Ford Motor Co. v. Union Motor Sales Co.

• Decision Date: 04 December 1914
• Docket Number: 2147.
• Citation: 225 F. 373
• Parties: FORD MOTOR CO. v. UNION MOTOR SALES CO. et al.
• Court: U.S. District Court — Southern District of Ohio

225 F. 373

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

No. 2147.

United States District Court, S.D. Ohio, Western Division.

December, 4, 1914

Lucking Helfman, Lucking & Hanlon, of Detroit, Mich., and Alfred M Allen, of Cincinnati, Ohio, for complainant.

Judson Harmon, of Cincinnati, Ohio, for defendants.

HOLLISTER District Judge.

The complainant, Ford Motor Company, a manufacturer of automobiles under its own patents, seeks by this suit to restrain the defendants from representing that they can, or will, procure for sale Ford automobiles at a price less than the regular price list of the complainant; from conducting or attempting to conduct, any business in Ford automobiles from infringing directly, or indirectly, the complainant's patents or 'license restrictions and price restrictions'; from combining among themselves, or with others, to infringe complainant's patents by breaking its price restrictions; from conspiring with any of complainant's 'dealers-licensees or subdealers-licensees or salesmen'; from procuring or obtaining any Ford automobiles at less than the complainant's list prices; and from interfering with the complainant's business, or with the business of any of its 'dealers-licensees or subdealers-licensees.'

It was proved that defendants obtained Ford machines from a dealer or dealers, and sold them and advertised them for sale at less than complainant's regular price list. The rights of the parties depend upon the construction to be given the written contracts entered into between the complainant and its so-called 'dealers-licensees.' No case involving a contract precisely like the agreement between the complainant and the dealers who sell the cars made by it, and covered by its patents, has been presented to the Supreme Court. An agreement by a patentee giving to another a license to manufacture under the patent and to sell at a fixed price on a small royalty has been held not to come within the condemnation of the Sherman Anti-Trust Act (Act July 2, 1890, c. 647, 26 Stat. 209). Bement v. Harrow Co., 186 U.S. 70, 22 Sup.Ct. 747, 46 L.Ed. 1058. It is conceded that contracts, such as made by the complainant in this case with its dealers, would, were it not for the fact that the article sold was made by the complainant under its patents, be contrary to public policy under the decision in Dr. Miles Medical Co. v. Park, 220 U.S. 373, 31 Sup.Ct. 376, 55 L.Ed. 502. It is claimed, however, that since the complainant manufactures its cars under its own patents it has the right to maintain its monopoly of the exclusive right to sell, granted by the patent laws, by a contract of sale with its dealers fixing the price on resale at which the dealers may sell to the user, although by so doing the competition between its dealers is thereby effectually prevented.

The contract in this case and the license contract to which the Supreme Court have given their approval are not in terms the same. If they involved the same principles, the conclusion must necessarily be that the contract involved here is neither contrary to public policy nor in contravention of the Anti-Trust Act, because the patentee, having the exclusive right or monopoly to sell, has by this contract only exercised the right given him by the patent laws of the United States. There is, however, a marked difference in the facts, for in this case the patentee is the maker, and does not receive a royalty, but actually sells each machine for a price fixed by itself, and is paid by the dealer all that the maker asks for the article sold. There is no question of use, or restricted use, in this case, as in Henry v. Dick, 224 U.S. 1, 32 Sup.Ct. 364, 56 L.Ed. 645, Ann.Cas. 1913D, 880, for the contract is either a complete sale of the exclusive right to sell, given the complainant by the patent laws, or a license to sell, which involves a reservation of some part of the exclusive right to sell, or, as contradistinguished from these, amounts to a sale by the patentee itself.

For the purposes of this case it may be assumed that if the contract partakes of the quality of a sale of the exclusive right to sell, or of a license to sell, it is a good contract, which the complainant may legally enter into with its dealers, and, under the facts proved in this case, an injunction must issue against the defendants. But if, under the terms of the contract, the complainant has sold the automobiles made by it and delivered the same to its dealers, passing the title upon receipt of the contract price, then, under the decisions of the Supreme Court and on principle, the conclusion, in my judgment, must be that by such sale the complainant has exercised its exclusive right to sell, so far as the particular commodity sold is concerned, and cannot legally fix the price at which the dealer shall resell. The contract does not deal with the use of the automobile sold. Hence to call it a contract for 'restricted use' is a misnomer, and the adoption of such a definition is, as said by Mr. Justice Day, 'a mere play upon words.' Bauer v. O'Donnell, 229 U.S. 1, 16, 33 Sup.Ct. 616, 619, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann.Cas. 1915A, 150.

Counsel for the complainant say that the sale is conditional; that it is a restricted sale, and that it is a license to sell on condition. It is immaterial what the contract may be called, but its purpose and effect must be ascertained. Before proceeding to that end it may be well to consider what it is a patentee gets by the statutes which embody every right acquired by him. It was said in Adams v. Burks, 17 Wall. 453, 456, 21 L.Ed. 700: 'The right to manufacture, the right to sell, and the right to use are each substantive rights, and may be granted or conferred separately by the patentee.'

Perhaps as strong an illustration of the right of the patentee to qualify or restrict the use to which, upon sale, the patented article may be put, is shown in the case of Henry v. Dick, 224 U.S. 1, 32 Sup.Ct. 364, 56 L.Ed. 645, Ann.Cas. 1913D, 880. This went so far as to hold that the patentee of a machine, which in its operation involved other articles, could limit its use to such other articles furnished by himself, though they themselves were not patented, and that he could do this by a mere notice upon the machine itself, which was binding upon a third person, who, with knowledge of the notice, sold such other articles to the vendee for use upon the machine, and who, by so doing, became a contributory infringer. The patentee, having the exclusive right to use, which contemplates the entire use, may sell the entire use, or sell a part of it only, or sell on condition of use in a particular way. It necessarily follows from these decisions that he may restrict, or qualify, his exclusive right to make or sell.

The question in this case is whether or not the patentee, having the exclusive right to sell, has, by these contracts, conferred that right, either wholly or in part, or has done something else which is of such character as to involve other rights vested by the common law or statute in the public; for, while the patentee has the 'exclusive right to make, use, and vend the thing patented, and consequently to prevent others from exercising like privileges without the consent of the patentee' (Bauer v. O'Donnell, 229 U.S. 1, 10, 33 Sup.Ct. 616, 617, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann. Cas. 1915A, 150, citing Bloomer v. McQuewan, 14 How. 539, 549, 14 L.Ed. 532, and Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405, 425, 28 Sup.Ct. 748, 52 L.Ed. 1122), yet, if what the complainant has done, or attempted to do, by these contracts with its dealers, amounts to something more than the exercise of the exclusive right to sell, it has, by such act, added to and extended its exclusive right to sell, and has thereby brought itself within the condemnation of rules and laws established and enacted for the protection of the public against monopolies and contracts in restraint of trade. This a patentee cannot do, because, while the purposes in granting these rights to the inventor should, as said by Mr. Justice Day in the Sanatogen Case, 229 U.S. 1, 10, 33 Sup.Ct. 616, 617, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann. Cas. 1915A, 150, 'be fairly or even liberally construed; yet, while this principle is generally recognized, care should be taken not to extend by judicial construction the rights and privileges which it was the purpose of Congress to bestow. ' And he says further (229 U.S. 11, 33 Sup.Ct. 617, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann. Cas. 1915A, 150):

'Recognizing that many inventions would be valuable to the inventor because of sales of the patented machine or device to others, it granted also the exclusive right to vend the invention covered by the letters patent. To vend is also a term readily understood and of no doubtful import. Its use in the statute secured to the inventor the exclusive right to transfer the title for a consideration to others. In the exclusive rights to make, use and vend, fairly construed, with a view to making the purpose of Congress effectual, reside the tent of the patent monopoly under the statutes of the United States.' Regard must be had to the nature of the article dealt with in the contract. It was settled long ago that when a patentee sells the patented article, which is valuable only for the use to which it may be put, he receives the consideration for its use and parts with the right to restrict the use. An automobile has value only in its use, and if the inventor, who is also the manufacturer, sells it for such price as pleases him, without restrictions on the use, he will have exercised his exclusive right to sell. It was said by Mr. Justice Miller in Adams v. Burke, 17 Wall. 453, 456,

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