Indiana Mfg. Co. v. J.I. Case Threshing Mach. Co.

• Decision Date: 22 August 1906
• Citation: 148 F. 21
• Parties: INDIANA MFG. CO. v. J. I. CASE THRESHING MACH. CO.
• Court: U.S. District Court — Eastern District of Wisconsin

148 F. 21

INDIANA MFG. CO. v. J. I. CASE THRESHING MACH. CO.

United States Circuit Court, E.D. Wisconsin.

August 22, 1906

W. H H. Miller, Charles K. Offield, Charles C. Linthicum, Chester Bradford, Harold Taylor, and E. h. Bottum, for complainant.

Robert S. Taylor, Charles Quarles, I. K. Boyesen, and James H Peirce, for defendant.

SEAMAN Circuit Judge.

The issues of law and fact in this case are complicated, and the volumes of testimony, exhibits, and argument, are formidable, both in matter and in the various phases of the controversy. That they are difficult of solution goes without saying; and with the great interests involved and harsh defense set up, it is not singular that consummate ability is brought into the contest, with the contentions upon which the solution hinges strongly presented and combatted, and the testimony and discussion not free from acrimony.

The bill is filed to enforce the alleged rights of the complainant, under certain letters patent for improvements in straw elevators and stackers, and contracts with the defendants for manufacture and sale thereunder of 'Pneumatic Straw Stackers,' and the relief sought is plainly in the nature of specific performance of the contract, whatever may be the name applied to the suit. It is not alone for the recovery of the royalties promised-- for which the remedies at law may be adequate-- but for equitable relief, by injunction and otherwise, for the enforcement of that and other terms of the contracts referred to.

The answer is voluminous in recitals of alleged equities in favor of the defendants, setting up matter tending to three grounds of defense: (1) Invalidity of the contracts in suit, as parcel of an unlawful combination to suppress competition in trade; (2) violation of the contracts on the part of complainant, so that enforcement must be denied in equity and (3) nonuse by the defendant of the patent inventions. In argument the bill is challenged as multifarious, and for want of equity upon various propositions, which do not call for discussion, apart from one or the other of the defenses above mentioned.

The issue upon the validity of the contracts ('A' and 'B') arises at the threshold, and its solution is imperative, as it clearly appears that one or both are part of the alleged combination agreement. These contracts are set up in the bill and are in evidence, as one of the fundamental grounds for the relief sought, and unless they are valid the rule is elementary (McMullen v. Hoffman, 174 U.S. 639, 654, 19 Sup.Ct. 839, 43 L.Ed. 1117) that 'no court will lend its assistance in any way towards carrying out the terms' of such contract, 'nor will a court of equity enforce any alleged rights directly springing' therefrom. So, their validity must be ascertained, under the issue, as a condition precedent to any relief in equity, irrespective either of the seeming want of equity in the attitude of the defendant respecting such issue, or hardships which may be imposed upon the complainant. The contention that the complainant may rest claim for infringement upon the patents alone, without reference to the license contracts, under the rule that use of the invention contrary to the terms of license constitutes infringement, is without force, if assumed to be otherwise tenable, for the reason that bill and testimony claim the benefits of the contract, and each is wholly directed to enforcement of its terms. Indeed, the relief prayed for in every aspect requires the contract for its sanction. With the case thus predicated, the validity of the contract is directly and primarily involved, and the authorities cited and pressed for consideration as denouncing collateral inquiry or attack (vide Harrison v. Glucose Sugar Ref. Co., 116 F. 304, 307, 53 C.C.A. 484, 58 L.R.A. 915, and Dennehy v. McNulta, 86 F. 825, 827, 30 C.C.A. 422, 41 L.R.A. 609, in this circuit, and Connolly v. Union Sewer Pipe Co., 184 U.S. 540- 545, 22 Sup.Ct. 431, 46 L.Ed. 679) are plainly inapplicable, and the test mentioned in the Wiswall Case (86 F. 671, 30 C.C.A. 339) for marking the distinction between direct and collateral attack, lends no support to the contention upon that point. Were it questionable, in any view of the subject-matter of the bill, whether it was open to such inquiry, doubt would be set at rest by these express allegations thereof; that like contracts were made with other manufacturers to the extent of embracing in the 'license system' thereof, 'substantially all manufacturers of threshing machinery on this continent,' and all pneumatic straw stackers made in the United States and Canada; that violations by the defendant-- sale at less than the price fixed being one of the charges-- endanger the entire system, leading 'to dissatisfaction and unrest on the part of the other licensees' and encouraging like violations. Whether the system thus referred to may not be within the lawful exercise of patent privileges, is, of course, another question, dependent in each case upon the facts which enter into the arrangement, but it cannot be doubted that the contracts which make up the system are open to challenge, either for monopoly not authorized by the patent law, or for other taint. Equity is not content to enforce an agreement upon its form alone, but will search beyond its terms to ascertain the true object, when the issue of legitimacy is raised. I am satisfied that such issue is presented here, and must be determined under the evidence.

The question of the lawfulness of the monopoly created by the contracts and license system in suit is one of mixed law and fact. The substantial facts are well established, if not conceded, and the inferences of fact impress me as free from difficulty, unless it be in reference to the nature of invention in one or more of the patents, which enters into the ultimate inquiry of the effect of the combination. Laying out of view the feature of property in patents (owned or to be acquired) involved in the argument, the doctrine is settled that the monopoly in trade created by the agreement violates the express terms of Act Cong. July 2, 1890, c. 647, Sec. 3, 26 Stat. 209 (U.S. Comp. St. p. 3200), known as the 'Sherman Anti-Trust Act' (as well as the common-law) so that the contract cannot be upheld, unless saved from invalidity by the element of patent license referred to. Bement v. National Harrow Co., 186 U.S. 70, 92, 22 Sup.Ct. 747, 46 L.Ed. 1058; Northern Securities Co. v. United States, 193 U.S. 197, 24 Sup.Ct. 436, 48 L.Ed. 679. On the other hand, the grant of a patent creates a lawful monopoly, for the term of the grant, in use of the invention, and the right of owner (patentee or assignee) is well recognized, to parcel out, restrict, or withhold such use, at will; and he may fix the price at which the patented article or product shall be marketed. With the aggregation of patents embraced in this combination agreement, however, the question of the applicability in all phases of the one and the other of the above-mentioned rules is not, as I believe, settled by the authorities. The decisions are not harmonious in cases which seem to be analogous in certain features, so that the question, broadly stated, remains at large, to be determined upon general principles which are settled, both in reference to the public policy of the laws respectively with restrain general monopolies, and those which confer a limited monopoly for inventions and literary productions, and in the light of the leading opinions cited. Nor can the conclusions yield to the influence (suggested in argument) of the grave interests which may be effected upon the one side, or of privity or alleged misconduct or inconsistent acts of the other party.

The primary contract ('A') grants license to the manufacturers under 21 United States patents expressly named, and two Canadian patents, 'relating to the art or method of taking straw and dust from threshing machines,' which the licensor 'controls by ownership or exclusive license,' and extends 'until the full end of the term of any such patent' owned by it, or of the license under patents which are thus controlled, together with 'any inventions which may be hereafter acquired' by the licensor. The terms to be observed do not require specification for the present purpose, except that the royalty to be paid is $30 on each stacker made 'embodying any of said inventions or improvements,' and 'the selling price of users of machines' thereunder must be $250, when sold on time, or $235 for cash sales, with agency commissions limited to $25; and the licensee is not to dispute the patents 'directly or indirectly' nor 'make their alleged invalidity a defense' in any manner. This agreement was executed between the present parties April 8, 1895. On January 20, 1899, they made a supplemental agreement ('B') in compromise of differences, which I deem immaterial for the present consideration, unless it be in the provision that the licensee 'will not, either directly or indirectly, raise any question as to the validity of the contract ('A') which it reaffirms.

This license agreement, upon its face, does not depart, as I assume, from the customary forms of a license system, except in the great number of patents included, and, perhaps, the extent or indefiniteness of the term which may be implied from the recitals. The testimony is voluminous in reference to numerous additional patents which have been acquired by the complainant, from licensees and others, in the development of its system, so that its so-called 'patent properties exceed 100 in number,' although five only are alleged in the bill to be invaded by the defendant's structure. While I have deemed it unnecessary to examine this array of patents, in detail, except the five...