The Edison phonograph monthly (Jan-Dec 1916)

EDISON PHONOGRAPH MONTHLY, JANUARY, 1916 IS As Our Legal Department Sees It FEDERAL JUDGE GEIGER UPHOLDS PATENTEE'S RIGHT TO MAINTAIN PRICES IN OUR September issue we printed an article entitled "The Right of a Manufacturer to Control the Retail Price at Which His Product Shall be Sold," this being a synopsis of an address which was given by Mr. Holden, our general counsel, at the recent Edison Dealers' Convention at Orange. Mr. Holden pointed out that the decision in the Sanatogen Case, Bauer vs. O'Donnell, 229 U. S. 1, has been so greatly misrepresented in newspaper articles that many persons had been led to believe that under this decision a patent owner could not fix the price at which the patented article should be sold; but that the Court in reality merely held that where the patented articles were marketed with no agreement from the purchaser in respect to the resale price, the purchaser would not be bound simply because there was a label upon the articles which provided that they should not be sold for less than a given price, and he also pointed out that the most recent decision at that time, to wit, United States vs. Keystone Watch Case Co., 218 Fed., 502, held that the owner of a patent did have the right to make an agreement with his jobbers whereby a minimum price was fixed at which the jobbers might sell. The soundness of our position is made evident by a decision which has just been rendered by Judge Geiger in the United States District Court for the Northern District of Illinois, Eastern Division. This is a suit brought by the American Graphophone Co. and Columbia Graphophone Co. against the Boston Store of Chicago. In this case the defendant had signed the regular Columbia dealer's license agreement and had purchased goods thereunder from the Columbia Graphophone Co. and then disposed of the same at cut prices. A suit was thereupon brought by the Columbia Co. and a motion made for an injunction to prohibit sales at cut prices. The defendant endeavored to justify its conduct under the decision in the Sanatogen Case, but the Court, after carefully considering all the decisions upon this subject, came to the conclusion that the contract between the defendant and plaintiff was valid and enforcible, the Court using the following language: "To state it again, in different form: If the patentee may say to the world, 'I will confer upon any one, by license, the right to manufacture and sell my patented article, provided he will observe a price, fixed by me, at which the article is sold to another,' he can say, T will manufacture the patented articles myself and I will sell to no one except on condition that he observe a resale price to be fixed by me.' And, he can do so, for the reason that the article, because of its embodiment of the invention, has been made a subject of lawfully restrictive price bargaining; and the Wall Paper and Dr. Miles Medical cases, 212 U. S. 233, 220 U. S. 393, are most persuasive in supporting such view. The language of the Supreme Court in the Miles case (see p. 401) could give no clearer recognition to the full right of the patentee to bargain for price restriction. The statement is almost made in plain words that if the proprietary medicine were a patented article, the contract there in question would, as between the parties, receive the protection of the patent laws as construed in the Bement case. "In view of the language in Bauer vs. O'Donnell, which discloses so clear a purpose to limit it to the precise facts, it is my judgment that it does not and was not intended to overrule the other cases, which seem so firmly to have established the general proposition upon which the sufficiency of the complaint in the present case depends. In other words, the complaint shows a contract which, against the defendant, as a purchaser from the patentee, is valid and enforcible. "The conclusions are: "1. That, Dick vs. Henry and Bement vs. Harrow Co., Victor vs. The Fair, and the other cases supra, so far as they permit a patentee, while exercising any of his three coordinate monopoly rights, by proper amendment to reserve such portion thereof as he sees fit, have not been overruled by Bauer vs. O'Donnell; but that, after he has once allowed the patented article to pass out of the monopoly without committing, by proper agreement, the one to whom the article comes to the observance of an obligation on his part, he cannot then recall it or claim that, by a notice, he burdened the article with such reservation. "2. That an agent, or vendee of a patentee may, by direct covenant or agreement, be bound to the observance of price restriction, imposed as a condition upon which exclusive right of sale by the patentee is being exercised. Whether a violation of such agreement be dealt with as for infringement or breach of a contract enforcible in equity, is immaterial as between the patentee and his contractee, save only as it may affect the jurisdiction to be invoked. "3. That the complainant states a good cause of action against the defendant. If the contract is to be taken as the measure of the defendant's right, it seems to me that a failure to observe its explicit stipulation constitutes infringement, certainly the breach of the agreement, if valid, should entitle plaintiffs to relief in equity." The opinion of the Court is unusually lucid and indicates a very careful study of the entire situation, including all of the decisions of the Supreme Court which have any bearing upon this question. The decision is certainly in accordance with the rulings of the Supreme Court on this subject and is logical and convincing. W e feel, therefore, that in case of an appeal Judge Geiger should be sustained.