Huber v. Guggenheim

• Decision Date: 10 October 1898
• Citation: 89 F. 598
• Parties: HUBER et al. v. GUGGENHEIM et al.
• Court: U.S. District Court — Southern District of New York

89 F. 598

HUBER et al. v. GUGGENHEIM et al.

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

October 10, 1898

The complainants are co-partners in business, and residents of St. Gall, Switzerland, their firm name being Huber & Kellet. The defendants, Meyer, Isaac, Daniel, Morris, and Solomon Guggenheim, are co-partners carrying on business in the city of New York under the firm name of M. Guggenheim's Sons. On May 16, 1-89, as the testimony shows,-- the complaint erroneously gives the date as May 18th,-- complainants and defendants entered into a contract in writing at St. Gall. This contract recited that defendants were the owners of United States letters patent No. 266,525, issued October 24 1882, to Albert L. Rice, 'for and relating to and under which they are and have been doing up embroideries in the manner known as, and to which they have applied the trade-name, 'Automatic,' * * * (and that complainants) are desirous of acquiring a license under the said Rice patent, that they may be permitted to do up embroideries in the manner known as 'Automatic', and to import and sell the same in the United States of America without incurring liability under or by reason of the said Rice patent. ' The embroideries referred to are what are known as 'Hamburg edgings,' and the contract defines the manner of doing them up known as 'Automatic' as being the manner 'in which the parallel rows of embroidery are perforated, punctured, or indented so as to permit the rows being readily separated. ' The contract provided that in consideration of $1,000 per annum such license is granted during the remainder of the term of the patent, 'or until the same shall have been decreed invalid by the supreme court of the U.S.'; that defendants should furnish complainants 50,000 license stamps during each year, one stamp to be placed on each piece of embroidery so done up and imported or sold in the United States; said 50,000 stamps to be used by complainants within the year for which they are issued, and not to be sold or otherwise disposed of by others, being intended for use solely upon embroideries done up by complainants. In case complainants did not use the 50,000 furnished to them in any one year, they were to deliver up the balance to be destroyed. If they required additional stamps for any year defendants agreed to furnish them at the same rate, two cents for each stamp. Defendants covenanted to protect and defend complainants against any suit or suits brought against them for infringement of any United States letters patent by reason of their doing up any embroideries in the manner specified, and further covenanted 'to protect and defend them in the use of the invention specified in the said Rice patent. ' This suit was brought in February, 1892, complaints praying for a decree that the contract 'was from the beginning, and is, wholly void,' that the same should be delivered up to be canceled, and that all moneys paid under it should be repaid, for the reason that complainants were induced to enter into the contract by certain false representations made by defendants with intent to deceive and induce complainants to make the contract, which false representations, it is averred, complainants relied upon, and but for which they would not have entered into the contract. The facts are set forth in the opinion.

George C. Lay and Thomas P. Wickes, for complainants.

John R. Bennett and Joseph H. Choate, for defendants.

LACOMBE Circuit Judge (after stating the facts).

The claim of the Rice patent is for 'a bolt of embroidery containing two or more rows separated by a line of perforations adapted to be folded and secured by ties at the folds, substantially as described. ' The specification contains the statement:

'I propose to manufacture the goods with a line of perforations between each row of embroidery at or near the edge of each row, as may be requisite, according to the purpose for which the goods are intended, for the purpose of separating the rows of embroidery by simply tearing off each strip from the bolt as required. To facilitate the operation, and avoid unnecessary handling, I then propose to fold the goods back and forth in a reverse manner, in one yard, or fraction of a yard, lengths, similar to the folds of a lady's fan, the end of each folding to be fastened with a thread to hold them together. The rows may then be removed in this way without having to unfold the goods, or having to resort to a measure to tell the amount being removed.'

The perforations shown in the Rice patent are in straight lines. Defendants acquired this patent, having first obtained an opinion of counsel as to its validity and scope, in 1883. Thereafter they put up embroideries in the manner described, to which they applied the trade name 'Automatic.' They expended large sums of money in advertising and pushing such style of make-up in the trade. They manufactured and sold large quantities of the goods themselves; and to other American dealers in embroideries, their competitors in business, they sold large quantities of license stamps (at two cents each) to be affixed to foreign-made goods done up in like manner, and brought here for sale. One M. H. Pulaski, an American manufacturer, became the owner of a later patent, in which the perforations followed the scollops of the embroidery, and put up goods in accordance therewith under the trade-name 'Magic' goods a serious commercial competitor. All this was prior to 1889. In the last-named year defendants concluded to withdraw from the embroidery business, and seek other fields of business enterprise. They therefore sought to dispose of their rights under the Rice patent on terms as favorable to themselves as possible. The existing situation seemed to offer an opportunity so to do. Theretofore the foreign manufacturer could safely put up his goods in 'Automatic' style, in large of small quantities, so long as he could effect a sale of them to an American house which bought license stamps from the Guggenheims. If, however, the latter should change their policy, and no longer sell stamps except to the manufacturer, the United States outlet for foreign-made goods would be closed to all foreign manufacturers who did not obtain license from the Guggenheims, unless such manufacturers, or their consignees in the United States, should succeed in overthrowing the patent in the federal courts. Of this opportunity the defendants availed themselves. They decided that they would no longer sell license stamps except to a manufacturer, and that they would not sell even to him unless he would agree to take at least some specified number each year, whether he used them all or not. They made this decision known to the trade. Their first licensee under the new system was their old competitor Pulaski, the owner of the 'Magic' patent, who, in February, 1889, agreed to take a license under the Rice patent for its unexpired term, upon the consideration of $2,000 per annum; that is, on the basis of 100,000 stamps each year. Their next licensee was the firm of Ulrich de Gasp Von Willer, the leading embroidery firm of St. Gall, known and hereinafter referred to as the 'Union.' The contract with the Union on the basis of 75,000 stamps a year was substantially the same as the one now before the court, except in two important particulars. It was to continue for two years, with an option to the Union to renew from year to year thereafter. It also contained this clause:

'Fifth. The parties of the first part covenant and agree not to hereafter license any other party or parties under the said Rice patent to do up embroideries under or in accordance therewith at a less rate of royalty than that herein specified, and that, should they so license any other party of parties under the said Rice patent to do up embroideries in the 'Automatic' style or in any other manner at a less rate of royalty than two cents (2) per stamp, one stamp to be placed upon each piece of embroidery, the parties of the second part shall be entitled to a like reduction from the date of any such reduction.'

This contract with the Union was executed in New York, May 11 1889. The third licensee was the complainants' firm, under contract above set forth. Contracts similar to complainants', except as to differences in the number of stamps required to be taken each year (and in three cases as to the period), were subsequently made with four other St. Gall houses on different dates during the same year, and with one in March, 1890. In December, 1889, defendants granted licenses to four American houses-- Loeb & Schoenfeld, Steiger & Co., Einstein, Wolff & Co., and Mayer, Heine & Co.-- on the basis of 12,500 stamps a year at two cents a stamp, but with a provision that defendants would furnish as many stamps as the licensee might require in excess of 12,500 free of charge. Practically each of these four contracts was an unlimited license for $250 a year, and each of the licensees used stamps largely in excess of the 12,500. Defendants sought to secure themselves against any disastrous consequences from such wholesale licensing becoming known by inserting in each of these four contracts a drastic provision enjoining secrecy as to the terms of the contract under a penalty of $5,000; but this ingenious device proved futile, and the exceptionally favorable terms granted to the four American houses became known to, or suspected by, the trade. Thereupon the Union, which had renewed under its option for a third year, brought an action in this court to recover back all that it had paid in excess of $250 a year. In this action it prevailed, and judgment was affirmed in the circuit court of appeals. Guggenheim v. Kirchhofer, 14 C.C.A. 72, 66 F. 755. As already appears, complainants'...