John D. Park & Sons Co. v. Hartman

• Citation: 153 F. 24
• Decision Date: 14 March 1907
• Docket Number: 1,581
• Parties: JOHN D. PARK & SONS CO. v. HARTMAN.
• Court: U.S. Court of Appeals — Sixth Circuit

153 F. 24

JOHN D. PARK & SONS CO. v. HARTMAN.

No. 1,581

United States Court of Appeals, Sixth Circuit.

March 14, 1907

The plaintiff below is a manufacturer of certain proprietary medicines, the chief of which is the well-known article called 'Peruna.' This, together with other preparations, he puts on the market through a system of contracts intended to maintain prices. Thus it is averred that he sells only to jobbers or wholesalers at uniform prices with a discount varying according to quantity. Each such jobber is required to sign a written agreement to sell only to retailers whose names shall be furnished by complainant, and who shall have signed a retailer's agreement with him obligating them to sell only to consumers at a price named by the complainant or found on his labels and wrappers. To enable him to discover violations of the agreement to sell only for consumption and only to consumers, each such retailer is required to stamp or write his name on each bottle or package sold, and, to insure against sales by wholesalers to unlicensed retailers, each sale must be reported to the complainant. The averment is that there has grown up a very large demand for 'Peruna,' and that such contracts have been made with jobbers and wholesalers all over the United States, and that 'a majority of the retail druggists of the country have executed such contracts.'

The defendant is a corporation organized under the laws of Kentucky, and is engaged in the jobbing or wholesale drug and proprietary medicine business. It is charged that the defendant company, with full knowledge of complainant's method of contracting the sales of 'Peruna,' has refused to enter into any contract with the complainant, and is not therefore entitled 'to buy or deal in your orator's medicines and remedies. ' It is then averred that defendant company, in combination with other wholesalers and retailers, who have refused to sign complainant's contracts, has 'unlawfully and fraudulently obtained and procured your orator's remedies and medicines, including 'Peruna,' from your orator's wholesale and retail agents, both directly and indirectly, by means of false and fraudulent representations and by surreptitious and dishonest methods, and by persuading, directly or indirectly, your orator's wholesale and retail agents, under contract with your orator as aforesaid, to violate and break said contracts and sell and supply your orator's remedies and medicines including 'Peruna,' to said defendant, and, after having procured' same, has advertised and sold same to dealers at less than the established price and less than the jobbing prices. It is also averred that, for the purpose of rendering it difficult to trace such purchases, the defendant, obliterates the serial number placed in such carton, and defaces and takes off the distinctive wrappers etc., and in that condition sells the same. All of which conduct is averred to have resulted in 'irreparable injury and damage' to complainant's system of trade and that defendant gives out that it will continue its said conduct. The prayer of the bill is that the defendant be enjoined 'from in any manner inducing or persuading, or attempting to procure, induce or persuade, directly or indirectly' any breach of any such sales agreement as stated, 'and from procuring or attempting to procure in any way your orator's remedies and medicines, directly or indirectly, from any wholesaler or retailer who has executed such wholesale or retail agency contract with your orator in violation of same,' and 'from advertising, selling, or offering for sale the remedies and medicines of your orator obtained in or by any of the means aforesaid at prices less than the established retail price thereof, or to wholesale or retail dealers who have not entered into wholesale or retail contracts with your orator,' and from mutilating or removing the cartons, wrappers, or labels upon the bottles, etc. The usual prayer for an accounting concludes the bill.

The defendant demurred for want of equity and specially to so much of the bill as sought to enjoin the defendant from mutilating labels, cartons, or wrappers, etc. The demurrers were overruled, and an injunction awarded pendente lite in the very terms of the bill.

From this interlocutory injunction this appeal has been perfected.

Alton B. Parker, William J. Shroder, and Henry T. Tay, for appellant.

Frank F. Reed, Edward S. Rogers, and Frederick W. Hinkle, for appellee.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON Circuit Judge, after making the foregoing statement of the case, .

The system of contracts by means of which the complainant proposes to retain control of all sales and resales of its goods is not unique. It was first applied to commodities made under patents or productions covered by copyright. According to one of the averments of the bill, the same system of contracts has been generally adopted by the wholesale and retail druggists of the United States. But this, we take it, means no more than it has been adopted as a plan for maintaining prices and controlling sales of proprietary medicines, a business which amounts to more than $60,000,000 annually. That the same plan has been extended to sales in respect to other commodities, not coming under the peculiar claims advanced for 'patent' medicines, we may take notice. The question, in its shortest form, is whether the exemption from common-law rules against monopoly and restraints of trade, and the provisions of the federal anti-trust act, which has been extended to contracts affecting the sale and resale, the use or the price of articles made under a patent or productions covered by a copyright, extend also to articles made under a secret process or medicine compounded under a private formula. The fundamental position of counsel for the complainant is that in principle there is no distinction between the monopoly secured to a patent or copyright and the monopoly of a trade secret, and they advance and defend the claim that articles made under patents, copyrights, and trade secrets may lawfully be contracted for and sold under any conditions and limitations with respect to price and subsales which the vendor chooses to impose, and that 'contracts relating to any such articles are not within the restraint of trade rules. ' If this contention is sound, the contracts under which the complainant conducts his business are legal, and no question remains but a consideration of the matter of the relief equity may give against one not a party to such contracts under the facts of this case.

That articles made under patents may be the subject of contracts by which their use and price in subsales may be controlled by the patentee, and that such contracts, if otherwise valid are not within the terms of the act of Congress against restraints of interstate commerce or the rules of the common law against monopolies and restraints of trade, is now well settled. Heaton-Peninsular Button Co. v. Eureka Specialty Co., 77 F. 288, 25 C.C.A. 267, 35 L.R.A. 728; Dickerson v. Tinling, 84 F. 192, 28 C.C.A. 139; Edison Phonograph Co. v. Kaufmann (C.C.) 105 F. 960; Edison Phonograph Co. v. Pike (C.C.) 116 F. 863; Rupp et al. v. Elliott, 131 F. 730, 65 C.C.A. 544; Victor Talking Machine Co. v. The Fair, 123 F. 428, 61 C.C.A. 58; Bement v. National Harrow Co., 186 U.S. 70, 22 Sup.Ct. 747, 46 L.Ed. 1058. The patent grants an exclusive right to use, to make, and to sell. The patentee may grant, if he will, an unrestricted right to make and sell or use the device embodying his invention, or may grant only a restricted right in either the field of making, using, or selling. To the extent that he restricts either one of these separable rights, the article is not released from the domain of the patent, and any one who violates the restrictions imposed by the patentee, with notice, is an infringer. This is the ground upon which the cases stand which uphold restrictions upon either use or sale of a patented article where infringement is alleged. But, when a patentee imposes such restrictions, they may likewise constitute a contract between the patentee and his direct vendee or licensee. In such case the patentee would have a double remedy-- an action in tort for infringement, or an action for the breach of the contract. The double remedy in such circumstances is noticed in Heaton-Peninsular Button Fastener Co. v. Eureka Specialty Co., 77 F. 288, 25 C.C.A. 267, 35 L.R.A. 728, and in Victor Talking Machine Co. v. The Fair, 123 F. 424, 61 C.C.A. 58. In Bement v. National Harrow Co., 186 U.S. 70, 22 Sup.Ct. 747, 46 L.Ed. 1058, the action was one for breach of a contract by which the patentee had suffered his invention to be used on condition that the articles embodying it should not be sold below a certain price. In National Phonograph Co. v. Schlegel, 128 F. 733, 64 C.C.A. 594, the bill was not to restrain infringement, but to enjoin sales by a vendee who was a jobber and who by direct contract had purchased phonographs made under the patent, agreeing to sell only at a named price and only to retailers who signed an agreement regulating retail sales. Whether a remedy is sought for the violation of restrictions placed by a patentee, upon either the use or the sale of an article made under the patent, is in tort or in contract, the rules of the common law in respect of monopolies and restraints of trade have no application, because the very object of the patent law is to give to the patentee an exclusive monopoly in using, making, and selling the device which embodies the invention, and this exclusive right he may exercise by contracts under which he reserves to himself so much of his exclusive right as he does not elect to sell or assign or...