Sola Electric Company v. Jefferson Electric Company

Supreme Court of the United States · 1942 · Corporations

317 U.S. 173 (1942)

Updated August 22, 2026

CorporationsPatent licensingSherman ActFederal preemptionEstoppelpatent licensee estoppelprice-fixingpatent invalidity

Facts

Jefferson Electric owned a patent for improvements in an electrical transformer and granted Sola a non-exclusive license to manufacture and sell the patented transformers in the United States and related territories in exchange for royalties. The license required Sola's prices, terms, and conditions of sale not to be more favorable than those prescribed by Jefferson for its own sales and those of other licensees. Sola admitted making two types of transformers, one covered by narrow claims whose validity it did not challenge and another allegedly covered only by broader claims. Sola counterclaimed that the broader claims were invalid for want of novelty and argued that, because those claims were invalid, the contract's price-control provisions were unlawful and royalties were not recoverable on transformers covered only by the broad claims.

Issue

May a patent licensee be estopped by its license agreement from challenging a price-fixing clause by showing that the patent is invalid and that the price restriction is therefore not protected by the patent monopoly? More specifically, can state or local estoppel rules prevent a licensee from asserting Sherman Act illegality and offering patent invalidity as evidence of that illegality?

Rule

Where a patent license agreement fixes the prices of articles moving in interstate commerce, the restriction violates the Sherman Act unless it is within the protection of a lawfully granted patent monopoly. Local or state estoppel rules cannot be applied to bar a licensee from asserting the illegality of such a price-fixing agreement or from offering competent evidence, including patent invalidity, to prove that illegality, because federal statutory policy controls.

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

North Shore Components, a Wisconsin company, licensed a patented valve design from Lakefront Devices, an Illinois company. The license required North Shore to sell the valves nationwide only at prices no lower than those Lakefront set for itself and its other licensees; when sued in federal court in Chicago for unpaid royalties, North Shore argued the relevant patent claims were invalid and the price term therefore violated the Sherman Act.

How should the court rule on Lakefront's argument that North Shore is estopped by the license from denying patent validity?

Explanation. The governing rule is that when a patent license fixes prices of articles moving in interstate commerce, the restraint is unlawful unless protected by a lawfully granted patent monopoly. A licensee is not barred by local estoppel doctrine from asserting Sherman Act illegality and offering patent invalidity as evidence needed to show the restraint lacks patent protection. (Derived from Sola Electric Company v. Jefferson Electric Company (1942).)