89 F. 598 | U.S. Circuit Court for the District of Southern New York | 1898
(after stating the facts). The claim of the Eice patent is for “a bolt of embroidery containing two or more rows separated by a line of perforations adapted to be folded and secured by ties at the folds, substantially as described.” The specification contains the statement:
“I propose to manufacture the goods with a line of perforations between each row of embroidery at or near the edge of each row, as may be requisite, according to the purpose for which the goods are intended, for the purpose of separating tlie rows of embroidery by simply tearing off each strip from the bolt as required. To facilitate the operation, and avoid unnecessary handling, I then propose to fold the goods back and forth in a reverse manner, in one yard, or fraction of a yard, lengths, similar to the folds of a lady’s fan, the end of each folding to be fastened with a thread to hold them together. The rows may then be removed in this way without having to unfold the goods, or having to resort to a measure to tell the amount being removed.”
The perforations shown in the Eice patent are in straight lines. Defendants acquired this patent, having first obtained an opinion of counsel as to its validity and scope, in 1883. Thereafter they put up embroideries in the manner described, to which they applied the trade name “Automatic.” They expended large sums of money in advertising and pushing such style of make-up in the trade. They manufactured and sold large quantities of the goods themselves; and to other American dealers in embroideries, their competitors in business, they sold large quantities of license stamps (at two cents each) to be affixed to foreign-made goods done up in like manner, and brought here for sale. One M. H. Pulaski, an American manufacturer, became the owner of a later patent, In which the perforations followed the scollops of the embroidery, and put up goods in accordance therewith under the trade-name “Magic.” Defendants sued him for infringement, but did not press the suit, because, as they testify, the difficulty and expense of adapting machinery to follow the scollops was so great that they did not find in “Magic” goods a serious commercial competitor. All this was prior to 1889. In the last-named year defendants concluded to withdraw from the embroidery business, and seek other fields of business enterprise. They therefore sought to dispose of their rights under the Eice patent on terms as favorable to themselves as possible. The existing situation seemed to offer an opportunity so to do. Theretofore the foreign manufacturer could safely put up his goods in “Automatic” style, in large or small quantities, so long as he could effect a sale of them to an American house which bought license
“Fifth. The parties of the first part covenant and agree not to hereafter license any other party or parties under the said Rice patent to do up embroideries under or in accordance therewith at a less rate of royalty than that herein specified, and that, should they so license any other party or parties undei’ the said Rice patent to do up embroideries in the ‘Automatic’ style or in any other manner at a less rate of royalty than two cents (2) per stamp, one Stamp to be placed upon each piece of embroidery, the parties of the second part shall be entitled to a like reduction from the date of any such reduction.”
This contract with the Union was executed in New York, May 11, 1889. The third licensee was the complainants’ firm, under contract above set forth. Contracts similar to complainants’, except as to differences in the number of stamps required to be taken each year (and in three cases as to the period), were subsequently made with four other St. Gall houses on different dates during the same year, and with one in March, 1890. In December, 1889, defendants granted licenses to four American houses — Loeb & Schoenfeld, Steiger & Co., Einstein, Wolff & Co.,' and Mayer, Heine & Co. — on the basis of 12,500 stamps a year at two cents a stamp, but with a provision that defendants would furnish as many stamps as the licensee might require in excess of 12,500 free of charge. Practically each of these four contracts was an unlimited license for $250 a year, and each of the licensees used stamps largely in excess of the 12,500. Defendants sought to secure themselves against any disastrous consequences from such wholesale licensing becoming known by.inserting in each of these four contracts a drastic provision enjoining secrecy as to the terms of the contract under a penalty of $5,000; but this ingenious device proved futile, and the exceptionally favorable terms granted to the four American houses became known to, or suspected by, the trade. Thereupon the Union, which had renewed under its option for a third year, brought
The alleged false representations may be grouped under three heads: 1. As to the patent itself: The representations charged are that "the letters patent referred to in the agreement of license were valid letters patent, and that said letters patent covered broadly the right to manufacture, use, and sell all embroidery in which the parallel rows are perforated, punctured, or indented so as to permit the rows being readily separated, and that no such pieces of embroidery could be made, used, or sold without infringing said letters patent.” These representations, however, appear to be expressions of opinion, not statements of fact. Prima facie, a patent duly issued under the seal of the patent: office is valid. Whether or not the prior state of the art is such as to overthrow the presumption arising from its issue is a qnesfion about which opinions may fairly differ. The construction of (he patent is a question of law, and whether an article infringes or not depends upon that construe!ion. It may very well be, as defendants argue, that the written opinion of their counsel, upon the strength of which they bought the patent; the acquiescence of their competitors in business, who for years bought license stamps from them; the acceptance of a license stipulating for the payment to them of $2.000 a year by Pulaski, the owner of the rival “Magic” patent, — -all justified their expressed opinion as to the validity and scope of their own patent. But it is not necessary to discuss that proposition. The representations set forth in the bill are expressions of opinion, and the very contract itself seems clearly to indicate (liat they were so regarded. .V fact is something fixed, unchangeable; but the contract plainly contemplates that the validity or non-validity of the patent is still an open question, for it provides for payment of license fees during the remainder of the term of the patent, “or until the same shall have been decreed invalid by the supreme court.” There is no hardship to complainants in insisting upon this distinction between the assertion of a fact and the expression of an opinion. Against any loss resulting from the contingency that; eventually it should be found ihat the patent: was invalid, or was not as broad as defendants represented and as complainants undoubtedly believed it to be, they were abundantly protected. Of course, if all tin» world acquiesced in the broad construction, and no one, not licensed, infringed it as thus construed, their situation would be the same to all intents and purposes as if the supreme court had sustained such construction. If others, not licensed, however, put up embroideries in the “Automatic” style as described in the contract, complainants would be entitled to call upon defendants to carry out their agreement "to protect and defend [complainants] in the use of the invention speci
2. Representations as to what defendants would or would not do in the future: The bill charges that defendants represented “that no more favorable terms of license * * * would be given to any other manufacturer of embroideries than were offered to complainants, and * * * set forth in the agreement.” Assuming that these representations were made, they were of a promissory character, — that is, as to what defendants would or would not do in the future, — and therefore, even if not carried out, they could not form a basis of a suit to set aside a contract for false representations, made before execution of such contract, and inducing the other party to enter into it, for such a suit must be based upon representations of past or existing facts. If it were “understood between the parties that the licensor was to guaranty or covenant that he would give no one else more favorable terms than he gave to the licensee, and through fraud, accident, or mistake such provision was omitted from the written contract, equity would afford relief by decreeing a reformation of the contract, and, having acquired jurisdiction for that purpose, would decree appropriate relief if it appeared that there had been a breach. The bill of complaint shows that this is no such suit. In the replying brief of complainants, filed after the argument, it is sought to avail of the subsequent acts of defendants in granting unlimited licenses to the four American houses for the trifling sum of $250 each per annum, upon two theories: First it is suggested that the proof shows an oral agreement that no better terms should be given to others; that such agreement, although not embodied in the written contract, was an independent collateral one, not contradictory of the written contract, and which may be proved by parol. In support of this position are cited Rackemann v. Improvement Co., 167 Mass. 1, 44 N. E. 990, and Durkin v. Cobleigh, 156 Mass. 108, 30 N. E. 474. But this is diametrically opposed to the cause of action charged in the bill. The other theory is thus expressed:
“We do not emphasize the failure of the defendants to carry out their promise as to what they would do or what they would not do in the future as entitling us to have the contract rescinded upon the ground of fraud, so much as to entitle us to recover the money which we have paid, on the ground that defendants failed to deliver to us what they had contracted to give us.”
In its support is cited Panama & S. P. Tel. Co. v. India-Rubber, G. P. & Tel. Works Co., 10 Ch. App. 515. This is a complete change of front. The bill expressly charges false representations, which, it is alleged, entitle complainants to rescind the contract upon the ground of fraud, and have it decreed void from the beginning. Defendants were not brought into court to try any cause' of action other than that set forth in the bill, and no amendment has apprised them that re
3. BepresentaLions as to existing facts: The bill charges that defendants represented that no more favorable terms of license bad been given to any other manufacturer. There can be little doubt that the license to the Union was on more favorable terms, since it was not bound to continue paying the fixed per annum consideration for (he life of the patent, but only for two years, with an option to the Union of renewing from year to year. In the event of some change of fashion, or other cause, interfering with the consumption of such embroideries, the Union would be able to save itself from loss by not renewing. There is no claim of any misrepresentation as to more favorable terms by reason of the amount of stamps required to be taken. Every one seems to have clearly understood that some manufacturers were to take more and others less; that there was to be no uniformity in that particular. The misrepresentation relied on is that it was stated that the Union had been given no more favorable terms, when in fact it had not been bound for the life of the patent. The contract was executed in St. Gall on May 16th by Jacob Huber, one of tlie complainants, and Solomon Guggenheim, one of the defendants, after negotiations between those two individuals. There is some testimony — conflicting testimony — as to conversations in Chicago on May 13th between Daniel Guggenheim and one Crawford, a salesman or agent of complainants’ firm in this country; but such testimony is immaterial, since Crawford had no power to contract, and did not communicate Daniel’s statements as to other licenses (if such were made) to his principals before they entered into the agreement with Solomon. All that Crawford informed them by cablegram was that Pulaski and the Union were licensed, and that license for complainants could be procured for $1,000 per annum. The case is narrowed down, then, to what took place in St. Gall between Huber and Solomon Guggenheim. Both men have testified, and no one else was present at their interviews. Huber says that one Brunner, a clerk in the St. Gall house of M. Guggenheim’s Sons, was present; but Brunner swears that either lie was not there at all, or else, if he passed in and out of the room on other business, be heard nothing of the conversation. Huber swears that lie asked Solomon if the Union and Pulaski had better terms, and that Solomon said “Ho,” that they had tickets ‘•'for the same term.” Solomon denies that he made any such statement. The complainants have the burden of establishing their averment by a fair preponderance of proof, and this may be done, although the record stands oath against oath, if the court be satisfied from all the proof in the case that the complainants’ narrative of the transaction is the correct one. From a careful examination of Huber’s testimony, it is manifest that his memory as to this conversation is somewhat confused. He testified that Solomon told Mm that “the
Although inclined, for the reasons indicated, to accept complainants’ version oí the conversation as to the terms of the Union license as the more correct one, the court is not satisfied that it induced, or even materially assisted to induce, complainants to enter into the contract. The situation of the Union was peculiar. They were licensed under '¡lie rival “Magic” patent. If a contest were to be precipitated with the Guggenheims as to the validity and scope of the Bice patent, the Union was in a belter position to make the fight than were any of the other ¡Avias houses. It was quite to be expected that better terms would be granted to a concern thus situated, and the complainants tlionwelves chared such expectation. “I particularly asked him if the Union and Pulaski had better terms,” says IXnber, “because I had heard of the ‘Magic,’ and supposed (hey got in on better terms ¡lian we did." The complainant Huber, in response to his counsel’s questions, testifies that, has firm relied upon Bolomon’e statements, and ¡hat otherwise they would not have signed the contract. Conceding, for the purposes of the argument, that this, although couched in general terms, is a declaration that they would not have signed had they not relied on Solomon’s statement as to the terms of the Union license, il is not eon ¡rolling of the question now presented. It may very well be that, tes I dying several years after the event, irritated and justly indignant at the conduct of the Guggenheims in disposing of license stamps wholesale to the American houses for a nominal consideration, while at the same time they insisted on exacting from the foreign houses the full pound of flesh stipulated in their bonds, the witness persuaded, himself that the statement as to the period for which the Union had agreed to take a license was a momentous and a material one. But when the entire body of the testimony is examined, the court reaches a very different conclusion as to the frame of mind of the Swiss licensees when these contracts were entered into. The inducing cause was Iheir belief that the Bice patent was a valid one, and that it covered the “Automatic” manner of putting up, so that no one could dispose of embroideries in the United States except under license from the owner of that patent. Every manufacturer, therefore, who had found in the United States an outlet for his goods, was anxious not: to be deprived of that outlet, nor to have his American customers get in the habit of going to some other house because he could no longer supply licensed “Automatics.” The history of the whole transaction as disclosed in the record shows beyond peradventure that it was this belief, and the stringency of the situation brought about by defend
