Motion Picture Patents Co. v. Universal Film Mfg. Co.

• Decision Date: 15 June 1916
• Docket Number: 248.
• Citation: 235 F. 398
• Parties: MOTION PICTURE PATENTS CO. v. UNIVERSAL FILM MFG. CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

235 F. 398

MOTION PICTURE PATENTS CO. v. UNIVERSAL FILM MFG. CO. et al.

No. 248.

United States Court of Appeals, Second Circuit.

June 15, 1916

On Petition for Rehearing, August 4, 1916.

This cause comes here on an appeal from a decree dismissing the complainant's bill. The complainant is the owner of the patent in suit (No. 707,934) for motion picture projecting machines, and on June 12, 1912, granted to the Precision Machine Company a license to manufacture and sell these machines for not less than $150 per machine, and at a royalty of $5 to the licensor each, with the further restriction that each machine put out by the licensee shall be used (1) solely for exhibiting or projecting motion pictures containing the invention of reissued letters patent No. 12,192, leased by a licensee of the licensor while it owns said patent; and (2) upon other terms to be fixed by the licensor and complied with by the user while the said machine is in use and while the licensor owns said patents (which said other terms shall only be the payment of a royalty or rental to the licensor while in use). The license also provided that a plate should be attached to each machine and such plate was attached in the following form:

'Mfr's Serial No. 3557.

Special License No. 3666.

'Simplex

'Made by the Precision Machine Company

'Patented.

'No 576,185, March 2, 1897.

No 580,749, April 13, 1897.

'No. 586,953, July 20, 1897.

No. 673,329, April 30, 1901.

'No. 673,992, May 14, 1901.

No. 707,934, August 26, 1902.

'No. 722,382, March 10, 1903.

'The sale and purchase of this machine gives only the right to use it solely with moving pictures containing the invention of Reissued Patent No. 12,192, leased by a licensee of the Motion Picture Patents Company, the owner of the above patents and reissued patent, while it owns said patents, and upon other terms to be fixed by the Motion Picture Patents Company and complied with by the user while it is in use and while the Motion Picture Patents Company owns said patents. The removal or defacement of this plate terminates the right to use this machine.

Motion Picture Patents Company,

'New York, N.Y., U.S.A.'

Reissued letters patent No. 12,192 expired subsequent to the execution of the license by the complainant to the Precision Machine Company. Thereupon the Universal Film Manufacturing Company made a film embodying that invention, and sold it to the Universal Film Exchange, who furnished it for use to the Prague Amusement Company. The Seventy-Second Street Amusement Company became the lawful possessor of a moving picture machine made by the Precision Machine Company. The defendant Prague Amusement Company leased the machine from the Seventy-Second Street Amusement Company and used the film furnished to it by the Universal Film Exchange upon the machine in question. The use of the film upon the machine is the act of infringement alleged. The defendants set up three defenses: (1) That the restrictions in the contract of license to the Prague Amusement Company are contrary to public policy, illegal and void, and the machine therefore is free from the burden of them. (2) That there is no proof of joint infringement as alleged. (3) That the patent is invalid.

Melville Church, of Washington, D.C., and George F. Scull, of New York City, for appellant.

Edmund Wetmore, John B. Stanchfield, and Oscar W. Jeffery, all of New York City, for appellees.

Before COXE and ROGERS, Circuit Judges, and AUGUSTUS N. HAND, District judge.

AUGUSTUS N. HAND, District Judge (after stating the facts as above).

It was held by this court in the case of Victor Talking Machine Company v. Strauss, 230 F. 449, . . . C.C.A. . . ., that a license to use a patented talking machine upon payment of an initial royalty to cover the life of the patent and upon condition that the licensee purchase all sound records to be used with the machine from the licensor was valid, even though the license provided that title to the machine should pass to the licensor upon the expiration of the patent if the terms of the license had been observed. The present case differs from that case because here the title to the machine at once passed by the sale of the projecting machine to the Seventy-Second Street Amusement Company. We think this case comes within the doctrine of Bauer v. O'Donnell, 229 U.S. 1, 33 Sup.Ct. 616, 57 L.Ed. 1041, 50 L.R.A. (N.S.) 1185, Ann. Cas. 1915A, 150, rather than that of Henry v Dick, 224 U.S. 1, 32 Sup.Ct. 364, 56 L.Ed. 645, Ann. Cas. 1913D, 880. This is especially true since the enactment of the so-called Clayton Bill, which provides:

'That it shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities, whether patented or unpatented, for use, consumption or resale within the United States, or any territory thereof * * * on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce. ' Act Oct. 15, 1914, c. 323, Sec. 3, 38 Stat. 731.

This act was not regarded as applicable either in the District Court, or in this court, in the case of Victor Talking Machine v. Strauss, supra, because that case was decided upon a demurrer to the bill upon the face of which no substantial restraint of competition or monopoly in any line of commerce appeared. Here, however, the testimony shows that the complainant has a monopoly under its patents of projecting machines so that, if no films not manufactured by complainant can be used upon these machines, the complainant will obtain an absolute monopoly of the film business, in spite of the fact that its patent on films has expired. If the prohibitions of the Clayton Act mean anything at all, this case falls within them, and the restrictions as to use of films other than complainant's with the projecting machines are therefore void. Indeed, the report of the judiciary committee of the House concerning the Clayton Act shows that its purpose is to reach the film monopoly. A portion of this report, quoted by Judge Dyer in his opinion in United States v. United Shoe Machinery Co. (D.C.) 227 F. 507, is as follows:

'Where the concern making these contracts is already great and powerful, such as the United Shoe Machinery

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