26 Intellectual Property Licensing 26 Intellectual Property Licensing

PART 4. Limits on Intellectual Property Rights

26.1 ProCD, Inc. v. Zeidenberg 26.1 ProCD, Inc. v. Zeidenberg

Copyright: Software Distribution

86 F.3d 1447 (1996)

ProCD, INCORPORATED, Plaintiff-Appellant,
v.
Matthew ZEIDENBERG and Silken Mountain Web Services, Inc., Defendants-Appellees.

No. 96-1139.

United States Court of Appeals, Seventh Circuit.

Argued May 23, 1996.
Decided June 20, 1996.

[1448] Michael J. Lawton, Kenneth B. Axe, Lathrop & Clark, Madison, WI, Thomas N. O'Connor (argued), John T. Gutkoski, Lauren C. Panora, Hale & Dorr, Boston, MA, for ProCD, Inc.

Keith Napolitano, Madison, WI, David A. Austin (argued), Madison, WI, for Matthew Zeidenberg and Silken Mountain Web Services, Inc.

June M. Besek, Morton D. Goldberg, Jesse M. Feder, Schwab, Goldberg, Price & Dannay, New York City, for Information Industry Ass'n, amicus curiae, American Medical Ass'n, amicus curiae and Association of American Publishers, amicus curiae.

Christopher A. Meyer, Michael R. Klipper, Meyer & Klipper, Washington, DC, for Business Software Alliance, amicus curiae.

Barry D. Weiss, Stuart Smith, Ronald Julian Palenski, Gordon & Glickson, Chicago, IL, Kenneth A. Wasch, Mark Nebergall, Software Publishers Ass'n, Inc., Washington, DC, for Software Publishers Ass'n, amicus curiae.

Mark Alan Lemley, University of Texas School of Law, Austin, TX, Peter M.C. Choy, American Committee for Interoperable Systems, Mountain View, CA, for American Committee for Interoperable Systems, amicus curiae.

Before COFFEY, FLAUM, and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

Must buyers of computer software obey the terms of shrinkwrap licenses? The [1449] district court held not, for two reasons: first, they are not contracts because the licenses are inside the box rather than printed on the outside; second, federal law forbids enforcement even if the licenses are contracts. 908 F.Supp. 640 (W.D.Wis.1996). The parties and numerous amici curiae have briefed many other issues, but these are the only two that matter — and we disagree with the district judge's conclusion on each. Shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable). Because no one argues that the terms of the license at issue here are troublesome, we remand with instructions to enter judgment for the plaintiff.

I

ProCD, the plaintiff, has compiled information from more than 3,000 telephone directories into a computer database. We may assume that this database cannot be copyrighted, although it is more complex, contains more information (nine-digit zip codes and census industrial codes), is organized differently, and therefore is more original than the single alphabetical directory at issue in Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991). See Paul J. Heald, The Vices of Originality, 1991 Sup.Ct. Rev. 143, 160-68. ProCD sells a version of the database, called SelectPhone (trademark), on CD-ROM discs. (CD-ROM means "compact disc — read only memory." The "shrinkwrap license" gets its name from the fact that retail software packages are covered in plastic or cellophane "shrinkwrap," and some vendors, though not ProCD, have written licenses that become effective as soon as the customer tears the wrapping from the package. Vendors prefer "end user license," but we use the more common term.) A proprietary method of compressing the data serves as effective encryption too. Customers decrypt and use the data with the aid of an application program that ProCD has written. This program, which is copyrighted, searches the database in response to users' criteria (such as "find all people named Tatum in Tennessee, plus all firms with `Door Systems' in the corporate name"). The resulting lists (or, as ProCD prefers, "listings") can be read and manipulated by other software, such as word processing programs.

The database in SelectPhone (trademark) cost more than $10 million to compile and is expensive to keep current. It is much more valuable to some users than to others. The combination of names, addresses, and SIC codes enables manufacturers to compile lists of potential customers. Manufacturers and retailers pay high prices to specialized information intermediaries for such mailing lists; ProCD offers a potentially cheaper alternative. People with nothing to sell could use the database as a substitute for calling long distance information, or as a way to look up old friends who have moved to unknown towns, or just as an electronic substitute for the local phone book. ProCD decided to engage in price discrimination, selling its database to the general public for personal use at a low price (approximately $150 for the set of five discs) while selling information to the trade for a higher price. It has adopted some intermediate strategies too: access to the SelectPhone (trademark) database is available via the America Online service for the price America Online charges to its clients (approximately $3 per hour), but this service has been tailored to be useful only to the general public.

If ProCD had to recover all of its costs and make a profit by charging a single price — that is, if it could not charge more to commercial users than to the general public —it would have to raise the price substantially over $150. The ensuing reduction in sales would harm consumers who value the information at, say, $200. They get consumer surplus of $50 under the current arrangement but would cease to buy if the price rose substantially. If because of high elasticity of demand in the consumer segment of the market the only way to make a profit turned out to be a price attractive to commercial users alone, then all consumers would lose out — and so would the commercial clients, who would have to pay more for the listings because ProCD could not obtain any contribution toward costs from the consumer market.

[1450] To make price discrimination work, however, the seller must be able to control arbitrage. An air carrier sells tickets for less to vacationers than to business travelers, using advance purchase and Saturday-night-stay requirements to distinguish the categories. A producer of movies segments the market by time, releasing first to theaters, then to pay-per-view services, next to the videotape and laserdisc market, and finally to cable and commercial tv. Vendors of computer software have a harder task. Anyone can walk into a retail store and buy a box. Customers do not wear tags saying "commercial user" or "consumer user." Anyway, even a commercial-user-detector at the door would not work, because a consumer could buy the software and resell to a commercial user. That arbitrage would break down the price discrimination and drive up the minimum price at which ProCD would sell to anyone.

Instead of tinkering with the product and letting users sort themselves — for example, furnishing current data at a high price that would be attractive only to commercial customers, and two-year-old data at a low price — ProCD turned to the institution of contract. Every box containing its consumer product declares that the software comes with restrictions stated in an enclosed license. This license, which is encoded on the CD-ROM disks as well as printed in the manual, and which appears on a user's screen every time the software runs, limits use of the application program and listings to non-commercial purposes.

Matthew Zeidenberg bought a consumer package of SelectPhone (trademark) in 1994 from a retail outlet in Madison, Wisconsin, but decided to ignore the license. He formed Silken Mountain Web Services, Inc., to resell the information in the SelectPhone (trademark) database. The corporation makes the database available on the Internet to anyone willing to pay its price — which, needless to say, is less than ProCD charges its commercial customers. Zeidenberg has purchased two additional SelectPhone (trademark) packages, each with an updated version of the database, and made the latest information available over the World Wide Web, for a price, through his corporation. ProCD filed this suit seeking an injunction against further dissemination that exceeds the rights specified in the licenses (identical in each of the three packages Zeidenberg purchased). The district court held the licenses ineffectual because their terms do not appear on the outside of the packages. The court added that the second and third licenses stand no different from the first, even though they are identical, because they might have been different, and a purchaser does not agree to — and cannot be bound by — terms that were secret at the time of purchase. 908 F.Supp. at 654.

II

Following the district court, we treat the licenses as ordinary contracts accompanying the sale of products, and therefore as governed by the common law of contracts and the Uniform Commercial Code. Whether there are legal differences between "contracts" and "licenses" (which may matter under the copyright doctrine of first sale) is a subject for another day. See Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F.Supp. 208 (E.D.N.Y.1994). Zeidenberg does not argue that Silken Mountain Web Services is free of any restrictions that apply to Zeidenberg himself, because any effort to treat the two parties as distinct would put Silken Mountain behind the eight ball on ProCD's argument that copying the application program onto its hard disk violates the copyright laws. Zeidenberg does argue, and the district court held, that placing the package of software on the shelf is an "offer," which the customer "accepts" by paying the asking price and leaving the store with the goods. Peeters v. State, 154 Wis. 111, 142 N.W. 181 (1913). In Wisconsin, as elsewhere, a contract includes only the terms on which the parties have agreed. One cannot agree to hidden terms, the judge concluded. So far, so good — but one of the terms to which Zeidenberg agreed by purchasing the software is that the transaction was subject to a license. Zeidenberg's position therefore must be that the printed terms on the outside of a box are the parties' contract — except for printed terms that refer to or incorporate other terms. But why would Wisconsin fetter the parties' choice in this [1451] way? Vendors can put the entire terms of a contract on the outside of a box only by using microscopic type, removing other information that buyers might find more useful (such as what the software does, and on which computers it works), or both. The "Read Me" file included with most software, describing system requirements and potential incompatibilities, may be equivalent to ten pages of type; warranties and license restrictions take still more space. Notice on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable (a right that the license expressly extends), may be a means of doing business valuable to buyers and sellers alike. See E. Allan Farnsworth, 1 Farnsworth on Contracts § 4.26 (1990); Restatement (2d) of Contracts § 211 comment a (1981) ("Standardization of agreements serves many of the same functions as standardization of goods and services; both are essential to a system of mass production and distribution. Scarce and costly time and skill can be devoted to a class of transactions rather than the details of individual transactions."). Doubtless a state could forbid the use of standard contracts in the software business, but we do not think that Wisconsin has done so.

Transactions in which the exchange of money precedes the communication of detailed terms are common. Consider the purchase of insurance. The buyer goes to an agent, who explains the essentials (amount of coverage, number of years) and remits the premium to the home office, which sends back a policy. On the district judge's understanding, the terms of the policy are irrelevant because the insured paid before receiving them. Yet the device of payment, often with a "binder" (so that the insurance takes effect immediately even though the home office reserves the right to withdraw coverage later), in advance of the policy, serves buyers' interests by accelerating effectiveness and reducing transactions costs. Or consider the purchase of an airline ticket. The traveler calls the carrier or an agent, is quoted a price, reserves a seat, pays, and gets a ticket, in that order. The ticket contains elaborate terms, which the traveler can reject by canceling the reservation. To use the ticket is to accept the terms, even terms that in retrospect are disadvantageous. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991); see also Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, ___ U.S. ___, 115 S.Ct. 2322, 132 L.Ed.2d 462 (1995) (bills of lading). Just so with a ticket to a concert. The back of the ticket states that the patron promises not to record the concert; to attend is to agree. A theater that detects a violation will confiscate the tape and escort the violator to the exit. One could arrange things so that every concertgoer signs this promise before forking over the money, but that cumbersome way of doing things not only would lengthen queues and raise prices but also would scotch the sale of tickets by phone or electronic data service.

Consumer goods work the same way. Someone who wants to buy a radio set visits a store, pays, and walks out with a box. Inside the box is a leaflet containing some terms, the most important of which usually is the warranty, read for the first time in the comfort of home. By Zeidenberg's lights, the warranty in the box is irrelevant; every consumer gets the standard warranty implied by the UCC in the event the contract is silent; yet so far as we are aware no state disregards warranties furnished with consumer products. Drugs come with a list of ingredients on the outside and an elaborate package insert on the inside. The package insert describes drug interactions, contraindications, and other vital information — but, if Zeidenberg is right, the purchaser need not read the package insert, because it is not part of the contract.

Next consider the software industry itself. Only a minority of sales take place over the counter, where there are boxes to peruse. A customer may place an order by phone in response to a line item in a catalog or a review in a magazine. Much software is ordered over the Internet by purchasers who have never seen a box. Increasingly software arrives by wire. There is no box; there is only a stream of electrons, a collection of information that includes data, an application program, instructions, many limitations ("MegaPixel 3.14159 cannot be used with BytePusher 2.718"), and the terms of [1452] sale. The user purchases a serial number, which activates the software's features. On Zeidenberg's arguments, these unboxed sales are unfettered by terms — so the seller has made a broad warranty and must pay consequential damages for any shortfalls in performance, two "promises" that if taken seriously would drive prices through the ceiling or return transactions to the horse-and-buggy age.

According to the district court, the UCC does not countenance the sequence of money now, terms later. (Wisconsin's version of the UCC does not differ from the Official Version in any material respect, so we use the regular numbering system. Wis. Stat. § 402.201 corresponds to UCC § 2-201, and other citations are easy to derive.) One of the court's reasons — that by proposing as part of the draft Article 2B a new UCC § 2-2203 that would explicitly validate standardform user licenses, the American Law Institute and the National Conference of Commissioners on Uniform Laws have conceded the invalidity of shrinkwrap licenses under current law, see 908 F.Supp. at 655-56 — depends on a faulty inference. To propose a change in a law's text is not necessarily to propose a change in the law's effect. New words may be designed to fortify the current rule with a more precise text that curtails uncertainty. To judge by the flux of law review articles discussing shrinkwrap licenses, uncertainty is much in need of reduction—although businesses seem to feel less uncertainty than do scholars, for only three cases (other than ours) touch on the subject, and none directly addresses it. See Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir.1991); Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 268-70 (5th Cir.1988); Arizona Retail Systems, Inc. v. Software Link, Inc., 831 F.Supp. 759 (D.Ariz.1993). As their titles suggest, these are not consumer transactions. Step-Saver is a battle-of-the-forms case, in which the parties exchange incompatible forms and a court must decide which prevails. See Northrop Corp. v. Litronic Industries, 29 F.3d 1173 (7th Cir.1994) (Illinois law); Douglas G. Baird & Robert Weisberg, Rules, Standards, and the Battle of the Forms: A Reassessment of § 2-207, 68 Va. L.Rev. 1217, 1227-31 (1982). Our case has only one form; UCC § 2-207 is irrelevant. Vault holds that Louisiana's special shrinkwrap-license statute is preempted by federal law, a question to which we return. And Arizona Retail Systems did not reach the question, because the court found that the buyer knew the terms of the license before purchasing the software.

What then does the current version of the UCC have to say? We think that the place to start is § 2-204(1): "A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance. And that is what happened. ProCD proposed a contract that a buyer would accept by using the software after having an opportunity to read the license at leisure. This Zeidenberg did. He had no choice, because the software splashed the license on the screen and would not let him proceed without indicating acceptance. So although the district judge was right to say that a contract can be, and often is, formed simply by paying the price and walking out of the store, the UCC permits contracts to be formed in other ways. ProCD proposed such a different way, and without protest Zeidenberg agreed. Ours is not a case in which a consumer opens a package to find an insert saying "you owe us an extra $10,000" and the seller files suit to collect. Any buyer finding such a demand can prevent formation of the contract by returning the package, as can any consumer who concludes that the terms of the license make the software worth less than the purchase price. Nothing in the UCC requires a seller to maximize the buyer's net gains.

Section 2-606, which defines "acceptance of goods", reinforces this understanding. A buyer accepts goods under § 2-606(1)(b) when, after an opportunity to inspect, he fails to make an effective rejection under § 2-602(1). ProCD extended an opportunity to reject if a buyer should find the license terms [1453] unsatisfactory; Zeidenberg inspected the package, tried out the software, learned of the license, and did not reject the goods. We refer to § 2-606 only to show that the opportunity to return goods can be important; acceptance of an offer differs from acceptance of goods after delivery, see Gillen v. Atalanta Systems, Inc., 997 F.2d 280, 284 n. 1 (7th Cir.1993); but the UCC consistently permits the parties to structure their relations so that the buyer has a chance to make a final decision after a detailed review.

Some portions of the UCC impose additional requirements on the way parties agree on terms. A disclaimer of the implied warranty of merchantability must be "conspicuous." UCC § 2-316(2), incorporating UCC § 1-201(10). Promises to make firm offers, or to negate oral modifications, must be "separately signed." UCC §§ 2-205, 2-209(2). These special provisos reinforce the impression that, so far as the UCC is concerned, other terms may be as inconspicuous as the forum-selection clause on the back of the cruise ship ticket in Carnival Lines. Zeidenberg has not located any Wisconsin case — for that matter, any case in any state — holding that under the UCC the ordinary terms found in shrinkwrap licenses require any special prominence, or otherwise are to be undercut rather than enforced. In the end, the terms of the license are conceptually identical to the contents of the package. Just as no court would dream of saying that SelectPhone (trademark) must contain 3,100 phone books rather than 3,000, or must have data no more than 30 days old, or must sell for $100 rather than $150 — although any of these changes would be welcomed by the customer, if all other things were held constant — so, we believe, Wisconsin would not let the buyer pick and choose among terms. Terms of use are no less a part of "the product" than are the size of the database and the speed with which the software compiles listings. Competition among vendors, not judicial revision of a package's contents, is how consumers are protected in a market economy. Digital Equipment Corp. v. Uniq Digital Technologies, Inc., 73 F.3d 756 (7th Cir.1996). ProCD has rivals, which may elect to compete by offering superior software, monthly updates, improved terms of use, lower price, or a better compromise among these elements. As we stressed above, adjusting terms in buyers' favor might help Matthew Zeidenberg today (he already has the software) but would lead to a response, such as a higher price, that might make consumers as a whole worse off.

III

The district court held that, even if Wisconsin treats shrinkwrap licenses as contracts, § 301(a) of the Copyright Act, 17 U.S.C. § 301(a), prevents their enforcement. 908 F.Supp. at 656-59. The relevant part of § 301(a) preempts any "legal or equitable rights [under state law] that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103". ProCD's software and data are "fixed in a tangible medium of expression", and the district judge held that they are "within the subject matter of copyright". The latter conclusion is plainly right for the copyrighted application program, and the judge thought that the data likewise are "within the subject matter of copyright" even if, after Feist, they are not sufficiently original to be copyrighted. 908 F.Supp. at 656-57. Baltimore Orioles, Inc. v. Major League Baseball Players Ass'n, 805 F.2d 663, 676 (7th Cir.1986), supports that conclusion, with which commentators agree. E.g., Paul Goldstein, III Copyright § 15.2.3 (2d ed.1996); Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 101[B] (1995); William F. Patry, II Copyright Law and Practice 1108-09 (1994). One function of § 301(a) is to prevent states from giving special protection to works of authorship that Congress has decided should be in the public domain, which it can accomplish only if "subject matter of copyright" includes all works of a type covered by sections 102 and 103, even if federal law does not afford protection to them. Cf. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989) (same principle under patent laws).

[1454] But are rights created by contract "equivalent to any of the exclusive rights within the general scope of copyright"? Three courts of appeals have answered "no." National Car Rental System, Inc. v. Computer Associates International, Inc., 991 F.2d 426, 433 (8th Cir.1993); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir.1990); Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 926 (4th Cir.1988). The district court disagreed with these decisions, 908 F.Supp. at 658, but we think them sound. Rights "equivalent to any of the exclusive rights within the general scope of copyright" are rights established by law — rights that restrict the options of persons who are strangers to the author. Copyright law forbids duplication, public performance, and so on, unless the person wishing to copy or perform the work gets permission; silence means a ban on copying. A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create "exclusive rights." Someone who found a copy of SelectPhone (trademark) on the street would not be affected by the shrinkwrap license — though the federal copyright laws of their own force would limit the finder's ability to copy or transmit the application program.

Think for a moment about trade secrets. One common trade secret is a customer list. After Feist, a simple alphabetical list of a firm's customers, with address and telephone numbers, could not be protected by copyright. Yet Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974), holds that contracts about trade secrets may be enforced — precisely because they do not affect strangers' ability to discover and use the information independently. If the amendment of § 301(a) in 1976 overruled Kewanee and abolished consensual protection of those trade secrets that cannot be copyrighted, no one has noticed — though abolition is a logical consequence of the district court's approach. Think, too, about everyday transactions in intellectual property. A customer visits a video store and rents a copy of Night of the Lepus. The customer's contract with the store limits use of the tape to home viewing and requires its return in two days. May the customer keep the tape, on the ground that § 301(a) makes the promise unenforceable?

A law student uses the LEXIS database, containing public-domain documents, under a contract limiting the results to educational endeavors; may the student resell his access to this database to a law firm from which LEXIS seeks to collect a much higher hourly rate? Suppose ProCD hires a firm to scour the nation for telephone directories, promising to pay $100 for each that ProCD does not already have. The firm locates 100 new directories, which it sends to ProCD with an invoice for $10,000. ProCD incorporates the directories into its database; does it have to pay the bill? Surely yes; Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979), holds that promises to pay for intellectual property may be enforced even though federal law (in Aronson, the patent law) offers no protection against third-party uses of that property. See also Kennedy v. Wright, 851 F.2d 963 (7th Cir. 1988). But these illustrations are what our case is about. ProCD offers software and data for two prices: one for personal use, a higher price for commercial use. Zeidenberg wants to use the data without paying the seller's price; if the law student and Quick Point Pencil Co. could not do that, neither can Zeidenberg.

Although Congress possesses power to preempt even the enforcement of contracts about intellectual property — or railroads, on which see Norfolk & Western Ry. v. Train Dispatchers, 499 U.S. 117, 111 S.Ct. 1156, 113 L.Ed.2d 95 (1991) — courts usually read preemption clauses to leave private contracts unaffected. American Airlines, Inc. v. Wolens, ___ U.S. ___, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995), provides a nice illustration. A federal statute preempts any state "law, rule, regulation, standard, or other provision ... relating to rates, routes, or services of any air carrier." 49 U.S.C.App. § 1305(a)(1). Does such a law preempt the law of contracts — so that, for example, an air carrier need not honor a quoted price (or a contract to reduce the price by the value of frequent flyer miles)? The Court allowed that it is possible to read the statute that [1455] broadly but thought such an interpretation would make little sense. Terms and conditions offered by contract reflect private ordering, essential to the efficient functioning of markets. ___ U.S. at ___-___, 115 S.Ct. at 824-25. Although some principles that carry the name of contract law are designed to defeat rather than implement consensual transactions, id. at ___ n. 8, 115 S.Ct. at 826 n. 8, the rules that respect private choice are not preempted by a clause such as § 1305(a)(1). Section 301(a) plays a role similar to § 1301(a)(1): it prevents states from substituting their own regulatory systems for those of the national government. Just as § 301(a) does not itself interfere with private transactions in intellectual property, so it does not prevent states from respecting those transactions. Like the Supreme Court in Wolens, we think it prudent to refrain from adopting a rule that anything with the label "contract" is necessarily outside the preemption clause: the variations and possibilities are too numerous to foresee. National Car Rental likewise recognizes the possibility that some applications of the law of contract could interfere with the attainment of national objectives and therefore come within the domain of § 301(a). But general enforcement of shrinkwrap licenses of the kind before us does not create such interference.

Aronson emphasized that enforcement of the contract between Aronson and Quick Point Pencil Company would not withdraw any information from the public domain. That is equally true of the contract between ProCD and Zeidenberg. Everyone remains free to copy and disseminate all 3,000 telephone books that have been incorporated into ProCD's database. Anyone can add SIC codes and zip codes. ProCD's rivals have done so. Enforcement of the shrinkwrap license may even make information more readily available, by reducing the price ProCD charges to consumer buyers. To the extent licenses facilitate distribution of object code while concealing the source code (the point of a clause forbidding disassembly), they serve the same procompetitive functions as does the law of trade secrets. Rockwell Graphic Systems, Inc. v. DEV Industries, Inc., 925 F.2d 174, 180 (7th Cir.1991). Licenses may have other benefits for consumers: many licenses permit users to make extra copies, to use the software on multiple computers, even to incorporate the software into the user's products. But whether a particular license is generous or restrictive, a simple two-party contract is not "equivalent to any of the exclusive rights within the general scope of copyright" and therefore may be enforced.

REVERSED AND REMANDED.

26.2 Kimble v. Marvel Entm't, LLC 26.2 Kimble v. Marvel Entm't, LLC

Patent Licensing and the Limits of the Patent Monopoly

Stephen KIMBLE et al., Petitioners
v.
MARVEL ENTERTAINMENT, LLC, successor to Marvel Enterprises, Inc.

No. 13-720.

Supreme Court of the United States

Argued March 31, 2015.
Decided June 22, 2015.

Roman Melnik, Los Angeles, CA, for Petitioners.

Thomas G. Saunders, Washington, DC, for Respondent.

Malcolm L. Stewart for the United States as amicus curiae, by special leave of the Court, supporting the respondent.

Antonio R. Durando, Tucson, AZ, Roman Melnik, Counsel of Record, Kenneth Weatherwax, Nathan N. Lowenstein, Flavio M. Rose, Goldberg, Lowenstein & Weatherwax LLP, Los Angeles, CA, for Petitioners.

Seth P. Waxman, Counsel of Record, Paul R.Q. Wolfson, Thomas G. Saunders, Matthew Guarnieri, Daniel Aguilar, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, for Respondents.

Justice KAGAN delivered the opinion of the Court.

In Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176, 13 L.Ed.2d 99 (1964), this Court held that a patent holder cannot charge royalties for the use of his invention after its patent term has expired. The sole question presented here is whether we should overrule Brulotte . Adhering to principles of stare decisis, we decline to do so. Critics of the Brulotte rule must seek relief not from this Court but from Congress.

I

In 1990, petitioner Stephen Kimble obtained a patent on a toy that allows children (and young-at-heart adults) to role-play as "a spider person" by shooting webs-really, pressurized foam string-"from the palm of [the] hand." U.S. Patent No. 5,072,856, Abstract (filed May 25, *24061990).1 Respondent Marvel Entertainment, LLC (Marvel) makes and markets products featuring Spider-Man, among other comic-book characters. Seeking to sell or license his patent, Kimble met with the president of Marvel's corporate predecessor to discuss his idea for web-slinging fun. Soon afterward, but without remunerating Kimble, that company began marketing the " Web Blaster"-a toy that, like Kimble's patented invention, enables would-be action heroes to mimic Spider-Man through the use of a polyester glove and a canister of foam.

Kimble sued Marvel in 1997 alleging, among other things, patent infringement. The parties ultimately settled that litigation. Their agreement provided that Marvel would purchase Kimble's patent in exchange for a lump sum (of about a half-million dollars) and a 3% royalty on Marvel's future sales of the Web Blaster and similar products. The parties set no end date for royalties, apparently contemplating that they would continue for as long as kids want to imitate Spider-Man (by doing whatever a spider can).

And then Marvel stumbled across Brulotte, the case at the heart of this dispute. In negotiating the settlement, neither side was aware of Brulotte . But Marvel must have been pleased to learn of it. Brulotte had read the patent laws to prevent a patentee from receiving royalties for sales made after his patent's expiration. See 379 U.S., at 32, 85 S.Ct. 176. So the decision's effect was to sunset the settlement's royalty clause.2 On making that discovery, Marvel sought a declaratory judgment in federal district court confirming that the company could cease paying royalties come 2010-the end of Kimble's patent term. The court approved that relief, holding that Brulotte made "the royalty provision ... unenforceable after the expiration of the Kimble patent." 692 F.Supp.2d 1156, 1161 (D.Ariz.2010). The Court of Appeals for the Ninth Circuit affirmed, though making clear that it was none too happy about doing so. "[T]he Brulotte rule," the court complained, "is counterintuitive and its rationale is arguably unconvincing." 727 F.3d 856, 857 (2013).

We granted certiorari, 574 U.S. ----, 135 S.Ct. 781, 190 L.Ed.2d 649 (2014), to decide whether, as some courts and commentators have suggested, we should overrule Brulotte .3 For reasons of stare decisis, we demur.

II

Patents endow their holders with certain superpowers, but only for a limited time. In crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to *2407discoveries. While a patent lasts, the patentee possesses exclusive rights to the patented article-rights he may sell or license for royalty payments if he so chooses. See 35 U.S.C. § 154(a)(1). But a patent typically expires 20 years from the day the application for it was filed. See § 154(a)(2). And when the patent expires, the patentee's prerogatives expire too, and the right to make or use the article, free from all restriction, passes to the public. See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 230, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964).

This Court has carefully guarded that cut-off date, just as it has the patent laws' subject-matter limits: In case after case, the Court has construed those laws to preclude measures that restrict free access to formerly patented, as well as unpatentable, inventions. In one line of cases, we have struck down state statutes with that consequence. See, e.g., id., at 230-233, 84 S.Ct. 784 ; Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 152, 167-168, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989) ; Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 237-238, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964). By virtue of federal law, we reasoned, "an article on which the patent has expired," like an unpatentable article, "is in the public domain and may be made and sold by whoever chooses to do so." Sears, 376 U.S., at 231, 84 S.Ct. 784. In a related line of decisions, we have deemed unenforceable private contract provisions limiting free use of such inventions. In Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 66 S.Ct. 101, 90 L.Ed. 47 (1945), for example, we determined that a manufacturer could not agree to refrain from challenging a patent's validity. Allowing even a single company to restrict its use of an expired or invalid patent, we explained, "would deprive ... the consuming public of the advantage to be derived" from free exploitation of the discovery. Id., at 256, 66 S.Ct. 101. And to permit such a result, whether or not authorized "by express contract," would impermissibly undermine the patent laws. Id., at 255-256, 66 S.Ct. 101 ; see also, e.g., Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U.S. 394, 400-401, 67 S.Ct. 416, 91 L.Ed. 374 (1947) (ruling that Scott Paper applies to licensees); Lear, Inc. v. Adkins, 395 U.S. 653, 668-675, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969) (refusing to enforce a contract requiring a licensee to pay royalties while contesting a patent's validity).

Brulotte was brewed in the same barrel. There, an inventor licensed his patented hop-picking machine to farmers in exchange for royalties from hop crops harvested both before and after his patents' expiration dates. The Court (by an 8-1 vote) held the agreement unenforceable-"unlawful per se "-to the extent it provided for the payment of royalties "accru[ing] after the last of the patents incorporated into the machines had expired." 379 U.S., at 30, 32, 85 S.Ct. 176. To arrive at that conclusion, the Court began with the statutory provision setting the length of a patent term. See id., at 30, 85 S.Ct. 176 (quoting the then-current version of § 154 ). Emphasizing that a patented invention "become[s] public property once [that term] expires," the Court then quoted from Scott Paper : Any attempt to limit a licensee's post-expiration use of the invention, "whatever the legal device employed, runs counter to the policy and purpose of the patent laws." 379 U.S., at 31, 85 S.Ct. 176 (quoting 326 U.S., at 256 ). In the Brulotte Court's view, contracts to pay royalties for such use continue "the patent monopoly beyond the [patent] period," even though only as to the licensee affected. 379 U.S., at 33, 85 S.Ct. 176. And in so doing, those agreements conflict with patent law's policy of establishing a *2408"post-expiration ... public domain" in which every person can make free use of a formerly patented product. Ibid.

The Brulotte rule, like others making contract provisions unenforceable, prevents some parties from entering into deals they desire. As compared to lump-sum fees, royalty plans both draw out payments over time and tie those payments, in each month or year covered, to a product's commercial success. And sometimes, for some parties, the longer the arrangement lasts, the better-not just up to but beyond a patent term's end. A more extended payment period, coupled (as it presumably would be) with a lower rate, may bring the price the patent holder seeks within the range of a cash-strapped licensee. (Anyone who has bought a product on installment can relate.) See Brief for Memorial Sloan Kettering Cancer Center et al. as Amici Curiae 17. Or such an extended term may better allocate the risks and rewards associated with commercializing inventions-most notably, when years of development work stand between licensing a patent and bringing a product to market. See, e.g., 3 R. Milgrim & E. Bensen, Milgrim on Licensing § 18.05, p. 18-9 (2013). As to either goal, Brulotte may pose an obstacle.

Yet parties can often find ways around Brulotte, enabling them to achieve those same ends. To start, Brulotte allows a licensee to defer payments for pre-expiration use of a patent into the post-expiration period; all the decision bars are royalties for using an invention after it has moved into the public domain. See 379 U.S., at 31, 85 S.Ct. 176 ; Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 136, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969). A licensee could agree, for example, to pay the licensor a sum equal to 10% of sales during the 20-year patent term, but to amortize that amount over 40 years. That arrangement would at least bring down early outlays, even if it would not do everything the parties might want to allocate risk over a long timeframe. And parties have still more options when a licensing agreement covers either multiple patents or additional non-patent rights. Under Brulotte, royalties may run until the latest-running patent covered in the parties' agreement expires. See 379 U.S., at 30, 85 S.Ct. 176. Too, post-expiration royalties are allowable so long as tied to a non-patent right-even when closely related to a patent. See, e.g., 3 Milgrim on Licensing § 18.07, at 18-16 to 18-17. That means, for example, that a license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone). Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties-all kinds of joint ventures, for example-that enable parties to share the risks and rewards of commercializing an invention.

Contending that such alternatives are not enough, Kimble asks us to abandon Brulotte in favor of "flexible, case-by-case analysis" of post-expiration royalty clauses "under the rule of reason." Brief for Petitioners 45. Used in antitrust law, the rule of reason requires courts to evaluate a practice's effect on competition by "taking into account a variety of factors, including specific information about the relevant business, its condition before and after the [practice] was imposed, and the [practice's] history, nature, and effect." State Oil Co. v. Khan, 522 U.S. 3, 10, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997). Of primary importance in this context, Kimble posits, is whether a patent holder has power in the relevant market and so might be able to curtail competition. See Brief for Petitioners *240947-48; Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28, 44, 126 S.Ct. 1281, 164 L.Ed.2d 26 (2006) ("[A] patent does not necessarily confer market power"). Resolving that issue, Kimble notes, entails "a full-fledged economic inquiry into the definition of the market, barriers to entry, and the like." Brief for Petitioners 48 (quoting 1 H. Hovenkamp, M. Janis, M. Lemley, & C. Leslie, IP and Antitrust § 3.2e, p. 3-12.1 (2d ed., Supp. 2014) (Hovenkamp)).

III

Overruling precedent is never a small matter. Stare decisis -in English, the idea that today's Court should stand by yesterday's decisions-is "a foundation stone of the rule of law." Michigan v. Bay Mills Indian Community, 572 U.S. ----, ----, 134 S.Ct. 2024, 2036, 188 L.Ed.2d 1071 (2014). Application of that doctrine, although "not an inexorable command," is the "preferred course because it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process." Payne v. Tennessee, 501 U.S. 808, 827-828, 111 S.Ct. 2597, 115 L.Ed.2d 720 (1991). It also reduces incentives for challenging settled precedents, saving parties and courts the expense of endless relitigation.

Respecting stare decisis means sticking to some wrong decisions. The doctrine rests on the idea, as Justice Brandeis famously wrote, that it is usually "more important that the applicable rule of law be settled than that it be settled right." Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 406, 52 S.Ct. 443, 76 L.Ed. 815 (1932) (dissenting opinion). Indeed, stare decisis has consequence only to the extent it sustains incorrect decisions; correct judgments have no need for that principle to prop them up. Accordingly, an argument that we got something wrong-even a good argument to that effect-cannot by itself justify scrapping settled precedent. Or otherwise said, it is not alone sufficient that we would decide a case differently now than we did then. To reverse course, we require as well what we have termed a "special justification"-over and above the belief "that the precedent was wrongly decided." Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. ----, ----, 134 S.Ct. 2398, 2407, 189 L.Ed.2d 339 (2014).

What is more, stare decisis carries enhanced force when a decision, like Brulotte, interprets a statute. Then, unlike in a constitutional case, critics of our ruling can take their objections across the street, and Congress can correct any mistake it sees. See, e.g., Patterson v. McLean Credit Union, 491 U.S. 164, 172-173, 109 S.Ct. 2363, 105 L.Ed.2d 132 (1989). That is true, contrary to the dissent's view, see post, at 2417 - 2418 (opinion of ALITO, J.), regardless whether our decision focused only on statutory text or also relied, as Brulotte did, on the policies and purposes animating the law. See, e.g., Bilski v. Kappos, 561 U.S. 593, 601-602, 130 S.Ct. 3218, 177 L.Ed.2d 792 (2010). Indeed, we apply statutory stare decisis even when a decision has announced a "judicially created doctrine" designed to implement a federal statute. Halliburton, 573 U.S., at ----, 134 S.Ct., at 2411. All our interpretive decisions, in whatever way reasoned, effectively become part of the statutory scheme, subject (just like the rest) to congressional change. Absent special justification, they are balls tossed into Congress's court, for acceptance or not as that branch elects.

And Congress has spurned multiple opportunities to reverse Brulotte -openings as frequent and clear as this Court ever *2410sees. Brulotte has governed licensing agreements for more than half a century. See Watson v. United States, 552 U.S. 74, 82-83, 128 S.Ct. 579, 169 L.Ed.2d 472 (2007) (stating that "long congressional acquiescence," there totaling just 14 years, "enhance[s] even the usual precedential force we accord to our interpretations of statutes" (internal quotation marks omitted)). During that time, Congress has repeatedly amended the patent laws, including the specific provision ( 35 U.S.C. § 154 ) on which Brulotte rested. See, e.g., Uruguay Round Agreements Act, § 532(a), 108 Stat. 4983 (1994) (increasing the length of the patent term); Act of Nov. 19, 1988, § 201, 102 Stat. 4676 (limiting patent-misuse claims). Brulotte survived every such change. Indeed, Congress has rebuffed bills that would have replaced Brulotte 's per se rule with the same antitrust-style analysis Kimble now urges. See, e.g., S. 1200, 100th Cong., 1st Sess., Tit. II (1987) (providing that no patent owner would be guilty of "illegal extension of the patent right by reason of his or her licensing practices ... unless such practices ... violate the antitrust laws"); S. 438, 100th Cong., 2d Sess., § 201(3) (1988) (same). Congress's continual reworking of the patent laws-but never of the Brulotte rule-further supports leaving the decision in place.

Nor yet are we done, for the subject matter of Brulotte adds to the case for adhering to precedent. Brulotte lies at the intersection of two areas of law: property (patents) and contracts (licensing agreements). And we have often recognized that in just those contexts-"cases involving property and contract rights"-considerations favoring stare decisis are "at their acme." E.g., Payne, 501 U.S., at 828, 111 S.Ct. 2597 ; Khan, 522 U.S., at 20, 118 S.Ct. 275. That is because parties are especially likely to rely on such precedents when ordering their affairs. To be sure, Marvel and Kimble disagree about whether Brulotte has actually generated reliance. Marvel says yes: Some parties, it claims, do not specify an end date for royalties in their licensing agreements, instead relying on Brulotte as a default rule. Brief for Respondent 32-33; see 1 D. Epstein, Eckstrom's Licensing in Foreign and Domestic Operations § 3.13, p. 3-13, and n. 2 (2014) (noting that it is not "necessary to specify the term ... of the license" when a decision like Brulotte limits it "by law"). Overturning Brulotte would thus upset expectations, most so when long-dormant licenses for long-expired patents spring back to life. Not true, says Kimble: Unfair surprise is unlikely, because no "meaningful number of [such] license agreements ... actually exist." Reply Brief 18. To be honest, we do not know (nor, we suspect, do Marvel and Kimble). But even uncertainty on this score cuts in Marvel's direction. So long as we see a reasonable possibility that parties have structured their business transactions in light of Brulotte, we have one more reason to let it stand.

As against this superpowered form of stare decisis, we would need a superspecial justification to warrant reversing Brulotte . But the kinds of reasons we have most often held sufficient in the past do not help Kimble here. If anything, they reinforce our unwillingness to do what he asks.

First, Brulotte 's statutory and doctrinal underpinnings have not eroded over time. When we reverse our statutory interpretations, we most often point to subsequent legal developments-"either the growth of judicial doctrine or further action taken by Congress"-that have removed the basis for a decision. Patterson, 491 U.S., at 173, 109 S.Ct. 2363 (calling this "the primary reason" for overruling statutory precedent). But the core feature of the patent laws on which Brulotte relied remains just the same: Section 154 now, as then, draws *2411a sharp line cutting off patent rights after a set number of years. And this Court has continued to draw from that legislative choice a broad policy favoring unrestricted use of an invention after its patent's expiration. See supra, at 2406 - 2407. Scott Paper -the decision on which Brulotte primarily relied-remains good law. So too do this Court's other decisions refusing to enforce either state laws or private contracts constraining individuals' free use of formerly patented (or unpatentable) discoveries. See supra, at 2406 - 2407. Brulotte, then, is not the kind of doctrinal dinosaur or legal last-man-standing for which we sometimes depart from stare decisis . Compare, e.g., Alleyne v. United States, 570 U.S. ----, ---- - ----, 133 S.Ct. 2151, 2164-2166, 186 L.Ed.2d 314 (2013) (SOTOMAYOR, J., concurring). To the contrary, the decision's close relation to a whole web of precedents means that reversing it could threaten others. If Brulotte is outdated, then (for example) is Scott Paper too? We would prefer not to unsettle stable law.4

And second, nothing about Brulotte has proved unworkable. See, e.g., Patterson, 491 U.S., at 173, 109 S.Ct. 2363 (identifying unworkability as another "traditional justification" for overruling precedent). The decision is simplicity itself to apply. A court need only ask whether a licensing agreement provides royalties for post-expiration use of a patent. If not, no problem; if so, no dice. Brulotte 's ease of use appears in still sharper relief when compared to Kimble's proposed alternative. Recall that he wants courts to employ antitrust law's rule of reason to identify and invalidate those post-expiration royalty clauses with anti-competitive consequences. See supra, at 2408 - 2409. But whatever its merits may be for deciding antitrust claims, that "elaborate inquiry" produces notoriously high litigation costs and unpredictable results. Arizona v. Maricopa County Medical Soc., 457 U.S. 332, 343, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982). For that reason, trading in Brulotte for the rule of reason would make the law less, not more, workable than it is now. Once again, then, the case for sticking with long-settled precedent grows stronger: Even the most usual reasons for abandoning stare decisis cut the other way here.

IV

Lacking recourse to those traditional justifications for overruling a prior decision, *2412Kimble offers two different ones. He claims first that Brulotte rests on a mistaken view of the competitive effects of post-expiration royalties. He contends next that Brulotte suppresses technological innovation and so harms the nation's economy. (The dissent offers versions of those same arguments. See post, at 2415 - 2417.) We consider the two claims in turn, but our answers to both are much the same: Kimble's reasoning may give Congress cause to upset Brulotte, but does not warrant this Court's doing so.

A

According to Kimble, we should overrule Brulotte because it hinged on an error about economics: It assumed that post-patent royalty "arrangements are invariably anticompetitive." Brief for Petitioners 37. That is not true, Kimble notes; indeed, such agreements more often increase than inhibit competition, both before and after the patent expires. See id., at 36-40. As noted earlier, a longer payment period will typically go hand-in-hand with a lower royalty rate. See supra, at 2407. During the patent term, those reduced rates may lead to lower consumer prices, making the patented technology more competitive with alternatives; too, the lesser rates may enable more companies to afford a license, fostering competition among the patent's own users. See Brief for Petitioners 38. And after the patent's expiration, Kimble continues, further benefits follow: Absent high barriers to entry (a material caveat, as even he would agree, see Tr. of Oral Arg. 12-13, 23), the licensee's continuing obligation to pay royalties encourages new companies to begin making the product, figuring that they can quickly attract customers by undercutting the licensee on price. See Brief for Petitioners 38-39. In light of those realities, Kimble concludes, "the Brulotte per se rule makes little sense." Id., at 11.

We do not join issue with Kimble's economics-only with what follows from it. A broad scholarly consensus supports Kimble's view of the competitive effects of post-expiration royalties, and we see no error in that shared analysis. See id., at 13-18 (citing numerous treatises and articles critiquing Brulotte ). Still, we must decide what that means for Brulotte . Kimble, of course, says it means the decision must go. Positing that Brulotte turned on the belief that post-expiration royalties are always anticompetitive, he invokes decisions in which this Court abandoned antitrust precedents premised on similarly shaky economic reasoning. See Brief for Petitioners 55-56 (citing, e.g., Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007) ; Illinois Tool Works, 547 U.S. 28, 126 S.Ct. 1281, 164 L.Ed.2d 26 ). But to agree with Kimble's conclusion, we must resolve two questions in his favor. First, even assuming Kimble accurately characterizes Brulotte 's basis, does the decision's economic mistake suffice to overcome stare decisis ? Second and more fundamentally, was Brulotte actually founded, as Kimble contends, on an analysis of competitive effects?

If Brulotte were an antitrust rather than a patent case, we might answer both questions as Kimble would like. This Court has viewed stare decisis as having less-than-usual force in cases involving the Sherman Act. See, e.g., Khan, 522 U.S., at 20-21, 118 S.Ct. 275. Congress, we have explained, intended that law's reference to "restraint of trade" to have "changing content," and authorized courts to oversee the term's "dynamic potential." Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 731-732, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988). We have therefore felt relatively free to revise our *2413legal analysis as economic understanding evolves and (just as Kimble notes) to reverse antitrust precedents that misperceived a practice's competitive consequences. See Leegin, 551 U.S., at 899-900, 127 S.Ct. 2705. Moreover, because the question in those cases was whether the challenged activity restrained trade, the Court's rulings necessarily turned on its understanding of economics. See Business Electronics Corp., 485 U.S., at 731, 108 S.Ct. 1515. Accordingly, to overturn the decisions in light of sounder economic reasoning was to take them "on [their] own terms." Halliburton, 573 U.S., at ----, 134 S.Ct., at 2410.

But Brulotte is a patent rather than an antitrust case, and our answers to both questions instead go against Kimble. To begin, even assuming that Brulotte relied on an economic misjudgment, Congress is the right entity to fix it. By contrast with the Sherman Act, the patent laws do not turn over exceptional law-shaping authority to the courts. Accordingly, statutory stare decisis -in which this Court interprets and Congress decides whether to amend-retains its usual strong force. See supra, at 2409. And as we have shown, that doctrine does not ordinarily bend to "wrong on the merits"-type arguments; it instead assumes Congress will correct whatever mistakes we commit. See supra, at 2408 - 2409. Nor does Kimble offer any reason to think his own "the Court erred" claim is special. Indeed, he does not even point to anything that has changed since Brulotte -no new empirical studies or advances in economic theory. Compare, e.g., Halliburton, 573 U.S., at ----, 134 S.Ct., at 2409-2411 (considering, though finding insufficient, recent economic research). On his argument, the Brulotte Court knew all it needed to know to determine that post-patent royalties are not usually anticompetitive; it just made the wrong call. See Brief for Petitioners 36-40. That claim, even if itself dead-right, fails to clear stare decisis 's high bar.

And in any event, Brulotte did not hinge on the mistake Kimble identifies. Although some of its language invoked economic concepts, see n. 4, supra, the Court did not rely on the notion that post-patent royalties harm competition. Nor is that surprising. The patent laws-unlike the Sherman Act-do not aim to maximize competition (to a large extent, the opposite). And the patent term-unlike the "restraint of trade" standard-provides an all-encompassing bright-line rule, rather than calling for practice-specific analysis. So in deciding whether post-expiration royalties comport with patent law, Brulotte did not undertake to assess that practice's likely competitive effects. Instead, it applied a categorical principle that all patents, and all benefits from them, must end when their terms expire. See Brulotte, 379 U.S., at 30-32, 85 S.Ct. 176 ; supra, at 2406 - 2408. Or more specifically put, the Court held, as it had in Scott Paper, that Congress had made a judgment: that the day after a patent lapses, the formerly protected invention must be available to all for free. And further: that post-expiration restraints on even a single licensee's access to the invention clash with that principle. See Brulotte, 379 U.S., at 31-32, 85 S.Ct. 176 (a licensee's obligation to pay post-patent royalties conflicts with the "free market visualized for the post-expiration period" and so "runs counter to the policy and purpose of the patent laws" (quoting Scott Paper, 326 U.S., at 256, 66 S.Ct. 101 )). That patent (not antitrust) policy gave rise to the Court's conclusion that post-patent royalty contracts are unenforceable-utterly "regardless of a demonstrable effect on competition." 1 Hovenkamp § 3.2d, at 3-10.

*2414Kimble's real complaint may go to the merits of such a patent policy-what he terms its "formalis[m]," its "rigid[ity]", and its detachment from "economic reality." Brief for Petitioners 27-28. But that is just a different version of the argument that Brulotte is wrong. And it is, if anything, a version less capable than the last of trumping statutory stare decisis . For the choice of what patent policy should be lies first and foremost with Congress. So if Kimble thinks patent law's insistence on unrestricted access to formerly patented inventions leaves too little room for pro-competitive post-expiration royalties, then Congress, not this Court, is his proper audience.

B

Kimble also seeks support from the wellspring of all patent policy: the goal of promoting innovation. Brulotte, he contends, "discourages technological innovation and does significant damage to the American economy." Brief for Petitioners 29. Recall that would-be licensors and licensees may benefit from post-patent royalty arrangements because they allow for a longer payment period and a more precise allocation of risk. See supra, at 2407. If the parties' ideal licensing agreement is barred, Kimble reasons, they may reach no agreement at all. See Brief for Petitioners 32. And that possibility may discourage invention in the first instance. The bottom line, Kimble concludes, is that some "breakthrough technologies will never see the light of day." Id., at 33.

Maybe. Or, then again, maybe not. While we recognize that post-patent royalties are sometimes not anticompetitive, we just cannot say whether barring them imposes any meaningful drag on innovation. As we have explained, Brulotte leaves open various ways-involving both licensing and other business arrangements-to accomplish payment deferral and risk-spreading alike. See supra, at 2408. Those alternatives may not offer the parties the precise set of benefits and obligations they would prefer. But they might still suffice to bring patent holders and product developers together and ensure that inventions get to the public. Neither Kimble nor his amici have offered any empirical evidence connecting Brulotte to decreased innovation; they essentially ask us to take their word for the problem. And the United States, which acts as both a licensor and a licensee of patented inventions while also implementing patent policy, vigorously disputes that Brulotte has caused any "significant real-world economic harm." Brief for United States as Amicus Curiae 30. Truth be told, if forced to decide that issue, we would not know where or how to start.

Which is one good reason why that is not our job. Claims that a statutory precedent has "serious and harmful consequences" for innovation are (to repeat this opinion's refrain) "more appropriately addressed to Congress." Halliburton, 573 U.S., at ----, 134 S.Ct., at 2413. That branch, far more than this one, has the capacity to assess Kimble's charge that Brulotte suppresses technological progress. And if it concludes that Brulotte works such harm, Congress has the prerogative to determine the exact right response-choosing the policy fix, among many conceivable ones, that will optimally serve the public interest. As we have noted, Congress legislates actively with respect to patents, considering concerns of just the kind Kimble raises. See supra, at 2410. In adhering to our precedent as against such complaints, we promote the rule-of-law values to which courts must attend while leaving matters of public policy to Congress.

*2415V

What we can decide, we can undecide. But stare decisis teaches that we should exercise that authority sparingly. Cf. S. Lee and S. Ditko, Amazing Fantasy No. 15: "Spider-Man," p. 13 (1962) ("[I]n this world, with great power there must also come-great responsibility"). Finding many reasons for staying the stare decisis course and no "special justification" for departing from it, we decline Kimble's invitation to overrule Brulotte .

For the reasons stated, the judgment of the Court of Appeals is affirmed.

It is so ordered.

Justice ALITO, with whom THE CHIEF JUSTICE and Justice THOMAS join, dissenting.

The Court employs stare decisis, normally a tool of restraint, to reaffirm a clear case of judicial overreach. Our decision in Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176, 13 L.Ed.2d 99 (1964), held that parties cannot enter into a patent licensing agreement that provides for royalty payments to continue after the term of the patent expires. That decision was not based on anything that can plausibly be regarded as an interpretation of the terms of the Patent Act. It was based instead on an economic theory-and one that has been debunked. The decision interferes with the ability of parties to negotiate licensing agreements that reflect the true value of a patent, and it disrupts contractual expectations. Stare decisis does not require us to retain this baseless and damaging precedent.

I

A

The Patent Act provides that a patent grants certain exclusive rights to the patentee and "his heirs or assigns" for a term of 20 years. 35 U.S.C. §§ 154(a)(1) and (2). The Act says nothing whatsoever about post-expiration royalties. In Brulotte, however, the Court held that such royalties are per se unlawful. The Court made little pretense of finding support for this holding in the language of the Act. Instead, the Court reasoned that allowing post-expiration royalties would subject "the free market visualized for the post-expiration period ... to monopoly influences that have no proper place there." 379 U.S., at 32-33, 85 S.Ct. 176. Invoking antitrust concepts, the decision suggested that such arrangements are "an effort to enlarge the monopoly of the patent by t[y]ing the sale or use of the patented article to the purchase or use of unpatented ones." Id., at 33, 85 S.Ct. 176.

Whatever the merits of this economic argument, it does not represent a serious attempt to interpret the Patent Act. A licensing agreement that provides for the payment of royalties after a patent's term expires does not enlarge the patentee's monopoly or extend the term of the patent. It simply gives the licensor a contractual right. Thus, nothing in the text of the Act even arguably forbids licensing agreements that provide for post-expiration royalties.

Brulotte was thus a bald act of policymaking. It was not simply a case of incorrect statutory interpretation. It was not really statutory interpretation at all.

B

Not only was Brulotte based on policymaking, it was based on a policy that is difficult to defend. Indeed, in the intervening 50 years, its reasoning has been soundly refuted. See, e.g., 10 P. Areeda & H. Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 1782c.3, pp. 554-556 (3d ed. 2011); See & Caprio, *2416The Trouble with Brulotte : The Patent Royalty Term and Patent Monopoly Extension, 1990 Utah L.Rev. 813, 846-851 ; Scheiber v. Dolby Labs., Inc., 293 F.3d 1014, 1017 (C.A.7 2002) ; Brief for Petitioners 23-25, and n. 11 (collecting sources); ante, at 2406, n. 3.

Brulotte misperceived the purpose and effect of post-expiration royalties. The decision rested on the view that post-expiration royalties extend the patent term by means of an anti-competitive tying arrangement. As the Court understood such an arrangement, the patent holder leverages its monopoly power during the patent term to require payments after the term ends, when the invention would otherwise be available for free public use. But agreements to pay licensing fees after a patent expires do not "enlarge the monopoly of the patent." 379 U.S., at 33, 85 S.Ct. 176. Instead, "[o]nce the patent term expires, the power to exclude is gone," and all that is left "is a problem about optimal contract design." Easterbrook, Contract and Copyright, 42 Hous. L.Rev. 953, 955 (2005).

The economics are simple: Extending a royalty term allows the parties to spread the licensing fees over a longer period of time, which naturally has the effect of reducing the fees during the patent term. See ante, at 2407. Restricting royalty payments to the patent term, as Brulotte requires, compresses payment into a shorter period of higher fees. The Patent Act does not prefer one approach over the other.

There are, however, good reasons why parties sometimes prefer post-expiration royalties over upfront fees, and why such arrangements have pro-competitive effects. Patent holders and licensees are often unsure whether a patented idea will yield significant economic value, and it often takes years to monetize an innovation. In those circumstances, deferred royalty agreements are economically efficient. They encourage innovators, like universities, hospitals, and other institutions, to invest in research that might not yield marketable products until decades down the line. See Brief for Memorial Sloan Kettering Cancer Center et al. as Amici Curiae 8-12. And they allow producers to hedge their bets and develop more products by spreading licensing fees over longer periods. See ibid . By prohibiting these arrangements, Brulotte erects an obstacle to efficient patent use. In patent law and other areas, we have abandoned per se rules with similarly disruptive effects. See, e.g., Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28, 126 S.Ct. 1281, 164 L.Ed.2d 26 (2006) ; Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007).

The majority downplays this harm by insisting that "parties can often find ways around Brulotte ." Ante, at 2408. But the need to avoid Brulotte is an economic inefficiency in itself. Parties are not always aware of the prohibition-as this case amply demonstrates. And the suggested alternatives do not provide the same benefits as post-expiration royalty agreements. For instance, although an agreement to amortize payments for sales during the patent term would "bring down early outlays," the Court admits that such an agreement might not reflect the parties' risk preferences. Ante, at 2408. Moreover, such an arrangement would not necessarily yield the same amount of total royalties, particularly for an invention or a medical breakthrough that takes decades to develop into a marketable product. The sort of agreements that Brulotte prohibits would allow licensees to spread their costs, while also allowing patent holders to capitalize on slow-developing inventions.

*2417C

On top of that, Brulotte most often functions to upset the parties' expectations.

This case illustrates the point. No one disputes that, when "negotiating the settlement, neither side was aware of Brulotte ." Ante, at 2406. Without knowledge of our per se rule, the parties agreed that Marvel would pay 3% in royalties on all of its future sales involving the Web Blaster and similar products. If the parties had been aware of Brulotte, they might have agreed to higher payments during the patent term. Instead, both sides expected the royalty payments to continue until Marvel stopped selling toys that fit the terms of the agreement. But that is not what happened. When Marvel discovered Brulotte, it used that decision to nullify a key part of the agreement. The parties' contractual expectations were shattered, and petitioners' rights were extinguished.

The Court's suggestion that some parties have come to rely on Brulotte is fanciful. The Court believes that there is a "reasonable possibility that parties have structured their business transactions in light of Brulotte ." Ante, at 2410. Its only support for this conclusion is Marvel's self-serving and unsupported assertion that some contracts might not specify an end date for royalties because the parties expect Brulotte to supply the default rule. To its credit, the Court stops short of endorsing this unlikely prediction, saying only that "uncertainty on this score cuts in Marvel's direction." Ante, at 2410.

But there is no real uncertainty. "[W]e do not know" if Marvel's assertion is correct because Marvel has provided no evidence to support it. Ibid. And there are reasons to believe that, if parties actually relied on Brulotte to supply a default rule, courts would enforce the contracts as the parties expected. See, e.g., 27 R. Lord, Williston on Contracts § 70:124 (4th ed. 2003). What we know for sure, however, is that Brulotte has upended the parties' expectations here and in many other cases. See, e.g., Scheiber, 293 F.3d, at 1016 ; Boggild v. Kenner Products, 853 F.2d 465, 466-467 (C.A.6 1988) ; Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365, 1367, 1373 (C.A.11 1983). These confirmed problems with retaining Brulotte clearly outweigh Marvel's hypothetical fears.

II

In the end, Brulotte 's only virtue is that we decided it. But that does not render it invincible. Stare decisis is important to the rule of law, but so are correct judicial decisions. Adherence to prior decisions " 'promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process.' " Pearson v. Callahan, 555 U.S. 223, 233, 129 S.Ct. 808, 172 L.Ed.2d 565 (2009) (quoting Payne v. Tennessee, 501 U.S. 808, 827, 111 S.Ct. 2597, 115 L.Ed.2d 720 (1991) ). But stare decisis is not an "inexorable command." Payne, supra, at 828, 111 S.Ct. 2597 ; Washington v. W.C. Dawson & Co., 264 U.S. 219, 238, 44 S.Ct. 302, 68 L.Ed. 646 (1924) (Brandeis, J., dissenting). "Revisiting precedent is particularly appropriate where, as here, a departure would not upset expectations, the precedent consists of a judge-made rule ..., and experience has pointed up the precedent's shortcomings." Pearson, supra, at 233, 129 S.Ct. 808.

Our traditional approach to stare decisis does not require us to retain Brulotte 's per se rule. Brulotte 's holding had no basis in the law. Its reasoning has been thoroughly disproved. It poses economic barriers that stifle innovation. And it unsettles contractual expectations.

*2418It is not decisive that Congress could have altered Brulotte ' s rule. In general, we are especially reluctant to overturn decisions interpreting statutes because those decisions can be undone by Congress. See, e.g., John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 139, 128 S.Ct. 750, 169 L.Ed.2d 591 (2008) ; Patterson v. McLean Credit Union, 491 U.S. 164, 172-173, 109 S.Ct. 2363, 105 L.Ed.2d 132 (1989). The Court calls this a "superpowered form of stare decisis " that renders statutory interpretation decisions nearly impervious to challenge. Ante, at 2410. I think this goes a bit too far.

As an initial matter, we do not give super-duper protection to decisions that do not actually interpret a statute. When a precedent is based on a judge-made rule and is not grounded in anything that Congress has enacted, we cannot "properly place on the shoulders of Congress" the entire burden of correcting "the Court's own error." Girouard v. United States, 328 U.S. 61, 69-70, 66 S.Ct. 826, 90 L.Ed. 1084 (1946). On the contrary, we have recognized that it is appropriate for us to correct rules of this sort. See, e.g., Leegin, 551 U.S., at 899-900, 127 S.Ct. 2705 ; State Oil Co. v. Khan, 522 U.S. 3, 20-21, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997).

The Court says that it might agree if Brulotte were an antitrust precedent because stare decisis has "less-than-usual force in cases involving the Sherman Act." Ante, at 2412. But this distinction is unwarranted. We have been more willing to reexamine antitrust precedents because they have attributes of common-law decisions. I see no reason why the same approach should not apply where the precedent at issue, while purporting to apply a statute, is actually based on policy concerns. Indeed, we should be even more willing to reconsider such a precedent because the role implicitly assigned to the federal courts under the Sherman Act has no parallel in Patent Act cases.

Even taking the Court on its own terms, Brulotte was an antitrust decision masquerading as a patent case. The Court was principally concerned with patentees improperly leveraging their monopoly power. See 379 U.S., at 32-33, 85 S.Ct. 176. And it expressly characterized post-expiration royalties as anti-competitive tying arrangements. See id., at 33, 85 S.Ct. 176. It makes no sense to afford greater stare decisis protection to Brulotte 's thinly veiled antitrust reasoning than to our Sherman Act decisions.

The Court also places too much weight on Congress' failure to overturn Brulotte . We have long cautioned that "[i]t is at best treacherous to find in congressional silence alone the adoption of a controlling rule of law." Girouard, supra, at 69, 66 S.Ct. 826. Even where Congress has considered, but not adopted, legislation that would abrogate a judicial ruling, it cannot be inferred that Congress' failure to act shows that it approves the ruling. See Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 187, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994). " '[S]everal equally tenable inferences may be drawn from such inaction.' " Ibid . (quoting Pension Benefit Guaranty Corporation v. LTV Corp., 496 U.S. 633, 650, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990) ).

Passing legislation is no easy task. A federal statute must withstand the "finely wrought" procedure of bicameralism and presentment. INS v. Chadha, 462 U.S. 919, 951, 103 S.Ct. 2764, 77 L.Ed.2d 317 (1983); Clinton v. City of New York, 524 U.S. 417, 440, 118 S.Ct. 2091, 141 L.Ed.2d 393 (1998) ; see U.S. Const., Art. I, § 7. Within that onerous process, there are additional practical hurdles. A law must be taken up for discussion and not passed over in favor of more pressing matters, *2419and Senate rules require 60 votes to end debate on most legislation. And even if the House and Senate agree on a general policy, the details of the measure usually must be hammered out in a conference committee and repassed by both Houses.

* * *

A proper understanding of our doctrine of stare decisis does not prevent us from reexamining Brulotte. Even the Court does not defend the decision on the merits. I would reconsider and overrule our obvious mistake. For these reasons, I respectfully dissent.

26.3 Lear, Inc. v. Adkins 26.3 Lear, Inc. v. Adkins

Patent: Licensee Estoppel

LEAR, INC. v. ADKINS.

No. 56.

Argued November 20-21, 1968.

Decided June 16, 1969.

*655 C. Russell Hale argued the cause for petitioner. With him on the briefs were Edwin L. Hartz, Thomas G. Corcoran, and Allen E. Throop.

Peter R. Cohen argued the cause for respondent. With him on the brief was Allen E. Susman.

Lawrence G. Wallace argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Griswold, Assistant Attorney General Zimmerman, and Howard E. Shapiro.

Mr. Justice Harlan

delivered the opinion of the Court.

In January of 1952, John Adkins, an inventor and mechanical engineer, was hired by Lear, Incorporated, for the purpose of solving a vexing problem the company had encountered in its efforts to develop a gyroscope which would meet the increasingly demanding requirements of the aviation industry. The gyroscope is an essential component of the navigational system in all aircraft, enabling the pilot to learn the direction and attitude of his airplane. With the development of the faster airplanes of the 1950’s, more accurate gyroscopes were needed, and the gyro industry consequently was casting about for new techniques which would satisfy this need in an economical fashion. Shortly after Adkins was hired, he developed a method of construction at the company’s California facilities which improved gyroscope accuracy at a low cost. Lear almost immediately incorporated Adkins’ improvements into its production process to its substantial advantage.

The question that remains unsettled in this case, after eight years of litigation in the California courts, is whether Adkins will receive compensation for Lear’s use of those improvements which the inventor has subsequently patented. At every stage of this lawsuit, Lear has sought to prove that, despite the grant of a patent *656by the Patent Office, none of Adkins’ improvements were sufficiently novel to warrant the award of a monopoly under the standards delineated in the governing federal statutes. Moreover, the company has sought to prove that Adkins obtained his patent by means of a fraud on the Patent Office. In response, the inventor has argued that since Lear had entered into a licensing agreement with Adkins, it was obliged to pay the agreed royalties regardless of the validity of the underlying patent.

The Supreme Court of California unanimously vindicated the inventor’s position. While the court recognized that generally a manufacturer is free to challenge the validity of an inventor’s patent, it held that “one of the oldest doctrines in the field of patent law establishes that so long as a licensee is operating under a license agreement he is estopped to deny the validity of his licensor’s patent in a suit for royalties under the agreement. The theory underlying this doctrine is that a licensee should not be permitted to enjoy the benefit afforded by the agreement while simultaneously urging that the patent which forms the basis of the agreement is void.” 67 Cal. 2d 882, 891, 435 P. 2d 321, 325-326 (1967).

Almost 20 years ago, in its last consideration of the doctrine, this Court also invoked an estoppel to deny a licensee the right to prove that his licensor was demanding royalties for the use of an idea which was in reality a part of the public domain. Automatic Radio Manufacturing Co. v. Hazeltine Research, Inc., 339 U. S. 827, 836 (1950). We granted certiorari in the present case, 391 U. S. 912, to reconsider the validity of the Hazeltine rule in the light of our recent decisions emphasizing the strong federal policy favoring free competition in ideas which do not merit patent protection. Sears, Roebuck v. Stiffel Co., 376 U. S. 225 (1964); Compco Corp. v. Day-Brite Lighting, Inc., 376 U. S. 234 (1964).

*657I.

At the very beginning of the parties’ relationship, Lear and Adkins entered into a rudimentary one-page agreement which provided that although “[a] 11 new ideas, discoveries, inventions, etc., related to . . . vertical gyros become the property of Mr. John S. Adkins,” the inventor promised to grant Lear a license as to all ideas he might develop “on a mutually satisfactory royalty basis.” 1 As soon as Adkins’ labors yielded tangible results, it quickly became apparent to the inventor that further steps should be taken to place his rights to his ideas on a firmer basis. On February 4, 1954, Adkins filed an application with the Patent Office in an effort to gain federal protection for his improvements. At about the same time, he entered into a lengthy period of negotiations with Lear in an effort to conclude a licensing agreement which would clearly establish the amount of royalties that would be paid.

These negotiations finally bore fruit on September 15, 1955, when the parties approved a complex 17-page contract which carefully delineated the conditions upon which Lear promised to pay royalties for Adkins’ improvements. The parties agreed that if “the U. S. Patent Office refuses to issue a patent on the substantial claims [contained in Adkins’ original patent application] or if such a patent so issued is subsequently held invalid, then in any of such events Lear at its option shall have the right forthwith to terminate the specific license so affected or to terminate this entire Agreement . . . .” § 6. (2 App. 138.)

*658As the contractual language indicates, Adkins had not obtained a final Patent Office decision as to the patent-ability of his invention at the time the licensing agreement was concluded. Indeed, he was not to receive a patent until January 5, 1960. This long delay has its source in the special character of Patent Office procedures. The regulations do not require the Office to make a final judgment on an invention’s patentability on the basis of the inventor’s original application.2 While it sometimes happens that a patent is granted at this early stage, it is far more common for the Office to find that although certain of the applicant’s claims may be patentable, certain others have been fully anticipated by the earlier developments in the art. In such a situation, the Patent Office does not attempt to separate the wheat from the chaff on its own initiative. Instead, it rejects the application, giving the inventor the right to make an amendment which narrows his claim to cover only those aspects of the invention which are truly novel.3 It often happens, however, that even after an application is amended, the Patent Office finds that some of the remaining claims are unpatentable. When this occurs, the agency again issues a rejection which is subject to further amendment.4 And so the process of rejection and amendment continues until the Patent Office Examiner either grants a patent or concludes that none of the inventor’s claims could possibly be patentable, at which time a final rejection is entered on the Office’s records.5 Thus, when Adkins made his original application in 1954, it took the average inventor more than three years before he obtained a final administrative decision on the patentability of his ideas, with the Patent *659Office acting on the average application from two to four times.6

The progress of Adkins’ effort to obtain a patent followed the typical pattern. In his initial application, the inventor made the ambitious claim that his entire method of constructing gyroscopes was sufficiently novel to merit protection. The Patent Office, however, rejected this initial claim, as well as two subsequent amendments, which progressively narrowed the scope of the invention sought to be protected. Finally, Adkins narrowed his claim drastically to assert only that the design of the apparatus used to achieve gyroscope accuracy was novel.7 In response, the Office issued its 1960 patent, granting a 17-year monopoly on this more modest claim.

During the long period in which Adkins was attempting to convince the Patent Office of the novelty of his ideas, however, Lear had become convinced that Adkins would never receive a patent on his invention and that it should not continue to pay substantial royalties on ideas which had not contributed substantially to the development of the art of gyroscopy. In 1957, after Adkins’ patent application had been rejected twice, Lear announced that it had searched the Patent Office’s files and had found a patent which it believed had fully anticipated Adkins’ discovery. As a result, the company stated that it would no longer pay royalties on the large number of gyroscopes it was producing at its plant in Grand Rapids, Michigan (the Michigan gyros). Payments were continued on the smaller number of gyros produced at the company’s *660California plant (the California gyros) for two more years until they too were terminated on April 8, 1959.

As soon as Adkins obtained his patent in 1960, he brought this lawsuit in the California Superior Court. He argued to a jury that both the Michigan and the California gyros incorporated his patented apparatus and that Lear’s failure to pay royalties on these gyros was a breach both of the 1955 contract and of Lear’s quasi-contractual obligations. Although Lear sought to raise patent invalidity as a defense, the trial judge directed a verdict of $16,351.93 for Adkins on the California gyros, holding that Lear was estopped by its licensing agreement from questioning the inventor’s patent. The trial judge took a different approach when it came to considering the Michigan gyros. Noting that the company claimed that it had developed its Michigan designs independently of Adkins’ ideas, the court instructed the jury to award the inventor recovery only if it was satisfied that Adkins’ invention was novel, within the meaning of the federal patent laws. When the jury returned a verdict for Adkins of $888,122.56 on the Michigan gyros,8 the trial judge granted Lear’s motion for judgment notwithstanding the verdict, finding that Adkins’ invention had been completely anticipated by the prior art.9

*661Neither side was satisfied with this split decision, and both appealed to the California District Court of Appeal, which adopted a quite different approach. The court held that Lear was within its contractual rights in terminating its royalty obligations entirely in 1959, and that if Adkins desired to recover damages after that date he was “relegated to an action for infringement” in the federal courts. 52 Cal. Rptr. 795, 806. So far as pre-1959 royalties were concerned, the court held that the contract required the company to pay royalties on both the California and Michigan gyros regardless of the validity of the inventor’s patent. 52 Cal. Rptr., at 809.

Once again both sides appealed, this time to the California Supreme Court, which took yet another approach to the problem presented. The court rejected the District Court of Appeal’s conclusion that the 1955 license gave Lear the right to terminate its royalty obligations in 1959. Since the 1955 agreement was still in effect, the court concluded, relying on the language we have already quoted, that the doctrine of estoppel barred Lear from questioning the propriety of the Patent Office’s grant. 67 Cal. 2d, at 907, 435 P. 2d, at 336. The court’s adherence to estoppel, however, was not without qualification. After noting Lear’s claim that it had developed its Michigan gyros independently, the court tested this contention by considering “whether what is being built by Lear [in Michigan] springs entirely” (emphasis supplied) from the prior art. 67 Cal. 2d, at 913, 435 P. 2d, at 340. Applying this test, it found that Lear had in fact “utilized the apparatus patented by Adkins throughout the period in question,” 67 Cal. 2d, at 915, 435 P. 2d, at 341, and reinstated the jury’s $888,000 verdict on this branch of the case.

II.

Since the California Supreme Court’s construction of the 1955 licensing agreement is solely a matter of state *662law, the only issue open to us is raised by the court’s reliance upon the doctrine of estoppel to bar Lear from proving that Adkins’ ideas were dedicated to the common welfare by federal law.10 In considering the propriety of the State Court’s decision, we are well aware that we are not writing upon a clean slate. The doctrine of estoppel has been considered by this Court in a line of cases reaching back into the middle of the 19th century. Before deciding what the role of estoppel *663should be in the present case and in the future, it is, then, desirable to consider the role it has played in the past.

A.

While the roots of the doctrine have often been celebrated in tradition, we have found only one 19th century case in this Court that invoked estoppel in a considered manner. And that case was decided before the Sherman Act made it clear that the grant of monopoly power to a patent owner constituted a limited exception to the general federal policy favoring free competition. Kinsman v. Parkhurst, 18 How. 289 (1856).11 Curiously, a second decision often cited as supporting the estoppel doctrine points clearly in the opposite direction. St. Paul Plow Works v. Starling, 140 U. S. 184 (1891), did not even question the right of the lower courts to admit the licensee’s evidence showing that the patented device was not novel. A unanimous Court merely held that, where there was conflicting evidence as to an invention’s novelty, it would not reverse the decision of the lower court upholding the patent’s validity.

In the very next year, this Court found the doctrine of patent estoppel so inequitable that it refused to grant an injunction to enforce a licensee’s promise never to contest the validity of the underlying patent. “It is as *664important to the public that competition should not be repressed by worthless patents, as that the patentee of a really valuable invention should be protected in his monopoly . . . .” Pope Manufacturing Co. v. Gormully, 144 U. S. 224, 234 (1892).

Although this Court invoked an estoppel in 1905 without citing or considering Pope’s, powerful argument, United States v. Harvey Steel Co., 196 U. S. 310, the doctrine was not to be applied again in this Court until it was revived in Automatic Radio Manufacturing Co. v. Hazeltine Research, Inc., supra, which declared, without prolonged analysis, that licensee estoppel was “the general rule.” 339 U. S., at 836. In so holding, the majority ignored the teachings of a series of decisions this Court had rendered during the 45 years since Harvey had been decided. During this period, each time a patentee sought to rely upon his estoppel privilege before this Court, the majority created a new exception to permit judicial scrutiny into the validity of the Patent Office’s grant. Long before Hazeltine was decided, the estoppel doctrine had been so eroded that it could no longer be considered the “general rule,” but was only to be invoked in an ever-narrowing set of circumstances.

B.

The estoppel rule was first stringently limited in a situation in which the patentee’s equities were far more compelling than those presented in the typical licensing arrangement. Westinghouse Electric & Manufacturing Co. v. Formica Insulation Co., 266 U. S. 342 (1924), framed a rule to govern the recurring problem which arises when the original patent owner, after assigning his patent to another for a substantial sum, claims that the patent is worthless because it contains no new ideas. The courts of appeals had traditionally refused to permit such a defense to an infringement action on the ground *665that it was improper both to “sell and keep the same thing,” Faulks v. Kamp, 3 F. 898, 902 (1880). Nevertheless, Formica imposed a limitation upon estoppel which was radically inconsistent with the premises upon which the “general rule” is based. The Court held that while an assignor may not directly attack the validity of a patent by reference to the prior state of the art, he could introduce such evidence to narrow the claims made in the patent. “The distinction may be a nice one but seems to be workable.” 266 U. S., at 351. Workable or not, the result proved to be an anomaly: if a patent had some novelty Formica permitted the old owner to defend an infringement action by showing that the invention’s novel aspects did not extend to the inclusion of the old owner’s products; on the other hand, if a patent had no novelty at all, the old owner could not defend successfully since he would be obliged to launch the direct attack on the patent that Formica seemed to forbid. The incongruity of this position compelled at least one court of appeals to carry the reasoning of the Formica exception to its logical conclusion. In 1940 the Seventh Circuit held that a licensee could introduce evidence of the prior art to show that the licensor’s claims were not novel at all and thus successfully defend an action for royalties. Casco Products Corp. v. Sinko Tool & Manufacturing Co., 116 F. 2d 119.

In Scott Paper Co. v. Marcalus Manufacturing Co., 326 U. S. 249 (1945), this Court adopted a position similar to the Seventh Circuit’s, undermining the basis of patent estoppel even more than Formica had done. In Scott, the original patent owner had attempted to defend an infringement suit brought by his assignee by proving that his product was a copy of an expired patent. The Court refused to permit the assignee to invoke an estop-pel, finding that the policy of the patent laws would be frustrated if a manufacturer was required to pay for the use of information which, under the patent statutes, was *666the property of all. Chief Justice Stone, for the Court, did not go beyond the precise question presented by a manufacturer who asserted that he was simply copying an expired patent. Nevertheless it was impossible to limit the Scott doctrine to such a narrow compass. If patent policy forbids estoppel when the old owner attempts to show that he did no more than copy an expired patent, why should not the old owner also be permitted to show that the invention lacked novelty because it could be found in a technical journal or because it was obvious to one knowledgeable in the art? As Justice Frankfurter’s dissent indicated, id., at 258-264, there were no satisfactory answers to these questions. The Scott exception had undermined the very basis of the “general rule.”

C.

At about the time Scott was decided, this Court developed yet another doctrine which was profoundly antithetic to the principles underlying estoppel. In Sola Electric Co. v. Jefferson Electric Co., 317 U. S. 173 (1942), the majority refused to permit a licensor to enforce the license’s price-fixing provisions without permitting the licensee to contest the validity of the underlying patent. Since the price-fixing clause was per se illegal but for the existence of a valid patent, this narrow exception could be countenanced without compromising the general estoppel principle. But the Sola Court went further: it held that since the patentee had sought to enforce the price-fixing clause, the licensee could also avoid paying royalties if he could show that the patent was invalid. Five years later, the “anti-trust exception” was given an even more extensive scope in the Katzinger and MacGregor cases.12 Here, licensors *667were not permitted to invoke an estoppel despite the fact that they sought only to collect their royalties. The mere existence of a price-fixing clause in the license was held to be enough to bring the validity of the patent into question. Thus in the large number of cases in which licensing agreements contained restrictions that were arguably illegal under the antitrust laws, the doctrine of estoppel was a dead letter. Justice Frankfurter, in dissent, went even further, concluding that Katzinger and MacGregor had done all but repudiate the estoppel rule: “If a doctrine that was vital law for more than ninety years will be found to have now been deprived of life, we ought at least to give it decent public burial.” 329 U. S., at 416.

D.

The lower courts, both state and federal, have also hedged the impact of estoppel by creating exceptions which have indicated a recognition of the broader policies pointing to a contrary approach. It is generally the rule that licensees may avoid further royalty payments, regardless of the provisions of their contract, once a third party proves that the patent is invalid. See, e. g., Drackett Chemical Co. v. Chamberlain Co., 63 F. 2d 853 (1933). Some courts have gone further to hold that a licensee may notify the patent owner that he is repudiating his agreement, regardless of its terms, and may subsequently defend any action for royalties by proving patent invalidity. Note, The Doctrine of Licensee Repudiation in Patent Law, 63 Yale L. J. 125 (1953); R. Ellis, Patent Licenses § 328 (3d ed., A. Deller 1958). And even in the 19th century, state courts had held that if the licensee had not actually sold products incorporating the patent’s ideas, he could challenge the validity of the patent. See Forkosch, Licensee *668Estoppel in Patent Law, 20 Temp. L. Q. 515, 529, n. 45 (1947).13

III.

The uncertain status of licensee estoppel in the case law is a product of judicial efforts to accommodate the competing demands of the common law of contracts and the federal law of patents. On the one hand, the law of contracts forbids a purchaser to repudiate his promises simply because he later becomes dissatisfied with the bargain he has made.14 On the other hand, federal law requires that all ideas in general circulation be dedicated to the common good unless they are protected by a valid patent. Sears, Roebuck v. Stiffel Co., supra; Compco Corp. v. Day-Brite Lighting, Inc., supra. When faced with this basic conflict in policy, both this Court and courts throughout the land have naturally sought to develop an intermediate position which somehow would remain responsive to the radically different concerns of the two different worlds of contract and patent. The result has been a failure. Rather than creative compromise, there has been a chaos of conflicting case law, proceeding on inconsistent premises. Before renewing the search for an acceptable middle ground, we must reconsider on their own merits the arguments which may properly be advanced on both sides of the estoppel question.

*669A.

It will simplify matters greatly if we first consider the most typical situation in which patent licenses are negotiated. In contrast to the present case, most manufacturers obtain a license after a patent has issued. Since the Patent Office makes an inventor’s ideas public when it issues its grant of a limited monopoly,15 a potential licensee has access to the inventor’s ideas even if he does not enter into an agreement with the patent owner. Consequently, a manufacturer gains only two benefits if he chooses to enter a licensing agreement after the patent has issued. First, by accepting a license and paying royalties for a time, the licensee may have avoided the necessity of defending an expensive infringement action during the period when he may be least able to afford one. Second, the existence of an unchallenged patent may deter others from attempting to compete with the licensee.16

Under ordinary contract principles the mere fact that some benefit is received is enough to require the enforcement of the contract, regardless of the validity of the underlying patent. Nevertheless, if one tests this result by the standard of good-faith commercial dealing, it seems far from satisfactory. For the simple contract approach entirely ignores the position of the licensor who is seeking to invoke the court’s assistance on his behalf. Consider, for example, the equities of the licensor who has obtained his patent through a fraud on the Patent Office. It is difficult to perceive why good *670faith requires that courts should permit him to recover royalties despite his licensee’s attempts to show that the patent is invalid. Compare Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U. S. 172 (1965).

Even in the more typical cases, not involving conscious wrongdoing, the licensor’s equities are far from compelling. A patent, in the last analysis, simply represents a legal conclusion reached by the Patent Office. Moreover, the legal conclusion is predicated on factors as to which reasonable men can differ widely. Yet the Patent Office is often obliged to reach its decision in an ex parte proceeding, without the aid of the arguments which could be advanced by parties interested in proving patent invalidity. Consequently, it does not seem to us to be unfair to require a patentee to defend the Patent Office’s judgment when his licensee places the question in issue, especially since the licensor’s case is buttressed by the presumption of validity which attaches to his patent. Thus, although licensee estoppel may be consistent with the letter of contractual doctrine, we cannot say that it is compelled by the spirit of contract law, which seeks to balance the claims of promisor and promisee in accord with the requirements of good faith.

Surely the equities of the licensor do not weigh very heavily when they are balanced against the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain. Licensees may often be the only individuals with enough economic incentive to challenge the patentability of an inventor’s discovery. If they are muzzled, the public may continually be required to pay tribute to would-be monopolists without need or justification. We think it plain that the technical requirements of contract doctrine must give way before the demands of the public interest in the typical situation *?involving the negotiation of a license after a patent has issued.

We are satisfied that Automatic Radio Manufacturing Co. v. Hazeltine Research, Inc., supra, itself the product of a clouded history, should no longer be regarded as sound law with respect to its “estoppel” holding, and that holding is now overruled.

B.

The case before us, however, presents a far more complicated estoppel problem than the one which arises in the most common licensing context. The problem arises out of the fact that Lear obtained its license in 1955, more than four years before Adkins received his 1960 patent. Indeed, from the very outset of the relationship, Lear obtained special access to Adkins’ ideas in return for its promise to pay satisfactory compensation.

Thus, during the lengthy period in which Adkins was attempting to obtain a patent, Lear gained an important benefit not generally obtained by the typical licensee. For until a patent issues, a potential licensee may not learn his licensor’s ideas simply by requesting the information from the Patent Office. During the time the inventor is seeking patent protection, the governing federal statute requires the Patent Office to hold an inventor’s patent application in confidence.17 If a poten*672tial licensee hopes to use the ideas contained in a secret patent application, he must deal with the inventor himself, unless the inventor chooses to publicize his ideas to the world at large. By promising to pay Adkins royalties from the very outset of their relationship, Lear gained immediate access to ideas which it may well not have learned until the Patent Office published the details of Adkins' invention in 1960. At the core of this case, then, is the difficult question whether federal patent policy bars a State from enforcing a contract regulating access to an unpatented secret idea.18

Adkins takes an extreme position on this question. The inventor does not merely argue that since Lear obtained privileged access to his ideas before 1960, the company should be required to pay royalties accruing before 1960 regardless of the validity of the patent which ultimately issued. He also argues that since Lear obtained special benefits before 1960, it should also pay royalties during the entire patent period (1960-1977), without regard to the validity of the Patent Office’s grant. We cannot accept so broad an argument.

Adkins’ position would permit inventors to negotiate all important licenses during the lengthy period while their applications were still pending at the Patent Office, thereby disabling entirely all those who have the strongest incentive to show that a patent is worthless. While the equities supporting Adkins’ position are somewhat more appealing than those supporting the typical *673licensor, we cannot say that there is enough of a difference to justify such a substantial impairment of overriding federal policy.

Nor can we accept a second argument which may be advanced to support Adkins’ claim to at least a portion of his post-patent royalties, regardless of the validity of the Patent Office grant. The terms of the 1955 agreement provide that royalties are to be paid until such time as the “patent ... is held invalid,” § 6, and the fact remains that the question of patent validity has not been finally determined in this case. Thus, it may be suggested that although Lear must be allowed to raise the question of patent validity in the present lawsuit, it must also be required to comply with its contract and continue to pay royalties until its claim is finally vindicated in the courts.

The parties’ contract, however, is no more controlling on this issue than is the State’s doctrine of estoppel, which is also rooted in contract principles. The decisive question is whether overriding federal policies would be significantly frustrated if licensees could be required to continue to pay royalties during the time they are challenging patent validity in the courts.

It seems to us that such a requirement would be inconsistent with the aims of federal patent policy. Enforcing this contractual provision would give the licensor an additional economic incentive to devise every conceivable dilatory tactic in an effort to postpone the day of final judicial reckoning. We can perceive no reason to encourage dilatory court tactics in this way. Moreover, the cost of prosecuting slow-moving trial proceedings and defending an inevitable appeal might well deter many licensees from attempting to prove patent invalidity in the courts. The deterrent effect would be particularly severe in the many scientific fields in which invention is proceeding at a rapid rate. In these areas, a patent may well become obsolete long before its *67417-year term has expired. If a licensee has reason to believe that he will replace a patented idea with a new one in the near future, he will have little incentive to initiate lengthy court proceedings, unless he is freed from liability at least from the time he refuses to pay the contractual royalties. Lastly, enforcing this contractual provision would undermine the strong federal policy favoring the full and free, use of ideas in the public domain. For all these reasons, we hold that Lear must be permitted to avoid the payment of all royalties accruing after Adkins’ 1960 patent issued if Lear can prove patent invalidity.19

C.

Adkins’ claim to contractual royalties accruing before the 1960 patent issued is, however, a much more difficult one, since it squarely raises the question whether, and to what extent, the States may protect the owners of unpatented inventions who are willing to disclose their ideas to manufacturers only upon payment of royalties. The California Supreme Court did not address itself to this issue with precision, for it believed that the venerable doctrine of estoppel provided a sufficient answer to all of Lear’s claims based upon federal patent law. Thus, we do not know whether the Supreme Court would have awarded Adkins recovery even on his pre-patent royalties if it had recognized that previously established estoppel doctrine could no longer be properly invoked *675with regard to royalties accruing during the 17-year patent period. Our decision today will, of course, require the state courts to reconsider the theoretical basis of their decisions enforcing the contractual rights of inventors and it is impossible to predict the extent to which this re-evaluation may revolutionize the law of any particular State in this regard. Consequently, we have concluded, after much consideration, that even though an important question of federal law underlies this phase of the controversy, we should not now attempt to define in even a limited way the extent, if any, to which the States may properly act to enforce the contractual rights of inventors of unpatented secret ideas. Given the difficulty and importance of this task, it should be undertaken only after the state courts have, after fully focused inquiry, determined the extent to which they will respect the contractual rights of such inventors in the future. Indeed, on remand, the California courts may well reconcile the competing demands of patent and contract law in a way which would not warrant further review in this Court.

IV.

We also find it inappropriate to pass at this time upon Lear’s contention that Adkins’ patent is invalid.

Not only did Lear fail to raise this issue in its petition for certiorari, but the California Supreme Court has yet to pass on the question of patent validity in that clear and unequivocal manner which is so necessary for proper adjudication in this Court. As we have indicated, the California Supreme Court considered the novelty of Adkins’ ideas relevant to its decision at only one stage of its extensive analysis. Since Lear claimed that it had developed its Michigan gyros completely independently of Adkins’ efforts, the Supreme Court believed itself obliged to consider whether Adkins’ ideas were not “entirely” anticipated by the prior art. 67 Cal. 2d, at 913, 435 P. 2d, at 340. Apply*676ing this test, the court upheld the jury’s verdict of $888,000 on the Michigan gyros, finding that “Lear utilized the apparatus patented by Adkins throughout the period in question.” 67 Cal. 2d, at 915, 435 P. 2d, at 341. In reaching this conclusion, however, the court did express its belief that Adkins’ invention made a “significant step forward” in the art of gyroscopy. 67 Cal. 2d, at 915, 435 P. 2d, at 341.

It is far from clear that the court, in making this last statement, intended to hold that Adkins’ ideas satisfied the demanding standard of invention explicated in our decision in Graham v. John Deere Co., 383 U. S. 1 (1966). Surely, such a holding was not required by the court’s analysis, which was concerned only with the question whether Lear had benefited from Adkins’ ideas in any degree. In this context, we believe that Lear must be required to address its arguments attacking the validity of the underlying patent to the California courts in the first instance.

The judgment of the Supreme Court of California is vacated and the case is remanded to that court for further proceedings not inconsistent with this opinion.

It is so ordered.

Me. Justice Black,

with whom The Chief Justice and Mr. Justice Douglas join,

concurring in part and dissenting in part.

I concur in the judgment and opinion of the Court, except for what is said in Part III, C, of the Court’s opinion. What the Court does in this part of its opinion is to reserve for future decision the question whether the States have power to enforce contracts under which someone claiming to have a new discovery can obtain payment for disclosing it while his patent application is pending, even though the discovery is later held to be unpatentable. This reservation is, as I see it, directly *677in conflict with what this Court held to be the law in Sears, Roebuck v. Stiffel Co., 376 U. S. 225 (1964), and Compco Corp. v. Day-Brite Lighting, Inc., 376 U. S. 234 (1964). Brother Harlan concurred in the result in those cases, saying — contrary to what the Court held — “I see no reason why the State may not impose reasonable restrictions on the future ‘copying’ itself.” Compco, supra, at 239. Consequently the Court is today joining in the kind of qualification that only Mr. Justice Harlan was willing to make at the time of our Stiff el and Compco decisions.

I still entertain the belief I expressed for the Court in Stiffel and Compco that no State has a right to authorize any kind of monopoly on what is claimed to be a new invention, except when a patent has been obtained from the Patent Office under the exacting standards of the patent laws. One who makes a discovery may, of course, keep it secret if he wishes, but private arrangements under which self-styled “inventors” do not keep their discoveries secret, but rather disclose them, in return for contractual payments, run counter to the plan of our patent laws, which tightly regulate the kind of inventions that may be protected and the manner in which they may be protected. The national policy expressed in the patent laws, favoring free competition and narrowly limiting monopoly, cannot be frustrated by private agreements among individuals, with or without the approval of the State.

Mr. Justice White,

concurring in part.

The applicable provision of 28 U. S. C. § 1257 empowers us to review by writ of certiorari “[fjinal judgments or decrees rendered by the highest court of a State ... where any title, right, privilege or immunity is specially set up or claimed under the Constitution, treaties or statutes of, or commission held or authority exercised under, the *678United States.” Although Adkins disputes it, we have jurisdiction to consider whether a patent licensee is estopped to challenge the validity of the patent. The California Supreme Court ruled that he is and therefore would not entertain attacks on Adkins’ patent as a defense to his suit for royalties. Lear seeks review of that holding here. In my view, not only is the issue properly here but the Court has correctly decided it.

Although we have jurisdiction to review this state court judgment and to determine the licensee estoppel issue, it does not necessarily follow that we may or should deal with two other federal questions which come into focus once the licensee is free to challenge the patent. The first is w'hether the patent is valid. The second, which arises only if the patent is invalidated, is whether federal law forbids the collection of royalties which might otherwise be collectible under a contract rooted in state law. Although the Court does not deal with the first issue, it does purport to decide the second, at least in part. However, as either a jurisdictional or a policy matter, neither of these issues is properly before us in this case.

In the first place, we have no decision of the California Supreme Court affirming or denying, as a matter of federal law, that Adkins may not enforce his contract if his patent is held invalid. The California court held that the license agreement had not been terminated in accordance with its terms, that the doctrine of licensee estoppel prevented Lear from challenging the patent and that Lear was utilizing the teaching of Adkins’ patent. There was thus no necessity or reason to consider whether the patent was invalid, or, if it was, whether either state or federal law prevented collection of the royalties reserved by the contract. Even if these issues had been presented to the California Supreme Court, sound principles would have dictated that the court not render a *679decision on questions unnecessary to its disposition of the case. See, e. g., Southwestern Bell Telephone Co. v. Oklahoma, 303 U. S. 206, 212-213 (1938).

There is no indication, however, that Lear, directly or by inference, urged in the California courts that if Adkins’ patent were invalid, federal law overrode state contract law and precluded collection of the royalties which Lear had promised to pay. One of the defenses presented by Lear in its answer to Adkins’ claim for royalties was that there had been a failure of consideration because of the absence of bargained-for patent-ability in Adkins’ ideas. But failure of consideration is a state law question, and I find nothing in the record and nothing in this Court’s opinion indicating that Lear at any time contended in the state courts that once Adkins’ patent was invalidated, the royalty agreement was unenforceable as a matter of federal law.1

Given Lear’s failure below to “specially set up or claim” the federal bar to collection of royalties in the *680event Adkins’ patent was invalidated, and without the California Supreme Court’s “final judgment” on this issue, I doubt our jurisdiction to decide the issue. But even if jurisdiction exists, the Court should follow its characteristic practice and refuse to issue pronouncements on questions not urged or decided in the state courts.

In McGoldrick v. Compagnie Generale Transatlantique, 309 U. S. 430 (1940), the Court, while recognizing it had jurisdiction to determine whether a New York tax was an unconstitutional burden on interstate commerce, refused to consider whether the tax was a prohibited impost or duty on imports and exports, saying: “[I]t is only in exceptional cases, and then only in cases coming from the federal courts, that [the Court] considers questions urged by a petitioner or appellant not pressed or passed upon in the courts below. ... [D]ue regard for the appropriate relationship of this Court to state courts requires us to decline to consider and decide questions affecting the validity of state statutes not urged or considered there.” Id., at 434.

Wilson v. Cook, 327 U. S. 474 (1946), reached a similar conclusion. There the Court denied a government contractor the benefit of the implied constitutional immunity of the Federal Government from taxation by the State, but at the same time declined to consider whether the state tax at issue placed a forbidden tax directly on the United States. This was because the Court was “not free to consider” a ground of attack “not presented to the Supreme Court of Arkansas or considered or decided by it,” even though the issue was in some measure related to one actually decided by the state courts and arose under the same implied constitutional immunity argument. Id., at 483. Cf. Dewey v. Des Moines, 173 U. S. 193, 197-198 (1899). The Court relied on Mc-Goldrick and a long line of prior cases, including New York ex rel. Cohn v. Graves, 300 U. S. 308, 317 (1937), *681where the Court had said: “In reviewing the judgment of a state court, this Court will not pass upon any federal question not shown by the record to have been raised in the state court or considered there, whether it be one arising under a different or the same clause in the Constitution with respect to which other questions are properly presented.”

The result is the same when a party has attempted to raise an issue in the state court but has not done so in proper or timely fashion. “Questions first presented to the highest State court on a petition for rehearing come too late for consideration here . . . .” Radio Station WOW v. Johnson, 326 U. S. 120, 128 (1945). “Since the State Supreme Court did not pass on the question now urged, and since it does not appear to have been properly presented to that court for decision, we are without jurisdiction to consider it in the first instance here.” CIO v. McAdory, 325 U. S. 472, 477 (1945). And no different conclusion obtains when the federal question, although not yet presented to or decided by the state court, will probably or even certainly arise during further proceedings held in that court. See, e. g., NAACP v. Alabama, 357 U. S. 449, 466-467 (1958); Hudson Distributors, Inc. v. Eli Lilly & Co., 377 U. S. 386, 394-395 (1964).

Wholly aside from jurisdictional considerations or those relating to our relationships with state courts, there is the matter of our own Rule 23 (l)(c), which states that “[o'Jnly the questions set forth in the petition or fairly comprised therein will be considered by the court.” See Flournoy v. Wiener, 321 U. S. 253, 259 (1944). None of the questions presented by Lear’s petition for certiorari comes even close to the issue to which the Court now addresses itself — an issue which will arise only if Lear can and does challenge the patent, if the patent is declared invalid, if Adkins nevertheless seeks to enforce the agreement, and if Lear interposes a defense based on federal law.

*682This seems a poor case for waiving our Rules. In the first place, the question of validity has not been reached by the California Supreme Court, and when it is the patent may withstand attack. In that event there will be no necessity to consider the impact of patent law on the enforceability of a contract grounded in state law. Second, even if the patent is declared invalid, the state court, after the parties have addressed themselves to the issues, may accommodate federal and state law in a matter which would not prompt review here. Third, the parties themselves have neither briefed nor seriously argued the question in this Court, and we do not have the benefit of their views on what is surely a difficult question. The Court itself has flushed the issue, which it now deals with on a piecemeal basis.2 Like the question of patent validity, I would leave the consequences of invalidity to the state court in the first instance.

26.4 Eva's Bridal Ltd. v. Halanick Enterprises, Inc. 26.4 Eva's Bridal Ltd. v. Halanick Enterprises, Inc.

Trademark: Controlling the Licensee

EVA’S BRIDAL LTD. and Said Ghusein, Plaintiffs-Appellants, v. HALANICK ENTERPRISES, INC., and Nayef Ghusein, Defendants-Appellees.

No. 10-2863.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 9, 2011.

Decided May 10, 2011.

Rehearing Denied May 24, 2011.

*789Maurice J. Salem (argued), Attorney, Salem Law Office, Palos Heights, IL, for Plaintiffs-Appellants.

Beverly M. Griffor (argued), Attorney, The Law Offices of Beverly M. Griffor, PLLC, Ann Arbor, MI, John Paul O’Brien, Attorney, Chicago, IL, for Defendants-Appellees.

Before EASTERBROOK, Chief Judge, and FLAUM and RIPPLE, Circuit Judges.

EASTERBROOK, Chief Judge.

In 1966 Eva Sweis established in Chicago a shop that she called “Eva’s Bridal.” It sold dresses for brides and bridal parties. The venture was a success; Sweis allowed her children to open their own shops under the same name. The business passed to Said and Nancy Ghusein (née Sweis), who operate an “Eva’s Bridal” shop in Oak Lawn, one of Chicago’s suburbs. They have continued the pattern of licensing the name to relatives. Three years after opening a shop in Orland Park, another of Chicago’s suburbs, Said and Nancy Ghusein sold that operation to Nayef Ghusein for $10. The agreement required Nayef to pay $75,000 a year for the right to use the “Eva’s Bridal” name and marks.

The license agreement expired in 2002. Nayef and his corporation Halanick Enterprises have continued to operate the store under the Eva’s Bridal name (see http:// www.evasbridalsoforlandpark.com/) but no longer remit a royalty. In 2007 Said and his firm Eva’s Bridal Ltd. filed this suit under the Lanham Act, contending that Nayef and Halanick have violated the Act by using the “Eva’s Bridal” mark without payment (or, for that matter, a current license agreement). See 15 U.S.C. §§ 1117,1125(a).

The district judge did not decide whether plaintiffs waited too long before suing. Instead the court dismissed the suit, 2010 U.S. Dist. LEXIS 79186 (N.D.Ill. Aug. 4, 2010), on the ground that plaintiffs abandoned the “Eva’s Bridal” mark by engaging in naked licensing — that is, by allowing others to use the mark without exercising “reasonable control over the nature and quality of the goods, services, or business on which the [mark] is used by the licensee”. Restatement (Third) of Unfair Competition § 33 (1995); see also id. § 30 (discussing abandonment); TMT North America, Inc. v. Magic Touch GmbH, 124 F.3d 876, 885-87 (7th Cir.1997). The written agreement did not require Nayef and Halanick to operate the Orland Park store in any particular way and did not give the licensor any power of supervision over how *790the business was conducted. Nancy conceded during her deposition that she and her husband Said never tried to control any aspect of how defendants’ shop operated or how the mark was used. The district judge concluded that the mark has been abandoned and that defendants therefore may use it without payment.

Plaintiffs do not dispute the proposition that a naked license abandons a mark. Instead they observe that many decisions say that a licensor must supervise to ensure quality control, and they insist that they have never doubted the high standards of Nayef and his firm, so they had no reason to superintend any aspects of defendants’ business. Plaintiffs maintain that Nayef and Halanick sell dresses from the same designers that the shop carried when it opened in 1988 and when ownership changed in 1991. Because consumers care about who designs and makes the clothing, which determines how the dresses look when worn, plaintiffs maintain that there was no need for any form of regulation. Doubtless consumers also care about the quality of service, whether the dressing rooms are clean and the staff helpful, whether alterations are performed accurately and on time, and so forth — matters about which plaintiffs left defendants to their own devices — but it is not necessary to decide which aspects of a retail bridal business contribute most to customers’ satisfaction.

This argument that licensors may relinquish all control of licensees that operate “high quality” businesses misunderstands what judicial decisions and the Restatement mean when they speak about “quality.” There is no rule that trademark proprietors must ensure “high quality” goods — or that “high quality” permits unsupervised licensing. “Kentucky Fried Chicken” is a valid mark, see Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368 (5th Cir.1977), though neither that chain nor any other fast-food franchise receives a star (or even a mention) in the Guide Michelin. The sort of supervision required for a trademark license is the sort that produces consistent quality. “Trademarks [are] indications of consistent and predictable quality assured through the trademark owner’s control over the use of the designation”. Restatement § 33 comment b. See also William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law 166-68, 184-86 (2003).

A person who visits one Kentucky Fried Chicken outlet finds that it has much the same ambiance and menu as any other. A visitor to any Burger Bang likewise enjoys a comforting familiarity and knows that the place will not be remotely like a Kentucky Fried Chicken outlet (and is sure to differ from Hardee’s, Wendy’s, and Apple-bee’s too). The trademark’s function is to tell shoppers what to expect — and whom to blame if a given outlet falls short. The licensor’s reputation is at stake in every outlet, so it invests to the extent required to keep the consumer satisfied by ensuring a repeatable experience. See generally Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 112 S.Ct. 2753, 120 L.Ed.2d 615 (1992).

How much control is enough? The licensor’s self-interest largely determines the answer. Courts are apt to ask whether “the control retained by the licensor [is] sufficient under the circumstances to insure that the licensee’s goods or services would meet the expectations created by the presence of the trademark.” Restatement § 33 comment a (summarizing doctrine); see also id. at Reporter’s Note comment c (collecting authority, which we need not set out). It isn’t necessary to be more specific here, because plaintiffs did *791not retain any control — not via the license agreement, not via course of performance. A person who visited Eva’s Bridal of Oak Lawn and then Eva’s Bridal of Orland Park might not have found a common ambiance or means of doing business. And though the shops may have had many designers in common, this would not distinguish an “Eva’s Bridal” shop from any other bridal shop; the trademark would not be doing any work if identical dresses could be purchased at Macy’s or Nordstrom, and the “Eva’s Bridal” shops were dissimilar except for some products that many retailers carried. Safeway could not license its marks to a corner grocery store, while retaining no control over inventory, appearance, or business methods, just because every grocery store is sure to have Coca-Cola and Wheaties on the shelf.

Trademark law requires that “decision-making authority over quality remains with the owner of the mark.” Restatement § 33 comment c. How much authority is enough can’t be answered generally; the nature of the business, and customers’ expectations, both matter. Ours is the extreme case: plaintiffs had, and exercised, no authority over the appearance and operations of defendants’ business, or even over what inventory to carry or avoid. That is the paradigm of a naked license.

Affirmed