Ford Motor Co. v. Union Motor Sales Co.

• Decision Date: 01 August 1917
• Docket Number: 2941.
• Citation: 244 F. 156
• Parties: FORD MOTOR CO. v. UNION MOTOR SALES CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

244 F. 156

FORD MOTOR CO. v. UNION MOTOR SALES CO. et al.

No. 2941.

United States Court of Appeals, Sixth Circuit.

August 1, 1917

Alfred Lucking, of Detroit, Mich., for appellant.

Hon Judson Harmon, of Cincinnati, Ohio, for appellees.

Before KNAPPEN, MACK, and DENISON, Circuit Judges.

KNAPPEN Circuit Judge.

Plaintiff is a manufacturer, seller and distributor of automobiles important and essential parts of which are patented. It marketed its product under a so-called 'license system,' by which dealers purchased the automobiles and were given definite and restricted territory, and in turn agreed to resell only at plaintiff's full list prices. Ford automobiles could thus be obtained at no less price except by inducing Ford dealers to break their agreement with plaintiff. Defendants obtained Ford machines from a dealer or dealers, and sold them and advertised to sell them at less than plaintiff's regular price list. Plaintiff filed its bill to restrain this interference with its business. Upon final hearing on pleadings and proofs the bill was dismissed. (D.C.) 225 F. 373. The appeal is from the decree of dismissal. The ultimate questions concern the validity and enforceability of the price-restricting agreement involved.

At least subject to certain limitations hereafter stated, it is the general and well-settled rule that a system of contracts between a manufacturer and retail dealers, by which the manufacturer, in connection with absolute sales of his product, attempts to control the resale prices for all sales by all dealers, eliminating all competition and fixing the amount which the ultimate purchaser shall pay, amounts to restraint of trade, and is invalid both at common law and, so far as it affects interstate commerce, under the Sherman Anti-Trust Act (Dr. Miles Medical Co. v. Park & Sons Co., 220 U.S. 373, 400, 31 Sup.Ct. 376, 55 L.Ed. 502; John D. Park & Sons Co. v. Hartman (C.C.A. 6) 153 F. 24, 82 C.C.A. 158, 12 L.R.A. (N.S.) 135; Bauer v. O'Donnell, 229 U.S. 1 (The Sanatogen Case) 33 Sup.Ct. 616, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann. Cas. 1915A, 150; United States v. Kellogg Toasted Corn Flake Co. (D.C.) 222 F. 725, 728, Ann. Cas. 1916A, 78, decided by three judges of this circuit, sitting under Expediting Act, Feb. 11, 1903, c. 544, 32 Stat. 823 (Comp. St. 1916, Secs. 8824, 8825); Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 28 Sup.Ct. 722, 52 L.Ed. 1086; Straus v. American Pub. Ass'n, 231 U.S. 222, 34 Sup.Ct. 84, 58 L.Ed. 192, L.R.A. 1915A, 1099, Ann. Cas. 1915A, 369; Straus v. Victor Talking Machine Co., 243 U.S. 490, 37 Sup.Ct. 412, 61 L.Ed. 866; Motion Picture Co. v. Universal Film Co., 243 U.S. 502, 37 Sup.Ct. 416, 61 L.Ed. 871), and that, at least as against a purchaser from such dealer, an attempt to enforce a reservation of right to fix the price at which resale shall be had by the vendee is equally futile, notwithstanding the article is patented, provided, as already said, the transfer to the vendee is full and complete (Bauer v. O'Donnell, supra; Straus v. Victor Co., supra).

There can be no doubt that if plaintiff's contracts with its dealers amounted to absolute sales of its automobiles, and if the case otherwise falls within the principles declared in the cases cited, plaintiff was properly denied relief. Plaintiff contends, however, that its case does not fall within the principles stated or the authorities cited; that under its contracts with its dealers a conditional sale only was effected, passing but a qualified or restricted title to the automobiles delivered thereunder; that the restrictions attempted to be imposed by the plaintiff, as patentee, on the purchaser's right to resell are valid, and having been agreed to by the purchaser are binding not only upon him, but upon those purchasing from the dealer with knowledge of the price restriction.

The question of the nature of the contract between plaintiff and its dealers, whether one of absolute or conditional sales of automobiles, lies at the threshold of the controversy. From a consideration of all the terms of the contract, it is clear that it is essentially one of absolute sale. While the contract, which recites plaintiff's ownership of various patents and patent applications, styles plaintiff the 'manufacturer licensor' and the purchaser the 'dealer licensee,' and in terms grants the 'full right and license to use and vend' within the licensed territory automobiles and parts of plaintiff's manufacture, the dominant character of the dealing is plainly one of sale, with attempt to provide and enforce resale price and territorial restrictions. For example: Plaintiff agrees to 'sell its product to the dealer licensee' at certain discounts from list prices, and to allow certain additional rebates scaled on the 'net amount of business' done, which plainly means the amount of the dealer's purchases from plaintiff; the dealer agrees to take deliveries and to 'purchase the said Ford automobiles' in various months specified. The title to the articles sold is reserved in plaintiff only until the full purchase price is paid, with right of repossession only in case of default in such payment. The provision manifestly is designed only to enforce payment. Plaintiff is under no obligations to take back any of the goods purchased by the dealer, and it is expressly stated that the 'dealer licensee is in no way the legal representative or agent of the manufacturer licensor. ' For each failure to observe the agreement to maintain resale prices, the dealer agrees to pay $250 as 'agreed damages the manufacturer licensor will sustain,' and is made subject to forfeiture of his contract at plaintiff's option. The other provisions of the contract are not sufficiently controlling or important to require mention.

Courts will look to the dominant intention of the parties, and in this view the case is one of absolute, as distinguished from conditional, sale, not only within our decisions generally (Mishawaka Woolen Mfg. Co. v. Westveer, 191 F. 465, 112 C.C.A. 109; John Deere Plow Co. v. Mowry, 222 F. 1, 137 C.C.A. 539; In re Stoughton Wagon Co., 231 F. 676, 145 C.C.A. 562; Wood Mowing, etc., Machine Co. v. Croll, 231 F. 679, 145 C.C.A. 565), but within the applicable decisions of the Supreme Court in the Miles, Sanatogen and Victor Cases, supra. As expressed in the Sanatogen Case (229 U.S. 16, 33 Sup.Ct. 619, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann. Cas. 1915A, 150):

'The title transferred was full and complete with an attempt to reserve the right to fix the price at which subsequent sales could be made. * * * There was no transfer of a limited right to use this invention, and to call the sale a license to use is a mere play upon words.'

See in this connection the Victor Case, supra, 243 U.S.at page 497-501, 37 Sup.Ct. 412, 61 L.Ed. 866.

Turning then to a consideration of plaintiff's rights as patentee: Its counsel states the broad proposition that 'this is a case of patented articles, and it is absolutely lawful to create a monopoly in patented articles. ' In support of this proposition counsel cite the statement in Bement v. National Harrow Co., 186 U.S. 70, 91, 22 Sup.Ct. 747, 755 (46 L.Ed. 1058), that 'the fact that the conditions in the contracts keep up the monopoly or fix prices (in patented articles) does not render them illegal,' and the proposition in the Creamery Package Case, 227 U.S. 8, 32, 33 Sup.Ct. 202, 57 L.Ed. 393, to the effect that the owner of a patent has exclusive rights of making, using and selling, which he may keep or transfer, in whole or in part. Neither of these cases lends support to the contention that the patent grant confers upon the patentee the right to dictate the price at which patented articles absolutely sold by him shall be resold by his purchaser. In the Bobbs-Merrill Case, supra, which involved the right of an owner of a copyright to restrict the price on resale, it was said (210 U.S. 345, 28 Sup.Ct. 724, 52 L.Ed. 1086) of the Bement Case that:

It was 'between the owners of the letters patent as licensor and licensees, seeking to enforce a contract as to the price and terms on which the patented article might be dealt with by the licensee. The case did not involve facts such as in the case now before us, and concerned a contract of license sued upon in the state court, and, of course, does not dispose of the questions to be decided in this case.'

The Creamery Package Case merely held, so far as material here, that a contract by which the manufacturer of a patented article appointed another and distinct manufacturer, selling like articles, his exclusive agent for the output of the factory does not violate the Sherman Act. Manifestly, neither of these decisions relates in any way to restrictions upon the right of resale of patented articles purchased absolutely. Not only has the Supreme Court not held that the right given by the patent law extends to a control of the price at which articles absolutely sold by the manufacturer patentee could be resold by his vendee, but that court has repeatedly held the contrary.

In the Sanatogen Case, supra, where it was held that an attempt to reserve the right to fix the price at which a patented article fully and completely transferred should be resold by the vendee is futile under the statute, it was said (229 U.S. 10, 33 Sup.Ct. 617, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann. Cas. 1915A, 150):

'The right to make, use and sell and invented article is not derived from the patent law.'

And again (229 U.S. 17, 33 Sup.Ct. 620, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann. Cas. 1915A, 150):

'The right to vend conferred by the patent law has been exercised, and the added restriction is beyond the protection and purpose of the act.'

This proposition was...