Court Opinion

ID: 8197466
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:20:57.846041+00
Date Added: 2024-06-11T16:40:42.315200
License: Public Domain

The following opinion was filed October 11, 1932:
Owen, J.
(on motion for rehearing). A motion for rehearing directs attention to the fact that this court did not consider the defense of total failure of consideration which was found by the trial court and urged in respondent’s Brief. This contention was so palpably unsound, except as taken in connection with the defense of fraud, that the court deemed it immaterial when all question of fraud was read out of the case. Plowever, it is urged upon a motion for rehearing that, fraud or no fraud, there was a total failure of consideration for the royalty contract because of existing patents covering many of the features involved in the chair and upon which Schmitt had made claims for patents which were disallowed. We are satisfied that this contention is entirely without merit.
The genius of Schmitt had created a valuable article of commerce which he proposed to manufacture and place upon the market. The Northern Corrugating Company learned of this fact and satisfied itself that the manufacture and distribution of this chair would afford a profitable venture. It desired to acquire the exclusive right to manufacture the chair. This right, so far as Schmitt had the power to give it, was a valuable right. At this time it is doubtful if it had the information necessary to enable it to manufacture the chair. Schmitt had refused to send it one of his chairs for inspection. The contract prevented Schmitt from entering into the manufacture of the chair. As already seen, the contract was not contingent upon the allowance of Schmitt’s *19various claims for patents. The Corrugating Company wanted the immediate right to manufacture the chair. This it got and this was all for which it contracted.
It is well settled by much uniform authority that the licensee of a patent right may not refuse to pay royalties or license fees, because the patent is subsequently declared to be void, which have accrued up to the time of such declaration. Among the authorities that may be cited in support of this proposition are Marsh v. Harris Mfg. Co. 63 Wis. 276, 22 N. W. 516; Federal Electric Co. v. Flexlume Corp. 9 Fed. (2d) 647; Barber Asphalt Paving Co. v. Headley Good Roads Co. 284 Fed. 177; In re Michigan Motor Specialties Co. 288 Fed. 377; Thompson Spot Welder Co. v. Oldberg Mfg. Co. 234 Mich. 317, 207 N. W. 828; Havana Press Drill Co. v. Ashurst, 148 Ill. 115, 35 N. E. 873; U. S. v. Harvey Steel Co. 196 U. S. 310, 25 Sup. Ct. 240.
The doctrine seems to be that the licensee in a suit to recover the royalties agreed to be paid will not be permitted to contest the validity of the patent. There is no warrant of such validity implied in a license given thereunder, and proof of its invalidity is no defense in a suit for the promised royalties. By analogy, as well as upon principle, the licensee of an unpatented device stands upon exactly the same ground. He enters into such a contract upon the belief entertained by him that the genius of another has produced an article of value, and that the exclusive right to manufacture it, so far as it can be given by the inventor, is something of value for which he is willing to pay. The mere fact that others might have the legal right to manufacture it does not deprive the license from the inventor of consideration. This is the view taken by at least two courts. In Ingraham v. Schaum, 157 Pa. St. 88, 27 Atl. 404, the supreme court of Pennsylvania had under consideration an action to recover royalties agreed to be paid on an unpatented device *20for which a patent was subsequently refused. Speaking of the liability of the licensee the court says:
“They knew that it was an ‘unpatented device on which they were to pay royalties, and that their liability to pay them was not contingent on the result of the application for a patent. We have, then, the case of parties who, having used and made profits from an unpatented device, under their agreement with the inventor of it, refuse to pay him the royalties therein stipulated for, on the sole ground that he failed to secure a patent for his invention. The consideration of their agreement to pay the royalties was the right granted to them, and this right they have exercised and enjoyed without molestation or threat of interference from any quarter, and as fully and exclusively as they could have done if a patent had been obtained. It may be fairly assumed, as it is not deified, that the witch motion, although not patented, is a useful device, and that the price for which they sold the machines containing it included the royalty they had agreed to pay. This witch motion, whether patentable or not, was devised by the appellant, and the appellees’ acquired from him, in consideration of their agreement to pay the stipulated royalty, the right to build it, together with the knowledge that enabled them to do so. As they do not deny that they have exercised the right and used the knowledge so obtained with as much profit to themselves as they would have secured if the patent had been granted, nor allege that they have sustained loss or incurred liability by the refusal of it, their claim to be released from their promise to pay royalties is against equity and good conscience, as well as in conflict with the plain provisions of their contract.” To the same effect is Myers v. Gerhardt, 344 Ill. 620, 176 N. E. 713.
We see here no failure of consideration. The Corrugating Company got exactly what it paid for and hoped to acquire. It got the exclusive right from the vendor to manufacture this chair. It has not been disturbed or interfered with in the exercise of that right. It has not been ejected from the rights and privileges thus acquired. Schmitt has at all times refrained from manufacturing the chair. No *21one has undertaken to manufacture the same chair. The competition it has met from similar chairs has been inconsequential. At no time did it repudiate the contract. It has enjoyed the rights and benefits it sought to acquire and it should now pay that which it agreed to pay.