Cortelyou v. Charles Eneu Johnson & Co.

• Decision Date: 30 May 1905
• Citation: 138 F. 110
• Parties: CORTELYOU et al. v. CHARLES ENEU JOHNSON & CO. BRODRICK COPYGRAPH CO. OF NEW JERSEY v. SAME.
• Court: U.S. District Court — Southern District of New York

138 F. 110

CORTELYOU et al. v. CHARLES ENEU JOHNSON & CO.

BRODRICK COPYGRAPH CO. OF NEW JERSEY v. SAME.

United States Circuit Court, S.D. New York.

May 30, 1905

This is a suit in equity brought in the first instance by Mary V Cortelyou and another, administrators, etc., and Neostyle Company against Charles Eneu Johnson & Co., for the alleged infringement of letters patent No. 584,787, granted June 22 1897, to Lowe and Cortelyou, covering the machine known as the 'rotary neostyle.' The administrators aforesaid at the time the action was brought, owned the legal title to the patent, and the Neostyle Company was licensed under that patent. The original bill was filed November 15, 1902. February 28, 1903, the rights of the administrators were acquired by the Brodrick Copygraph Company, and then was filed a bill in the nature of a supplemental bill bringing in that concern as a party in interest. An answer has been filed to both bills, and the two causes have proceeded as one under a stipulation to that effect. The license contract of the Neostyle Company is in evidence. The defendant is not charged with a direct infringement of the patent in suit, either by the making, the using, or the selling of the patented machine. The defendant is charged with contributory infringement, in that it has, it is alleged, procured the complainants' vendees to directly infringe by the illegal use of the machine; that is, by the use of the machine outside of the right and the scope of the authority conferred upon them.

Samuel Owen Edmonds (Edmund Wetmore, of counsel), for complainants.

Francis T. Chambers and Jefferson Clark, for defendant.

RAY District Judge (after stating the facts).

The patented rotary neostyle is sold under a license restriction, which restriction precludes the use thereof except with supplies (stencil paper, ink, etc.) manufactured and sold by the Neostyle Company. The charge is that the defendant has been making duplicating ink and selling the same to the complainants' vendees of licensees, with the intent that such ink shall be used on these machines obtained of the complainants by such vendees or licensees in violation of the license restriction. It is charged that the defendant in fact procures such ink to be so used by such licensees.

The rotary neostyle was the first machine on the market adapted for rapid stencil duplication, and is the only duplicating machine of the rotary type ever marketed. Its use was commenced in 1899, and soon passed into the hands of the Neostyle Company. At that time the machines were sold without any restrictions as to their use. In a short time that plan of sale proved to be impracticable, because the excessive cost of selling left no profit. In fact, there was a lose. The machines were not being at all times successfully used, because of the inferior supplies offered and furnished by outsiders to the users of the machine. It was also discovered that several improvements on the machine were necessary to make it complete. If the machine was to prove a success, it was necessary that it be operated efficiently and economically, and, that this result might be attained, it was necessary that the machine should be used in the manner contemplated by the manufacturer. Its use in a different manner, as with stencil paper adapted for a hand duplicator or with ink adapted for a printing press, would speedily bring the machine into disrepute. In October, 1899, it was discovered that the plan of selling the machine outright and without a license limitation was disastrous; money was being lost by the manufacturers and sellers, and the machine was falling into disrepute because of their failure to secure high-class work. This failure was due, in some degree at least, to the supplies used. It was deemed unwise to increase the price of the machine. The plan was then formed of selling the machine under a license restriction. The machine was improved, and placed in the hands of users at the price of $50, the same before charged; but each machine, it is asserted, was sold under and with a license restriction forming a part of the control of sale, and limiting the right of the purchaser to use the same. The purchaser, it is insisted, acquired the right to use the machine only in connection with the specially developed supplies of the Neostyle Company, its ink being one of these supplies. The baseboard of the machine, a most conspicuous part of the mechanism, is black, and upon this, before the sale of the machine, was firmly affixed in a conspicuous place a white celluloid plate, on which was and is inscribed, in black letters, the following:

'License Agreement.

'This machine is sold by the Neostyle Co. and purchased by the user, with the express understanding that it is licensed to be used only with stencil paper and ink (both of which are patented), made by the

'Neostyle Company, 'New York City.'

This license agreement was affixed to each and every machine sold subsequent to October 21, 1899. Each machine bore also the patent label, giving the date of the Lowe patent in suit. This tag read as follows:

'Rotary Neostyle, U.S. Pats., July 9, 1895; Jan. 28, '96; June 22, '97. Made by Neostyle Co., New York.'

This plate, giving the patents, etc., was of metal about 2 1/2 inches long and 1 1/4 inches wide, and the letters named were placed thereon in raised gilt.

The supplies for this machine are duplicating ink and stencil paper. The manager of the Neostyle Company says that the company expended large sums of money in bringing these supplies to the highest possible standard, and that they employed at great expense expert chemists, and expended months of labor and thought, to perfect an ink that would give satisfaction in any temperature and climate, and permit the user to secure the best possible results under all climatic conditions. The president of the company says that much time and labor and experience were thrown into experiments on the ink to be used on the machine, as well as in the reconstruction of the machine itself. He says that chemists and ink manufacturers were employed to secure an ink that would give the highest and best results. He says that the use of satisfactory ink on the machine means more than the production of perfect prints; that the ink must dry readily, and not act to destroy the stencil. He says that other inks were found to destroy the stencils. It must be conceded that the success of the machine would depend largely upon the quality of the work done, and that the quality of the work done would depend largely upon the quality of the supplies used. In short, it appears that the complainants having lost large sums of money, and being in danger of having the machine brought into disrepute so that it would be worthless, expended large sums of money in improving the machine and other large sums of money in producing first-class supplies, and that then, to make the venture a success and insure a proper working of the machine and good results, they attached to each machine, before selling the same, the license agreement before quoted, and to which attention has been called. The evidence shows that good results came from this plan. The testimony shows that this plan of selling and using and operating has been beneficial both to the company and the purchaser and user of the machine. It has resulted in profits to the company, and the highest result in quality of work has been attained. It is also shown that the ink used under this plan has saved from 30 to 40 per cent. of what would otherwise be the initial cost of the machine. The evidence is that the present selling price of the rotary neostyle machine is $50, but that its cost to the manufacturer is about $64. The evidence shows, therefore, that the manufacturer or complainants put into the hands of the purchaser or licensee, whichever we call him, a machine costing $64, at a cost to him of $50, but with the agreement attached, specified heretofore as the 'license agreement,' that the purchaser or licensee shall only use the machine with the supplies made and sold by the complainants. The evidence shows also that the user of the machines, operating them with the supplies made and furnished by the complainants, may receive or get back the price paid for it in about three weeks. The evidence shows that the cost of producing 1,000 typewritten copies of a writing, letter size, on the rotary neostyle, is about 33 cents. The cost of 1,000 copies of the same produced on a printing press is about $3. Other benefits derived might be named and specified, but it is unnecessary. There is a sufficient consideration to the buyer of the machine, or licensee, for the license agreement. The price charged by the company for duplicating ink is fair and reasonable. In selling the machines with this license agreement attached in the manner described, there is no fraud, deceit, or imposition. After some of these machines were sold with the license agreement attached, it was discovered by the complainants that some of them were not doing satisfactory work. On investigation it was found that some of the purchasers and users of these machines had violated the license agreement and were purchasing and using other ink, either of the defendant, or of parties who were selling the defendant's ink. The defendant's ink is inferior to that of the complainants for use upon the rotary neostyle. it is shown that the defendant itself is a party to this violation of the license agreement. The complainants contend that this license restriction and agreement is valid and binding upon the purchasers and users of the rotary neostyle, and that the use of inks made and sold by others is a violation of the license agreement and an infringement, and that...