## Facts

- Kay & Ess Co. and Chadeloid Chemical Co. held competing wrinkle-finish paint patents and litigated over which patents controlled the technology.
- In 1937, the companies formed New Wrinkle, Inc., jointly owned, to hold and license the wrinkle-finish patents.
- The patents were assigned to New Wrinkle, which implemented a program to license manufacturers across the wrinkle-finish industry.
- The alleged plan was to license manufacturers to make and sell wrinkle-finish products at fixed prices, with the stated goal of establishing minimum prices throughout the industry.
- By 1938, leading manufacturers and about 200 other manufacturers (allegedly substantially all U.S. wrinkle-finish manufacturers) entered similar long-term licenses that fixed prices for products sold in interstate commerce.
- The United States sued under Sherman Act § 4, alleging a conspiracy in restraint of trade under § 1 accomplished through patent license agreements.

## Issues

1. Whether allegations that defendants used patent licensing agreements to fix uniform minimum prices and suppress competition across substantially an entire industry state a claim under Sherman Act § 1.
2. Whether a patent-holding/licensing company that does not itself manufacture or ship goods in interstate commerce can be liable under Sherman Act § 1.
3. Whether license contracts formed within a single state fall outside the Sherman Act when their purpose and effect are to regulate distribution and fix prices of goods moving in interstate commerce.
4. Whether patent ownership provides immunity from Sherman Act § 1 where patents are used as the mechanism for an industry-wide price-fixing arrangement.

## Decision

- The Supreme Court reversed the district court’s dismissal of the complaint and remanded for further proceedings.
- The Court held the complaint adequately alleged a Sherman Act § 1 conspiracy to fix prices and eliminate competition throughout substantially all of the wrinkle-finish industry through patent licensing.
- The Court rejected the argument that New Wrinkle’s role as a nonmanufacturing patent-licensing entity insulated it from Sherman Act liability.
- The Court held the Sherman Act may reach intrastate license contracting when used to regulate interstate distribution and fix prices for commodities in interstate commerce.
- The Court held patent rights do not protect licensing arrangements used to restrain interstate commerce and fix prices on an industry-wide basis.

## Legal Principles

- Patent rights do not immunize concerted licensing arrangements that fix prices or restrain trade in violation of Sherman Act § 1.
- A patent-holding entity can violate Sherman Act § 1 when its licensing program is the instrumentality of a conspiracy restraining interstate commerce, even if it does not itself manufacture or ship goods.
- The Sherman Act applies to conduct carried out through intrastate contracting when the contracts are used to regulate interstate distribution or fix prices of goods moving in interstate commerce.
- At the pleading stage, allegations of an industry-wide price-fixing scheme implemented through coordinated patent licenses are sufficient to state a Sherman Act § 1 claim.

## Conclusion

The Court held that an alleged industry-wide scheme using patent licenses to impose minimum prices and suppress competition states a Sherman Act § 1 claim, and that neither patent ownership, nonmanufacturing status, nor intrastate contract formation bars antitrust scrutiny where the conduct targets interstate markets.


United States v. New Wrinkle, Inc., 342 U.S. 371 (1952)