P is a musician turned inventor who held U.S. and Canadian patents on the audio system known as 'surround sound.' P sued D in 1983 for infringement of his patents. The parties settled. P would license his patents to D in exchange for royalties. The last U.S. patent was to expire in May 1993, and the last Canadian patent was to expire in September 1995. D suggested to P that in exchange for a lower royalty rate the license agreement provide that royalties on all the patents would continue until the Canadian patent expired. D hoped to pass on the entire royalty expense to its sublicensees without their balking at the rate. So a lower overall rate for a longer period of time was very attractive to D. They signed the deal but D later refused to pay royalties on any patent after it expired. Federal jurisdiction over the suit is based on diversity of citizenship, because a suit to enforce a patent licensing agreement does not arise under federal patent law. The presence of a federal defense (here, patent misuse) is irrelevant to jurisdiction. D's principal argument is that the Supreme Court held in Brulotte that a patent owner may not enforce a contract for the payment of patent royalties beyond the expiration date of the patent. The court ruled for D and P appealed.

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