Victor Talking Mach. Co. v. Straus
| Decision Date | 23 March 1915 |
| Citation | 222 F. 524 |
| Parties | VICTOR TALKING MACH. CO. v. STRAUS et al. |
| Court | U.S. District Court — Southern District of New York |
Fenton & Blount, of Philadelphia, Pa. (Frederick A. Blount and Hector T. Fenton, both of Philadelphia, Pa., of counsel), for complainant.
Wise & Seligsberg, of New York City (Edmond E. Wise, of New York City, of counsel), for defendants.
This is a motion to dismiss the bill of complaint, brought under rule 29 of the new equity rules (198 F. xxvi, 115 C.C.A. xxvi). The suit is for infringement of patents.
The complainant alleges that it is the owner of various patents covering the Victor talking machines and sound records, and that it has manufactured under these patents, and has appointed licensed dealers, with the right to convey the license to the public to use its machines and sound records only when a royalty has been paid of not less than $200 for the use of a machine, and of not less than that noted on the record for the use of a sound record. Every machine and sound record has accompanying it a notice of license to the foregoing effect, and also to the effect that the patented article is to be used only with the machines, sound boxes sound records, and needles manufactured by the complainant. The license also provides that it is good only when the label containing the notice of license is attached to the machine. It likewise provides that the title to the patented goods remains in the Victor Talking Machine Company for the term of the patent having the longest term to run, and that upon the expiration of such patent the goods shall become the property of the licensee, if he shall have observed the conditions of the license. The license further provides that, upon violation of any of the terms of the license, the Victor Talking Machine Company may upon repayment of the amount of the royalty, less 5 per cent. per annum for the use, retake the patented goods from the user. The complaint does not charge the defendants with having used the patented goods without labels, or with needles other than those manufactured by the complainant, but charges as the sole act of infringement that the defendants, though lawfully in possession of the patented articles, have exceeded the limited use granted by the license, in that they have sold the articles outright, in some cases for less than they have paid for the same to the licensed dealers, and are threatening to continue this course. The complainant alleges that by its system of marketing its patented machines and sound records it is enabled to obtain the benefit of its patents 'at a minimum of cost to the licensee.'
The real purpose of the license is obviously to maintain the market for the talking machines and sound records at the prescribed royalty, and the essential point involved is whether such a limitation of the use in the mode I have described is within the rights of the owner of the patents. I may say at the outset that, if the patentee has such a right under the patent law, there can be no doubt that this court and not the state court, is the proper tribunal to adjudicate the issue between the parties. I also think that no provision of the Sherman Act or Clayton Act affects the matters at issue.
The infringement charged is for selling when defendants are alleged to possess nothing more than a nonassignable right to use. The whole dispute is as to the extent of the monopoly granted by the patent. There is no combination shown in restraint of trade or to fix prices, nor any contract substantially lessening competition. The only question is whether a patentee, who has once received his royalty covering the use of the patented article during the entire life of the patent, can by his license prevent the transfer of the use by his licensee in a case where upon the expiration of the patent there is a sale of the machine itself to the ultimate possessor, conditioned upon the observance of the terms of the license. If the patentee has such a right, I think an attempt to sell the machine in derogation of the license for a limited use is an infringement, and a remedy for infringement lies in the United States court, which has general jurisdiction over patent causes. As was said in Henry v. Dick Co., 224 U.S. 1, 32 Sup.Ct. 364, 56 L.Ed. 645, Ann. Cas. 1913D, 880 the complainant might have waived the tort and sued upon the contract of license itself; then the remedy would be at law in the state court. But he has chosen naturally the more adequate remedy. This being so, the issue is reduced to whether the right declared upon is one given by the patent law.
In the case of Henry v. Dick Co., the license read as follows:
'This machine is sold by the A. B. Dick Company, with the license restriction that it may be used only with the stencil paper, ink, and other supplies made by A. B. Dick Company, Chicago, U.S.A.'
In that...
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