HANIFEN V. LUPTON.
465
complainants' process. is not a product which is practically marketable; that something more tllan is described in the process is necessary to complete it. In order to compete in the market as a useful filament for incandescent lamps, it is necessary, they say, that it should be subjected to what is called the ''hydrocarbon'' or "flashing" process. The patent of the complainants relates to a method of making a carbon filament from animal matter, and the process is complete when the filament is made. That it can be made more valuable, and its resistance reduced, by flashing or any other subsequent treatment, is a matter with which the inventor of the process had no concern. Other means, then unknown to the art, of increasing the efficiency of the filament, might or may be disclosed, and it was not necessary for the patentees to limit their invention of a desirable process for producing a filament by the addition of a step beyond the object sought to be obtained. Does the process produce a filament at less cost than it had theretofore been made? Its utility must be gauged by the state of the art at the time the patent was applied for, and it is immaterial that since then other means have been employed to accomplish the same result at still less cost. In my opinion, the complainants' process was a practical step in advance, and as such was patentable. Let a decree be prepared.
HANIFEN v. LUPTON et
at
(Circuit Court:. Eo D. Pennsylvania. June 19, 1899.' No.9.
L
PATENTS-CONSTRUCTION OJ'LICENSE.
A licensee was authorized to "deal In, Import, use, and sell the knitted fabric" covered by the patent, at a royalty of two cents per yard; and the licensee covenanted not to handle or deal in any goods like those covered by the patent which were made in this country by any party "not licensed under the above-mentioned patent, unless he pays the royalty thereon hlmlelf, it being understood, however, that but one royalty shall be paid In luch goods, or any fabric coming under this license, whether paid by manufacturer or seller." Held, that, while this provision created no privity between the licensor and any third person who might make such goods In this country and sell them through the licensee, yet, if the licensee paid the royalty on such goods. this was a waiver of the monopoly as to them, so that the licensor could not sue the manufacturers for infringement. The mere breach of a covenant by the licensee does not Ipso facto annul a license. There must be some proper proceeding and a reacisslon In equity.
2.
SAME-ANNULMENT OF LICENSE-BREACH OF COVENANT.
beeh' th'J U circuit CO!1rl ()f of this circuit 1)1 ,the case of Hanifen, v. E. H. GodshalkIOo.. (No. 19; Sept. rrerm,1,897),55 U.s. App; '464, 28 O. A.. 507, and 84 Fed. 649. The )\1ec1' March 24, 1898, a,na. the filed Jutie 20, 1898,. was practically a copy of the answer filed III the Godshalk qase, no ,new being adduced. These defenses were the usua,lones,.denying infringement" assertion of the invalidity of the "on'tlw ground of, want of novelty, etc. The caseWfl,s bt:0ught to issue JtlJy5, 1898. , .Complainant made the usual prim:;t facie 'proof, and rested, July 25, 1898. Before any evidence wastaken in behalf of the defendants, and after the, case was set down by cOII\plai'J;l.ant for final headng., the c,?unselfor defendants, on 1<'ebrua(y8; 1899, obtained leave to t,lle an amended answer, setting forth an alleged Ucense to on,e Jean Bry for the sale of the patented made by defendants, and fabric, and averring that. all of thli complailled of, thI'Ollgh said Bry, and that the royalty by such license,with the exception of a small balance, hall been paid. At the, hearing, 'the validity of the was admitted and also the facttMt they had made goods which by the within' its terms as C6Ii!3trued bY,the circuit' court of appeals for this circuit. The defendants rely alone upon theli't'laim that they are protected in their doings by the said license to Jean Bry. This license reads as follows: "Memorandum of agreement, ptap.e this twenty-<sixth day of May, 1897, by and between JohnE. & Co., of Philadelphia, party of the first part, png,Jeau Et'y, of Grel)ne ,street, e,,"¥orl\: Oity, party of the second part: rl)Saitl,Tohl1' 'E. Hanifen & Co.;' in "consideration of' the faithful performance and discharge by the sai4 l;)Jl,J,'ty of the second part of the agreements hereinafter set forth by him to be" performed, hereby license and emseR"tl;le knitted fabric depower said Jean Ery to deal in, of .the United States sl':ribed'and' ClahUl:ld,4n the!'lecond elaimof' No) 374,888, issued Decembe17 13, 1887"tQ, assignor to said John B. Hanifen & 00,; ata ro)'alty of '(2LSaid party' of the second. parL hel'eby. aecepts said, license,,; I11'u1 ill. cOlll!lideration of the thpI'('tlf(:to'llllllke. 111OII;tbly returUli,dJ;l: writing,tQ'W.' P. Preble, Jr., attorne'Y for said JQbnE. Hanifeu' &00., 'within'the ,first ten: days of each and el(l1r3' moilth,'(jfall"flU(,h knitted fabrics il'().poI'iedorsold by him during thp previous 'mol1th,.,and ,to' pay. tlHil' above-mentioned: '. l'Oyalty, thel'eon at the time of, said· returns;: .and: also covenants and agwes not to. handle, 'deal in, take (lnlers'for,or: as commisSion agent for,' allY goods of this description made in: tl;lis ,cmmfuly by any . person; firm, or clll'poration who is not licensed uIJP,er: th 'a.bove,mentioned .patent,unless he ,pays the royalty thereon ,himself, -it lwillg' understood, however. that but one royalty shall be paid on such goods, or any fabric coming ,unde.J; thisJicense, whether paid by manufactlU,'er t3l:.'f'his,license shaJLlast, unlells SOOner, terminated., until the ex· and shalltak(! e{f!'!Ct from the 15th piration day of March, 1897, and apply to ali goods ordered after such date, .and $hall be terminated by mutual consent or for failure on the part of the said of the part lJrPperreturns "l\Qd :payments;, but eitber party Illay ternunate license on one year'!! /lot to be given, how· ever, before November 1, 1897. (4) Raid party Of the' second part further connao.ts aI;td agrees, wh.euC,fllled upon, to sai4 PJ;eble. and furnish liuch data as maybe :neeessary .t6' verfiy' the: adcuraey of' said: monthly reports. (5) It ,is further mutually' !aglJeed that the sUit now pending againstH. A. CaeS<'lr& Co, shall btl diSP9.S,ed.,,<!f withf!1,1t,.c9!l!st.o. pl;lIty,a.nd by SUch elltr)" or order as the parties may hereafter agree would be for ,the best, inter-
HANIJ!'ENV.' LlJPTON. ,
467
ests of the parties hereto.' In witness whereof the parties hereto have hereunto set their hands and seals this 26th day of MaY,1897. "[Signed] John E. Hanifen & Co."
It will be observed, from the reading of this license, that the defendants, Lupton & Co., were not manufacturing under any express license from the complainant. Jean Bry' was the licensee, and the Luptons are the defendants, not Bry. Unquestionably, Lupton & Co., in manufacturing goods covered by the patent, were infringers of the patent monopoly, unless they can bring themselves under the of the license to Jean Bry, as set forth in their amended answer. No question is made as to the validity of the patent, the sole question has the patent monopoly-that is, the right to sue for an infringement-been waived by the patentee in this case? The defendants say that it has been waived by reason of the covenant in the second paragraph of the instrument of writing granting the license to Bry. The covenant is a peculiar one,and no case has been cited on either side o;f a :license with just such a feature as this. On the one hand, it would seem intended to restrain the licensee (Bry) from dealing in or handling the goods made by unlicensed domestic manufacturers, and thus measurably to protect the patentee from the unlawfuJinroads upon his monopoly by such persons, and to preserve his property rights from invasion.' The language of this covenant, down to the word "unless," is appropriate to the purpose above described, and is usual and natural. On the other hand, the clause commencing with the word "unless" would seem intended to mean more than a mere exemption of the licensee from the consequence's of dealing in or using goods made in infringement of the patent monopoly, by allowing him to pay the royalty himself, and thus condoning the offense. It rather seems to invite such dealing, for the purpose of securing the royalty that was ordinarily charged to manufacturers. The carefully inserted provision, "that but one royalty shall be paid on such goods, or any fabric coming under this license, whether paid by manufacturer or seller," points strongly to the conclusion that the complainant expected Bry to deal with such manufacturers as Lupton & Co. And the testimony of Mr. Preble, the complainant's attorney in fact, in stating what passed between him and Mr. Wetmore, counsel for the licensees, in the drafting of the license, coincides with this view. On pages 8 and 9 of complainant's record, Mr. Preble testifies as follows: "At a subsequent interview, Mr. Wetmore suggested, as a sort of possibility which ought to be taken care of, that perhaps some domestic manufacturers, who bad stood out against the patent, might prefer to have their commission llOuse nominally pay the royalty to paying it themselves, and asked me if I bad any objec1:ions to addiug the clause which now appears in the license, 'unless he pays the royalty thereon himself.' I' told him I had not. Later on, in getting the license into permanent shape, Mr. Wetmore asked me if I ex., to collect our royalty from the manufacturer if the commission house had already paid it, and I told him certainly we did not. Thereupon, at his suggestion, the words. 'it being understood, however, that but one royalty shull be paid on such goods, or any fabric coming under this license, whether paid manufacturer or seller,' were added. Those words Were put in to make it perfectly plain <that, if the royalty on the domestic goods was properly paid,
468
95
P'EDERAL REPORTER.
it was matter of indifference to us whether the payment was made In the name of the manufacturer or the commission house."
As I have said, the covenant of the licensee (Bry) is a peculiar one, and presumably unusual, but it s,hould be taken to intend what must inevitably result from it It is a restrictive covenant, with an exception, the inevitable effect of the whole being a permission or license to Bry (and the otMr licensees) to "handle, deal in, take orders for, and serve as commission agent for, any goods of this des,cription made in this country" by any unlicensed person, firm, or corporation, provided he. (the licensee) pays the royalty thereon himself. It is true, this license was granted to Bry, and it was also granted to others in precisely identical terms, it was not made to Lupton & Co. Inasmuch, however, as the intent and necessary effect of the grant to Bry was permission to' him to deal in, handle, and act as agent for goods manufactured by iJupton, or any other unlicensed manufacturer, on the payment by Bry of the royalty thereon, Lupton & Co. cannot, in respect, to goods so manufactureIJ and handled by Bry, be considered, in law or in morals, as an infringer of the complainant's patent. As to them and otheJ.'lS in like situation, the patent monopoly is waived. It is true that the patentee had no contract with them, and they are not privy to the contract with Bry or the other licensees. But this does not justify the statement made by the complainant's counsel, in his brief, that the "defendants' contention rests upon the proposition that a tort feasor can escape the conSequences of his trellpass by effect of a contract to which he was neither party nor 'privy." In respect to these transactions with Bry, as well as those with Victor & Achelis, defendants are not tort feasors. The complainant's contract with Bry, as with the other licensees, was that he might deal, in a mode prescribed, in goods made by unlicensed manufacturers, such licensees contracting to pay the royalty thereon. Whether we call this 'an estoppel upon the licensor to treat as an infringer the manufacturers with whom TIry and the other licensees dealt in accordance with the terms of their license, or an implication of license to such manufacturers. to make and sell their product for and throngh Bry and the other licensees, is not important, because the effect of it all is that, aiS to the goods thus dealt in, the patent monopoly was waived. In the ordinary case of a license by a patentee to another to sell the patented article, the licensor will not be permitted to claim that the use of such article by the purchaser from such licensee is an infringement of his monQpoly. In, this case, as in the one before the court, though there is no express license to such purchaser, there is no difficulty in finding ground upon which to place the protection Which the law undoubtedly gives. The morality which must obtain in the conduct of human affairs demands that such protection be accorded, and it is upon high ethical ground that the doctrine of estoppel, as well as license 9Y implication, is founded. The complainant, having authorized such dealings as those which the defendants allege took place between ;Bry and Lupton, must look to Bry fQf the pevformance of his part of the contract, by the payment of the ,stipulated royalty, as it iseonceded that Lupton cannot
469
be regarded as a privy to this contract. On this line, the position here taken in regard to the· effect of the license to Bry, upon his transacHons with the defendants, is strengthened by the conduct of complainant, as disclosed by the evidence. The letter written by William P. Preble, attorney in fact of complainant, under date of December 6, 1898, to Jean Bry, though written after the inception of this suit, throws much light upon the attitude of the parties from the beginning. This letter is defendants' Exhibit 9, on pages 24, 25, and 26 of defendants' brief, and I quote at some length, because it is plain, from the last paragraph of the letter, that in the first para.graph quoted the writer is referring to unlicensed manufacturers, such as the Luptons: "Hemember, also, that if you have included in your returns any domestic goods, the royalty of two cents per yard which you have paid thereon only frees you from further payment. There is still due to us from the manufacturer of· those goods one cent a yard on goods which sold at less than a doilar and a half per yard, and three cents a yard on goods selling over that figure. The only royalty rate which we recognize on domestic goods is three and five cents: and the permission granted in your special license to pay the royalty at two cents a yard on all goods which you sold was only a personal privilege to the nine of you who took licenses in 11ay, 1897, to save you trouhle, but not to allow manufacturers to obtain a reduced rate of royalty. I call ;your attention to this n1 atter because, while I have no direct evidence that any of the goods which you have accounted for were domestic goods, I have received through Mr. lfraley, of Philadelphia, who had it from Mr. Stoughton, who had it from Mr. Lupton, a copy of the receipt which I gave you on Deter bel' 8, 1898; Mr. Stoughton claiming that Lupton's goods were now being sold under a license. If the 21,500 covered by that receipt were Lupton's domestic goods. there is still owing to us on that account the sum of $215; and, if the 2,998 yards covered by the check received this morning are also MI'. Lupton's goods. there would be $29.98 still owing to us on those goods. This makes $244.98. I see no objection to receiving this amount through you, instead of from Mr. Lupton direct, if he prefers it that way."
Surely, the statement that, "if Bry has included domestic goods in his returns, there must be paid a further sum, as for a manufacturer's royalty," is· a recognition of dealings such as the defendants claim theirs to have been with Bry, in regard to this patented article. With this admitted knowledge of the fact that Bry was dealing in Lupton's goods, the writer asks for an additional payment on them, and sees "no objection to receiving this amount through you [Bry] instead of from :Mr. Lupton direct." No protest is made against Bry's dealing in Lupton's goods. On the contrary, he merely asks for more money, and the question between them resolves itself into a dispute as to the amount of royalty due. This dispute is one to be settled with Ery, upon a proper interpretation of the contract of license, but not in this suit or tribunal. Of some significance, also, in this connection, are the facts appearing: by the stipulation of counsel in regard to the license to Victor & Achelis. The is as follows: U. S. C. C., April Sessions, 1898. "Philadelphia, February 27, 1800. "It is hereby stipulated and agreed between counsel for complainant and counsel for rJeielH]nn1s that the firIll of Victor & Achelis, of )\few York Citr, have a license which is still in force, which license is, with the exception of "Hanifen v. Lupton & Co.
! t1J!>i name ot the llcrusee, IdeIitlcal in terms with the llctn,se offered In this, case, ,graI)ted to Jean Bry; und, f;urther, that ;F'.,SiJ!Lw,If call1i'd as a,wltness on behalf of the liefenda,nts, would testify that ,be is connected ",ith said firm of 'VIctor & Achel!'!!, that said firm have been the sole snles agents since tbe terminatioD"of,thelr dealings with Mr: Jean Bry, and that said firm ha& 'agl'eed with defendants, to be ,their exclusJwe during the coming year, ,fell' the sale of thel eHtire tjJ.e. mill of defendlLllts",in sOfar as It conof the goods of In this case, llI1d tb&tt,bi! defendants bave auat the rate of ,two cehts per yard ou 'tliorlzed the saldflrm to'pity the the goods coming undertbe patent." " '
as to dealings by defendants wi,th Bry in, goods manufactured by thejJl under the patent, there was ,a waiver of the patent monopoly jand, second, if so, whetherit appears from,the evidence in thecajlse that all the goods ,man\lfactured by defendiilits, and cOWllJained of; were' sold through, the saill licensee, Bry, or Victor &: Achelis.lt is contended by complainant's counsel that Bry's license is annulled' by virtue of the clause 'in the license :'pr'oviding that the same shall be terminated qt;e of pariies of the secon'd .part to make. proper returns and pa.};tlle,llts.. It is true. that written notice to tbis was served on Bry, Becember Hi, 1898. But a mere' breach of covenant (if such bt'each wereestablished)dqes not,ipso fa.cto, annul a license. There nip-sf De ,some proper proceedinganq i inequity. W<lS, then, no a.oullh.ncnf or Qf the BI'Y license that would make it inoperative for thepl'otection of the licensee's dealings with the defendants, in' aei.'ordance with its terms, and it isnotev.en claimed'that the license to Victor & is not still in force.' Tb ,it must be answel'ed that was,as to, goods munufa.cturedby the dofendants·and dealt in by Bry or Victol! & Aehelis, a waiver Of the, monopoly of the patent. The meagerness of the' record makes it somewhat difficult to anthe second question satisfactorily. It is that the speci.al rip. by the defendants, that they acted the permission c'ontairled in the Bry and other licenses, and that goods which would prima facie be infringements were thereby protected, an atlirmative defense, and throws burden of proving it upon the defena,unts. .The evidence disclosed in the record on this point is not us clear as could be desired, but at ·saIfle time, .in the absence of contradiction. it is prima faCie sufficient. Bry swears that an the goods made by r,upton & Co. were soW tllrough him, and although the defendants do not testify, and no explanation is offered for their silence, the testimony of Bl'y, in connection with the sworn statement of the llmended an,swer, must be considered as sufficient to sustain the burden of proof until it is rebutted by evidence on the other side. N has been it the facts stipulated the testimony in regard to the dealby tbeparties, as ings with Vietor & Achelis, are true. If th,ere a, dispute as to the amount of the royalty to be paid by Bry and the other licensees in sueh cases as this, it can, as I have already sa:ld, ,be determined by a proper ,proceeding nnderthe contract of license, or, if it is claimed that the licenses have been forfeited by failure to make proper returns, the same can be rescinded by proper proceedings in equity.
The
I
for'
WHITAKER CEMENT CO. V. HUNTINGTON DRY PULVERIZER CO.
471
In view of the case thus taken, I am of the opinion that the bill should be dismissed.
WHITAKER CEMENT CO. et a1. v. HUNTINGTON DRY PULVERIZER CO. et al. (CircuIt Court of Appeals, ThIrd CIrcuit. July 6, 1899.)
P .A.TENTS--INFRINGEMENT-CRUSHING MILLS. ,An essential feature of the machIne covered by the Huntington patent, No. 277,134, for a crushing mlll having the rollers suspended from above, Is that the suspending mechanism shall' be constructed and arranged so that the rollers may swing radially, and In operation be thrown outward against the Interior surface of the die by centrifugal acti(lD; and the pat· ent Is not Infringed by a mill having, a !lingle roller suspended over the center of the pan by a shaft depending from a unIversal joint, and posl· tively rotated by the drIVing pulley, and which Is not thrown outward by centrifugal force, but would remain In Its position In the center If It were not drawn outward by the workman.
Appeal from the Circuit ,Court of the United States for the Dis· trict of New: Jersey. Frederick P. Fish and Edmund Wetmore, for appellants. Frederick S. Duncan and Frederic H. Betts, for appellE'es. Before ACHESON and DALLAS, Circuit Judges, and TON, District Judge. ' DALLAS,Circllit Judge. This is an from a decree Of the the United States for the district of New Jersey, circuit by wpich it ',Vl'lsadjudged that the defendants below, by purchasing and using certain pulverizing mills, known as the "Grif· fin Mills," had infringed the first claim of letters patent No. 277,134, to Frank A.Huntington, for a crushing mill, which claim is as fol· lows:, ,," " ' I' "(1) The pan, A. :llavlnl; the Inte,lor vertl,cal circular die" F, It! combination with the G; shafts, I, and means tor suspending said shafts from above 110 that said roUers may rotate against the die by centrifugal force, substantially as ,
We entettEtin ilOdoubtof the validity of this patent, or ()f the meri· torious charactE!fof the invention to which it relates. ' The only question is, does the Grittin mill conflict with it? And the solution of this question depends, upOn the scope which should l>e accorded to the claim; with referenee especially to the phrase, "means for suspending said shafts fromabove so thllt said rollers may rotate against the die by centrifugal force, substantially as herein' described." The ascribed to this language by the appellees is that it covers and includes "every construction of centrifugal crushing mills, in which .suspension of the rollers by means of shafts from above is com· bined with the simultaneous rotation of the rollers around the inner periphery of the die, and with rotation on their axis, and with ilreS-