United States v. Masonite Corp., 316 U.S. 265 (1942), is a United States Supreme Court decision[1] that limited the scope of the 1926 Supreme Court decision in the General Electric case[2] that had exempted patent licensing agreements from antitrust law's prohibition of price fixing.

Hardboard is a strong, hard, dense, grainless, synthetic board made from heat and pressure treated wood chips, and is claimed in a Masonite patent.

[8]The Government sued the defendants for price fixing and other restraints of trade such as tie ins, division of markets, and agreements to suppress the use of other patents.

The district court ruled that the defendants' conduct was permissible under United States v. General Electric Co. and dismissed the complaint.

[10] The Court began by observing, "But for Masonite's patents and the del credere agency agreements there can be no doubt that this is a price-fixing combination which is illegal per se under the Sherman Act.

Even assuming "that the agreements constituted the appellees as del credere agents of Masonite," the Court insisted, that "does not prevent the arrangement from running afoul of the Sherman Act."

"In applying that rule, this Court has quite consistently refused to allow the form into which the parties chose to cast the transaction to govern."

Here, the form of the transaction is del credere agency, but in fact the other defendants operate their businesses on their own, not as Masonite's agents, and the purpose of the arrangement is to put together a combination among competitors to fix prices: [When a patentee] utilizes the sales organization of another business—a business with which he has no intimate relationship—quite different problems are posed, since such a regimentation of a marketing system is peculiarly susceptible to the restraints of trade which the Sherman Act condemns.

And when it is clear, as it is in this case, that the marketing systems utilized by means of the del credere agency agreements are those of competitors of the patentee, and that the purpose is to fix prices at which the competitors may market the product, the device is, without more, an enlargement of the limited patent privilege and a violation of the Sherman Act.

In such a case, the patentee exhausts his limited privilege when he disposes of the product to the del credere agent.

[13]For that reason the outward form of the arrangement is immaterial, the Court said, for the purpose here was not that in the General Electric case, so that its principle does not apply: So far as the Sherman Act is concerned, the result must turn not on the skill with which counsel has manipulated the concepts of "sale" and "agency," but on the significance of the business practices in terms of restraint of trade.

In the General Electric case, the Court thought that the purpose and effect of the marketing plan was to secure to the patentee only a reward for his invention.

This kind of marketing device thus actually or potentially throttles or suppresses competing and noninfringing products, and tends to place a premium on the abandonment of competition.

If it were sanctioned in this situation, it would permit the patentee to add to his domain at public expense by obtaining command over a competitor.

"[16]Finally, the defendants argued that in 1941, after the Government sued them, they met together and revised their agreements to remove the objectionable features.

Day asserts, "The decisive factor in inferring a vertical-horizontal conspiracy among all defendants was the subsequent awareness by each distributor that 'its contract was not an isolated transaction but part of a larger arrangement.'

It is thus "practicably impossible to determine whether the conscious parallelism was dependent or interdependent, in the sense that there was or was not a unity of anticompetitive purpose among the seller and acquiescing dealers."

Day concludes that a better legal test "must be found if there is to be any positive means for distinguishing between lawful and unlawful refusals to deal.

On the one hand, the communication of the plan or policy required to be followed to avoid the threat of termination may be viewed as an "invitation" to join together in such a conspiracy.

[27]He asks how one chooses between those alternatives, and answers that "it all boils down to a reasonable application of generally recognized rules of evidence under the implied conspiracy doctrine to determine .

"[28] Antitrust lawyer and MIT economics professor Morris Adelman criticized Masonite's conspiracy doctrine, saying that "the 'conspiracy' consisted in non-simultaneous assent.

He points to subsequent Supreme Court decisions supporting that theory—United States v. Paramount Pictures, Inc.[31] and FTC v. Cement Inst.

[i]t is enough that a concert of action is contemplated and that the defendants conformed to the agreement," while in the Cement case, the Court held, "It is enough to warrant a finding of a 'combination' with the meaning of the Sherman Act, if there is evidence that persons, with knowledge that concerted action was contemplated and invited, give adherence to and then participate in a scheme.