Facts:  Plaintiff was hired to develop a gyroscope which he did.  Defendant incorporated these improvements into production.  An agreement specified that defendant would pay plaintiff royalties for the improvements, but if the patent application was denied or declared invalid, then defendant could terminate the agreement.  The licensing agreement was dated 9-15-55; the patent application was dated 2-4-54, but it was 1-6-60 before the patent actually issued.  At some point, defendant became convinced that plaintiff would never get a patent.  So in 1957 it quit paying royalties on Michigan gyros.  California superior court ordered royalties of $16,351.93 on California gyros saying defendant estopped from questioning the validity of the patent.

A Michigan jury awarded $888,122.56. A California court of appeals said defendant could terminate royalties in 1959, and if plaintiff wanted damages after that date, he must sue for infringement.  But the pre-1959 royalties had to be paid on both California and Michigan gyros, regardless of the validity of patent.  The California Supreme Court said the 1955 agreement did not give defendant the right to terminate royalties in 1959.  Estoppel barred defendant from questioning patent validity.  It reinstated the $888,000 verdict on Michigan gyros, saying they also utilized plaintiff's apparatus.

Issue: (1) Does the doctrine of licensee estoppel bar defendant from claiming invalidity of the patent?  (2) Does federal patent policy bar a state from enforcing a contract regulating access to unpatentable secret idea?

Holding:  (1) No.  (2) State court must consider.

Reason: Under the Hazeltine doctrine licensee estoppel was the general rule. The doctrine began to be eroded; assignors could introduce prior art to narrow claims made in the patents and in Scott, when the claim was a copy of an expired copyright.  It was further eroded by refusing to permit a licensor to enforce employee's price-fixing provision without permitting employees to contest validity of the underlying patent.

Case law shows the uncertainty of trying to accommodate competing demands of common law, contract, and federal patent law. Contract law forbids a purchaser from repudiating a promise because he or she later becomes dissatisfied with the bargain. Federal law requires that all ideas in general circulation be dedicated to the common good unless protected by a valid patent.

Plaintiff claims royalties prior to 1960 and from 196077 regardless of patent validity.  The court says this is too broad.  The agreement itself covers 1960-77 on the validity issue.  Validity of the -patent has not been finally determined.  A requirement for defendant to pay royalties while it is challenging validity of patent would be inconsistent with aims of federal patent policy.  This would encourage delay on part of licensor.  It also would undermine strong federal policy favoring full and free use of ideas in the public domain.

The patent claim to royalties before 1960 is a more difficult question.  It covers to what extent a state may protect owners of unpatentable inventions who are willing to disclose their ideas only upon payment of royalties.  The Colorado court did. not deal with this since it applied the licensee estoppel doctrine, so we do not know if it would award royalties pre-patent if this doctrine were dead.  Now, state court must consider enforcing contractual rights of inventors.  This Court will not deal with this complicated issue until the state court has had an opportunity to do so.

Also, the Court will not determine patent validity since defendant did not raise the issue on cert.

Black Concurring in part/Dissenting in part:

The Court should not reserve for decision whether states have the power to enforce contracts for royalties while the patent application is pending or if the patent is held invalid.  The reservation in conflict with Sears/Compco.  No state can create any monopoly on what is claimed to be a now invention except with federal patent.

White Concurring in part:

The Court has jurisdiction to determine the validity of the licensee estoppel doctrine.  But there is no reason to deal with federal issues of (1) validity, (2) enforcement of royalty agreement on a patent declared to be invalid.  There is no indication that defendant contended in state court that once plaintiff's patent is invalidated, the royalty agreement unenforceable as a matter of federal law.