Atherton Mach. Co. v. Atwood-Morrison Co.

• Decision Date: 14 June 1900
• Docket Number: 13.
• Parties: ATHERTON MACH. CO. v. ATWOOD-MORRISON CO.
• Court: U.S. Court of Appeals — Third Circuit

102 F. 949

ATHERTON MACH. CO. v. ATWOOD-MORRISON CO.

No. 13.

United States Court of Appeals, Third Circuit.

June 14, 1900

Edward Q. Keasbey, for appellant.

Frederick P. Fish, for appellee.

Before ACHESON, DALLAS, and GRAY, Circuit Judges.

GRAY Circuit Judge.

This is an appeal from the decree of the court below sustaining a demurrer to the bill. 99 F. 113. The bill was for an injunction, and accounting for the infringement of a patent. The facts, as stated by the bill, are briefly as follows: The title of the complainant is derived from the inventor, Jean Schweiter, of Bergen, Switzerland. It is alleged that the inventor made application in due form of letters patent of the United States, on July 17, 1896, and the application was numbered with the serial number 599,484, and afterwards, in August, 1896, the inventor, being the owner of the invention by a valid agreement in writing, for a valuable consideration, assigned the invention and the letters patent issued thereon to Henry Schrader, requesting the commissioner to issue the letters to him; that Schrader, being the owner of the invention, by assignment in writing referring to the application by its serial numbers, and reciting the assignment from the inventor to him, assigned the invention to the Schrader Improved Quilling-Machine Company, requesting the commissioner to issue the letters patent to them, and this assignment was recorded in the patent office June 20 1897. After this, the bill says, the letters were duly issued to Jean Schweiter, January 4, 1898, and thereupon, by reason of the grant to Schweiter and by virtue of the assignment all the rights conferred by the letters patent were vested in the quilling-machine company, and they acquired the exclusive right to make use, and vend the patented machine. After this on August 18, 1898, the quilling-machine company, by assignment in writing duly recorded in the patent office the same day, assigned the invention and letters patent to the complainant, which thus acquired the exclusive right to make, use, and vend the machine covered by the patent. The machine constructed by the quilling-machine company had already been marked, 'Patent applied for,' and the complainant since the assignment has been making the machines, marking them 'Patented,' and giving due notice to the public; and the bill avers that the complainant, having a legal as well as an equitable title to the invention and letters patent, is now engaged in the business of making and selling the machines embodying the invention, and is well able to supply the market; and the complaint is that the defendant, having no title, is guilty of infringement, and is making and selling machines containing the invention, and is issuing circulars insinuating that the complainant has not a valid title, and threatens to continue the infringement. The bill then goes on to say, by way or replication to an anticipated defense, that the defendant pretends that the inventor on October 8, 1898, assigned the invention and letters patent to the defendant; and the bill charges that, if such an assignment was made, it was invalid as against the complainant, and was obtained after the inventor had parted with all interest in the invention and application for a patent, and that when the letters patent issued thereon the title vested in the quilling-machine company, as assignee of the inventor, and also that the defendant had taken the assignment with actual as well as constructive notice of all the rights of the complainant and of the facts above set forth; and the bill avers that the complainant has both the legal and equitable title to the letters patent and invention, and that any claim or pretended right the defendant may have was subject to the rights of the complainant, and that the complainant has an exclusive right, which the defendant persists in infringing. The bill prays for an injunction and an accounting, and that the pretended assignment be declared to be of no effect, and the record thereof canceled. The defendant demurred, and the circuit court sustained the demurrer and dismissed the bill. The ground on which the demurrer was sustained was that the suit was not a suit at law or in equity arising under the patent or copyright laws of the United States, and that therefore the court had no jurisdiction of the case. The court held that the question whether the complainant was entitled to relief did not involve the consideration of any law of the United States, and that the title to the patent rested solely in contract, in the interpretation of which the general principles of equity and common law are applicable, and that as both complainant and defendant are corporations of the state of New Jersey, and as such citizens and inhabitants of that state, it had no jurisdiction of the case.

The act of congress of 1870, as embodied in section 629 of the Revised Statutes, provides that the 'circuit courts shall have original jurisdiction as follows: * * * of all suits at law or in equity, arising under the patent or copyright laws of the United States. ' The jurisdiction thus conferred is exclusive. All questions, therefore, which concern the infringement or validity of, and the title to, patents granted under the patent laws of the United States, must be litigated in the circuit court of the United States. 'It is perfectly well settled,' however, 'that where a suit is brought on a contract, of which a patent is the subject-matter, either to enforce such contract or to annul it, the case arises on the contract or out of the contract, and not under the patent laws. ' Thus, in the earliest case in which this distinction was made (Wilson v. Sanford, 10 How. 101, 13 L.Ed. 344), the bill set forth a patent, and an assignment by the patentee of all right and interest in said patent to complainant, and a license from complainant to defendants, to sue one machine upon payment of a certain sum, part in cash, and part secured by notes falling due at different times. These notes contain the following provision:

'And if said notes, or either of them, be not punctually paid upon the maturity thereof, then all and singular the rights hereby granted are to revert to the said Wilson (the complainant), who shall be reinvested in the same manner as if this license had not been made.'

The first of these notes was not paid when due, and, payment having been demanded and refused, this bill was filed, insisting that the license was forfeited by the failure to pay the notes, and that the licensor (the complainant) was fully reinvested, at law and in equity, with all his original rights. The bill further alleged that defendants nevertheless were using the machine, and thus were infringing the patent. The prayer was for an injunction pendente lite, for an account of profits since the forfeiture of the license, for a perpetual injunction, for a reinvestiture of title in complainant, and for other and further relief. Defendants demurred to the whole bill, and also (saving their demurrer) answered the whole bill. They admitted all the facts alleged, and averred on their part that the contract set forth in the bill had been modified and varied by a new contract, which the complainant had broken, and that the respondent, being in the lawful use of a planing machine at the expiration of the patent, had a right to use such machine without license, and consequently that the notes were without consideration. The demurrer having been overruled, the case was heard on bill, answer, and replication. The bill was dismissed for want of jurisdiction. On appeal to the supreme court, that court, by Taney, Chief Justice, said:

'The object of the bill was to set aside a contract made by the appellant with the appellees, by which he had granted them permission to use, or vend to others to be used, one of the (patented) planing machines, in the cities of New Orleans and Lafayette, and also to obtain an injunction against the further use of the machine, upon the ground that it was an infringement of his patent right. The appellant states that he was the assignee of the monopoly in that district of country, and that the contract which he had made with the appellees had been forfeited by their refusal to comply with its conditions. The matter in controversy between the parties arises upon this contract, and it does not appear that the sum in dispute exceeds two thousand dollars.'

No appeal, therefore, could be allowed, unless the case came within the description contained in the act of 1836, 'of all actions, suits, controversies in cases arising under any law of the United States, granting or confirming to inventors the exclusive right to their inventions or discoveries. ' The court then say:

'Now, the dispute in this case does not arise under any act of congress, nor does the decision depend upon the construction of any law in relation to patents. It arises out of the contract stated in the bill, and there is no act of congress providing for or regulating contracts of this kind. The rights of the parties depend altogether upon the common-law and equity principles. The object of the bill is to have this contract set aside and declared to be forfeited, and the prayer is 'that the appellant's reinvestiture of title to the license granted to the appellees, by reason of the forfeiture of the contract, may be sanctioned by the court,' and for an injunction. But the injunction he asks for is to be the consequence of the decree of the court sanctioning the forfeiture. He alleges no ground for an injunction, unless the contract is set aside.' It will be observed that in this case there was a contract between the parties to the suit, which the complainant sought to set aside, in accordance, as he alleged, with the

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