E.I. duPont de Nemours & Company v. Shell Oil Company

Supreme Court of Delaware · 1985 · Corporations

498 A.2d 1108 (Del. 1985)

Updated August 22, 2026

Corporationscontract constructionpatent licensesublicensingnonexclusive licenseno sublicensehave madesell for use or resale

Facts

In 1968, DuPont granted Shell a nonexclusive license, without the right to sublicense, to make, have made, use, and sell methomyl under DuPont's patent rights. In 1981, after Shell had earlier told Carbide it lacked authority to sublicense methomyl manufacture, Shell and Carbide simultaneously entered into a Toll Conversion Agreement and a Purchase and Sale Agreement under which Carbide would manufacture methomyl for Shell and Shell would sell back to Carbide the same quantities Carbide required. The agreements were coterminous, interdependent, and coordinated in ordering, delivery, and payment, and Shell was not obligated to have methomyl made beyond what Carbide ordered. DuPont sought a declaration that this arrangement violated the license agreement's prohibition on sublicensing.

Issue

Whether Shell's coordinated toll conversion and sale-back arrangement with Carbide was permitted under Shell's contractual rights to 'have made' and 'sell' methomyl, or whether the arrangement was in substance an impermissible sublicense barred by the license agreement.

Rule

In construing a patent license, the court must give effect to the parties' intent and to all provisions of the agreement as a whole. Under a nonexclusive patent license, rights are personal to the licensee and are not sublicensable absent specific permission; thus a prohibition on sublicensing limits otherwise broad 'have made' and 'sell' rights. Whether a transaction is a sublicense depends on its overall effect, not its label, and the key inquiry is whether production is by or for the use of the original licensee, or instead for the third party itself.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

North Valley ChemWorks granted Harbor Field AgriCo a nonexclusive patent license in Ohio to "make, have made, use, and sell" a crop additive, but the agreement also expressly stated that Harbor Field had no right to sublicense. Harbor Field later argued that its express rights to have the additive made and to sell it were unlimited, so the no-sublicense clause should not narrow those rights.

If a court follows the majority's approach, which interpretation is most likely correct?

Explanation. The governing rule is that a patent license must be construed as a whole to give effect to all provisions and the parties' overall plan. In a nonexclusive patent license, rights are personal to the licensee and are not sublicensable absent permission. Therefore, an express no-sublicense clause affirmatively limits otherwise broad rights to have the product made and to sell it; reading those grants as unlimited would effectively read the prohibition out of the agreement. (Derived from E.I. duPont de Nemours & Company v. Shell Oil Company (1985).)