#### John C. Hegelein, Plaintiff, *v.*E. & H. T. Anthony *&*Company, Defendant.

(Supreme Court, New York Trial Term,

January, 1901.)

Contract — Construction of the payment of royalties under a license.

A license for the manufacture and sale of cameras first provided that the licensee should pay a royalty of fifty cents on each one sold. It then provided that if he did not pay royalty on one thousand cameras during the first year the licensor might annul the license, hut that the licensee might still for the same royalty sell the cameras then manufactured or in process of manufacture. It then provided that if the licensee paid royalty on one thousand of them the license should continue for another year, and lastly that the licensee should receive royalty on at least five thousand during the second year. In the first year the licensee sold only twelve cameras, tout the licensor did not annul the license.

Held, that the rights of the parties were governed by the first provision of the contract and that under it the licensee was hound to pay royalty on only twelve cameras.

That, in order to terminate the license it was necessary not only that the licensee should fail to pay on one thousand cameras during the first year, but also that the licensor should annul the license — a thing which he did not do.

The nature of the action and the material facts are stated in the opinion.

Harry E. Knight (David J. Newland, of counsel), for plaintiff.

Merrill & Rogers (Peyson Merrill, of counsel), for defendant.

Giegerich, J.

The action is to recover the sum of $2,500, less six dollars admitted to have heen paid on account, alleged to be due under the terms of a written contract, by which the plaintiff licensed the defendant to make and sell a patented pocket camera. The contract in question was made on the 1st day of June, 1895, and after reciting the obtaining of the letters patent on the invention, the occupation of the defendant, and the desire of the plaintiff *617to license the defendant to manufacture and sell under the patent, proceeds to confer upon the defendant the sole and exclusive license to manufacture and sell the cameras, and binds the plaintiff to defend and hold harmless the defendant against any actions for infringement, and also makes the usual provision in such cases requiring the licensee to keep account of the goods made and sold under the license, and to render periodical statements thereof. The seventh paragraph of the contract is as follows: “The party of the second part agrees to pay to the party of the first part a royalty of 50 cents on each pocket camera sold by it, and to advertise and push the sale of these cameras at its own expense in their photographic Bulletin and Bevista Científica. Any other advertising, however, to be entirely at the option of the party of the second part.” The eighth paragraph deals with the keeping of accounts and rendering of statements, and other similar matters already referred to. The ninth paragraph is as follows: “ It is mutually understood and agreed that if the party of the second part does not pay the royalty on at least 1,000 of these cameras within one year from July 15, 1895, the party of the first part may at his option annul this license by serving a written notice to that effect on the party of the second part, but the party of the second part is to have the privilege in that event of selling such pocket cameras and their plate holders as may be manufactured or in process at the time of said cancellation, paying, however, the same royalty, namely, 50 cents on each camera.” There are two other paragraphs which are unnecessary to be quoted, however, as they do not affect the present controversy. The case was tried without a jury, and it is conceded by both sides that the only question presented concerns the construction of the contract. But little was done under the license during the first year, and royalties on 1,000 of the cameras were not paid within that year. ¡Nevertheless, the plaintiff did not exercise the option reserved to him in the contract of annulling the license. During the second year twelve instruments were sold. ¡Numerous letters exchanged between the parties have been put in evidence, but I do not perceive that they have any bearing on the point in dispute, nor do the counsel in the briefs submitted point out in what aspect they are deemed material. The case, therefore, is resolved, as I have said, into a question of law, and concerns the proper interpretation of the provisions of the contract above quoted, the plaintiff contending that, under *618the circumstances above stated, the defendant was bound to pay $2,500 in royalties the second year, while the defendant contends that it was bound to pay only fifty cents on each instrument sold, and that, having sold but twelve, it discharged its entire obligation to the plaintiff when it sent him the cheek for six dollars. The general and basic provision of the contract in question is found at the beginning of the seventh paragraph, and is as follows: “ The party of the second part agrees to pay to the party of the first part a royalty of 50 cents on each pocket camera sold by them.” Any obligation of the defendant or right of the plaintiff in addition to this is special, and must be expressed in other and special language, and in whatever situation the parties find themselves, unless there is some such special provision made and applicable to that situation, their rights and duties are fixed by this general and fundamental provision just quoted. Passing, now, to the further terms of the contract, it is found that the ninth and tenth paragraphs confer, in certain contingencies, the right to the plaintiff to terminate the license, or to the defendant to insist on its continuance, and, at the same time, give compensating rights to the other party. In the contingency that the defendant does not pay royalty on at least 1,000 cameras within a year the plaintiff is given the option to annul the license, but the defendant is protected by giving it the right, on payment of the same royalty, to sell all instruments completed or in process. Next, and in the tenth paragraph, follows a provision that, in the event that the defendant pays royalties on 1.000 instruments, the license shall continue for another year; that is to say, the plaitiff shall have no right to annul it for that year. But here again a compensating provision is made, and this time in favor of the plaintiff, that ho shall receive royalties on not less than 5.000 cameras that year. It is thus seen that the contract was carefully drawn and safeguards the interests of the parties, the one against the other, in the various contingencies mentioned. It must be observed, however, and in this lies the controlling point of the case, that all contingencies are not covered. The ninth paragraph prescribes a method of terminating the license depending on two conditions: (1) that the defendant pay royalties on less than 1.000 cameras for the year; and (2) that the plaintiff elect to revoke the license and so give notice. What happens in the event of the first condition without the second is not declared, and it is precisely this event that has occurred, viz, the defendant paid roy*619alties on less than 1,000 cameras, and the plaintiff did not give notice annulling the license. I am unable to discover any special provisions applicable to this situation, and must, therefore, reverting to the fundamental provision first pointed out, hold that the rights of the parties are governed by that; viz, the plaintiff is entitled to demand and the defendant bound to pay fifty cents for each camera sold. The plaintiff’s counsel insists that the case falls "within the provisions of the tenth paragraph, but I cannot so regard iit. As above shown, that paragraph prescribes a method of continuing the license, hut only in a certain manner, viz, by the defendant paying royalties on at least 1,000 cameras. Such payment would give the defendant the exclusive right to continue malting and selling the instruments another year, no matter how unwilling the plaintiff might be, or bow remiss the defendant might he in pushing the sales. But to prevent any neglect or unfair treatment of the invention or any injury to the plaintiff’s rights there is a countervailing provision that royalties shall he paid on not less than 5,000 cameras. If such payment were not made, however, the defendant could not insist on continuing in control of the invention, but the plaintiff could himself resume such control, on notice to that effect. There was not, consequently, in such a ease the same necessity or reason for providing against the defendant’s neglecting or purposely suppressing the invention, and, in my view of the reasonable construction of the contract, the parties did not make such provision. The motion to dismiss the complaint is, therefore, granted.

Complaint dismissed.