POPE MANUF'G
CO. V.
GORMULLY.
877
These are all the matters which I deem it important to notice. I see nothing in the record which justif.r me ininterfering with the judgment, and it must be sustained.
POPE MANUF'G Co.
V.
GORMULJ,Y.
(No. 824.)
(Circuit Oourt, N. D. IllinoUi.
April 30, 1888.)
PATENTS FOR INVENTIONS-LIcENSE-UNCONSCIONABLE COVENANTS-SPECIFIC PERFORMANCE.
P., the owner of some 65 patents for improvements in bicycles and tricycles, and engaged in the manufacture of machines covered by those patents, granted a license in June, 1883, to G., who was a similar manufacturer and owned somewhat similar patents. This license covered only two of P.'s pat· ents, and the machines made under them were of an inferior character. By its terms, this license was to expire, as to one patent, in nine months, and as to the other at any time upon written notice from G. ; and nothing was expressed or implied as to any other of P.'s patents. G., desiring to make more perfect machines, applied to P. for licenses under some of his other patents. Gorrespondence passed between the parties, from which it appeared that G.'s only object was to have the terms of his existing licenses widened so as to take in his contemplated improvements. The contract in suit was finally executed in I)ecember, 1884, G. signing it without referring it to a lawyer. Under this licenses contract, which was drawn with much artificiality, G. was under 15 out of the 65 patents of P. until April, 1886. and, lD consideration thereof, he was made to recognize and admit the validity of all, and P.'s title to the same, and also to covenant not to manufacture or sell any machines 'covered by any of the patents after his license ran out or was surrendered. and even after the expiration of all the patents covered by his license. After the license had terminated, P. filed a bil for injunction and account, alleging infringement. Held, that the bill amounted to one for specific performance, and that, under the circumstances, it should be dismissed, the contract being unconscionable. and, in a measure, against pUblic policy.
In Equity. Bill for injunction and account. Before GRESHAM, Circuit Judge, and BLODGETT, District Judge. Coburn « Thacher, for complainant. B. F. Thurston and Offield &; Towle, for respondent. BLODGETT, J. This is a bill inequity whereby the complainant seeks a decree enjoining the defendant from the manufacture and sale of bicycles and tricycles containing certain devices, and for an accounting. The bill charges that complainant on the 1st day of December, 1884, and for a long time prior thereto, was engaged in the manufacture and sale of bicycles, tricycles, and other velocipedes of superior quality, grade, construction, and finish, and was the owner of a large number of patents, the features of which ,were embodied in the construction of such vehicles; that on the 1st day of December, 1884, complainant entered into a contract with the defendant, whereby there was granted to the defendant the right to make, use, and sell, for a certain term therein mentioned, bicycles of 52-inch size, and upwards, of certain grades, style, and finish. and to be sold at a certain price limited by said contract, and embody-
878
FEDERAL ,BEPoRTER.
ingthe inventions set forth; inoertai!nJetters patent, mentioned in the contract, and Ilonll,other;and also coti,taining the, further agreement On the part of the defendant that he would not manufacture, sell, or deal in bicycles, tricycles, or velocipedes containing certain features or devices covered by certain other patents which were specifically enumerated in said contract; and charging that the defendant, in violation of the lastmentioned clause and proviflions, has manufactured bicycles and tricycles containing the deviceswhichhe'hadso agreed and stipulated not to use; and praying that the defendant be enjoined from the use of said devices, and for an accounting. There is 1;10,contest between the parties as to the .execution of the instrument set out in the bill; and tne only question made by the defendant is as to whether the complainant under the contract is entitled to the df equity. The contract in relief asked for,' or any relief, question recites in the opening paragraph that complainant is the owner of certain patents, amounting to'65 in all,g-iving tM number and date of said patents, and the l;1lj.mes oOhe patentees respectively; and by the first article of the contract the defendant is licensed to manufacture in the city of Chicago bicycles of 52-inch size and upwards, embodying the invenset forth in.15 of the patentsenumera,ted in the opening, paragraph or preamble, and no others; andin the ninth article, the defendant that he will not import, or sell, eitherdirectlyor indirectly, anybicrcle, tricycle, or other veloclpede, or the pedals, saddles, bearings, rims, or other patenttldparts, or devices containing ally of the inventions claimed ill either of letters patent; nor make, use, or sell such vehicles containing any of the devices or inventions covered by any Of the patents recited itl1ibe prelunble of the contract, other than which were specificallym,enti9ll,ed in the licensing elause; nor, ill any way, either directly or indirectly, dispute or contest the validity of said letters patent, or either of them, or the title of the complainant oftlleeontract gave to the complainant the thereto. The eleventh right tocalicel and' terminate the ,license on the occurrence of certain conditions; and also contained a clause' allowing the defendant to surrender the license contained in said contract at any time by written notice to that effect, and returniIlg said contract to th&complainant. It was, how;eVer, expressly provided that no such revocation or surrender, and no termination of said contract, or any part of it, should release or discharge the defendant£rom the obligations, admissions, and agreements,coilowned in the sixthj seventh, eighth, ninth,andele"enth articles of said contract, which it is recited. were a part of the consideration for the granting of the license contained in said contract, and' are irrevocable except by the written COl1sent of the party of the first part.' _It was further agreed that if the delendantshould continneafterthe termination ofsuchlicense to make, .sell, or: use .any machine; or substantial' part thereof, contain'irig:either of the pSTt.upecifically referred to in the ninth article,or any -invenJ4on in any form set forth'and in any ofthe.letters patent recited, the complainant should have. its renledy for a breach of said contract,or the defendant might, be liable to complainant as an infringer
POPE MANUF'GCO. V. GORMULLY.
879
of such patents. The proof also shows that the complainant on June 13, 1883, granted to the defendant two other licenseS giving him the right to use certain qf the patents recited in the preamble to the contract of December, 1884. These two last-mentioned contracts are not counted upon 01' referred to in the bill, and only become material when ering complainant's right to a remedy against the defendant under this bill; but as the complainant has put these two earlier contracts into the record, they may be properly considered for the purpose of construing and determining the rights 'of the parties in this case under the first-mentioned contract. It will be seen from this outline of the terms and scope of this contract that the complainant, while licensing the defendant to use some 15 of the 65 patents enumerated in the preamble of the contract, and none other" has, in terms or words, obtained a covenant from the defendant admitting the validity of, and complainant's title to, a large number of other patents owned by complainants, and a covenant not to manufacture, use, or deal in the devices, or any of them, covered by any of the claims of this long list of patents recited in the preamble,and has also perpetuated these admissions and these covenants so that they shall bind the defendant after the license is terminated and surrendered, and even after the expiration of all the patents which the defendant was specifically licensed to use. It is contended on the part of the defendant that this contract. was entered into with the express understanding on his part that it was not to continue later than the 1st day of April, 1886, by which time all the patents -enumerated in the licensing clause of the contract, which the defendantusedin the manufacture of his bicycles; would have expired; and that the defendant, by inadvertence and mistake, and without knowing the full import of articles 11, and without knowing that by the terms employed in said articles the obligations ,of the contract were perpetuated as to all the complainant's patents, executed said contract upon the understanding and with the belief that, whenever the licensing portion ofsaid, contract was at an end, he was relieved from all the -obligations contained in the' contract. In other words, the position ofthe defendant is that, as he understood the contract at the time he executed it, none of its provisions' bound him beyond the time when the contraot should be terminated by ,either party. It will be seen from the statement thafthis contract develops an attempt on the part of the. complainbind the de.fendant 1;10t to use any of the devices covered by the complainant's patents, although said patents were not the subject-matter of complainant's license' to defendant, and to tho rlefcnd:mtwith specipcadrnissions of the validity of all of said 'patents, ann eaC'h and every claim thereof, and oft1l6complainant's title thereto; and incase the defendant should use any mechanism covered or claimed t01;le co,,ere.d by a claim in any of these patents, to give the complainant simimary remedy against the defendant by estopping him from denyingithe validity of the patents,and compelling him to answer in damages for such use.· As has been already said, the proofshows that the defendant held two licensesgrantcd by the complainant on the :l3th of June, 1883, allow-
a
880
FEDERAL REPORTER.
ing ·him to manufacture and sell velocipedes, bicycles, and tricycles under certain enumerated patents, and these two contracts or licenses contain no provisions with reference to any patents owned by the complainI1nt other than those specially enumerated in the licensing clause, and contain no clause or provision perpetuating the obligations of the contract beyond the term of the license. One of these earlier licenses was by its exp,ress terms to continue only for a term of nine months from the date thereof; and the other allowed the defendant to surrender it at any time by written notice to that effect, and the return of the agreement to the complainant. These two licenses of June, 1883, restricted the defendant to comparatively small and cheaply constructed bicycles and tricycles; but it would seem fram the proof that there had been negotiations between the parties for the privilege, on the part of the defendant, of constructing a larger and better class of such vehicles; and in the .spring of 1884 some correspondence commenced between the parties as to the terms upon which the complainant would allow the defendant to manufacture these larger and ·moreexpensive vehicles; and some time in October, 1884, the complainant prepared a contract and sent it to defendant for signature. _ This contract so sent to the defendant provided that it would remain in force until November 21,1894. The defendant had always contended that he did notu8e any of the complainant's patents whose life extended beyond April 1, 1886; and it also appears from the proofthatthe defendant was himself the owner, licensee, or assignee of a large nwhber of patents for devices which. went into the construction of the machines manufactured by himself; and that, on an examination of the draft of the contract so' sent him by the complainant, he objected ,thatthe complainant conlJ render him no protection after the expirationof the patents which he used, which would be in the spring of 1886,and that the whole matter of the permission which he had asked to manufacture thclal'ger and more expensive vehicles could be accomplished by simply indorsing this permission on the licenses which which he then had; and complained that the contract tendered him by the complainant would <:ripple him for the term of 10 ytlars, or until November 21, 1894. The complainant thereupon replied to this objection, under date O,;tober 20, 1884, in the following language: ":We suppose your objection to the ten-years matter arises from the words used at tho end of tho fifth line oll the seeond page,-'the 21st: day of November,A. p.1894;'--which, if objectionable to you. yon may erase, and interline in placeo! thl\t. "the 1st day of April, A. D. 1886,' and that will relieve this objection. You flhould not be so much afraid of our wishing or trying to :cripple you, and leave the rest of the world free. Some day you will get this idea f;mtof youi' mind. With the change in the license above noted, that is tho willing to give it, and if there is unnecessary verbiage, let it go 1l,S our fault." '. Under date October 29, 1884, the defendant also wrote the complainnnt, and objected to the contract- because it included what is known as the llPeters Patent," No. 197,289, claimed to cover ball-bearings, on the ground that he, defendant, had a patent for a globular bearing which
POPE MANUF'a
co.
V. GORMULLY.
881
was then using on his machine; and to this complainant replied under date November 4, 1884: "You misread the license, probably as to the Peters patent, as we do not ask you to admit iJ? the license that the ballbearings on the · Ideal' infringe teat patent. * * * We would not ask you to relinquish'any claim which you have in any patent." And on the 12th of November defendant wrote to complainant in reference to the contract in question:" This license is to terminate, if I wish so, on the 1st of March, 1886, or sooner." When we take into consideration the fact that the defendant's prior licenses/rom the complainant contained no clause committing or binding him to any admission as to the validity of any of complainant's patents which he was not licensed to use, and which had no clause perpetuating or continuing any obligation on the part of the defendant not to use any of, the complainant's patents, or admitting their validity; and also when we consider the fiwt that the defendant was himself the owner of n, large number of patents used in the construction of machines which he was manufacturing, and that he only considered the patents specially covered by the license clause of this contract as in any way useful to him in the manufacture of his machines; and that the complainant had alJowedhim, withoutqnestion or challenge, to manufacture bicycles with ball-bearings, hammock-saddles, bifurcated backbones, and rubber handles; in fact,containing all the special features covered by other patents also held by the complainant; and consider the manner in which the defendant insists that he does not wish a license to extend beyond the life af the patents which he was then using,-we think there' can be no doubt that the defendant, at the time he executed this instrument, supposed in good faith that when the license terminated, either on the 1st day of April, 1886, or earlier, as it might by the action of either party, all the obligations it contained were also at an end, and, doubtless, the defendant executed this instrument upon that supposition,and had no thought that he was binding himself for all time, or at least for the lifetime of all the complainant's patents, to an admission of their validity, and every claim thereof, and of the complainant's title thereto, with a covenant that he would not use the devices which were covered or in.cluded in anyaf those claims; in other words, that he was giving away his own patents, covering some of the same devices, and admitting that the Peters was not a patent for ball-bearings, but, at patent, for instance, most, only a patent for adjustable was valid, and prevented the use by him of his own patent for globular bearings. The defendant did ,not apply for or ask any new license from the complainant, but only for tbe complainant's consent that he might, under his then {'xisting licenses, make larger and more highly finished machines.· lIe did not ask the right to use another one of the many patents which the complainant owned, as the defendant was all the time insisting, apparently with the acquiescence of the complainant, that all the patents belonging to complainant which he used, or had any use for in his business, expired before April 1, 1886, and were included in the two licenses taken by. him June 13, 1883, and this license of December 1, 1884:; v.34F.no.11-56
FEDERAL 'REPORTER.
'ahd'Wcailhardly be deemedpQsSilble that the defendant,' for the mere ·privilege of makiqg those large' machines for 14 months, would intelligently'or understandingly have bound himself for all time, or at least for the longest-lived of complainant's patents, not to make machine& which'should come within the claims of any of these patents, and in regard to which he. had had no dealings with the 60mplah1ant. We find in the cOrl'espondence that the defendant all the time insists that his license shall not extend beyond April 1, 1886, because aU the patents he used would have. then expired; and the only rational explanation of the defendant's conduc·t in signingthis contract is that he supposed, fiS be fairly might from the corresponderice and dealings between the parties, that when he surrendered and returned his license all relations with the complainant underit were ended.; ,The defendant, in his correspondi:lnce andiu.his negotiations, evidently treated the words "license" and had no idea ,there was any"contract n, as. \meaning the same the terms onwhich he should .thing in,this.instrument but a license, <ionduct himself under the license while it remained in force. This was the natural conclusion that any unsuspecting man, ·not a lawyer, would have drawn. from the instrument. The defendant is not a lawyer. and in the negotiations of ,theterws of this contract,of December 1, 1884, -did not consUlt a lawyer; and any person who reads the instrument can 'l'eadily understand that it takes some training and study to deteCt those vicious clauses, which the complainant now invokes the aid of a court <Yf equity.to,enforcej as they lie ambuscaded in the several articles which ·make up the ,entire docllment,and:which the defendant treated as a mere .license, Wlhich ,was to. :end by its own terms on the 1st of April, 1886, and whiohhecould ;surrender at will; and had evidently no thought ,that the·instrument would have an after-life. but ·.':Forreasons.which .defendant e\,idently did not then ,which arenow·perfectlycleax, the eomplainantrefusedto iudorseupon the -old license then: held·by the defendant the permission ,wMch he asked to cmake the ,larger, machines: under the .same patents he was 'then licensed -to use,a.ndinsistedom the defendant taking a new license; and the ,de·fendant, it he,read these elaborate and carefully worded clauses, evidently assumed they would only be operative while the license remained in force, .and that when he sUl1rendered it he ,terminated all the contract relations that the Jicensecreated. For instance, in article 8 of the contract of December 1, 1884. defendant is made specifically to admit the validity -of all patentsenumetated in the preamble to the cOlitract,and each and ·every.Claim, thereofj and complainant's title thereto; that the inventions elaimed in patent No'. 194,980, which is the Whiteheadpatel1t, granted September H, 1877. for.a balanced gear, whereby one driving-wheel of ja,tricycle may rotate faster than the other. The Peters patent No. 197'is for a laterally adjustable roller-bearing, neither of which patents are included in. the licensing clause of either of said contracts, .are embodied in the defendant's Columbia and Victor tricycles, and his Expert and Eolus machines; and further expressly admits that any mll.,chines Or. parts of machines constructed in a sub8tantially similar man· l
POPE MANUF'G CO. t1.,<lORMULLY.
883
ner are or will be infringem(jnts of said paten:ts; and that these admissions are unqualified, and mlliY at any time hereafter be plE:laded, or proved in estoppel of the defendant. .And by the ninth article of said contract the defendant is made to agree"Not to make, use, or sell, 'directly or indirectly, either backbones bifurcated for a rear wheel, or balance gear, allowing two wheels abreast, differing speeds on curves, or bearingscolltaining balls or rollers and laterally adjustable, or brllkes combined with the handle-bars and front wheel, or cranks adjustable to ,different lengths of throw, or forks of tubular, construction, or mUd-shield for steering wheels, constructed to turn with the w)leel, or pedals that are polygonal or offering two or more sides for the foot, or round, contractible rubber tires in grooved rims, or rims containing or adapted for rubber or elastic tires, or saddles, adjustable fore and aft, or saddles having a seat and means of taking up the slack, or steering heads, open or cyl· indrical, with stop from complete turning, or leg-guards over front wheel, or rims of wrought metal tUbi,ng, and adapted to receive a tire, or rims composed of sheet metal with overlappmg edges, or wheels containing hollow metallic rim and rubber tires, or steering spindle and fork inclined to each other at an angle, or two speed or power gears, or tangent spokes, or Warwick rims, or any other <ievice or invention, secured by either of these patents other than according to the permission, conditions, or description in paragraph numbered · First' in this agreement, or as otherwise agreed in writing with the party of the first part; nor in any way, either directly or indirt'ctly, dispute or contest the validity of the letters. patent herei nbefore men tioned, Of either of them, oitbe title of the party of the first part...
-While the elfventh article of the con.tract contains this clause: "No t.ermin:ation of this contract or any part of it shall release or discharge the party of the second part from any payment, return, liability, or performance whlc\1 may have accrued, become due, or arisen hereundef prior to or at the date of such revocation or surrender, or from tjle obligations, admissions, and agreements contained in the'sections hereof numbered' Sixth,' · Seventh,' · Eighth,' · Ninth,' · Eleventh' hereof, whilfh are a part of the consideration for the granting of the license herein, and are irrevocable except by written consent of the party of the first part. '" '" '" And. further, that if, the party of the second part shall continue after such termination of license'to milke, sell, or use any machine, or substantial part thpreof, containing either of the parts spflcifically referred to in section' Ninth' hereof, or anyinvention in any furm set forth and claimed in the letters patent aforesaid, or any of thl'm, the said pal'tyof ,the first part shall have the right to treat the. party of the second part either as a party to and in breach of this con. tract, or as a mere infringer."
-An agreement which, if it did rttlt.by its terms practically prohibit defendant from making bicycles and tricycles, or either, for all time clearly did so during the life of all complainant's patents. severalof which had theIl been oIlly issued a very few months, except at the will and pleasure of the complainant, and on its own terms; and it can hardly be conceived as possible that a sane man who was engaged in the business oia manufacturer of such machirres, and who intended to continue in such b'usiness, would ,have signed such an agreement if he bad fully understood 'its andpurpose., The contract, read, in connection with ,the letterain p,roof, shows,as it seem,s to us, that it wa.&an artfully con·
884
ttived snare t.o bind the defendant in a manner which he did not comprehend at the time he became a party to it. Coming to the conclusion that this instrument, wasexecnted by tho defendant under a mistaken understanding of the scope and operation of its terms, we are clear that it is so inequitable, and would operate so oppressively upon the dp,fendant, that it ought not to be enforced in this court. This bill, in effect, seeks a specific performance of this agreement. It asks the court to enforce upon the defendant the admissions and covenants contained in this contract of December 4,1884. Coming into a court of equity, the complainant must show a case that commends itself to the equitable consideration and sense of justice of the court. Justice ,STORY states the rule as follows: "!tis important to take notice of a distinction between the case of a plaintiff seekin'g a specific performance in equity, and the eaSEl of a defendant sisting such pf>rformance.· We have already seen that the specific execution of a contract in equity is a matter, not of absolute right in the party, but of sound discretion In. the court. Hence it requires a much less strength of case on the part.of the defendant t.oresist a bill to perform a contract than it does on the part of a plaintiff to maintain a bill to enforce a specific performance. When the court simply refuses to enforce the specific performance of a contract, it leRves the party to his remedy at law. '" "''''But courts of equity do not stop here; for they will let in the'defendant to defend himself by evidence to resist a decree where the plaintiff would not always be permitted to establish his case by the like evidence. For instance, courts of equity will allow the defendant to show that by fraud, accident, or mistake the thing bought is different from what he intended, or that material terms have been omitted in .the agreemen t. or that there has been a variation of it by parol." Again, in Bigelow on Fraud, 390, it is said: "Specific performance of an agreement is never cllmpelIed unless the case III free from the imputation of all deception. '" '" '" The conduct of the person seeking it must be free from all blame. Misrepresentation, even as to a small part of the subject, will exclude him from relief in equity." And again, at page 394, he says: "There isa distinction between the exercise of jurisdiction for setting aside a contract and refusing execution. EqUity will not carry hard or unreasonable bargaIns into execution. .... ...... The power of awarding specific execution ... ...... rests in sound judicial discretion, and will not be applied to cases that are hard, or unfair, or unreasonable, or founded upon a very inadequate consideration. The case may therefore be such that eqUity will neither decree execution for the one party, nor set aside the contract for the other. In such cases the contract stands, and the parties must look to the courts of law for its enforcement or for defense." Again, in3 Pars.Cont. *414, it is said: "Equity wUlnot enforce a Contract tainted with fraud on the part of the applicant. ... "'... Here eqUity can hardly be said to folloW the law, because it goes further, for it reqUires perfect Kood faith, and will refuse specific performance of a contract if it were obtained by means of misrepresentation or misdirection, which WOUld. not besutficient to avoid the contract at law. ... '" "'A mttch stronger case is necessary to set aside an executed agreement on the ground of misrepresentation 01' concealment than is sufficient to induce a court of equity to refuse a specific performance of one that is executory. Indeed, as eqUity is never bound to give this relief, so it never will,
POPE MANUF'G CO. V. GORMULLY & JEI!'FREY MANUF'G CO.
885
unless the justice of the case, as drawn from all its facts, demands it. Hence there must not only be a.n entire absence of fraud, but an equal absence of oppressiveness, and if a decree would operate more hardly than it should on the defendant. this would be sufficient reason for withholding it." This rule cited from the text-books is abundantly supported by the adjudged cases. Race v. Weston, 86 Ill. 94; Frisby v. Ballance, 4 Scam. 299; Mortlock v. BuJler, 10 Ves.292; Willan v. Willan, 16 Vest 83; Joynes v.Statham,3 Atk. 388. We think there can be no doubt that this contract, if enforced according to its letter and spirit, would act oppressively and unjustly upon this defendant. He is a competing manufacturer in the same field with the complainant. He is the owner of patents which the cpmplainant has acquiesced in. his right to use in conducting his business, and covering many, if not all, the features in his machines enumerated in the ninth article of the contract; and we cannot but look upon this article and the other provisions of the contract as a cunning device to bind this defendant, not only in a manner which he did not comprehend or understand at the time he executed the agreement, but also in a maliner which would be contrary to public policy; as we think the courts should certainly not favor any efforts on the part of patentees or owners of patents to obtain by indirection or subterfuge an admission as to the validity of their pat,ents which ties the hands and cripples the energies of a competitor. Many of these patents held by complainant, and perhaps all of them, may be for their specific devices, but the law should not encourage parties holding such patents to invent or devise schemes by which toobtain admissions, directly or indirectly, of the validity of their patents, so as to foreclose investigation and discussion upon the question of thei\. validity; and hence we simply Bay that this contract seems to be so oppressive, and so unjust and inequitable in its terms, and so contrary to -sound public policy, that it ought not to be enforced in a court of equity, .even if the defendant fully understood and comprehended the force and import of every paragraph of it. The bill is therefore dismissed for want of equity.
Co.
tI. GORMULLY
& JEFFREY (No. 830.)
MANUF'G
Co. et al.
(Oircuit Oourt. No D. lllinoiB. April 30, 1888.) :1. PATENTS FOR INVENTIONS-SCOPE OF CLAm-BICYCLE SEA'rs. The first and second claims of letters patent No. 252,280, of January 10,
1882, to-Curtis9 H. Veeder, for a "seat for bicycles," are: "(1} A suspension saddle, constructed with a flexible portion. and having an under springin two or more parts, to which the flexible portion is attached at either end. and whicb, metallic .parts. are extensible.... (2) "In a ve. oc.ipede seat. the combination of plates .'ld clamps, stop and adjusting bolts." The patent also contains a dlsclaimer limiting the claim solely to the "improved form of spring," Held, in -view of the disclaimer, that the patent IDustbe restricted to the form of spring I.