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

[Alexander Terekhov]

Less than a century ago you can witness that even confounded wording such
as "conditions subsequent that the assignee should pay certain royalties"
(read: unconditional covenant to pay royalties) and "for failure of
condition subsequent" (read: for non-compliance) did NOT help!!!

https://casetext.com/case/luckett-v-delpark

U.S. Supreme Court, 1926, MR. CHIEF JUSTICE TAFT delivered the opinion of
the Court.

"...two patents were issued to Luckett, one on November 12, 1918, No.
1284391, and the other on October 12, 1915, No. 1156301, for a method of
making undergarments known as union suits. The later patent, No. 1284391,
is averred to be the generic and the broader invention, while the earlier
patent, No. 1156301, is a specific and narrower one. After the later patent
was applied for, but before it was granted, Luckett gave a non-exclusive
license for manufacture and sale of the garments under it to the Delpark
corporation. This reserved to Luckett a royalty on all garments
manufactured and sold under it, the licensee covenanting to give access to
its books of account. A supplementary agreement made the license exclusive.
Later, Luckett gave to the other defendant, Parker, Ford Dick, an
assignment of the Letters Patent No. 1156301, under which a particular
union suit known as the "My Pal" suit is made, with conditions subsequent
that the assignee should pay certain royalties, should keep the accounts
open for inspection, and should push vigorously the sale of "My Pal" suits,
and with a provision that, if any condition subsequent failed, the title to
the letters patent assigned should revert to Luckett, on his giving the
assignee thirty days' notice in writing of his election to resume title.
All the contracts of license and assignment made by the plaintiff with each
of the defendants are attached to the bill as exhibits.

The averments of the bill are that Delpark, Incorporated, has acquired
control of the stock of the Parker, Ford Dick corporation, and the
defendants are acting together; that the Delpark corporation refuses to pay
to Luckett any royalties due under its exclusive license of the generic
patent; that the Parker, Ford Dick corporation refuses to pay any royalties
under plaintiff's assignment to it of the specific patent, and refuses to
push the sale of "My Pal" suits; that this refusal is to prevent
competition of the "My Pal" suits with the Delpark suits,  and thus
deprives plaintiff of royalties on the "My Pal" suits. The plaintiff avers
that on November 27, 1918, by notice in writing he cancelled his assignment
to the Parker, Ford Dick corporation, for failure of condition subsequent,
and resumed his title to Letters Patent No. 1156301.

The seventeenth paragraph in the bill, and the only one which uses the word
"infringement," is as follows:

"(XVII) And your orator further shows unto your Honors, that Delpark,
Incorporated, is a large concern with substantial capital, and ever since
the issue of Letters Patent No. 1,284,391 on November 12, 1918, has been
actively engaged in the manufacture and sale of the Delpark garment
so-called, which infringes the claims of the said Letters Patent and also
the claims of Letters Patent No. 1,156,301; and that large numbers of the
said garment have been made and sold upon which royalties are now due to
your orator, the amount of which he is wholly unable to state with
definiteness, but which is far larger than three thousand dollars,
exclusive of interest and costs; and that though often requested as
hereinbefore set out, no accounting has ever been had between your orator
and Delpark, Incorporated, or Parker, Ford Dick, Inc., either as to
royalties due or as to damages for failure to observe the contract to
exploit the `My Pal' garment."

The plaintiff sets out thirteen prayers for equitable relief. He asks that
the defendants file statements of the garments made and sold under both
patents containing retail prices at which the garments were sold, in order
to show the royalties due; also a statement of the orders received for the
"My Pal" garments but not filled, with prices, to show the royalties lost;
and that they be compelled to permit access to their books of account. He
further prays that the Parker, Ford Dick Corporation be required to execute
a formal reassignment of Letters  Patent No. 1,156,301 to the complainant
so as to remove the cloud from his title to that patent, and that an order
issue cancelling the licenses and agreements made with both defendants. He
prays for damages for suppressing the "My Pal" garment, and the failure
properly to exploit it as agreed.

In prayer J, the plaintiff asks that a preliminary injunction issue against
both defendants to prevent their making sale or delivery of the so-called
Delpark garment or the so-called "My Pal" garment, or any other garment
infringing the claims of the two letters patent of the plaintiff, until
further order of court. By prayer K, a similar permanent injunction is
asked. There is a prayer for an order sending the cause to a master to take
and state the account of profits and damages both as to royalties due and
accrued, and as to damages for suppression of the "My Pal" garment and to
report the same to the court.

We do not think that this suit arises under the patent laws. Its main and
declared purpose is to enforce the rights of the plaintiff under his
contracts with defendants for royalties and for pushing the sales of "My
Pal" garment. In addition he seeks the reconveyance of one patent, on
forfeiture for failure of condition, to remove a cloud on his title and a
cancellation of all agreements of license of the other, for their breach,
in order presumably that, unembarrassed by his assignment and licenses, he
may enjoin future infringement.

It is a general rule that a suit by a patentee for royalties under a
license or assignment granted by him, or for any remedy in respect of a
contract permitting use of the patent is not a suit under the patent laws
of the United States, and can not be maintained in a federal court as such.
Wilson v. Sandford, 10 How. 99; Brown v. Shannon, 20 How. 55; Hartell v.
Tilghman, 99 U.S. 547; Albright v. Teas, 106 U.S. 613; Dale Tile
Manufacturing Company v. Hyatt, 125 U.S. 46; Marsh v. Nichols, Shepard
Company, 140 U.S. 344; Briggs v. United Shoe Machinery Company, 239 U.S. 48.

In Wilson v. Sandford, supra, a bill in equity was filed in a federal
circuit court setting forth complainant's ownership of a patent, an
assignment to defendants of a license in consideration of five promissory
notes, with a condition of reversion to complainant on failure to pay any
note. The bill averred that the first two notes were not paid, insisted
that the license was forfeited by the failure and the licensor was fully
reinvested at law and in equity with all his original rights, that the
defendants were using the patented machine and were infringing the patent,
prayed an account of profits since forfeiture, a temporary and permanent
injunction, and a reinvestiture of title in the complainant. On demurrer,
the bill was dismissed for lack of jurisdiction as not arising under the
patent laws. Chief Justice Taney, speaking for the Court, said:

"The rights of the parties depend altogether upon common law and equity
principles. The object of the bill is to have the contract set aside and
declared to be forfeited; and the prayer is, `that the appellant's
reinvestiture of title to the license granted to the appellees, by reason
of the forfeiture of the contract, may be sanctioned by the Court,' and for
an injunction. But the injunction he asks for is in consequence of the
decree of the Court sanctioning the forfeiture. He alleges no ground for an
injunction unless the contract is set aside. And if the case made in the
bill was a fit one for relief in equity, it is very clear that whether the
contract ought to be declared forfeited or not, in a court of chancery,
depended altogether upon rules and principles of equity, and in no degree
whatever upon any act of Congress concerning patent rights."

Am Do., 25. Juli 2019 um 10:39 Uhr schrieb Alexander Terekhov <
herr.alter at gmail.com>:

> 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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