US SUPREME COURT DECISIONS

Petitioner entered into a contract with respondent whereby, in return for the exclusive right to make and sell a keyholder designed by petitioner for which a patent application was pending, respondent agreed to pay petitioner a royalty of 5% of the selling price. If the patent was not allowed within five years, the royalty was to be reduced to 2 1/2% of sales. The patent was not allowed within five years, whereupon respondent accordingly reduced the royalty to 2 1/2%. Subsequently, the patent application was rejected. After respondent had paid petitioner royalties for a number of years following rejection of the patent application, it brought an action in District Court seeking a declaratory judgment that the royalty agreement was unenforceable on the ground that state law which otherwise made the contract enforceable was preempted by federal patent law. The District Court upheld the contract, but the Court of Appeals reversed, holding that the contract became unenforceable once petitioner failed to obtain a patent within the stipulated 5-year period, and that a continuing obligation to pay royalties would be contrary to "the strong federal policy in favor of the full and free use of ideas in the public domain," Lear, Inc. v. Adkins, 395 U. S. 653, 395 U. S. 674.

Held: Federal patent law does not preempt state contract law so as to preclude enforcement of the contract. Cf. Kewanee Oil Co. v. Bicron Corp., 416 U. S. 470. Pp. 440 U. S. 261-266.

(a) Enforcement of the contract is not inconsistent with the purposes of the federal patent system (1) to foster and reward invention; (2) to promote disclosure of inventions, stimulate further innovation, and permit the public to practice the invention once the patent expires; and (3) to assure that ideas in the public domain remain there for the free use of the public. Pp. 440 U. S. 262-264.

(b) Enforcement of the contract does not prevent anyone from copying the keyholder, but merely requires respondent to pay the consideration it promised in return for the use of a novel device which enabled it to preempt the market. P. 440 U. S. 264.

(c) When, as here, no patent has issued, and no ideas have been withdrawn from public use, the case is not controlled by the holding of Lear, supra, that a patent licensee who establishes the invalidity of a patent need not pay royalties accrued after the issuance of the patent, chanrobles.com-red

Page 440 U. S. 258

nor by the rationale of that case that it is desirable to encourage licensees to challenge the validity of patents in order to further the strong federal policy that only inventions meeting the rigorous requirements of patentability shall be withdrawn from the public domain. P. 440 U. S. 264.

(d) Enforcement of the contract comports with the principle that the monopoly granted under a patent cannot lawfully be used "to negotiate with the leverage of that monopoly," Brulotte v. Thys Co., 379 U. S. 29, 379 U. S. 33, since the challenged reduced royalty, rather than being so negotiated, rested on the contingency that no patent would issue within five years. Pp. 440 U. S. 264-265.

567 F.2d 757, reversed.

BURGER, C.J.,delivered the opinion of the Court, in which BRENNAN, STEWART, WHITE, MARSHALL, POWELL, REHNQUIST, and STEVENS, JJ, joined. BLACKMUN, J., filed an opinion concurring in the result, post, p. 440 U. S. 266.