Mercoid cases
[7] Walter M. Cross invented a hot-air furnace system with three main elements: (1) a motor driven stoker for feeding fuel to the combustion chamber of a furnace, (2) a room thermostatic switch for controlling the feeding of fuel, and (3) a combustion stoker switch to prevent the fire's going out in warm weather not requiring domestic heating.
The control of the combustion stoker switch is effective in mild weather when the room thermostat may not call for heat for a considerable period.
But, at that point, it starts the fan, which continues to run, even though the limit switch has stopped the stoker, so long as the furnace is hot and the room thermostat calls for heat.
[9] The Cross patent was assigned to Mid-Continent, subject to a prior exclusive license to Minneapolis-Honeywell Regulator Company (Honeywell) in the field of coal stokers.
Honeywell granted a sub-license to Detroit Lubricator Co. to make and sell combustion stoker switches and related apparatus for practicing the Cross invention.
Mid-Continent, the patent owner, made no heating equipment but derived its revenue from royalties on the combustion stoker switch devices that Honeywell and Detroit Lubricator.
Each licensee was required to provide a notice to the effect that purchasing the control confers a license for one installation of the Freeman heating system.
Smith of Carthage, Missouri, for infringement of the Cross patent by installing in his home a heating system including controls manufactured by Mercoid.
In September 1940, Mid-Continent sued Mercoid in Chicago federal district court for contributory infringement of the Cross patent.
In addition to being patent misuse, the plaintiffs' conduct violated the antitrust law and made Mercoid entitled to an injunction against it.
The court said these facts were critical: [The accused device] provides for the sequence of operations which is the precise essence of Freeman's advance in the art.
Dick Co., "this Court has consistently held that the owner of a patent may not employ it to secure a limited monopoly of an unpatented material used in applying the invention."
It is the protection of the public in a system of free enterprise which , , , denies to the patentee after issuance [of the patent] the power to use it in such a way as to acquire a monopoly which is not plainly within the terms of the grant.
To be sure, Honeywell and Mid-Continent could have prevailed against Mercoid on a charge of contributory infringement and secured an injunction "had they not misused the patent for the purpose of monopolizing unpatented material."
It is sufficient to say that, in whatever posture the issue may be tendered, courts of equity will withhold relief where the patentee and those claiming under him are using the patent privilege contrary to the public interest.
Should such a decree be entered, the Court would be placing its imprimatur on a scheme which involves a misuse of the patent privilege and a violation of the antitrust laws.
He also believed that the case did not call for an exception to the usual rukes of res judicata: "We are now told that a misconstruction of the patent law by a licensor is so violent and flagrant a flouting of the public interest that a court of equity must hold its hand for the benefit of a defendant whenever he chooses to invoke that interest for his private benefit, though he has failed to make the defense in an earlier litigation and stands of record an infringer."
He then said that the majority opinion would by its unnecessary dicta embarrass litigants and lower courts "by gratuitous innuendos against a principle of the law which, within its proper bounds, is accredited by legal history as well as ethics."
He recognized that "[i]f the patentee may not exclude competitors from making and vending strategic unpatented elements, such as the thermostat, adapted to use in the combination, the patented system is so vulnerable to competition as to be almost worthless.
He then referred to Justice Frankfurter's proposals: It is suggested that such a patent should protect the patentee at least against one who knowingly and intentionally builds a device for use in the combination and vends it for that purpose.
[32]He concluded: The practical issue is whether we will leave such a combination patent with little value indeed, or whether we will give it value by projecting its economic effects to elements not by themselves a part of its legal monopoly.
With this in mind, I wish to make explicit my protest against talking about the judicial doctrine of "contributory infringement" as though it were entitled to the same respect as a universally recognized moral truth.
"[37] The Supreme Court, in Dawson Chemical Co. v. Rohm & Haas Co.,[38] analyzed the legislative history of the 1952 amendment that addressed this issue in the new sections 271(c) and (d) of the patent law.
"[39] The Dawson Court observed that the series of decisions leading up to the Mercoid cases "involved undoing the damage thought to have been done by A.B.
Moreover, "The desire to extend patent protection to control of staple articles of commerce died slowly, and the ghost of the expansive contributory infringement era continued to haunt the courts.
"[40] The result was: The Mercoid decisions left in their wake some consternation among patent lawyers and a degree of confusion in the lower courts.
Although some courts treated the Mercoid pronouncements as limited in effect to the specific kind of licensing arrangement at issue in those cases, others took a much more expansive view of the decision.
Among the latter group, some courts held that even the filing of an action for contributory infringement, by threatening to deter competition in unpatented materials, could supply evidence of patent misuse.
The "codification of contributory infringement and patent misuse reveals a compromise between those two doctrines and their competing policies that permits patentees to exercise control over non-staple articles used in their inventions.
"[43] This undid the specific holding in the Mercoid cases,[44] for: § 271(d) effectively confer[s] upon the patentee, as a lawful adjunct of his patent rights, a limited power to exclude others from competition in nonstaple goods.
