Studiengesellschaft Kohle m.b.H. v. Hercules, Inc.

In 1954, Studiengesellschaft Kohle m.b.H. (SGK) (plaintiff) granted Hercules, Inc. (defendant) a nonexclusive license under SGK’s patent applications and patents issued thereafter. SGK did not yet hold patents in the United States covering certain plastics-related technology, but the parties contemplated that SGK would obtain the patents. The parties’ license agreement contained a most-favored-licensee (MFL) provision, under which SGK was obligated to promptly notify Hercules of any license granted by SGK to “any other licensee” to practice plastics-related technology. Once notified, Hercules had three months to demand a lower, more favorable royalty rate that had been granted to the other licensee. The contract between SGK and Hercules was amended twice in the 1960s, but the MFL provision was unaffected and the 1954 contract was effective except as amended. In 1972, the contract was amended again; under the amendment, Hercules obtained a paid-up license to SGK’s patents through December 3, 1980, and continued to be an MFL as to licenses granted to any other “paying licensee.” In 1978, SGK was issued the ’698 patent. In May 1980, seven months before the expiration of Hercules’s paid-up license, SGK granted Amoco Chemicals Corporation (Amoco) a nonexclusive paid-up license under SGK’s patents for $1.2 million. SGK did not notify Hercules of the Amoco license, which had been granted as part of a settlement agreement. In 1986, SGK sued Hercules, alleging infringement of the ’698 patent. Hercules counterclaimed that the 1954 license agreement required SGK to notify it of the Amoco license and that if Hercules had been timely notified of the license, Hercules would have exercised its right to obtain a license under Amoco’s terms. Indeed, after gaining notice of the Amoco license through the lawsuit, Hercules exercised its right to obtain a license. A retroactive license would constitute a complete defense to the claim of infringement. The trial court agreed and entered judgment for Hercules. SGK appealed, arguing that it had not been required to notify Hercules of the Amoco license.