E. C. ATKINS & CO. v. PARKE et al., 61 F. 953

RICKS, District Judge, after stating the case as above, delivered the opinion of the court. This case was first heard upon the pleadings and evidence by Circuit Justice Brown, while district judge for the eastern district of Michigan. In an oral opinion, which we find piinted in the record, he held that the written instrument of February 2, 1886, set forth in the bill, was an assignment of the patent, and vested the legal title thereto in the assignee, which is the plaintiff corporation, described as E. O. Atkins & Co.

He further proceeded to consider whether, without a reassignment or a cancellation of the agreement by a judicial decree, the assignors could claim that they were exonerated from liability as infringers. His conclusion was that: “Where a patentee contracts for the use or sale of the patented

article upon the payment of certain royalties, that he cannot, as against such licensee, maintain a suit for infringement simply upon tlie ground that tlie licensee has failed to pay the agreed sum. It was said in Hartell v. Tilghman, 99 U. S. 547-555, that in such cases the patentee can establish his royalty, and sue at law, and recover every month or every year for what is due. He may also file a bill in chancery to have the license annulled or set aside, because of the difficulties placed in the way of its fair execution by the defendant.

It was held, however, that he could 'not abandon the contract, treat it as a nullity, and charge the defendants ■ as infringers liable as trespassers under the act of congress. ‘We do not agree,’ says Mr, Justice Miller, ‘that either party can, of his own volition, declare the contract rescinded, and proceed precisely as if nothing had been done under it. If it is to be rescinded, it can only be done by a mutual agreement, or by the decree of a court of justice.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it, it can'be specifically enforced against him, or damages can be recovered for its violation; but, until so rescinded or set aside, it is a subsisting agreement, which, whatever it is or may be shown to be, must govern the rights of these parties in the use of complainant’s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.’ * * * These authorities demonstrate that, if this had been a mere license to the plaintiff, the defendants could not have treated it' as a nullity, by reason of the failure of the plaintiff to make reports or to conform to the contract in other particulars, and treat it as an infringer.

Much less could it do so where it conveyed the legal title to the party by assignment to the plaintiff, since such breach would not operate in any way to revest the legal title in the defendants, or enable them to maintain suit upon the patent.” The learned judge then expressed a doubt whether, in view of the breaches of the agreement made by the assignee, and after written notice of a cancellation given by the assignors, the former could maintain a suit for infringement against the patentee.

Having such doubt, and desiring to afford the assignors all rights and relief to which they were entitled under the contract and the law, he made an order staying proceedings sin the pending case for 30 days, and allowing the defendant to file a cross bill. Thereupon such a cross bill was filed.

In it all the material averments set out in the answer were repeated, and additional allegations made charging the defendant with default in not complying with the conditions of said contract, and that, because of such default, the complainants elected to and did terminate and cancel said contract; and further charging that the defendant, E. O. Atkins & Co., had lost all right, title, and interest to said letters patent under said assignment, because of their breach of its conditions.

To this cross bill the defendant corporation made very full and explicit answer to the charge of want of energy on the part of the defendant in manufacturing said machines, and placing the same upon the market. The defendant avers that the complainants were fully aware of the manner in which said business was being prosecuted, and that one of the complainants, Amos S.

Parke, spent a considerable period of time at the defendant’s works, and expressed himself as substantially satisfied with the manner in which the contract was being carried out; that they employed parties selected by complainants to manufacture the swages covered by the invention; and that, with said employment and skill, the complainants, ■through A. S. Parke, expressed themselves as satisfied. The defendant denies all charges of giving preference to other swage machines and being interested in the same, and avers that it acted in good faith in making and putting upon the market said machines.

The defendant further claims that all royalties and reports were made in substantial compliance with the contract, and that, if there were any informalities in such reports, or delay in making the same, objections thereto were waived by the acceptance of such royalties and reports by the complainants. The defendant further avers that such royalties and reports were accepted after notice of the cancellation of said contract by complainants. Defendant avers that said contract is still in full force, and was not canceled or rescinded by complainants’ pretended notice of January 26, 1888. Replication was duly filed.

The parties stipulated to submit the case upon the pleadings under the cross bill, and upon the evidence, taken under the original bill and answer. The case came to a final hearing before Judge Swan, whose opinion is set forth in the record.

In the opinion of Judge Brown, from which we have quoted, in that part ordering a stay of proceedings and allowing the defendants to file a cross bill, he stated that the evidence showed that “the' plaintiff [the assignee under the patent] has been guilty of a breach of the very agreement under which he claims title to the patent,” and therefore expresses doubt as to his right to maintain the suit for an infringement against the patentee. Judge Swan says: “This conclusion, reached upon the same proofs which are here presented, it will be unseemly to disregard or overrule.

It practically leaves nothing for decision.” We do not understand Judge Brown to have intended, by the remark quoted, to pass definitely upon the evidence relating to that issue presented by the pleadings. The evidence on that subject was so voluminous, and the conclusion to be reached from it so important, that it is not to be supposed that he would so summarily have disposed of it. No facts are stated and no reasons given to support the conclusion.

He had previously stated in the most positive terms, that the title to a patent conveyed by a written assignment, such as that exhibited to the answer, could not be revested in the assignor by a breach of the contract on the part of the assignee, so. as to enable the former to maintain a suit upon the patent. He had quoted approvingly the opinion of Mr. Justice Miller in Hartell v. Tilghman, in 99 U.

S. 547, that the only way to rescind such a contract was by a mutual agreement, or by the decree of a court of justice; and that, 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, and must be the foundation of any relief given by a court of equity.

Considering the opinion in all its parts, we are therefore justified in concluding that, by the remark quo ted, the learned justice did not intend to decide that there had been such a breach of the contract by the assignee as authorized its cancellation by mere notice of rescission by the assignors. The evidence would not support such a conclusion.

The sixth clause of the agreement, under which the assignors claim the power to rescind, provides that, if the assignee shall fail to make the statements and payments called for by a preceding clause of the contract within 10 days from the time the same shall become due, then the assignors shall have the right to cancel the exclusive privilege and grant conferred, by giving notice of sucli. intent. This is a clause providing for the forfeiture of title, and the condition upon which the forfeiture is to accrue must, of course, be strictly construed in favor of the assignee.

The condition precedent to forfeiture could not be fulfilled unless there was a failure to make both the reports and the payment within the time required. The evidence conclusively shows that when the assignors attempted to cancel the contract, in January, no money was due from the assignee. Whatever the delinquency as to reports, therefore, the condition of forfeiture was not fulfilled. The other wrongs complained of in the cross bill are not made conditions authorizing or working a forfeiture by the terms of the contract.

They are all wrongs which the complainants, in the cross bill, have pleaded as matters of defense to the original bill, or which may be so pleaded if they ask to be permitted to do so. The original bill prays for an accounting, and in such accounting, before the master, all damages claimed for the wrongs alleged can be considered, and the proper relief allowed, if covered by the proof. They are not of a character to entitle complainants to affirmative relief by a cross bill.

In the court below, it was held by Judge Swan that the cross bill could be sustained, in order to relieve complainants from the cloud upon their title to the letters patent. Inasmuch as we have already found that the evidence did not show that the conditions named in clause 6 had been broken as claimed, it follows that there is no cloud upon the title to be removed. Various other errors are assigned by the appellant, not necessary to consider in view of the conclusion already stated.

For the reasons given, the decree of the circuit court must be reversed, the cross bill be dismissed, the injunction now in force be dissolved, and the case be remanded for further proceedings under the original bill.