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

• Decision Date: 23 January 1906
• Citation: 142 F. 531
• Parties: RUBBER TIRE WHEEL CO. v. MILWAUKEE RUBBER WORKS CO.
• Court: U.S. District Court — Eastern District of Wisconsin

142 F. 531

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

United States Circuit Court, E.D. Wisconsin.

January 23, 1906

Winkler Flanders, Smith, Bottum & Fawsett and Augustine L. Humes, for plaintiff.

John F Burke and Charles Quarles, for defendant.

SANBORN District Judge.

Action at law to recover royalties under the Grant patent, No 554,675, dated February 18, 1896, for rubber-tired wheels. The royalties claimed amount to $4,109.42; but, deducting certain offsets, the plaintiff, if entitled to recover should have judgment for $2,517.66 principal, with 6 per cent. interest from the time the several amounts of royalties going to make up this sum became due, with due regard to the time of the payment of the sums making up the offsets. The defenses are that the license contract securing the royalties is denounced as illegal by the Sherman anti- trust act (Act July 2, 1890, c. 647, 26 Stat. 209 (U.C. Comp. St. 1901, p. 3200)), making void every contract combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several states; also that the royalty contract is invalid under section 1791j of the Wisconsin Revised Statutes of 1898, prohibiting corporations organized under Wisconsin laws from entering into any combination, conspiracy, trust, pool, agreement, or contract intended to restrain or prevent competition in the supply or price of any article constituting a subject of trade or commerce in Wisconsin. Defendant is a Wisconsin corporation, and plaintiff an Ohio corporation. The reply to these defenses, in argument, is that they are immaterial, because the articles in question are patented, and the royalties claimed are under a patent monopoly; hence the license is neither within the Sherman act nor the Wisconsin trust act. In rebuttal to such anticipated reply, defendant pleads in its answer that the several agreements between the parties set out in the complaint were intended to form a combination in restraint of trade; that the patent mentioned in such agreements was void, and was believed by all the parties to the agreements to be void; that the patent had been so adjudged by the United States Circuit Court of Appeals for the Sixth Circuit, and the Supreme Court had refused to review that decision; that the patent was resorted to as a pretext merely to enable the contracting parties to evade the Sherman act and the Wisconsin statute, and the license contracts were not in fact, nor intended to be, license contracts under letters patent; but to create such unlawful combination; that by such contracts prices were raised beyond the natural and legitimate market prices, and the amount of manufactures restricted; and that the pretended license contracts were void under the Sherman act and the Wisconsin statute.

The three contracts pleaded and proved show a combination in restraint of trade and are in substance as follows: On October 10, 1903, plaintiff and defendant made the license agreement. It recites that plaintiff is the owner of the patent, and that defendant desires to obtain the right to manufacture, use, and sell vehicle tires made under the patent. Therefor it is agreed that plaintiff grants defendant such rights for one year, to the extent set forth in a 'supplementary agreement' attached to the agreement of license, in the United States, except 19 states and certain counties and cities in other states. Three counties in Ohio are excepted from the grant. Plaintiff agrees to vigorously prosecute infringements, except such as may be committed in the Sixth federal circuit. Defendant agrees to pay a royalty of 4 per cent. of the net selling price of tires made under the license, and the further royalty of 20 per cent. over its 'quota' fixed by the supplementary agreement. The supplementary agreement, of even date with the license, recites licenses like the foregoing to 17 other rubber-tire manufacturing companies, and fixes the quota which defendant shall manufacture each month during the license year at 2 per cent. in dollars and cents of the aggregate amount made and sold by all the licenses. The third agreement, made at the same time, called the 'Licensees' Agreement,' is between plaintiff as first party and all the licensees as second parties. It recites the licenses, and that it is desired that the right of manufacture shall be exercised on uniform terms and conditions, and the operations of all the licensees supervised by an impartial administration. Therefore it is agreed that if any licensee shall sell more than its quota it will pay, in addition to the 4 per cent. royalty, 20 per cent. on the amount sold by it in excess of its quota; and, on the other hand, if it shall sell less than its quota, it shall be paid 20 per cent. on the shortage. Prices for first quality tires are fixed at 65 cents a pound, and for second quality 55 cents. Plaintiff agrees to employ a commission of five persons to supervise the operations of the licensees, and pay it one-half the royalties, or 2 per cent. If any licensee sells at less than the fixed prices it is to forfeit its right to license rebates under this contract. The licensees are to manufacture only two grades of tires. The commissioners may, by written consent of a majority of the licensees, purchase tires from any of them, and resell at such prices as they may deem for the interest of all the parties. These contracts most clearly make a combination within the Sherman act, if the subject-matter be within that act. That is the only question in the case.

The following facts appear in evidence: There has been considerable litigation over the patent. It was first sustained in Rubber Tire Wheel Co. v. Columbia Pneumatic Wagon Wheel Co., 91 F. 978, in the Circuit Court for the Southern District of New York, decided in December, 1898. In May, 1902, the patent was sustained by the Circuit Court for the Southern District of Ohio (unreported), but on appeal the Circuit Court of Appeals for the Sixth Circuit held it void as an aggregation of old devices. Goodyear Tire & Rubber Co. v. Rubber Tire Wheel Co., 116 F. 363, 53 C.C.A. 583, before Lurton, Day, and Severens, Circuit Judges. About the same time, in Consolidated Rubber Tire Wheel Co. v. Finlay Rubber Tire Co., 116 F. 629, in the Circuit Court for the Northern District of Georgia, Judge Newman sustained the patent, and also held defendant estopped to contest the validity of the patent. Before his opinion was published his attention was called to the Ohio case, but he declined to change his decision, as defendant was estopped. The patent was also declared valid in the Circuit Court of Appeals of the Republic of France, sitting at Paris. There is also an infringement suit now pending in the Southern District of New York, brought to stop infringement and also for the purpose of obtaining either an agreement in the various circuits as to the validity or invalidity of the patent, or such disagreement among them as will take the question to the Supreme Court. That court denied certiorari to review the Ohio decision, 187 U.S. 641, 23 Sup.Ct. 842, 47 L.Ed. 345. The Circuit Court of Appeals of the Sixth Circuit also held the patent invalid in Rubber Tire Wheel Co. v. Victor Rubber Tire Co., 123 F. 85, 59 C.C.A. 215, following the Goodyear Case. In the case now pending in New York, the witness Stapleton and several other attorneys represent the complainants, one of them being plaintiff here. Soon after the decision in Ohio, Mr. Stapleton advised plaintiff that the patent is valid, and so advised it in the early part of 1903. Similar advice was given by Mr. John R. Bennett, an experienced patent lawyer in New York.

The opinion of Mr. Stapleton was based on the fact that the judges in three of the circuits had upheld the patent, and on his opinion that the Court of Appeals of the Sixth Circuit based its decision on wrong premises. The 'tipping function' of the patented tire, hereafter described, the court held was not disclosed in the patent specifications. It was held that the specifications do not state how tightly or loosely the tire is to be applied to the wheel, so as to make this tipping function operative. Mr. Stapleton thinks the court was mistaken in this respect, and for that reason advised plaintiff that early in 1903, before the contracts in question were made, the rubber tire market was much demoralized. Prices were being cut by many manufacturers. After the combination was made the prices were maintained as fixed in the agreement, and it did away with all competition. Before the combination prices were 50 cents and 40 cents, respectively, and afterwards 65 and 55. After the expiration of the agreement the prices went back to the former rates. During the combination defendant made no effort to get any new business. All the tire manufacturers were in the pool except two small concerns. Defendant's tires were made in Wisconsin and sold in that and many other states.

The patent is for a specific combination of old devices. The chief ground on which it is sought to be sustained is that it produces a new and useful result, a new mode of operation, or an old result in a more advantageous way. The new result claimed is the neutralizing of side strain, from blows or friction, by what has been called the 'side-tipping function,' not found in the prior art. From the cut of a transverse section of the tire and felloe it will be seen that side pressure on the tire, if the retaining wires be not too tightly drawn, will cause the tire to rise on the side pressed, and tip on the other, rising in the channel and turning on the corner or angle of the opposite side, as upon a pivot, returning to its seat when the pressure is removed. Thus the strain is relieved, and both breaking and...