Subsequently, United States Gypsum acquired a number of other patents relating to the process of making closed-edge board.

The defendants relied on these patents as a legitimate basis for "establishing prices and terms of sale of gypsum board within the doctrine of United States v. General Electric Company, 1926, 272 U.S.

"[8] As a preliminary matter, the court addressed the question whether the Government had standing to seek invalidation of a patent because it was used as a means of fixing prices and committing other antitrust violations.

"[I]n the circumstances of the instant case," the Government said, "no one outside the group of licensee defendants is likely to hazard the expense necessary to make an effective challenge against 'a powerful combination carefully fenced in behind, not one, but many patents in the art.'

" The court rejected the argument, maintaining that "there is nothing inherently unclean about an agreement by a licensee not to contest the validity of his licensor's patent.

"That the defendants may be shown to have misused the patents is no warrant for the Government's repudiating its own assurance that they were issued upon due examination and according to law and conferred an exclusive right for a given period of years.

The court observed that attorneys for the corporate defendants told them "that license agreements giving price control to the licensor were proper and that they had a right to enter into them under the patent laws.

"[15] The court also concluded "that the evidence fails to establish that the operations of the defendants were carried beyond the proper limits of the patent monopoly and licensing thereunder," and they did not go "beyond the activities contemplated by the agreements as written and into the field denounced by the Sherman Act.

"[16] Finally, the court considered the Government's argument that the defendants acted in concert to blanket the industry under license agreements that would fix and stabilize prices.

Assuming that true, the court insisted that the 1926 General Electric case permitted that conduct: Given a right under the patent law to grant a plurality of bona fide licenses with price control provisions but no objectives beyond the proper limits of a patent monopoly, it can make no difference in either totality of actual restraint, or in law, whether the several licenses are executed with, or without, prearrangement between the patentee and the prospective licensees as a group.

[18] The Court stated that the defendants had admitted "that, in the absence of whatever protection is afforded by valid patents, the licensing arrangements described would be in violation of the Sherman Act."

"[20] Accordingly, "in a suit to vindicate the public interest by enjoining violations of the Sherman Act, the United States should have the same opportunity to show that the asserted shield of patentability does not exist.

The licensor was to fix minimum prices binding both on itself and its licensees; the royalty was to be measured by a percentage of the value of all gypsum products, patented or unpatented.

It mistakenly thought that it "was not required to balance the privileges of United States Gypsum and its licensees under the patent grants with the prohibitions" of the antitrust laws.

The trial court further found that the license agreements were entered into in good faith, in reliance upon [General Electric;] .

[23]To the contrary, the Court explained, " regardless of motive, the Sherman Act bars patent exploitation of the kind that was here attempted.

That conclusion follows despite the assumed legality of each separate patent license, for it is familiar doctrine that lawful acts may become unlawful when taken in concert.

[25]The Court concluded, " By the record now presented, violation of the Sherman Act is clear," reversed the dismissal, and remanded below for completion of the trial.

[26] Justice Felix Frankfurter filed a concurring opinion in which he disagreed with the majority's explicit rejection of the lower court's ruling that the Government could not challenge patent validity.

In the prior opinion in this case, the Court "said that the intention of United States Gypsum and its licensees to act in concert to attain the purpose of the conspiracy, restraint of trade and monopoly, was apparent from the face of the license agreements," and held that the Government's evidence was "sufficient to establish a prima facie case of conspiracy.

"It was not necessary to reach the issue as to whether a mere plurality of licenses, each containing a price-fixing provision, violates the Sherman Act.

In fact, any "finding that the manufacturers did not violate the Sherman Act under the evidence introduced by the Government and that proffered by the defendants below would be clearly erroneous in view of the concert of action to fix industry prices by the terms of the licenses.

The Court said restrictive conduct had involved unpatented gypsum products as well as patented board and agreed with the Government.

"[32] Justice Hugo Black wrote separately that he believed that the amendments proposed by the Government on compulsory licensing and validity challenges "are necessary to protect the public from a continuation of monopolistic practices by United States Gypsum.

The district court charged the jury that, if the price information exchanges were found to have been undertaken in good faith to comply with the Robinson-Patman Act, verification alone would not suffice to establish an illegal price-fixing agreement, but that, if the jury found that the effect of verification was to fix prices, then the parties would be presumed, as a matter of law, to have intended that result.

The jury convicted the defendants but the Third Circuit reversed the convictions on various grounds, Most important, it held that verification of price concessions with competitors for the sole purpose of taking advantage of the "meeting competition" defense of § 2(b) constitutes a "controlling circumstance" precluding liability under § 1 of the Sherman Act, and thus a conviction based on an instruction allowing the jury to ignore the defendants' purpose in engaging in the alleged misconduct simply because of the anticompetitive effect could not be sustained.

[37] The Supreme Court, in an opinion by Chief Justice Warren Burger, joined by Justices William J. Brennan, Byron White, and Thurgood Marshall, affirmed the Third Circuit in reversing the district court but declared that intent (mens rea—guilty, culpable, evil state of mind) is an element of a criminal Sherman Act violation.

● Professor Gerald Gibbons explains the Gypsum case as an illustration of "sham licensing"—or "a screen to shield a mutually advantageous, voluntary renunciation of price competition by the parties."

[38]He questions, however, the Court's use of the hub-and-spoke conspiracy doctrine to find the element of concerted action that section 1 of the Sherman Act requires.