Proposed lease of patented industrial machine A manufacturer of a patented industrial machine designed to…

No. 134. Proposed lease of patented industrial machine A manufacturer of a patented industrial machine designed to produce a nonpatented end product has requested an advisory opinion as to the legality of its proposed form of lease. The manufacturer posed two specific questions pertaining to the lease and requested an opinion as to any other phase which the Commission might feel should be covered. The first question related to the lease term and royalty provisions, which provide that the lease shall continue in effect for three years with the lessee having the right to terminate upon 90 days notice during the second and third years and that the rental shall be 2.2 percent of the gross sales of products produced on the machine by the lessee. * In conformity with policy of the Commission, advisory opinions arc confidential and are not availabl," to tbe p-.biic, oniy digests of advise)"y opinions arc public record. Digesb of advisory opinions are c.t.nentiy pub:ishcrl in the Federal Rcgistel

The Commission stated that it viewed the patent grant as conveying to the patentee the right to charge whatever royalty was satisfactory to the parties, measured by whatever patented or unpatented royalty base he desired for as long a period of time as he elects, so long as there is no attempt thereby to extend the patent monopoly beyond its intended scope. Therefore, it could see no objection to three provisions as written. The second question related to the paragraph providing that the lessor wil not make any sales of the equipment and wil not enter into a lease agreement for such equipment with anyone else whose place of business is located within the lessee s trading area as defined in the lease. The Commission noted that this provision did not grant the licensee an exclusive territory, although it had been advised that the nature of the end product would make it diffcult for anyone else to compete within that area because of the freight factor. Be that as it may, the Commission was of the opinion that the owner or holder of exclusive patent rights to make, use and sell may carve out of his grant a limited monopoly for a licensee and, therefore, it could see no objection to this provision.

The Commission further noted that following discussions with the staff the manufacturer authorized deletion of one sentence in the lease for editorial purposes and that in the paragraph dealing with alterations, the manufacturer requested deletion of the sentence requiring that any alterations, improvements, or changes, which are or may be patentable , shall, upon request, be assigned to the lessor. Thus the manufacturer did not request an opinion as to the required grant-back of improved patents incorporated in the original submittal.

While the Commission did not purport to pass upon the purely contractual aspects of the lease, it did state that it had reviewed the other provisions of the lease and expressed no objections thereto from the standpoint of the laws it administers, particularly in view of the fact that it had been advised that there were other competitive machines which the lessees are free to rent or purchase and in view of the fact that there were no tie-ins requiring the purchase of auxiliary or other equipment or supplies from the lessor. (File No. 673 7108, released July 13, 1967.