Darrasse v. Ferment Co.

Laughldst, J.: The action is to recover royalties under licenses. The plaintiffs are copartners engaged in business in the city of Paris, France, and have acquired all the property and succeeded to all the rights of a French corporation known as La Societe Le Ferment, Limited, which for brevity will be designated the French Company. That company had on the 24th day of June, 1908, made a contract in writing with the defendant, a corporation organized under our laws, and on the same day another contract in writing modifying it was made between the same parties, and copies are annexed to the complaint as exhibits “ A ” and “ B ” respectively. The contract “ A ” recites that on the 9th of February, 1906, the French Company by a formal agreement gave to one De Lisle the sole and exclusive right to sell within defined territory “ any and all of — 593 — the products * * * which it now produces, or may in future produce, said products being known as products of lactobacilline, or products containing the lacto-bacilli recommended by Prof. Elie Metchnikoff of the Institute Pasteur, Paris, France, as beneficial to man in the cure or prevention of certain diseases,” and that the defendant had by assignment duly succeeded to the rights of De Lisle thereunder, and that the parties while recognizing the validity of said contract were desirous of modifying it with respect to territory. The French Company agreed to prevent, so far as possible, the shipment of “ the product of lactobacilline known as com-primes de lactobacilline, and lactobacilline powder, the product known as Lactobacilline Bouillon or any other product of lactobacilline ” into the United States or its colonies or dependencies except as authorized by defendant, and to do all within its power to preserve to defendant a monopoly of the manufacture and sale within said territory of all lactobacilline products then or thereafter manufactured and sold by the French Company, and it agreed to furnish the same to defendant at cost plus a royalty of seven per cent and to furnish “ the full working formula for the preparation of Comprimes de Lactobacilline, Lactobacilline Powder and Lactobacilline Bouillon ” according to the terms of the contract between it and De Lisle, and if required by defendant to send an experienced bacteriologist to instruct defendant with respect thereto; and defendant agreed to pay a like royalty on its manufactures and sales under said formula with a guaranty as to the minimum of such royalties. The agreement contained other provisions with respect to the right of defendant to manufacture and sell “ Bacillae or Metchnikoff scientifically soured milk ” and the royalty to be paid thereon. The contract between the French Company and De Lisle, and assigned to defendant, thus continued as modified, further among other things bound the licensee to follow “ the prescriptions and processes furnished by Prof. Metchnikoff, or other bacteriologist suggested by ” the French Company in order to maintain the standard of the product, and to discontinue any advertising disapproved of by Prof. Metchnikoff, and obligated the French Company to furnish to the licensee all inventions, improve594 meats or new processes of manufacture invented by it, and the payment of royalties was limited to goods manufactured and sold under the rights granted by the licensor; and the 12th paragraph thereof was as follows: “ 12. This contract relates not only to Lactobacilline and its products but to every product which may be produced, or which furnishes the microbe, which Prof. Metchnikoff has pointed out as beneficial to man and has given or may hereafter grant to the first party.” The only modifications of exhibit “ A ” made by “ B ” material to the decision of this appeal are those relating to the rights derived by the French Company from Prof. Metchnikoff and with respect to assigning the right to manufacture as follows: “ The right which belongs to the party of the first part [French Company] to represent itself as being under the scientific patronage of Professor Metchnikoff was granted to it by said Professor in letters dated respectively the 6th of December, 1904, and 26th of July, 1905, copies of which are hereto annexed. “It is understood that the party of the first part cannot grant to the party of the second part greater rights than those which result from the above-mentioned letters, to which the said party of the second part binds itself to conform rigorously, but only when Professor Metchnikoff shall have addressed and delivered to the party of the second part one or more letters signed by him and containing the same powers and authorizations as those contained in the above-mentioned letters. It is expressly stipulated that the American Company, which is a party to these presents, shall itself manufacture the lactobacilline in the form of powder, comprimes, bouillon or liquid ferment, and cannot assign this right to any person whatsoever, even to its subsidiary companies.” On the 8th of April, 1911, the plaintiffs took formal steps with a view to canceling the contracts on the ground that the defendant had, in violation of the provisions last quoted, licensed the manufacture of the product by the Franco-American Ferment Company and had failed to pay royalties due, and on the 12th of April, 1911, sued said company and defendant to enjoin such manufacture, to have the agreements canceled and to recover royalties and damages. On a — 595 — proposition for a settlement of that action made by the defendants therein an agreement of settlement was made between the plaintiffs and the defendant on the 12th of May, 1911, by which the plaintiffs withdrew and revoked their attempted rescission of the agreements between them and the defendant and the provisions with respect to accounting and the time and manner of paying the royalties were materially changed and fifteen trade marks held by defendant, evidently belonging to plaintiffs, were described and the use thereof and of any improvements was given to defendant so long as it punctually performed its obligations under the contract, and in the event of its default plaintiffs were to have the trade marks and all improvements thereon. More definite provisions were made for the cancellation of the contract for any breach thereof by defendant and the 12th paragraph which forbids assignments is as follows: “ It is expressly understood and agreed that nothing herein contained shall be so construed as to granting unto The Franco-American Ferment Company, or to any other person, firm, or corporation, excepting only the party hereto of the first part, the right to manufacture Lactobacilline in the form of powder, comprimes, bouillon or liquid ferment, and it is expressly stipulated and agreed that the party hereto of the first part shall itself only manufacture lactobacilline in the form of powder, comprimes, bouillon or liquid ferment, and that said right shall not be assignable by it to any person, firm or corporation, not even to any of its subsidiary companies.” Under the last modification of the agreement it became the duty of the defendant, to render on the tenth day of each month a statement of sale.s and royalties for the preceding month and to pay the royalties. Plaintiffs concede full performance by defendant down to December, 1915, but allege that on or about the 10th of January, 1916, and the tenth of each succeeding month until and including July defendant rendered a statement of sales for the preceding month upon which plaintiffs were entitled to royalties in specified amounts, no part of which has been paid, and that during the next five months defendant made sales in specified amounts and failed to render statements — 596 — thereof and to pay the royalties to which plaintiffs were entitled thereon. The plaintiffs demand judgment for the unpaid royalties alleged to amount to $18,357.21, together with interest on the respective amounts from the dates when due. The answer puts in issue certain allegations of the complaint with respect to the scope of the formula which was received by defendant under the contracts and with respect to the products which it has manufactured and sold under the license; and expressly denies that the statements of sales rendered by it to plaintiffs as alleged or that the sales alleged to have been made by it without rendering a statement thereof were with respect to products of lactobacilline manufactured and sold only by defendant; and it is alleged that said statements and sales included products of lactobacilline or products containing the lacto-bacilli recommended by Prof. Metchnikoff and manufactured and sold by said Franco-American Ferment Company, and, in effect, that only a small percentage of such sales was of said tablets, comprimes, bouillon or powder or products such as were at any time devised, discovered, manufactured, prepared, produced or sold by said French Company or the plaintiffs and denies that the statements showed otherwise or that sales were made of the product lastly described in as great a quantity any month as alleged and specifies the quantities as being very much less than alleged by plaintiffs. These provisions of the answer are, I think, sufficient to put in issue the extent of defendant's liability provided it be not liable for the payment of royalties on all sales of any lactobacilline product either by itself or by said Franco-American Ferment Company. The defendant for a first separate defense repeated, by reference, its denials and alleged in substance that after this agreement so licensing it was made two discoveries were made of a new product in the form of a liquid known as liquide containing lacto-bacilli and inventions of processes for the “ manufacture thereof ” were made, both wholly different from any Metchnikoff product or process or any manufactured or sold by plaintiffs; that for one of the new discoveries letters patent have been applied for and allowed but not yet issued; that said Franco-American Ferment Company, which was the — 597 — distributor for the defendant of products containing lactobacilli, manufactured and sold “ Liquide ” having procured permission therefor from the discoverer or inventor whose application for letters patent was granted. The defendant also alleges in this and other parts of the answer that the statements rendered to plaintiffs on which royalties have not been paid and the sales alleged to have been made by it for which it has rendered no statement were for the most part —• the extent being specified — statements of sales of “ Liquide ” and they ask that the statements be opened and that the items relating to “ Liquide ” be eliminated on the ground that they were included by employees and officers of defendant through mistake and “ in ignorance and forgetful of the fact ” that those items were not covered by the contracts. The appellants contend that the defendant was bound to account to them for royalties on all bactilline products manufactured or sold by it no matter by whom invented or discovered; and the defendant claims that royalties are payable only on licensed sales and that they are confined to the products discovered or invented by Metchnikoff or approved by him and the manufacture and sale of which he authorized. It seems to me perfectly plain that the defendant is right on that point. The licensee was to follow a certain formula with respect to which the licensee was to be instructed. Neither Prof. Metchnikoff nor plaintiffs had a monopoly with respect to the microbe or the culture thereof. Their rights were confined to their own inventions with respect thereto. They might have required the licensee to refrain from dealing in like products of others but they did not. It would be unreasonable to hold that the agreements contemplated payment of royalties on the manufacture and sale of a product for which it was necessary to obtain a license from another. I am of opinion, therefore, that the facts so pleaded constitute a good defense to plaintiffs' claim for royalties in so far as it is based on the sale of “ Liquide ” which as already observed affects the greater part of the claim made by plaintiffs. The plaintiffs, therefore, were not entitled to judgment on the pleadings as prayed for in the complaint. The plaintiffs not being entitled to the relief demanded in the complaint cannot by such a motion call upon the court — 598 — to decide with respect to the sufficiency of defenses or counterclaims as .upon a demurrer to each. (See Meisel v. Central Trust Co., 175 App. Div. 971.) The order should, therefore, be affirmed, with ten dollars costs and disbursements. Clarke, P. J., Dowling, Smith and Shearn, JJ., concurred. Order affirmed, with ten dollars costs and disbursements.