## Facts

- A 1911 agreement granted defendant’s predecessors an exclusive license, in the iron and steel field, under patents covering a process and apparatus for sintering ores, including authority to grant sublicenses.
- The license required the licensee to keep accurate tonnage records under sublicenses and to pay royalties at stated intervals, including minimum annual royalties that increased over time.
- As consideration, the licensor received company stock and the right to designate a director.
- Over many years, the licensee exploited the licensed technology and entered sublicenses with major steel producers; later it also developed or acquired patents of its own and licensed those patents.
- Plaintiff sued seeking cancellation and rescission of the licensing agreements and an accounting of royalties allegedly due.
- Defendant counterclaimed for injunctive relief preventing termination, restraints on plaintiff’s competition in the contractually assigned field, and accountings for alleged competition-related profits and for alleged failure to pursue infringers.
- By consent, a special master conducted extensive hearings and reported findings to the court; the master concluded the agreements did not require the licensee to exploit only plaintiff’s patents and did not forbid exploitation of the licensee’s own patents.

## Issues

1. Whether the licensing agreements imposed an obligation on the exclusive licensee to exploit plaintiff’s patents to the exclusion of the licensee’s own patents, such that the licensee’s separate patent licensing constituted a material breach.
2. Whether plaintiff established grounds for equitable rescission and cancellation of the licensing agreements.
3. Whether the defendant was entitled to enforce the agreements through injunctive relief and accountings based on plaintiff’s attempted termination, alleged competition in the exclusive field, and alleged failure to pursue infringers.

## Decision

- The court adopted the special master’s core contractual conclusions and denied plaintiff’s request for cancellation and rescission.
- The court held the agreements did not obligate the defendant to work exclusively under plaintiff’s patents and did not bar defendant from exploiting or licensing its own patents.
- Because plaintiff failed to show a specific contractual breach or comparable inequitable conduct, rescission was not warranted.
- The court’s treatment of defendant’s counterclaim proceeded from the same contract interpretation: contractual exclusivity limited the licensor’s ability to compete or relicense in the assigned field, but defendant’s independent patent activity did not itself justify freeing plaintiff from the agreements.

## Legal Principles

- Contract rights and duties in patent licensing are determined from the written agreement, read in light of surrounding circumstances; courts do not add unexpressed restrictions on the licensee.
- A grant of an “exclusive license” commonly operates as exclusivity against the licensor within the defined field; it does not, without clear language, impose a licensee duty to use only the licensed patents or to refrain from developing and exploiting its own patents.
- Minimum royalty provisions and long-term performance arrangements do not, by themselves, create an implied promise of exclusive exploitation by the licensee.
- Rescission is an extraordinary equitable remedy and is generally unavailable absent a clear, material breach, fraud, or comparable inequitable conduct.

## Conclusion

The court refused to rescind long-standing patent licensing agreements where the contracts did not expressly require the exclusive licensee to exploit only the licensed patents, and where the plaintiff failed to show a material breach or inequitable conduct sufficient to justify equitable cancellation.


Dwight & Lloyd Sintering Co. v. Am. Ore Reclamation Co., 44 F. Supp. 391 (S.D.N.Y. 1937)