Addressograph-Multigraph Corporation v. American Expansion Bolt & Mfg. Co.

• Decision Date: 14 January 1942
• Docket Number: No. 7637.,7637.
• Citation: 124 F.2d 706
• Parties: ADDRESSOGRAPH-MULTIGRAPH CORPORATION v. AMERICAN EXPANSION BOLT & MFG. CO.
• Court: U.S. Court of Appeals — Seventh Circuit

124 F.2d 706 (1941)

ADDRESSOGRAPH-MULTIGRAPH CORPORATION v. AMERICAN EXPANSION BOLT & MFG. CO.

No. 7637.

Circuit Court of Appeals, Seventh Circuit.

November 25, 1941.

Rehearing Denied January 14, 1942.

Samuel W. Banning and Ephraim Banning, both of Chicago, Ill., for appellant.

Philip M. Aitken, of Lincoln, Neb., and John Rex Allen, of Chicago, Ill., for appellee.

Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.

MAJOR, Circuit Judge.

This is an appeal from an interlocutory injunction decree, entered February 7, 1941, in conformity with the prayer of a complaint charging unfair competition.

The complaint, filed February 21, 1934, charged as its major premise that the defendant had misappropriated a business system originated, built up and maintained by the plaintiff. This system, so it was alleged, was a new and novel idea in the commercial field, namely, the addressing and writing of various data on many business forms in a mechanical manner rather than manually as had been the practice theretofore. Plaintiff's system included the medium by which the idea of mechanical addressing could be successfully marketed. Mechanical addressing requires the manufacture and sale of blank plates, upon which the information desired to be printed on the various business forms is embossed, the manufacture and sale of machines for embossing the information on the blank plates (such machines were designated by plaintiff as "Graphotypes"), the manufacture and sale of machines through which the embossed plate would pass so that the information on the embossed plates would be transferred to a business form or letter (such machines were known as "Addressing Machines").

It was also alleged that in building up this system, plaintiff had expended great effort and large sums of money in advertising, developing and maintaining extensive sales and service organizations, that the machines used in the system were sold at a low margin of profit and that plaintiff's profits were derived largely from its system rather than the sale of machines. It was further alleged that among the supplies or parts necessary to the operation of the addressing machines were address plates; that plaintiff's chief source of profit resulted from the sale of such plates which were required by its customers in great volume as its system developed, and that without the profits derived therefrom it could not afford the expense of maintenance and expansion of its business system.

The patents covering plaintiff's mechanical equipment, including the address plates, expired about a year previous to the time when defendant commenced the manufacture and sale of the address plates, admittedly sold to the owners and users of machines purchased from the plaintiff. Defendant also admittedly has not attempted to compete with plaintiff's business system through the development of such a system of its own, but has limited its competition with plaintiff to the sale of the address plates which are intended only for use in connection with plaintiff's machines. Also admittedly, the defendant has incurred none of the expense in the manufacture and sale of plaintiff's machines, nor in the establishment and maintenance of its so-called system. Thus, so it alleged, defendant is enabled to sell its plates at a substantially lower price than plaintiff without contributing to the development or maintenance of plaintiff's system. Upon this premise it is contended that defendant has misappropriated plaintiff's business system and is therefore liable for unfair competition.

Other charges were made against the defendant which we think may properly be termed ancillary or perhaps incidental to the main charge, as follows: (a) Distribution of inferior products to the injury of plaintiff's good will, (b) substitution of plaintiff's plates on orders for defendant's plates in certain instances without notice to customers,¹ (c) misrepresentation as to the character and quality of defendant's plates, (d) improper acquisition of information concerning plaintiff's customers and business, and (e) libel (1) assertions by the defendant that plaintiff was charging monopolistic prices, and (2) charges by the defendant that plaintiff's service men were guilty of sabotage in an effort to discredit the defendant.

A hearing was had before the Master who, in his final report, found all issues in favor of the defendant, except (1) that the defendant on several occasions sold plaintiff's plates without sufficiently advising customers as to the origin thereof, and (2) defendant represented to customers that service men employed by plaintiff would misadjust the machines when they found defendant's plates in use thereon, and also represented to customers that plaintiff was a monopolistic company and charged monopolistic prices. It was recommended that an injunction issue requiring the defendant, when supplying plaintiff's plate, to give adequate notice to the customer that it was of plaintiff's manufacture and that defendant be restrained from making the so-called libelous statements. Objections were filed to the Master's report by both parties. Plaintiff's objections were sustained and those of the defendant overruled. Thus, the court found all issues in favor of the plaintiff and entered its findings of fact, conclusions of law and the decree from which this appeal was taken. The court also ordered an accounting of profits and damages.

It appears that the lower court decided the case upon general Federal law. At any rate, it is certain that the law of unfair competition, as announced by the courts of Illinois, was not applied. We are therefore at the threshold of our consideration met with defendant's contention that under Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, the law of the state, as announced by its courts, must be given effect, and that by such law, no cause of action was stated or proved. Plaintiff feebly responds to this argument by calling attention to the fact that neither of the parties relied upon the Erie case in their briefs filed with the Master, and for this reason it should not be considered here. It further argues that the case, by its very nature, is and should be an exception to the rule therein announced. Neither contention is plausible. A study of the Erie case is convincing that it is of general application with the exception stated on page 78 of 304 U.S., on page 822 of 58 S.Ct., 82 L.Ed. 1188, 114 A.L.R. 1487: "Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state. * * *"

Any doubt in this respect was removed in Ruhlin v. New York Life Ins. Co., 304 U. S. 202, 205, 58 S.Ct. 860, 861, 82 L.Ed. 1290, where the court said: "* * * The doctrine applies, though the question of construction arises not in an action at law, but in a suit in equity. * * *"

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