Rubber Tire Wheel Co. v. Milwaukee Rubber Works Co.

• Decision Date: 16 April 1907
• Docket Number: 1,336.
• Citation: 154 F. 358
• Parties: RUBBER TIRE WHEEL CO. v. MILWAUKEE RUBBER WORKS CO.
• Court: U.S. Court of Appeals — Seventh Circuit

154 F. 358

RUBBER TIRE WHEEL CO. v. MILWAUKEE RUBBER WORKS CO.

No. 1,336.

United States Court of Appeals, Seventh Circuit.

April 16, 1907

A. L Humes and Edwin E. Jackson, Jr., for plaintiff in error.

Charles Quarles, for defendant in error.

Before GROSSCUP, BAKER, and KOHLSAAT, Circuit Judges.

BAKER Circuit Judge.

Plaintiff in error began this action to recover royalties on account of defendant's use, under a license system set forth in the complaint, of patent No. 554,675, issued February 18, 1896 to Grant, plaintiff's assignor, for an improvement in rubber-tired wheels. The license system was embodied in three papers, Exhibits A, B, and C. That they 'were all executed at one and the same time and were intended to constitute and did constitute one agreement' is not open to question, for such is the explicit admission in defendant's answer. The covenants of defendant must therefore be taken as having been made in consideration of plaintiff's grant. The license system, briefly, was this Plaintiff authorized 18 companies, of which defendant was one, to make, use, and sell tires under the patent for 1 year; each company's share of the trade was fixed at a certain proportion of the whole, defendant's at 2 per cent.; two qualities of tires were to be made; the minimum selling price of the first quality was established at 65 cents a pound, of the second quality at 55 cents a pound each company agreed to pay plaintiff monthly 4 per cent. of its sales, and, if in any month its sales proved to be larger than its proportional share of the total sales for that month, to pay plaintiff an additional royalty of 20 per cent. of the amount over its quota; plaintiff agreed to employ a commission of five persons to supervise the transactions of all the parties, and to turn over to the commission all royalties in excess of 2 per cent.; from the moneys so put into their hands the commission, after deducting their expenses and compensation for services in supervising and auditing, were to pay monthly to any company that had sold less than its quota of the preceding month's total business a sum equal to 20 per cent. of such deficiency; the commission then were to accumulate $50,000, and to distribute any sums in excess monthly among the companies according to their quotas of the trade, and at the expiration of the arrangement to distribute all funds then on hand; and it was agreed in paragraph 10 'that the commission shall have power upon the written consent of a majority of the parties in interest hereto, to purchase tires from any or all of the parties hereto at the prices hereinbefore provided and to dispose of such tires to the trade at such prices as said commission shall deem to the interest of all the parties hereto, and in making such purchases the commission is hereby authorized to use any money in its possession. ' The complaint proceeded to charge that defendant under this arrangement had made and sold certain amounts of the patented tires on which it had failed and refused to pay the stipulated royalties.

The defenses were that the arrangement was in violation of the Sherman anti-trust act of July 2, 1890 (26 Stat. 209, c. 647, Sec. 1 (U.S. Comp. St. 1901, p. 3200)), and of section 1791j of the Wisconsin Statutes of 1898, which prohibits Wisconsin corporations (defendant was one) from entering into any arrangement or contract intended to restrain competition in the supply or price of any commodity constituting a subject of commerce within the state. As reasons why defendant's promise to pay was unenforceable in the face of those statutes, the answer averred that the letters patent 'were and were believed by all the parties to said agreement to be invalid and void, and had been so adjudged by the United States Circuit Court of Appeals for the Sixth Circuit, and that the Supreme Court of the United States had refused to review such decision; that said patent was resorted to in said contracts merely as a pretext to enable said contracting parties to evade the laws; and that said contracts were not and were not intended to be license contracts under letters patent, but were intended to establish and bring about the illegal trade combination herein mentioned; that the aforesaid purpose was carried out by the said agreement, and by reason thereof the price of the articles of commerce mentioned in plaintiff's complaint was raised beyond the former price thereof and beyond the natural and legitimate price thereof; and that the amount of said articles manufactured by the said parties was, by reason of said combination and monopoly, restricted.'

A jury having been duly waived, the court heard the evidence, entered findings of fact and conclusions of law, and thereupon rendered judgment for defendant.

The court found that plaintiff was the owner of the patent; that the patent was valid; that prior to the execution of the contracts in suit the patent had been sustained by the Circuit Court for the Southern District of New York, 91 F. 978, by the Circuit Court for the Southern District of Ohio (unreported), by the Circuit Court for the Northern District of Georgia, 116 F. 629, and by the Court of Appeals for the Republic of France, and had been declared invalid by the Circuit Court of Appeals for the Sixth Circuit, 116 F. 363, 53 C.C.A. 583, and the Supreme Court had declined to take the case on certiorari, 187 U.S. 641; that after the last-named decision was rendered, and down to the execution of the contracts in suit, the manufacturers of tires disregarded the patent, paid no royalties, and cut the prices of the respective qualities to 50 and 40 cents a pound; that all of the parties to the contracts in suit entered into the arrangement in good faith, believing that the patent was valid and that the adverse decision was erroneous; that all of the manufacturers that had been infringing, except two small concerns, came into the pool; that the provision in paragraph 10 was never in any manner acted upon or executed; that defendant made and sold tires under the contracts, and failed to pay plaintiff certain specified sums which were due if the promise to pay was enforceable; that after the expiration of the arrangement prices went back to former rates.

As conclusions of law the court stated (1) that the patent was and is valid; (2) that the decision of the Court of Appeals for the Sixth Circuit is controlling only between the parties to that case and their privies; (3) that as a practical result, however, the effect of that decision is to denude the patent of the attributes of a monopoly in that circuit; (4) that the provisions of the contracts respecting the payment of royalties are separate from the provisions of paragraph 10, and are not thereby rendered illegal or void; (5) that the contracts authorized the creation of a fund for crushing competition in interstate commerce throughout the whole country, not only in Grant tires but in all other rubber tires; (6) that the contracts make an illegal combination under the laws of the United States, and are illegal and void.

The assignments of error go to the third, fifth, and sixth conclusions of law.

The Wisconsin statute is eliminated not only because it is not involved in any assignment of error, but also because a state cannot subtract from the right conferred upon a patentee and his assigns by the federal laws. Columbia Wire Co. v. Freeman Wire Co. (C.C.) 71 F. 302; U.S. Consolidated Seeded Raisin Co. v. Griffin & Skelly Co., 126 F. 364, 61 C.C.A. 334. For the protection of the physical or moral health of its citizens a state may restrain the use of 'the corporeal thing or article brought into existence by the application of the patented discovery' (Patterson v. Kentucky, 97 U.S. 501, 24 L.Ed. 1115), but such a laying on of hands does not touch the monopoly of the federal grant. Nothing in this record questions the innocence of rubber tires.

Apart from any support that may be afforded by the third and fifth conclusions, is the sixth conclusion sound? Does the Sherman law shield the defendant from its promise to pay?

Under its constitutional right to legislate for the promotion of the useful arts, Congress passed the patent statutes. The public policy thereby declared is this: Inventive minds may fail to produce many useful things that they would produce if stimulated by the promise of a substantial reward; what is produced is the property of the inventor; he and his heirs and assigns may hold it as a secret till the end of time; the public would be largely benefited by obtaining conveyances of these new properties; so the people through their representatives say to the inventor: Deed us your property possession to be yielded at the end of 17...