Each year, foreign and domestic corporations pay at least $1 billion for the right to use American know-how that isnht or can't be patented. Yesterday, in a unanimous decision, the Supreme Court held that state laws to enforce icensing agreements for such ideas or discoveries arean't preempted by federal patent law.
"Commercail agreements traditionally are the domain of state law," Chief Justice Warren E. Burger worte in the opinion for the court in a case that pitted Chicago inventor Jane Aronson against Quick Point Pencil Co. of St. Louis.
"State law is not displaced merely because the contract relates to intellectual property which may or may not be patentable," Burger said. "The states are free to regulate the use of such intellectual property in any manner not inconsistent with federal alw."
The case began almost a quarter-century ago, when Aronson, then Mrs. Jane Leopoldi, and her husband were partners in an advertising specialty business.
She invented a simple, easy-to-use-and-secure key holder and, in 1955, to prevent it from being copied, which could easily be done, applied for a patent. With a patent, she would have a monopoly for 17 years.
But the Patent Office turned down not only her initial application, but also an amended one. And the Board of Patent Appeals finally held that the invention wasn't patentable.
Meanwhile, while the initial application was pending in 1956, Aronson and Quick Point made an agreement: In exchange for exclusive manufacturing and selling rights, the company would pay her royalities of 5 percent on sales; if she didn't have a patent by mid-1961, and if at that tiem Quick Point was still selling the key holder, the rate would fall to 2 1/2 percnet.
Over a 13-year period ending in September 1975, Quick Point, on sales exceeding $7 million, paid Aronson royalties totaling $203,964.
But while continuing to make the key holder, the company refused to pay the royalty for the next month, thus laying groundwork for a plea to U.S. District Judge James H. Meredith to rule that its contract whith Aronson wasn't enforceable.
Meredith ruled for Aronson but was reversed by a divided 8th U.S. Circuit Court of Appeals. In turn, the appelate court was upset yesterday.
The chief justice, agreeing with Aronson that Quick Point had violated state contract law, said that enforcement of her agreement with the firm is "not inconsistent with" key aims of federal patent law.
One of these aims is to assure that ideas in the public domain remain there for the free use of the public.Finding "no merit" in Quick Point's claim that enforcement of the agreement conflicts with that aim, Burger wrote:
"The design... was not in the public domain before Quick Point obtained its license to manufacture it. In negotiating the agreement, Mrs. Aronson disclosed the idea in confidence. Had Quick Point tried to exploit the design in breach of that confidence, it would have risked legal liability. It is equally clear that the design entered the public domain as a result of the manufacture and sale of the keyholders under the contract."