Ethyl Gasoline Corp. v. United States, 309 U.S. 436 (1940)
Ethyl Gasoline Corporation v. United States
No. 536
Argued March 1, 4, 1940
Decided March 25, 1940
309 U.S. 436
APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK
Syllabus
A corporation owning a patent for a poisonous fluid compound containing lead, which, when mixed with the gasoline used as fuel in high compression internal combustion engines, adds greatly to their efficiency, and owning also a patent claiming the fuel mixture and another claiming a method of using it, manufactured the fluid and sold it, without royalty, under a licensing system, to nearly all of the leading manufacturers of gasoline in the country, one of which owned half of the patentee’s capital stock. These refiners mixed the fluid with their gasoline and sold the resulting patented fluid in great quantities to jobbers, who in turn sold it to retailers and consumers. Under the license system: refiners could not sell to jobbers other than those licensed by the patentee, and must maintain a certain price differential; they must conform to public health regulations in mixing the fuel and to conditions touching their use of the patentee’s corporate name and trademark or tradenames; a jobber could sell, within a specified territory only, the lead-treated gasoline sold him by a designated licensed refiner, generally the one through whom he must apply for his license; he must make monthly reports to the patentee, with a list of all places of sale; must comply with health regulations as to the handling of the fuel; must post and distribute notices concerning such handling as required by the patentee; must permit physical examination of employees; must abstain from adulteration or dilution of the fuel, and must comply with requirements as to the use of the patentee’s name or tradename. The patentee reserved the right to cancel jobbers’ licenses at will. This licensing system affected and controlled the business of most of those engaged in manufacturing motor fuel in the country, including nearly all the leading oil companies and most of the jobbers. The greater part of the treated gasoline was sold and transported in interstate commerce, much of it being distributed through the licensed jobbers. The patentee made a practice of ascertaining, through investigations by its agents, what jobbers failed to comply with the market policies and posted prices of the major oil companies, and by rejection of applications for licenses, and in other ways, created a belief among refiners and jobbers that, under its licensing system, jobbers must yield such compliance. The patentee thus built up a combination capable of use, and actually used, as a means of suppressing competition among jobbers and controlling their prices. It was conceded that, if this control of the market had been acquired without aid of the patents, but wholly by contracts with refiners and jobbers, it would involve violation of the Sherman Act.
Held:
(1) A patentee may not, by attaching a condition to his license, enlarge his monopoly, and thus acquire some other which the statute and the patent together did not give. P. 455.
(2) By the authorized sales of the fuel by refiners to jobbers, the patent monopoly over it is exhausted, and, after the sale, neither the patentee nor the refiners may longer rely on the patents to exercise any control over the price at which the fuel may be resold. P. 457.
(3) Agreements for maintaining prices of articles moving in interstate commerce are, without more, unreasonable restraints within the meaning of the Sherman Act because they eliminate competition, and agreements which create power of such price maintenance, exhibited by its actual exertion for that purpose, are in themselves unlawful restraints within the meaning of the Sherman Act. P. 458.
(4) The use by the corporation of the jobber licensing system in building up a combination capable of use and actually used as a means of controlling jobbers’ prices and of controlling competition among them, for which it could not lawfully contract, extends beyond its patent monopoly and is a violation of the Sherman Act. P. 458.
(5) The patent monopoly of one invention may no more be enlarged for the exploitation of the monopoly of another than for the exploitation of an unpatented article, or for the exploitation or promotion of a business not embraced within the patent. P. 459.
(6) Such interest as the patentee in this case has in protecting the health of the public in connection with the distribution of the fuel, and in preventing adulteration, deterioration, and dilution of the fuel in the hands of the jobbers, may be adequately protected without resort to the jobber license device. P. 459.
(7) Since the unlawful control over the jobbers was established and maintained by resort to the licensing device, the trial court properly suppressed it, even though it had been, or might be, used for some lawful purposes. P. 461.
27 F.Supp. 959 affirmed.
Appeal from a decree of the District Court enjoining the appellant corporation and its officers from granting licenses to Jobbers to sell and distribute its patented lead-treated motor fuel, and from enforcing provisions in licenses to oil refiners restricting their sale of the fuel to licensed jobbers. The suit was by the Government, under the Sherman Anti-Trust Act.