[License-discuss] IP licensing: Specific performance (or damages) vs. Infringement

[Alexander Terekhov]

More than a century ago high level US judges had much more clear mind than
nowadays, judginging from Jacobsen vs. Katzer with its correct district
court's decision reversed by Federal Circuit.

Consider:

https://law.resource.org/pub/us/case/reporter/F/0007/0007.f.0208.pdf

ADAMS V. MEYROSE AND OTHERS.

Circuit Court, E. D. Missouri. May 19, 1881.

1. INFRINGEMENT OF PATENT—FORFEITURE OF
LICENSE.

Where the owner of a patent licenses any one to manufacture
and sell the patented article, and the license is upon
express condition that it shall become void upon failure
on the part of the licensee to pay a specified royalty to
the licensor, and it is agreed that after breach of condition
by the licensee he may be treated as an infringer of the
patent if he continues to manufacture or sell the patented
article, held, that the licensee cannot be treated by the
licensor as an infringer, and sued as such in a court of
equity, for continuing to manufacture and sell the patented
article after breach of condition, and notice to him from
the licensor that he claims a forfeiture of the license.

2. SAME—REMEDIES.

Under circumstances such as are above set forth the owner
of the patent may bring his action at law and establish his
royalty and recover what is due, or file a bill in chancery
and have the license annulled. Hartell v. Tilghman,
99 U.S. 547.

In Equity.

This is a suit to charge defendants as infringers of a
patent.

The bill alleges that complainant is a citizen of
Illinois, and that defendants are citizens of Missouri:
that complainant is the owner of a patent on an
improved lantern; that he licensed defendants to
manufacture such lanterns in St. Louis, and sell them
throughout the United States, during the life of
complainant's patent; that defendants agreed to pay a
specified royalty; that the license was upon condition
“that if said parties of the second part (defendants)
shall fail to keep and perform any of the convenants and
agreements herein contained, for 10 days after notice
in writing, specifying said default, or shall neglect or
refuse to make returns, or to make returns, or to make
payments for 20 days after the times therefore above
specified, the license herein granted shall become null
and void, and all rights to use any of said
improvements shall be forfeited, and the party of the
first part (complainant) may treat them as infringers
for any manufacture or sale of said improvements
after such forfeiture, and thereupon the parties of the
second part shall have no further rights or privileges
under this agreement, but shall still remain bound
thereby as to all covenants and agreements herein
contained, and shall not thereby be discharged from
any liability to the party of the first part for any license
fees previously accrued.”. The bill further alleged that
defendants failed to pay royalty as agreed, and have
not paid any royalty since February 14, 1880; that,
upon the failure of defendants to pay said royalty,
complainant caused them to be notified that the
contract and license would, after the date of the notice,
be null and void, in consequence of said breach on
the part of defendants; and that defendants, after
receiving said notice, continued to make, vend, etc.,
improved lanterns covered by complainant's patent.
Wherefore, complainant prayed that defendants be
decreed to account for and pay over to him all gains
and profits realized by them from making, using, or
vending lanterns having the improvements described
in his letters patent, and for damages, and a
preliminary and perpetual injunction.
The defendants in their answer admit the validity of
complainant's patent, and that they have been licensed
as claimed, but deny that there has been any breach
of condition on their part, or that the said license is
not still in force, and allege a breach on the part of
complainant.

Noble & Orrick, for complainant.

Edward J. O'Brien, for defendant.

TREAT, D. J. The case of Hartell v. Tilghman, 99
U. S. 547, is conclusive of this case. The plaintiff
seeks to charge the defendants as infringers of the
patent, despite the contract of license, in consequence
of noncompliance with its terms. At first it seemed clear,
under the contract, that the suit was well founded; but
as the majority of the United States supreme court
have taken an adverse view, nothing remains for this
court but to dismiss this bill, and remit the plaintiff to
the remedies indicated in that decision.

Bill dismissed, without prejudice."

And here's the conclusive Hartell v. Tilghman:

https://www.loc.gov/item/usrep099547/

"... In Wilson's case there was an express provision in writing that a
failure to pay any note when due forfeited the license and reinvested
Wilson with all his original rights. No such provision is set up in the
contract between Tilghman and the defendants.

In this case, as in that, the defendants had bought the machine and paid
for it and used it. In this case, as in that, the right to its further use
depended upon the contract, and was to be determined by its construction
and effect. In this, as in that, the case, in Judge Taney's language, 'does
not arise under an act of Congress, nor does the decision depend upon the
construction of any law in relation to patents. The rights of the parties
depend altogether upon common-law and equity principles.

In Goodyear v. Union India-rubber Company (4 Blatchf. 63), where the
licensees had neglected for three years to pay the royalty which they had
agreed to pay, and refused to permit their books to be inspected, and where
one of the prayers of the bill was that until they had so accounted and
paid the royalty due they should be enjoined from the use of the invention,
Judge Ingersoll held that the bill stated no case arising under the patent
laws of the United States, but did not make a case for relief on the
contract. Judge Blatchford stated the doctrine still more strongly in
Merserole et al. v. Union Paper Collar Co., 6 id. 356.

In the case of Blanchard v. Sprague (1 Cliff. 288), decided by Mr. Justice
Clifford in 1859, he said: 'No dispute arises in the case under any act of
Congress, nor does the decision depend in any respect on any law of
Congress in relation to patents. On the contrary, it arises entirely out of
the agreement, express or implied, for a license, and the rights of the
parties depend altogether upon the ordinary rules of law. . . . What the
complainant really claims is that he terminated or revoked the license
under the agreement which previously existed between the parties, by giving
the notice, and that the respondent subsequently continued the use of the
machine without any stipulation as to the rate of tariff.' How precisely
descriptive of the case under consideration, in which Tilghman, claiming
that he has terminated at his own option the arrangement under which the
defendants had been operating, can now sue in the Federal court for an
infringement in violation of the acts of Congress. In the case mentioned
Judge Clifford held otherwise.

To the same purport is Hill v. Whitcomb, decided by Judge Shepley, and
reported in 1 Holmes, 317.

It may be conceded that the case of Brooks v. Stolly (3 McLean, 523),
decided by Mr. Justice McLean on the circuit prior to the act of 1836, is,
in some respects, opposed to the authorities we have cited. But in them it
stands alone, and is not supported by the better reason.

We may be asked, if we concede the complainant's statement of the verbal
agreement to be correct, what remedy has he on it? The answer is very easy.
He can establish his royalty once every year, and sue at law and recover
every month or every year for what is due. If he desires to assert his
right of examining the works of the defendants, he can, in a proper case
made, compel them to submit to this examination. If he desires to enforce
the agreement for executing a written contract of license, he can bring a
suit in equity for specific performance, and with or without that specific
relief ask the court to enjoin them from using the patented process until
they execute the agreement and comply with its requirements. All these and
perhaps other remedies are open to him to enforce the contract. He may also
file a bill in chancery to have it annulled or set aside because of the
difficulties placed in the way of its fair execution by the defendants.

Not content, however, with all these remedies, the complainant assumes that
he has, under the condition of things he has proved, the right in himself
to abandon the contract, to treat it as a nullity, and to charge the
defendants as infringers, liable as trespassers under the act of Congress
to pay both profits and damages.

The analogy of an action of ejectment to recover possession of land in
cases of a broken contract of sale is referred to. The analogy, however, is
imperfect and deceptive. That action is one at law, depending on the
existence of the strict legal title to land in plaintiff, and the doctrine
that the right of possession follows the title. It is a peculiar action,
founded on a peculiar doctrine limited to real estate, and liable to be
defeated in equity by a bill for specific performance and an injunction.

In the case of a patent, plaintiff does not recover any specific property,
real or personal. He recovers damages or compensation for the use of his
monopoly; and if he has made a bargain with the defendant, his right to
rescind or annul it must depend on all the equitable circumstances of the
case.

Here, where he has sold and received a considerable sum for a machine of no
use for any other purpose; where the defendants have spent several thousand
dollars on other machinery, which is also valueless except in connection
with the use of this process; where defendants have paid and plaintiff
received for many months the royalty which plaintiff established, and are
still ready and willing to continue payment; and where the contract being
in parol the parties differ about one or two of its minor terms,—we do not
agree 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 be 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 these parties in the use of complainant's process, and must be
the foundation of any relief given by a court of equity.

Such a case is not cognizable in a court of the United States by reason of
its subject-matter, and as the parties could not sustain such a suit in the
Circuit Court by reason of citizenship, this bill should have been
dismissed.

The decree of that court will, therefore, be reversed, with directions to
dismiss the bill without prejudice; and it is

So ordered."
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