Gillette v. Bate — 10 Abb. N. Cas. 88

Majority

p. 88

GILLETTE v. BATE.

N. Y. Court of Appeals,

October, 1881.

Headnote

Creditor's Action.—-What Property may be Reached.—Patents.—Increase op Value apter Fraudulent Conveyance.—Value Received by Fraudulent Grantee.—Unpatented Inventions.

The right of a patentee of inventions may bo reached by creditors and applied to the payment of his debts; and the fact that the patent was invalid for want of utility or novelty, docs not avail to prevent this.

It seems, that unpatented inventions are not property in such sense that they can be reached by creditors.

W here the inventor, by a single indivisible act, transferred his patents

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and unpatented inventions in fraud of bis creditors, and the grantee conveyed them to a corporation, taking its stock in payment, which stock afterwards became valuable by reason of the corporation purchasing other patents,—Held, that the patentee’s creditors could reach, by a creditor’s suit, the stock thus received; and that, in the absence of evidence that the unpatented inventions were, or were considered to be, of any value, the stock should not, on their account, be relieved in any degree from the creditors’ claims.

The fraudulent grantee having taken stock in a corporation in exchange for the subject of tile fraudulent conveyance, the incidental advantage, resulting from appreciation of its value by the corporate management, accrues to the creditors of the grantor.

Appeal from a judgment.

Morillo H. Gillette and others, as judgment creditors of John J. Bate, brought this action against John J. • Bate and his wife, to reach stock which the latter had taken in exchange for patents and invention which the husband had assigned to her by a transfer, void as against creditors.

The facts are stated in the opinion.

Winchester Britton, for appellant.

Ira B. Warren, for respondent.

This case comes here upon the findings of the judge, and exceptions, without the evidence ; and it is therefore to be taken as true, as found, that the transfer of the judgment debtor to Wickes, and by Mm to Harriet TL Bate, the judgment debtor’s wife, of two-thirds of the patent owned by him, and of his unpatented inventions, was made without any consideration, and with intent to defraud his creditors.

The corporation, the stock of which, issued to Harriet E. Bate is sought to be reached in this action, was organized by Wickes, the owner of one-third of the patent and inventions, and John E. Bate, the judgment debtor, acting as attorney for Ms wife, upon the basis of the patent and inventions transferred to the

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corporation. The two hundred shares of stock standing in the name of Mrs. Bate were issued to her in payment for her interest in the patent and inventions so transferred. One hundred shares were issued to Wickes in payment for his interest. The company, after having issued the three hundred shares, retained five hundred shares, and subsequently, by the sale of the reserved stock and by money borrowed on its credit, purchased and procured other patents from other parties, and thereby the stock became valuable. The judgment debtor was the patentee and inventor of the processes embraced in the patent and inventions originally acquired by the company. Wickes acquired his title to one-third interest by purchase from John R. Bate, concurrently with the transfer of the two-thirds to Harriet R. Bate. He paid for his interest $5,000 in cash, and agreed to pay contingently $5,000 in addition, which was subsequently paid. But the court, on the request of the defendants, found that at the time of the transfer of the patent and inventions by John R. Bate to Wickes and Harriet R. Bate, the patent was of no value, for the reason that so much of the so called patented invention as was new had no utility, and because the residue of the thing patented, was covered by a prior patent, which facts together, as the court found, rendered the patent of no value.

It is conceded that the right acquired by a patentee on the issue of a valid patent is property which is subject to the claims of creditors, and may be reached by creditor’s bill and applied to the payment of the debts of the patentee. This doctrine was expressly asserted by Nelsost, J., in Stephens v. Cady (14 How. U. S. 528), and has been recently adjudicated by the supreme court of California, in Pacific Bank v. Robinson (12 Rep. No. 3, p. 70), and we entertain no doubt of its correctness (McDermott Strong, 4 Johns. Ch. 689 ; Spader v. Davis, 5 Id. 280; S. C., 20 Johns. 554 ).

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But it is insisted that a patent invalid for want of utility or novelty is not property, but is a void thing, and that creditors are not injured by its transfer by the patentee, and cannot, therefore, set aside an attempted transfer, although made with intent to defraud them. This seems a singular answer for a debtor to make who has assigned a patent with intent to defraud his creditors, and who by his assignment has assumed it to be property, and especially in a case like this, where the debtor concurrently with such assignment has sold an undivided interest for a large sum.

The acts of Congress authorize patents to be issued for new and useful inventions, and utility and novelty are conditions precedent to the validity of a patent; and in actions for infringement the want of these requisites is a good defense. Bnt to avoid a patent for want of utility, it must appear to be utterly worthless. If capable of any beneficial use, and not entirely frivolous and useless, it cannot be avoided on this ground (Vance v. Campbell, 1 Fisher, 483; Compton v. Belknap Mills, 3 Id. 539). And this defense is not open to licensees who have accepted a license from the patentee and agreed to pay a royalty on the manufacture of the patented article. We are of opinion that the defense of want of utility or novelty of the patent is not an answer to the creditors’ suit in this case. The finding does not show that the lack of utility or novelty had been ascertained by any judicial proceeding or otherwise, or was known to any of the-parties to the transfer at the time. On the contrary, the clear implication is that all of them regarded the patent as of great value. Suppose the patent had never been assigned, would it be an answer to a creditor’s bill filed to reach it to show that in fact it was valueless 3 We think not. The issuing of the patent, prima facie, confers on the patentee an exclusive right to make, use and vend the patented invention for a definite period,

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and this right is property. True, this presumptive right may, in some cases and between some parties, be rebutted by proof. But we think a patentee who, on the application for a patent, is required to swear that the invention is new and useful, cannot afterward defeat a creditor’s bill by proving the contrary, and that his fraudulent assignee stands in the same position.

The judgment in this action subjects the stock issued to the debtor’s wife to the claim of the plaintiff, and it is said that this cannot be done for the reason that the patent assigned by Mrs. Bate had no value, and the present value of the stock is attributable to the purchase by the company of other patents. But the stock, when issued to Mrs. Bate, stood in the place of and represented her interest in the patent and inventions assigned. The reserved stock belonged to the company, but she, as one of the stockholders and by virtue of that relation, had an interest in it. The stock, by the successful management of the company, has become valuable. The stock, when issued to Mrs. Bate, could be reached by her husband’s creditors, because it represented the thing fraudulently transferred. The incidental advantage resulting from the appreciation in its value by the corporate management accrues to the creditors. The thing they now seek is the same thing it was in its origin, and that was liable to be taken by creditors.

But it is claimed that the stock held by Mrs. Bate was issued to her in payment not only of her interest in the patent, butalso of her interest in the unpatented inventions; and that the latter were not property in such sense that they could be reached by her husband’s creditors. The conclusion is therefore claimed to follow, that the claim of creditors against the stock must have the same relation to the whole stock as the value of the patent had to the value of the unpatented inventions.

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We are inclined to accede to the view of counsel that unpatented inventions are not property, in such sense that they can be reached by creditors. The inventor of an unpatented improvement has an inchoate right to its exclusive use, which he may perfect and render absolute by proceeding in the manner which the law requires (Tabby, Ch. J., Gayler v. Wilder, 10 How. U. S. 477), and the laws of Congress recognize the assignability of a perfected invention, although no patent has been issued (Act of March 3, 1837, § 6; Act of March 31, 1839, § 9; Curtis on Patents, § 168). But it is the patent only which gives an exclusive property; and while the right is inchoate, it is, we think, at least doubtful whether it has the characteristics of property so as to justify a compulsory transfer by the inventor (see Curtis on Patents, § 175; Hesse v. Stromson, 3 Bos. & P. 565).

But we do not deem it essential to pass definitely upon this question. The transfer to Mrs. Bate of the patent and the unpaténted inventions was one single, indivisible act. No separate valuation, so far- as appears, was put upon the unpatented inventions upon the transfer to the company, nor does it appear that at any time they were considered to be of any value. The intent of the debtor was the same in transferring the inventions as in transferring the patent. The transfer of the latter was in law void, and we think that the court is not called upon, in the absence of any evidence that the inventions were of any value or that they were so considered, to modify the j udgment so as to relieve the stock or any part of it from the plaintiff’s claim.

We think, therefore, the judgment should be affirmed.

All the judges concurred, except Eabl and Dabeoeth, JJ., dissenting.

Judgment affirmed, with costs.

Cases cited

Hadden v. Spader 20 Johns. 554 N.Y. p. 90