An action upon an agreement in writing, by which, in
consideration of a license from the patentee to make and sell the
invention, the licensee acknowledges the validity of the patent,
stipulates that the patentee may obtain reissues thereof, and
promises to pay certain royalties so long as the
Page 125 U. S. 47
patent shall not have been adjudged invalid, is not a case
arising under the patent laws of the United States, and is within
the jurisdiction of the state courts, and the correctness of a
decision of the highest court of a state upon the merits of the
case, based upon the effect of the agreement, without passing upon
the validity of a reissue, or any other question under those laws,
cannot be reviewed by this Court on writ of error.
The original action was brought in a court of the State of New
York by Elizabeth A. L. Hyatt, a citizen of New York, and the owner
of letters patent for an improvement in illuminated basement and
basement extensions, against the Dale Tile Manufacturing Company,
Limited, a corporation organized by the laws of New York, upon a
written agreement between the parties, dated December 28, 1880,
which contained, either in itself or by reference to previous
agreements, the following provisions:
The agreement began by reciting that letters patent for this
invention had been issued to the plaintiff on August 27, 1867, and
reissued on August 6, 1878. The plaintiff, on her part, licensed
the defendant to make and sell, within certain states and
districts, during the full term of the patent, and of any extension
or renewal thereof, illuminated basements and basement extensions
and materials therefor, and agreed not to manufacture herself or to
license others to manufacture within the same territory. The
defendant, on its part, acknowledged the validity of the said
letters patent; consented that the plaintiff might obtain further
reissues thereof when and as often as she should choose, without
prejudice to this agreement, and promised to pay her a fee of
seventy cents for each square foot of surface in gratings made by
the defendant to be used in illuminated basements or basement
extensions made and sold by it under the license, provided however
that until a court should have given a decree sustaining the
validity of the above-named patents, the plaintiff should receive a
fee of thirty cents only in lieu of the fee of seventy cents, and
that if at any time an adverse decision should be rendered against
the validity of the patent and not be appealed from for three
months, the fees under this
Page 125 U. S. 48
license should cease, and the defendant agreed to make such
payments and render accounts to the plaintiff quarterly. It was
further stipulated that either party, knowingly violating the
agreement, should forfeit all rights under it.
The defendant, in its answer, admitted the agreement and set up
sundry breaches thereof by the plaintiff, and, among others, that
on September 27, 1881, she obtained from the United States a
reissue of her patent, whereby a discontinuance of actions
previously brought by her against infringers in the circuit court
of the United States became necessary, and she refused to bring new
suits against them.
The plaintiff afterwards, by leave of court, amended her
complaint by alleging the reissue of 1881.
By order of the City Court of New York, the case was referred to
a referee, who found that the plaintiff was the owner of the
letters patent issued and twice reissued as aforesaid; that there
had been no breach of the agreement on her part; that the defendant
made and sold the invention under the license, and rendered
quarterly accounts for the royalties down to and including the
quarter ending October 31, 1881; that by the account for that
quarter, there appeared to be due to the plaintiff the sum of
$524.55, which the defendant refused to pay, and that in December,
1881, the plaintiff gave notice to the defendant that it had
forfeited its license, and withdrew the notice upon its promise to
pay the royalties.
The defendant requested the referee to find as a conclusion of
law that by the plaintiff's surrender of the patent on taking out
the reissue of 1881, the license held by the defendant was
cancelled and became of no effect, and also that the court had no
jurisdiction of the action, because it involved necessarily and
directly the construction of letters patent of the United
States.
The referee declined so to find, and reported as his conclusion
of law that the plaintiff was entitled to judgment against the
defendant for the sum of $524.55, with interest from November 1,
1881.
The referee filed with his report an opinion in which he said
that the defense at first proceeded upon the theory that the
plaintiff had violated her agreement by not prosecuting
Page 125 U. S. 49
and restraining infringers, but that defense was abandoned
because it appeared that she had assumed no such duty, and that
"the defense was finally rested upon this sole ground: that the
reissue of the patent in 1881 was entirely void because it covered
much more ground than the patent of 1867 as reissued in 1878, and
that therefore the surrender of 1878 left no patent whatever
existing,"
but that the defendant was not in a position to raise this
question, because it could not, in this action to recover the
royalties agreed upon, deny the validity of the original patent or
of any reissue thereof so long as it had not been declared void by
a court of competent jurisdiction, and while the defendant retained
and acted under its license from the plaintiff.
The City Court of New York gave judgment for the plaintiff on
the referee's report. That judgment was affirmed by the Court of
Common Pleas, and the defendant appealed to the Court of Appeals,
which affirmed the judgment and remitted the case to the City Court
of New York. The opinion filed by the Court of Appeals and included
in the transcript sent up to this Court is mentioned, but not
reported in full, in 106 N.Y. 651, and is copied in the margin.
*
Page 125 U. S. 50
The defendant sued out this writ of error, and assigned for
error that the state courts, both of original and of appellate
Page 125 U. S. 51
jurisdiction, had no power to entertain the issues in this
action, because they involved directly and solely the validity of
the letters patent reissued by the United States to the plaintiff
on September 27, 1881. The plaintiff moved to dismiss the writ of
error for want of jurisdiction and also moved to affirm the
judgment.
MR. JUSTICE GRAY, after stating the facts as above, delivered
the opinion of the Court.
The defendant contended in the courts of New York that those
courts had no jurisdiction because the plaintiff's right to
maintain her action depended upon the question whether the second
reissue of her patent was valid or invalid under the patent laws of
the United States, and that of that question the courts of the
United States had exclusive jurisdiction. The judgments or each
court of the state, holding that the question of the validity of
that reissue could not be contested in this action, and assuming
jurisdiction to render judgment against the defendant, necessarily
involved a decision against the immunity claimed by the defendant
under the Constitution and laws of the United States, which this
Court has jurisdiction to review.
The motion to dismiss must therefore be denied, but the decision
was so clearly right that the motion to affirm is granted.
The action was upon an agreement in writing by which the
plaintiff, as owner of letters patent already once reissued,
granted to the defendant an exclusive license to make and sell the
patented articles within a certain territory during the
Page 125 U. S. 52
term of the patent and of any extension or renewal thereof, and
the defendant expressly acknowledged the validity of the letters
patent and stipulated that the plaintiff might, without prejudice
to this agreement, obtain further reissues, and promised to pay to
the plaintiff certain royalties so long as no decision adverse to
the validity of the patent should have been rendered.
The defendant contended that this was a case arising under the
patent laws, of which the courts of the United States have
exclusive jurisdiction. Rev.Stat. § 629, cl. 9; � 711, cl. 5. But
it is clearly established by a series of decisions of this Court
that an action upon such an agreement as that here sued on is not a
case arising under the patent laws. It has been decided that a bill
in equity in the circuit court of the United States by the owner of
letters patent to enforce a contract for the use of the patent
right or to set aside such a contract because the defendant has not
complied with its terms is not within the acts of Congress by which
an appeal to this Court is allowable in cases arising under the
patent laws, without regard to the value of the matter in
controversy. Act of July 4, 1836, c. 357, § 17, 5 Stat. 124;
Rev.Stat. § 699;
Wilson v.
Sandford, 10 How. 99;
Brown v.
Shannon, 20 How. 55.
Following those decisions, it was directly adjudged in
Hartell v. Tilghman, 99 U. S. 547, that
a bill in equity by a patentee alleging that the defendants had
broken a contract by which they had agreed to pay him a certain
royalty for the use of his invention and to take a license from
him, and thereupon he forbade them to use it, and they disregarded
the prohibition, and he filed this bill charging them as infringers
and praying for an injunction, an account of profits, and damages,
was not a case arising under the patent laws, and therefore, the
parties being citizens of the same state, not within the
jurisdiction of the circuit court of the United States, and the
judges who dissented from that conclusion admitted it to be
perfectly well settled
"that where a suit is brought on a contract of which a patent is
the subject matter -- either to enforce such contract or to annul
it -- the case arises
Page 125 U. S. 53
on the contract, or out of the contract, and not under the
patent laws."
99 U.S.
99 U. S.
558.
In the still later case of
Albright v. Texas,
106 U. S. 613, a
patentee filed a bill in equity in a state court setting up a
contract by which he agreed to assign his patent to the defendants,
and they agreed to pay him certain royalties, and alleging that the
defendants had refused to account for or pay such royalties to him,
and had fraudulently excluded him from inspecting their books of
account. The defendants answered that the plaintiff had been paid
all the royalties to which he was entitled, and that if he claimed
more, it was because he insisted that goods made under another
patent were an infringement of his. This Court held that it was not
a case arising under the Constitution or laws of the United States,
removable as such into the circuit court under the Act of March 3,
1875, c. 137, § 2, 18 Stat. 470. It was said by Chief Justice Taney
in
Wilson v. Sandford, and repeated by the Court in
Hartell v. Tilghman and in
Albright v. Texas:
"The dispute in this case does not arise under any act of
Congress, nor does the decision depend upon the construction of any
law in relation to patents. It arises out of the contract stated in
the bill, and there is no act of Congress providing for or
regulating contracts of this kind. The rights of the parties depend
altogether upon common law and equity principles."
10 How.
51 U. S.
101-102, 99 U.S.
99 U. S. 552,
106 U.S.
106 U. S.
619.
Those words are equally applicable to the present case, except
that, as it is an action at law, the principles of equity have no
bearing. This action therefore was within the jurisdiction, and,
the parties being citizens of the same state, within the exclusive
jurisdiction, of the state courts, and the only federal question in
the case was rightly decided.
Upon the merits of the case, it follows from what has been
already said that no question is presented of which this Court,
upon this writ of error, has jurisdiction.
Murdock v.
Memphis, 20 Wall. 590. The grounds of the judgment
below appear in the opinion of the Court of Appeals, to which,
under the existing acts of Congress, this Court is at liberty to
refer.
Page 125 U. S. 54
Philadelphia Fire Association v. New York, 119 U.
S. 110;
Kreiger v. Railroad, ante, 125 U. S. 43.
Whether that court was right in its suggestion that it would have
no jurisdiction to determine the validity of the second reissue if
incidentally drawn in question in an action upon an agreement
between the parties we need not consider, inasmuch as it expressly
declined to pass upon any such question because it held that, in
this action to recover royalties due under the agreement, the
defendant, while continuing to enjoy the privileges of the license,
was estopped to deny the validity of the patent or of any reissue
thereof. The decision was based upon the contract between the
parties, and the court did not decide, nor was it necessary for the
determination of the case that it should decide, any question
depending on the construction or effect of the patent laws of the
United States.
Kinsman v.
Parkhurst, 18 How. 289;
Brown v. Atwell,
92 U. S. 327.
Judgment affirmed.
* Peckham, J. We think this case is controlled by that of
Marston v. Swett, reported upon two appeals to this court.
See 66 N.Y. 206; 82 N.Y. 526.
The general and material features of the two cases are similar.
In both, there was an agreement on the part of the plaintiff to
refrain from manufacturing in consideration, among other things, of
the promise of the defendant to pay the royalties. While continuing
the manufacture under the license, the defendant ought not to
escape liability to pay the royalties. The defendant's counsel, it
is true, seeks to distinguish this case from
Marston v. Swett,
supra, because, as he says, since the reissue of the patent in
1881, which he insists was wholly void, the defendant has no
protection from the manufacture by others, for the reason that by
the surrender of the patent of 1878 and the reissue of 1881, there
was no valid patent in existence, and the consideration for the
promise to pay royalties had therefore wholly failed.
There was consideration enough for the promise to pay such
royalties in that the plaintiff bound herself not to manufacture,
and because the defendant could not be called to account as an
alleged infringer while manufacturing under the license.
If it were a question of the validity of the reissue of 1881,
and a decision of that question were necessary to the decision of
this case, the defendant is, of course, correct in his claim that a
state court has no jurisdiction to determine such an issue; but
within the decision of the
Marston case, no such question
arises. The defendant has protection enough to base its promise to
pay royalty upon, as long as it so conducts itself towards the
plaintiff as to prevent her from treating it as an infringer. In
other words, so long as the defendant continues to manufacture
under its license (the patent not having been legally annulled),
and thus elects to treat the agreement as in existence, it prevents
the plaintiff from treating the defendant in any other light than
that of a licensee. If the defendant desired to repudiate any
obligation under this agreement, it should have given notice to the
plaintiff that it refused to longer recognize its binding force,
and that it would thereafter manufacture under a claim of right
founded upon the alleged invalidity of the patent. Otherwise, the
defendant in claiming to manufacture under the license and refusing
to pay the royalties thereunder would, if successful, prevent the
plaintiff from recovering anything from it. She could not treat the
defendant as an infringer because it was manufacturing under a
license from her, and she could not collect the royalties under the
license (although herself refraining from manufacturing, as she had
agreed), because the defendant would allege the invalidity of the
patent, although continuing to manufacture under cover of a license
from its owner. Such doctrine cannot stand a moment. Of course, as
is said in the
Marston case, from the time that the patent
is mulled by proper legal proceedings, no royalties could be
collected, even though no notice of a repudiation of the agreement
had been thereafter served.
There is another ground upon which it seems to me this judgment
might well rest. Under the clause in the agreement between the
parties which provided for a forfeiture of all rights thereunder if
one party should willfully violate one of its provisions, the
plaintiff gave notice of such forfeiture to the defendant based
upon its refusal to pay the royalties which it had acknowledged to
be due for the quarter ending October 31, 1581 (the very quarter in
question here), an account of which it had rendered under the oath
of its secretary, as provided for in such agreement. Subsequently
to the service of such notice, the plaintiff withdrew the same at
the request of the defendant and upon its promise to pay these very
royalties which it had already acknowledged to be due. A failure to
carry out such promise gives, as it seems to me, a good cause of
action.
The defendant says there was no consideration for such a
promise, because there was no patent upon which to ground a license
and the defendant therefore had no license and no protection; but
the plaintiff, of course, contended that the reissued patent was
valid, and at the request of the defendant the plaintiff withdrew
her notice of forfeiture of the license, and thus reinstated the
defendant in its possession, and freed it from the liability to be
proceeded against as an infringer and put to expense and
inconvenience in the defense of such a litigation. This was saved
at the request of the defendant and upon its special promise to pay
the royalties. Plainly here was a good and sufficient consideration
for the defendant's promise.
The judgment should be affirmed, with costs. All concur.
