US SUPREME COURT DECISIONS

Respondent, an engineer and inventor, was hired in 1952 by petitioner (Lear) to help solve gyroscope development problems. They had agreed that "new ideas, discoveries, inventions etc. related to . . . vertical gyros become the property of" respondent, and that the inventor would grant Lear a license as to all ideas he might develop "on a mutually satisfactory royalty basis." Shortly thereafter, respondent developed a method for improving gyros which Lear incorporated into its production process. In 1954, respondent filed a patent application covering these improvements and entered into licensing negotiations with Lear to establish a royalty rate. An agreement, concluded in 1955, provided that, if the

"Patent Office refuses to issue a patent . . . or if such a patent so issued is subsequently held invalid . . . , Lear at its option shall have the right forthwith to terminate the specific license so affected or to terminate this entire Agreement. . . ."

A patent was issued to respondent in 1960, after several rejections of the application. In 1957, Lear stated that a Patent Office search disclosed a patent which fully anticipated respondent's discovery, and that it would no longer pay royalties on the gyros it produced in its Michigan plant, although it continued to pay royalties on gyros produced in its California plant until 1959. Upon receipt of his patent, respondent brought suit in the California courts claiming that both the Michigan and California gyros used his patent, and that Lear's failure to pay royalties breached the 1955 contract and Lear's quasi-contractual obligations. Although Lear tried to raise patent invalidity as a defense, the trial judge directed a verdict for respondent on the California gyros, holding that Lear was estopped by its licensing agreement from questioning the licensor's patent. Since Lear claimed that it developed its Michigan gyro designs independently of respondent's ideas, the judge instructed the jury to award recovery to the inventor only if it was satisfied that the invention was novel. When the jury returned a substantial verdict for respondent on the Michigan gyros, the judge granted Lear's motion for judgment notwithstanding the verdict, finding that the invention had been chanrobles.com-red

Page 395 U. S. 654

completely anticipated by the prior art. The California Supreme Court held that the 1955 agreement was still in effect, that Lear did not have the right thereunder to terminate its royalty obligations in 1959, and that the doctrine of estoppel barred Lear from questioning the patent. Noting Lear's claim that it had developed the Michigan gyros independently, the court considered "whether what is being built by Lear [in Michigan] springs entirely from the prior art," found that Lear had, in fact, utilized the patent throughout the period in question, and reinstated the jury's verdict.

Held:

1. Since the California Supreme Court's construction of the 1955 licensing agreement is solely a matter of state law, the only issue open here is raised by the court's reliance on the doctrine of estoppel to bar Lear from contesting the validity of the patent. Pp. 395 U. S. 661-662.

2. In the accommodation of (1) the common law of contracts, and (2) the federal law of patents requiring that all ideas in general circulation be dedicated to the common good unless they are protected by a valid patent, the technical requirements of contract doctrine must yield to the demands of the public interest in the typical situation involving the negotiation of a license after a patent has issued. The holding of Automatic Radio Manufacturing Co. v. Hazeltine Research, Inc., 339 U. S. 827, 339 U. S. 836, that licensee estoppel was "the general rule," is overruled. Pp. 395 U. S. 668-671.

3. Overriding federal policies would be significantly frustrated if licensees could be required to continue to pay royalties while challenging patent validity in the courts, and, in this case, Lear must be permitted to avoid payment of all royalties accruing after the issuance of the patent if Lear can prove that the patent is invalid. Pp. 395 U. S. 671-674.

4. Respondent's claim to contractual royalties accruing before the issuance of the patent, which raises the question of whether, and to what extent, the States may protect the owners of unpatented inventions who are willing to disclose their ideas only upon the payment of royalties, is remanded for specific consideration by the California courts. Pp. 395 U. S. 674-675.

5. It is inappropriate at this time to pass upon Lear's contention that the patent is invalid, as Lear must address its arguments attacking the validity of the underlying patent to the California courts in the first instance. Pp. 395 U. S. 675-676.

67 Cal.2d 882, 435 P.2d 321, vacated and remanded. chanrobles.com-red

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