United States v. New Wrinkle, Inc.

Wrinkle finish is a type of enamel, varnish, or paint applied as a product finish to items like typewriters. Two wrinkle-finish competitors, The Kay & Ess Co. (Kay) (defendant) and Chadeloid Chemical Co., were litigating patent rights, each arguing that it owned the primary rights to wrinkle finish. They settled the dispute by creating a company called New Wrinkle (defendant), from which they each agreed to accept stock in the new company in exchange for assignments of their patent rights. New Wrinkle was also authorized to grant patent licenses to other wrinkle-finish manufacturers. These license agreements included terms fixing the minimum prices at which wrinkle finish could be sold. Those price terms would go into effect when at least 12 major wrinkle-finish producers had signed a license agreement. New Wrinkle, Kay, and Chadeloid Chemical worked to encourage other major wrinkle-finish manufacturers to sign nearly identical 10-year license agreements, advising them that other licensees would also be bound by the same minimum prices and agreement terms. The United States (plaintiff) sued, alleging that New Wrinkle and Kay had conspired to fix uniform minimum prices and eliminate competition in the wrinkle-finish market by illegally pooling their patent rights. At the time of the suit, nearly all wrinkle-finish manufacturers had signed a license agreement. The district court dismissed the suit, and the United States appealed.