United States V. General Electric Co. - Supreme Court Opinion

Supreme Court Opinion

The Court pointed out that GE had not sold the light bulbs to Westinghouse but rather had granted Westinghouse a license to manufacture and sell the bulbs under GE’s patents. It was well settled that, under the exhaustion doctrine, “where a patentee makes the patented article and sells it, he can exercise no future control over what the purchaser may wish to do with the article after his purchase. It has passed beyond the scope of the patentee's rights.” On the other hand, “the question is a different one…when we consider what a patentee who grants a license to one to make and vend the patented article may do in limiting the licensee in the exercise of the right to sell.” If all that the patentee does is grant a license to make, the Court said, the licensee only gets an implied license to use the article and not one to sell it. That raises the question of what happens if the patentee also licenses sale:

If the patentee goes further and licenses the selling of the articles, may he limit the selling by limiting the method of sale and the price? We think he may do so provided the conditions of sale are normally and reasonably adapted to secure pecuniary reward for the patentee's monopoly. One of the valuable elements of the exclusive right of a patentee is to acquire profit by the price at which the article is sold. The higher the price, the greater the profit, unless it is prohibitory. When the patentee licenses another to make and vend, and retains the right to continue to make and vend on his own account, the price at which his licensee will sell will necessarily affect the price at which he can sell his own patented goods. It would seem entirely reasonable that he should say to the licensee, "Yes, you may make and sell articles under my patent, but not so as to destroy the profit that I wish to obtain by making them and selling them myself." He does not thereby sell outright to the licensee the articles the latter may make and sell, or vest absolute ownership in them. He restricts the property and interest the licensee has in the goods he makes and proposes to sell.

That is the core of the opinion in the case, and the rule for which the GE case is usually cited today: the patentee may impose any conditions in a manufacturing license that “are normally and reasonably adapted to secure pecuniary reward for the patentee’s monopoly.”

The decision also upheld price fixing restrictions that GE imposed in agreements with agents for sale of bulbs that GE had manufactured. The Court ruled: “The owner of an article, patented or otherwise, is not violating the common law or the Anti-Trust Act by seeking to dispose of his articles directly to the consumer and fixing the price by which his agents transfer the title from him directly to such consumer.”