Opinion · Supreme Court of the United States
Bement v. National Harrow Co.
22 S. Ct. 747
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1902-05-19
- Topic
- general
explaining that "[t]he fact that the conditions in the contracts keep up the monopoly or fix prices does not render them illegal" | assuming that only the Attorney General could bring an action to enforce the Sherman Act, yet allowing the defense that the contract was illegal under the antitrust laws | assuming that only the Attorney General could bring an action to enforce the Sherman Act, yet allowing the defense that the contract was illegal under the antitrust laws | assuming that only the Attorney General could bring an action to enforce the Sherman Act and allowing the defense that the contract is illegal under the antitrust laws | stating that “[t]he very object of [the patent] laws is monopoly” | “The owner of a patented article can, of course, charge such price as he may choose.... ” | "The owner of a patented article can, of course, charge such price as he may choose...." | “[T]he general rule is absolute freedom in the use or sale of rights under the patent laws of the United States.... The fact that the conditions in the contracts [for patent licenses] keep up the monopoly or fix prices does not render them illegal.” | “The very object of [the patent] l‘aw is monopoly....”
Citator
- Cited by
- 167 opinions
BEMENTv. NATIONAL HARROW CO.,186 U.S. 70(1902)
22 S.Ct. 747
BEMENTv. NATIONAL HARROW COMPANY.
ERROR TO THE SUPREME COURT OF THE STATE OF NEW YORK.
No. 215.
Argued April 9, 10, 1902.
Decided May 19, 1902.
THIS was a writ of error to the Supreme Court of the State of
New York, to which court the record had been remitted after a
decision of the case by the Court of Appeals. The action was
brought by the plaintiff below, the defendant in error here,
Page 71
a corporation, to recover the amount of liquidated damages
arising out of an alleged violation by the defendant below, the
plaintiff in error here, also a corporation, of certain contracts
executed between the parties, in relation to the manufacture and
sale of what are termed in the contracts "float spring tooth
harrows," their frames and attachments applicable thereto, under
letters patent owned by the plaintiff. The action was also
brought to restrain the future violation of such contracts, and
to compel their specific performance by the defendant. The case
was tried before a referee pursuant to the statute of New York
providing therefor, and he ordered judgment in favor of the
plaintiff for over twenty thousand dollars, besides enjoining the
defendant from violating its contract with the plaintiff, and
directing their specific performance as continuing contracts.
This judgment was reversed by the appellate division of the
Supreme Court and an order made granting a new trial, but on
appeal from such order the Court of Appeals reversed it and
affirmed the original judgment. The defendant brings the case
here by writ of error.
The particular character of the action appears from the
pleadings. The complaint, after alleging the incorporation of
both parties to the action, the plaintiff in New Jersey and the
defendant in Michigan, averred that about April 1, 1891, the
plaintiff's assignor, a New York corporation, entered with the
defendant into certain license contracts, called therein Exhibits
A and B. The substance of contract A is as follows: It stated
that the plaintiff was the owner of certain letters patent of the
United States, which had been issued to other parties and were
then owned by the plaintiff, for improvements relating to float
spring tooth harrows, harrow frames and attachments applicable
thereto, eighty-five of which patents were enumerated, and that
the defendant desired to acquire the right to use in its business
of manufacturing at Lansing, (in the State of Michigan,) and to
sell throughout the United States, under such patents or some one
or more of them, and under all other patented rights owned or
thereafter acquired by the plaintiff, which applied to and
embraced the peculiar construction employed by the defendant,
during the term of such patents or either or any
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thereof, applicable to and embracing such construction. The
plaintiff then, in and by such contract, gave and granted to the
defendant the license and privilege of using the rights under
those patents in its business of manufacturing, marketing and
vending to others to be used, float spring tooth harrows, float
spring tooth harrow frames without teeth and attachments
applicable thereto; a sample of the harrow frames and attachments
the defendant was licensed to manufacture and sell, being (as
stated) in the possession of the treasurer of the plaintiff, and
marked and numbered as set forth in schedule A, which was made a
part of the license. The license was granted upon the terms
therein set forth, which were as follows:
(1) The defendant was to pay a royalty of one dollar for each
float spring tooth harrow or frame sold by it pursuant to the
license, to be paid to the plaintiff at its office in the city of
Utica in the State of New York.
(2) The defendant was to make verified reports of its business
each month and mail them to the plaintiff, and the defendant
agreed that it would not ship these harrows to any person, firm
or corporation to be sold on commission, or allow any rebate or
reduction from the price or prices fixed in the license, except
to settle with an insolvent debtor for harrows previously sold
and delivered.
(3) The defendant agreed that it would not during the
continuance of the license sell its products manufactured under
the license at a less price or on more favorable terms of payment
and delivery to the purchasers than was set forth in schedule B,
which was made a part of the license, except as thereinafter
provided.
(4) The plaintiff reserved the right to decrease the selling
price and to make the terms of payment and delivery more
favorable to the purchasers, and it might reduce the royalty on
the harrows manufactured under the license.
(5) The plaintiff agreed to furnish license labels to the
defendant, which were to be affixed to each article sold, and the
amount of ten cents paid for each of such labels was to be
credited and allowed on the royalty paid by the defendant at the
time of such payment.
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(6) The defendant agreed that it would not, during the
continuance of the license, be directly or indirectly engaged in
the manufacture or sale of any other float spring tooth harrows,
etc., than those which it was licensed to manufacture and make
under the terms of the license, except such as it might
manufacture and furnish another licensee of the National Harrow
Company, and then only such constructions thereof as such other
licensee should be licensed by the plaintiff to manufacture and
sell, except such other style and construction as it might be
licensed to manufacture and sell by the plaintiff.
(7) The defendant agreed to pay to the plaintiff for each and
every of the articles sold contrary to the strict terms and
provisions of the license, the sum of five dollars, which sum was
thereby agreed upon and fixed as liquidated damages.
(8) The defendant agreed not to directly or indirectly, in any
way, contest the validity of any patent applicable to and
embracing the construction which the defendant was licensed to
manufacture, or which it might manufacture, for another licensee,
which such other licensee was itself licensed to manufacture or
sell, or the reissues thereof, and no act of either party should
invalidate this admission. The defendant also agreed not to alter
or change the construction of the float spring tooth harrows,
float spring tooth harrow frames, without teeth or attachments
applicable thereto, which it was authorized to manufacture and
sell under the license, in any part or portions thereof which
embody any of the inventions covered by the letters patent, or
any of them, or any reissues thereof.
(9) The plaintiff agreed that after the license was delivered
it would not grant licenses or let to any other person the right
to manufacture the articles named of the peculiar style and
construction or embodying the peculiar features thereof used by
the defendant, as illustrated and embodied in the sample harrow
then placed in the possession of the treasurer of the plaintiff
and referred to in schedule A of the license.
(10) Nothing contained in the license was to authorize the
defendant to manufacture or vend, directly or indirectly, any
other or different style of harrow than duplicates of such
samples
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as had been deposited by it with the plaintiff, and such as were
embraced in the license.
(11) Any departure from the terms of the license might at the
option of the plaintiff be treated as a breach of the license,
and the licensee might be treated as an infringer, or the
plaintiff might restrain the breach thereof in a suit brought for
that purpose and obtain an injunction, the licensee waiving any
right of trial by jury; such remedy was to be in addition to the
liquidated damages already provided for.
(12) The termination of the license by the plaintiff was not
to release the defendant from its obligation to pay for
articles sold up to the termination of the license.
(13) The plaintiff agreed to defend the defendant in any suit
brought for an alleged infringement.
(14) No royalties were to be paid for articles exported for
use in a foreign country.
(15) The license was personal to the licensee and not
assignable, except to the successors of the defendant in the same
place and business, without the written consent of the plaintiff,
nor were the royalties or other sums specified to cease to be
paid under any circumstances, except under the conditions named
in the license during the continuance thereof.
(16) The parties agreed that the license should continue
during the term of the patent or patents applicable to the
license and during the term of any reissues thereof.
(17) The place of the performance of the agreement was the
city of Utica, New York, and the agreement was to be construed
and the rights of the parties thereunder determined according to
the laws of New York.
(18) The consideration of the contract or license was one
dollar, paid by each of the parties to the other, and the
covenants contained therein to be performed by the other, and it
applied to and bound the parties thereto, their successors, heirs
and assigns.
Schedule A which followed contained a description of the
particular kinds of harrow which the defendant was authorized to
make and sell under the license. Schedule B contained a statement
of the prices and terms of sale under the license, and it was
Page 75
therein stated that "A maximum discount of forty-two per cent may
be allowed on sales of harrows, frames and teeth in the following
territory: All of the New England States, also States of New
York, Pennsylvania, New Jersey, Delaware, Maryland, Virginia and
West Virginia. A maximum discount of forty-five per cent may be
allowed on all sales in the territory throughout the United
States not mentioned above."
This contract or license was signed by the president of the
National Harrow Company for the plaintiff, and A.O. Bement,
president of the defendant corporation, for the defendant.
The other license, called Exhibit B, was in substance the same
as Exhibit A, excepting that the privilege of sale for the
articles manufactured was that portion of the territory embraced
within the United States lying south, and west of Virginia, West
Virginia and Pennsylvania, and there was some difference in the
machines which the defendant was authorized to manufacture and
sell under this license, and in regard to the prices to be
charged for those machines not covered by the former contract or
license.
These two agreements were, as stated, made parts of the
plaintiff's complaint, and the plaintiff then set forth various
alleged violations of the two agreements on the part of the
defendant, and claimed a recovery of a large amount of damages
under the provisions of the contracts, and prayed for an
injunction restraining future violations and for a specific
performance of the contracts.
The plaintiff also alleged that the plaintiff's assignor, the
New York corporation, duly assigned to the plaintiff all its
rights and interests in regard to the subject-matter of the two
contracts, and that the plaintiff, at the time of the
commencement of the action, was the lawful owner of all such
interests and rights, and was entitled to bring the action in its
own name.
To this complaint the defendant made answer, denying many of
its allegations and setting up certain other agreements which it
alleged had been made by the plaintiff and other parties,
including defendant, and which, as averred, amounted to a
combination of all the manufacturers and dealers in patent
harrows, to regulate their manufacture and to provide for their
sale and
Page 76
the prices thereof throughout the United States. It was also in
the answer averred that such contracts had been pronounced to be
void by the Supreme Court of New York, and the contracts now
before the court were, as contended by defendant, but a
continuation and a part of the other contracts already declared
void, and that these contracts between the parties to this action
were also void. It also alleged that all of the various contracts
were in violation of the act of Congress, approved July 2, 1890,
being chapter 647 of the first session of the Fifty-first
Congress, (26 Stat. 209,) entitled "An act to protect trade and
commerce against unlawful restraints and monopolies."
The case was referred to a referee to hear and decide, who,
after hearing the testimony, reported in favor of the plaintiff.
The material portions of his report are as follows:
"That for some time prior to the month of September, 1890, the
spring tooth harrow business was conducted by the following-named
parties: D.C. H.C. Reed Company, of Kalamazoo, Mich.; G.B.
Olin Company, Perry and Canandaigua, N.Y.; Chase, Taylor
Company, W.S. Lawrence, doing business under the name of Lawrence
Chapin, both of Kalamazoo, Mich.; J.M. Childs Company, of
Utica, N.Y.; and A.W. Stevens Son, of Auburn, N.Y., who began
the harrow business in substantially the order named above.
"The first two above-named firms conducted their business in
separate portions or territory of the United States, under the
same United States letters patent, and the other firms began
their business in hostility to the same letters patent. The first
two firms began a number of patent lawsuits against the other
firms and their customers for infringement of patents. These
suits were vigorously prosecuted and the court finally decided
the patents valid, and ordered an accounting of profits against
the firm of Chase, Taylor Company, and W.S. Lawrence.
"Prior to September, 1890, the last four of the above-named
firms settled their disputes over patents with the first two
firms, and took licenses under their letters patent. Considerable
sums of money were paid in settlement of these disputes and
rights; and prior to said date, September, 1890, there was no
other relation between the first two firms named, and the other
parties
Page 77
than that of licensor and licensee under United States letters
patent.
"In the year 1890, and just prior thereto, other persons,
firms and corporations began the spring tooth harrow business and
other patent lawsuits followed: Suits were begun against the
defendants herein, and against their customers purchasing their
spring tooth harrows; and one case had gone to final decree, in
which the defendant was ordered to account for profits and
damages; and an injunction had been granted in another suit.
Proceedings were pending upon an application for rehearing in
these cases.
"In September, 1890, the six firms first above named decided
to organize a corporation known as the National Harrow Company of
New York, with a view to transferring various United States
letters patent owned by the six firms respectively to said
corporation, and for the purpose of conducting the manufacture of
some part or portion of the material which entered into their
spring tooth harrow business.
"In the conduct of the spring tooth harrow business, the
harrows came to be known in the market as `float spring tooth
harrows;' that name having been adopted to differentiate the
harrows from those known in the market as `wheel harrows,' which
had frame bars and curved spring teeth supported from an axle
above, which axle had wheels at either end of the diameter above
thirty inches. The two classes of harrows were differentiated,
one being called a `float' and the other a `wheel' spring tooth
harrow. The litigations had been wholly over the `float' spring
tooth harrows.
"The members composing the first six firms, above named, in
the harrow business in September, 1890, organized under the laws
of the State of New York the `National Harrow Company.' That
corporation was duly legally incorporated, and after its
incorporation it received from the said six firms the transfer of
their separate United States letters patent, license contracts
and privileges under patents. The defendant's president, Arthur
O. Bement, became and continued a director of this corporation
until its dissolution, which followed in a little over a year.
Page 78
"This corporation entered into some contracts with spring
tooth harrow manufacturers, which were decided by the Supreme
Court of the State of New York to be illegal as against public
policy, on account of restraints contained in the contracts,
which extended beyond the lifetime of the patents. That case is
reported in the New York Supplement, vol. 18, page 224.Strait
et al. v.National Harrow Company et al.
"Immediately following this decision, all of the contracts
then in existence which were affected thereby were immediately
cancelled by the parties to such contracts.
"The defendant, E. Bement Sons, in the fall of 1890, entered
into a contract with the National Harrow Company, looking to the
selling of its patents and rights under patents relating to the
spring tooth harrow business; but this contract was abandoned,
the conditions upon which it was executed not having been
complied with, the contract became and was wholly void.
"The defendant had no contract with the National Harrow
Company until about June 16 or 17, 1891, at which time several
contracts were entered into between the defendant and the
National Harrow Company of New York. Among other contracts the
defendant executed and delivered assignments in writing of
several United States letters patent and license rights and
privileges under United States letters patent, all of which
related to the defendant's float spring tooth harrow business.
Such contracts constituted an absolute sale of the property and
privileges thereby transferred, and the defendant agreed to
accept in payment thereof the paid-up capital stock of the
National Harrow Company of New York, and the value of the rights
transferred were by agreement between the parties fixed and
determined by arbitration, under which arbitration the defendant
was awarded and the value was fixed at upwards of $29,000. The
defendant was dissatisfied with the amount of the award, and such
dissatisfaction and difference was afterwards adjusted by an
agreement to issue to the defendant and the defendant to accept
an additional amount of $16,000 of said capital stock. That by
agreement, in the place of the said capital stock of the New York
company, the defendant accepted
Page 79
and agreed to take the stock of the plaintiff in this action, and
there has been issued to the defendant and the defendant has
received the capital stock of this plaintiff in an amount upwards
of $45,000 in payment for the property and rights sold and
transferred by the defendant to the National Harrow Company of
New York. That said upwards of $45,000 of stock was issued to the
president of the defendant for defendant's benefit, and on said
stock defendant has received several cash dividends.
"The transaction between the National Harrow Company of New
York and this defendant had, in June, 1891, was intended by the
parties to be an absolute sale by the defendant to the National
Harrow Company of New York of the United States letters patent
and licenses under United States letters patent relating to the
float spring tooth harrow business conducted by the defendant,
and it was founded on a good, valuable and adequate consideration
moving between the parties.
"That, as a part of such transaction, the National Harrow
Company of New York granted, issued and delivered to the
defendant the license contracts A and B, which are attached to
the complaint in this action and made a part thereof. Upon the
consummation of the transaction in June, 1891, the controversy
over patents and infringements existing between the first six
firms named above, and the defendant and its customers, was
settled. The papers which were executed in June, 1891, were all
dated as of April 1, 1891, and were to take effect as of that
date. At the date of the execution and delivery of the license
contracts A and B, the National Harrow Company of New York was
the owner by assignment and purchase of a large number of United
States letters patent, which it is claimed fully monopolized and
covered the defendant's float spring tooth harrow business.
"The sale by the defendant of its letters patent, and license
rights and privileges to the National Harrow Company of New York,
and the signing and delivering of license contracts A and B, were
intended to and did, settle existing controversies with reference
to the rights of the National Harrow Company of New York and the
defendant.
Page 80
"I decide that the contract entered into in June, 1891,
including the contracts A and B between the National Harrow
Company of New York and this defendant were and are good and
valid contracts, founded on adequate considerations and were
reasonable in their provisions; contracts A and B imposing no
restraints upon the defendant beyond those which the parties had
a right, from the nature of the transaction, to impose and
accept.
"In July, 1891, a corporation was organized under the laws of
the State of New Jersey, known and designated as the National
Harrow Company, which corporation is the plaintiff in this
action. None of the parties organizing this corporation were in
the spring tooth harrow business. The New Jersey corporation was
duly and legally organized in conformity with the laws of that
State, and was by those laws and its charter authorized to
purchase United States letters patent and to grant licenses under
United States letters patent and to conduct the manufacturing
business, and had a variety of other rights and privileges under
its charter and said statutes. That this corporation, the
plaintiff, still is a legal and valid corporation, entitled to
hold and enjoy such of its property as it now or may hereafter
own or acquire, and that it was not organized in hostility to any
rule of public policy.
"That the National Harrow Company of New Jersey, this
plaintiff, through its duly constituted officers purchased from
the National Harrow Company of New York all of its various United
States letters patent, and all contracts, licenses and privileges
which the National Harrow Company of New York then owned and
possessed, and also purchased a part of its other property,
rights and privileges.
"That on the 9th of September, 1891, a formal transfer in
writing was made from the National Harrow Company of New York to
the National Harrow Company of New Jersey of the property and
rights sold as aforesaid by the former company to the latter,
which transfer was founded on a good, valuable and adequate
consideration moving between the parties, and which transfer was
sanctioned by the directors and stockholders of the New York
corporation, and by the officers and
Page 81
directors of the National Harrow Company of New Jersey, this
plaintiff, and separate assignments in writing were made of the
various United States letters patent from the New York
corporation to the New Jersey corporation.
"I decide that this transfer was in all respects legal and
valid, being founded on a good and valuable consideration, and
that it vested in the plaintiff in this action all the rights,
privileges and benefits accruing to the New York corporation
under its contracts with the defendant, including contracts A and
B, which contracts have been slightly modified by the parties as
to price and terms of sale.
"The defendant's president, Arthur O. Bement, became a
director and an active manager of the plaintiff, and continued as
such down to September, 1893.
"The defendant made monthly verified reports to this plaintiff
down to and including the 8th of September, 1893, of the harrows
embraced in contracts A and B, by such reports stating the total
harrows sold to be 13,900, on which defendant paid to the
plaintiff a royalty of $13,900.
"The National Harrow Company of New York and this plaintiff
have performed all of the stipulations and provisions in the
contracts entered into between the National Harrow Company of New
York and this defendant, including all the provisions of
contracts A and B, and the plaintiff is now ready, willing and
able to perform all of the stipulations and agreements to be
performed on its part, as assignee of the National Harrow Company
of New York.
"That the defendant, after having received and retained large
pecuniary benefits under the contracts, has failed, neglected and
refused, and still fails, neglects and refuses to keep and
perform its contracts entered into, including the stipulations
and provisions contained in contracts A and B, and since
September, 1893, it has wholly repudiated contracts A and B, and
refused to perform any of the stipulations contained therein
which it agreed to do and perform, and it has broken and violated
all of the stipulations and agreements contained in contracts A
and B which it agreed to do and perform."
The referee then states with some detail the various
violations
Page 82
of the license agreements by the defendant, and finds the
defendant indebted to the plaintiff in the sum of over twenty
thousand dollars. He then continues as follows:
"I decide that the plaintiff is a legal and valid corporation
authorized to enforce its rights in courts having jurisdiction,
and that all of the contracts in evidence were and are legal,
valid and binding contracts, such as might reasonably be made
under the circumstances, founded upon an adequate consideration,
and that they embodied no illegal restraints, and are not
repugnant to any rule of public policy as in restraint of trade,
or tending to create a monopoly, trust or any other illegal
combination; and that the contracts entered into between the
defendant and the National Harrow Company of New York, including
contracts A and B, are and were intended to be continuing
contracts, and should be enforced according to their true intent
and meaning as hereby interpreted."
The referee then held the plaintiff entitled to a judgment
against the defendant, declaring the validity of the plaintiff
corporation and its title to the contracts and their validity,
and decreeing specific performance thereof and restraining future
violations of the contracts by the defendant. Judgment in
accordance with the report was entered, from which the defendant
appealed to the appellate division of the Supreme Court.
Some difficulties regarding the form in which the case was
presented to that court arose upon the argument, and it was
therefore suspended and the case sent back to the referee for a
resettlement, which was subsequently agreed upon by counsel for
the respective parties, who entered into a stipulation in regard
to what was to be reviewed by the courts above, and, among other
things, it was agreed between counsel: "That the foregoing
record, as amended and corrected in this stipulation, contains
all of the evidence given and proceedings had before the referee
material to the questions to be raised on this appeal by the
appellant, which questions to be raised by the appellant on this
appeal are to be only as follows." Those questions are eight in
number, the fourth of which is: "Whether or not the contracts A
and B are valid under the act of Congress approved July 2, 1890,
chapter 647 of the first
Page 83
session of the Fifty-first Congress." This is the only Federal
question raised and appearing in the record.
The case was thereupon argued before the appellate division,
which reversed the judgment, and ordered a new trial, but it did
not state in its order of reversal that the judgment was reversed
on questions of fact as well as of law. The plaintiff then
appealed to the Court of Appeals from the order granting a new
trial, and after argument it was held by that court that it had
no jurisdiction to review the facts, and that upon the findings
of the referee there had been no error of law committed, and
consequently the Supreme Court was wrong in reversing the
judgment. The court therefore reversed the judgment of the
Supreme Court, and affirmed the judgment entered upon the report
of the referee.
The only Federal question raised in the record is as to the validity of contracts A and B, with regard to the act of Congress on the subject of trusts. Act of July 2, 1890, c. 647,26 Stat. 209. That is a question of law, plainly raised in the record, and we are not precluded from its consideration by any action of the state courts. If, however, facts not found by the referee are necessary for the purpose of connecting those contracts with others not found in such report, we cannot supply the omission to find those facts. The contention of the defendant is thatPage 84the two contracts A and B are in truth a part and continuation of the agreements set forth in the defendant's answer, and that taken together they prove a purpose and combination on the part of all the dealers in patented harrows to control their manufacture, sale and price in all portions of the United States, and defendant avers that such a contract or combination was and is void, not only as against public policy, but also because it is a violation of the Federal statute upon the subject of trusts and illegal combinations. Those former alleged contracts are not mentioned in the report of the referee excepting, as he stated, they had been declared void as against public policy, and as being in restraint of trade because they extended beyond the life of the patents therein mentioned, and the referee found that following this decision all of the contracts then in existence, which were affected thereby, were immediately cancelled by the parties thereto.
The referee made no finding of any fact connecting the contracts A and B with prior contracts of a like nature including other parties, as alleged in the answer of the defendant. The referee did find, however, that the defendant had no contract with the National Harrow Company until June 16 or 17, 1891, at which time several contracts were entered into between the plaintiff and the National Harrow Company of New York, and among other contracts the plaintiff executed and delivered assignments in writing of several United States letters patent and license rights and privileges under United States letters patent, all of which relate to the defendant's float spring tooth harrow business. He also found that such contracts constituted an absolute sale of the property and privileges thereby transferred, and that the defendant agreed to and did accept in payment thereof paid up capital stock of the plaintiff. He further found that the transaction between the assignor of the plaintiff and the defendant in June, 1891, was intended by the parties to be an absolute sale by the defendant to such assignor of the United States letters patent and licenses under such patents relating to the float spring tooth harrow business conducted by the defendant, and that it was founded upon a good, valuable and adequate consideration between the parties; that as a part of such considerationPage 85the assignor of the plaintiff granted and delivered to the defendant the license contracts A and B, heretofore spoken of, and that upon the consummation of the transaction the controversy over patents and infringements existing between the first six firms named in the referee's report and the defendant and its customers was settled. The report also decided "that the contract entered into in June, 1891, including the contracts A and B between the National Harrow Company of New York and this defendant were and are good and valid contracts, founded on adequate considerations and were reasonable in their provisions; contracts A and B imposing no restraints upon the defendant beyond those which the parties had a right, from the nature of the transaction, to impose and accept."
The omission of the referee to find from the evidence that the contracts A and B were a continuation of former contracts held to have been void, and that there were in fact other manufacturers of harrows who had entered into the same kind of contracts with plaintiff as those denominated A and B, and that there was a general combination among the dealers in patented harrows to regulate the sale and prices of such harrows, furnishes no ground for this court to assume such facts. The contracts A and B are to be judged by their own contents alone and construed accordingly.
The referee also decided that the plaintiff was a legal and valid corporation, authorized to enforce its rights in courts having jurisdiction, and that all the contracts in evidence were and are legal, valid and binding contracts, and such as might reasonably be made under the circumstances, and were founded upon a good, valuable and adequate consideration, and were reasonable in their provisions, and that they embodied no illegal restraints, and were not repugnant to any rule of public policy as in restraint of trade, and were not intended to create a monopoly, trust or illegal combination, and that the contracts entered into between the defendant and the National Harrow Company of New York, including the contracts A and B, are, and were, intended to be continuing contracts, and should be enforced according to their true intent and meaning as hereby interpreted.
When he speaks of all the contracts in evidence, the refereePage 86plainly means all the contracts in evidence between the parties to this action, for it was of such contracts only that he had been speaking. There were, in fact, other contracts than those designated A and B between these parties, and such other contracts had been put in evidence, and previously referred to by the referee. He, therefore, must have included what is termed the escrow agreement in his finding, that all the agreements made by defendant with the plaintiffs were valid. That agreement is set forth in the margin.1Page 87
There is no finding by the referee that this agreement was ever signed by any one other than the parties to this action, or that any other person received the licenses from and made contracts with the plaintiff similar to the ones entered into between these parties. All that the referee finds is, that all the contracts in evidence were legal, by which was meant, as already stated, all the contracts in evidence between the parties to the action, which were in existence and uncancelled. In the absence of any finding as to the escrow agreement having been signed by others, it must be regarded as unimportant, and we are brought back to the question whether these contracts or licenses, A and B, irrespective of any contracts not found by the referee as in any way connected with, or forming a part thereof, are void as a violation of the act of Congress.
The plaintiff contends in the first place that only the Attorney General of the United States can bring an action under the statute, excepting that by section 7 of the act any person injured in his business or property, as provided for therein, may himself sue in any Circuit Court of the United States, in the district inPage 88which the defendant resides or is found. Assuming that the plaintiff is right so far as regards any suit brought under that act, we are nevertheless of opinion that any one sued upon a contract may set up as a defence that it is a violation of the act of Congress, and if found to be so, that fact will constitute a good defence to the action.
The first section of the act provides that "every contract, combination in the form of trust, or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal." Every person making such a contract is deemed guilty of a misdemeanor, and on conviction is to be punished by fine or by imprisonment, or both. As the statute makes the contract in itself illegal, no recovery can be had upon it when the defence of illegality is shown to the court. The act provides for the prevention of violations thereof, and makes it the duty of the several district attorneys, under the direction of the Attorney General, to institute proceedings in equity to prevent and restrain such violations, and it gives to any person injured in his business or property the right to sue, but that does not prevent a private individual when sued upon a contract which is void as in violation of the act from setting it up as a defence, and we think when proved it is a valid defence to any claim made under a contract thus denounced as illegal.
This brings us to a consideration of the terms of the license contracts for the purpose of determining whether they violate the act of Congress. The first important and most material fact in considering this question is that the agreements concern articles protected by letters patent of the Government of the United States. The plaintiff, according to the finding of the referee, was at the time when these licenses were executed the absolute owner of the letters patent relating to the float spring tooth harrow business. It was, therefore, the owner of a monopoly recognized by the Constitution and by the statutes of Congress. An owner of a patent has the right to sell it or to keep it; to manufacture the article himself or to license others to manufacture it; to sell such article himself or to authorizePage 89others to sell it. As stated by Mr. Justice Nelson, inWilsonv.Rousseau, 4 How. 646, 674, in speaking of a patent:
"The law has thus impressed upon it all the qualities and characteristics of property for the specified period; and has enabled him to hold and deal with it the same as in the case of any other description of property belonging to him, and on his death it passes, with his personal estate, to his legal representatives, and becomes part of the assets."
Again, as stated by Mr. Chief Justice Marshall, inGrantv.Raymond, 6 Pet. 218, 241:
"To promote the progress of useful arts, is the interest and policy of every enlightened government. It entered into the views of the framers of our Constitution, and the power `to promote the progress of science and useful arts, by securing for limited times to authors and inventors, the exclusive right to their respective writings and discoveries,' is among those expressly given to Congress. This subject was among the first which followed the organization of our Government. It was taken up by the first Congress at its second session, and an act was passed authorizing a patent to be issued to the inventor of any useful art, etc., on his petition, `granting to such petitioner, his heirs, administrators or assigns, for any term not exceeding fourteen years, the sole and exclusive right and liberty of making, using and vending to others to be used, the said invention or discovery.' The law further declares that the patent `shall be good and available to the grantee or grantees by force of this act, to all and every intent and purpose herein contained.' The amendatory act of 1793 contains the same language, and it cannot be doubted that the settled purpose of the United States has ever been, and continues to be, to confer on the authors of useful inventions an exclusive right to their inventions for the time mentioned in their patent. It is the reward stipulated for the advantages derived by the public for the exertions of the individual, and is intended as a stimulus to those exertions. The laws which are passed to give effect to this purpose ought, we think, to be construed in the spirit in which they have been made; and to execute the contract fairly on the part of the United States, where the full benefit has been actually received:Page 90if this can be done without transcending the intention of the statute, or countenancing acts which are fraudulent or may prove mischievous. The public yields nothing which it has not agreed to yield; it receives all which it has contracted to receive. The full benefit of the discovery, after its enjoyment by the discoverer for fourteen years, is preserved; and for his exclusive enjoyment of it during that time the public faith is pledged."
InHeaton-Peninsular Companyv.Eureka Specialty Company, 47 U.S. App. 146, 160, it is stated regarding a patentee:
"If he see fit, he may reserve to himself the exclusive use of his invention or discovery. If he will neither use his device nor permit others to use it, he has but suppressed his own. That the grant is made upon the reasonable expectation that he will either put his invention to practical use or permit others to avail themselves of it upon reasonable terms, is doubtless true. This expectation is based alone upon the supposition that the patentee's interest will induce him to use, or let others use, his invention. The public has retained no other security to enforce such expectations. A suppression can endure but for the life of the patent, and the disclosure he has made will enable all to enjoy the fruit of his genius. His title is exclusive, and so clearly within the constitutional provisions in respect of private property that he is neither bound to use his discovery himself nor permit others to use it. Thedictumfound inHoev.Knap, 17 F. 204, is not supported by reason or authority."
It is true that in certain circumstances the sale of articles manufactured under letters patent may be prevented when the use of such article may be subject, within the several States, to the control which they may respectively impose in the legitimate exercise of their powers over their purely domestic affairs, whether of internal commerce or of police regulation. Thus an improvement for burning oil, protected by letters patent of the United States, was condemned by the state inspector of Kentucky as unsafe for illuminating purposes under the statute requiring an inspection and imposing a penalty forPage 91the violation of the statute, and it was held that the enforcement of the statute was within the proper police powers of the State, and that it interfered with no right conferred by the letters patent.Pattersonv.Kentucky,97 U.S. 501.
There are decisions also in regard to telephone companies operating under licenses from patentees giving them the right to use their patents for the purpose of operating public telephone lines, but prohibiting companies from serving within such district any telephone company, and it has been held in the lower Federal courts that such a prohibition was of no force; that it was inconsistent with the grant, because a telephone company, being in the nature of a common carrier, was bound to render an equal service to all who applied and tendered the compensation fixed by law for the service; that while the patentees were under no obligation to license the use of their inventions by any public telephone company, yet, having done so, they were not at liberty to place restraints upon such a public corporation which would disable it to discharge all the duties imposed upon companies engaged in the discharge of duties subject to regulation by law. It could not be a public telephone company and could not exercise the franchise of a common carrier of messages with such exceptions to the grant. SeeMissouri ex rel. c. v.Bell Telephone Company, 23 F. 539;State ex rel. c. v.Delaware c. Company, 47 F. 683; andDelawareAtlantic c. Companyv.Delaware ex rel. c., 3 U.S. App. 30.
These cases are cited in the opinion of the court in the case ofHeaton-Peninsular Companyv.Eureka Specialty Company,supra. Notwithstanding these exceptions, the general rule is absolute freedom in the use or sale of rights under the patent laws of the United States. The very object of these laws is monopoly, and the rule is, with few exceptions, that any conditions which are not in their very nature illegal with regard to this kind of property, imposed by the patentee and agreed to by the licensee for the right to manufacture or use or sell the article, will be upheld by the courts. The fact that the conditions in the contracts keep up the monopoly or fix prices does not render them illegal.Page 92
The contention that they do not affect interstate commerce, is not correct. We think the licenses do by their terms and by their plain meaning refer to, include and provide for interstate as well as other commerce. The contract called Exhibit B provides for the manufacture at Lansing, Michigan, and for the sale of the articles there made in territory lying south and west of Virginia and West Virginia and Pennsylvania, and the referee finds that a number of harrows have been sold under that contract. The contracts plainly look to the sale, and they also determine the price of the article sold, throughout the United States, as well as to the manufacture in the State of Michigan. As these contracts do, therefore, include interstate commerce within their provisions, we are brought back to the question whether the agreement between these parties with relation to these patented articles is valid within the act of Congress. It is true that it has been held by this court that the act included any restraint of commerce, whether reasonable or unreasonable.United Statesv.Trans-Missouri Freight Association,166 U.S. 290;UnitedStatesv.Joint Traffic Association,171 U.S. 505;AddystonePipe c. Companyv.United States,175 U.S. 211. But that statute clearly does not refer to that kind of a restraint of interstate commerce which may arise from reasonable and legal conditions imposed upon the assignee or licensee of a patent by the owner thereof, restricting the terms upon which the article may be used and the price to be demanded therefor. Such a construction of the act we have no doubt was never contemplated by its framers.United Statesv.E.C. Knight Company,156 U.S. 1, does not bear upon the facts herein. That case related to a purchase of stock in manufacturing companies, by reason of which the purchaser secured control of a large majority of the manufactories of refined sugar in the United States. It was held by this court that the Federal act relating to trusts and combinations affecting interstate commerce could not reach and suppress the creation of a monopoly in regard to the refining of sugar, and that the manufacturing of a commodity bore no direct relation to commerce between the States or with foreign nations. It was said by Mr. Chief Justice Fuller, for the court, whilePage 93speaking of such manufacture: "Nevertheless it does not follow that an attempt to monopolize, or the actual monopoly of, the manufacture was an attempt, whether executory or consummated, to monopolize commerce, even though, in order to dispose of the product, the instrumentality of commerce was necessarily invoked."
In these contracts provision is expressly made, not alone for manufacture, but for the sale of the manufactured product throughout the United States, and at prices which are particularly stated, and which the seller is not at liberty to decrease without the assent of the licensor.Addystone PipeSteel Companyv.United States,175 U.S. 211,238. These contracts directly affected, not as a mere incident of manufacture, the sale of the implements all over the country, and the question arising is whether the contracts which thus affect such sales are void under the act of Congress.
On looking through these licenses we have been unable to find any conditions contained therein rendering the agreement void because of a violation of that act. There had been, as the referee finds, a large amount of litigation between the many parties claiming to own various patents covering these implements. Suits for infringements and for injunction had been frequent, and it was desirable to prevent them in the future. This execution of these contracts did in fact settle a large amount of litigation regarding the validity of many patents as found by the referee. This was a legitimate and desirable result in itself. The provision in regard to the price at which the licensee would sell the article manufactured under the license was also an appropriate and reasonable condition. It tended to keep up the price of the implements manufactured and sold, but that was only recognizing the nature of the property dealt in, and providing for its value so far as possible. This the parties were legally entitled to do. The owner of a patented article can, of course, charge such price as he may choose, and the owner of a patent may assign it or sell the right to manufacture and sell the article patented upon the condition that the assignee shall charge a certain amount for such article.
It is also objected that the agreement of the defendant notPage 94to manufacture or sell any other float spring tooth harrow, etc., than those which it had made under its patents before assigning them to the plaintiff, or which it was licensed to manufacture and make, under the terms of the license, except such other style and construction as it may be licensed to manufacture and sell by the plaintiff, is void under the act of Congress.
The plain purpose of the provision was to prevent the defendant from infringing upon the rights of others under other patents, and it had no purpose to stifle competition in the harrow business more than the patent provided for, nor was its purpose to prevent the licensee from attempting to make any improvement in harrows. It was a reasonable prohibition for the defendant, who would thus be excluded from making such harrows as were made by others who were engaged in manufacturing and selling other machines under other patents. It would be unreasonable to so construe the provision as to prevent defendant from using any letters patent legally obtained by it and not infringing patents owned by others. This was neither its purpose nor its meaning.
There is nothing which violates the act in the agreement that plaintiff would not license any other person than the defendant to manufacture or sell any harrow of the peculiar style and construction then used or sold by the defendant. It is a proper provision for the protection of the individual who is the licensee, and is nothing more in effect than an assignment or sale of the exclusive right to manufacture and vend the article. In brief, after a careful examination of these contracts, we are unable to find any provision in them, either taken separately or in connection with all the others therein contained, which would render the contracts between these parties void as in violation of the act of Congress.
It must, however, be conceded that the escrow agreement above set forth looks to the signing, by the parties mentioned therein, of contracts similar to those between the parties to this suit, designated A and B, and containing like conditions relating to the patents respectively, owned by such parties. But there is no finding by the referee that such contracts were in fact entered into by those other parties nor that they constitutedPage 95a combination of most, if not all, of the persons or corporations engaged in the business concerning which the agreements between the parties to this suit were made. If such similar agreements had been made, and if, when executed, they would have formed an illegal combination within the act of Congress, we cannot presume for the purpose of reversing this judgment, in the absence of any finding to that effect, that they were made and became effective as an illegal combination. As between these parties, we hold that the agreements A and B actually entered into were not a violation of the act. We are not called upon to express an opinion upon a state of facts not found. Upon the facts found there is no error in the judgment of the Court of Appeals, and it must, therefore, beAffirmed.
MR. JUSTICE HARLAN, MR. JUSTICE GRAY and MR. JUSTICE WHITE did not hear the argument and took no part in the decision of this case.
- Page 86 "Escrow Agreement.
"This memoranda of agreement, made and entered into this 1st day of April, A.D. 1891, by and between the National Harrow Company, a corporation of Utica, in the State of New York, and Edward Norris of the same place; and E. Bement Sons of Lansing, in the State of Michigan.
"Whereas, the said National Harrow Company is the owner of a large number of latters patent relating to float spring tooth harrows, and is desirous of granting licenses thereunder to the following-named persons, firms and corporations, to wit: Chas. H. Childs Company, D.B. Smith Company, A.W. Stevens Son, Childs Jones, Syracuse Chilled Plow Company, Geo. W. Sweet Company, Walker Manufacturing Company, Taylor Henry, the Herndeen Manufacturing Company, D.C. H.C. Reed Company, L.C. Lull Company, Williams Manufacturing Company, W.S. Lawrence, McSherry Manufacturing Company, D.O. Everst Company, E. Bement Sons, Hench Dromgold, Farmers' Friend Manufacturing Company, Eureka Mower Company.
"And whereas, the said National Harrow Company has placed in the hands of said E. Norris in escrow, duly executed by it in duplicate, a certain contract and license for each of said persons, firms and corporations hereinbefore named, to be by the said E. Norris immediately presented to each of the above and foregoing named respective persons, firms and corporations, to be signed and executed by said respective persons, firms and corporations —
"Now, therefore, it is hereby understood and agreed by and between the parties hereto, that as the said licenses and contracts are signed and executed by the said respective persons, firms and corporations, they shall be held by said Norris, in escrow, for both parties until such time as all of said above-named persons, firms and corporations shall have signed, executed and delivered the same to said Norris, whereupon they shall become operative, and immediately thereafter the said Norris shall deliver one of the duplicates of each of said contracts and licenses to the said National Harrow Company and the other duplicate thereof to the respective licensees who have signed the same, in person or by mail.
"But in case any of the above-named persons, firms and corporations Page 87 shall neglect or refuse to sign, execute and deliver said respective contracts and licenses on or before the 1st day of June next, then and in such case said E. Norris shall, provided he shall be so directed, by a resolution duly adopted by the board of trustees of said National Harrow Company, make delivery of such of said contracts and licenses as have been signed and executed as above provided, at which time said contracts and licenses shall become operative, and in case the said National Harrow Company shall conclude not to accept any less number than the whole of such respective contracts and licenses, then and in such case the said Norris shall cancel each of said contracts and licenses, and they shall be null and void.
"Witness the signatures of the parties."THE NATIONAL HARROW Co., By CHAS. H. CHILDS,Pres't. "EDWARD NORRIS. "E. BEMENT SONS, By A.O. BEMENT,Pres't.
"Received of E. Bement Sons a license and contract executed between the National Harrow Company and said E. Bement Sons, which I agree to hold and deliver in accordance with an agreement between the said National Harrow Company and said E. Bement Sons and myself, and hereto attached.
"Dated this 1st day of April, 1891. EDWARD NORRIS." ↩