Hyatt v. Ingalls — 35 N.Y. St. Rep. 114

Majority

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Elizabeth L. Hyatt, Resp’t and App’lt, v. Joshua K. Ingalls et al., App’lts and Resp’ts.^[1]

(Court of Appeals, Second Division,

Filed January 14, 1891.)

Headnote

1. Patents—When state courts have jurisdiction of actions in RELATION TO.

Plaintiff having obtained a patent for illuminating basements in 1867, and a reissue in 1878, in the latter year .entered into an agreement with defendants, licensing them to manufacture and sell in a stated territory. On the same day she entered into a second agreement referring to the other and stating among other things that defendants acknowledged the validity of the patent and consented that she might reissue it again whenever she should choose. A. controversy arising between them, in 1881 they reaffirmed the former contract, but in 1888 defendants failing to pay the royalties due plaintiff November 1, 1881, she notified them that she deemed the license forfeited and brought this action. Held, that while the allegations of the complaint contain elements of an action for infringement of the plaintiff’s patent, it is founded upon a contract between the parties and the forfeiture sought for is for a breach of such contract and within the state jurisdiction.

3. Same—Reissue.

The first issue of this patent embraced the claims represented by the latter substantially a:..d with sufficient distinction to preserve them within the principle that the reissue' of letters patent embracing more than did those surrendered will he deemed invalid as to the excess or new claim only embraced in the latter; and therefore the defendants were not prejudiced by said reissue.

8. Same—License.

As the defendants did not offer to surrender up the license and terminate their relations as licensees or give the plaintiff any notice to that effect, but continued to use and sell the patented articles in the manner authorized by the license, they are not permitted to effectually assert as a defense that they did not proceed under it in doing so.

4. Same.

The defendants having entered into the contract with the plaintiff and taken from her a license to use and sell the subject of the patent, cannot for the purposes of their defense to an action to recover the royalties question the validity of her patent.

5. Same—Construction of contract.

Under the terms of the contract the defendants were to pay royalties for the use made of the illuminating tiles in the construction of' coverings or roofs over basement extensions. They were not chargeable for such tiles sold unless they were applied to such use And while it was their duty to account for all of these sales which were used for the licensed purposes, they were not necessarily chargeable in that respect for certain of the tile sold by them merely because they did not know or had not ascertained to what use they were in fact applied.

Gross appeals from judgment of the general term of the superior court of the city of New York, confirming report of referee, and. affirming final judgment entered upon it, and to review the judgment of the general term, affirming as modified interlocutory judgment entered upon the decision of the court at special term.

The action was founded upon alleged rights secured to the plaintiff by letters patent of the United States of date August 27,

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1867, and re-issued. August 6, 1878, for the improvement in illuminated basements and basement extension sidewalks, roofs, etc., and upon agreements between her and the defendants, and the relief sought was that the defendants account to her for royalties under the alleged agreement and license, that such agreement and license be declared forfeited, and that the defendants be enjoined from manufacturing, selling or using the articles embraced in such letters patent.

On November 21, 1878, the plaintiff, with Thaddeus Hyatt and Theodore Hyatt, entered into an agreement with the defendants and other firms, reciting that letters patent were granted to the plaintiff on the .application of Thaddeus Hyatt August 27, 1867, and re-issued August 6, 1878, and whereby they agreed to license the defendants and such other firms under such letters patent to manufacture or sell to be used in the territory there mentioned the illuminating tile work covered by such letters, and to license no other party without their consent in such territory.

And the plaintiff agreed not to engage in manufacturing tiling for or laying any basement extension, nor tiling of any kind covered by such letters patent, and Thaddeus and Theodore Hyatt joined with her in such agreement, with certain qualifications. The defendants and such other firms agreed to pay the plaintiff thirty cents per square foot of the illuminated tiles or plates used, of which they were to render accounts quarterly on 1st of February, May, August and November, to the plaintiff. This instrument contained other provisions which it is now unnecessary to mention.

And on the same day the plaintiff entered into a further agreement with the defendants, reciting as in the other, and further, that the plaintiff had, by the other agreement, agreed to give and. the defendants to take a license under such patent to make illuminated basements and basement extensions and to manufacture illuminating materials of the same. Then followed these provisions :

“Art. 1. The said Joshua K. Ingalls and Jacob Mark hereby acknowledge the validity of the said letters patent to the said Elizabeth Adelaide Lake Hyatt.

“ Art. 2. The said Joshua K. Ingalls and Jacob Mark consent that the said E. A Lake Hyatt may, without prejudice to this agreement, hereafter re-issue, when and as often as she shall choose, the said patent of August 27, 1867, as re-issued 6th August, 1878.”

Then it proceeded that the plaintiff, on the terms and conditions therein mentioned, licensed the defendants to manufacture and sell at any place within such territory; that the license should not be transferred without her consent, etc.; that the defendants should, at the end of each quarter, render an account in writing, under oath, to the plaintiff, and make payments for all illuminating work sold and sent away from their premises to be used for the purpose of making illuminating basements and basement extensions; that if either party should knowingly and intentionally violate the agreement such party should forfeit all rights

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under it; and that the agreement should be valid and binding during the continuance of the letters patent and any extension of them. The parties proceeded under these contracts and license, and the defendants paid the royalties until in 1879, when a controversy arose between them in which were involved the other parties to the first mentioned agreement, and suits were commenced.

Afterwards, on November 24,1880, the matters were compromised, and a further contract entered into between all the parties reciting the fact that controversies had arisen, whereupon they made the supplemental agreement to the effect that the agreement first above mentioned was ratified and reaffirmed, except so far as it was inconsistent with the provisions of this one; that such suits should be discontinued; that the plaintiff discharged the defendant’s firm of Mark & Ingalls, and all the other firms and each of them from the payment of all royalties under their several licenses of November 21, 1878, for the period of six months; that nothing in the agreement or licenses shall bind them to the payment of royalties for roofs or roof lights, other than basement extension roofs, until such other roofs or roof lights shall have been judicially determined to be covered by the patent. The defendants rendered their accounts to the plaintiff up to and not later than November-1, 1881, and paid her royalties to and not after August 1, 1881. In January, 1882, the plaintiff caused to be served upon the defendants a notice as follows:

a Messrs. Ingalls & Marie:

G-entlemen—In view of your failure to make return in writing and payments of royalties to me, as required by the license granted by me to you November'21, 1878, under my patent for improvement in illuminated basements, basement extensions, etc., ana your expressed determination not to make any further such returns or payments, I herewith notify you that I deem the said license forfeited by you and as no longer existing.

Yours, etc.,

‘E. A. L. Hyatt,

By Wm. E. Scott, her att’y.”

Dated, New York, January 14, 1882.

This action was commenced in October following. And the trial court directed judgment forfeiting the defendants’ license and forever restraining them from manufacturing, etc., illuminating roofs, roof pavements, basements, basement extensions, etc., also that the plaintiff have an accounting and a reference for that purpose, and that she recover the amount found due her from royalties, -with interest and costs, and interlocutory judgment was entered accordingly. On appeal from that judgment the general term so modified it as to strike out the injunctive relief granted, and as to limit the time of accounting to that between November 1, 1881, and the time of entry of the interlocutory decree, and as so modified it was affirmed. Then followed an extended

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hearing before the referee, his report, final judgment, and its affirmance.

Edward D. McCarthy, for def’ts; George W. Van Slyck, for pl’ff

The defendants’ appeal goes to the foundation of the action. The plaintiff’s appeal has relation only to the subject of the direction given for the accounting of the defendants. The plaintiff by her complaint referred to and set forth the granting to her of the letters patent of 1867, the reissuing of them in 1878, and in September, 1881, the agreements with the defendants and the license to them to make illuminating basements and basement extensions under such patent, and alleged that they did sell such work and render accounts quarterly up to November 1, 1881; that they had not paid royalties for the quarter ending on that day; that since then they had refused to render any account; and that they had repudiated their agreement and asserted their right to manufacture and sell such illuminating work without the license and consent of the plaintiff; and she further alleged that the defendants intentionally violated their agreement, and by virtue of the terms and conditions of it and the license, and by reason of such refusal, the rights and privileges of the defendants under those instruments have ceased and become wholly forfeited; that by the continuance of the manufacture and sale by them of the patented articles, and the use and operation by them of the license, the plaintiff was at the time of the commencement of the action suffering irreparable injury and damage; and that the plaintiff has kept and performed such agreements and license on her part. The defendants, amongst various matters of defense, alleged that the letters patent reissued in September, 1881, were void, because they embraced more and other claims than were included in the reissue of 1878, and omitted specifications and claims which were in the latter.

It is contended by the defendants’ counsel that this suit was for alleged infringement of letters patent, and that the state court had no jurisdiction of the subject matter, and the defendant alleged that the issue made by the portion of the answer before mentioned denied to such court jurisdiction to try it. If this were an action for infringement of letters patent, presenting a controversy arising under the patent laws of the United States, it would be a case exclusively in the jurisdiction of the federal court. But while the allegations of the complaint contain elements of an action for infringement of the plaintiff’s patent, it may be observed that it is founded upon a contract between the parties, and the forfeiture sought is for a breach of such contract by the defendants. In that view the controversy does not arise under any act of congress in relation to patents, and is within the state jurisdiction. Hartell v. Tilghman, 99 U. S., 547 ; Dale Tile Mfg. Co. v. Hyatt, 125 id., 46; Continental Store Service v. Clark, 100 N. Y., 365 .

It is urged, however, that the issue as to the validity of the let

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ters patent alleged to have been- re-issued in 1881, is one not within the jurisdiction of the state court; and, at all events, that the plaintiff was not entitled to recover upon the evidence bearing upon that issue. The original letters were those of 1867; and the practical purpose of a re-issue is to make the description of the invention more clear, plain and specific, and to rectify any mistakes inadvertently made in the original, Russell v. Dodge, 93 U. S., 460 , but the claim of the patentee in them cannot be effectually enlarged, and so far as it is made substantially to represent a new claim or one greater than that included in the original patent, the re-issue is void. Miller v. Brass Co., 104 U. S., 350 ; White v. Dunbar, 119 id., 47. And if the re-issue fail to include the entire claim embraced within the original letters the portion omitted may be deemed dedicated to the public and lost to the patentee. Turner & S. Mfg. Co. v. Dover S. Co., I11 U.S., 319. In view of these general principles applicable to patents and to the surrender and reissue of letters, it is argued that by the surrender of those of 1878, existing when the license was made, the right to protection under them was not only lost to the defendants, and all rights founded upon them denied to the plaintiffs, but that those re-issued in 1881 were not effectual to support either, because they were broader in their claims, description and specifications, and therefore invalid. Whether substantially so or not, it is true that the letters re-issued in 1881 were apparently broader and more comprehensive in those respects than were the letters of 1878. But the former embrace the claims represented by the latter substantially and with sufficient distinctness to preserve them within the principle that the re-issue of "letters patent embracing more than did those surrendered, will be deemed invalid as to the excess or new claim only embraced in the latter; and therefore the defendants were not prejudiced by such re-issue. Gage v. Herring, 107 U. S., 640 .

This is matter of comparative construction of the two reissues. Beyond that it may be that the determination of the ■ question of the validity of the reissue of 1881 is exclusively within the jurisdiction of the federal court. But the present case is relieved from the embarrassment of that question by the contract between the parties, by which the defendants expressly acknowledged the validity of the letters patent as they existed when the contract and lease were made, and stipulated that the plaintiff might, without prejudice to such agreement, thereafter, when, and as often as she should choose, reissue such patent of 1867 as reissued in 1878. It is, however, urged that the agreement and license are not effectual to estop the defendants in that respect, because the plaintiff by her notice to them to that effect, as was her right to do, had declared their license forfeited and as no longer existing, and not only that, but by allegation in her complaint she charged that the rights and privileges of the defendants under the license were forfeited. This notice may have enabled the defendants to surrender up the license and terminate their relation as licensees. This they did not offer to do, or give the plaintiff any notice to that effect, but continued to use and sell the patented

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articles in the manner authorized by the license. They are not, therefore, permitted to effectually assert as a defense that they did not proceed under it in doing so. Union Mfg. Co. v. Lounsbury, 41 N. Y., 364 . The forfeiture alleged in the complaint and sought for by the action was a right in recognition of, and arising upon, the contract and founded upon its breach; and although such right was expressly given by the contract, it did not necessarily depend upon its terms in that respect, but was properly derivable from a substantial violation of its provisions by the defendants. There was, therefore, nothing essentially of the subject-matter or purpose of the action which barred the controversy from the state court or brought it within federal jurisdiction. Hartell v. Tilghman, 99 U. S., 547 . And the defendants having entered into the contract with the plaintiff, and taken from her a license to use and sell the subject of the patent, cannot for the purposes of their defense to an action to recover the royalties, question the validity of her patent. Marston v. Swett, 66 N. Y, 206 ; 82 id., 526; Hyatt v. Dale Tile Mfg. Co., 8 N. Y. State Rep., 631; 106 N. Y., 651 ; 125 U. S., 46 .

As contended by defendants’ counsel, an action for an accounting for the royalties is not one of equitable cognizance, as it involves no trust, but is simply an action to recover the amount due from a debtor to a creditor upon a contract for the payment of money. This claim of the plaintiff was not merely incidental to or dependent upon the equitable relief asked for in her complaint, although properly united with it. No objection was taken by answer or otherwise to the determination of that portion of the cause of action and the relief, founded upon the theory that the injunctive relief demanded was not available. Nor so far as appears was any such question raised in that respect to the accounting, although the general term had modified the interlocutory judgment by striking out such injunctive relief given by it. No such question, therefore, is here for consideration. Town of Mentz v. Cook, 108 N. Y, 504 ; 13 N. Y. State Rep., 845. There was, however, another demand for equitable relief to the effect that the license to the defendant be rescinded, and the provision of the decree so determining and directing remains effectual. This certainly rendered the injunctive part of it unnecessary or improper, because on the judicial rescission of the license the defendants could not further proceed under it, and the court had no power to restrain the defendants from acts of mere infringement of the plaintiff’s patent. There is no occasion to consider further the questions raised on this review in respect to the form of the action.

The main exceptions taken by the defendants to the accounting as directed by the referee, confirmed by the final judgment, and affirmed by the general term, had relation to what was the illuminating work referred to in the license. This was somewhat a matter of interpretation of the phrase “ basem'ents and basement extensions,” as used in that instrument. While the plaintiff claimed that it included the illuminating covers of areas as well as basements extended beyond and under sidewalks, the defendants insisted that it did not include areas.

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The referee’s finding supported the plaintiff’s claim in that respect. The method of making such extension effectual was to take down the front wall of the area' and put in its stead an iron girder supported by the lateral "walls or by columns or both, and over the extension as well, as over that which before was the area putting the illuminating tile made of iron and glass, thus furnishing sidewalk, treads, platform and risers made of iron and glass having suitable strength and durability for such purposes, and supplying light to the basement and its extension. The import of the provision of the license descriptive of the work, its application and extent in that respect, is not defined with entire clearness by the words used, and whether or not the basement extensions embraced areas was a question of fact upon which the finding of the referee was not without evidence for its support. And as bearing upon the intent of the parties, and in aid of such construction of the instrument in that respect, it appeared that in accounts which the defendants had voluntarily rendered and paid to the plaintiff pursuant to the license, were included royalties for illuminating work over areas. The determination of that question of fact in the court below must be deemed conclusive. And the question (subordinate to that just mentioned) whether a public use of such covering of areas by the inventor before his application was made for a patent had not defeated the right to take an effectual one for it as applied to them, may also have been a question of fact. The conclusion was warranted that such use was in good faith for experimental purposes, and, therefore, not prejudicial to the patentee. Elizabeth v. Pavement Co., 97 U. S., 126 . The method of making and allowing to be made objections to the defendants’ account and of surcharging by the plaintiff, and the manner of treating them by the referee, was a matter of practice not subject to the review of this court, inasmuch as there was evidence to support the allowance of the account as made and determined by him.

The only further question upon the defendants’ appeal requiring consideration arises upon their defense alleged of a former action pending at the time this one was commenced. It appears that in January, 1882, an action was "brought by the plaintiff against the defendants in the court of bommon pleas of the city of Mew York to recover the royalties due for the quarter ending Movember 1, 1881, and that such action was pending at the time the interlocutory decree "was entered. It will be observed that such action "did not and could not embrace within its purpose the entire claim for royalties for which this action was brought and" for which recovery was had. The recovery in this action included them up to and in April, 1883. The allegation of the pendency of the former action at law could not, therefore, be treated as a complete defense. And it seems that several years before the "referee’s report was made upon which final judgment was entered, that action was by the consent of the defendants’ attorneys in it discontinued. In view of those facts, there was no error available or prejudicial to the defendants founded upon such alleged defense in the entry of the final judgment for the entire amount due the plaintiff for royalties. Kelsey v. Ward, 16 Abb., 98 ;

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Marston v. Lawrence, 1 Johns., Cas., 397 ; Averill v. Patterson, 10 N. Y., 500 .

The plaintiff’s appeal from the portion of the judgment affirming the part of the final judgment appealed from by her, is founded upon her exceptions to the refusal of the referee to find that the defendants were liable to account to the plaintiff for illuminating tiles where they had inserted glasses in iron, which were adapted or could be used for illuminating roofs of areas or basement extensions, and had not shown they were not so used; also, that they were liable to account for all such tiles adapted to such use manufactured and sold by them to others to be used as the defendants had not shown were not so used. The license to the defendants was not to merely manufacture and sell, and the patent as represented by the license was simply one of construction or combination. That is to say, they were to pay royalties for the use made of the illuminating tiles m the construction of coverings or roofs over basement extensions. They were not chargeable under the contract for such tiles sold unless they were applied to such use. And although adapted to that use, they were equally applicable to illuminating roofs on other parts of buildings, over vaults, etc. The plaintiff’s contention is that the burden was with the defendants to relieve themselves from liability to account for all such tiles aá they sold to or glazed for others to be used; and that so much as they failed to prove were not used for such purpose they must account for. It is true it might be difficult for the plaintiff to trace to its destination the tile sold by the defendants over the territory mentioned in their license, to see to what use it was applied, and it was less difficult for the defendants to know where it was taken by the purchasers, but they no more than the plaintiff could control the use made of the articles by the purchasers. There was no violation of any trust relation on the part of the defendants in making the sales for any purpose. And for anything appearing in the contract with the plaintiff it was their right to do so. While it was their duty to account for all of their sales which were used for the licensed purposes, they were not necessarily chargeable in that respect for certain of the tile sold by them merely because they did not know or had not ascertained to what use they were in fact applied. It is unnecessary to determine what bearing a purpose of the defendants by suppression to defraud the plaintiff may have had upon the proposition, as no such question is presented for consideration. There was no error in the refusal of the referee to find as so requested.

The judgment should be affirmed, without costs to either party.

All concur.