a violation of some one of the numerous antitrust provisions of the act, it will be seen that at every turn the patent owner will proceed at his peril as to every patent right ow^ned b}^ him, for no matter wliat the contract entered into or the act done by him ma}^ be, nor wdiether it relates remotely or not at all to the particular patent for infringement of which suit is begun, if, as a matter of fact, it shall be adjudicated that in any II 36 REVISION OF THE PATENT LAWS. manner or to any extent he has violated any provision of that act he is thereupon and thereby deprived of the right to bring suit for infringement of any patent then owned by him — that is to say, by operation of law he to that extent grants a compulsory or involun- tary license to all who are at the time infringing any patent or patents which he may own. As to this the committee's report says that this provision enables a defendant to set up as a defense to any suit brought for infringement of a patent or arising out of a contract that the plaintiff is or was at the time the cause of action arose engaged in an illegal restraint of trade. Of course, just why a patent owner should be outlawed as to his right of action for the protection of his patent property only because as to some one patent owned by him he has been found to have vio- lated some provision of this act is not clear. Thus, for example, if he owns 100 patents, 1 of which relates to hooks and eyes and 99 of which relate to telephones or to any other field of industry, it will be a complete defense to any suit for enforce- ment of a contract relating to one of his telephone patents or to enjoin infringement of a patent which he may own on an aeroplane for the defendant to say that at the time the alleged cause of action arose the plaintiff was engaged in some transaction as to his hook- and-eye patent which, in some pos'sible way, constituted an alleged violation of some obscure provisions of this act as to which nobody knew whether he was violating the act or not until the matter had been actually adjudicated. The foregoing, I believe, fully summarizes the provisions of the Oldfield bill which either expressly provide for compulsory licenses or necessarily result in substantially granting compulsory or involun- tary licenses, and also ver}^ briefly suggests some feAv of the questions which I believe may be fairly considered as to the wisdom and effect of the bill in its present form. THE OLDFIELD BILL, H. R. 23417, AS AMENDED AUGUST 8, 1912. [By Wallace R. Lane.] Brief Axalysis of Sectiox 2 and Suggestioxs Eelative Thereto. Section 2 of the Oldfield bill attempts to add two paragraphs to section ^1:899 of the Kevised Statutes, which has been in force in practically the same form since 1870. The proposed additional paragraphs read : Xo purchaser, lessee, or licensee of a patented article sold by tlie owner of tlie patent, or by the owner of any interest therein, or by any person having authority to sell the same, shall be liable to an action for infringement of the patent because of any breach of the contract of sale or of any provision thereof. Xo person who obtains a license of the owner of a patent or of the owner of any interest therein, to use any art or process, or to make, use, and sell any article protected by such patent, shall be liable to an action for infringement of the patent because of a breach of such license or of any provision thereof. The purpose of this section of the bill, as the author of it alleges, is directed to " the evils arising from the vendor of a patented article fixing the price at which it must be resold to the public." and '' aris- ing from the vendors of patented articles prohibiting their use except in connection with other unpatented articles purchased from them," and the two sections quoted are suggested by the author as a '• remedy for these evils." Speaking specifically of these two paragraphs of section 2, the author of the bill says that they " deal with a practice that has grown up in the past 15 years of restricting the right of purchasers of patented articles to use and resell the same," and that — It is now very common for vendors of patented devices to placard the si>eci- men with a notice requiring the purchaser to obtain his unpatented supplies for use in connection with the device exclusively from the owner of the patent on penalty of his being dealt with as an infringer if he fails to do so. Likewise patented articles are sold with similar notices stipulating a uniform fixed retail price below v^-hich the purchaser is forbidden to sell the article. These paragraphs of section 2 are designed to prevent any suits for contributory infringement against a purchaser, lessee, or licensee of a patented article, arising out of any breach of the implied con- tract existing by virtue of the notices which are attached to the patented articles at the time of their sale, lease, or license. The cases following Heaton Peninsular Button Fastener Co. v. Eureka Specialty Co. (77 Fed.. 288), cited and approved in the case of Henry v. Dick (224 U. S., 1), sanctioning this phase of contribu- tory infringement, need no discussion here. The uniformity of these decisions has been the cause of the rapid growth in the practice of imposing restrictions of various kinds upon patented articles by the attachment of notices, some of which have embodied unusual requirements in the sale and distribution of the article and led to the much quoted and referred to dissenting opinion of Mr. Chief Justice White in the Dick case mentioned. 37 38 EEVISIOX OF THE PATENT LAWS. This dissenting opinion is largely relied upon as the basis for the argTiments which are advanced in favor of this section of the pending bill. It has been held by the Supreme Court that neither the owner of a copyright on a book nor the manufacturer and vender of a proprietary^ drug compounded under a secret formula can legally establish resale prices through notices attached to these articles, regardless of whether contracts were made with the dealers or not, and that such restrictions can only be made under patent rights. (Bobbs-Merrill Co. v. Straus, 210 U. S., 339; Dr. Miles Medical Co. v. John D. Parks, 220 U. S., 373.) The author o? the Oldfield bill says : As a result of tliese two lines of decisions, we have this state of affairs : The owner of a patent, even though it be for but a minor improvement, can sell the specimen articles, obtain the purchase price therefor, and at the same time restrict the purchaser's right to use what he owns by compelling him to purchase all unpatented supplies from the owner of the patent. Likewise, the manufacturer of patented articles may dictate the price at which both jobbers and dealers are to resell the articles to the ultimate consumer. And this is not confined to isolated transactions, but is valid when applied to a vast number of sales. * * * The resale price restrictions compel the observance of the same uniform price by thousands of dealers scattered throughout the Nation, The argument in support of the bill, after thus stating the condi- tion which exists, explains the proposed new paragraphs in section 2 of the Oldfield bill as follows: The section does not outlaw the restrictions or characterize them as illegal in any manner. It leaves the restrictions exactly as they are in so far as they posit contractual relations between the owner of the patent and purchasers of specimen patented articles. If such restrictions regarded as contracts are legal, they are not invalidated by this section. The only possible effect of this section is to declare that the breach of such restrictions shall not give rise to an action for infringement of the patent. The vendor still has unimpaired all rights under the contract and is not impeded in the enforcement of such rights. The fact that the chief justice of the Supreme Court has called the attention of Congress to the situation which exists and because of its being urged from various quarters, the members of the patent committees of Congress seem determined to pass some legislation to curtail the alleged evils existing under this system. In the argument for the Oldfield bill, it is stated that — Considered apart from legal niceties and viewed in the light of public con- venience and trade generally, section 2 is a highly necessary enactment. This statement fairly summarizes Avhat seems to be the general sentiment of the patent committees of Congress relative to this matter. From a reading of the very adroitly written argument in support of the bill under the head of State Rights, one might infer that little of the patentee's rights were being taken away by this provision, as it states that — The only effect of section 2 is to declare that a violation of a contractual i duty shall not be treated as an invasion of a statutory right, but shall be dealt sj with as the invasion of a contractual right. It is submitted that that is all that is involved. The interests promulgating the paragraphs of section 2 of the Old- field bill under discussion, in spite of this argument, must, and I EEVISIOX OF THE PATEXT LAWS. 39 think do. realize that the effects which will necessarily result from the passage of this section of the bill are : First. To render nonenf orcible. under any of the restrictions now commonly following- the patented articles, through the notices placed upon them and now recognized as legal and a proper exercise of the patentee's right; that is, it takes away the remedy of a suit for in- fringement. Second. To permit a defendant who has A'iolated restrictions con- tained in the notices attached to the patented articles sold to them, to raise the Sherman law and State antitrust statutes as a defense. Third. To obviate the enforcement of any implied contracts aris- ing by virtue of license notices and to limit the owner of the patent to such recovery as he may have for violation of a direct contract with the dealer or consumer. Fourth. To entireh^ obviate any and all control by the patent owner of the resale of his patented article. The principal arguments which have been advanced against the bill, as a sort of supplement to the dissenting opinion of Mr. Chief Justice White, are : First. That the proposed paragraphs, to section 2 of the Olclfield bill, would necessitate the bringing of a multiplicity of suits to en- force the contracts, while a single suit in the Federal court, under the present decisions of the court, would dispose of the question. Second. A patentee should have as much right to impose any reasonable restrictions on the sale or use of his patented device as he has to sell it for use in one place for a single purpose and for a limited time. Third. Because the Government has granted exclusive use to the right to make, use, and sell the invention, the franchise granted is as much invaded, by violating any restriction placed upon the machine by the owner of the patent, as it would be if the infringer were to actually make, sell, or use the patented thing. Fourth. That one who knowingly brings about a breach of the license restriction is just as guilty of contributory infringement as is a party who assists in the manufacture of an infringing machine or uses an infringing process. Fifth. That a person is not required to buy a machine having op- pressive license restriction notices upon it, and that the owner of the patent, in imposing these restrictions, has to take his chances in making the sale of the machine, and the party buying the machine, with such restrictions, should be bound by them. Sixth. In a great many instances, in building up a business under a new device, the only way to proceed is to either sell it on very low terms or give it away and have it eventually paid for by having the one who buys it pay for the devices or material to be used in con- nection with it: and that this is the fairest means of collecting a royalty, and, therefore, anyone who violates these restrictions should be held as an infringer. Seventh. That a third party — not a party to the original contract of sale — may by his acts cause or contribute to the infringement to such an extent that he could not be reached by any action under the contract, and should be held as a contributory infringer if he has knowledge of the restriction. 40 REVISION OF THE PATENT LAWS. Eighth. That where a machine is specifically designed for use in connection with a certain device or material, and could only be used successfuU}?- in connection with such device or material, the owner of the patent on the machine would not be afforded the protection to which he is entitled, unless he can compel the purchaser of his ma- chine, thus specially designed, to use such device or material as is furnished by him for that purpose. Ninth. That because the inventor gave to the public something which did not before exist he should be given an absolute monopoly for the period of years fixed by the statute, and failure to afford this protection will discourage invention, and nothing is withheld from the public except what attaches to the patented monopoly. Tenth. That the courts already have held that unreasonable re- strictions in attempting to control the sale of patented devices will be a ground for the refusal of an injunction or the setting aside of an injunction once granted, and, therefore, it is unnecessary to pass an}^ legislation affecting these license restrictions. (See Light Co. v. Electric Co., 53 Fed., 598; also Standard Sanitary Mfg. Co. v. United States (Bathtub case), 226 U. S., 20.) The language of the court of appeals in the opinion in the Light Co. case cited is frequently referred to in support of the latter con- tention, as follows : When it shali be made to api^enr that some one to wbom in fairness and good conscience these complainants should sell their lamps has been arbitrarily refused them, save upon oppressive and unreasonable terms, it will be time to consider whether the complainants should be allowed to continue in possession of the injunction. Other arguments are advanced, such as the constitutional right of Congress to pass such an enactment; that such an enactment, if passed, could not apply to existing patents; that restrictions should not be put upon the rights of patentees which are not imposed upon vendors or licensors of unpatented articles, but there is no occasion to discuss the merit or demerit of these contentions here. In my opinion we are destined to liaA^e some legislation, relative to the license restrictions, which compel the purchaser of a patented article or process to buy all supplies, used in connection with that article or process, from the owner of the patent, or which attempt to absolutely fix the resale price of a patented article or process. But I feel that the congressional committee will carefully consider any suggestions which will in effect accomplish this result without totally destroying all rights of action for infringement against licensees, their agents or vendees, under the patent. Inasmuch as it seems inevitable that Congress is going to pass some legislation along this line, I personally should favor the draft- ing of some i:)rovision which Avould either leave the ])resent proposed amendment in a form which could not possibly be construed as oust- ing the owner of a patent of all of his rights for infringement against a licensee who is attempting to operate outside of his license, or to draft a new section which would prevent the owner of a patent from attaching labels or notices which attempt to control the sale of an unpatented standard article of manufacture which has a market independent of the patented device and which is not made with special adaptation thereto, when sold for use with the patented ma- I REVISIOivT OF THE PATENT LAWS. 41 chine, or attempts to fix the resale price, and thus control the article after it has been once sold and is in the hands of the owner. If it is impossible to prevent the passage of the second and third paragraphs of section 2 of the Oldfield bill, I would urge that a clause embod^dng in substance the following should be added to the section : Provided, That nothing herein shall prevent the maintenance of a suit for infringement against a licensee, his agents and vendees, for the use of a portion of the invention not included in his license, or who in any way violates any part of the franchise not embraced in the license grant or assignment. This AA' ould make paragraphs 2 and 3 of the section read : No purchaser, lessee, or licensee of a patented article sold by the owner of the patent, or by the owner of any interest therein, or l)y any person having authority to sell the same, shall be liable to an action for infringement of the patent because of any breach of the contract of sale or of any provision thereof. No person who obtains a license of the owner of a patent, or of the owner of any interest therein, to use any art or process, or to make, use, and sell any article protected by such patent, shall be liable to an action for infringement of the patent because of a breach of such license or of any provision thereof. Provided, That nothing herein shall prevent the maintenance of a suit for infringement against a licensee, his agents and vendees, for the use of a por- tion of the invention not included in his license, or who in any way violates any part of the franchise not embraced in the license grant or assignment. Such an addition to the present section would enable the patentee who had made a grant of his patent for a certain purpose, to sue. as an infringer, anyone who used the patented deA'ice for another pur- pose than that for which he was licensed, and would thus preserve the rights in that particular. It seems vital that the rights of the owner of a patent to maintain an action for infringement Avhen the licensee is operating outside of the terms of his license, as distinguished from any A^olation of its terms, should be retained, and this section of the Oldfield bill, if enacted, should certainly haA'e in it a clause which would so interpret the preceding paragraphs as to prevent any construction Avhich would depriA'C the patentee of this right, simply because he failed to include in the terms of his license all of the things which Avere found at some future time to be necessary to protect his interest in that part of his rights under the patent which he reserved to himself by not granting it to the licensee, lessee, or part owner. If I thought it possible to prevent legislation relative to license restrictions, I should adA^se opposing any change in the present law as administered by the courts, for I belieA^e that the recent utter- ances of the Supreme Court in the Bathtub case, taken in connection Avith the case of Dick v. Henry, indicate that there is little need for any such legislation. HoAvever, as I feel certain that some change is bound to be made by Congress, in Adew of the promises made by its Members, I urge the aclA-isability of considering either the sug- gestion made as to the proposed additional clause to the last para- graph of section 2 of the Oldfield bill, or the suggestion of an amend- ment to section 4889 of the ReAdsed Statutes which Avould meet the committee partially in its demands. Chicago, Decemher ^4, 1912. THE ANTITRUST FEATURES OF THE PENDING PATENT LEGIS- LATION. [By Russell Wiles.] Sections 4 to 12. inclusive, of the pending measure, known as the Oldfield bill, embrace the so-called antitrust features. My first effort has been to determine whether there is any fundamental and under- lying principle in this proposed legislation, so that by considering the bill as the embodiment of a single principle, its operation could be clearly understood. I have been unable to discover any such prin- ciple, and, in fact, whatever general principle there may be in these sections of the bill seems wholly inconsistent with the theory under- lying the proposed amendments to section 4899, relative to restricted licenses. The theory underlying the prohibition of restricted licenses is, as expressed by Mr. Oldfield in his report, that there is no reason in economics or in common sense why a patented article should differ from an unpatented one as to having its price fixed. The underlying idea of the antitrust features of the bill is quite the contrary, it being that patented articles are of a peculiar and nefarious character, prima facie open to grave suspicion, so that acts which would be perfectly lawful with reference to unpatented articles, or when com- mitted hj those who do not own patents, are illegal and criminal when performed by those who own patents or sell patented articles. I have been informed that these antitrust features of the bill are largely taken bodily from proposed antitrust legislation offered by other Members of Congress, and that when it became evident that nothing Avould be done with it as a straight antitrust measure, it was taken up by the Patent Committee and revised enough to be within the purview of that committee: and certain it is that the bill gives every appearance of having been drawn in this way. It bristles with provisions which belong in an amendment to the Sherman Act, and which have no more relation to the patent law than has the statute with reference to sending gambling matter through the mails. The situation is as if an antigambling literature bill had been introduced and when obstacles were thrown in the way of its passing, it had been taken up by the Patent Committee and amended to read " any- one who sends a'anibling literature through the mails and uses a patent shall be liable." To discuss the propriety, from the point of view of political econ- omy, of all the proposed rules as to trusts and monopolies contained in this bill, would be an intenninable undertaking. It may, however, be stated that the first point which will strike the eye of any patent lawyer is that a wholly illogical distinction is made between patented and unpatented articles, and between the owners of patents and other persons. Certainly a patent is not such a nefarious grant that its owner should be punished for the same act very much more severely than one who does not own a patent. 42 EEVISIOX OF THE PATEXT LAWS. 4S A second point, perhaps arising from the same cause, is that this part of the bill, having been drawn for general purposes and amended by simply putting in the word " patent '" wherever neces- sary, it is doubtful whether the bill means anything at all. Certainly the antitrust features of the bill will give us material for endless litigation if they are ever enacted, and I challenge any patent lawyer to take practically any section of the bill and tell what it means. A third point, which will at once strike every patent lawyer, is that it is probably perfectly easy to evade many of the antitrust provisions of the bill by having the patent owned by one party and the nefarious acts done by a licensee. With this brief introduction, I will turn to the more prominent sections of the bill. Section 4 provides that " no patent shall be used to restrain un- reasonably or to monopolize or attempt to monopolize any part of the trade or commerce among the several States — except in such articles as and to the extent that the}^ embody the invention or dis- covery so patented,'' and further that if a patent be used in viola- tion of the act it may be condemned. What this means I have not the slightest idea. The author of this bill apparently had never read Patterson v Kentucky. Of course we. as patent lawyers, know that a patent is really never used for anything but to sue with. It has been held repeatedly that the only thing which a patent gives is the right to exclude, and that is the very nature of the grant itself. In Fuller V. Berger it was held that the only means of enforcing this right was by the equitable power of injunction, and therefore, when boiled down to its last analysis, all a patent is is a right to obtain an injunction with an ancillary right to damages and profits. Xow, of course, viewed from a legal point of view, it is absolutely im- possible to '' use " a patent (that is, the patent itself) excepting to exclude others from practicing the identical thing covered by the patent. If this wasn't certain before it has been made certain by the decision of the Supreme Court in the bathtub case, but most patent lawyers have always believed that that stated the law. Xow, since a patent never is used and never can be used to monopolize any trade except that in the patented article, I have searched in vain for some possible way to violate this section, and if it means what it seems to mean, it is a section which can not possibly be violated if one tried. Xow, since it could hardly be assumed that Congress would pass a statute which meant nothing, if it were enacted, the courts would probaVjly try to find some meaning for it, and what meaning they might guess I do not know. It is possible that some courts might be induced to hold that if a combination was in restraint of trade generally and it owned the patent, then the patent was. in the sense of this section, " used." in which case the present section would mean that all patents owned by ever}' combination in restraint of trade would be contraband and forfeit. This, however, is a mere guess. As the section stands, and read as any law3Tr will read it, it doesn't mean anything at all. Perhaps the section is aimed at re- stricted licenses. If it is it doesn't say so, and this also is a guess and a poor one, for the grant of license is hardly a " use." The foregoing is the only one of the antitrust provisions which stands alone and of itself. The remainder are all in the form of definitions or amendments of the Sherman Act, and therefore, before leaving this section it will be well to turn to section 12, which pro- 44 REVISION OF THE PATENT LAWS. vides that it shall be a complete defense to am- suit arising out of any contract or for the infringement of any patent that the plaintiff at the time of making such contract, or of its alleged breach at the time of the alleged infringement (or) at the time of the beginning of said suit was engaged in carrying on business in any manner or to any extent in violation of the provisions of this act. Breaches of the remaining antitrust provisions are not breaches of this act but are breaches of the Sherman Act. and therefore section 12 has to do only with section 4 of the antitrust parts of the act, and the earlier pro- visions of the act already discussed b}' other members of the com- mittee. This section 12, of course, imposes a terrific penalty and one which has usually been disapproved by the best authorities on juris- prudence. As a general rule it is better practice to impose a uniform punishment rather than to deny even the worst criminal the right to civil relief in the courts for breaches of contract or for invasion of his property rights. Section 12 outlaws any person who violates this act, and practically denies him civil relief, at least all civil relief ex contractu and civil relief ex delicto if the tort consists of the infringement of a patent. It may be doubted whether such legisla- tion alfords equal protection of the laws. It is certainly a wide and startling departure from anything which has ever been heretofore enacted by the Federal Government. It would seem that the greatest extent to which such legislation should go is the mere statement that being a member of a combina- tion in restraint of trade shall constitute unclean hands in equity. It will be recalled that immediately after the Sherman Act was enacted it was contended many times and with much force (although over- ruled by the courts) that membership in a combination in violation of the Sherman Act constituted of itself unclean hands. The courts could have decided the question either way and it would seem that there is no reason for going any farther than such a holding, if as far. Certainly to have it constitute a complete defense to a suit on a contract that the complainant was engaged in a combination of this character seems a wholly unreasonable and unnecessary provision. I will now turn to the sections which are practically amendatory of the Sherman Act. The inherent vice of these sections, as it seems to me, lies in the fact that they discriminate between users of patents and others. Take, for instance, section 5, Avhich provides that when- ever, in a civil suit under the Sherman Act, it appears that a com- bination in violation of the act existed and that a patent has been used in connection with the restraint of trade, the restraint shall be conclusively deemed to be unreasonable and in violation of the Sher- man Act when any of a large number of other conditions exists. Now, why a given action should be unreasonable if a patent is used and not unreasonable if a patent is not used is beyond mj^ power to fathom. The boast of our Government has been that it affords equal protection of the laws, and that every man is the equal of every other man be- fore the law. If that be the case, what an absurd travesty it is to provide that if a patent be used certain things are unreasonable ; and if a patent be not used, they are not unreasonable. In passing, attention should be called again to the same difficulty with reference to section 5 as has already been mentioned in connec- tion with section 4 — that is, that no one can tell when a patent has l)een " used " in the sense of the act. Bear in mind that section 5 re- EEVISIOX OF THE PATEXT LAWS. 45 quires three things : First, that a combination shall exist : second, that a patent shall have been '" used '* in connection therewith ; and third, that any one of the many other enumerated conditions shall also exist. Xow. the first and sometimes the third condition can easily be determined, but the second is a very doubtful question. When is a patent ** used " and when is it not " used "' ? Certainly if the patent is not •' used '' by merely manufacturing under it. Is it '' used " if a suit is brought on it ? That seems doubtful, for the filing of a bill is rather the protection of a property right than the actual " use '■ of the patent. Is it '* used '' if threats are merely made on it ? It would seem not. Is it *' used '' if licenses are gi-anted under it? Probably not. The grant of a license is not the use of a patent : it is the sale of it, in substance. From this point of view, it is evident therefore that the bill has been drawn by some one wholly unfamiliar with patent law and who uses diction which is unintelligible to any patent lawyer. With all our experience in patents, it is impossible to tell whether any of our clients ever '* used " a patent or not. As a matter of fact, a patent is not an article of " use." It is an incorporeal hereditament conferring the right to bring suit and if one of us adopted such loose and meaningless phraseolog;\' in a contract, the contract would be held bad for indefiniteness. The courts, however, would endeavor to give to an act of Congress some sort of meaning and they would be obliged to guess, just as we have to guess, what this section means. At the present time I am absolutely unable to- inform you what would constitute a " use *' within the sense of the second requirement of section 5. It may be stated that all the re- maining sections of the bill relating to the antitrust features contain in some circumlocution or other the phrase " to use a patent," and they are all open therefore to this same criticism of indefiniteness, and it must be understood that in further discussion of the bill all the sections are open to this point of attack and they are all indefinite to this extent. Xow. section 5 goes on to enumerate contingencies lettered from A to L. which shall make the section operative when there occurs- the first two conditions already enumerated, i. e.. a combination and the use of a patent therein. The first two contingencies, A and B, arise whenever the vendor of a patented article attempts to get the effect of a restricted license on the article, either by limiting its sale price, or preventing the vendee, otherwise than by the ordinary solicitation of trade, from purchasing or using any other article in connection with the patented article. If these acts were merely prohibited in themselves an excuse, if not a reason, for enactment of legislation would be evident. '\Miy these clauses should be stuck in as an amendment to the Sherman Act. defining "* reasonable " restraint. I am unable to discover. Legislation of this kind is am- biguous, doubtful, and very hard to enforce. A single prohibition of the acts mentioned in the clauses will get a quicker result in simple form. Clause C is aimed at preventing the patentee from buying up any other competitive patent. Why this should be necessary when the compulsory license section appears in the same bill. I do not know. Doubtless there have been cases in which an entire trade has been pretty thoroughly monopolized by the purchase of large numbers of patents, and it is at such practice that the clause is aimed. 46 ee^t:siojs^ of the patent laws. Clauses D, E, F, and G introduce a brand new thought iiito the patent law, and to which thought we, as citizens, should give some attention. I shall not enumerate these clauses in detail, but their evident purpose is to treat the owner of a patent manufacturing under it as a public servant, subject to the obligations of a public- service corporation in that he is not permitted to discriminate be- tween purchasers or to grant rebates of any kind, character, or description. Personally, I have sometimes feft that sooner or later we would come to a realization that, as a matter of political economy, every corporation, holding itself out as ready to do business with the public and exercising a corporate franchise, should be held, to some extent, at least, to partake of the nature of a public-service corpora- tion and should be limited in its discrimination between the different classes of its customers, just as we now prevent the railroads from granting rebates. I personally favor treating industrial concerns much as we treat railroads, but this is the first time that I have ever seen it suggested in a proposed bill. It would seem that if such a measure is to be enacted it should be enacted because sound in political economy and it should then be made to apply to every con- cern which can be reached by any legal power whatever, and not merely to those who are in unlawful combination and who use patents in aicl thereof. However, it may be urged with fairness that the patentee enjoying, as he does, a public franchise, very much like the franchise under which a railroad may exercise the power of eminent domain, should partake more of the nature of a public servant than does the ordinary industrial company. That is the interesting point presented by these four clauses of the bill. Clause H is intended to prevent doing- business under fictitious names, a most excellent provision, which is too good to be restricted to those Avho are in combinations and use patents. Clause I is aimed at preventing improper competition by selling below cost, likewise an excellent provision, which should be of general application. Clause J is aimed at improper means of securing information with reference to a competitor's business, and is likewise too desirable a i^rovision to be limited to those using patents in combinations. Clause K seeks to prevent one from fixing upon material which he controls an unreasonable price to limit competition with a patented article. The occasion for its use would arise so seldom as to make it unimportant. Clause L is aimed at attempts " to prevent or restrain competition by use of any unfair or oppressive means or methods of competition." This clause is open to two fundamental objections. In the first place, its intention is manifestly good, but the prohibition should not be limited to owners of patents or vendors of patented articles or to (hose who have used a patent in connection with or to aid an unlawful monopoly. The second objection to this clause is its vague and indefinite language. If the clause is aimed at what is technically known as unfair competition, patent lawyers would know what it means, but the clause should be perfectly clear and distinct in its language. If the clause read, " To prevent or restrain competition by practicing ' unfair competition,' " it would have a definite legal As it is, no one can tell what " unfair or oppressive means f REVISIOX OF THE PATEXT LAWS. 47 or methods '' may mean. This clause alone would give rise to years of litigation before it was construed. To sum up, as far as the acts aimed at in the several clauses A-L of section 5 are economically and politically desirable, they should be put in short, simple, prohibitory paragraphs, each by itself, and not hooked onto the Sherman Act, as definitions of *' reasonable," to become effective only after a combination and the use of a patent are proved. The sixth section of the bill can find its basis only in the theory that in some way the owner of a patent becomes a public servant. The purpose of the section is manifestly founded in what appears to be a pojDular sense of justice, but it rests on a wholly new view of the rights of a patentee. The substance of the section is that when a corporation or other person is violating the Sherman Act, and has the control of supplying the market with a patented article needed for manufacturing any other, or for general consumption or use, and when there is no opportunity- to get a substitute, then the court may make such order as will secure to the public a right to acquire or- use the patented article on reasonable terms to be fixed by the court until an adequate substitute can be provided. Xow, heretofore, we have supposed that the patentee was the czar, and that he could charge anj'^ price he pleases or at any moment withdraw the patented article from the market, no matter how great might be the inconvenience of the public. The present section treats the vendor of a patented article as a public servant who may be caused to continue in business willy-nilly for the purpose of supplying the public with a patented article which has become a public necessity at a reasonable price. Economically this view may be sound. As I have already stated, I feel that the time is rapidly approaching when every manufacturer will be considered a public servant from the moment when he holds himself out to the public as ready to sup- ply the public. Just why this view should be taken with reference to manufacturers of patented articles at the present time I do not know. Probably no fault could be found with the practical opera- tion of this particular section, because it only becames operative after certain proceedings had in a suit under the Sherman Act, but it is of importance because it rests in such a fundamentally new theory of the rights of the public as against a patentee. It might also be held unconstitutional as it stands as granting a nonexclusive right, but this could be cured as the compulsory-license section has been by exempting the patentee. The*^ remaining sections of the bill, that is, sections T to 11. inclu- sive, have nothing whatever to do with patent law. but are strictly amendments to the Sherman Act. limited, however, to those cases in which a patent was used in connection with the unlawful restraint of trade. The general theory of such legislation has already been criti- cized. Without repeating that matter, the sections will be taken up one by one. Section 7 pro^'ides. in substance, that whenever in a suit brought by the Government under the Sherman Act a final judgment or decree has been rendered against the defendant finding it guilty, then the res ad judicata created by such decision shall extend to private litigants in any other litigation. To my mind this is an ex- cellent general provision, because the right to civil relief under the k 48 EEVISIO:Nr OF THE PATENT LAWS. Sherman Act is only mythical, if the private litigant must retake all the testimony taken by the Government. The only possible quarrel which I can have with the section is that it distinguishes in a wholly unreasonable way between those corporations which use patents and those which do not. The section is so good in itself that it ought to be of general application. Section 8 provides for intervening petitions by injured individuals in suits brought b}^ the Government in which the individual may re- cover his personal damages. This provision seems an excellent one as a general amendment to the Sherman Act, but why a private citizen should have the right only in case the corporation has used a patent in its unlawful combination I am unable to see. Section 9 enlarges the powers of the courts in handling corpora- tions or combinations dissolved under the Sherman Act. It is doubt- ful Avhether anything is really added which the courts would not in any event take as a matter of their equitable powers in cases of neces- sity, but it is impossible to see where the section will do any particu- lar harm, excepting that the courts should have power to use the same remedies in cases where patents have not been used in the un- lawful combinations as where they have. Section 10 provides for further intervention in suits under the Sherman Act. It is doubtful whether there is anything objectionable in this section as an amendment to the Sherman Act, excepting that, if the enactment is desirable, it should apply generally to all viola- tions of the Sherman Act^ and not merely to those cases in which patents have been used by the unlawful combination. Section 11 of the bill proceeds upon another new theory. The sub- stance of the section is that whenever the Government brings a suit against anyone for violation of the Sherman Act, then no other de- partment of the Government shall purchase goods from the defend- ant, except in cases of dire necessity, which are provided for in the section. This section would put into force in Government affairs exactly what every private corporation practices every day. No private corporation will bring suit through its legal department and continue through its other departments to purchase goods from its opponent, so as to put into its hands the munitions of war. The theory of the present section is that the Government shall do just the same thing; that is, that the moment the Department of Justice determines that there is sufficient basis in the conduct of any indi- vidual, or corporation, for a suit under the Sherman Act, then the other departments of the Government shall not purchase goods from the defendant, so as to enable it to continue in its business and ob- tain from one department of the Government the munitions of war with Avhich to fight another department. This section of the act thus simply puts in force in governmental affairs what every private corporation does. However, whether right or wrong, the act should be of general application, and not limited to those corporations which in their unlawful business have used a patent in violation of the present act. In fact, it would seem that this act should not be limited to suits under the Sherman Act at all, but if it is wise in theory, it should apply to every case in which the Government has brought any sort of a suit against any individual for any purpose whatever. Viewed in that Avay it is exactly what every private in- REVISION OF THE PATENT LAWS. 49 dividual always does, and it is urged that it is good business policy for the Government to refuse to purchase from its legal opponents. However, it is said that this punishes before conviction, and that the defendant must be presumed innocent until proven guilty. The reply is that this presumption attaches only for the single purpose of a trial before a petit jury and for all other purposes an indictment raises a presumption of guilt. (See Thayer on Presumptions.) Since the Department of Justice regularly convicts in more than nine cases out of ten which it starts it is not so very unjust to treat a de- fendant as guilty for this purpose just as he is treated as guilty for every other interlocutory purpose, e. g., giving bail. Section 12 of the act has already been discussed. In thus taking up the antitrust parts of the act section by section its substance has been fairly covered. It is impossible briefly to sum- marize the act, because it deals with a multitude of subjects, some good in substance and some bad in substance, and most of which have no particular relation to the patent act. Section 4 is the only one of the antitrust sections which relates principally to patents, as such, and, as I have already pointed out, no one can tell what that section means. Section 5 has some relation to patents, but those clauses which do relate to patents primarily are fully covered by other sections of the bill discussed by other members of the com- mittee, and the remaining clauses of section 5 are, as pointed out, not particularly based on patents. Section 6 is of little practical conse- quence, but most important in its theory of viewing the vendor of the patented article as a public servant; and the same statement may be made with reference to certain of the clauses already enumerated in section 5. The remaining sections are purely amendments to the Sherman Act dragged into a patent statute by the ears. Those which are good in substance should be of general application, while those which are bad in substance on economic grounds should stand on their own merits without being confused and intermingled with patent questions with which they have no inherent relation. o S. Doc. 151, 63-1- ( I^^XZ 3J LIBRARY OF CONGRESS 030 016 944 2