Straus v. Victor Talking Mach. Co.

Decision Date04 February 1924
Docket Number49.
Citation297 F. 791
PartiesSTRAUS et al. v. VICTOR TALKING MACH. CO. et al.
CourtU.S. Court of Appeals — Second Circuit

[Copyrighted Material Omitted]

Wise &amp Seligsberg, of New York City (Leon Lauterstein, Isaac Lande and Milton Winn, all of New York City, of counsel), for plaintiffs.

Rounds, Schurman, & Dwight, of New York City (George W. Schurman, of New York City, John D. Myers, of Camden, N.J., William H. Griffin, of New York City, Louis B. Le Duc, of Camden, N.J., and Allen S. Hubbard, of Pelham Manor, N.Y., of counsel), for defendant Victor Co.

Gilbert H. Montague, of New York City (Joseph W. Goodwin, of New York City, of counsel), for defendants other than Victor Co.

Before ROGERS, MANTON, and MAYER, Circuit Judges.

MAYER Circuit Judge (after stating the facts as above).

Prior to August 1, 1913, the Victor Company marketed its patented products throughout the United States through a system of sales contracts with its distributors and dealers by which it regulated the prices at which these products were resold to dealers and by dealers to the public and also prescribed the persons who were entitled to be established as dealers and to receive dealer's discounts. Included in the 128 departments into which Macy's was divided was the music department, known as No. 83, in which, with other articles, the goods of Victor Company were sold.

Prior to May 1, 1914, the managers of this department signed various sales agreements with Victor distributors and thus plaintiffs were a part of the then system of Victor Company. In accordance with that system, Macy's had executed dealer's contracts with various distributors in New York City, who are defendants in this action. Under these contracts or sales agreements, Macy's had the right to purchase from distributors named therein, Victor goods at a discount of 40 and 10 per cent. from the list price for such products established by Victor Company and an additional 2 per cent. was allowed for cash payments within 10 days, and every dealer was obligated to sell to the public at the list price fixed by Victor Company.

On August 1, 1913, Victor Company announced to its distributors and dealers the adoption of a new method of marketing its products under a so-called license system. A circular letter issued by Victor Company, announcing this new plan, was received by plaintiffs on August 1, 1913. By this system Victor Company attempted to retain title to all patented machines and records thereafter shipped to distributors and to license the use of them for the term of its patent having the longest time to run. The circular referred to the decision of the Supreme Court in Bauer & Cie. 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, decided May 26, 1913, and pointed out what Victor Company urged as to the commercial advantages of such a system.

It was provided in this 'license agreement' that licensed dealers were by its terms permitted to use the Victor instrument only for demonstrating purposes and were empowered to assign the right to the public 'upon payment of the full list royalty or license fee' as fixed by Victor Company from time to time, and it was also provided that no 'license' should be assigned by distributors 'to a dealer at less than the dealer's license royalty, or by any dealer to a user or any other party at less than the full list royalty,' and the distributors could only license to a dealer approved by Victor Company. Other features of the license agreement were in aid of its main purpose. Notices containing the restrictions, supra, were attached to the Victor instruments. By October 1, 1913, every distributor had fallen in line and had signed the license agreement. Various distributors, including certain of the defendants, urged plaintiffs to sign the new agreement, and so also did Victor Company.

On May 1, 1914, Victor Company sent plaintiffs a letter informing them that their prior contracts with Victor Company had been annulled, and stating that, if the new agreements were signed and returned by May 4, 1914, Victor Company would accept them, but, if not, then--

'No Victor patented goods, as now disposed of under our license agreements, will be furnished you by this company, either directly or indirectly at dealers' discounts.'

Plaintiffs ignored the ultimatum and did not sign. On May 4, 1914, Victor Company notified the trade-- i.e., the distributors-- that plaintiffs had not signed, and that 'they are not, after this date, entitled to receive any Victor patented goods at dealers' discounts. ' Thereafter plaintiffs were unable to purchase from Victor distributors. The trade war became intense and bitter. No distributor, even if willing, could sell Macy's at less than full retail price without himself incurring the danger of being eliminated as a distributor.

Plaintiff, in October, 1914, entered upon a cut-price campaign for the sale of Victor patented goods. The situation thus was that on one side were the Victor Company and its distributors operating under a restrictive license system; and, on the other, plaintiffs, outside of this system, getting the goods where and when they could and fighting their opponents with the trade weapon of less cost to the public.

In these circumstances, Victor Company in November, 1914, filed a bill in equity in the District Court for the Southern District of New York to restrain Macy's from infringing its letters patent. Macy's then moved to dismiss this bill upon three grounds: (1) That the court was without jurisdiction; (2) that the facts alleged in the bill were insufficient to constitute a valid cause of action in equity; and (3) that it appeared from the face of the bill that the system of marketing Victor goods was in violation of the Sherman Law and Clayton Act.

Judge Augustus N. Hand granted the motion upon the second ground, but denied it on the first and third grounds, stating, inter alia: 'I think that no provision of the Sherman Act or Clayton Act affects the matters at issue. ' This court affirmed the decree with leave to Victor Company to amend. 225 F. 535, 140 C.C.A. 519.

Victor Company amended its complaint, and plaintiffs moved to dismiss upon the same grounds as previously. This motion was granted by Judge Hough upon the second ground mentioned, supra. On appeal, this court unanimously sustained the amended complaint and reversed the decree below, giving its reasons in an opinion per Lacombe, C.J., dated January 11, 1916. 230 F. 449, 144 C.C.A. 591.

On April 9, 1917, the Supreme Court decided Motion Picture Patents Co. v. Universal Film Co., 243 U.S. 502, 37 Sup.Ct. 416, 61 L.Ed. 871, L.R.A. 1917E, 1187, Ann. Cas. 1918A, 959. In that case, Justices McKenna, Holmes, and Van Devanter dissented. On the same day the Supreme Court reversed Straus v. Victor, 243 U.S. 490, 37 Sup.Ct. 412, 61 L.Ed. 866, L.R.A. 1917E, 1196, Ann. Cas. 1918A, 955, Justices McKenna, Holmes and Van De Vanter dissenting, and held that the license agreements were illegal. In the Motion Pictures Patents Co. Case, the court frankly and flatly discarded Henry v. Dick, 224 U.S. 1, 32 Sup.Ct. 364, 56 L.Ed. 645, Ann. Cas. 1913D, 880.

On May 29, 1917, Victor Company announced to distributors and dealers that the license agreements were canceled and that the system of distribution thereunder was discontinued. On September 7, 1917, the present action was brought and the trial of the case began on January 11, 1921, and on March 25, 1921, the jury brought in its verdict. The cause was ably tried by equipped counsel, and Judge Mack, before whom the trial took place, dealt with the many difficult questions so carefully and clearly that out of this necessarily voluminous record the master facts which give rise to the controversial questions plainly appear.

The court instructed the jury to make separate findings in respect of the subject-matter of damages. As the case developed, the figures were susceptible of substantially accurate statement. It was shown without dispute that plaintiffs had paid counsel fees and disbursements amounting to $15,804 as their expenses in defending the so-called infringement suit of Victor v. Straus, supra. The reasonableness of these fees was not contested. The following figures were submitted to the jury as indicating plaintiff's claim for damages as finally presented, and as affected by defendants' contentions. The details will be explained, infra.

In respect of purchases, through joint purchasing office to May 29, 1917 . . . $26,193.58

In respect of purchases made by the comparison and receiving departments to May 29, 1917 . . . 14,402.26

Loss on discounts after May 29, 1917 . . . 7,193.23

Counsel fees, supra . . . 15,804.00

$63,593.07

The jury returned the following verdict:

After May 29, 1917 . . . Nothing

Comparison and receiving purchases . . . $7,701.13

Attorney's fees . . . 15,804.00

Before May 29, 1917 . . . 26,193.58

$49,698.71

The verdict pursuant to the statute was trebled, and the court fixed $35,000 as a reasonable counsel fee. Thus it was that after adding taxable costs, the judgment amounted to $184,836.68. All claims for damage after May 29, 1917, being out of the case, the controverted items of damages are the three covered by the jury's verdict.

1. Attorney's Fees.

The trebled amount of this item is $47,412. The court admitted evidence as to these fees and charged the jury on the theory that, if the suit of Victor v. Straus, supra--

'was a step taken in pursuance of the combination that then existed, for the purpose of making that combination stronger or to scare people, or anything of that kind, if it was a step in the combination, and not the independent act of the Victor...

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