47 N.Y.S. 462 | N.Y. App. Div. | 1897
This action was begun October 10, 1894, to compel the defendant to account for harrows sold pursuant to two contracts called licenses, ■dated April 1,1891, and to recover damages for sales alleged to have been made in violation of the licenses, and for a judgment restraining the defendant 'from making future sales in contravention of such licenses. In effect the action is to compel the defendant specifically to perform the contracts entered into between the litigants April T, 1891, and to recover damages accruing before the commencement of the action for the violation of the contracts.
Immediately before September, 1890, there were about twenty firms and corporations in the United States engaged in the manufacture of float spring tooth harrows, under various patents. Among several of these firms and corporations litigations had arisen over
■ In June, 1891, the defendant—a corporation organized under the laws of the State of Michigan — and the National Harrow Company entered into two contracts, dated April 1,1891, by which the National Harrow Company granted to the defendant the right to manufacture 3-t Lansing, in the State of Michigan, and to sell throughout the United States, four kinds of float spring tooth harrows, harrow frames, without teeth, and attachments applicable thereto “ which apply to and embrace the peculiar construction employed by E. Bement & Sons
By the 1st subdivision of these contracts the defendant bound itself to pay the National Harrow Company as royalties the sum of one dollar for each and every float spring tooth harrow,, or float spring tooth harrow'frame, without teeth, sold by it pursuant to-the terms of the contracts or licenses. By the 2d and 4th subdivisions of the contracts it is provided that the defendant shall not sell float spring tooth harrows, float spring tooth harrow frames,, without teeth, or- attachments applicable thereto, manufactured under the contracts, and shall not ship them to others to be sold at-a less price, or on more favorable terms of payment, than are set-forth in Schedule B of the contracts, which schedule fixes the "prices-at which harrows shall be sold, and provides that a discount of forty-three per cent may be allowed on the ¡Drices fixed on harrows,, frames and teeth- sold in thirteen of the United States, and that in all other States a discount of forty-five per cent may be allowed on sales. By the 4th subdivision the. National Harrow Company-reserves "the right to decrease the selling prices of harrows and to-make the terms of payment and delivery more favorable to the purchasers. By the 6th subdivision of the contracts it is provided that the defendant shall not directly or indirectly manufacture or sell any float spring tooth harrows, or float spring tooth .harrow frames, without teeth, or attachments applicable thereto, other than, ■those which it was authorized to manufacture by the terms of the-contracts, except such harrows as it may manufacture for any other-licensee of the National Harrow Company; and then that it shall manufacture only such harrows as such other licensee shall be licensed by the National Harrow Company to manufacture and sell.
The same form of contract or license was issued to all the licensees by the National Harrow Company. After these licenses or contracts had been granted to the defendant and other manufacturers, the parties in interest organized a corporation under the laws of the State of New Jersey, under the name of the National Harrow Company, and the New York corporation of the same name assigned to the New Jersey corporation all of its patents, contracts and property, except about $1,000, and received therefor stock to the amount of the value of the patents as fixed, which stock was afterwards distributed among the manufacturers, each manufacturer receiving the same number of shares in the new corporation that it held in the New York corporation. For some time the defendant made reports of the harrows which it sold, and paid the royalty according to the terms of the contracts, but subsequently it, as is found by the referee, refused to make reports of the harrows manufactured and to pay the royalty prescribed by the contracts. Because of this alleged violation of the contracts, this action was brought to recover of the defendant the stipulated damages of five dollars for each harrow sold by it and not reported, and also to compel it in the future specifically to perform the contracts.
It is apparent that the plaintiff and its predecessor, the National Harrow Company of New York, were not organized for the purpose of manufacturing or dealing in float spring tooth harrows, but
It is contended that, because the contracts do not authorize the plaintiff to raise the prices of harrows above those, fixed in the contracts, but simply authorize the plaintiff to decrease the prices at which harrows shall be sold, it is not a provision void as against public policy. By these contracts' the prices of harrows are'fixed, but the defendant is authorized to sell them at from forty-three to forty-five per cent less than the-prices fixed. A contract fixing the prices, of harrows at more than forty per. cent above their value or selling prices and authorizing the licensor to reduce, but not to increase, the prices, as effectually controls the prices for all practical purposes as though the power to increase had been expressly reserved to the plaintiff. It would hardly be practicable to fix the prices at more than forty-three or forty-five per cent above the selling prices of the harrows. The case shows that, by reason of the fall in prices of materials and- labor, harrows' could be manufactured at the date of the trial of this action for sixty-eight per cent of. their cost in April, 1891; but the defendant and all other licensees of the plaintiff are by their contracts prohibited from lowering the prices, except by the consent, of the plaintiff.
It seems to me that the provisions of the contracts authorizing, in effect, the plaintiff to fix the prices at which harrows shall be sold during the existence of these patents, and providing that the defendant shall not directly or indirectly manufacture or sell any float spring tooth harrows, or float spring tooth harrow frames, without teeth or
That combinations for the purpose of limiting the supply and fixing the prices of articles of general use during long periods are unlawful, has been so often decided as not to require the citation of authorities. (People v. Milk Exchange, 145 N. Y. 267; Arnot v. Pittston & Elmira Coal Co., 68 id. 558; Leonard v. Poole, 114 id. 371.)
By section 168 of the Penal Code, any .combination to in jure trade or commerce is a misdemeanor. This section is a substitute for section 8, title 6, chapter 1, part 4 of the Revised Statutes (2 R. S. 691), which was repealed by chapter 593 of the Laws of 1886, section 1, paragraph 4. When the transactions occurred out of which this action arose, section 7 of chapter 564 of the Laws of 1890 (the Stock Corporation Law) provided :
“ § 7. Combinations prohibited. No stock corporation shall combine with any other corporation or person for the creation of a monopoly or the unlawful restraint of trade, or for the prevention of competition in any necessary of life.” (Laws of 1892, chap. 688.)
By chapter 384 of the Laws of 1897 the section was amended so that it now reads, as follows :
“§ 7. Combinations abolished. No domestic stock corporation, and no foreign corporation doing business in this State shall combine with any other corporation or person for the creation of a monopoly or the unlawful restraint of trade, or for the prevention of competition in any necessary of life.”
The licenses or contracts A and B were entered into by the National Harrow Company of New York, and being designed “ for the creation of a monoply,” and to effect “ the unlawful restraint of trade ” are void under the section last quoted as being beyond the power of the corporation. The words “ necessary of life ” do not
The plaintiff, the successor of the New York corporation, stands in the shoes of its predecessor in respect to these contracts, and .they being void when entered into, are void in the hands of the plaintiff.
The contention that a float spring tooth harrow is not an instrument of - such general use and utility as to render combinations formed to control its price and production^ violative of public policy, cannot be maintained. A harrow is an implement as important and as generally used by farmers as a plow, and is quite as necessary for the proper cultivation of land as any-other agricultural implement, and is in use on every properly cultivated farm. Float .spring tooth harrows have come into general use and have largely superseded the old-fashioned square and three-cornered harrows or drags having peg teeth ; and I think it needs no argument to show that a combination formed for the purpose of controlling their prices, limiting their production, -preventing competition among manufacturers, and also preventing further improvement in them, is contrary to public policy as declared by the statutes of this State and by a long line of decisions in this and other jurisdictions. Indeed, it has been held in three cases in Avhich the plaintiff and its predecessor, the Nbav York corporation of the same name, were parties, that a combination to restrain the production and control the prices of these harrows was contrary to public policy and void. (Strait v. National Harrow Co., 18 N. Y. Supp. 224; National Harrow Co. v. Quick, 67 Fed. Rep. 131; National Harrow Co. v. Hench, 76 id. 667.)
It is urged by the learned counsel for the plaintiff that because float spring tooth harrows are patented articles, therefore the patentees or their assignees may combine to limit the production or regulate the prices of the articles. This argument is based upon the theory that all patents during their existence create a monopoly of the article patented, and that the OAvner of the patent may manufacture or refuse to manufacture the article and fix his own price
It seems to me that the contention that all the telephone patentees could assign their patents to a single corporation for the purpose of limiting.the prices at which instruments should be sold and preventing all competition in their production, cannot be sustained on the ground that their rights being protected by patents are, in effect, monopolies created by the government, and that a combination of all these smaller and legalized monopolies into one great monopoly would not be against public policy. This question was also considered and held against the plaintiff in National Harrow Co. v. Hench (76 Fed. Rep. 667).
The position that because the defendant, being a party to these contracts which it now seeks to have declared illegal, is estopped from questioning their validity, cannot be maintained. That qnes- ■ tion was considered and determined adversely to the plaintiff’s contention in Leonard v. Poole (114 N. Y. 371).
I am of the opinion that the contracts sought to be enforcéd are void as against public policy because by them it is sought to control for a long period of years, during the life of the patents, the prices of float spring tooth harrows, and to limit during the same period the manufacturers, licensed by the plaintiff and by its predecessor, to the production of float spring tooth harrows . described in the licenses; and because the effect of the contracts is to prevent further improvement in harrows by the licensees of the plaintiff or of its predecessor. This contention is supported by the three cases above cited, in which the plaintiff and its predecessor were parties.
The judgment should be reversed and a new trial granted, with costs to abide the event.
All concurred except Hardin, P. J., not voting.
Judgment reversed and a new trial ordered, with costs to abide the event.