Hulse v. Bonsack Mach. Co.

• Decision Date: 05 February 1895
• Docket Number: 108.
• Citation: 65 F. 864
• Parties: HULSE et al. v. BONSACK MACH. CO. BONSACK MACH. CO. v. HULSE et al.
• Court: U.S. Court of Appeals — Fourth Circuit

65 F. 864

HULSE et al. v. BONSACK MACH. CO.

BONSACK MACH. CO. v. HULSE et al.

No. 108.

United States Court of Appeals, Fourth Circuit.

February 5, 1895

A contract of employment between a company using patented machines and a mechanic, which requires that any improvements in the machines, made by such mechanic, shall belong to the company, is not unreasonable, or contrary to public policy.

These are cross appeals from the circuit court of the United States for the Western district of Virginia. The Bonsack Machine Company is a corporation whose business it is to construct operate on royalties, lease, and sell machines for the manufacture of cigarettes, in this and many other countries. Its principal machine is known as the 'Bonsack machine.' By perfecting it, and procuring and purchasing patents connected with it, the company has acquired and is doing a large business. In the course of its business the company engages many persons to operate its machines. In several instances persons so employed discovered improvements in working them, and, without disclosing the discovery, took out patents, which they used or sold in competition with the company. To avoid this in the future, the company adopted a rule by which it required all persons entering its employment to agree to give the company the benefit of any improvement made while in the employment of the company, or at any time afterwards. Wright, one of the defendants, was a large stockholder in the company, and its general manager, with an interest in its transactions outside of this country. Hulse had been working at his trade as a mechanic, realizing between four and five hundred dollars a year. On or about 19th July, 1886, he applied for employment in the Bonsack Company. In his interview with the president of the Bonsack Company, at which his application was granted, he entered into a written contract, the provisions of which were explained to him, especially that relating to any improvements which he might make in cigarette machines. Of that provision he expressed his approval. The contract will be set out hereafter. Having thus been engaged, he served the company at an increasing salary, beginning at $50 per month then $60, then $75, and afterwards $85 per month. In July 1889, while employed by the company in Montreal, his health failed, and he ceased to work with it. In the fall he applied to the company for work, and the president of the company got him a place under Wright, who was engaged in the introduction and sale of the Bonsack machines in Oriental countries. Under the agreement between Wright and the company, all the business expenses attending his management were charged against the profits of the business before the net profit was divided. Hulse received from $100 to $125 per month and expenses. Being so engaged, introducing, operating, and selling Bonsack machines under Wright, Hulse, while in China, saw a French machine, which put him upon the idea of an improvement in the Bonsack machine, by which a crimping device could be substituted for paste in the process of making cigarettes by machinery, and made a model or first design of it. On his return to this country, he communicated to the company the fact that he saw an opportunity for an improvement. Thereupon he was furnished by the company with a suitable room, power, and materials to continue his experiments, and to perfect his idea. While so employed, however, he did not draw any salary from the company. The experiments continued some three or four months. On 19th March, 1892, Hulse, with Wright, to whom he assigned a half of his invention, wrote to the company offering to sell to it the device and the patents which Hulse expected to obtain for the improvement for $100,000. To this letter they received a reply refusing to purchase, the company claiming and insisting on its rights under the contract with Hulse, and declaring that it was the purpose of the company not only to pay Hulse for services rendered, but also to pay him what the company regard liberal for his improvement if it should prove to be valuable to the company. After the receipt of this letter, Hulse and Wright did not insist upon their offer, but Wright, in writing to the secretary of the company, said: 'We will push forward the crimping device as fast as possible, under the assurance of your board as to your liberality in case we make a success of it. ' Hulse went on with his experiments, and very soon afterwards tried to sell the improvement to a rival company. Thereupon a bill for an injunction was filed in the state court of Virginia, and a temporary injunction was granted, restraining Hulse and Wright from assigning the improvement or any patent therefor. The cause was removed into the United States court, and a motion to dissolve the injunction was refused, but the injunction bond was increased from $10,000 to $50,000. The case coming on for final hearing, the injunction was made perpetual, and a reference was ordered to inquire what would be a liberal compensation to Hulse and Wright for their services and expenses in connection with perfecting the device and securing patents therefor. The master reported that the expenses of Hulse and Wright should be paid by the Bonsack Company, and that each of them be paid at the rate of $5,000 per annum for the time they were engaged on this improvement,--in all $8,126.36. The report was confirmed. The improvements, by final decree, were declared to be the property of the Bonsack Company. Hulse and Wright were ordered to convey to the Bonsack Machine Company all the interest they have in these improvements, or any letters patent for the same; all expenses to these ends to be borne by the Bonsack Company. The injunction was made perpetual. Both parties appealed, the complainant because of the amount awarded to Hulse and Wright, the defendants because of the decision on the merits and the small amount of the award. The case was heard in this court on the errors assigned.

A. H. Burroughs and Samuel A. Duncan, for plaintiff.

F. H Busbee and George H. Graham, for defendants.

Before SIMONTON, Circuit Judge, and MORRIS and BRAWLEY, District Judges.

SIMONTON Circuit Judge (after stating the facts).

The contract between the Bonsack Machine Company and Hulse is in these words and figures:

'That the said company has this day employed the said Hulse to set up and operate its cigarette machines at a salary of $50 for the first month, and $65 per month, thereafter, with such advance of salary, up to not exceeding $75 per month, as the services of the said Hulse may justify. It is agreed that the said Hulse will serve the company wherever desired, the company to pay his railroad fares whenever traveling at the request of the company. No abatement will be made for loss of time because machines are not kept running, nor any extra payment for extra hours. The said Hulse agrees to do all in his power to promote the interests of the said company, and in case he can make any improvement in cigarette machines, whether the same be made while in the employment of the said company or at any time thereafter, the same shall be for the exclusive use of the said company. And it is agreed that in case the said Hulse be not able to serve the said company efficiently, or shall in any way neglect his duty, the company may stop his services at any time, paying up to such time; but, in case the said Hulse desired to quit the said company, he shall give sixty days' notice thereof.'

After this contract was made, and upon the offer of Wright and Hulse to sell the improvement to the company, the following correspondence ensued:

'We herewith inclose you a copy of the contract between this company and Mr. Hulse. Without waiving any of our rights under the said contract, but insisting and relying on the same, we will say that it is our purpose not only to pay Mr. Hulse for actual services rendered, but also to pay him what we regard as liberal for his improvement, provided it proves valuable to our company by reason of its being perfected, and letter patent be obtained covering the same, which are of proper scope and valid. As to the value of the supposed improvement which Mr. Hulse has made we do not know, nor do we know to what extent the device may infringe other patents. It is our purpose to investigate these matters. We very much hope that the devices will meet Mr. Hulse's expectations, and that they do not infringe any existing patents.

'Very truly yours,

D. B. Strouse.'

Two days later (March 21, 1892), Wright, having meanwhile conferred with the inventor, Hulse, and speaking for Hulse as well as for himself, wrote to the secretary of the Bonsack Company, saying, among other things:

'I wish it distinctly understood that we will push forward the crimping device as fast as possible, under the assurance of your board as to your liberality in the matter, if

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