General Talking Pictures Corp. v. Western Electric Co.

The Doctrine of the General Talking Pictures Case (or General Talking Pictures doctrine) is based on the decision of the US Supreme Court in General Talking Pictures Corp. v. Western Elec. Co, which legitimated so-called field-of-use limitations in patent licenses.

The decision held that “field-of-use limitations” on the scope of patent licenses to make and sell a product were enforceable, by way of a patent infringement suit against a licensee that violated the limitation and a company collaborating with it. A field-of-use limitation is a provision in a patent license that limits the scope of what the patent owner authorizes a manufacturing licensee (that is, a licensee that manufactures a patented product or performs a patented process) to do in relation to the patent, by specifying a defined field of permissible operation or specifying fields from which the licensee is excluded. By way of example, such a license might authorize a licensee to manufacture patented engines only for incorporation into trucks, or to manufacture such engines only for sale to farmers. If the licensee exceeded the scope of the licensee, it would commit patent infringement. More generally, this kind of license permits the licensed party (the "licensee") to use the patented invention in some, but not all, possible ways in which the invention could be exploited. In an exclusive field-of-use license the licensee is the only person authorized to use the invention in the field of the license.

The General Talking Pictures doctrine does not apply to a patent owner’s sale of a product to a customer that imposes a restriction on what the customer may subsequently do with the product. Such sales are governed by the “exhaustion doctrine,” rather than the General Talking Pictures doctrine.

Supreme Court decision

Factual background

AT&T owned patents on vacuum tubes (which the majority opinion termed “amplifiers”) and licensed the patents to Transformer Company to manufacture tubes for use in the field of home radios, or small, so-called noncommercial amplifiers. AT&T licensed other companies (its subsidiaries) in the field of so-called commercial use, or large amplifiers for use in theaters. Transformer Company sold its products to General Talking Pictures, which knew of the field-of-use limitation but (like Transformer Company) ignored it. The vacuum tubes used in the different fields were indistinguishable. AT&T sued GTP and Transformer Company.

Majority opinion

The majority upheld the arrangement as a well-known, legitimate expedient: “Patent owners may grant licenses extending to all uses or limited to use in a defined field.” The Transformer Company was only a nonexclusive licensee in a limited field, as it and General Talking Pictures knew. The Transformer Company had no rights outside its licensed field, and thus “could not convey to petitioner [General Talking Pictures] what both knew it was not authorized to sell.”

The Supreme Court held that the restrictions of the patent owner's license were valid under the patent law; that the downstream purchaser was not "a purchaser in the ordinary channels of trade;" that the sales were not sales under the patent, but were without authority from the patent owner, and that both the licensee-manufacturer and the downstream purchaser were guilty of infringement. P. 304 U. S. 179.

The majority paid no attention to whether the so-called amplifiers were actually interchangeable shelf-item components of amplifying systems.

Dissenting opinion

The lone dissenter, Justice Black, reasoned differently. As he perceived it, and considered of great importance, the tubes that all licensees made were fungible, interchangeable articles of commerce, which the Transformer Company was authorized to manufacture. Once they left the manufacturing licensee’s hands, who sold them to General Talking Pictures, they passed outside the patent monopoly:

The patent statute which permits a patentee to “make, use and vend” confers no power to fix and restrict the uses to which a merchantable commodity can be put after it has been bought in the open market from one who was granted authority to manufacture and sell it. Neither the right to make, nor the right to use, nor the right to sell a chattel, includes the right …to control the use of the same chattel by another who has purchased it. A license to sell a widely used merchantable chattel must be as to prospective purchasers…a transfer of the patentee's entire right to sell; it cannot — as to noncontracting parties — restrict the use of ordinary articles of purchase bought in the open market.

Impact

The General Talking Pictures doctrine remains valid law, subject to possible antitrust exceptions (see below). The exhaustion doctrine does not operate to free from the patent monopoly product sales that a limited licensee makes to one who seeks to use the sold product outside the licensed field — at least when the buyer has notice of the limitation. Nonetheless, tension exists between the two doctrines — particularly when the field-of-use license is not as explicit as it might be. Then, as illustrated by the recent Supreme Court decision in Quanta Computer, Inc. v. LG Electronics, Inc., “default” rules take over. The default rules, which apply when a court interprets a license or other contract as ambiguous or not complete, are that the exhaustion doctrine governs over the General Talking Pictures doctrine in ambiguous cases. A use restriction in a license must be explicit to bind a seller, if it is to do so at all. Furthermore, the default rule for licenses to manufacture a patented product is that the license is unlimited, i.e., it covers all possible fields. Thus, a manufacturing license is unlimited unless its language explicitly provides otherwise. Because the contractual documents in the Quanta case were insufficiently explicit, or so the Supreme Court seemed to believe, the Court applied the exhaustion doctrine rather than the General Talking Pictures doctrine. Therefore, purchasers of the patented product were free to use them without restrictions that the patentee sought to have imposed on them.

Antitrust exception

In some circumstances, field-of-use arrangements (particularly those of patent pools) may violate the antitrust laws. A set of field-of-use licenses may be used to allocate markets among competing manufacturers of a product with attendant price manipulation. Thus, in Hartford-Empire Co. v. United States, the courts condemned a cartel among bottle manufacturers that operated by parceling out different markets to different members of the cartel. The members were given limited licenses in the respective markets allocated to them. This was held to violate the antitrust laws.