Blount Mfg. Co. v. Yale & Towne Mfg. Co.

• Decision Date: 14 January 1909
• Docket Number: 469.
• Citation: 166 F. 555
• Parties: BLOUNT MFG. CO. v. YALE & TOWNE MFG. CO.
• Court: U.S. District Court — District of Massachusetts

166 F. 555

BLOUNT MFG. CO. v. YALE & TOWNE MFG. CO.

No. 469.

United States Circuit Court, D. Massachusetts.

January 14, 1909

George L. Mayberry and W. H. Leonard, for complainant.

Fish Richardson, Herrick & Neave, for defendant.

BROWN District Judge.

This is a demurrer to a bill for an accounting in accordance with the terms of a contract concerning the profits arising from the manufacture and sale of liquid door checks.

This contract, Exhibit A, is made part of the bill. The bill alleges the contemporaneous making of a contract between the complainant and the P. & F. Corbin Company, Exhibit B. By reference this is made a part of the contract, Exhibit A. The Blount Manufacturing Company, complainant, being a party to both contracts, we may conveniently distinguish them by calling Exhibit A the 'Yale & Towne contract,' and Exhibit B the 'Corbin contract.'

I am of the opinion that the true contractual relations between this complainant and defendant must be sought in both contracts and that the validity of the Yale & Towne contract is to be determined by examination of the effect of both.

In an accounting under the Yale & Towne contract the complainant's share of profit would be determined, in accordance with paragraph 7, by finding the difference between the net prices actually received and the arbitrarily fixed 'contract costs' set forth as an agreed basis for accounting; said difference to be increased or diminished by one-half of the net amount received or paid in settlements between the Blount Manufacturing Company and the Corbin Company. The Yale & Towne Company is thus directly interested in the Corbin contract. It has signed as an associate party, and has assented to the provisions of, the Corbin contract, as appears in paragraph 17 of that contract. Paragraph 5 of the Yale & Towne contract also provides that prices are to be determined from time to time by agreement between the Blount Manufacturing Company, the Yale & Towne Manufacturing Company, and the Corbin Company.

Such relations are established between the complainant, the defendant, the Corbin Company, and the Russell & Erwin Company that the contracts before us must be regarded as related parts of a general plan to regulate and control the business of dealing in liquid door checks. The plan comprehends the maintaining of prices, the pooling of profits, the elimination of competition, and the restraint of improvements.

If relating to ordinary articles of trade or commerce, it seems reasonably clear that these contracts would be in violation of Act Cong. July 2, 1890, c. 647, 26 Stat. 209 (U.S. Comp. St. 1901, p. 3200), known as the 'Sherman Anti-Trust Act,' and therefore unenforceable.

The complainant contends that the demurrer should be overruled, because such contracts are legal and valid when the subject-matter of the contract comprises solely articles the manufacture and sale of which are protected by patents. The amended bill alleges in effect that all liquid door checks manufactured or sold at the time of the execution of the contracts embodied patented devices or improvements.

While the language of the contracts is broad enough to cover unpatented as well as patented articles, yet in view of the allegations of the amended bill I should hesitate to sustain the demurrer merely on the ground that the contract covers articles which do not embody patents. The principal question is whether the fact that the articles to which the agreements relate embody patented inventions is sufficient to make the Sherman act inapplicable. This question was not passed upon by the Supreme Court in Bement v. National Harrow Co., 186 U.S. 70, 22 S.Ct. 747, 46 L.Ed. 1058. That decision related to restraints and conditions imposed in connection with the grant of patent rights.

Rubber Tire & Wheel Company v. Milwaukee Rubber Company, 154 F. 358, 83 C.C.A. 336, and Indiana Manufacturing Company, 154 F. 365, 83 C.C.A. 343, are cited by the complainant, but the decisions are not directly in point.

It seems self-evident that a contract which is only coextensive with the monopoly conferred by letters patent, and which creates no additional restraint of trade or monopoly, does not conflict with the Sherman act. The monopoly granted by letters patent is of a particular invention. Devices thus protected by patents are as a matter of fact in commercial competition with both patented and unpatented devices. A contract whereby the manufactures of two independent patented inventions agree not to compete in the same commercial field deprives the public of the benefits of competition, and creates a restraint of trade which results, not from the granting of letters patent, but from agreement. While the monopoly of the patented articles is not increased, the monopoly of the commercial field is increased by the 'unified tactics' as to prices.

This question was directly considered by the Circuit Court of Appeals of the Third Circuit in National Harrow Company v. Hench, 83 F. 36-38, 27 C.C.A. 349, 351, 39 L.R.A. 299. The opinion says:

'The fact that the property involved is covered by letters patent is urged as a justification; but we do not see how any importance can be attributed to this fact. Patents confer a monopoly as respects the property covered by them, but they confer no right upon the owners of several distinct patents to combine for the purpose of restraining competition and trade. Patented property does not differ in this respect from any other. The fact that one patentee may possess himself of several patents, and thus increase his monopoly, affords no support for an argument in favor of a combination by several distinct owners of such property to restrain manufacture, control sales, and enhance prices.'

See, also, National Harrow Company v. Hench (C.C.) 76 F. 667; National Harrow Company v. Quick (C.C.) 67 F. 130.

The bill does not aver that the articles made by each company embody features covered by the patents of the other. While the contracts provide that the parties are licensed to use patented inventions of the other, this does not alter the fact that by the terms of the contracts each party is restrained in the exercise of its rights under its own patents, and in the sale of articles made solely under its own patents.

The right of the owner of letters patent to assign rights to manufacture, use, and vend, upon condition that the assignee shall maintain certain prices, and to agree not to compete with his assignee or to license others to compete, is recognized in Bement v. National Harrow Company, 186 U.S. 93, 22 Sup.Ct. 747, 46 L.Ed. 1058.

Whether a patentee may not lawfully make such a license agreement in consideration of the making of a like license agreement by another patentee is a somewhat interesting question. If, as a result of mutual licenses, there is put upon the market an article embodying the inventions of both patentees, so that as the effect of exchange of licenses a new article of commerce is developed, it is doubtful if the public is thereby unlawfully deprived of any of its rights or expectations of free competition. Where, however, each patentee continues to make his own goods under his own patents, and seeks to enhance his profits by an agreement with competitors, who make either patented or unpatented articles, then it seems to follow that the agreement of each to restrain his own trade cannot be regarded merely as an incident to the assignment of patent rights.

The patentee then restrains his own trade, not for the purpose of enhancing the value of the license which he grants, but for the purpose of enhancing the value of his trade by removing competition. A sale or license, with a covenant not to compete, made as an ordinary incident to enhance the value of the thing conveyed, is not within the Sherman act. Cincinnati Packet Company v. Bay, 200 U.S. 179-185, 26 Sup.Ct. 208, 50 L.Ed. 428; U.S. v. Freight Association, 166 U.S. 329, 17 Sup.Ct. 540, 41 L.Ed. 1007.

By the terms of the present contracts each party limits its trade in goods made under its own patents.

In Rubber Tire Company v. Milwaukee Company, 154 F. 362, 83 C.C.A. 336, on which complainant relies, it was said in the opinion of the majority of the court:

'The Sherman law contains no reference to the patent law. Each was passed under a separate and distinct constitutional grant of power. Each was passed professedly to advantage the public. The necessary implication is not that one iota was taken away from the patent law. The necessary implication is that patented articles, unless or until they are released by the owner of the patent from the dominion of his monopoly, are not articles of trade or commerce among the several states.'

Judge Grosscup was unable to concur in this proposition.

The question whether agreements concerning patented articles are within the provisions of the Sherman anti-trust act must be determined by a consideration of the nature of the rights conferred by the grant of a patent.

While it is the ordinary privilege of the owner of patent rights to use or not to use them without question of motive, the grant of letters patent confers upon the patentee no right not to use his invention, or to make an agreement in restraint of trade in that article, save in connection with an assignment of the rights conferred by letters patent. The proposition that an agreement not to manufacture, or to restrain trade is within some rights of nonuse conferred upon a patentee seems unsound, if we consider the nature of the grant of letters patent. The right of the patentee or of his assignee to withhold the invention is quite apart from any grant contained in the letters patent. The privilege of restraining others is granted to the...