Seibert Cylinder Oil-Cup Co. v. Detroit Lubricator Co.

Brown, J., {after stating the facts as above.) This case turns largely upon the construction to be given the agreement between the plaintiff and defendant, and upon the further question whether, regarding the refusal of the defendant to make returns and pay royalties upon the Sei-bert patents as unlawful, the plaintiff was authorized to treat the contract as rescinded, and sue for an infringment of its patent. Upon a careful reading of this contract, it is quite evident that its purpose was to adjust two controversies between the parties. [219] The first, contained in paragraphs 1 to 7, inclusive, relates to'two suits between the parties at Boston and Detroit, with respect to the Gates and Jb’lowers and Parshall patents, and the terms upon which each party should be permitted to use the patents of the other. As bearing upon these the contract provided: (1) That judgments and satisfaction of the same should bo entered in both suits; (2) that the agreement should not bo used by either party, by advertising or otherwise making the same public, so as to injure the business of the other party; (3) that the agreement should not be exhibited, or a copy furnished to any person; (4) that neither party should imitate the styles or shapes of the lubrica tors made by the other party. It ivas further provided in paragraph 6, that “so long as the covenants and agreements to be observed and performed by the parties respectively are observed and performed, each party agrees not to sue, or directly or indirectly authorize to be sued, the other party, its agents or vendees, under any letters patent now or hereafter to bo owned by it.” The second controversy relates to the alleged infringement by the defendant of the Seibert patents, and this part of the agreement was intended to settle the terms upon which the defendant should be permitted to make and sell these in the future. These terms were that, so long as the covenants and agreements to be performed by the said Sei-bert Company wore performed by it, the defendant should report monthly the number oflubrieators manufactured and sold, and should pay a royalty thereon. The contract contained a number of other covenants, (paragraphs 12 to 20,) most if not all of which refer to the Seibert patents alone, though it is possible that ISfos. 12, 19, and 20 might be construed as referring to both series of patents. There is evidently nothing in the two judgments which would bar a subsequent suit by the plaintiff against the defendant, for an infringement'of the Gates patent. The suit against Burlingame, of which the defendant had assumed the defense, had passed to a judgment in favor of the plaintiff. This established the validity of the Gates patent as against the defendant, and in the absence of the covenant contained in paragraph 6, we see nothing to prevent the plaintiff from suing for any subsequent infringement of this patent. The judgment in the suit agai list Met-calf, at Detroit, of which suit plaintiff had assumed the defense, established the validity of the Flowers and Parshall patents as against the plaintiff, but the validity of these patents was not necessarily inconsistent with that of the Gates patent; in fact, the Flowers patent is now admitted to be an improvement ripon the Gates. Paragraph 6, however, interposes an obstacle to the prosecution of any suit so long as each party respectively observed its own covenants and agreements. We were at first inclined to the opinion that this paragraph referred only, — so far as respects the plaintiff, — to the Gates patent; but the covenant being not to sue “under any of the letters patent now or hereafter to be owned by it,” the inference is strong that all of the patents named in the agreement were intended to be included. In this case the covenants and agreements mentioned in the paragraph must be given an equally broad [220] interpretation, and held to include not merely those which preceded and were included in paragraph 6, but also those contained in the paragraphs relating more particularly to the Seibert patents. At the same time it seems very singular that while the parties apparently intended to relinquish all remedy for non-payment of royalty on the Seibert patents, by suit upon those patents, they should reserve the right, if such royalties were not paid, to bring suit upon the original Gates patent. For a non-payment of the royalty upon the Seibert patent, it would have been much more natural to reserve the right to sue upon those patents, rather than upon the Gates patent, and the inference is very strong that it was intended, by the entry of mutual judgments upon the Gates and Flowers and Parshall patents, to give each party the right to deal with these patents as if they belonged to it. Had paragraph 6 terminated with the words, “under any of the said letters patent,” the inference would be irresistible that it was intended to apply only to those which had been previously mentioned. Notwithstanding the broad language, “under any letters patent now or hereafter owned by it,” we still entertain a grave doubt, arising from the connection in which these words are used, whether the refusal to pay royalties upon the Seibert patents was ever intended to authorize a suit upon the Gates patent. Indeed, the proper construction of this contract is enshrouded with difficulties. One .thing, however, is entirely clear. It was never intended to authorize a suit upon either the Gates or Seibert patents, so long as monthly statements were made, and the royalty upon the Seibert patents promptly paid. Conceding that the covenant not to sue, contained in paragraph 6, following the description of the Gates patent, is discharged by the refusal of the defendant to pay royalties upon the Sei-bert patents, if these covenants amount to a license to use the Seibert patents upon those terms, it is impossible to distinguish this case from that of Hartell v. Tilghman, 99 U. S. 547, in which it was held by h majority of the supreme court that a patentee has no right to treat a license as a nullity, and charge the defendant as an infringer. This was also a suit in equity for the infringement of a patent. The bill set out, not a license in terms, but a contract with the defendant for the use by the latter of plaintiff’s invention. It charged that defendants paid him a considerable sum for the machines necessary in the use of the invention, and also paid the royalty for several months for the process secured by the patent. It further alleged that after defendants refused to do certain other things charged to have been a part of the contract, plaintiff forbade them further to use his patent process, and sought to charge them as infringers. As in this case, the defendants admitted the validity of the plaintiff’s patent, their use of it, and their liability to him for its use under the contract. They set out in a plea the contract as they understood it, and the tender of all that was due to the plaintiff under it, and their readiness to perform it. Although a license was tendered, none was ever signed. The court held that the suit was not one arising under the patent laws, and that plaintiff’s only remedy was to sue for his royalty as often as the same became due, bring a suit in equity for [221] a specific performance, or seek to have the contract annulled, and set aside. It was held, however, that plaintiff had no right in himself to abandon the contract, to treat it as a nullity, and to charge the defendants as infringers. “Wo do not agree,” says the court, “that either party can of his own volition declare the contract rescinded, and proceed precisely as if nothing had been done under it. If it is to be rescinded, it can be done only by a mutual agreement, or by the decree of a court of justice. If either party disregards it, it can be specifically enforced against him, or damages can he recovered for its violation. But until so rescinded or set aside, it is a subsisting agreement which, whatever it is or may be shown to be, must govern the rights of the parties in the use of complainant’s process, and must be the. foundation of any relief given by a court of equity.” The case holds in substance that the contract between the plaintiffs and defendants amounted to a license, which neither party could revoke at pleasure; and that plaintiff had no right to treat the defendants as infringers simply by reason of their refusal to pay the stipulated royalties. It nmst bo regarded as practically overruling Brooks v. Stolley, 3 McLean, 523, and Cohn v. Rubber Co., 3 Ban. & A. 572. Now, if a covenant not to sue for future infringements in consideration either that the covenantee shall permit the covenantor to make use of his patent, or that the covenantee shall make returns and pay royalties upon patents owned by the covenantor, be not a license, it is difficult to characterize it. No particular form of words is necessary to constitute a license. Anything which confers upon another the right to do an act, which without such act would be illegal, is sufficient for that purpose. .It may be given in express terms, or implied from the conduct of another without the use of any words at all. Mr. Walker, in his work upon Patents, defines a license to be a conveyance of a right under a patent, which does not amount to an assignment or a grant. Section 293. Indeed, mere acquiescence, if founded upon a valuable consideration, is sufficient of itself to amount to a license. It is well settled that a covenant not to sue a debtor operates as a release of the debt, and I seo no reason to doubt that a general covenant not to sue for future infringements is as complete a license as if permission were formally given by a written instrument to that effect. That a bill will not He to annul a license whore the only material allegation is that the licensee failed to make a report of his manufactures and sales and pay royalty, was decided in Densmore v. Tanite Co., 32 Red. Rep. 544, and that plaintiff cannot in such case sue for an infringement was also held in Purifier Co. v. Wolf, 28 Fed. Rep. 814. As the circuit court has jurisdiction of this case by reason of the diverse citizenship of the parties, we do not undertake to say that we might not entertain jurisdiction of a suit to annul and cancel the agreement, as indicated in Hartell v. Tilghman. But again, irrespective of the question of a final recovery under this bill, we think the plaintiff has not made such a case as entitles it to a nreliminary injunction. By the seventeenth paragraph of the agreement [222] it covenants not to authorize the use of the Seibert patents outside of the New England states. Whether in violation of this covenant or not, it entered into another contract with the Nathan Company, under which the latter has embarked in the manufacture and sale of lubricators, and, as clearly shown by the affidavits, the rivalry between the parties has become so fierce that the price has been reduced from §50 to $60 a set to $20 or $23. In other words, the value of defendant’s monopoly (and it was evidently intended by the contract to give it a monopoly outside of the New England states) has been practically destroyed by the act or connivance of the plaintiff. Under these circumstances, as there is no question made with regard to the defendant’s responsibility, we think the court cannot properly be called upon to enjoin in a summary way the further continuance of defendant’s business.