IN BE SHEFFIELD.
833
debtor of· a righteous defense. On May 8, 1891, both were debts presently due, and either was a proper set-off against the other. Judgment of the circuit court affirmed.
In re SHEli'FIELD et aL (Circuit Court, D. Kentucky. 1.
December 1, 1894.)
CONSTITUTIONAL LAW-TAXATION-PATENT RIGHTS.
The exclusive right to make, use, and vend an invention or discovery, granted by letters patent of the United States, cannot be taxed by a state. A statute of Kentucky declared that all itinerant persons, vending pat· ent rights, should be deemed peddlers, and imposed a license tax upon peddlers, which, for vendors of patent rights, was double the amount required of others. Held, that this was a taxation 01' patent rights grant· ed by the United States, and so unconstitutional and void.
2.
SAME.
This was a petition for a writ of habeas corpus by C. P. Sheffield and S. O. Edmunds, alleging that they were illegally restrained of their liberty by the jailer of Simpson county, Ky. The jailer made return to the writ that the petitioners were in his custody upon a surrender by their bail in a· prosecution for selling patent rights without payment of license tax, in violation of a statute of Kentucky. R. S. Brown, for relator. G. T. Finn, for respondent. BARR, District Judge. The material question which arises on the return of Davidson, jailer of Simpson county, is whether or not the statute of Kentucky which requires the payment of a license tax and the obtaining of a license from the county court of a county by peddlers before they can sell or offer for sale a patent right, or any territory covered by such patent right, which has been granted by the United States, is constitutional. It appears in this case the petitioners have paid a license tax and obtained a license from the county court of Simpson county to sell a patent article known as "Animal Releasing Devices" in said county. But they have not paid the license tax or obtained a license from said county court to sell or offer for sale the patent right itself or any part of the territory covered by said patent. The petitioners are being prosecuted for selling or offering for sale this patent right without having paid said license tax to thus sell and offer for sale said patent right. They gave bond for their appearance to the next term of the court, and have been surrendered by their bail to the jailer who had them in custody at the time of the service of the writ of habeas corpus, and who has produced them in the court with his return of the cause of their detention. The 4216th section of the Kentucky Statutes declares that "all itinerant persons vending lightning rods, patent rights or territory for the sale, use or manufacture of patent rights, * * * shall be deemed peddlers." Section 4219 declares that the county court of each county shall have exclusive jurisdiction to grant ped· v.64F.no.7-.53
FEDBRA.LRlt1'on'l'lDR"\101.
64.
arid that.,the a.pplicant for license slialL prove in, at; least two: credible witnesses, that the t is a person of-good moral character. 4225 flxes$lOO:as the license tax for peddlers for the entire state, and one·fourth thereof for each county when license is issued for one county; but declares vendors. of patent rights, or territory fQr the sale of patent rights or patent articles, shall pay 'double tbat sum. The provision of .section 4219 is, we think, the exercise of the police power of the state, but the Qtherprovisions are .clearly the exercise;of· ,the power of taxation.· .Th-qs the question arises whether "theei:cIUsive right to make, use; 'jmd ,vend the invention or discovery" of a patentee or his assignee, which is granted by the United .taxed bYar state. . The right to make, vend, and use an bn,.eAtiol;!. or discovery by the c;>r, discoverer exia.ts independent 'of, the authority of the United States. But the exclusive right to:·±nhtke, use, invention or discovery 'is given to the patentee and his assignees by theUMtedStates.Thisright of \s:a, species of incorporeal prpperty which valuable. The righ1:;,wtthQut Ule exclusi9n, woul4Jlot be and is not such a right as as property.... Th.e invention or' discovery, so long as it remains with ,the. inventor or; discoverer, is ideal merely; and it iii! :only when the invention or discovery takes shape, and reo sults :insQm.em,aterial thing, it can be called property and taxed as such. This right of exclusion is an incorporeal right, which is valuable, and may be considered personal property. The Kentncky statute recognizes this, and therefore to tax the patent right (tl).e right of exclusion) by requiring for its sale the payment of a license tax. .I This'license tax is double that required for the sale of goods, and other ptoperty. The queetion is not whether the state of Kentucky can tax a patented article or thing as other is taxed, or tax the dealing in such articles or things 4s dealings in other property are taxed, by requiring the payment of Hence the decision of the supreme court in Webber Y, 'Virginia, .103 U. S. 344, and the principle therein announced, have no application to the case under consideration, nor has the deehdon in Patterson v. Kentucky, 97 U. S. 501, any application. In the Webbe'r Case the license tax was upon the sale of the article manufactured under a patent, and it was decided that there' was a discrimination in the tax, required for the sale of articles manufactured ,out of of Virginia and those manufactured in that state. For the saIe of the latter no license tax was requiJ"ed, and this washeld unconstitutional. In that case the supreme court, by JustiCe Field, say: "The right conferred by the patent la\vs of the United States to inventors to sell their inventions and discoveries does not take the tangible property in which the invention or diScovery may 'be' exhibited ,or carried into effect."
And again, in the court say:
'
the exerciSe of the police power of a state, .'"I
"A pateI;ltfor ,the manufacture and sale ota dea..dly poison does not lessen the right of a. state to control its handling 'and. The legislation respect·' ing the artiCles which the state may adopt, after the patents have expired, it
IN RE SHEFFIJJ:LP.
835
mayequaIIy adopt during their continuance. !tis only ·the right to the invention or discovery-the incorporeal right-which the state cannot, interfere with."
These quotations show, while the present qllestionwas not before theconrt, Justice l"ield Mdin his mind and drew a distinction between the tangible property which is the fruit of an invention or discovery and the incorporeal right,-the' exclusion of others from making, using, or vending an invention or discovery. The Case of Patterson was where "an improved burning oil," which had been patented, did not come up to an inspection required by a state statute, and had been condemned as unsafe for illuminating purposes, and its sale for such purposes prohibited. The supreme court, affirming the Kentucky court of appeals, held this statute was a proper exel'cise of the police power of the state, and that the patent did not give the patentee the absolute right of sale without regard to the safety to others or, the exercise of the general police power of the state. This was. the view of the Kentucky court, who said: "The discovery or invention is made property by reason of the patent, and this right of property the patentee can dispose of under the iaw of congress, and no state legislation can deprive him of this right; but when the fruits of the ,invention or the article made. by reason of the application of the principle discovered, ,is attempted to be sold or used within the jurisdiction of a state, it is subject to its laws, like other property." ·11 Bush, 312.
But it is insisted that this license tax is a tax on the business of the person who peddles. Yet it must be a tax on the sale of ,the patent rights sold, and this is made clear by the statute itself, which mal}:es the license double that for the sale of goods, merchandise, and other property. Machine Co. v. Gage, 100 U. S. 678. Thus the question must be, can a state tax, or authorize a county or city to tax, a right-an incorporeal right-which is granted by the United States, and which, under the constitution, can alone be granted by the United States? We think that question must be answered in the negative, under the principle settled in the case of McCulloch v. State of Maryland, 4 Wheat. 316, and the many subsequent cases. In the case of Weston v. Charleston, 2 Pet. 449, the court held that a taxon stock of the United States held by an individual citizen of a state is a tax on the power to borrow money on the credit of the United States, and cannot be levied by or under the authority of a state. In that case Chief Justice Marshall took occasion to state the principle upon which the previous case of McCulloch v. State of Maryland was decided, and said: "The question decided in that case bears a near resemblance to that which is involved in this. It was discussed at the bar in all its relations, and examined by th6 court with its utmost attention. We will not repeat, the reasoning which conducted us to the conclusion thus formed; but thatcQnelusion was that 'all subjects over which the sovereign power of a state extends are objects of taxation, but those over which it does not extend are, upon the soundest principles, exempt from taxation.' 'The sovereignty of a state extends to everything which exists by its own authority or is introduced by its permission,' but not 'to those means which are employed by congress to carry into execution powers conferred on that body by the people of the United States.' 'The attempt to use' the power of taxation on
836
FEDERAL ltEPORTER,
vol. 64.
the means employed by' the govemment of the Union, in pursuance of the coIiStltutlon,isitself an ,abuse, because it Is the usurpation of a power which the people of a single state cannot give."
The ,court said in that case that "the states have no power, by taxation: ol'otherwise, to retard, impede, burden, or in any manner control,the operation ,of, the constitutional laws enacted by congress, to carty-into execution the powers vested in the general government.'" 'See; also, Dobbinsv. Erie Co., 16 Pet. 435, and the National Bank Gases, in which tIle shares in these banks are taxed because of the provision of the national banking law passed by congress. 2 Black. 620; 2 Wall. 200; Van Allen v. Assessors, 3 Wall. 573; First Nat. Bank v. Kentucky, 9 Wall. 358; Bradley v. People, 4 Wall. 459. But, without revieWing the many cases in which the authority of .a state to regulate the manufacture, use, and sale of patented rights alit} patented articles are discussed and decided, we think the correctdoetrine is that the grant of patent rights is given by the United States subject to the exercise of the police power of the several states of the Union, and that the patented articles are subject to the taxing power of the several st3ltes, if there be no discrimination in such taxation as between other property in the state and the patented article or thing. But the patent right itself, 1. e. the right to exclude all others from the manufacture, use, or sale of the invention or discovery, which is a grant by the United States, a right cannot, be taxed by a state. If the authority to tax of e!:clnsion exists at all, the limitation upon its exercise must depend alone u;pon the constitution and laws of the several states, and such an authority is utterly inconsistent with the grant of the patent right which is by the constitution of the United States given exclusively to congress. This view is fully sustained by the case of Ex parte Robinson, decided by Justice Davis, and reported in 2 Biss.313, Fed. Cas. No. 11,932, and the case of State v. Butler, reported in 3 Lea, 222, and' is entirely consistent with the opinions In We'bber v. Virginia and Patterson v. Kentucky, supra, and the deci· sion of Judge Cooley in People v. Russell, 49 Mich. 617, 14 N. W. 568. In this case the state of Kentucky has not only levied a tax upon the inchoate right (patent right) which has been granted under the authorit] of the United· States, but has made a discriminating tax by reqUlring the payment of a license tax in double the amount required for peddling goods, merchandise, and other property. We conclude the statutes of Kentucky, under which the petitioners, Sheffield and Edmunds, are prosecuted and imprisoned, are unconstitutional and void. They (Sheffield and Edmuuds) are therefore imprisoned without lawful authority, and should be released from the custody of said Davidson, jailer of Simpson county, and it is so ordered.
EN'rERPRISE SAV. ASS'N V. ZUMSTEIN.
887
ENTERPRISE SAV. ASS'N v. ZUMSTEIN. Postmaster. (Circuit Court, S. D. Ohio, W. D. November 10, 1894.) LOTTERIES- USE OF MAILS-PROHIBITION BY POSTMASTER GENERAL-DIIlCllE· TION-CONTROL BY COURTS.
Rev. St. § 396, makes It the duty of the postmaster general to instruct all persons in the postal service with reference to their duties. etc. Sections 3929 and 4041 provide that the postmaster general may. "upon evidence satisfactory to him" that any person Is conducting a lottery, etc., or any scheme for obtaining money through the mails by false pretenses, instruct postmasters to mark "fraudulent" and return registered letters, directed to such person. to the postmasters at the offices at which they were malled, to be returned to the writers thereof; and may forbid the payment by any postmaster to any such person of any postal money drawn to his order or in his favor. Held, that the discretion of the postmaster general in respect to the matters referred to in such statutes cannot be supervised or controlled by the federal courts.
This was a bill by the Enterprise Savings Association against John Zumstein, postmaster of the city of Cincinnati, Ohio, for an injunction. Defendant demurred to the bill. Chas. W. Baker and Michael G. Heintz, for complainant Harlow Cleveland, U. S. Atty., for defendant. SAGE, District Judge. The bill sets forth the articles of incorporation, by·laws, and plan of business of the complainant, which issues certificates "in blocks of three," the purchaser paying for each certificate, in cash, the sum of $15,-that is to say, $5 for each certificate,-at the time of their issuance and delivery to him. By the terms of the contract of the certificate, it is paid up in full by monthly payments in 5 years and 5 months from its date, the full amount being $100. Thereupon the holder receives a paid-up cer· tificate in lieu of the original contract certificate, and is released from any further payments, the association agreeing to redeem the same not later than 120 months from the date of the original contract certificate. The holder meantime is to receive interest at 6 per cent. per annum, and finally the principal, together with his share of such profits as in the meantime have been made by the association. The initial payment of $5 on each certificate, or $15 on eaclr block of certificates, is applied to the establ,ishment and support of agencies and of canvassing, and the payment of incidental expenses. Of the $1.50 required to be paid each month succeeding the first month, $1 is paid into what is known as the "maturity fund," out of which the certificates maturing are paid. Twenty-five cents goes to the maintenance of the general expenses of the company, and the other twenty-five cents to the reserve fund. This is, in short, the published scheme of the company. A maturity table is prepared and employed, which begins with the certificates, which are numbered, with the lowest numbered certificates then in force, beginning with number 1, and proceeding by multiples of three of the live certificates. The bill sets forth that since the complainant began doing business, which was shortly after its incorporation, on the 26th of April, 1894, it has issued 1,524 certificates. On the last day of July, 1894, there were 995 certificates not lapsed, matured, or for·
.Z i . ftDll:RA.L REPORTEa,
vol. ·E>4. ,';1
feited, while up t9 that time 1,500 certificates had been issued. The complainant'\flQi1cl'eafud:a:rid organized uIidertlie'laws of the state of West Virginia. '!"I1:;opeJiedan 'offiee' in the city· of Cincinnati almost immediaMlyafter its incorporation, and has maintained it ever since.. " bVlis Wat'thedefendant, being postmaster arbitrad)y, Ulega)ly, and right, has:nildertaken to'interierewith,istop, and prevent the employment and the ,use by of the Diails and the registry departme.nt .· ,department of thE(postoffice of the crty of Oinci:o.nati, and that the, defendant bases his action in such inter.ferenceand denial tioicomplainant of the postal facilities of the post of Oincinnati, up?0 an order received by himfrom the Of, the UnIted States, under date March 31, 1894:,whicn the defendailt has exhibited to the and as his' excuse for his action aforesaid. Theora&:isasifollows: " "Order :No. 100. "It having been made to .appear to ilie sll.tisfactioo of the postmaster general that the Enterprise.Sa.vlngs Associa.tion, S. A. Stevens, Pres., J. C. Groene, W. R. Sypher, Treas., C. K. Ebann. Secy., J. S. Munsell, Genl. Vice Manager «t:·Na; 6'10 NeaiVeBmlding, C{ndnnati, 0., are engaged in conducting a the dilltrlbutiol1 of money or personal property bY.lqt qr,chance throu.gh the mails, III violation of the provisions of section Statutes of the UnIted States, as amended: "Now,4berefore, by authority vested in the postmaster general by sections 3929 'lUld 4041; Revised statutes of the United States, and by act approved !\$9Q,r do f9rbtd .the payment py the postmastel' at. Cincinnati, 0., Sept: ofallY; order drawn to the order, of said company and its officers aforesaid, Met that the said. postml\.Ster Is hereby directed to inform the remitter of said postal money order that payment thereof has been forbidden, and that the sum of said money order w1llbe returned upon presentation of a (j,uplicatEl:money Order applied foran,d obtained regulations of the department .' . .. . "And,Ui>Qnthe same evIdence, tile postmaster at Cincinnati, 0., aforesaid. Is hereby instructed to return all registered letters which shall arrive at his office, dIrected to the said companY alld Its officersafi)resaid, to the post· masters 'at theoilces at wQichthey were originally mailed, with the word 'Fraudulept'plainly written or stamped upon the outside of such letters. "[Siglled] . .. W. S. Bissell, Postmaster General. "To Postmaster, Cincinnati, 0." ,
The bi:U then spcf'ifies instances of the defendant's refusal to recognize or payposta:l money,orders in favor of and presented by the in$tancesof his refusal to deliver registered letters .receiyed in said. post and addressed to the complainant, char.ging that said letters were stamped with the word "Fraudulent" :acioss the el1v:elopes, and 'returned to the post offices from' which they were sent: "The prayer; is for an. injunction prohibiting the defendant from irttelifering wit/h, the employment of the 'post office of Cin"eihnati inthe>tondv,blloiliicomplainant's business,and froruwithholding anditddressed and directed to the defEmdantia'tldfrom,wtthholding payment of money orders addressed to and by him. The defendant has filed a general demurrer for insufficienr¢:y..
E.NTERPRISE SA V. ASS'N
v. ZUMSTEIN.
839
Section 396 of the Revised Statutes makes it the duty of the post· master general to instruct all persons in the postal service with ref· erence to their duty, and to superintend generally the business of the department, and execute all laws relative to the postal service. Section 3834 requires every postmaster, before entering upon the duties of his office, to give bond for the faithful discharge of all duties imposed on him either by law or the rules and regulations of the department. This section subjects the postmaster to the orders of the postmaster general. Section 3926 author,izes the postmaster to establish a uniform sys· tetnofregistration for the greater security of valuable mail mattel'. It provides that neither the post-office department nor its revenue shall be liable for the loss of any mail matter on account of its having been registered, Section 4027 authorizes the postmaster to establish and maintain, under such rules and regulations as he may deem expedient, a uniform money-order system at all suitable post offices, which shall be designated as "money-order offices." This authorization, it is expressed in the section, is to promote public convenience, and to insure greater securit;y in the transfer of money through the mail. Sections 3929 and 4041 read as follows: "Sec. 3929. '1'he postmaster general may, upon evidence satisfactory to him that any person is engaged in conducting any fraudulent lottery, giftenterprise, or scheme for the distribution o'f money or of any real or personal property, by lot, chance or drawing of any kind, or in conducting any scheme or device for obtaining mouey through the mails by means of false or fraudulent pretenses, representations or promises, instruct postmasters at any post office at which registered letters arrive, directed to any such persons, to return all such registered letters to the postmasters at the offices at which they were originally mailed, with the word 'Fraudulent' plainly written or stamped UpOIl the outside of such letters; and all such letters so returned to such postmasters shall be by them returned to the writers thereof, under such regulations as the postmaster general may prescribe. But nothing contained in this title shall be so conf-trued as to authorize postmaster or other person to open any letter not addressed to himself." "Sec. 4041. The postmaster general may, upon evidence satisfactory to him that any person is engaged in couducting any fraudulent lottery, giftenterprise, or scheme for the distribution of money, by lot, chance, or drawing of any kind, or in conducting any othcr seheme or device for obtaining money through the mails by means of false or fraudulent pretenses, repre· sentations, or promises, forbid the payment by postmaster, to any such person of any postal money drawn to his order or in his favor, and may provide by regulations for the return, to the remitter, of the sums named in such money orders. But this shall not authorize any person to open any letter not addressed to himself."
The sectionE! above cited and quoted Yestin the postmaster general complete control and authority over the mone;y-order and registered letter department of the postal service. 'rhe;y make. every postmaster subject to his orders. The;y also vest in him a discretion, "upon evidence satisfactory to him" that any person is conducting any fraudulent lottery, gift enterpl'ise, or scheme for the distribution of money, or of any real or personal propel't,y by lot, chance, or drawing of any kind, or in conducting any other scheme or device for obtaining money through the mails by means of false or fraudulent
840 any:
I'EDERAL UEPORTER,
:l'cpresentations, or promises, to instruct postmasters at office at which registered l.etters arrive, directed to such return such letters .to the postmasters at the offices at whichitheywere mailed, after writing or stamping upon the outside and all such letters, when so of such letters the word returned, are to be delivered to the writers thereof, under such regulatioij.s as the postmaster general may prescribe. The of postal money orders drawn to the order of or in favor of any such person may be forbidden by the postmaster general upon evidence satisfactory to him that any person is engaged in conducting any fraudulent lottery, gift enterprise, or scheme as above set forth; and general, may provide for the return to the remitter of the sums named in such money orders. No citizen has a vested right to the use either of the registered letter or postal money order systetn. Every citizen :ttas the privilege of both, subject to the discretion which is vested in the postmaster general. It is the duty of every postmaster to obey the orders of the postmaster general, made in pursuance of the statutory provisions above ,quoted, and in the exercise of his discretion. The question then is whether this discretion can be supervised or controlled by federal courts. It is not a new question. It was first considered in the case of Marbury v. Madison, 1 Oranch, 137. In that case, at page 166, the supreme court was of opinion that the president is vested with certain political power, to be exercised in his own discretion. Whatever opinion might be entertained of the manner in which that discre· tion was used, there existed and could exist 110 p()wer to control it. lt has been repeatedly held by the supreme court that a mandamus will not lie to the head of it department to enforce the performance of an executive duty involving the exercise of judgment or discretion. See Bank v. Paulding, 14 Pet. 497; Brashear v. Mason, 6 How. 92; U. S. v. Seaman, 17 How. 225; Gaines v. Thompson, 7 Wall. 347. In Gaines v. Thompson it was held that the act of the secretary of the interior and of the commissioner of the land office in canceling an entry for land is not a ministerial duty, but is a matter resting m the judgment and discretion of those officers, as representing the executive department; and that the court would not interfere by injunction more than by mandamus to control it. Mr. Justice Miller, in deliver· ing the opinion of the court, reviews the cases from Marbury v. Mad· ison down. A ministerial duty was defined in Mississippi v. Johnson, 4 Wall. 475, as one in respect to which nothing is left to discre· tion. In Gaines v. Thompson the court held that an officer to whom public duties are confided by law is not subject to the control of the courts in the exercise of the judgment and discretion with which he is vested by law. The reason given by the court is that the law reposes the discretion in the officer, and not in the courts. To the same effect are U. S. v. Black, 128 U. S. 40, 9 Sup. Ot. 12, and U. S. v. Windom, 137 U. S. 636, 11 Sup. Ot. 197. In the case now before the court, the postmaster general was authorized to act upon evidence satisfactory to him. What he did under that authorization cannot be regarded as a ministerial act.
PILLSBURY tl. PILLSBURY-WASaBURN FLOUR MILLS CO.
841
It was in the exercise of a discretion, and it cannot be supervised or controlled by this court. . The demurrer will be sustained, and the bill dismissed, at the cost of the complainant. PILLSBURY et al. v. PILLSBURY-WASHBURN FLOUR MILLS CO.. Limited. (Circuit Court of Appeals, Seventh Circuit. November 27, 1894.) No. 193.
1.
UNFAIR COMPETITION-l!OLORABLE IMITATION OF BRAND.
C. A. P. & Co. had for many years been engaged In manufacturing and selling flour which had acquired a high reputation and extensive sale. In 1872 they adopted a mark or brand which they applied to the packages containing their flour, consisting of the name P., the name of the place of manufacture, "M., Minn.," the letters "XXXX," and the word "Best," In large letters of a peculiar design, all arranged In a circular form, surrounded by two lines of dots, with the name P. In a vertlca1lin& at each side, the whole being printed In blue, except the word "Best," which was printed in red. The business of C. A. P. & Co., and the right to use such mark or brand, were sold In 1889 to complainant, a corporation organized and mane.ged by· the members of the firm, which continued the manufacture and sale of the flour and the use of the mark or brand. In 1893 defendant L. F. P. commenced, at a small town In Illinois, the business of buying flour and putting It up and selling It in packages on which he placed a mark or brand of similar form to that of complainant, In whIch the name L. F. P. was substituted for .the name P. alone, in the same part of the circular device and in the vertical lines, the word "Minnesota" was substituted for "M., Minn.," the letters "XXXX" were placed above Instead of below the word "Best," which was printed in letters of the same size but slightly different design from those on complainant's brand, the word "Patent" was added, and the lines of dots 8urrounding the circular device were Increased to three; the whole, except: the word "Best." being printed in blue, and the word "Best" In red. He/&, that defendant's mark constituted a colorable Imitation of complainant's mark, manIfestly intended to dress up defendant's goods in the appearance of complainant's goods, and mislead the public Into buying them aa such, and that its use should be enjoined. Held, further, that even it the use of the mark by a corporation actually managed ,by a member of the firm which originally manufactured the flour and devised the mark could be considered a false representation as to the actual makers of the flour, the fact that prior to defendant's commencing business the corporation had begun to stamp all its packages with its own name, as "successor" to the former firm, obviated any objection on this ground to complainant's right to an injunction.
I.
SAME-COMING INTO EQUITY WITH CLEAN HANDS.
Appeal from the Circuit Court of the United States for the Northern District of Illinois. This was a bill in equity, brought by the Pillsbury-Washburn Flour Mills Company, Limited, against L. F. Pillsbury and Ephraim Hewitt, to restrain the use by defendants of a mark or brand alleged to be a fraudulent imitation of complainant's brand. The circuit court made an order granting to complainant a preliminary injunction. Defendants appeaL This is an appeal from the order of the court below passed on the 2d da7 of July, 1894, gTlloting a writ of injunction. and the question Ja upon the nUdity of the restraints thereby Imposed.