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Keywords

contractappealintellectual propertypatentnovationdeclaratory judgment
contractintellectual propertypatentrespondent

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Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S.Ct. 1096, 59 L.Ed.2d 296, 201 U.S.P.Q. 1, 1979-1 Trade Cases P 62,477

Facts

Mrs. Jane Aronson filed a patent application for a keyholder and entered into a contract with Quick Point Pencil Co. for the exclusive right to manufacture and sell the keyholder in exchange for royalties. The contract stipulated a 5% royalty, which would reduce to 2.5% if the patent was not granted within five years. After the patent was rejected, Quick Point continued to pay reduced royalties but later sought a declaratory judgment that the agreement was unenforceable, claiming it was preempted by federal patent law. The District Court upheld the contract, but the Court of Appeals reversed this decision.

Petitioner entered into a contract with respondent whereby, in return for the exclusive right to make and sell a keyholder designed by petitioner for which a patent application was pending, respondent agreed to pay petitioner a royalty of 5% of the selling price.

Issue

Does federal patent law preempt state contract law to the extent that it renders unenforceable a contract to pay royalties to a patent applicant for sales of articles embodying the putative invention if a patent is not granted?

Does federal patent law preempt state contract law to the extent that it renders unenforceable a contract to pay royalties to a patent applicant for sales of articles embodying the putative invention if a patent is not granted?

Rule

Federal patent law does not preempt state contract law regarding the enforcement of contracts related to intellectual property. State law can govern commercial agreements, even those involving patent applications, as long as they do not conflict with federal law. The enforcement of such contracts is consistent with the objectives of the federal patent system, which aims to foster invention and promote public access to ideas.

State law relative to commercial agreements is not displaced merely because contract relates to intellectual property which may or may not be patentable; states are free to regulate use of such intellectual property in any manner not inconsistent with federal law.

Analysis

The court analyzed whether enforcing the royalty agreement would conflict with federal patent law. It concluded that the contract did not withdraw any ideas from the public domain and that the agreement was independent of the patent's issuance. The court emphasized that the parties had explicitly agreed to a reduced royalty if no patent was granted, indicating their awareness of the potential outcome. The enforcement of the contract was seen as encouraging innovation and not obstructing the federal patent system's goals.

Enforcement of Quick Point's agreement with Mrs. Aronson is not inconsistent with any of these aims. Permitting inventors to make enforceable agreements licensing the use of their inventions in return for royalties provides an additional incentive to invention.

Conclusion

The Supreme Court reversed the Court of Appeals' decision, holding that federal patent law does not preempt state contract law, allowing the enforcement of the royalty agreement.

Held: Federal patent law does not pre-empt state contract law so as to preclude enforcement of the contract.

Who won?

Mrs. Jane Aronson prevailed in this case as the Supreme Court ruled in her favor, affirming the validity of the royalty agreement with Quick Point Pencil Co. The court found that the enforcement of the contract did not conflict with federal patent law and that state law could govern the agreement. This decision underscored the importance of allowing inventors to negotiate contracts that provide incentives for innovation, even in the absence of a granted patent.

The Supreme Court, Mr. Chief Justice Burger, held that federal patents law did not preempt state contract law so as to preclude enforcement of the contract to pay royalties for so long as the contracting party sold the underlying putative invention, even if a patent was not granted.

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