USM CORPORATION v. SPS TECHNOLOGIES, INC.
694 F.2d 505 (1982)
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Rule of Law:
A consent decree in a patent infringement suit that acknowledges the patent's validity and infringement is res judicata, barring subsequent litigation between the same parties over the patent's validity, unless the decree itself was procured by fraud on the court.
Facts:
- SPS Technologies, Inc. (SPS) owned a patent on a patch-type self-locking industrial fastener.
- In 1969, SPS sued a competitor, USM Corp. (USM), for patent infringement.
- During discovery in the 1969 suit, SPS's counsel refused to produce an earlier, withdrawn patent application requested by USM's counsel, claiming it was not relevant; USM did not compel its production.
- The parties settled the 1969 suit, and a consent judgment was entered in which USM acknowledged that SPS's patent was valid and had been infringed.
- As part of the settlement, SPS granted USM a license to use the patent, requiring USM to pay royalties.
- The license agreement contained a differential royalty schedule, requiring USM to remit 75% of royalties from sublicenses to four specific companies previously licensed by SPS, but only 25% from all other sublicenses.
Procedural Posture:
- In 1974, USM Corp. filed suit against SPS Technologies, Inc. in the U.S. District Court for the Northern District of Illinois.
- USM sought to invalidate SPS's patent, alleging it was procured by fraud on the Patent Office, and further alleged that SPS committed fraud on the court during the prior 1969 litigation.
- In 1978, the district court granted summary judgment for SPS on USM's patent misuse claim.
- Following a bench trial, the district court found that SPS had committed fraud on the Patent Office, but not fraud on the court.
- The district court ruled that the 1971 consent decree was res judicata as to royalties paid before the 1974 suit was filed, but declared the patent void as of the filing date and ordered SPS to return royalties paid since then.
- Both SPS and USM appealed various rulings of the district court to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a consent decree in a patent infringement case, which acknowledges the patent's validity, have a res judicata effect that bars a later suit by the same party alleging the patent was procured by fraud on the Patent Office, where there is no evidence of fraud on the court?
Opinions:
Majority - Posner, Circuit Judge.
Yes. A consent decree in a patent case that recites both validity and infringement is res judicata in any subsequent proceeding between the parties. The policy favoring the finality of litigation prevents creating an exception for claims of fraud on the Patent Office, as such an exception would incentivize litigants to withhold claims and challenge settlements later. Res judicata prevents the litigation of any ground for invalidity, including fraud, that could have been advanced in the earlier suit. The consent decree can only be set aside if it was procured by fraud on the court. Here, SPS counsel's refusal to voluntarily produce a document during discovery, while construing the request narrowly in an adversarial context, does not rise to the level of fraud on the court. Furthermore, the differential royalty schedule does not constitute patent misuse, which is analyzed under conventional antitrust principles, because USM failed to show any actual or probable anticompetitive effect in a relevant market.
Analysis:
This decision solidifies the finality of consent decrees in patent litigation, reinforcing the principle of res judicata even against subsequent allegations of fraud in the patent's procurement. It establishes a high bar for what constitutes 'fraud on the court,' distinguishing it from aggressive but standard adversarial conduct during discovery. The case is also significant for its explicit convergence of patent misuse analysis with standard antitrust principles, requiring a plaintiff to prove concrete anticompetitive effects rather than relying on abstract theories of a patent's 'extension.' This approach moves away from a separate, nebulous patent misuse doctrine towards a more predictable antitrust framework.
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