Statement of the Case. U.S. v. Sheridan, 329 U.S. 379 (1946)
Case details
Citation
329 U.S. 379
Full caption
Statement of the Case. UNITED STATES v. SHERIDAN.
Country
United States
Jurisdiction
Federal
Court
Supreme Court of the United States
Decided
Dec. 23, 1946
Statement of the Case.
UNITED STATES v. SHERIDAN.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SIXTH CIRCUIT.
No. 53. Argued November 12, 13, 1946.—Decided December 23, 1946.
1. A person who cashes in one State a forged check drawn on a bank in another State, knowing it to have been forged and that it would be forwarded across state lines to the drawee bank, and the check actually being so forwarded, is guilty of a violation of § 3 of the National Stolen Property Act, which forbids any person to “cause to be transported in interstate . . . commerce” any forged check “with unlawful or fraudulent intent.” Kann v. United States, 323 U. S. 88, distinguished. Pp. 381-391.
2. Proof that a defendant cashed certain checks, receiving cash, goods or services, that they were drawn on a bank in another State, that they were forwarded to the drawee bank for payment, that they purported to be signed by an agent of the Government, that the Government had no such agent, and that the checks were returned unpaid and marked “no account,” held sufficient to sustain a conviction for fraudulently causing the transportation in interstate commerce of forged checks, knowing them to have been forged, in violation of § 3 of the National Stolen Property Act. Pp. 391-392.
3. Since the Circuit Court of Appeals, having reversed the conviction on other grounds, did not pass upon respondent’s contention that certain evidence was inadmissible, the case is remanded for consideration of that question. Pp. 391-393.
4. The record contains neither the instructions given nor the rulings on instructions requested. In the circumstances of this case, taking any corrective action in order to obtain a complete record may be left to the judgment of the Circuit Court of Appeals upon the remand. Pp. 392-393.
152 F. 2d 57, reversed.
Respondent was convicted of a violation of § 3 of the National Stolen Property Act. The Circuit Court of Appeals reversed. 152 F. 2d 57. This Court granted certiorari. 328 U. S. 829. Reversed, p. 393.
727731 0—47---- 30
Leon Ulman argued the cause for the United States. With him on the brief were Solicitor General McGrath, John R. Benney, Robert S. Erdahl and Sheldon E. Bernstein.
John H. Pickering argued the cause and filed a brief for respondent.
Mr . Justi ce Rutledge delivered the opinion of the Court.
Sheridan was indicted on three counts for having violated § 3 of the National Stolen Property Act, as amended, 48 Stat. 794, 53 Stat. 1178,18 U. S. C. § § 413-419. A jury found him guilty on all counts.1 On the authority of Kann v. United States, 323 U. S. 88, the Circuit Court of Appeals for the Sixth Circuit reversed the conviction. 152 F. 2d 57. Because of doubt as to the applicability of the Kann case, we granted certiorari.2 328 U. S. 829.
Each count charged that Sheridan, with fraudulent intent, caused the transportation in interstate commerce of a specified forged check, knowing it to have been forged. The proof3 offered to support these counts showed that on July 19, 1943, in Jackson, Michigan, Sheridan cashed three checks, receiving for them either cash or cash and hotel service or goods. Two, which were made the basis p. 381of counts one and two, were drawn on a bank in Cape Girardeau, Missouri, were payable to the order of “P. H. D. Sheridan,” and purported to be drawn by “U. S. E. F. C. 14A A. J. Davis, Commissioner.” As will be seen, it is not necessary to consider the third count, involving the other check.
1
The record states that respondent “having been fully informed of his constitutional right to counsel, and having been asked whether he desired counsel assigned, . . . stated he did not desire the assistance of counsel.”
2
Since certiorari was granted Clarke v. Sanjord, 156 F. 2d 115, has been decided by the Fifth Circuit. It appears to be in conflict with the case at bar. See also Tolle v. Sanjord, 58 F. Supp. 695.
3
The proceedings at trial were not stenographically reported. Hence the parties prepared a statement of evidence from memory and from notes made during the course of the trial, and stipulated that it “substantially sets forth the testimony and evidence” presented by the Government. Upon approval of the District Court, the statement was made part of the record.
From the endorsements it was clear that each check had been cashed by or deposited in banks at Jackson, Michigan. They forwarded the two checks drawn on the Missouri bank to it for payment. Both were marked “no account” and returned unpaid to the forwarding bank. An agent of the Federal Bureau of Investigation testified that his office had conducted an investigation in Washington, D. C., and that the United States Department of Commerce had no agent “U. S. E. F. C. 14A,” nor one “A. J. Davis, Commissioner.”
Sheridan was sentenced to five years’ imprisonment on each count, the sentences to run concurrently. Hence, if the conviction on any is valid, it is unnecessary to consider the convictions on the other two. Hirabayashi v. United States, 320 U. S. 81, 85; Pinkerton v. United States, 328 U. S. 640, 641, n. 1. Accordingly, for the purposes of this decision it may be taken that only the convictions on counts one and two are in issue.4
I.
The pertinent part of amended § 3 is set out in the margin.5 Whether or not Sheridan’s situation is within p. 382the intended coverage depends upon the answer to be given to two questions, namely: (1) Did he cause to be transported in interstate commerce any forged security;6 (2) if so, did he do this “with unlawful or fraudulent intent”? It is in these respects that the section’s meaning must be determined.
4
Count two is identical in effect with count one for the purposes of the argument made here. Count 3, however, involves a check signed by respondent in his own name as maker, and the Government—apparently of the view that such a check is not “altered” or “counterfeited”—states: “It is not clear that such a check is falsely made or forged within the general law.”
5
The pertinent text of § 3 is as follows: “Whoever shall transport or cause to be transported in interstate or foreign commerce any goods type, or other tool, implement, or thing used or fitted to be used in falsely making, forging, altering, or counterfeiting any security, or any part thereof, shall be punished by a fine of not more than $10,000 or by imprisonment for not more than ten years, or both . . . .” 48 Stat. 794, 795, as amended by 53 Stat. 1178. (Emphasis added.)
It is not questioned that the checks were “securities,” that they were “forged,” or that they were transported in interstate commerce.7 It is urged, however, that Sheridan did not “cause” the transportation, since his objective was attained when he cashed the checks and what happened to them later was of no consequence to him or his plan. Hence it is concluded that he can be said to have “caused” the transportation only in the sense that it would not have occurred if he had not cashed the checks. This “but for” relation is considered insufficient since the statute is thought not simply to forbid use of interstate
wares, or merchandise, securities, or money, of the value of $5,000 or more theretofore stolen, feloniously converted, or taken feloniously by fraud or with intent to steal or purloin, knowing the same to have been so stolen, feloniously converted, or taken, or whoever with unlawful or fraudulent intent shall transport or cause to be transported m interstate or foreign commerce any falsely made, forged, altered, or counterfeited securities, knowing the same to have been falsely made, forged, altered, or counterfeited, or whoever with unlawful or fraudulent intent shall transport, or cause to be transported in interstate or foreign commerce, any bed piece, bed plate, roll, plate, die, seal, stone, p. 383commerce for transportation of forged securities without more, but to outlaw such use only when it contributes to or is an essential part of carrying out the intended specific fraud.
7
The sufficiency of the evidence to prove the fact of forgery is challenged, cf. Part III, but for the purposes of the principal contentions, it is conceded arguendo.
6
The Act, § 2 (b), defines the term “securities” as including checks.
The second contention, though stated differently, comes substantially to the same thing. It is that, upon the assumption Sheridan may be held to have “caused” the transportation, still he did not do so with the requisite “unlawful or fraudulent intent,” namely, to aid in completing the fraud. These views are bolstered by strong reliance on the Kann decision.
The Government answers with essentially two arguments. One is drawn primarily from the embodiment of amended § 3 in the National Stolen Property Act. It is shortly that the offense takes color and character from the other offenses with which it is associated in the context of § 3. Broadly, therefore, the Government says that the section as amended excludes forged securities from interstate transportation just as it does stolen goods,8 money or securities, counterfeited securities and counterfeiting tools; or, for that matter, just as diseased cattle, lottery tickets, adulterated foods, etc., are excluded under various statutes related to the National Stolen Property Act.9 More narrowly the Government argues that the p. 384transportation here necessarily aided or contributed to the perpetration of the fraud, if not by enabling respondent to secure possession originally of its fruits, then by giving him the necessary interval to make his escape and thus to avoid either prosecution or restitution of the amount which early detection would make probable.
8
See Hearings before the Committee on the Judiciary on H. R. 10287, 70th Cong., 1st Sess.; H. Rep. 2528, 70th Cong., 2d Sess.; H. Rep. 1462, 73d Cong., 2d Sess.; S. Rep. 538, 73d Cong., 2d Sess.; H. Rep. 1599, 73d Cong., 2d Sess.; H. Rep. 422, 76th Cong., 1st Sess.; S. Rep. 674,76th Cong., 1st Sess. See note 5 for pertinent text of § 3.
9
The National Stolen Property Act is said to be modeled after the National Motor Vehicle Theft Act, 41 Stat. 324. H. Rep. 2528, 70th Cong., 2d Sess., 4; H. Rep. 1462, 73d Cong., 2d Sess., 2. See also the Animal Industry Act of 1884, 23 Stat. 31; the Act for the Suppression of Lottery Traffic of 1895, 28 Stat. 963; the Pure Food and Drug Act of 1906, 34 Stat. 768; the White Slave Traffic Act of 1910, 36 Stat. 825; the Webb-Kenyon Act of 1913, 37 Stat. 699.
As an entirely fresh matter, we should have difficulty in avoiding the force of the Government’s views. The setting of the offense in amended § 3, together with the complete absence of anything in the legislative history to indicate that causing interstate transportation of forged securities was designed to be treated differently from causing the transportation of stolen goods, counterfeited securities, counterfeiting tools, etc., indicates plainly that transporting all these articles is to be treated in the same manner and, moreover, not in the limited sense for which respondent argues.
Congress had in mind preventing further frauds or the completion of frauds partially executed. But it also contemplated coming to the aid of the states in detecting and punishing criminals whose offenses are complete under state law, but who utilize the channels of interstate commerce to make a successful getaway and thus make the state’s detecting and punitive processes impotent.10 This was indeed one of the most effective ways of preventing further frauds as well as irrevocable completion of partially executed ones. In the light of this purpose, we do not believe that Congress intended to restrict the p. 385prohibited transportation of stolen goods, securities and money, or of counterfeited securities and counterfeiting tools, to situations where it would be effective to complete a specific fraud, in the sense of enabling the defrauder to secure possession initially of what he seeks. The intent was more general.
10
See H. Rep. 2528, 70th Cong., 2d Sess., 2: “Most of the States have laws covering the underlying principle of this proposed legislation, but it must be remembered that the jurisdiction of the State court does not reach into all of the States, especially when the matter of producing witnesses and bringing to the court the proof is concerned. See also Hearings before the Committee on the Judiciary on H. R« 10287, supra note 8, passim.
It is true that amended § 3 forbids the interstate transportation of forged and counterfeited securities, and forging and counterfeiting tools, “with unlawful or fraudulent intent,” while the earlier-proscribed transportation of stolen goods, securities and money is not required in terms to be done with such an intent, but only with knowledge that they have been stolen. This difference would seem to be entirely procedural, not substantive in character.11 But, in any event, it is not controlling here. For the question remains whether the Kann case requires us to hold that “with unlawful or fraudulent intent” must be taken as restricting the forbidden transportation to cases where that element aids in originally securing the fruits of the fraud.
11
One who knowingly transports stolen goods would do so for one of three sorts of objects, namely: (1) to dispose of them or use them unlawfully; (2) to aid in concealing the theft, thus avoiding prosecution for himself or another; or (3) for some purpose wholly innocent, such as to turn them over to the police or the rightful owner. In the first two instances there would be inherent in the act “unlawful intent” or “fraudulent intent,” though proof of this might not be required apart from the proof of knowledge and absence of any showing of innocent purpose. Congress obviously did not intend to make criminal such an instance as the third. However, proof of the innocent intent might be required as matter of defense, the other elements being made out. In other words, it may well be doubted that adding the requirement “with unlawful or fraudulent intent” in the amended part of the section added anything to the substantive crime; for its effect is apparently only to require the state to allege and prove the unlawful or fraudulent intent, rather than to require the defendant to allege and prove his innocent purpose.
II.
That case held that one alleged to be party to a fraudulent scheme could not be convicted under § 215 of the Criminal Code, 18 U. S. C. § 338, for using the mails “for the purpose of executing such scheme,” by proving that he or his associates cashed checks, receiving the proceeds at forwarding banks, which in turn mailed them to the drawee banks for collection, the checks being neither forged nor dishonored by the banks on which they were drawn. We think the case is distinguishable both on the statutes applied and on the facts. In order that comparison may be exact, we set forth the applicable wording of the two sections.
Section 215 of the Criminal Code, involved in the Kann case, is as follows: “Whoever, having devised . . . any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, . . . shall, for the purpose of executing such scheme or artifice or attempting so to do, place, or cause to be placed, any letter ... in any post office, or . . . cause to be delivered by mail according to the direction thereon . . . any such letter, . . . shall be fined not more than $1,000, or imprisoned not more than five years, or both.” (Emphasis added.)
Amended § 3 of the Stolen Property Act reads pertinently, except for its important contextual coloring:1
. . whoever with unlawful or fraudulent intent shall transport or cause to be transported in interstate . . • commerce any falsely made, forged, altered, or counterfeited securities, knowing the same to have been falsely made, forged, altered, or counterfeited, . . . shall be punished by a fine of not more than $10,000 or by imprisonment for not more than ten years, or "both . . (Emphasis added.)
12
See note 5.
Under § 215 the express requirement is that the mailing or causing to be delivered by mail shall be “for the purpose of executing such scheme or artifice or attempting so to do.” There is no such explicit requirement in amended § 3. The wording there is that the interstate transportation shall be done “with unlawful or fraudulent intent.” This different wording and the difference in the contextual settings of the proscriptions have meaning, we think, to make their effects distinct. We emphasize at the outset that amended § 3 is part of a scheme of federal-state cooperation in apprehending and punishing criminals, while § 215 deals only with a distinctly federal crime.
The language of amended § 3 is broader and less specific than that of § 215. The word “unlawful” in the former is not to be ignored. Nor is it to be rendered meaningless by identifying it with “fraudulent,” more especially if the latter is to be endowed with the restrictive connotation, not expressly stated, of “for the purpose of executing such scheme.” The word “unlawful” has no such narrow meaning. Literally it is broad enough to include any unlawful purpose, such as to aid in concealing what has been done and thus in avoiding prosecution and restoration.
Moreover, in the Kann setting, the quoted wording now sought to be read into amended § 3 was restricted to significance in relation to getting the proceeds of the checks irrevocably, and the subsequent mailing was held to have no significant influence in producing that effect or, therefore, upon completing the scheme;13 or, moreover, toward concealing the crime.
Whether or not in those circumstances the mailing had concealing effects, the situation in this respect was very different from the one now presented. The checks there p. 388were not forged or altered. Here they were. There the checks were honored by the drawees after the mailing. Here they were dishonored after the transportation. There the payee-indorsers knew they would not be. In that case the mailing was much less likely to produce disclosure than was the transportation in this one. Accordingly the irrevocable completion of the scheme was much less affected by the mailing than it was by the transportation here. So also with any concealing effect of the transportation and, therefore, with any unlawful or fraudulent intent concerning it.
13
It was as to this conclusion that four members of the Court dissented. 323 U. S. at 95.
Indeed the Kann opinion recognized that in other circumstances a different result might be called for, even under the explicit and restricted purposive requirement of § 215. For in putting aside the cases sustaining convictions where use of the mails was “a means of concealment so that further frauds which are part of the scheme may be perpetrated,” 14 the Court said: “In these the mailing has ordinarily had a much closer relation to further fraudulent conduct than has the mere clearing of a check, although it is conceivable that this alone, in some settings, would be enough.” 323 U. S. at 95.
The Court was not dealing with the transmission of a forged check, certain to be dishonored after the mailing or transportation, or therefore with a situation in which the forbidden transmission was either so likely to result in disclosure of the crime or so obviously intended to provide an interval for escape before that disclosure would be made.1516 We cannot say that in circumstances such as are now here the same result would have been reached in applying § 215, in view of these differences and the express
14 United States v. Lowe, 115 F. 2d 596; Dunham n . United States, 125 F. 2d 895; United States v. Riedel, 126 F. 2d 81.
16 The discovery of the scheme resulted from an examination of the allegedly defrauded corporation’s books by a Government examiner, not as here from return of the checks unpaid by the forwarding bank. p. 389reservation made for other situations involving greater possibilities for concealment.
This is enough to distinguish the Kann case. But we think, in addition, we would be altogether unjustified to rewrite the words “with unlawful or fraudulent intent” to mean “for the purpose of executing such scheme or artifice” in the sense of aiding to secure possession of the proceeds of the checks irrevocably, which was the meaning given that phrase in the Kann decision. Apart from the absence here of irrevocability in the legal sense, to do this would be to disregard what we think was Congress’ clear purpose to make amended § 3, like the section in its original form, a means of apprehension and of punishment substantially, though not strictly in the legal sense, for past crimes of the sort specified in situations where interstate commerce was used as a method of defeating the state’s exercise of those functions.
We cannot thus tear the transportation of forged checks from its setting and give it the distinct status, with reference to intent, as compared with the other forbidden transportations, which we think would result from respondent’s reading. In amending § 3 Congress was extending the federal law enforcement arm to reach primarily the larger dealers in forged and counterfeited securities.16 Not only forged checks, but forged or counterfeited bonds and coupons, as well as other forms of securities, and the instruments with which these are made, were the target. The legislative history shows that the purpose was to bring operators in these false securities into substantially the same reach of federal power as applied to others dealing in stolen goods, securities and money.17 In one respect the object was to make their apprehension
6 See the letter from the Attorney General to Senator Ashurst, Chairman of the Senate Committee on the Judiciary, set out in S. Rep. 674,76th Cong., 1st Sess., 2.
17 Ibid.
and conviction more easy, for the $5,000 minimum in value was intentionally omitted. The amendment was thus an extension, not a contraction of the preexisting provisions.
The purpose however was not to reach persons innocently, but knowingly, transporting the forbidden articles. Hence it was necessary to introduce safeguarding language. This was done by inserting “with unlawful or fraudulent intent.” Broad as this was, it was sufficient for the purpose of excluding innocent transportation. We do not think it was also intended to safeguard the counterfeiter or professional forger, simply because the transportation alleged and proved does not aid him initially in securing the possession of the proceeds of his fraudulent dispositions. To take this view would nullify much of the amendment’s intended effectiveness.
Nor can we treat forged checks differently from other securities, either because they are forged or because the forgery is done by “little fellows” who perhaps were not the primary aim of the congressional fire. The statute expressly includes checks.18 It makes no distinction between large and small operators. There is no room for implying such a distinction in view of the absence of the $5,000 limitation with respect to the transportation of forged checks. Whether or not Congress had in mind primarily such small scale transactions as Sheridan’s, his operation was covered literally and we think purposively. Had this not been intended, appropriate exception could easily have been made.
If it is assumed that the evidence supports the conclusions on which the case has come here,19 Sheridan perpetrated three frauds, including two forgeries, in one day. Forgery, thus repeated, is not amateurish, though the
18 See note 6. 19 See Part III.
amounts obtained are small. Notoriously the crime done once becomes habitual. And forgers are notoriously itinerant. Drawing the check upon an out-of-state bank, knowing it must be sent there for presentation, is an obviously facile way to delay and often to defeat apprehension, conviction and restoration of the ill-gotten gain. There are sound reasons therefore why Congress would wish not to exclude such persons, among them the very ease with which they may escape the state’s grasp.
A word will dispose of the idea that Sheridan did not “cause” the transportation. Certainly he knew the checks would have to be sent to the Missouri bank for collection. Given the proven forgery and uttering, no other conclusion would be possible. Necessarily, too, it would follow he intended the paying bank to send the checks there for that purpose. He knew they must cross state lines to be presented. One who induces another to do exactly what he intends, and does so by defrauding him, hardly can be held not to “cause” what is so done. The Kann case itself is authority for the Government on this point, in fact goes farther than is necessary here. For, as respected the same contention there advanced, the opinion said: “. . . we think it a fair inference that those defendants who drew, or those who cashed, the checks believed that the banks which took them would mail them to the banks on which they were drawn, and, assuming the petitioner participated in the scheme, their knowledge was his knowledge.” 323 U. S. at 93. The statement was in answer to argument that Kann had not “caused” the mailing.
III.
Since the Circuit Court of Appeals reversed the conviction on all counts on its view that the Kann case was controlling, it did not discuss respondent’s other contentions. These are renewed here. They are, first, that the evidence was insufficient to support the verdict; and, second, that p. 392certain testimony was inadmissible, including that of the federal agent to the effect that the Department of Commerce had no agency “U. S. E. F. C. 14A” nor one “A. J. Davis, Commissioner.” On the facts the two contentions are closely related.20
We express no opinion as to the admissibility of the evidence. It is desirable that the litigants and this Court, if the case is again before us, have the benefit of the views of the Circuit Court of Appeals. See United States v. Ballard, 322 U. S. 78, 88. However, with respect to the first contention, upon the assumption that the record, as stipulated, correctly sets forth the evidence introduced by the Government and also that all the evidence was admissible, it follows from our discussion of the statute that the evidence was sufficient to send the case to the jury. The jury properly could have inferred that respondent had forged the checks in question;21 that he therefore had knowledge of their spurious character; and, furthermore, that the checks were negotiated and caused to be transported with unlawful or fraudulent intent.
However, counsel assigned here for respondent calls our attention to the fact that the instructions given and the rulings on instructions requested do not appear in the record. He suggests that, if the cause should be remanded to the Circuit Court of Appeals for further proceedings, it would be appropriate for us to suggest to that court in the remand that it exercise its powers to secure a complete bill of exceptions, including the instructions given and all pertinent rulings in connection therewith.
That course has been followed in unusual circumstances. See Miller v. United States, 317 U. S. 192, 199-200; Hei-
20 It is argued that excluding the evidence regarded as inadmissible would render the remaining evidence insufficient.
21 That is, the checks which form the basis of counts 1 and 2. We express no opinion concerning the check on which count 3 was based. See note 4.
wig v. United States, 328 U. S. 820. Such circumstances are presented on this record. Respondent defended himself at the trial. He did not have counsel on the appeal. The case is here in forma pauperis, and it is stated in his brief that “respondent is now confined in a Michigan state prison, is without funds and is unable to employ counsel of his own choice.” Since the decision in Miller v. United States, supra, the Federal Rules of Criminal Procedure have taken effect22 and expressly provide that they shall govern all proceedings pending at the effective date “so far as just and practicable.” 23 Rule 59. Bills of exception are abolished.24 Since the record contains a statement of the evidence, apparently the only serious deficiency is in the matters relating to the instructions, noted above. In these circumstances we think taking any corrective action, in this respect or otherwise, in the interest of seeing that substantial justice is done, well may be left to the judgment of the Court of Appeals.
The judgment is reversed and the cause is remanded to that court for further proceedings in conformity with this opinion.
The Chief Justi ce and Mr . Just ice Douglas dissent.
2218 U. S. C. following § 687, effective March 21,1946. 23 In this case the indictment was filed on October 27, 1944; the jury verdict and judgment were filed on November 30, 1944; the judgment of the Circuit Court of Appeals was entered on November 19, 1945; and a Government petition for rehearing was denied on January 28,1946. Certiorari was granted on May 13,1946.
24 See Rule 39 (c) and the note prepared under the direction of the Advisory Committee on Rules for Criminal Procedure. “The new rule supersedes Rules VII, Vili, and IX of the Criminal Appeals Rules of 933, 292 U. S. 661. One of the results of the change is the abolition of bills of exceptions.” S. Doc. 175, 79th Cong., 2d Sess., 62-63.
Statement of the Case. 329 U. S.
EDWARD KATZINGER CO. v. CHICAGO METALLIC MANUFACTURING CO.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.
Nos. 70 and 71. Argued November 14,15,1946.—Decided January 6, 1947.
A patent-licensing agreement provided that the licensee should sell the licensed products at prices fixed by the licensor and should be estopped from denying the validity of the patent. The products were sold widely in interstate commerce. A controversy having arisen as to the coverage of certain products by the patent, the licensing agreement was terminated, the licensee sued for a declaratory judgment declaring the patent invalid, and the licensor counterclaimed for unpaid royalties or damages for infringement. The patent was held invalid. Held:
1. In these circumstances, the licensee is not estopped to challenge the validity of the patent. Sola Electric Co. v. Jefferson Electric Co., 317 U. S. ,173; Scott Paper Co. v. Marcalus Mfg. Co., 326 U. S. 249. Pp. 398-401.
2. The licensee’s obligations to pay royalties and to sell at prices fixed by the licensor are not severable. P. 401.
3. Since the royalties here claimed accrued, if they accrued at all, prior to the time the licensing agreement terminated, the fact of subsequent termination does not free the promise to pay royalties from the taint of the price-fixing provision. P. 401.
4. The alleged fact that the licensee suggested the price-fixing provision in the licensing agreement does not estop him from challenging its validity as being in violation of the anti-trust laws. P.401.
5. The specific contract not to challenge the validity of the patent cannot override congressional policy against contracts in restraint of interstate trade any more than can an implied estoppel. P. 402. 153 F. 2d 149, affirmed.
In a suit by a licensee for a declaratory judgment declaring a patent invalid, the licensor counterclaimed for unpaid royalties or damages for infringement. The District p. 395Court held that the licensee was estopped to challenge the validity of the patent. The Circuit Court of Appeals reversed and remanded to the District Court to pass on the validity of the patent. 139 F. 2d 291. The District Court held the patent invalid. The Circuit Court of Appeals affirmed. 153 F. 2d 149. This Court granted certiorari. 328 U. S. 826. Affirmed, p. 402.
Charles J. Merriam argued the cause for petitioner. With him on the brief was Stanley Hoods.
Max W. Zabel argued the cause for respondent. With him on the brief was Ephraim Banning.
Acting Solicitor General Washington, Assistant Attorney General Berge, Charles H. Weston and Philip Marcus filed a brief for the United States, as amicus curiae.
Mr . Justi ce Black delivered the opinion of the Court.
The question here is whether the defendant, in a suit to recover royalties only under a terminated patent license agreement containing price-fixing provisions, can challenge the validity of the patent despite a covenant in the license contract that he would not do so.
The petitioner, Edward Katzinger Company, and the respondent, Chicago Metallic Mfg. Company, make and sell tin baking pans. The undenied testimony was that Metallic sold its pans over a large part of the United States, probably in every state in the country. Katzinger became owner of Jackson patent No. 2,077,757 on a certain type of pan.1 Metallic, accused of infringing, entered into a licensing contract under which, upon payment of stipulated royalties, it was authorized to manufacture and sell pans made in accordance with the claimed invention. p. 396Sections 3 and 11 of the license contract, set out below,2 provided that Metallic, like all other licensees, should sell these pans at prices fixed by Katzinger. Royalties were to be computed on the basis of “net sales” of articles “made in accordance with any of the patents or applications under this license.” Section 14 provided that if Metallic elected to terminate the contract, without ceasing to manufacture the pans, Metallic should “be estopped from denying the validity of said patent . . . and be deemed p. 397an infringer thereof.” Metallic maintained the patentee-fixed prices and paid royalties on pans deemed by it to be covered by the patent.3
1
Other patents, originally in suit, are not involved in this case. 727731 0—47---- 31
2
“3. Licensor agrees that while this agreement remains in force and effect, if it permits others under license or other agreement to manufacture or sell articles or devices embodying or made in accordance with any of the patents or applications hereinbefore described, upon terms more favorable than those granted the Licensee hereunder, the Licensor shall immediately notify the Licensee hereunder and grant the same terms to the Licensee.” “11. Licensor reserves the right to establish a minimum sales price for the articles or products which Licensee is licensed to manufacture hereunder and to modify or change such minimum prices from time to time during the life of this agreement. The Licensor, as well as Licensee and any other person, persons or corporation licensed by Licensor, shall not, with the consent of Licensor, sell or offer for sale, or otherwise dispose of any of the licensed devices or products below said minimum sales price, or on more favorable terms of sale than those set forth in any such scale of prices so established by Licensor. Contemporaneously with the execution and delivery of this license agreement, Licensee has received from Licensor a schedule of minimum prices, effective as of the date hereof, below which none of the products or devices made under this license shall be sold. Licensor reserves the right, upon thirty (30) days’ notice in writing given by Licensor to Licensee, to change said minimum prices from time to time during the life hereof. On such articles or devices made and sold by Licensee as to which Licensor shall have failed or neglected to establish a minimum sales price, the royalty shall likewise be computed on the net sales price received by Licensee from its customers. Licensee or its duly authorized representatives shall have access from time to time to the books of account of Licensor during ordinary business hours for the purpose of determining whether or not Licensor has complied with the provisions of this paragraph.”
A controversy later arose as to whether certain types of pans manufactured by Metallic were covered. Declining to pay royalties on this type of pan, Metallic gave notice of termination of the contract and initiated this action for a declaratory judgment praying that the court declare that the patent was invalid for want of invention and that the controversial pans were not covered by, and did not infringe, any of Katzinger’s patents. Katzinger in an answer and counterclaim alleged, so far as material here, that the patent covered all the Metallic pans, that Metallic was estopped to challenge validity of the patent by § 14 of the contract, and that Metallic either owed royalties or was liable for infringement. It prayed, among other things, for an accounting for unpaid royalties which were to be computed at 2.5% to 5% of the sales price which was governed by the minimum price list attached to the license.4 In the alternative it prayed that Metallic be required to account for profits and damages as an infringer. The District Court held that Metallic was estopped to challenge the validity of the patents, and, treating them as valid, found that the patent claims did cover all the pans. p. 398Accordingly, it ordered an accounting to determine royalties due for the period prior to termination of the license contract, and for infringement damages thereafter.
3
Of course it is the unlawful agreement, whether it is executed or not, which violates the anti-trust laws. United States v. Socony-Vacuum Oil Co., 310 U. S. 150; American Tobacco Co. v. United States, 328 U. S. 781, 809. In the cases here the parties stipulated that “in pursuance of this license agreement Metallic did, for a period of two years more or less, exercise the license therein given by making certain tinware products,” maintaining “minimum prices and paying therefor the applicable royalties.” While the court originally made findings to the effect that Metallic did not attempt to carry out the price-fixing agreement and was willing to have it removed from the contract, these findings were expressly vacated on remand. The schedule of minimum prices incorporated by reference into the license agreement was set out as an exhibit in Katzinger’s counterclaim.
Relying upon our decision in Sola Electric Co. v. Jefferson Electric Co., 317 U. S. 173, the Circuit Court of Appeals reversed. It held that the agreement to fix prices was inseparably connected with the agreement to pay royalties; that if the patent was invalid, the price-fixing provision violated the federal anti-trust laws; that conflict of the price-fixing provision with the anti-trust laws would make the agreement to pay royalties unenforceable; and that the District Court had erred in barring Metallic from challenging the patent’s validity as a predicate to establishing the illegality and consequent unenforceability of the royalty covenant. The cause was remanded to the District Court to pass upon validity of the patent. 139 F. 2d 291. That Court then held the patent invalid and rendered judgment for Metallic. The Circuit Court of Appeals affirmed. 153 F. 2d 149. We granted certiorari because of a conflicting decision in Westinghouse Electric & Mfg. Co. v. MacGregor, 350 Pa. 333,38 A. 2d 244. The Pennsylvania Supreme Court in the MacGregor case ruled that price-fixing provisions in a license agreement such as the one before us were severable from the agreement to pay royalties, and read our Sola case as though it were a holding that a licensee was estopped to challenge a patent’s validity except in cases where a licensor sought affirmative relief to enforce price-fixing provisions of a license.
We need not consider whether under the ruling of Bement v. National Harrow Co., 186 U. S. 70, 87-91, these price-fixing provisions would be lawful if the patent were valid. The question here is entirely different. Nor need we, as it has been suggested, discuss this Court’s opinions in Kinsman v. Parkhurst, 18 How. 289, and United States p. 399v. Harvey Steel Co., 196 U. S. 310, which were concerned with particular circumstances there involved. In the Sola case we declined to examine these prior decisions, holding that neither of them was relevant because “no price-fixing stipulation was involved in the license contract” at issue in those cases. So here, it would be inappropriate to re-examine those decisions now. Under what other circumstances a federal rule of estoppel might be applied is a question which can be met when particular facts present it.
The Sola case reaffirmed past decisions holding that price-fixing agreements such as those here involved are unenforceable because of violations of the Sherman Act save as they may be within the protection of a lawful patent. That case held further that local rules of estoppel cannot screen such agreements from court scrutiny, and that federal courts must, in the public interest, keep the way open for the challenge of patents which are utilized for price-fixing of interstate goods. It is true that the licensor there not only sought a recovery of royalties, but prayed generally for an injunction to require observance of all the provisions of the license agreement, one of which provisions was for price-fixing. But that the chief object of that suit was to recover royalties and not to require observance of the price-fixing provisions is indicated by the fact that, while breaches of other covenants of the contract were alleged in the petition, and specific prayers for their observance were included, there was no charge that the licensee had breached the price-fixing covenant and there was no specific prayer to require observance of it. Nor did this Court indicate that the patent would have been immune from challenge had the licensor sued for royalties only. This would have permitted a licensor to be protected on an illegal contract merely because he chose one remedy rather than another on the same p. 400substantive issue. If we had intended to draw such a fine line, it is hard to believe that such a careful writer as the late Chief Justice would have failed to indicate in the opinion or the mandate of the Court in the Sola case that on remand the trial court, while permitting challenge of the patent to defeat the injunction, must treat the price-fixing provision as severable, and forbid challenge for the purpose of defeating the claim for recovery of royalties.5 That decision, instead of resting on such a narrow procedural base, was firmly grounded upon the broad public interest in freeing our competitive economy from the trade restraints which might be imposed by price-fixing agreements stemming from narrow or invalid patents. Sola Electric Co. v. Jefferson Electric Co., supra at 177.
In Scott Paper Co. v. Marcalus Co., 326 U. S. 249, it was held that even an assignor who had sold a patent issued to itself was free to challenge the validity of the patent and thereby defeat an action for infringement by showing that the invention had been described in an expired patent. In thus emphasizing the necessity of protecting our competitive economy by keeping open the way for interested persons to challenge the validity of patents which might be shown to be invalid, the Court was but stating an often
5 The cases cited in the Sola decision rejected contentions that the offending price-fixing provisions should be considered severable from the rest of the contract and therefore enforceable. See e. g., Bement v. National Harrow Co., 186 U. S. 70, 88; Continental Wall Paper Co. v. Louis Voight & Sons Co., 212 U. S. 227,230,266.
That this Court’s attention was called in the Sola case to this question is shown by examination of the brief filed here for Sola which cited decisions of this Court to support a contention that the provisions for royalties and price-fixing were inseparable and that royalties must be denied if the price-fixing provision were illegal. Morton Salt Co. v. Suppiger Co., 314 U. S. 488; Loud v. Pomona Land & Water Co., 153 U. S. 564, 576; Williams v. Bank of the United States, 2 Pet. 96.
expressed policy that “It is the public interest which is dominant in the patent system,” Mercoid Corp. v. Mid-Continent Investment Co., 320 U. S. 661, 665, and that the right to challenge “is not only a private right to the individual, but it is founded on public policy which is promoted by his making the defence, and contravened by his refusal to make it.” Pope Mjg. Co. v. Gormully, 144 U. S. 224,235.6
If the question of severability, urged by the petitioner here, were a new one, we should again arrive at the conclusion we reached in the Sola case. Metallic’s obligation to pay royalties and its agreement to sell at prices fixed by Katzinger constituted an integrated consideration for the license grant. Consequently, when one part of the consideration is unenforceable because in violation of law, its integrated companion must go with it. See Hazelton v. Sheckells, 202 U. S. 71, 78. Moreover, solicitude for the interest of the public fostered by freedom from invalid patents and from restraints of trade, which has been manifest by the line of decisions of which the Scott Paper Co. and Sola cases are two of the latest examples, requires that there should be no departure from the guiding principles they announced.
The royalties here claimed accrued, if they accrued at all, prior to the time the license agreement terminated. Consequently, the fact of subsequent termination does not free the promise to pay royalties from the taint of the price-fixing provision. Nor does the fact, if it be a fact, that Metallic itself suggested the price-fixing provision, bar Metallic’s challenge to the patent’s validity. For the contract was still illegal, whoever suggested it, so that there is no less reason for leaving the way open to challenge the patent as a service to the public interest than if Katzinger had suggested price-fixing. Finally, Metallic’s
6 See Morton Salt Co. v. Suppiger Co., supra at 492.
specific contract not to challenge the validity of Katzinger’s patent can no more override congressional policy than can an implied estoppel. See Scott Paper Co. n . Marcalus Mjg. Co., supra, at 257 and cases cited.
Affirmed.
[For dissenting opinion of Mr . Justice Frankfurt er , concurred in by Mr . Justi ce Reed , Mr . Justi ce Jackson and Mr . Justice Burton , in this case and in MacGregor v. Westinghouse Mjg. Co., see post, p. 408.]
1
In these circumstances, the licensee was not estopped to challenge the validity of the licensor’s patent. Sola Electric Co. v. Jefferson Electric Co., 317 U. S. 173; Scott Paper Co. v. Marcalus Mfg-Co., 326 U. S. 249; Katzinger Co. v. Chicago Metallic Co., ante, p.394. P.407.
2
The covenant to pay royalties was not severable from the price-fixing covenant. Katzinger Co. v. Chicago Metallic Co., ante, p.394. P.407.