Case ID: ad_129/html/0389-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Robert N. Schalkenbach, Respondent, v. National Ventilating Company, Appellant.
    First Department,
    December 11, 1908.
    Patents — license — suit to enjoin sale of patented article—jurisdiction of State and Federal courts — when injunction should not issue.
    Where the decision of a court of equity is necessary to the cancellation of a contract conferring a license to make and sell a patented article, the State courts have jurisdiction to enjoin the manufacture and sale of the article pending the litigation, if the facts warrant such relief.
    But if a party to such contract is entitled to annul it without a decision of the court and does so, or if he annul the same by reason of a breach by the other party, the latter by continuing to manufacture and sell the article is an infringer, and the Federal courts have exclusive jurisdiction.
    And even where the decree of a court of equity is essential to the cancellation of such contract, an injunction restraining the licensee from manufacturing and selling the article pending the decree of rescission will not be granted where the State court can issue no permanent injunction, and it is not shown that the defendant is irresponsible, or that the plaintiff cannot obtain adequate relief by an accounting for the profits, and the injunction will do greater damage to the defendant than to the plaintiff by preventing the execution of profitable contracts.
    Appeal by the defendant, the National Ventilating Company, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 21st day of August, 1908, granting a temporary injunction.
    
      Henry F. Cochrane, for the appellant.
    
      Frederic Cyrus Leubuscher [William Mack with him on the brief], for the respondent.
   Laughlin, J.:

This is an action for an injunction to restrain the defendant from manufacturing and selling glazed structures embodying plaintiffs inventions, specified in an agreement in writing between the parties, and to have the contract declared terminated as of January 1, 1907, and for an accounting under the contract and for damages for a breach of it. The injunction order which was issued on the summons, complaint and affidavits, enjoins the defendant from manufacturing, selling, delivering and erecting glazed structures embodying plaintiff’s inventions, and from making estimates and bids and entering into contracts therefor. The agreement was made on the 1st day of June, 1904. It recites that the plaintiff has invented certain'new and useful improvements in glazed structures, covered by certain letters patent, and by an application for letters patent, and certain others for which he is about to apply for letters patent, and that the defendant was willing to undertake the manufacture • and sale thereof. The defendant was given the sole and exclusive right to manufacture and sell glazed structures embodying any or all of the plaintiff’s inventions described in the contract for the term of five years from the date thereof, and it agreed to undertake the manufacture and sale of the glazed structures “ or such of them as it may find useful, and to continue such manufacture and sale during the term of this agreement, or so long within said term as. it shall be found profitable to do so,” and to account to the plaintiff for twenty-five per cent of the profits accruing from said business and to pay the same at the end of each year. The plaintiff agreed to devote his entire time and his best efforts ” to the business during the term of the agreement in whatever capacity ” the defendant might elect and to give to the business the sole and exclusive use of any and all other new and useful improvements in glazed structures that lie might thereafter invent during the term of the agreement. The defendant further agreed to advance to the plaintiff the sum of $150 per month during the term of this agreement, or so long within said term as he shall continue faithfully to discharge his duties hereunder, and so long within said term as it shall be found profitable to continue said business of manufacturing and selling glazed structures, such advances to be a first charge against his share of the profits.” By the agreement the plaintiff gave to the defendant an option to purchase outright on or before the expiration of the time of this agreement, a three-fourths interest in said described business and the good will thereof, and in said inventions, patents, pending applications for patents, etc., etc., for the sum of fifty-thousand.($50,000) dollars cash.” In the event of the exercise of this option, the plaintiff agreed to accept twenty-five per cent of the capital stock of the company to be organized for conducting the business “ as representing his remaining one-quarter interest therein.” The last clause of the agreement provided that in the event of a discontinuance of the agreement at any time before the expiration of the term of five years “ the dies and machinery made or pur- ' chased specially for this business may, at the option of the first party [plaintiff], be turned over to him on a fair valuation of such dies and machinery at that time.”

The plaintiff alleges that after the execution of the contract the defendant entered upon the manufacture and sale of glazed structures thereunder, embodying his inventions, and that he began to devote and continued to devote his entire time and best efforts to the business, but that the defendant, in violation of the agreement, neglected and refused to render annual accounts of the manufacture and sale of said glazed structures thereunder during the years 1905 and 1906, although such accounts were duly demanded. The plaintiff further alleges that on or about the 1st day of January, 1907, be was notified by defendant that his services were no longer required; that no further advances would be made to him and that he was discharged, no reason being assigned therefor and the defendant failed to. give a reason on being requested so to do; that he thereafter duly tendered his services and demanded the advances agreed to be made to him under the contract, but the defendant refused to accept his services or to make the advances; that after his discharge he offered to purchase the dies and machinery as provided in the contract, but the defendant refused to sell the same; that in March, 1907, the defendant delivered to plaintiff an account purporting to show that the manufacture and sale of glazed structures had been unprofitable from the outset and was then unprofitable, and thereafter plaintiff notified defendant that on account of its violations of the contract and of the business being unprofitable, he elected to discontinue the agreement; that the defendant, in violation of the agreement, has ever since continued the manufacture and sale of said glazed structures and has failed and refused to employ plaintiff or to make the advances provided for in the agreement, or to render an account of such manufacture and sale. It is further alleged in the complaint that the defendant threatens to make contracts for the use of said glazed structures which cannot be fulfilled within the five years; that if the work has been unprofitable, it is owing to the incompetence and negligence of the defendant and its agents; that defendant has also violated the contract in that it has failed to pay the costs, fees and expenses of filing new applications for obtaining letters patent on improvements in said glazed structures made by plaintiff, and that notwithstanding this fact the defendant has embodied and is embodying those improvements in its estimates and contracts and threatens to continue doing so; that defendant has omitted in a number of large contracts, and still omits and refuses and threatens to continue to omit and refuse to use lead strips forming one of the most important parts of the plaintiff’s invention, they being used under the surface bearing caps which render the structures water tight, and that the use of such lead strips has made the plaintiff’s invention well and favorably known to the trade, and their omission has greatly damaged and will continue to damage the good repute of the invention. The plaintiff further alleges performance of the agreement on his part, and that he has sustained damages in the sum of $100,000 and has no adequate remedy at law.

The learned counsel for the appellant contends that the complaint, in so far as it asks for injunctive relief, is predicated not upon the contract but upon an infringement of the plaintiff’s patent rights. This argument is based upon the allegation that the plaintiff elected to terminate the contract on account of the defendant’s violation thereof. If, as the plaintiff alleges, the defendant violated the contract he had a right to cancel it, as he alleges that he did, and this would be effectual without the aid of a court of equity. (Henderson v. Dougherty, 95 App. Div. 316, 351.) If the plaintiff be'right in his contention, that he as well as the defendant had a right to elect to terminate the contract when it was found that the manufacture and sale of the glazed structures were unprofitable, or in his contention that under the contract he was entitled to be employed as long as the defendant continued to manufacture and sell the glazed structures, and that, therefore, his discharge constituted a total breach of the contract, then it is quite clear in this jurisdiction that upon his election and notice to cancel the contract, it would be canceled for all purposes without the adjudication of a court of equity. In cases where the decision of a court of equity is necessary to cancel or annul a contract conferring a license to use a patented article, or with respect to a sale thereof, courts of equity have jurisdiction where the facts require such relief, to enjoin the manufacture or sale of a patented article pending the litigation and until the contract has been annulled by the judicial decree. (Hartell v. Tilghman, 99 U. S. 547; Hyatt v. Ingalls, 124 N. Y. 93.) If, however, without a decree of the court, the contract has heen canceled, as the plaintiff alleges, then it is the same as if the license had never been issued and the defendant cannot be said to be manufacturing under the contract and would, in those circumstances, be guilty of an infringement of the plaintiff’s patent rights, over which the Federal courts only have jurisdiction. (Dudley v. Mayhew, 3 N. Y. 9; Hovey v. Rubber Tip Pencil Co., 57 id. 119; De Witt v. Elmira Nobles Mfg. Co., 66 id. 459 ; Continental Store Service Co. v. Clark, 100 id. 365; Hat Sweat Mfg. Co. v. Reinoehl, 102 id. 167; Henderson v. Dougherty, supra ; White v. Rankin, 144 U. S. 628.) If, however, the plaintiff be in a position to contend that the allegations of the complaint are insufficient to show that the contract has been canceled and that a judicial decree is necessary to accomplish that purpose, and if the plaintiff may become entitled to a decree canceling the contract, still I am of opinion that he was not entitled to the injunction. In that event it might be said that the injunction would be based upon the contract, and that the State courts have jurisdiction, for if the plaintiff has become entitled to a decree of the court annulling the contract on account of the defendant’s violation thereof, but either the contract or the nature of the violations be such that the contract can be said to continue in force until.it is annulled by a decree of the court, the plaintiff might in that event, on proper facts shown, be entitled to an injunction enjoining defendant from enjoying the fruits of the contract pending the action. Plaintiff, however, has not here shown sufficiently clear, to warrant the issuance of an injunction on that theory, that there have been violations of the contract which warrant its cancellation. It is to be borne in mind that this is a case in which no permanent injunction can be issued restraining the defendant from manufacturing and selling these glazed structures. The most that this court could do in any event would be to decree that the contract be annulled and that the defendant has no further riVlit thereunder to manafacture and sell said structures. For any further violation of his rights the plaintiff would be relegated to the Federal courts for the patents may be invalid and the defendant or any other person may have the right to disregard them, and there is evidence in the record upon which a claim of invalidity is asserted. In a case of this nature, where no permanent injunction may be entered, the plaintiff should show a very clear right to an injunction before a temporary injunction should be issued. The plaintiff asserts that he has no adequate remedy at law, but he does not show, so far as the further manufacture and sale of the glazed structures pending the action is concerned, that the defendant is irresponsible or that he cannot obtain adequate relief by an accounting for the profits. The single particular in which it is alleged the defendant is not following the specifications for the construction of the patented device, is quite insufficient to warrant a temporary injunction upon the theory upon which it is claimed, namely, that the good repute of the plaintiff’s invention will be greatly damaged. The opposing affidavits show that plaintiff was discharged for good cause; that defendant did not elect to cancel the contract to manufacture and sell and that it is manufacturing and selling the glazed structures in all respects according to the patents; that it is about to close a profitable contract and will sustain far greater damage by the issuance of the injunction than plaintiff will sustain if it be not issued. The right of plaintiff to the injunction, therefore, is not clear upon any theory.

It follows, therefore, that the order should be reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.

Patterson, P. J., Ingraham, Clarke and Scott, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.