Edison v. Edison United Phonograph Co.

• Decision Date: 17 May 1894
• Citation: 29 A. 195,52 N.J.E. 620
• Parties: EDISON et al. v. EDISON UNITED PHONOGRAPH CO. et al.
• Court: New Jersey Court of Chancery

29 A. 195

52 N.J.E. 620

EDISON et al.

v. EDISON UNITED PHONOGRAPH CO. et al.

Court of Chancery of New Jersey.

May 17, 1894.

(Syllabus by the Court.)

Bill by Thomas A. Edison and George E. Gouraud against the Edison United Phonograph Company and others. Application for the appointment of a receiver heard on bill and affidavits on part of the complainants, and affidavits on part of the defendants. Denied.

R. Wayne Parker and Cortlandt Parker, for complainants. A. Q. Keasbey and Charles A. Beman, for defendants.

VAN FLEET, V. C. The complainants are stockholders of the Edison United Phonograph Company, and have filed the bill in this case for the purpose of having the directors of the corporation displaced, and this court take control of the corporation, and, through a receiver, manage and direct its business. The special relief that the complainants ask at this time is that the court will find and declare that the corporation has not administered the trust imposed upon it according to law; that a receiver be appointed to carry on its business, and to investigate the condition of its affairs, and make report, to the end that its business may be continued or wound up according to the condition in which its affairs shall be found. On the argument, three grounds were put forward as the basis of the relief asked: (1) That the corporation is insolvent, or will soon become so if its directors do not abandon their present method of conducting its business, and adopt the method which the complainants insist should be adopted; (2) that the directors, by the course of business they are now pursuing, are violating a trust which was imposed upon the corporation when the complainants assigned their inventions to it; and (3) that dissensions exist among the directors, as to the most successful mode of carrying on the business of the corporation, of such a character and to such an extent as to make it impossible for the corporation to prosecute its business with advantage to the stockholders. The Edison United Phonograph Company was organized under a general law of this state in February, 1890, for the purpose, among other things, of manufacturing, buying, and selling phonographs, and also of selling and assigning, and of licensing others to sell and use, patents, patent rights, and inventions relating to the manufacture, use, and operation of phonographs. Within less than a month after its organization, it became the owner, by purchase and assignment, of all of Mr. Edison's inventions relating to speaking machines, whether secured by letters patent or not, in every country of the world except the United States and Canada. The assignment also passed to the corporation all extensions of any letters patent for such inventions which should thereafter be granted. Within about the same time, the International Graphophone Company, a New York corporation, owning the patents for a speaking machine, called the "graphophone," assigned its patents to the defendant corporation. The object which the promoters of the defendant corporation had in view in its formation is apparent. They wanted to vest in a single person, endowed with corporate life for a long number of years, all known inventions for the construction of speaking machines, and thus avoid disputes respecting priority of invention or infringement, and so render the introduction and use of such machines, throughout the world, less difficult and more profitable than if independent attempts were made to exploit each invention. The corporation was organnized with a capital of $1,000,000, divided into 10,000 shares of $100 each. Five thousand shares, representing $500,000, were issued to Mr. Edison in payment for the inventions and other rights transferred by him to the corporation, and a like number of shares were issued, for a like purpose, to the International Graphophone Company. The corporation still holds all the inventions and other property transferred to it by Mr. Edison and the International Graphophone Company, except the right to sell and use speaking machines in the kingdom of Great Britain and Ireland. That right it sold, in December, 1892, to a corporation organized under the laws of Great Britain for £20,000 in cash, and 4,000 shares of the stock of the vendee corporation, of the par value of £5 each, the cash and stock representing a value in our currency of about $200,000.

The case is destitute of the least proof tending to show insolvency. That, in cases of this kind, is the jurisdictional fact. The court can do nothing—neither issue an injunction nor appoint a receiver—until insolvency is first established. Until that fact is satisfactorily proved, the court has no jurisdiction. Atlantic Trust Co. v. Consolidated Electric Storage Co., 49 N. J. Eq. 402, 405, 23 Atl. 934. The complainants do not claim that the present indebtedness of the defendant corporation exceeds $107,000, nor that its principal assets, consisting of inventions, patents, and patent privileges, are not worth all that the corporation paid for them, or that they would not bring, if sold in any market where their value is known, a sum largely in excess of the amount required to pay all the debts of the corporation. The complainants have not attempted, either by their own oaths or the oaths of others, to show the value of these assets. They say, however, that they have the fullest belief in their value, provided their method of utilizing them is adopted. The fact is that both parties to this litigation believe that these assets possess an immense value. They do not disagree as to their value, but the sole point in difference between them is as to how they can best be utilized. Their difference is one of judgment respecting the most expedient course of business, and not in respect to a fact The complainants say that if the...