## Facts

- Line Material Co. and Southern States Equipment Corp. owned interdependent product patents covering “dropout fuse cutouts” and related components used in electrical power circuits.
- Southern owned the Lemmon patent (dominant in certain cutout designs); Line owned the Schultz patent (an improvement that infringed Lemmon) and the Kyle housing patents used with cutouts.
- A substantial portion of the relevant cutouts were manufactured under these patents, and the principal manufacturers in the field were licensees under the parties’ patent portfolios.
- To resolve mutual infringement risks, Line and Southern entered a cross-licensing agreement granting each other royalty-free rights under the other’s patents and authorizing sublicensing to other manufacturers.
- The cross-licensing framework required that sublicenses include minimum price provisions, with Line setting minimum prices under Line’s patents and Southern setting minimum prices under the Lemmon patent.
- Line, Southern, and major manufacturers/licensees later agreed on a “standard license” that standardized royalty and pricing terms across competitors.
- The United States sued under Sherman Act §§ 1 and 4 to enjoin an alleged combination or conspiracy restraining interstate commerce by fixing prices through the cross-licenses and the uniform sublicenses.
- The district court dismissed the complaint, treating the arrangements as lawful under precedent permitting a patentee to impose price restrictions in certain licensing contexts; the United States appealed directly to the Supreme Court.

## Issues

1. Whether cross-licensing between two patentees, combined with sublicensing to competing manufacturers, may lawfully impose minimum prices on products embodying the patents without violating Sherman Act § 1.
2. Whether manufacturers/licensees that knowingly accept licenses containing minimum price provisions become participants in an unlawful combination in restraint of trade.
3. Whether precedent allowing certain patentee-imposed price restrictions extends to coordinated, multi-patentee price-fixing arrangements affecting an industry segment.

## Decision

- The Supreme Court reversed the dismissal and remanded.
- The Court held that the cross-licensing and related sublicensing arrangements violated Sherman Act § 1 because they were intended to and did control prices charged in interstate commerce by patentees and competing licensees.
- The Court ruled that a price-fixing plan among two or more patentees exceeds the scope of the patent monopoly and is unlawful even if argued to increase dissemination or use of the patents.
- The Court held that licensees who enter price-maintenance licenses with knowledge of the overall arrangement are also subject to Sherman Act prohibitions.

## Legal Principles

- Patent rights permit exclusion and licensing on terms tied to the patentee’s lawful monopoly, but they do not confer immunity for concerted restraints condemned by the antitrust laws.
- Coordinated price fixing accomplished through cross-licensing among multiple patentees and imposed across competing manufacturers constitutes a horizontal restraint prohibited by Sherman Act § 1.
- Precedent allowing a single patentee in limited circumstances to control resale prices through a license does not authorize joint price control by multiple patentees and multiple licensees.
- Licensees that knowingly accept and operate under a common price-maintenance licensing scheme can be treated as participants in the unlawful combination.

## Conclusion

The Court held that cross-licensing among interdependent patentees, coupled with standardized sublicenses imposing minimum prices on competing manufacturers, is an unlawful price-fixing combination under Sherman Act § 1, and that knowing licensees may share liability; the case was remanded for further proceedings.


United States v. Line Material Co., 333 U.S. 287 (1948)