Petition for writ of certiorari to the Circuit Court of Appeals for the Second Circuit and brief in support thereof

Supreme Court of the United States

October Term, 1916.

MOTION PICTURE PATENTS COMPANY,

Petitioner,
against

UNIVERSAL FILM MANUFACTURING COMPANY,
UNIVERSAL FILM EXCHANGE OF NEW YORK,
and PRAGUE AMUSEMENT COMPANY,

Respondents,

PETITION FOR WRIT OF CERTIORARI TO THE CIRCUIT

COURT OF APPEALS FOR THE SECOND CIRCUIT

AND BRIEF IN SUPPORT THEREOF.

MELVILLE CHURCH,

Counsel for Petitioner,

McGill Buiiaing,
Washington, D. O,

Pbkp% or Fremont Patne, 47 Broad St. — 'Phones, 2277-78-79 Broad.

Scanned from the collection of

Richard Koszarski

Coordinated by the

Media History Digital Library

www.mediahistoryproject.org

Funded by a donation from

Domitor

INDEX TO CITATIONS.

Petition.

PAGK

Bauer vs. O'Donnell, 229 U. S., 1 8

Henry vs. Dick, 224 U. S., 1 8

Victor Talking Mach. Co. vs. Straus, 230 Fed.,

449 8

Brief.

Bauer vs. O'Donnell, 229 U. S., 1 29, 30

De La Verne Mach. Co. vs. Featherstone, 147

U. S., 209-222 27

Henry vs. Dick, 224 U. S., 1 27, 29, 30

Shauer vs. Alterton, 151 U. S., 607-622 28

Wood vs. Carpenter, 101 U. S., 135-141 28

Digitized by the Internet Archive
in 2013

http://archive.org/details/petitionforwritoOOmoti

Supreme Court of the United States

()(^T()IU:K term, IDK).

Motion Picture Patents
Company^

Petitioner,

vs.

Universal Film Manufacturing ) ^^ Equity.

Company, Universal F i l m

Exchange of New York, and

Prague Amusement Company,

Respondents.

To Wetmore & Jenner, Counsel for Respondents :

Gentlemen :

Please take notice that a petition, praying for a
writ of certiorari to the United States Circuit
Court of Appeals for the Second Circuit, a copy of
which is hereto annexed, will be submitted to the
Supreme Court of the United States, for the deci-
sion of that Court tliereon, on the 23rd day of
October, 1916, at the Court Room, in the Capitol,
in the City of Washington, District of Columbia,
at the opening of the Court on that day, or as soon
thereafter as counsel may be heard.

Dated, New York, October 6, 1916.

MELVILLE CHURCH,

Counsel for Petitioner,

McGill Building,
Washington, D. C.

Service acknowledged this 6th dav of October,
1916.

WETMORE & JENNER,
Counsel for Respondents.

6

SUPREME COURT

OF THE UNITED STATES,

October Term^ 1916.

Motion Picture Patents
Company,

Petitioner,

vs.

Universal Film Manufacturing ) Equity.

Company, Universal Film

Exchange of New York, and

Prague Amusement Company,

Respondents.

Petition for Writ of Certiorari from
the Supreme Court of the United
States to the United States Circuit
Court of Appeals for the Second
Circuit.

To the Honorable, the Chief Justice and Associate
Justices of the Supreme Court of the United
vStates :

Your petitioner, MOTION PICTURE PAT-
ENTS COMPANY, respectfully represents :

I. That it is a corporation duly created and
existing under the laws of the State of New Jersey.

II. That it is the owner of patent No. 707,934,
granted to Woodville Latham, August 26, 1902
(upon an application filed June 1, 1896), for Im-
provements in Projecting Kinetoscopes, or what

havo come to bo known as "Motion Picture Project- 7
ing Machines." This patent describes and chiinis
novel means for moving a quantity of motion
picture film having consideral)le bulk through a
motion picture machine, with an intermittent
movement, in such manner as not to expose the
film to excessive strain and wear and tt^ar, and
with a regular, uniform and accurate feed.

III. That your petitioner has not itself made,
used or sold machines embodying the invention of
said patent, but has sought to derive its profit
from said patent (1) by licensing the manufacture g
of such machines by others on payment of a small
royalty, and (2) by licensing the use of such ma-
chines by the purchasers thereof on payment of

a small additional royalty while in use.

IV. That pursuant to its above outlined policy
petitioner, on June 12, 1912, granted to the Preci-
sion Machine Company, a corporation of New
York, the right and license

(page 1077, C. C. A. Pvccord)

"to manufacture and sell motion picture ex- 9
hibiting or projecting machines embodying one
or more of the inventions described in the said
United States Letters Patent Nos. * * *
707,934 * * ♦

coupled w4th the restriction that each machine
put out by the licensee should be sold only

(page 1080)

"under the restriction and condition that such
exhibiting or projecting machines shall be used

10 (1) solely for exhibiting or projecting motion

pictures containing the invention of reissued
letters patent No. 12,192, leased by a licensee
of the licensor while it owns said patents, and
( 2 ) upon other terms to be fixed by the licensor
and complied with by the user while the said
machine is in use and while the licensor owns
said patents (which other terms shall only
be the payment of a royalty or rental to the
licensor while in use),''

provided that

11

(page 1081)

"the licensee further covenants and agrees
that the licensee will attach in a conspicuous
place to each and every exhibiting and project-
ing machine of the licensee's manufacture,
sold by the licensee, except for export, after
the date hereof, a plate shoAving plainly not
only the dates of the letters patent under
which the said machine is licensed, but also
the following words and figures :

12 SERIAL XO.

PATENTED NO.

The sale and purchase of this machine gives
only the right to use it solely with moving
pictures containing the invention of re-
issued patent No. 12,192, leased by a licensee
of the Motion Picture Patents Company, the
owner of the above patents and reissued pat-
ent, while it owns said patents, and upon other
terms to be fixed by the Motion Picture Pat-

14

ents Company and complied with by the nsor 13
while it is in use and while the Motion Picture
Patents Company owns said patents. The re-
moval or defacement of this plate terminates
the. rioht to use this machine.''

The license further provided that the licensee
manufacturer should pay the licensor

(page 1070)

^^on each such machine capable of exhibiting or
projecting by transmitted light, motion pic-
tures on film of a width greater than approxi-
mately one inch (1 in.) a royalty of five dol-
lars (|5).''

V. That every machine put out by the Precision
Machine Company under its said license from your
petitioner had attached to it the agreed license
plate bearing the words set forth in the license,
said license plate purporting to have emanated
from your petitioner (page 1073).

VI. That the respondent, Prague Amusement
Company, since November 2, 1914, has, without 15
payment of royalty to your petitioner, been using

a machine procured froan Jpetiitioner^s licensee.
Precision Machine Company, and bearing the
license plate aforesaid (pages 63, 736), in connec-
tion with unlicensed film made by the respondent,
Universal Film Manufacturing Company (pages
736, 746), the said unlicensed film so made having
boen delivered to the respondent. Universal Film
Exchange of New York (pages 736, 748) and by the

16 latter delivered to the respondent, Prague Amuse-
ment Company for use b}' the latter, as aforesaid.

VII. That notice of the fact that Precision Ma-
chine Company was a licensee of your petitioner
and of the terms and conditions under which alone
the said machine put out by it under its license
could be used, was brought home to the respondent,
Prague Amusement Company, by the notice itself
on the license plate attached to said machine, and
that specific notice that the said machine was being
used in an infringing manner was given to all the
respondents (pages 745, 746, 748, 753, 735 and 59 ),
but thereafter and in disregard of said notice re-
spondents continued their said infringing practices.

VIII. That on the ISth day of March, 1915, your
petitioner filed in the United States District Court
for the Southern District of Xew York, its bill of
complaint against the respondents. Universal Film
Manufacturing Company, Universal Film Ex-
change of New York, and Prague Amusement Com-
pany, alleging infringement of its said patent.

17

13

IX. That the said respondents duly filed their
an-swer to said bill of complaint, and at the trial
urged in defense, inter alia, a license in the Prague
Amusement Company to use the said machine fur-
nished it by Precision Machine Company, and the
alleged illegality of the conditions of use imposed
by the agreement between your petitioner and Pre-
cision Machine Company and by the license plate
attached to the said machine itself.

X. That respondent's contentions Avere sustained
by the District Court, Judge Hough presiding, and
petitioner's bill was dismissed ; and that the United
States Circuit Court of Appeals for the Second Cir-

cnit, on appeal, affirmed said decree (page 1499) 19
and denied an application for a rehearing (page
1512).

Copies of the opinions filed in the District Court
and in the Court of Appeals are appended hereto,
the opinion of the District Cour-t l>eing marked
"Exhibit A'' ; the opinion of the Court of Appeals
on the original hearing being marked "Exhibit B,"
and the opinion of the Appellate Court on the re-
hearing being marked "Exhibit C'

XI. That consideration of these opinions shows
that petitioner's contention as to infringement is oQ
and has always been that the use of the Precision
machine by the respondent, Prague Amusement
Company, was an unauthorized one and therefore

an infringement of the Latham patent, because, in
using said machine the Prague Amusement Com-
pany did not comply with the following conditions
of use imposed by petitioner upon users of ma-
chines, namely :

License Condition No. 1. That the machine
should be used only with motion pictures
leased from a manufacturer licensed by the pe-
titioner ; and

License Condition No. 2. That the user of
the machine should pay to petitioner a royalty
or rental (to be fixed by petitioner) while the
machine was in use.

XII. That non-compliance by respondent,
Prague Amusement Company, Avith either condi-
tion, resulted, as petitioner claims, in an unau-
thorized use of the machine, and therefore an in-
fringement of the Latham patent.

21

8

22 Both of these conditions the Court of Appeals
holds are unlawful and unenforceable, and as con-
stituting no lawful restriction upon the right of
use of the machine purchased from the Precision
Company.

XIII. That your petitioner contends that the
said conditions of use imposed are lawful within
the principles laid down by this Court in Henry vs.
Dick, 224 U. S., 1, and by the, Court of Appeals
for the Second Circuit in Victor Talking Machine
Co. vs. Straus, 230 Fed., 449 ; while the Court of

23 Appeals holds that the Dick case is inapplicable
and that the case of Bauer vs. O'Donnell, 229 U. S.,
1, is controlling, especially in view of the Clayton
Act, of October loth, 1914 (38 Stat, at L., pages
730, 731).

XIV. That the Victor Talking Machine case re-
ferred to is now before this Court for review, on
certiorari, being case Xo. 374 on the docket, and
j^our petitioner contends that if the principles held
by the United States Circuit Court of Appeals for
the Second Circuit to be controlling in that case
are upheld by this Court they will require a deter-
mination favorable to petitioner in this case if the
same is taken up by this Court for review.

XV. For these reasons and because the decree of
the Court of Appeals in this case is believed to
have been erroneous and contrary to right, your
petitioner prays that a writ of certiorari may be
issued out of and under the seal of this Court di-
rected to the said United States Circuit Court of
Appeals for the Second Circuit demanding the said

24

Court to certify and send to thi-s Court, on a day 25
certain to bo therein desigiiated, a full and com-
plete transcript of the ixvord of all proceedings in
said Circuit Court of Appeals in the said case
therein entitled Motion Picture Patents Company,
complainant-appellant, vs. Universal Film Man-
ufacturing Company, Universal Film Exchange of
New York, and Prague Amusement ('ompany,
delendants-appellees, and which was In Equi-
ty, No. 248, of the October Term, 1915, of
said Court, to the end that the said case
may be certified and determined by this Court as
provided in Section 210 of the Act of Congress en- 26
titled ^'An act to codify, revise and amend the laws
relating to the judiciary, approved March 3, 1911,'^
and your petitioner further prays that the said de-
cree of said Circuit Court of Appeals in the said
case, and every part thereof, may be reversed by
this Court, and that your petitioner may have such
other and further relief or remedy in the premises,
as to this Court may seem appropriate and in con-
formity with the judiciary act.

Dated, New York, N. Y., October 6, 1916.

MOTION PICTURE PATENTS COMPANY,

By George F. Scull,

Vice President.

Melville Church^

Counsel for Petitioner.

27

10

28 state of Xew York
County of New York

29

ss.

George F. Scull, being duly sworn, deposes and
says that he is the Vice President of Motion Pic-
ture Patents Company, the petitioner herein; that
he has read the foregoing petition by him sub-
scribed and knows the contents thereof and that
the same is true of his own knowledge except as to
the matters therein stated to be on information and
belief, and as to those matters he verily believes it
to be true.

GEORGE P. SCULL.

Sworn to and subscribed before me this 6th day
of October, 1916.

GEORGE E. BROWN,

Notary Public, Richmond County,
Certificate filed in New York County No. 179,
(Seal) New York Register No. 7223,

Term expires March 30, 1917.

30

11

Exhibit A. 31

DISTRICT COURT OF THE UNITED STATES,

Southern District of New Yorlv,

Motion Picture Patents Com-
pany

vs.

Universal Film Manufactur-
ing Company, Universal Film \ 32
Exchange and Prague Amuse-
ment Company.

Final hearing in Equity; action on Patent
707934.

George F. Scull and Melville Church, Esqrs.,

for Plaintiff;
Oscar W. Jeffery and Edmund Wetmore, Esqrs.,

for Defendants.

Memorandum.

This decision is filed because the discussion at
bar has not been preserved by the stenographer,
and it seems advisable to put on file my reasons
;for decision in order that the decree may not be
misleading.

The following facts appeared: Plaintiff is the
owner by assignment, not only of the patent in
suit, but of many other patents relating to what
is commonly called the Moving Picture art.

33

34

12

Exhibit U.

35

36

It entered into an agreement with the Precision
Machine Company by which it gave the Machine
Company ^^subject to the covenants, conditions and
stipulations hereinafter expressed, the right and
license * * * to manufacture and sell picture
exhibiting or projecting machines embodying'' the
invention described in the patent in suit and many
other patents. One of the covenants assumed by
the Precision Company in respect of machines so
sold was that it would ''pay royalties as follows,"
viz., |5 on each machine of one type, and 3% of
the "net retail selling price" on machines of other
types.

Under the contract this w\as the only royalty
or remuneration collectible by the plaintiff herein
from the Precision Company.

The latter Company, however, further covenanted
that ever J machine (of the type here presented)
made by it "in the United States" should be "sold
* * * under the restriction and condition that
such * * * machine shall be used solely for
exhibiting or projecting motion pictures contain-
ing the inventions of re-issued Letters Patent No.
12192, leased by a licensee of the (plaintiff herein)
while it owns (the patent in suit), and upon other
terms to be fixed by (the plaintiff herein) and
complied with by the user while the said machine
is in use and while the (plaintiff owns the patent
in suit ) , — ^T\^hich other terms shall only be the pay-
ment of a royalty or rental to the ( plaintiff herein )
while in use."

The Precision Company further agreed to attach
on each machine so manufactured and sold, a plate
showing the Letters Patent under which the said

13

Exhibit A.

37

machine was liconsod (iiicludino- tho patent in
suit), and also the followinj*" lej>end :

^'The sale and purchase of this machine gives
only the right to use it solely with moving
pictures containing the invention of Reissued
Patent ^^o. 12,192, leased by a licensee of the
Moion Picture Patents Company, the owner of
the above patents and reissued patent, while
it ow^ns said patents, and upon other terms to
be fixed by the Motion Picture Patents Com-
pany and complied with by the user while it
is in use and w^hile the Motion Picture Patents
Company owns said patents. The removal or
defacement of this plate terminates the right
to use thivs machine.'-

Subsequent to the execution of this agreement
Eeissued Letters Patent 12,192 expired and the in-
vention thereby covered became public property.

Subsequent to such expiration of said patent the
defendant Universal Film Manufacturing Com-
pany made a reel of film which embodied the inven-
tion of said expired re-issued Letters Patent. That 39
film it sold to the defendant the Universal Film
Exchange, Avhich in turn furnished it for use to the
defendant the Prague Amusement Company.

Also subsequent to the expiration of said re-
issued Letters Patent the 72d Street Amusement
Company was lawfully in possession of a machine
suitable for exhibiting picture film made and sold
by the Precision Machine Company embodying the
invention of the patent in suit and bearing upon it
a plate with the inscription hereinabove set forth.

The T2d Street Amusement Company had as

40

14
Exhibit A.

41

between itself and the Precision Company bought
and paid for said machine, and its possession and
use thereof were, so far as the Court is informed,
lawful and uncomplained of. On November 2d,
1914, the defendant Prague Amusement Company
leased from the 72d Street Amusement Company
certain property including said machine, and there-
after used said machine for the exhibition of the
picture film hereinabove referred to as made by one
defendant, sold to the second and leased to the
third.

This act, viz : the exhibition of said film through,
with or by means of said machine, is the act of in-
fringement complained of.

Being of opinion that the limitation on the use
of a patented article sold in the manner above
set forth is invalid, I have directed a decree to be
entered dismissing the bill on that ground alone.

Briefly stated, my reasons for this opinion are
that there is no distinction, logical or intelligible,
to be drawn between a limitation upon the re-sale
of a patented article and a limitation upon the use
of a patented article contained in a condition sub-
42 sequent to the contract of sale.

Referring to the decisions, it Avas my opinion
that Bauer vs. O^Donnell is so inconsistent with
Dich vs. Henry that the latter case can no longer
be considered as stating the law. This belief I had
intimated already in Great Atlantic dc. Co. vs.
Cream of ^^Vleat Co., 224 Fed. Rep., at page 559.

The foregoing is a summary of what occurred at
bar.

Subsequent to decision rendered, defendants
offered a final decree for signature, and plaintiff
moved for a re-argument.

15
Exhibit A.

Dec. 31, 1915.

C. M. HOUGH,
U. S. D. J.

43

The substance of the error said to have been
committed is a failure to distinguish between the
property in a corporeal thing, eg. a patented ma-
chine, and that incorporeal hereditament which is
the use of the aforesaid corporeal substance, or the
machine.

That error (in the sense of belonging to the
minority) may have been committed herein is
quite likely, but the point has not been overlooked.

It remains my opinion :

(1) That «uch attempted severance between
corporeal and incorporeal property cannot be law- "*
fully maintained under the patent law^s, — nor as-
serted in an action on the patent, — whatever may

be the ultimate limit of permitted contractual
arrangements; and also

(2) That the attempted reservation or severance
here shown is specifically bad in that it attempts
not only to confine the use of a machine once sold
and delivered to a particular kind of film, but
further seeks to render that use subject to any and
every restriction or regulation which the patent
owner may from time to time choose to make or
vary. 45

The reargument is denied and decree signed.

16

46 Exhibit B.

UNITED STATES CIRCUIT COURT OF
APPEALS,

For the Second Circuit.

No. 248— October Tenm, 1915.

Argued April 4, 191G. Decided June 15, 191G.

Before — Coxe and Rogers, Circuit Judges, and
Augustus N. Hand, District Judge.
47

Motion Picture Patents
Company,
Complainant-Appellant, | Appeal from

the District
yg, \ Court of the

United States
Universal Film Manufacturing I for the South-
Company, Uni\t:rsal F i l m I ern District of
Exchange of New York, and | New York.
Prague Amusement Company,
48 Defendants-Appellees.

Appeal from the District Court of the United
States for the Southern District of New York. This
cause comes here on an appeal from a decree en-
tered by the District Court of the United States
for the Southern District of New York, dismissing
the complainant's bill. The complainant is the
owner of the patent in suit (No. 707,934) for ^\o-

17

Exhihit B.

tion Picture Projecting Macliineis, and on June 12,
1912, granted to the Precision Machine Company
a license to manufacture and sell these machines
for not less than |150 per machine, and at a royalty
of $5 to the licensor each, Tsiith the further restric-
tion that each machine put out by the licensee shall
be used (1) solely for exhibiting or projecting
motion pictures containing the invention of re-
issued Letters Patent No. 12,192 leased by a
licensee of the licensor Avhile it owns said patent
and (2) upon other terms to be fixed by the
licensor and complied with by the user while the
said machine is in use and while the licensor owns
said patents (which said other terms shall only be
the payment of a royalty or rental to the licensor
"while in use ) .

The license also provided that a plate should be
attached to each machine and such plate was at-
tached in the following form :

*' Mfr's Special

"Serial Xo. License Xo.

" 3557 SIMPLEX 3G60

"imade THE PRECISIOX MACHIXE COMPAXY
" by Patented.

"Xo. 576,185, March 2, 1897.

"Xo. 580,719, April 13, 1897.

"Xo. 586,953, July 20, 1897.

"Xo. 673,329, April 30, 1901.

"Xo. 673,992, May 11, 1901.

"X^o. 707,931, August 26, 1902.

"Xo. 722,382, March 10, 1903.
" The sale and purchase of this machine gives
"only the right to use it solely with moving pictures

49

50

51

52

53

18
Exhibit B.

"containing the invention of Reissued Patent No.
^^12,192, leased by a licentsee of the Motion Picture
^'Patents Company, the owner of the above patents
^^and reissued patent, while it owns said patents,
^'and upon other terms to be fixed by the Motion
"Picture Patents Company and complied with by
^'the user while it is in use and while the Motion
^'Picture Patents Company owns said patents. The
"removal or defacement of this plate terminates the
^'risrht to use this machine.

^&"

" MOTION PICTURE PATENTS COMPANY

New York, N. Y., U. S. A.''

Reissued. Letters Patent No. 12,192 expired sub-
sequent to the execution of the license by the com-
plainant to the Precision Machine Company, there-
upon the Ulniversal Film Manufacturing Company
made a film embodying that invention, and sold it
to the Universal Film Exchange, who furnished it
for use to the Prague Amusqment Company. The
72nd Street Amusement Company became the law-
ful possessor of a moving picture machine made
by the Precision Machine Company. The defend-
54 ant, Prague Amusement Company, leased the ma-
chine from the 72nd Street Amusement Company
and used the film furnished to it by the Universal
Film Exchange upon the machine in question. The
use of the filim upon the machine is the act of in-
fringement alleged. The defendants set up three
defenses : (1) That the restrictions in the contract
of license to the Prague Amusement Company are
contrary to public policy, illegal and void, and the
machine, therefore, is free from the burden of them.

19
Exhibit B.

(2) That there is no proof of joint infringement
as alleged. (3) That the patent is invalid.

55

Mel\^lle Church and George F. Scull, Counsel
for Appellant.

Edmund Wetmore, John B. Stanchfield and
Oscar W. Jeffery, Counsel for Appellees.

Augustus X. Hand, District Judge :

It was held by this Court in the case of Victor
Talking Machine Company vs. Straus, 230 Fed.,
419, that a license to use a patented talking ma- 56
chine upon payment of an initial royalty to cover
the life of the patent and upon condition that the
licensee purchase all sound records to be used Avith
the machine from the licensor was valid, even
though the license provided that title to the ma-
chine should pass to the licensor upon the expira-
tion of the patent if the terms of the license had
been observed. The present case ditters from that
case because here the title to the machine at once
passed by the sale of the projecting machine to the
72nd Street Amusement Company. We think this
case comes within the doctrine of Bauer vs. O^Don- 57
nell, 229 U. S., 1, rather than that of Dick vs.
Henry y 224 U. S., 1. This is especially true since
the enactment of the so-called Clayton Bill, which
provides :

'That it shall be unlawful for any person
engaged in commerce, in the course of such
commerce, to lease or make a sale or contract
for sale of goods, w^ares, merchandise, ma-
chinery, supplies, or other commodities,
wiiether patented or unpatented, for use, con-

20

58 Exhibit B.

59

sumption or resale within the United States, or
any territory thereof * * * on the condi-
tion, agreement or understanding that the les-
see or purchaser thereof shall not use or deal
in the goods, wares, merchandise, machinery,
supplies or other commodities of a cqmpetitor
or competitors of the lessor or seller, where
the effect of such lease, sale, or contract for
sale or such condition, agreement or under-
standing may be to substantially lessen com-
petition or tend to create a monopoly in any
line of commerce."

This Act was not regarded as applicable either
in the District Court, or in this Court, in the case
of Victor Talking Machine vs. Straws, supra, be-
cause that case Avas decided upon a demurrer to
the bill upon the face of which no substantial re-
straint of competition or monopoly in anj^ line of
commerce appeared. Here, however, the testimony
shows that the complainant has a monopoly under
its patents of projecting machines so that if no
films not manufactured by complainant can be used
60 upon these machines, the complainant will obtain
an absolute monopoly of the film business in spite
of the fact that its patent on films has expired. If
the prohibitions of the Clayton Act mean anything
at all this case falls Tvnithin them and the restric-
tions as to the use of films other than complain-
ant's with the projecting machines are, therefore,
void. Indeed, the Report of the Judiciary Com-
mittee of the House concerning the Clayton Act
shows that its purpose is to reach the film monopo-
ly. A portion of this report, quoted by Judge

21
Exhibit B.

61

62

Dyor in his opinion in United iStates vs. United
Slioc Machinery Co., 227 Fed., 507, is as follows:

"Where the concern makino these contracts
is already great and powerful, such as the
United Shoe Machinery Company, the Ameri-
can Tobacco Company, and the General Film
Company, the exclusive or 'tying' contract
made with local dealers becomes one of the
greatest agencies and instrumentalities of
monopoly ever devised by the brain of man. It
completely shuts out competitors, not only
from trade in which they are engaged already,
but from the opportunities to build up trade
in any community where these great and pow^-
erful conditions are appearing under this sys-
tem and practice."

Judge Sessions has held in the case of Elliott
Machine Co. vs. Center, 227 Fed., 126, that this act
applies to contracts made before the passage of the
act, and w^e think his opinion justified by decisions
of the Supreme Court on which he relied. Louis-
ville d Nashville Railroad Co. vs. Mottley, 219 U. 63
S., 167; Armour Packing Co. vs. United States,
209 U. S., 56; Philadelphia, Baltimore cG Washing-
ton R. R. vs. Schubert, 221 U. S., 603. In the case
of United States vs. United Shoe Machinery Com-
pany, 227 Fed., 507, Judge Dyer reached the same
conclusion in regard to the Clayton Act.

Inasimuch as the contract with the Precision Ma-
chine Company involved and restrained interstate
commerce, it makes no difference that the particu-
lar act of infringement occurred wdthin the State

22
QA Exhihit B.

of New York, and the prohibitions of the Clayton
Act apply.

Marienelli vs. United Booking Offices, 227

Fed., 170;
Nash vs. United States, 229 U. S., 373.

It is urged that the defendant, Prague Amuse-
ment Company, cannot rely upon the license and
repudiate its terms. It does not rely upon the
license, but obtained a lease of the machine from

65 the owner, the 72nd Street Amusement Company,
which acquired it after having paid the purchase
price, and thus freed the machine from the unlaw-
ful restrictions. The remarks of this Court upon
the motion for a stay pending the decision of the
appeal from Judge Dickinson's decree in the crimi-
nal prosecution for violation of the Sheriman Act,
225 Fed., 800, would be applicable to the case if the
restrictions we have held illegal had been held
valid. Then it would have been true that the de-
fendant who was using the patented article under
a license could not question the validity of the pnt-

66 ent, or claim it lacked invention. These remarks
are not applicable when the restrictions are held
invalid and the article having been thus freed from
all restrictions may be used at the will of the
licensee.

In view of the foregoing considerations it is un-
necessary to discuss the other defenses raised by
the defendants, and the decree dismissing the bill
is affirmed.

23

Exhibit C.

UNITED STATES CIRCUIT COURT OF
APPEALS,

For the Second Circuit.

No. 248— October Tenm, 1915.

Petition filed June 2G, 1916. Decided Aug. 1, 1916.

Before — Coxe and Rogers^ Circuit Judges, and
Augustus X. Hand, District Judge.

67

Motion Picture Patents
Company,
Complainant-Appellant,

68

vs.

Universal Film Manufacturing

Company, Universal Film

Exchange of New York, and

Prague Amusement Company,

Defendants- Appellees.

Appeal from
the District
Cour-t of the
United States
for the South-
ern District of
New York.

PETITION FOR RE-HEARING.

Per Curiam:

The appellant seeks a re-arg-ument upon the ques-
tion whether tlie Prague Amusement Company did
not infringe by not complying with the condition
as to royalty or rental imposed by the appellant
on users of machines manufactured under its
licenses.

69

70

24

Exhihit C.

71

The sale of the projecting machine carried with
it, in the absence of any restriction, an implied
license of nse. Mitchell vs. Haivley, 16 Wall., at
page 547. The notice which was attached attempted
to impose the condition that it should only be used
with films containing the invention of a patent
which had expired "and upon other terms to be
fixed by the Motion Picture Patents Coimpany."
The condition as to use only with the specified
films we have held illegal for the reasons given in
our opinion heretofore rendered. The condition as
to which a re-argument is desired relating to a con-
tinuing royalty was not brought to the notice of the
defendants and cannot, therefore, be regarded as
limiting the implied license which accompanied the
sale of the machine. (Corteljjou vs. Johnson^ 207
V. S., 196; Lovell-McConnell Mfg. Co. v«. Waite
Auto Supply Co., 198 Fed., 133.) The clause '^upon
other terms to be fixed" in no way specified the
nature of these terms and in particular in no way
mentioned a continuing royalty, or the amount
thereof. There is no evidence, moreover, that any
^^other terms" were ever fixed or demanded. We
72 think such a vague condition insufficient to limit
the implied right of user passing to the vendee of
the machine, and consequently unenforceable.

The appellant offered evidence at the trial,
which was excluded, that the Prague Amusement
Company had knowledge of the terms upon which
the Motion Picture Patents Company was accus-
tomed to grant permission to use a machine put
out by its licensed manufacturers, but this evi-
dence, had it been allowed, would not have obviated
the difficulty with the form of the notice. If the
terms that were customary had been known, there

Exhibit C.

was nothing in the notice or elsewhere to prevent
the appellant from varying the royalty as to na
tnre or amount. Such a condition is too indefinite
for enforcement, though a notice of a precise
amount to be paid might be perfectly good. The
notice affixed to the machine was so broad as to
allow the patentee to fix any terms he might choose
and to be repugnant to all rights which the owner
of the machine might have obtained by his purchase
and implied license.

The imotion for re-argument is denied.

73

74

75

26

SUPREME COURT OF THE UNITED STATES,

October Term — 1916.

Motion Picture Patents
Company^

Petitioner,

vs.

In Equity.
Universal Film Manufacturing

COMPANY;, UNI\^RSAL F I L M

Exchange of Neav York^ and

Prague Amusement Company,

Respondents.

BRIEF FOR PETITIONER.

The following points are urged in support of
the foregoing petition :

I. Petitioner did not make, or sell the machine
Avhose use is claimed to be an infringement. It
was made by a manufacturing concern that was
authorized by the petitioner to make it and that
was authorized by the petitioner to sell it for use
only upon compliance with certain conditions
specified and brought home to the purchaser.

II. The patented machine is a machine for pro-
jecting motion pictures and is usable only in con-
nection with motion picture films consisting of
long strips of transparent material of indefinite
length bearing a succession of photographic im-
pressions of objects in motion.

27

III. The purchaser of tho machine was apprised
by the license plate attached to the machine that
he could not lawfully use it (1) save with motion
picture film leased by a licensee of petitioner and
(2) "upon other terms to be fixed" by the peti-
tioner "and complied with by the user while it is

IV. The first condition relating to the use of
the machine only in connection with film obtained
from specially designated parties has been de-
cided by the Court of Appeals to be a condition
violative of the Clayton Act and, therefore, void
and unenforcible.

Petitioner, however, denies that this is so, and
contends that such condition is lawful and enforc-
ible under the decision of this Cour-t in Henry
vs. Dick, 224 U. S., 1, and that the Clayton Act
is inapplicable, because the petitioner is not "en-
gaged in commerce," within the meaning of the
Act, but is a mere holding company whose sole
property, patents, is of an incorporeal, intangible
nature (De La Verne Machine Co. vs. Feather-
stone, 147 U. S., 209-222) and not susceptible of
being made the subject of commerce, within the
meaning of the Act, or of the Constitutional pro-
vision of which the Act is predicated.

V. The second condition, however, relating to
the right of the purchaser to use the patented ma-
chine only upon compliance with "other terms to
be fixed" by petitioner, is not contended, by any
one, to be violative of the Clayton Act and depends
for its validity upon its intrinsic merits.

It is not denied that the name plate and the
matter inscribed upon it — still on the machine —

28

were brought to the purchaser's attention, but it
is urged by the respondents and by the Courts be-
low, that the notice itself is insufficient because
in its reference to the "other terms to be fixed''
by the petitioner and to be "complied with by the
user while the machine is in use," it does not set
out, in detail, what those terms and conditions
are.

In this Court citation of authority is hardly
needed for the proposition that

"Whatever is notice enough to excite atten-
tion and put the party on his guard and call
for inquiry is notice of everything to which
•such inquiry might have led. When a person
has sufficient information to lead him to a
fact, he shall be deemed conversant of it."

Wood vs. Carpenter, 101 U. S., 135-141.
Shauer vs. Alterton, 151 U. S., 607-622.

When, therefore, the purchaser of the machine
in question saw from a perusal of the name plate
notice that he could only use it "upon terms to
be fixed by the Motion Picture Patents Company
and complied with by the user while it is in use"
and saw from the plate that the notice was sub-
scribed "Motion Picture Patents Company, New
York, N. Y., U. S. A.," he Avas put upon inquiry
and placed under the legal obligation to seek the
Motion Picture Patents Company, at the address
given, and ascertain upon what terms he could
laAvfully use the machine obtained by him from
that company's licensee, and he cannot now be
heard to say that he did not know what those
terms were, when upon inquiry he could have read-

29

ily ascertained ; and to proceed with a use of the
machine that was not authorized was to infringe
the patent.

The record clearly shows that the terms of use
which the prosecution of such an inquiry Avould
have developed would have been

^^only the payment of a royalty or rental to
the licensor while in use,'''

as specifically provided in petitioner's license
agreement with the Precision Machine Company,
the manufacturer and seller of the machine pur-
chased (page 1081, fol. 3241).

VT. This case, therefore, presents for the deter-
mination of this Court the following questions of
great public concern, viz. :

1. Whether or not a corporation which is
a mere patent-holding company, and that
neither makes, uses nor sells the patented arti-
cle, but only licenses others to make and sell
such, article under restrictions as to use, is
"engaged in commerce," within the meaning
of the Clayton Act and of the Commerce
Clause of the Constitution of which it is
predicated.

2. Whether or not the restrictions as to the
use of a patented article imposed upon a pur-
chaser at the time of the purchase of such
article, recognized by this Court as valid and
enforcible in Henry vs. Dick, 224 U. S., 1, are
still valid and enforcible under the later de-
cision of this Court in Bauer vs. O'Donnell,
229 U. S., 1.

30

3. Whether or not notice of conditions or
restrictions as to use applied to a patented
article, snch as present in this case, is snffi-
cient to pnt a purchaser of the article upon
inquiry and to charge him with notice of the
facts which 'Such inquiry would have devel-
oped, and render him guilty of infringement
for a use without compliance with such con-
ditions.

Since the case of Straus et al. vs. Victor Talking
Machine Company (No. 374), now before this
Court on certiorari, calls for an interpretation by
this Court, for the first time, of the Clayton Act,
and its bearing upon the rights of patents owners,
and also calls for a pronouncement as to the effect
of the decision in Bauer vs. O'Donnell, 229 U. S., 1,
upon the decision in the earlier case of Henry vs.
Dick, 224 U. S., 1, it is conceived that the Court
may not be unwilling to also take and review this
case, which presents much the same questions
upon only a slightly different state of facts.

An authoritative determination by this Court of
these very much discussed questions will render
patent owners more certain and secure in their
rights than at present.

MELVILLE CHURCH,

Counsel for Petitioner.

21687-