Wilfley v. New Standard Concentrator Co., 164 F. 421

164 F. 421 | 9th Cir. | 1908

GIRBERT, Circuit Judge

(after stating the facts as above). It is contended that the Circuit Court erred in overruling the demurrers to the defense alleged in the answer, and in refusing to allow the plaintiffs in error to introduce evidence to prove the breaches of the contract alleged in the complaint. It is argued that the covenant of the defendants in error to pay the stipulated royalties is not conditional, in that it is not expressed as being conditioned upon the performance of the covenant to protect the exclusive rights so granted them, but is absolute in its terms; that the mutual covenants in the contract do not go to the whole of the consideration on both sides; that they are therefore not mutual conditions; and that the covenant to protect the licensee goes only to a part of the consideration, the breach of which may be paid for in damages, and the performance of which need not be pleaded as a condition precedent to the recovery of the stipulated royalties.

We do not so regard the contract. Section 1439 of the Civil Code of California provides that, before any party to an obligation can require another party to perform any act under it, he must fulfill all conditions precedent thereto imposed upon himself, and he must be able to, and offer to, fulfill all conditions concurrent so imposed upon him on the like fulfillment by the other party, and section 1437 defines “conditions concurrent” to be “those which are mutually dependent and are to be performed at the same time.” Barron v. Frink, 30 Cal. 486, holds that if the contract sued on is executory, and each party has something to perform before the other can be completely in default, the party who seeks to enforce it against the other must aver in his complaint a performance, or tender o'f performance, or readiness to perform, on his part. In this case there can be no question that the covenant to guard the claims of the Wilfley patent and the rights granted the licensee thereunder, and to prosecute infringers, was a concurrent condition, to be complied with at all times during the life of the license. A license implies that the licensee shall not be evicted from its enjoyment, and such an eviction is a defense to a suit for royalties accruing after it occurred. Walker on Patents (4th Ed.) § 307. In 3 Robinson on Patents, § 1241, it is said:

“A broach of warranty may constitute an entire or partial defense to an action for the purchase money, according to the nature of the broken covenant. The implied warranty of title and the express warranty of validity are of the essence of the contract, and a breach of these relieves the assignee from all his obligations. Other covenants may have the same or a more limited effect, to be determined by the extent to which their nonfulfillment impairs the value of the patent to the assignee. If the infraction is equivalent to a total failure of the consideration for the promise of the assignee to pay the price, or if the price cannot be apportioned between the advantage he receives from the conveyance and that of which he is deprived by the breach of warranty, the action of the assignor must fail.”

In Angier v. Eaton, Cole & Burnham Co., 98 Pa. 594, 42 Am. Rep. 624, the court held that the right under such a license was in the nature of a monopoly, and that so long as it was enjoyed by the licensee he was bound to pay' the consideration therefor, but that when, by reason of something beyond his control, he was deprived of that exclusive right', there was a failure of consideration. In Edison Elec. Co. v. Thackara Mfg. Co., 167 Pa. 530, 31 Atl. 856, it was held that, where a licensee is enjoying the benefit of a patent, he is bound to pay the stipulated royalty, and cannot set up as a defense the actual invalidity of the patent; but when, in addition to the invalidity of the patent by reason of a prior outstanding patent, it is shown that the owner of the prior patent is asserting- his 'exclusive rights thereunder by supplying the market with the patented article, and the licensee under the invalid patent is deprived of the monopoly for which he contracted, he may defend against an action to recover the royalty on the ground of the failure of consideration. The principle involved in those decisions is applicable to the present case; for, where one who has agreed to pay royalties for an exclusive right under a license is deprived of that right, it is immaterial whether his eviction occurred through the acts of one who had a prior patent for the same improvement, or through the default or act of his licensor in violating a covenant to protect the exclusive rights so granted and to prevent infringement thereof, thereby depriving him of the substance of that for which he contracted to pay royalties.

Cases are cited which hold that if, in the grant of a license to use and vend a patented invention, there is no express covenant that the licensor will protect the licensee from infringement, no such covenant will be implied to defeat the licensor’s right to recover the stipulated royalties. McKay v. Smith (C. C.) 39 Fed. 556; National Rubber Co. v. Boston Rubber Shoe Co. (C. C.) 41 Fed. 48; Standard Button Fastening Co. v. Ellis, 159 Mass. 448, 34 N. E. 682. But it is the clear inference to be drawn from these decisions that, if the license is coupled with an express covenant on the part of the licensors to protect the exclusive right so granted, the breach of such covenant is sufficient to defeat recovery.

The license here purported to be an exclusive one. Its very exclusiveness was the substance of the thing granted. It was of the essence of that for which the defendants in error agreed to pay royalties. It was coupled with a covenant to protect the licensees in the exclusive use of the rights so granted. There has been a total breach of that covenant. The licensors, instead of affording the promised protection, have by their own acts in effect reappropriated to their own use that which they granted the licensee. In short, their course was such that the licensee was evicted from the granted right immediately after the execution of the license, and the eviction was continuous until the commencement of the suit. The plaintiffs in error having failed to set up the contract in their complaint, and the defendants in error having pleaded the same according to its. terms, and the plaintiffs in error having announced their intention to rest their case on the proof of the contract and evidence of the nonpayment of the royalties, the situation is the same that it would be, had the contract been set up in full in the complaint. Unless a complaint on such a contract alleges performance of the covenant to protect the granted right, it fails to state a cause of action.

The judgment is affirmed.