Zenith Beats RCA

Scotch and sandwiches streamed into a suite in Chicago's Ambassador West Hotel for 48 hours straight last week. Inside, a dozen high-priced lawyers barely paused to refresh. When they did pause at last, patent-challenger Zenith Radio Corp. had finally pinned heavyweight champ Radio Corp. of America after eleven years of legal jujitsu. In the biggest antitrust recovery in history, Zenith settled for $10 million in its $61.7 million suit against RCA.

At issue was RCA's industry-blanketing pool of an estimated 15,000 patents which for years has given RCA a royalty percentage, e.g., an average 2% on radios, on almost every single product of its smaller rivals. To get an RCA license, the smaller makers had to pay for an entire package of patents which often contained items they did not need. But RCA, which earns an estimated $35 million annually from the pool, has long insisted that because its industry-leading research created most of the patents and continually creates more, it deserves a fair return.

Rebellion. Like Henry Ford, who broke the Selden pool of automotive patents in 1911 by refusing to pay royalties, Zenith President Eugene McDonald openly rebelled. In 1946 he stopped RCA royalty payments on radio tubes, filed a suit in Delaware charging an RCA conspiracy to monopolize the industry through patent control. In 1954 Zenith incorporated the original suit in a new one filed in Chicago, asking $16,056,000 in damages from RCA, Western Electric, Westinghouse, General Electric and 14 foreign electric companies. It charged that all had conspired with RCA to keep Zenith out of foreign markets through patent control, upped the damage claim in 1956 to $61.7 million. The goal sought by Zenith, never itself a big research spender, was the right to use the patents held by the defendants without paying royalties.

In pretrial sparring that kept the Chicago trial from a final showdown for years, RCA in 1954 hired Lawyer Adlai Stevenson to get an injunction against U.S. District Judge Michael Igoe on the charge that he was biased. Stevenson lost in the U.S. Supreme Court. Igoe finally set the trial for last week. By that time Zenith had spent $2,000,000 on legal fees and gathering evidence and RCA $5,000,000. But the case did not come to trial, apparently because Zenith had gathered too much legal ammunition to fire.

Payoff. To settle the suit, the defendants agreed to pay Zenith ten annual installments of $1,000,000 beginning Oct. 1. More important, Zenith got royalty-free licensing rights from RCA and General Electric on black-and-white TV equipment, including tubes. It got similar rights on common-carrier communications equipment from Western Electric and the Bell System. At Philco Corp., which in 1956 filed a still pending $150 million antitrust suit against RCA involving color TV patents, nobody was talking yet. But after Zenith broke the ice, RCA's patent pool seemed to be thawing at last.

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