## Facts

- The United States sued Standard Oil Company (Indiana), The Texas Company, Standard Oil Company of New Jersey, Gasoline Products Company, and numerous other oil companies using patented gasoline “cracking” processes.
- The primary defendants held patents covering different cracking processes used to increase gasoline yield from crude oil.
- The government alleged the defendants formed an unlawful combination to restrain interstate commerce and monopolize cracked gasoline by using 79 patent-related contracts to control supply and maintain royalties.
- Three principal agreements (1921, 1923, 1923) resolved infringement disputes through cross-licensing, extended licenses to other refiners, and allocated royalties among the patent holders in fixed proportions.
- A special master, after extensive hearings, found no patent pooling, no restraint of trade, and no monopolization or attempt to monopolize, and recommended dismissal.
- The district court granted limited injunctive relief restricting certain aspects of the agreements; defendants appealed.

## Issues

1. Whether cross-licensing and royalty-division agreements among competing patent owners violated Sherman Act §§ 1 and 2 by restraining interstate commerce in gasoline or creating monopoly power in cracking technology or gasoline markets.
2. Whether agreement among patentees on royalty rates, without proof of market domination or competitive foreclosure, justifies injunctive relief under the Sherman Act.

## Decision

- The Supreme Court reversed the district court’s decree and directed dismissal of the government’s complaint.
- The Court held the government failed to prove that the agreements created a monopoly or produced an unlawful restraint of trade.
- The Court found no demonstrated restriction of competition in (a) licensing of cracking processes, (b) production of ordinary or cracked gasoline, or (c) sale of gasoline.
- Because no monopoly or competitive restriction was shown, agreement on royalty rates was not a sufficient basis for an injunction.

## Legal Principles

- Agreements exchanging patent licenses for processes used in interstate commerce may violate the Sherman Act if part of a plan to control markets or if their necessary effect is to suppress or unduly restrict competition; they require close factual scrutiny.
- Cross-licensing and division of royalties can be lawful, including where they resolve conflicting patent claims and make technology available to manufacturers on generally accessible terms.
- The Sherman Act does not impose a general obligation on patentees engaged in cross-licensing to offer “reasonable” royalty rates absent proof of industry domination or direct restraint of interstate commerce.
- Antitrust injunctive relief invalidating patent arrangements requires a definite factual showing of illegality, including market power or actual competitive harm, not merely coordinated royalty terms.

## Conclusion

The Court held that cross-licensing and royalty-sharing among gasoline-cracking patentees did not violate the Sherman Act where the evidence did not show monopoly power or an actual restraint of competition in licensing, production, or sales, and it required a concrete factual basis before invalidating patent contracts by injunction.


Standard Oil Co. (Ind.) v. United States, 283 U.S. 163 (1931)