United States of America v. Motion Picture Patents Company and others

In the District Court of the United States
for the Eastern District of Pennsylvania.

October Term, 1914.

United States of America

v.

Motion Picture Patents Company and Others.

REPLY BRIEF FOR THE UNITED STATES.

WASHINGTON : GOYEBNMENT PRINTING OFFICE ! 1915

INDEX.

Page.

Point I. — The license restrictions and conditions
must be considered as a whole, not

independently of each other 1

Point II. — The evidence in the case of the Key-
stone Watch Case Co. contrasted
with the evidence found in this
record 11

Point III. — Xot a single competitor testified that
defendants' competition has been
fair; scores testified to oppressive
acts 14

Point IV. — Manufacturers who had never owned
any of the patents share in the so-
called u royalties" IT

Point V. — The extent of the monopoly acquired

by the General Film Co 19

Point VI. — The relation of the patent laws to the

Sherman Act 24

Point VII. — The fact that defendants leased films
instead of selling them constitutes
no defense — the form is immaterial- 26
Point VIII. — Defendant Marvin was the only wit-
ness called by defendants to describe
the patents: this branch of their
case rests entirely on the testimony
of this interested witness defendant- 32

Point IX. — Only six of the sixteen patents enu-
merated in the agreements are to be
considered — defendants have aban-
doned the other ten 35

79466—15 1 (I)

Page.

Point X. — The six patents analyzed 36

(1) Latham patent 36

(2) The Smith patent for the

framing device 40

(3) The Jenkins-Armat patent.- 41

(4) The Pross patent 47

(5) The film patent 48

(6) The camera patent 53

Point XL — The film patent does not cover the posi-
tive print. Phraseology employed

in letters patent establishes this 54

Point XII. — Cases dealing with relation of patent
laws and the Sherman Act not dis-
cussed in our main brief although

there cited, pages 21, 22 58

Point XIII. — Final observations 68

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In the District Court of the United States
for the Eastern District of Pennsylvania

October Term, 1914.

United States of America

v.

Motion Picture Patents Company

and others.

REPLY BRIEF FOR THE UNITED STATES.

I.

The license restrictions and conditions must be con-
sidered as a whole, not independently of each other.

In their consideration of the questions of patent
law involved in this case defendants' counsel
make a fundamental error in their recital of the
facts. They take each restriction and condition
contained in the several license agreements and
examine it as if it were an isolated, single restric-
tion attached to the use of a patented article by
the owner of a single patent. They entirely over-
look the fact that such is not the case in respect to
one of the restrictions contained in the license
agreements. Each restriction is but a part of the

whole. In the absence of the complete arrange-
ment not one of the restrictions would have ex-
isted. The formation of the Patents Company, the
transfer to it of the various patents on December
18, 1908, the ten license agreements entered into
by the Patents Company with the ten manufactur-
ers, the rental exchange agreements entered into
by the Patents Company with the exchanges, the
projecting machine license agreement entered into
by the Patents Company with the projecting ma-
chine manufacturers, the so-called licenses issued
by the Patents Company to the exhibitors, the so-
called royalties imposed on exhibitors, the condi-
tions in all the agreements, were all parts of the
plan, each part being inseparably connected with
every other part. The court cannot consider the
question of the legality of a single restriction con-
tained in one of the agreements above enumerated
without considering all the restrictions incorpo-
rated in that agreement. Furthermore, the court
must consider not only the license agreement con-
taining the restriction under consideration, but it
must have in mind all the other license agreements,
containing other restrictions, and also the charac-
ter of those restrictions.

But defendants' counsel throughout their argu-
ments and briefs treat each restriction as if it
were a legal and reasonable condition attached
to the use of a patented article by the owner of
the patent in the normal and usual development of

3

the patentee's business. Whereas, as a matter of
fact, not one of the conditions was imposed upon
the use of any patented article in the normal and
usual development of the patentee's business, but
each condition took its birth in a combination be-
tween the owners of the several patents.

As an instance of the above, we respectfully di-
rect the attention of the court to the examination
of the restrictions contained in the brief filed by
Mr. Melville Church, beginning page 94 et seq.
Throughout Mr. Church's recital of the restric-
tions and his discussion of the agreements there is
not a suggestion or an intimation that these re-
strictions were entered into by combination of the
various owners. His discussion proceeds upon
the assumption that one company owning all these
patents was imposing the various patent restric-
tions. He overlooks the manner in which the Pat-
ents Company acquired the patents on December
18, 1908. There is no reference to the way in
which the Patents Company obtained the patents
or to the meetings of the manufacturers.

In two recent cases of the Supreme Court under
the antitrust law the court pointed out that acts
and contracts which under ordinary circumstances
when done by individuals may be lawful become
unlawful when done by many. These cases are
the Anthracite Coal case (reviewed in our main
brief, pages 266 et seq.) and the Pacific & Arctic
Navigation Co. case. (See our main brief, pages

4

280 et seq.). In the Anthracite Coal case, defend-
ants separately and individually had entered into a
number of contracts with interstate carriers.
Each contract had been entered into by only one
of the defendants, and the contracts had been exe-
cuted at various times. However, owing to the
fact that each contract formed part of a concerted
plan to secure control of coal and suppress com-
petition, the court condemned each of the con-
tracts. The court said that it was not essential that
the contracts considered singly be unlawful as in
restraint of trade. Separately considered each of
the contracts might have been wholly innocent,
but acts absolutely lawful may be steps in a crimi-
nal plot. The court condemned the contracts be-
cause each contract was part of the scheme or plot.
In United States v. Pacific d> Arctic Navigation
Co. and others, the defendants, who were not com-
petitors of each other, formed a continuous line
of transportation by water and rail between certain
ports. They established a through route and joint
rates with each other, but refused to do so with an
independent company operating on part of the
through route. If the agreement between defend-
ants in that case had been entered into from nat-
ural reasons and from a judgment of the greater
efficiency of the defendants' lines as instruments
in the transportation than the independent lines,
and if the refusal to conclude through routes and
joint rates with the independent had been based on

such reasons, there would have been no violation
of law. The plan, however, had been entered into
for the purpose of injuring the independent com-
pany. Therefore, the court said:

The plan makes the parts unlawful, what-
ever they may be independent of it.

With all respect, we assert that defendants'
counsel are not discussing the case at bar and the
facts here presented when they take up singly, one
after the other, paragraphs of one of the license
agreements disconnected from the other para-
graphs in the agreement and separated from all
the other agreements containing other conditions
and when they consider the lawfulness of such
paragraph or restriction as if it were a condi-
tion imposed in the same way as the condition con-
sidered in the Dick or Mimeograph case was im-
posed. They overlook the fundamental facts in the
case, namely, the circumstances under which the
combination had birth and the manner in which
the various restrictions were imposed upon the
trade and commerce, each restriction being a part
in the entire plan and having been devised merely
for the purpose of being made a part in the plan.

An act, innocent in itself, may be made a step
in a criminal plot. Aikens v. Wisconsin, 195 II. S.,
194, 205. The plan may make the parts unlawful
whatever they may be independently of the plan.
Swift v. U. S., 196 U. S., 375, 396; U. S. v. Pacific
& Arctic By. Co., 228 U. S., 87, 104.

6

In the Shoe Machinery decision the Supreme
Court did not have before it for consideration the
lawfulness of the numerous interlocking restric-
tions contained in the licenses issued by the United
Shoe Machinery Company. We know of no de-
cision in which interlocking restrictions of the
character here present and adopted in the man-
ner disclosed by the evidence have been held law-
ful by the courts. This significant statement
(which however was omitted from the elaborate
quotation and discussion of the case in defendants'
brief, p. 340) was made by Mr. Justice Holmes in
the Shoe Machinery case, 227 U. S., 216 (see our
main brief, p. 280) :

It is to be observed that the conditions
now inserted in the leases are not alleged to
have been contemporaneous with tlie combi-
nation or to have been contemplated when
it was made. * * * The validity of the
leases or of a combination contemplating
them can not be passed upon in this case.

As we have pointed out in our brief, the combi-
nation here under consideration contemplated
from its very inception the numerous tying and
interlocking restrictions which were adopted.
These restrictions were the very essence of the
combination.

During the argument defendants' counsel con-
ceded that the license agreements were the result
of conferences, saying that all important business
transactions are the result of conferences. The
fact that the license agreements and all the restric-

tions contained in them were arrived at by agree-
ment of all the manufacturers, as alleged in the
petition, is strong evidence that the restrictions
were not normal and legal conditions affixed to
the use of patented articles. In the Dick case
Mr. Justice Lurton said (224 IT. S., at p. 26):
" Where, then, is the line between a lawful and
an unlawful qualification upon the use? " If a
patentee in the ordinary course of business affixes
a condition to the use of his patented machine, the
fact that he affixes it on his own motion and by
independent action is evidence of the fact that he
does it in the ordinary course of business. On
the other hand, when all the manufacturers en-
gaged in a certain line of business, some of them
owning patents and others of them owning no
patents, by arrangements and conferences among
themselves decide the terms and conditions that
the so-called licenses shall contain, we have the
strongest possible evidence that the agreements are
not normal and usual licenses given by the owner
of a patent, but are, in fact, agreements entered
into for the purpose of accomplishing restraint of
trade. The conferences and the simultaneous exe-
cution of all the license agreements on December
18, 1908, prove not only the combination be-
tween the defendants, but they establish also that
each restriction was entered into in an abnormal
and unreasonable manner and therefore is not a
lawful qualification upon the use of the article.

8

As an instance of the effect of the enforcement
of some of the conditions, we refer to the testimony
given by Mr. Schwab (Vol. II, pp. 803-808). Mr.
Schwab owned a rental exchange doing a pros-
perous business in Philadelphia. He had a cus-
tomer in Baltimore. In order to get the films
to Baltimore by eleven o'clock he sent them from
his office in Philadelphia ten minutes to eight to
catch the eight o'clock express to Baltimore. The
time fixed for the release of the films was eight
o'clock. Because Mr. Schwab dared to send the
films from his office in interstate commerce ten
minutes before eight he was fined $100 by the
defendants acting through the Motion Picture
Patents Company. Yet there were exchanges in
Baltimore distributing the same film which could
release the film at eight o'clock, several hours be-
fore Mr. Schwab could get the film from Phila-
delphia to Baltimore if his shipment caught the
eight o'clock train. The payment of the $100
was a condition precedent to obtaining any further
film. This is the sort of restriction which the
defendants describe as a lawful and reasonable con-
dition attached to the use of patented articles.

One of the rules imposed by the license agree-
ment upon the rental exchanges was that each
rental exchange should lease a minimum of $2,500
worth of film per month. A failure to observe this
requirement of the license agreement subjected the
exchange to liability to have its license cancelled.
Assuming, arguendo, that the film was patented,

we have to consider whether this requirement re-
specting the amount of film to be handled per
month was a legal and reasonable condition at-
tached to the use of the film and lawfully in-
serted in the exchange agreement. The proof
shows that this restriction was not imposed by the
owner of the patent, but was devised and approved
by the rental exchanges and was at their instance
inserted in the license agreement, Mr. Dyer, a
witness for defendants (Vol. Ill, 1484, fol. 2), tes-
tified that the $1,200 requirement contained in the
rules of the Film Service Association, and made
a part of the Edison exchange licenses of 1908,
had been drawn up by the exchanges. He stated
that in January, 1909, the change from $1,200 to
$2,500 was made and incorporated in the exchange
licenses issued by the Patents Company at the
instance of the exchangemen. At Vol. Ill, 1485,
fol. 2, he said:

My recollection is that this increase was
made at the suggestion and request of the
exchangemen themselves, who represented
to us that at that time the exchange that
did a smaller business than $2,500 per month
in the purchase of films would not be self-
sustaining, and therefore would be open to
the temptation of objectionable practices,
particularly " duping,"1 which was a com-
mon practice at that time.

1 Duping had been largely practised by the defendants be-
fore they formed the combination (Swanson I, 321, fol.
4-322).

10

Mr. Aiken, Vol. IV, 2333, fol. 1, testified that
the manufacturers did not have anything to do
with the preparation of the rule.

In view of these facts how can it be urged that
this requirement was a legal and reasonable con-
dition imposed by the patentee upon the use of a
patented article. It was not imposed by him but
by others, and yet failure to meet this requirement
was the sole excuse offered by defendants for the
cancellation of a number of licenses. See prin-
cipal brief of defendants, p. 150 (Philadelphia
Film Exchange), p. 152 (American Film Ex-
change), pp. 152-153 (Duquesne Amusement Sup-
ply Company), etc.

The list printed as Appendix A to defendants'
principal brief (pp. 418 et seq.) enumerates the
following exchanges whose licenses were cancelled
"because the exchange was not leasing the re-
quired minimum quantity of licensed motion
pictures":

Page.

American Film Service 418

Eugene Cline & Co., Chicago 419

Eugene Cline & Co., Salt Lake City 419

Harry Davis, Pittsburgh 420

Harry Davis, Buffalo 420

Harry Davis. Philadelphia 421

Duquesne Amusement Supply Co.. Norfolk. Va 421

Kay Tee Film Exchange, Los Angeles. Cal 423

Philadelphia Film Exchange, Philadelphia 428

United States Film Exchange. Chicago 433

This was the sort of condition that was con-
demned by the Supreme Court in Montague v.
Lowrie, 193 U. S., at page -±7. In that case

11

would-be jobbers of tile were not admitted to the
jobbers' association unless they at all times carried
stock worth $3,000. Tf they did not belong to the
association they could not obtain tile from the
manufacturers. The court, opinion by Mr. Jus-
tice Peckham, said this was an unlawful restraint
of interstate trade.

II.

The evidence in the case of the Keystone Watch Case
Co. contrasted with the evidence found in this
record.

Since the arguments in this case the three cir-
cuit judges of this circuit have decided the case of
United States v. Keystone Watch Case Company.
The facts of that case are in striking contrast to
the facts here presented. The history of the Gen-
eral Film Company differs from that of the Key-
stone Watch Case Company in two important par-
ticulars : First, in its manner of growth ; and, sec-
ond, in its conduct.

As to growth and expansion, in the Keystone
case there was present no intent to absorb all com-
petitors. In his opinion Circuit Judge McPher-
son reviews the separate acquisitions made by the
Keystone Company pointing out the character of
the business done by each company so acquired.
The acquisitions had taken place over a long
period of time and were unrelated to each other.
They were small companies, most of them having

12

made watch movements, and only two or three
having been engaged in the making of watchcases
in competition with the Keystone Company.

Accordingly, on the facts the Keystone case is
strikingly different from the Harvester case for
the Harvester Company had been formed for the
express purpose of taking over simultaneously the
business of five companies, previously competing,
doing over eighty-five per cent of the business in
the United States in harvesting implements.
Judge McPherson says in his opinion (p. 13) :

A merchant may without offense add one
department to another as his business pros-
pers or his ambition expands, for the size
and the varied character of his enterprise
do not in themselves violate the antitrust
act. Size does not of itself restrain trade
or injure the public; on the contrary, it may
increase trade and may benefit the con-
sumer ; but if the power given by the volume
of a particular business is improperly used
to injure either a competitor or the public,
or if such power evidently tends toward the
injury of either, the mischief either done or
threatened is condemned by the statute.

On the other hand, the General Film Company
had been formed for the express purpose of ac-
quiring the business of all the rental exchanges
handling the films of the ten licensed manufac-
turers. This is proved by the minutes of the
General Film Company. (See main brief, pp.
148-151 and 157-163.) The General Film Com-

13

pany not only commenced business with the intent
just stated but it accomplished its intent. (See
main brief, pp. 151-155.)

The oppressive methods employed by the Gen-
eral Film Company and the Motion Picture Pat-
ents Company in acquiring a monopoly were
proven conclusively by the testimony of the Gov-
ernment witnesses. If a company refused to sell
to the General Film Company its license was can-
celed by the Patents Company under the direction
of the defendants, who were also directors of the
General Film Company. Some exchanges had
their licenses canceled to serve as examples to the
others. These cancellations were published broad-
cast throughout the country on circulars and bul-
letins distributed to all remaining exchanges and
to all theaters. On this point see main brief, pages
164: to 209. It is noteworthy that the testimony
of not one of the Government's witnesses on the
essential facts of cancellation was contradicted by
any witness for defendant. Contradiction at most
went to the subject of what was said at meetings,
but defendants' witnesses did not deny the fact of
cancellation, that meetings were had on the dates
testified to by plaintiffs' witnesses, and the subject
discussed was purchase or cancellation as the case
might be.

For examples of circulars sent to rental ex-
changes and exhibitors see main brief, pages 219
to 232.

14

All the common stock of the General Film Com-
pany was taken by the ten manufacturers, each
subscribing for $10,000 stock, paid for in cash.
All the preferred stock was issued in part pay-
ment for the exchanges purchased. The profit on
this investment for the year 1911 is given in Gov-
ernment Exhibit No. 131, vol. I, 548. In that year
Pathe Freres realized 1,649 per cent on its invest-
ment. This amount was what Pathe Freres re-
ceived after payment of the dividend on the pre-
ferred stock, 12 per cent on the common stock, and
after the General Film Company had paid out of
earnings to pay for exchanges acquired by it about
$1,000,000. (See main brief, pp. 155-156.)

In the Keystone case, Judge McPherson said :

What is unreasonable restraint of trade?
On this subject we are certahnY able to say
some things with confidence. Competitors
must not be oppressed or coerced. Fraudu-
lent or unfair or oppressive rivalry must
not be pursued.

There was an absence of such testimony in the
Keystone case, but the record here abounds with
oppressive and coercive methods.

III.

Not a single competitor testified that defendants' com-
petition has been fair; scores testified to oppressive
acts.

Defendants did not put on the stand a single
competitor to testify in regard to the character
of competition employed by the defendants. This

15

is a most significant fact. The International Har-
vester Company, in its defense in the suit brought
by the Government, put on the stand scores of
witnesses, manufacturers of all kinds of agricul-
tural implements, who were asked to describe the
business methods employed by the International
Harvester Company. They put hundreds of re-
tail dealers on the stand to testify that they had
never been coerced by that company which the
Government maintained was an unlawful combina-
tion. They put hundreds of farmers on the stand
to give similar testimony.

As stated above, not a single competitor of de-
fendants has testified in this case that the de-
fendants were fair and reasonable in the conduct
of their business and in their relations to com-
petitors. On the other hand, numerous Govern-
ment witnesses, manufacturers, rental exchange-
men and exhibitors, testified at great length and
in much detail on this subject. Much of this testi-
mony is reviewed in Part IX of the brief, pages
164 to 239. None of the testimony so given was
contradicted by any of the defendants' witnesses.
That is to say, in no case did the defendants dis-
pute the fact that the supply of film had been
cut off or that competitors had been put out of
business as testified to by the Government wit-
nesses. The only defense offered in any case was,
that the rental exchangeman or exhibitor, who
had been deprived of the service, had violated in
some manner the restrictions and conditions im-

79466—15 2

16

posed by the license agreements. This defense
was invariably denied by the rental exchangeman
and exhibitor. Further, the defendants have
maintained under the fourteen-day clause of the
rental exchange license agreement the right to cut
off supplies at any time, whether or not the ex-
change had violated any of the terms of the
license agreement. In many cases, the Patents
Company and defendants acted under the four-
teen-day clause, in which case no excuse has been
or can be offered to justify their arbitrary and
unreasonable action.

In view of the rapid expansion of the General
Film Co., which acquired a total of 57 exchanges
in the last seven months of 1910, although it did not
commence business until June, 1910, it seems futile
for defendants to deny that the General Film Co.
was organized for the purpose of acquiring them,
and in view of the minutes (see main brief pp. 157-
163) it seems futile for defendants to deny any
intent on the part of the General Film Co. to
monopolize the business. It is incredible that any
one could entertain seriously the statement made in
defendants' principal brief, at p. 208:

The idea in forming the General Film Co.
was to form a sort of " model exchange that
might serve as an example for all the ex-
changes then operating." (Smith, III,
1700.)

Mr. Smith, to whom counsel refer, and who gave
the testimony, is one of the defendants in this suit.

17

Before Mr. Smith entered the motion-picture field-
he was engaged in the entertainment business. He
was a sleight of hand performer, ventriloquist,
shadowgraphist, and impersonator of various char-
acters. (Ill, 1740, fol. 3.) And on page 213 of
their brief they make this statement :

The General Film Company was, to the
majority of the producers, a questionable
experiment and one upon which they en-
tered with much misgiving.

And on page 218 of their brief they say :

The acquisition of the property of the
exchanges was a development of the experi-
ment which followed the initiative of the
owners of rental exchanges who desired to
sell. (Dyer, III, 16760 * * * After
many of the exchanges had been offered to
the General Film Company everybody knew
that it would be larger than they had
thought at the beginning.

IV.

Manufacturers who had never owned any of the patents
share in the so-called "royalties."

In February, 1909, when the license agreement
went into effect, there were several thousand ex-
hibitors in the United States. Each of these
owned and was using a projecting machine which
he had bought outright before that time. That is
to say, upon the sale of the projecting machine to
him no condition had been attached to the use of

18

the machine by him. Marvin testified that the
Edison Co., Pathe Freres, Selig Polyscope Co.,
Essanay Co., and Lubin Co. had sold machines
outright prior to December, 1908, without attach-
ing any conditions to their use. (I, 28, fol. 4.)
By means of their combination, the defendants im-
posed in the form of a royalty the payment of $2
a week by each exhibitor who had bought a ma-
chine prior to February 1, 1909. Twenty-four per
cent of the exhibitors' royalties was divided
among the nine manufacturers, five of whom were
the companies named above, who had theretofore
sold the machines without restrictions. This 24
per cent of the royalties was divided among the
manufacturers who had not assigned any patents
to the Patents Company. In regard to the collec-
tion of these royalties see Vol. I, p. 26, fol. 4, to
p. 29, inclusive, and Vol. I, p. 127, fol. 4, to p. 129,
inclusive.

It is manifest that in enforcing the collection
of this royalty the defendants were not attaching
any legal and reasonable condition to the use of
patented articles. The payment was compelled
by the united action of all the defendants. The
profits went to all the manufacturers regardless
of whether or not the manafacturer had assigned
any patent to the Patents Company.

If the $2 a week royalty was not paid by the
exhibitor he was able to obtain no film from any
of the manufacturers. They cut him off from all
supplies of film. The euphemistic term, how-

19

ever, used by them in refusing supplies was to
state that his " license had been canceled."

To-day defendants maintain that the 4 Latham,
Armat-Jenkins, Pross, and Smith patents control
the projecting machines. Prior to 1909 they
scorned those patents, but after they acquired them
they compelled the exhibitor to pay for their (de-
fendants') alleged infringement in selling thou-
sands of machines prior to 1909.

THE EXTENT OF THE MONOPOLY ACQUIRED BY THE
GENERAL EILM CO.

It lias monopolized the business of distributing the
films of the 10 mfrs. as its only competitor is the
Greater New York Film Rental Co., whose per cent
of the business is negligible and limited to the
vicinity of New York City.

The witness Matthews testified that there were
on July 21, 1913, 6,867 licensed theaters (V. 2935).
On July 7, 1912, before the filing of this suit, ac-
cording to the records of the same witness, there
were 6,571 licensed theaters (V. 3035). These
theaters were and are scattered all over the United
States.

The General Film Company monopolizes the
business of distributing films to these theaters,
except in so far as a very small per cent of the
business is done by the Greater New York Film
Rental Company (Mr. Fox's company), the sole
survivor of the 116 exchanges which handled
licensed film in the early part of 1909. The Gen-

20

eral Film Company enjoys this monopoly by vir-
tue of the fact that it is owned by the ten manu-
facturers and is constituted by them their sole
distributing agency. Before the General Film
Company was organized there were over 100 ex-
changes doing the business which it now controls.
Elsewhere we have stated the methods by which
it acquired the business of those exchanges.

In our main brief (Part X, p. 239) there is
printed a list of exhibitors, all witnesses called
on behalf of defendants, who testified on cross-
examination that the films manufactured by the
so-called licensed manufacturers are necessary in
order to conduct a profitable business as an ex-
hibitor. This is the testimony of defendants' own
witnesses. The business of distributing this class
of film to all the exhibitors has been monopolized
by the General Film Company. No exhibitor,
licensed or unlicensed, in the United States can
obtain any of the film of any of the ten licensed
manufacturers from any other source than the Gen-
eral Film Company (except, of course, the Greater
New York Film Rental Company, as above stated in
New York City) . This is a monopoly of a part of
the trade and commerce among the several States
within the meaning of section 2 of the Sherman
Act, which provides that every person who shall
monopolize, or attempt to monopolize, or combine
or conspire with any other person or persons to
monopolize any part of the trade or commerce

2J

among the several States, shall be deemed guilty
of a misdemeanor.

In the Union Pacific case, the business which
was competitive between the Union Pacific and
the Southern Pacific was but a comparatively
small part of the sum total of all the traffic car-
ried over the two railroads, comprising only .88
(less than one) per cent of the tonnage of the
Southern Pacific and 3.10 per cent of the tonnage
of the Union Pacific (226 U. S., 76). It was
urged by the railroads that, in view of this fact,
only an incidental restraint of trade had resulted
from their combination such as ought not to be
held within the law. The court, however held
(p. 88) that this was a part of commerce within
the meaning of the statute. (See our main brief,
pp. 258, et seq.)

Mr. Fox testified that the largest theaters in
New York are licensed theaters. He testified on
February 27, 1913, that 95 per cent of the large
theaters in Greater New York are licensed by the
Patents Company. He said he did not know of
more than one place where unlicensed pictures
were shown in a large theater, and that the same
was true in Newark, Springfield, New Haven, and
Bridgeport (II, 699, fol. 2). This testimony was
not contradicted.

Mr. Sawyer, of the Kinemacolor Company, testi-
fied that more of the higher type houses in the
United States used licensed service than unli-
censed (II, 741, fol. 3).

22

Mr. Karson, a Philadelphia exchange man, testi-
fied that 75 per cent of the theaters in Philadel-
phia are licensed (II, 1097, fol. 4).

Defendants argue that the business done by the
ten manufacturers must be looked at as part of the
entire motion-picture business, and that a monop-
oly of the distribution of the business of the ten
manufacturers does not constitute a monopoly of a
part of trade and commerce within the meaning of
the Sherman Act. This proposition we dispute.
However, even if the business of the ten manufac-
turers should be looked at from the defendants'
point of view and be considered in its relation to
the total business, it is still manifest that the
General Film Company does much more than half
of the total motion-picture business in the United
States. The only two competitors of the ten manu-
facturers who distribute film generally throughout
the United States are the Mutual Film Corpora-
tion and the Universal Film Company. Mr. Frank
L. Dyer, president of the General Film Company,
a witness for the defendants, testified that the
General Film Company's weekly service consti-
tutes 61 reels, while 'the Mutual distributes only 26
a week and the Universal 28 (III, 1579, fols. 3-4,
and 1580, fol. 1).

The evidence of defendants in regard to the ex-
tent of the independent business was confined to
testimony given by managers of the General Film
Company and by certain of the defendant manu-

23

facturers. Defendants did not call a single inde-
pendent manufacturer or distributor to testify as
to the per cent of business done by the defendants
or by the independents. Therefore, the record is
barren not only of evidence from competitors as
to the character of the competition conducted by
defendants but also of any evidence from inde-
pendent competitors as to the amount of independ-
ent competition that exists in the country.

Defendants' counsel, however, point to the testi-
mony of John Collier, of the national board of
censorship (V, 2894, 2903, 2910, and 2940 to 2941).
(Defendants' main brief, p. 275.) The figures he
produced show that the number of reels produced
by the licensed manufacturers has always exceeded
the combined total of the Universal and the Mu-
tual. However, the number of reels released does
not accurately indicate the per cent of the pro-
duction. Many positive prints are made from
every negative produced by the licensed manufac-
turers. If they produce 62 new pictures a week
there will be several thousand reels distributed,
owing to the fact that there are thousands of
theaters which take the licensed pictures. On the
other hand, an independent manufacturer, not hav-
ing the same means of distribution, may sell only a
few copies of his picture. Therefore, a comparison
of the weekly releases conveys no adequate idea of
the amount of business done by the respective com-
panies making the reels. The General Film Com-
pany is the most potent factor in the business, as

24

it controls the distribution. It distributes no
product except that of the licensed manufacturers
who own it.

VI.
The relation of the patent laws to the Sherman Act.

Defendants assert that their commerce is out-
side the prohibitions of the Sherman Act. It
would seem that the cases cited in our main brief,
Part III, pages 13 to 29, furnish a complete
answer to their contention in that regard.

The owner of a patented article does not derive
the right to sell the patented article from the
patent laws. The right to sell is a common-law
right that adheres to the ownership of any article.
In this respect a patented article differs from no
other article. The exercise of the right to sell or
to distribute in commerce is not a right derived
from the letters patent but is a natural right.
Therefore this right to distribute in commerce is
subject to the laws of the land when exercised in
respect to patented articles in the same manner as
it is subject to the laws of the land when it is ex-
ercised by anybody else in respect to any kind of
property not patented.

In Webber v. Virginia (103 U. S., 344, 347)
Mr. Justice Field said :

Congress never intended that the patent
laws should displace the police powers of
the States, meaning by that term those

25

powers by which the health, good order,
peace, and general welfare of the com-
munity are promoted. Whatever rights are
secured to inventors must be enjoyed in sub-
ordination to this general authority of the
State over all property within its limits.

See also Patterson v. Kentucky, cited in our
brief, pages 25-26. In the latter case the Su-
preme Court held that, in selling and distributing
in commerce patented oil, the patentee was not
exercising any rights conferred by the patent let-
ters. In enacting the statute under consideration
in the Patterson case, the Legislature of Kentucky
had invoked the exercise of its police power. The
subject matter affected happened to be a patented
article. A law by the State of Kentucky pro-
hibiting combinations in restraint of trade and
prohibiting the selling of articles pursuant to
combinations in restraint of trade is also an exer-
cise of the police power of the State. If the
policy of the State, as declared by its legislature,
is that such combinations are against .the best in-
terests of the people, it is not for the courts to
question the policy of the legislature. It is clear
that a State statute directed against combina-
tions in restraint of trade would apply to patented
articles exactly the same as to unpatented articles.
If, under the Patterson decision, patented articles
which are injurious to the public may not be dis-
tributed or sold, it is clear that patented articles
may not be sold or distributed in a manner which
the legislature deems injurious to the public.

26

Of course, when we come to consider combina-
tions in restraint of interstate commerce, the
power of Congress to declare such combinations
unlawful is derived from the commerce clause of
the Constitution. The source of power is dif-
ferent from the source in the case of the State,
but the exercise of the power in each case arrives
at the same result, i. e., prohibition of restraints
of trade or monopolies. Under the Patterson de-
cision, the distribution of patented articles in in-
trastate commerce is subject to the police power
of the State. In the same way the distribution of
patented articles in interstate commerce is subject
o the regulations of^oeȣs by virtue of the com-
merce clause. [Mr. Moon's brief at the bottom of
p. 86 inaccurately states that we attempt to in-
terpret the Sherman Act as an exercise of police
power, and it makes the same mistake in consider-
ing the argument made for the Government in TJ. S.
v. Stand. San. Mf. Co.]

VII.

The fact that defendants leased films instead of selling
them constitutes no defense — the form is immate-
rial.

The moment that a patented article enters inter-
state commerce it becomes subject to the rules of
commerce applicable to restraint of trade the same
as any other commodity. Any combination which
unreasonably interferes with the free flow of com-
merce is a violation of the Sherman Act, regardless
of the form that may be employed in any particular

27

case. In the case at bar the defendants adopted the
method of leasing film. In this way they say they
reserve title to the film and therefore may de-
termine to the last detail the manner in which the
film shall be distributed in commerce. Assuming,
arguendo, that the film is a patented article, we
maintain that the adoption of the lease system by
the defendants was a mere form given by them to
the combination for the purpose of bringing about
the unlawful result. In their answer they state
(Ans. Patents Co., fols. 314-319) the sole reason
for expressly framing the license agreements in
the form of a lease was to facilitate the peremp-
tory return of the articles by means of a writ of
replevin in the event of a violation of the terms of
the agreements. (See main brief, pp. 215-219.
See also main brief, p. 168, where a Government
witness gave uncontradicted testimony that an
attorney for the Patents Company stated in his
presence that these replevin suits were being
brought mostly to scare the people engaged in the
business around through the country.)

In Dr. Miles Medical Co. v. Park & Sons, 220
U. S., 373, a manufacturer adopted a scheme of
agency contracts for the purpose of controlling
the distribution in commerce of his products.
The articles which he manufactured were not
patented articles. He attempted, however, to re-
tain title to those articles and, by means of agency
contracts, to fix prices of wholesalers to retailers
and prices of retailers to the public. The Su-

28

preme Court in an exhaustive opinion by Mr.
Justice Hughes condemned the arrangement. It
held that putting the restraints in the form of
restrictions contained in agency contracts did not
make the scheme a lawful one.

The case at bar is far stronger than the Dr.
Miles Medical Co. case, for the decision there
concerned the acts of a single manufacturer dis-
tributing his product in commerce. There was no
combination in that case. There was no attempt
to control by agreement of numerous manufac-
turers the distribution of the products of each.
Here we have a case where every restraint and
unlawful condition was adopted by agreement of
the different manufacturers.

Subsequently, in Bobbs-Mcrrill Co. v. Straus,
210 U. S., 339, and in Baiter v. O'Donnell, 229
U. S., 1, the Supreme Court applied to copy-
righted books and to patented articles the ruling
which it had made in the Dr. Miles Medical Co.
case in respect to unpatented articles. It is true
that in the latter cases there was no attempt to
retain title. That, however, does not affect the
case. " The Sherman Act embraces every con-
ceivable act which can possibly come within the
spirit or purpose of the prohibitions of the law
without regard to the garb in which such acts
are clothed." (Mr. Chief Justice White in the
Tobacco opinion, 221 U. S., 106.)

The Sanatogen case decided that the patentee
may not control the price from the jobber to the

29

retailer of the patented article sold to the jobber
by the patentee. The article having entered the
channels of commerce is subject to the laws ap-
plicable to commerce in other articles. The fact
that it is a patented article does not confer upon
the original owner any peculiar property right
which inheres in the article and enables him to
control its resale. Therefore, as at common law,
the fixing of a retail price of an article by the
original owner is a restraint of trade, so in the
case of a patented article the fixing of the retail
price is a restraint of trade.

If the patented article is to be considered the
same as an unpatented article where the retail
price is concerned, and if the fixing of the retail
price is as unlawful in one case as in the other,
so in other respects commerce in patented articles
must conform to the law in the same way that
the trade in unpatented articles must do so. The
Sanatogen decision means more than that the fix-
ing of a retail price on patented articles is a re-
straint of trade; it is an authority to the effect
that wTherever in commerce a condition attached
to the sale of an article is a restraint of trade it is
also a restraint of trade when applied to the sale
of a patented article. On principle it is a clear
authority that after they have entered the chan-
nels of commerce patented and unpatented articles
are governed by the same rules.

But defendants stoutly and repeatedly assert
that in the Sanatogen case the patentee had parted

30

with the title. That makes no difference. He
could not have retained title for the express pur-
pose of accomplishing a result which would have
been an unlawful restraint of trade had he parted
with title.

We very respectfully maintain that the position
of the court is controlled by the decision of the
Circuit Court of Appeals of the Third Circuit in
National Harrow Company v. Hench, 83 Fed., 36,
cited in our main brief at page 28. Judge Moon
suggests that that case is not applicable, for the
reason that it dealt with suppression of competi-
tion while the patents in this case were not com-
peting patents. Even if there be the difference
he suggests between the cases, to which we do not
agree, we maintain that a decision holding that
patents may not be used to suppress competition is
a direct holding to the effect that patents may not
be used to accomplish other forms of restraint of
trade. Unreasonable suppression of competition
between manufacturers in interstate commerce is
merely one of many forms of restraint of trade.
Numerous cases of the Supreme Court have pre-
sented no suppression of competition, but clear
and unreasonable interference with commerce.
Such cases were the Cotton Corner case, TJ. S. v.
Patten, 226 TJ. S., 525 (main brief, pp. 271-274) ;
TJ. S. v. Pacific & Arctic Navigation Co., 228 U. S.,
87 (main brief, pp. 280-282) ; TJ. S. v. Eastern
States Retail Lumber Dealers' Assn., 234 U. S.,

31

600 (main brief, pp. 291-295) ; Steers v. U. S., 192
Fed., 1; Loewe v. Lawler, 208 U. S., 274.

Therefore, a decision which holds that patents
are no justification when the restraint of trade is
accomplished by the suppression of competition is
an authority for the proposition that other forms of
restraints of trade may not be brought about by the
use of patents in the form of a license arrange-
ment. Since the formation of this combination
and its entrance upon active operations in Janu-
ary, 1909, the defendants through the Patents
Company have brought hundreds of replevin suits.
They have cut off hundreds of exhibitors and ren-
tal exchanges from supplies of film. These facts
are set out in detail in our main brief and, there-
fore, we shall not here attempt to review the evi-
dence in that regard. It is always to be remem-
bered in considering the facts in this case that the
term " your license is cancelled " is the euphemis-
tic equivalent for " you can secure no more sup-
plies of film from 10 manufacturers."

The Rubber Tire cases have never been the law
in this circuit. The Supreme Court refused to fol-
low them in the Bathtub Trust case although chiefly
relied on by defendants in that case.

It is true, as defendants assert in their brief,
that a patentee may withhold from the public the
use of his patented article. Another patentee may
do likewise in respect to a patented article owned

79466—15 3

32

by him. But two patentees in making and observ-
ing an agreement to keep from the channels of in-
terstate commerce their respective articles are not
exercising patent rights. In such a case their
action is combined action, the legality of which
must be determined by the laws applicable to com-
binations.

VIII.

Defendant Marvin was the only witness called by de-
fendants to describe the patents; this branch of their
case rests entirely on the testimony of this interested
witness defendant.

Judge Moon, in his brief, page 48, says :

The only testimony in the case as to the
office and function of these patents was the
testimony given by Harry X. Marvin, who
demonstrated and illustrated the above
stated facts of their complementary and
interlocking character, and who further
demonstrated the fact that neither of these
articles, to wit, the camera, the film, or the
projecting machine have any function what-
ever, except in combination with the other
patents.

Mr. Church states a number of times in his brief
in regard to the testimony of Mr. Marvin on the
subject of patents:

This testimony of Mr. Marvin stands un-
contradicted and unchallenged by any other
evidence in the case. (Mr. Church's brief,
pp. 70, 72.)

33

Mr. Marvin was the only witness called by the
defendants to testify as to the function of the pat-
ents, but it is not in any respect accurate to state
that his testimony stands uncontradicted and unim-
peached.

Mr. Marvin's testimony as to the value of the
patents and their functions is contradicted by his
own words and by his own actions prior to the
formation of the combination. His testimony is
refuted by the actions of the defendants as proven
in the record. For instance, Mr. Marvin's testi-
mony in this case as to the value of the film patent
is directly contradicted by his own statements re-
specting the film patent, made in 1908, and his testi-
mony is also contradicted by his actions in selling
and distributing film for many years prior to the
formation of the combination. To-day he says that
the patent is good and that before 1909 he was
infringing the film patent, but before the combina-
tion was formed he asserted he was not infringing
the film patent and that the patent was valueless.
In each case he takes that position which at the
moment is most favorable to his own interests. In
stating this fact we are not intending to reflect
upon Mr. Marvin's veracity; we are merely draw-
ing attention to the fact that the character of his
testimony is affected by his interest. The interest
he has at stake makes him a biased and unreliable
witness.

Similarly, Mr. Marvin's testimony in regard to
the Latham and Smith patents is contradicted by

34

his actions prior to the formation of the combina-
tion, for at that time he paid no attention to those
patents, having used the loop on his machines for
years without regard for the Latham patent. To-
day he says that all the patents are complementary
and indispensable and that, combined, they entitle
one to monopolize the art, but prior to the forma-
tion of the combination his contentions in respect
to each patent were directly the contrary.

Why did the defendants fail to put on the stand
any witness with expert knowledge to testify as to
the value of the patents and as to their real use
in the art ? Manifestly, the testimony given by Mr.
Marvin is not entitled to any weight, contradicted
as it is by all the acts of the defendants and by their
admissions. Prom its formation Mr. Marvin has
been one of the important officers of the Patents
Company. He has at all times been an officer, di-
rector, and stockholder of the Biograph Company.
He has been prominently identified with the Gen-
eral Film Company. He it was who generally took
the initiative in causing the cancellation of the
license of exchanges and exhibitors. There is no
man in the motion-picture business who has a
greater interest than Mr. Marvin in having this
combination upheld, and yet he was the only one
whom the defendants were able to find to support
their position on the subject of patents.

His testimony as to the Latham patent is con-
tradicted also by the statements of Mr. Dyer made

35

prior to the combination and by the statements of
Mr. Berst.

A cursory examination of Talbot's work, " Mov-
ing Pictures and How They are Made," and Gib-
son's " Romance of Modern Photography " fur-
nishes convincing evidence of the want of substance
to the claim that the six patents dominate the art.

IX.

Only six of the sixteen patents enumerated in the
agreements are to be considered — defendants have
abandoned the other ten.

Counsel for the defendants in the course of their
arguments acknowledged the accuracy of the state-
ment made during the opening of counsel for the
Government, that only six of the sixteen patents
named in the license agreement are relied on by
them. (See also Mr. Church's brief, p. 12.) We
maintain that the licensing arrangement under
patents was adopted for the express purpose of
effecting a combination in restraint of trade the
unlawfulness of which would have been obvious
if it had not been given the mask of patents ; that
the insertion of ten patents, which are now con-
ceded to be so inconsequential as not to have been
mentioned in six volumes of testimony or in the
prolonged briefs and arguments of counsel for the
defendants, were inserted in the licenses for the
express purpose of giving the licenses a more'im-

36

pressive appearance and to make it more difficult
to analyze the agreements and make certain their
real character.

X.

The six patents analyzed.

(1) LATHAM PATENT.

This is known as the Loop patent. It was one
of the three patents assigned by the Biograph Com-
pany December 18, 1908, to the Patents Company.
It was issued August 26, 1902 (No. 707934), to
E. & H. T. Anthony & Co. The Anthony Com-
pany owned the patent until the fall of 1907 when
it was acquired by the Ansco Company wThich took
over the assets of the former company.
(Anthony IV, 2073, fol. 2.) The Anthony Com-
pany had spent in the neighborhood of $11,000
to have the patent issued and carried the patent
on its books at a valuation $10,000. (IV, 2066,
fol. 3.)

J. J. Kennedy, on behalf of the Biograph Com-
pany, acquired the patent February 15, 1908, from
the Ansco Company, paying $2,500.

Neither the Anthony Company nor the Ansco
Company had brought any suit on the Latham
patent to prevent infringement, although the de-
fendants assert that all the defendants during
that period had infringed the patent. The de-
fendants put on the stand two witnesses to testify
that the Anthony and Ansco Companies were
financially weak and unable to bear the cost

37

of litigation. The Anthony Company had notified
the Edison and Biograph Companies in the latter
part of 1902 or the early part of 1903 that they
were violating the Latham patent. (IV, 2067,
fol. 3.) Those companies disregarded the notice.
The patent was acquired by the Biograph Com-
pany shortly after that company had declined to
join the Association of Edison Licenses, which com-
menced to do business about February 1, 1908, un-
der the so-called Edison licenses. As soon as the
Biograph Company obtained the patent it brought
numerous suits against the Edison Mfg. Co.,. Edi-
son Manufacturing Licensees and a few suits
against exhibitors using the films of the Film
Service Association and against rental exchanges
identified with the Film Association. These suits
were undoubtedly brought as a retaliation for the
numerous suits intituted on the film reissue patent
about the same time by the Edison Co. against the
Biograph Company and its exchanges and ex-
hibitors although this purpose was denied by Mr.
Marvin. (Ill, 1288.)

The Latham patent applies to a detail of con-
struction in the projecting machine. It has been
held by the Circuit Court of Appeals for the Sec-
ond Circuit not to apply to cameras. (See de-
cision printed in full in Vol. VI, 3393 et seq.)
The headnote says:

The Latham patent No. 707934 for a pro-
jecting kinetoscope can not be construed as
to any of its claims as in any way a camera,

38

but must be limited to a projecting appara-
tus. So construed, held not infringed.

The only part of the projecting machine cov-
ered by the Latham patent is the so-called loop
which is a detail of construction. The defendants,
however, use the terms "Latham projecting ma-
chine" and "Latham camera" to indicate a
camera or projecting machine in which there is a
loop in the film, although none of the other parts
of the complicated projecting machine or camera
are affected by this patent. (See Marvin, VI,
3289, fol. 4.)

Marvin testified that the Latham patent had
been infringed by everybody ever since it had been
issued. (I, 124, fol. 1.)

In March, 1908, Dyer said that the Latham pat-
ent "relates to a detail in the construction of the
projecting machines." (V, 2521, fol. 4.) "I do
not look upon the Latham patent as a serious
thing, in fact it is nothing but a joke in the busi-
ness. Ever since its issue in 1902 my company
has been importuned to purchase it, but I have
always regarded it as so unimportant as not to
warrant serious consideration." (V, 2522, fol. 1.)

The above statement was published in the Show
World of March 21, 1904.

A week later Dyer said, as published in the
Show World of April 4, 1908:

The Latham patent was granted August
26, 1902, and according to the people who

39

are now affirming its validity it has been
infringed by everyone since that time. Why
was it not litigated to a final hearing, as was
done with the Edison camera patent? Ob-
viously, because the owners thought so little
of its validity that they did not care to
incur the expense of a suit. (II, 922, fol. 4.)

Mr. Dyer admitted making the above statements.
(Ill, 1669, et seq. ; see our main brief, pp. 114-
119.)

J. A. Berst, of Pathe Freres, published articles
in the trade papers in 1908 informing the trade
that the Latham patent was of no value. But the
defendants called Berst to testify that what he had
said in 1908 he did not believe at the time to be
true. As a witness for the defendants Berst testi-
fied that he always believed the Latham patent to
be of value. But Berst 's interests are different
to-day from what they were in 1908. On cross-
examination he admitted that he published a state-
ment which he knew to be untrue in fact in order
to protect his business, and that he was willing to
say something untrue and false and which he knew
to be untrue and false in order that he might pro-
tect his business. (IY, 1957, fol. 1.)

Such is the history of- this patent, and yet these
defendants, unless this court adjudges the com-
bination to be unlawful, propose to continue their
illegal licensing arrangement under the Latham
patent until the expiration of this patent in 1919.
The Latham patent has a longer period to run than

40

any of the other patents assigned to the Patents
Company. The manufacturers' license agreement
provided that the licensee might renew the agree-
ment by giving notice to the licensor before April
20th of each year until August, 1919, the date of
the expiration of the Latham patent. (See section
21 of the manufacturers' agreement, Ex. 3 to peti-
tion, p. 76.)

(2) THE SMITH PATENT FOR THE FRAMING DEVICE.

This is No. 673329, granted to Albert E. Smith
April 30, 1901, for improvements in the kineto-
scope or projecting machine.

The Vitagraph Company assigned six patents to
the Patents Company, all relating to projecting
machines. Although these six patents are enumer-
ated in the various licenses there is no word of
testimony relating to five of them, the patent
named above relating to the framing device being
the only patent considered of sufficient value by
defendants to be referred to in evidence and argu-
ments.

This patent is for an improvement in the pro-
jecting machine, and for nothing else. The fram-
ing device is something which makes the project-
ing machine a better machine than it would be
without the device. It, however, is nothing more
than an improvement. The fact that the improve-
ment is patented does not entitle the patentee or
owner of the patent on the framing device to im-

41

pose restrictions upon the use of the projecting
machine and upon commerce in positive films
which contemplate an absolute control of that
commerce.

Mr. Albert E. Smith, the inventor of this de-
vice, in the course of a long examination as a
witness for the defense, testified in regard to this
patent at the following places in the record: Di-
rect examination, III, 1715, fol. 4, to 1717; cross-
examination, III, 1757, fols. 1 and 2. Mr. Smith,
on page 1716, describes the framing device. He
says that he considers that this improvement on
the projecting machine had great potency and
value in building up the business. On page 1757,
fol. 1, he says the patent made an improvement
on the projecting machine.

(3) THE JEXKIXS-ARMAT PATEXT.

This is No. 586953, granted July 20, 1897, to
Charles F. Jenkins and Thomas Armat. It has,
therefore, expired.

Although the Armat Company assigned five
patents to the Patents Company, all of them enu-
merated in each of the license agreements, the only
one of the fixe referred to by defendants in the
proof and arguments is this Jenkins- Armat patent.

This patent relates to the shutter of the pro-
jecting machine. No other part of the complicated
projecting machine is covered by the Jenkins and
Armat patent. Vol. VI, pages 3266 et seq., con-

42

tains certain photographs and diagrams of de-
fendants' exhibits. Defendants' Exhibit No. 182
is labeled "Jenkins and Armat projecting ma-
chine " and Mr. Marvin testified that it is given this
name because it has the shutter known as the
Jenkins and Armat shutter. (VI, 3287, fol. 2.)
Defendants' Exhibit No. 183 contains the picture
of a projecting machine entitled " Modern pro-
jecting machine " and another machine entitled
"Armat projecting machine." Mr. Marvin testi-
fied on cross-examination that there is no differ-
ence between these two except the difference in
the shutters ; one has the Pross shutter and the
other the Jenkins and Armat shutter. By reason
of the difference in the shutter he terms the one
with the Pross shutter a " modern projecting ma-
chine " and the other one the "Armat projecting
machine." Mr. Marvin also said that the use of
the Pross shutter has supp] anted the use of the
so-called Armat shutter. (VI, 3287, fol. 4.)

If this be true, the Jenkins and Armat patent
had no value to the combination, for it was no
longer of value in the art, as, according to Mr.
Marvin, the Pross shutter had supplanted it.
In any event, prior to the combination of 1908, not
one of the defendants (excepting the Armat Com-
pany) had paid any attention to the patent or con-
sidered it of any value. At the time the com-
bination was formed, there were five or six thou-
sand exhibitors in the United States using pro-

43

jecting machines, but the Armat Company had
never sold a projecting machine and none of
those in use at that time had been licensed by it.
Thomas Armat testified that the Edison Company
had been the most flagrant infringer of this patent.

We submit from the facts and testimony in
this case it is clear that the Armat patent had no
real value and, like the other patents conveyed
by the Armat Company served as a blind or mask
to conceal the true purpose of the combination.

The only witness called by defendants in re-
gard to the history of the Armat patent was
Thomas Armat. (IV, 2118 to 2138 and 2158 to
2185.) The testimony given by Mr. Armat re-
lated to remote and immaterial matters mostly
occurring in 1901 and 1902. He failed utterly to
establish any value in this patent, which was the
only patent in respect of which he gave any testi-
mony.

Mr. Armat is president of the Armat Moving
Picture Company. He produced certain licenses
or contracts under the patent No. 586953 issued
in 1900, 1901, and 1902 to Burton Holmes and
others; these licenses having been terminated
years before the combination in 1908, their
introduction was objected to by counsel for the
Government on the ground that they were im-
material and too remote. (IV, 2118 to 2125.)

The Armat Company brought a lawsuit against
the Biograph Company in 1900. (IV, 2125, fol.
4.) Mr. Armat produced certain circulars or

44

warnings to alleged infringers of the patent, but
the circulars introduced by him were all issued
in the years 1900 to 1902. (IV, 2125 to 2133.)

The Armat Company brought a number of suits
during the years 1901 to 1903, which were enum-
erated by Mr. Armat. (IV, 2134, fol. 4.) They
started a suit against the Edison Manufacturing
Company November 28, 1903, and obtained an
injunction against that company January 8, 1903.
(IV, 2135, fol. 4.)

Mr. Armat testified that the litigation between
his company and the Edison Company was " ac-
tively prosecuted," but that it never reached a
final determination in the sense of being ended by
a final decree of the court. (IV, 2137, fol. 4.) He
said it was prosecuted until the Edison Company
accepted a license under the patent (IV, 2137, fol.
4), which was in December, 1908. On cross-ex-
amination it developed that the injunction ob-
tained against the Edison Company was vacated
after a reversal by the Court of Appeals, and after
June, 1903, the Edison Company continuously
manufactured and sold projecting machines (IV,
2180, fol. 1), all of which machines Armat con-
tended infringed his patent.

When cross-examined as to the meaning of the
term "actively prosecuted," used by Mr. Armat
on direct examination in stating that the Edison
suit had been actively prosecuted, these facts de-
veloped: Up to December, 1908, when the Patents
Company was organized, there had been no final

45

adjudication on the merits and on the testimony
taken in the case. (IV, 2180, fol. 3.) This was a
period of about six years. In that time one vol-
ume of testimony had been taken and about a
dozen witnesses, or an average of two witnesses a
year, had been called. (IV, 2181, fol. 2.) One
witness gave a great deal of testimony. (IV, 2181,
fol. 4.) This witness was Mr. Armat. (IV, 2183,
fol. 2.)

Of the various suits brought by the Armat Com-
pany and enumerated by Mr. Armat the Armat
Company selected the suit against the Edison Com-
pany as the test suit. (IV, 2185, fol. 3.) In none
of the other suits had any testimony been taken.
(IV, 2184-2185.) Therefore, to sum up the liti-
gation on the Jenkins and Armat patent, though a
number of suits had been brought, only about
twelve witnesses had been summoned in a period
of six years and no adjudication had been reached.

In view of these facts we submit that the state-
ments contained in Mr. Church's brief at the top
of page 68 do not convey an accurate impression
as to this patent.

The following are all the cases dealing with this
patent : Armat Moving Picture Company v. Ameri-
can Mutoscope Company, 118 Fed., 840; Armat
Moving Picture Company v. Edison Manufactur-
ing Company, 121 Fed., 539; Armed Moving Pic-
ture Company v. Edison Manufacturing Com-
pany, 125 Fed., 239. In the case against the
Edison Company a temporary injunction was

46

granted. This was reversed by the Circuit Court
of Appeals with costs.

In the case against the Mutoscope Company,
which was the predecessor of the Biograph Com-
pany, the Armat Company obtained an injunction.
The litigation with the Mutoscope Company was
concluded in October, 1904 (Armat, IV, 2184, fol.
1), when the two executed the paper defendants'
Exhibit No. 129 (IV, 2164, fol. 5), by which it
was provided that the Biograph Company should
withdraw its appeal from the injunction, but
should pay no royalty to the Armat Company
until the Armat patent had been sustained in the
Edison suit in the Court of Appeals. As the in-
junction against the Edison Company was re-
versed, the Biograph Company never paid any
royalty. (IV, 2184, fol 1.)

Mr. Armat testified that the Edison Manufac-
turing Company were the chief offenders in in-
fringing the patent. (IV, 2173, fol. 1.)

On cross-examination he said the Armat Com-
pany never sold a single machine at any time or at
any price. (IV, 2179, fol. 1.) He did not think
there were any patent licenses by his company in
use in the United States in December, 1908,
although there were at least 5,000 or 6,000 theaters
exhibiting motion pictures, all of which, accord-
ing to him, were infringing his patent. The prin-
cipal vendors of those projecting machines had
been the Edison Manufacturing Company and the
Powers Company. Those machines had been sold

47

outright to the purchasers, that is, without condi-
tions attached to the sale. (IV, 2179, fol. 4.)

Mr. Kennedy, of the Biograph Company, ac-
quired an interest in the Annat Company before
the Patents Company was formed. (IV, 2178,
fol. 4.)

Although Mr. Armat produced in court papers
and licenses with a number of exhibitors executed
in 1902 and terminated five or six years before the
Patents Company was formed, he made no effort
to bring any correspondence of a later date or
any papers having a closer bearing upon any of
the issues in this case.

(4) THE PROSS PATEXT.

This patent relates to the form of the shutter.
Mr. Marvin testified that the use of the Pross
shutter has supplanted the use of the so-called
Armat shutter. (VI, 3287, fol. 4.) Therefore,
these two types of shutters are competing.

Although the Pross patent was issued March
10, 1903, the Biograph Company brought no suit
for infringement until the spring of 1908. About
the time the Edison Company bombarded the Bio-
graph faction and their customers with suits on the
film patent the Biograph Company retaliated with
suits under the Pross and Latham patents. The
Biograph Company did not pay anything for the
Pross patent as it wTas issued to one of its em-
ployees who according to his contract of employ-

79466—15 4

48

ment, assigned the/ patent to the Biograpk Com-
pany. (Marvin, «H&.) No witness testified as
to the value of this patent except Marvin.

Although Mr. Marvin contends that this is a
valuable patent, the answer of the defendants
makes this statement (Ans. Patents Co., p. 26,
fol. 60) :

Prior to 1908, the great value of the
Pross invention was not appreciated except
by the Biograph Company.

Mr. Church's brief states (p. 82) that the patent
has been acquiesced in by thousands of licensees,
including manufacturers, exchanges, and exhibi-
tors. There is no testimony in the record support-
ing this statement except in so far as manufac-
turers, exchanges, and exhibitors taking licenses
from the Patents Company, which licenses enum-
erate sixteen patents, may be considered, by the
act of taking tke licenses, to acquiesce in the
validity of the patent.

(5) FILM PATENT.

As pointed out in our main brief (p. 56 and p.
84), the film patent is the only patent under which
a license was granted by the exchange license
agreement. That is to say, the right asserted by
defendants to dominate and regulate the business
of exchange men rests entirely upon the exchange
license agreement, and that agreement purports
to grant rights only under the film patent and no
other patent. (See Pet., p. 80, Ex. 4, clause 1.)

49

We have pointed out in our main brief that the
film reissue patent, No. 12192, was a reissue of the
fifth and sixth claims contained in the original
patent, No. 589168, and that this latter patent had
been held invalid in 1902. Although the film
claims were reissued under No. 12192 in January,
1901, from January, 1904, to February, 1908, no
suit of any kind under that patent was pressed by
the Edison Company against any manufacturer.
Throughout that four-year period numerous manu-
facturers were importing films, making them in
this country and distributing them widely in the
United States. (See our brief, pp. 101-105.) It
is true that in that period the Edison Company
started four suits on 12192, but in only one of
those cases (the Schneider case) was any testi-
mony taken, and in that case only two witnesses
were examined during the four years. Such inac-
tion on the part of the Edison Company is the
strongest kind of evidence that the company con-
sidered the patent valueless after Judge Wallace's
opinion. During those four years the Edison
Company did not bring a single suit against a
theater exhibiting films, but when the Biograph
Company refused to join the Edison Company,
early in 1908, the Edison Company at once started
innumerable suits under the film patent all over
the United States against the theaters which were
customers of the Biograph Company and of George
Klein, an importer. As pointed out in our main
brief (p. 126), Judge Kohlsaat, in Chicago, stated

50

that unless the Edison Company stipulated not to
bring any more such suits he would enjoin them
from doing so.

After the combination was formed in Decem-
ber, 1908, the defendants set up the film patent as
the foundation of the licensing arrangement.

The film patent has been sustained by no court.
The Circuit Court of Appeals of the Second Cir-
cuit held, in 1902, that it was not patentable, and
the Supreme Court denied a petition for certiorari
to that decision. (186 IT. S., 480.) The Court of
Appeals of the District of Columbia, opinion by
Chief Justice Shepard, has also squarely decided
that 12192 is an invalid patent.

Mr. Church refers in his brief (p. 47) to an
action on 12192 brought by the Patents Company
in New Jersey on April 9, 1913, almost a year
after the Government commenced this prosecution,
and more than nine years after the patent was re-
issued. We submit that an action brought under
such circumstances can have no bearing on this
case. Throughout these nine years other manu-
facturers have openly and continuously manu-
factured and distributed films in this circuit and
throughout the United States, but the defendants
took no legal steps until they thought it might
help to say to the court in this case that there is an
action pending on 12192 in this circuit, upon which
they commenced the proceeding referred to. (See
main brief, p. 120.)

51

The Circuit Court of Appeals in the first Edi-
son suit had before it the entire question as to the
real invention or inventions that Edison had made
in view of the prior art, either in camera or in
picture film, and the court held that the art was
so far advanced that no principle remained to be
discovered, or essentially new form of machine to
be invented; that Edison was not the inventor of
the film, and was not as to the camera a pioneer
in the large sense of the term, or in the more
limited sense in which he would have been if he
had also invented the film; that he was not the
first to take photographs of an object in motion
by means of a single-lens camera or from a single
point of view; or to so take such pictures at a
high rate of speed; or to so take them upon a
sensitized surface having an intermittent feed, the
photographs being taken during the period of
rest.

And the court held specifically that the pic-
ture film covered by claim 5 of 589168 was not
patentable to Edison, did not constitute patentable
subject matter, was not novel in the sense of the
patent laws.

As to positives not being covered, the court said
of the entire patent No. 589168 (11-1 Fed., 929) :

The patent in suit pertains merely to that
branch of the art which consists of the pro-
duction of suitable negatives.

02

And again the court regarded the picture film
claim as (11-1 Fed., 925)

obviously an attempt by the patentee to ob-
tain a monopoly of the product of the ap-
paratus described in the patent.

The court held that the product, that is to say,
the article of manufacture, must be judged by
itself, by its own inherent characteristics, and
that it must itself, as an article, be new in a pat-
entable sense; that the picture film was not new
unless in length, which was a matter of degree,
and that the other characteristics of the product
were new only in the sense of greater accuracy of
detail, etc., and that a picture film having these
characteristics was not new in the sense that its
production involved invention over and above that
involved in the production of the camera.

In dealing with the camera claims 1, 2, and 3,
and the camera invention, the court intimated
that Edison had probably made a real invention
in the organization of the feeding mechanism of
the camera, but held that the claims before it
did not cover that invention.

In the matter of claim 5 and the picture film,
however, the court gave no such intimation.

On the contrary, its discussion and impeach-
ment of claim 5 went to the whole substance of the
alleged picture-film invention.

The contrast is striking in this regard between
the treatment by the court of the alleged camera

53

invention on the one hand, and of the alleged
picture-film invention on the other hand.

And the emphatic repetition of the decision made
by the same court five years Inter that Edison did
not invent the film was accompanied by an up-
holding of the three reissued camera claims as
good and valid over the art.

(6) The Camera Patent, Reissue No. 12037.

This is undoubtedly a valuable and important
patent on a part of the camera. We conceded its
validity and its value at the argument; but even
if the patent be valuable and important, it does not
entitle the owner thereof to monopolize or dominate
the art by virtue of its ownership. The Circuit
Court of Appeals, by Judge Lacombe, sustained the
patent in 1907, at the same time referring with
approval to their earlier decision in which they
had held that the film is not patentable.

Accordingly, we have this question: May the
owner of a patent on a part of the camera control
the commerce in the product by virtue of his patent
on the camera, although the court has held that the
product itself is not patentable? The answer must
be in the negative; otherwise the owner of the
camera patent will be obtaining, through that
ownership, a power over the product which the
patent laws will not grant him in the form of a
patent on the product. That is he is refused a
patent on the product, but seeks to obtain the same
power by means of the ownership of a patent on

54

something else. It is obvious that if defendants'
argument is sound it is not necessary to obtain a
patent in order to dominate the commerce in the
article for which the patent would otherwise be
sought. It would only be necessary to obtain a
patent on something in connection with which the
article is used.

This reasoning shows the absurdity of attempt-
ing to justify the conditions and restrictions at-
tached to the use of the patents in the case at bar.
By means of these conditions incorporated in
licenses defendants acquire a monopoly which the
courts have refused in the form of a patent monop-
oly. Judge Wallace said the Edison Co. could!
not monopolize the product by a patent ; he refused
the patent. Therefore they would monopolize it by
tying up its use to another patent.

XI.

The film patent does not cover the positive print. Phra-
seology employed in letters patent establishes this.

On the question whether or not the film reissue
patent 12192 applies to positive prints, we respect-
fully direct the court's attention to the language of
Judge Wallace and also to the language of the
Letters Patent 12192, and ask that it be contrasted
with the language used in the camera reissue pat-
ent 12037. It is evident from the opinion of the
Court of Appeals of the Second Circuit, written
bv Judge Wallace, that the court was considering

whether or not the patent 589168 applied to nega-
tives. Judge Wallace said (I, 155, fol. 4) :

The patent in suit pertains merely to that
branch of the art which consists of the pro-
duction of suitable negatives.

And later on in the opinion he said (I, 162, fol 2) :

He was not the first inventor of apparatus
capable of producing suitable negatives.

A comparison of the language used in the film
patent reissue 12192 with the language used in the
camera patent reissue 12037 conclusively estab-
lishes that the film reissue is a claim only on the
negative, and that it does not apply to the posi-
tive print. If 12192 in fact applies to positive
prints, as asserted by counsel for the defendants,
why was the clause referring to positive prints ex-
pressly omitted from the Letters Patent 12192 but
inserted in 12037. (It is to be remembered that
these two patents are both reissues of No. 589168.)
The fact is the words must have been omitted from
12192 for the express purpose of limiting the claim
to the negative.

Letters Patent 12192, after describing the man-
ner in which the film is run through the camera
and how photographs are taken therein, states
(line 119 of letters patent, defendants' Exhibit
187, Vol. VI, p. 3326) :

When the movement of the object being
photographed has ceased or the desired
number of photographs has been obtained,
the apparatus is stopped. The film is suit-

56

ably treated for developing and fixing the
pictures, when IT is ready for use in an ex-
hibiting apparatus.

On the other hand, the language in 12037 reads
as follows (line 118, defendants' Exhibit 185, p.
3326) :

When the movement of the object being
photographed has ceased or the desired
number of photographs has been obtained,
the apparatus is stopped. The film is suit-
ably treated for developing and fixing the
pictures, when positive prints therefrom
can be used in an exhibiting apparatus.

The elimination of the clause " when positive
prints therefrom " from patent 12192 shows that
the drawer of specifications 12192 had in mind the
projection of pictures of the negative, whereas in
12037 he had in mind the projection of the posi-
tive.

Therefore, it is evident that 12192 applies to
negatives alone.

At no place in 12192 is there any reference to
the positive print. The description is only of the
negative film. There was a demonstration during
the argument of the exhibition of the negative, and
it was shown to the court that an exhibition may
be given by the use of negative films.

Accordingly, we maintain that the proper con-
struction of Letters Patent 12192 is that it applies
only to the negative and has no reference to the
positive. If this be the correct construction of the

at

letters patent, it becomes manifest that the Bath
Tub decision is on all fours with this case. In
the production of the positive the negative film is
used, just as in the manufacture of enamel ware
the so-called Arrott dredger is used.

An examination of the patent 589168 and re-
issue 12038 leads to the same conclusion.

Letters Patent 589168 and reissued letters pat-
ent 12038 do not appear in the record as exhibits.
The first of these two patents was, as has been
elsewhere stated, the original patent upon which
Judge Wallace's opinion was rendered; the six
claims under that patent were subsequently re-
issued, four camera claims as 12037 and the two
claims on the film as 12192. The latter number,
however, 12192, was the second reissue of the film
claims, the first reissue being 12038, which was
contemporaneous with 12037. It is a significant
fact that the clause which we have quoted above
from 12037 was inserted in 12038 and stricken
out of the reissue 12192.

The wording of the clause in 589168 was as fol-
lows :

When the movement of the object being
photographed has ceased or the desired
number of photographs has been obtained,
the apparatus is stopped. The film is suit-
ably treated for developing and fixing the
pictures, when it is ready for use in an ex-
hibiting apparatus.

This is the same phraseology as was used in
12192.

The latter sentence of the quotation! just given,
however, was changed in 12038 so as to read as
follows :

The film is treated for developing and
fixing the pictures when positive prints
therefrom (Fig. VI) can be used in an ex-
hibiting apparatus.

No. 12038 was issued July 15, 1902. It was
subsequently abandoned by the Edison Company
and 12192 issued on January 12, 1904.

In 12192 the claimant returned to the language
of 589168 by striking out from 12038 the clause
" when positive prints therefrom (Fig. VI)."

The above examination of the phraseology em-
ployed in the several letters patent demonstrates
beyond question that 12192 describes the negative
film alone and can not by any possibility be con-
strued as constituting a claim on the positive
print which is made from the negative.

XII.

Cases dealing with relation of patent laws and the
Sherman Act not discussed in onr main brief al-
though there cited, pages 21-22.

(1) Judge Hollister's opinion in the Cash Reg-
ister case — United States v. Patterson, 205 Fed.,
292. This opinion was rendered on a decision on
the admissibility of certain evidence. The ques-

59

tions had been argued at great length before Dis-
trict Judge Hollister by distinguished counsel.
(See p. 293.) The question was whether or not
evidence might be introduced by the defendants
of the character and scope of the patents owned
by the National Cash Register Company and
whether or not the various competitors named in
the indictment were infringers of those patents.
The evidence was excluded.

(Page 294:) The claim is made by coun-
sel for the defendants that there can be no
such thing as a free flow of commerce or
trade in articles made in infringement of a
patent, and this is on the ground that a
patentee has a monopoly by virtue of the
laws of the United States enacted in pur-
suance of constitutional authority. They
say that a patentee, having a lawful monop-
oly by the operation of the patent laws,
can not be charged with monopolizing
under the Sherman Antitrust Act.

In the course of a well-considered opinion,
Judge Hollister said:

(295:) Counsel have cited no case — if
there had been one, they would have found
it — and the assertion, usually of doubtful
wisdom, may in this connection be safely
made that no decision will be found sanc-
tioning acts of violence by a patentee in
the protection of his patent right, acts of
violence against the claimed infring-
ing article or the business of in-

60

fringers. And it may also be safely said
that, at least until the patentee has es-
tablished the validity of his patent and
the fact of infringement, he will not be
permitted by a court of equity, and at the
suit of even one who may eventually be held
to be an infringer, to engage in acts of un-
fair competition.

(298:) Briefly, the Sherman Antitrust
Act makes it unlawful to conspire in re-
straint of interstate trade, or to monopo-
lize or attempt to monopolize the same.
The Supreme Court have described a con-
spiracy as a combination of two or more
persons, by concerted action, to accomplish
a criminal or unlawful purpose, or some
purpose not unlawful in itself, by criminal
or unlawful means. The act does not ex-
pressly except articles infringing a patent,
nor does it refer to such articles entering
into interstate commerce and in actual com-
petition with a patented article.

It is lawful for a patentee to exclude such
competition. The patent laws expressly
provide that he may do so and how7 he shall
do it, and even if the combination or agree-
ment complained of were to accomplish even
a lawful thing, namely, the monopoly a
patentee may have, still, under the defini-
tion of a conspiracy, that may not be at-
tained by unlawful means ; and if those un-
lawful means are in fact in restraint of
competitive business actually a part of in-
terstate commerce, then the patentee has

(>l

undertaken to accomplish in a wrong way
what he could do in a lawful way.

(299:) Consequently all courts having
jurisdiction, State or Federal, without re-
gard to the patent laws, may enjoin acts
by a patentee in restraint of the trade of
the plaintiff, until the defendant, the pat-
entee, establishes his right to exclude the
plaintiff from trade which, until infringe-
ment is established, is recognized as being
carried on of common right, no matter how
much he may compete and no matter how
much the article or the business complained
of may compete in the meantime with the
patented article or the business through
which it is put upon the market. A pat-
entee may properly warn the offending com-
peting manufacturer, and may call atten-
tion to his patent and his claim of infringe-
ment; but when he threatens suit and does
not bring it, or engages in acts of unfair
competition, a court of equity will say to
him: "Hold your hand: If you really
have a patent, if the competitive concerns
of which you complain are really infring-
ing your patent, take the method the patent
law has given you of establishing your
monopoly by excluding your competitors,
by enjoining them or seeking damages in
the courts of the United States; otherwise,
you interfere with your competitors' busi-
ness at your peril."

* # ■* * *

Until the patentee brings the suits and
makes the field his own, there is no wav

62

under the patent laws, and the nature of the
right given him, by which he can put his
competitor engaged in interstate commerce
out of business. And if two or more per-
sons, under whatever name or form or
method, however subtly devised, agree to
accomplish by unlawful means that which
they could accomplish in the way provided
by law, then such conduct, if directed
against the business of the competitors and
necessarily directly affecting it, is a con-
spiracy against trade, and if that trade is
interstate trade, it is an offense under the
Sherman antitrust act.

(301:) The power of Congress to regu-
late interstate commerce is complete and
supreme. It is lawful to go into the cash-
register business. Anyone may, as a mat-
ter of right, go into the cash-register
business and make his products the sub-
ject of interstate commerce, and may con-
tinue to do so until he is restrained by a
court of equity upon the fact being estab-
lished that he is an infringer; and even
after the establishment of such fact he is
amenable only to the court issuing the in-
junction or may be subject to the payment
of damages or profits or both, but he is not
figuratively an outlaw to be brought in dead
or alive and his business confiscated by a
patentee who is unwilling or afraid to pur-
sue him by lawful methods and who would
destroy his business, interstate though it is,
by unlawful means.

(2) Coaster Brake case: United States v. New
Departure Mfg. Co., 204 Fed., 107; decision by
District Judge Hazel.

This was a combination of manufacturers of
coaster brakes who had licenses with one of the
defendants quite similar in character to the licenses
here under consideration. The decision was on
demurrer to the indictment. The court, after cit-
ing the Bath Tub case, the Bement case, National
Harrow v. Heneh, 83 Fed., 36 (see our main brief
p. 28) and Blount Mfg. Co. v. Yale & Towne, 166
Fed., 557, overruled the indictment, saying, page
114:

(114:) So here, as claimed by the Govern-
ment, the license agreements were resorted
to as a subterfuge to aid in stifling compe-
tition in trade and commerce, and to en-
hance the value of the respective businesses
of the defendant, and to create a monopoly
in their productions.

The court, referring to the Bement case, said
(p. 113) :

* * * the intimation in the opinion is
clear that the monopoly secured to the
patentee by the issuance of a patent can not
be designedly used to form a combination
or conspiracy between manufacturers and
dealers to accomplish a restraint of trade
such as the antitrust act prohibits.

79466—15 5

64

The court also quoted from the Circuit Court of
Appeals for the Third Circuit in the National
Harrow case, where it was said :

The fact that the property involved is
covered by letters patent is urged as a justi-
fication; but we do not see how any im-
portance can be attributed to this fact.

(3) Robert H. Ingersoll & Bro. v. McColl, 204
Fed., 147: District Judge Willard, of Minnesota,
held that where a license restriction was imposed
by the owner of a patent not for purposes of pro-
tecting the patent or for securing its benefits, but
for the purpose of evading the antitrust act, it was
void. The restriction under consideration in the
case was a price restriction. The opinion consid-
ers numerous cases. After citing the Bobbs-
Merrill, Dr. Miles Medical, Bement, Dick and
Bath Tub Trust cases, the court said :

From these authorities the rule to be de-
duced is this: If the license restriction is
imposed, not for the purpose of protecting
the patent or for securing its benefits, but
for the purpose of evading the provisions
of the antitrust act, then it is void, because
such restriction is not * ' a reasonable con-
dition imposed upon the licensee of a pat-
ent by the owner thereof," nor is it " a con-
dition suitable to protect the use of a patent
and secure its benefits."

(153:) The right of a patentee to do
what he may please to do with the patented
article is not unrestricted. It is limited in

65

the manner indicated by the cases herein-
before cited. He can not impose upon a
purchaser a condition which is unreason-
able. He can not impose an unreasonable
condition, for the purpose of enabling him
to violate the antitrust act. It appears
from the evidence in this case that the
license restriction so imposed on the sale of
the Yankee watch is not for the purpose of
securing the benefits of the patented im-
provements therein, but in order that the
plaintiffs may protect the trade-mark or
trade name under which they sell the watch.
Such a condition was not imposed ' ' to pro-
tect the use of the patent or the monopoly
which the law conferred upon it." It is an
unreasonable one, is beyond the power of
the plaintiffs to impose upon the defend-
ant, and is void as to him.

(4) Blount Mfg. Co. v. Yale & Towne, 166
Fed., 555: Decision by District Judge Brown, of
Massachusetts, who said, page 562:

Combinations between owners of inde-
pendent patents, whereby, as part of a plan
to monopolize the commercial field, com-
petition is eliminated, are within the Sher-
man Act, for the reason that the restraint
of trade or monopoly arises from combina-
tion, and not from the exercise of rights
granted by letters patent. (Italics ours.)

(5) Waltham Watch Co. v. Keene, 202 Fed.,
225: This is a long and well-considered opinion
by District Judge Ray, of New York State, on the

66

subject of the patentee attempting to control re-
sale prices. We particularly direct the attention
of the court to that part of the opinion beginning
at the bottom of page 238 in which Judge Ray
discusses the law relating to combinations of
manufacturers operating under the protection of
a patent.

(6) Thornton's work, entitled "A" Treastise on
the Sherman Antitrust Act," printed by William
H. Anderson & Co., Cincinnati, in 1913:

Chapter XV of this work, pages 615 to 652,
brings together many cases relating to the Sher-
man Act and the patent laws. It will be found
useful for purposes of reference.

In United States v. Great Lakes Towing Co., 208
Fed., 733, Circuit Judges Warrington, Knappen,
and Dennison, of the Sixth Circuit, held that the
Great Lakes Towing Company, a combination
formed for the express purpose and with the ex-
press intent of eliminating the naturally existing
competition in interstate commerce and of mo-
nopolizing and restraining such commerce by the
employment of unusual and abnormal methods of
business, was in violation of the antitrust act.
The court said, page 741, that it may —

be regarded as well settled that a combina-
tion formed for the express purpose and
with the express intent of eliminating
natural and existing competition in inter-
state commerce and of monopolizing and
restraining such interstate commerce by the

67

employment of unusual and abnormal
methods of business, constitutes undue re-
straint or suppression, and so offends
against the antitrust act. (Standard Oil
Co., supra; America?! Tobacco Co., supra;
Beading case, supra.)

And at page 744:

The fact that the towing and wrecking
service has been improved under the tow-
ing company's administration can not
legalize the combination if otherwise un-
lawful. Not only do good motives furnish
no defense to a violation of the antitrust
act (Standard Sanitary Mfg. Co. v. United
States, 226 U. S., 20; 33 Sup. Ct, 9; 57
L. Ed., 107), but we have no right to assume
that the unsatisfactory conditions existing
in 1899 could not have been eliminated by
lawful and normal methods.

Has the towing company acquired this
domination of the towing and wrecking
service by normal methods alone; or, as
otherwise stated, has it unduly restrained
or suppressed competition? We think it
clear that the towing company's domination
does not result from normal methods alone.
Whatever may be the views of individual
economists, under the Federal statutory
policy normal and healthy competition is the
law of trade, and such evils as may result
from such competition must be considered
less than those liable to follow a complete
unification of interests and the power such
unification gives.

68

XIII.
Final observations.

A thousand factors determine the success of a
motion picture, for the art has advanced gradually
owing to numerous inventions and discoveries,
some patented and some not patented. Yet, any
one reading defendants' brief or the answer of
defendants and knowing nothing about the motion-
picture business or about photography, would
assume that the entire art had been founded upon
the patents controlled by the Patents Company.
The analysis we have given above in respect to
each of these patents has shown just what is the
value of each. In our opinion the only patent
which has any material value is the Edison camera
patent, but that invention was valueless until some
one could invent a film which could be used. Suc-
cessful commercial use of the Edison camera pat-
ent is dependent not only upon the film but upon
all the other processes and improvements made
in such processes in the photographic art. Assum-
ing, arguendo, the arguments of defendants that
the patents are complementary and that they are
valuable, nevertheless we maintain with confidence
that the Sherman law prohibits restraints of trade
and monopoly accomplished by means such as were
employed in this case.

Mr. Church says in his brief (p. 1) that the pat-
ents " properly cover and lawfully monopolize the
industry in which the defendants are engaged, and

69

in it the public have no right to enter save as per-
mitted by their owners," and that, therefore, these
patents constitute ample protection and afford
ample immunity from prosecution under the Sher-
man law.

So also Judge Moon in his brief, page 68, says :

Let us keep constantly in mind that the
field that he wTas exploiting was his own
field, exclusively. No part of it belonged
to the public. In no part of it did com-
petition exist or was competition possible
because the owner of this patent created the
field. The public had no right in that field
whatever and the rental exchange owners
and the exhibitors had just such rights as
were given them by their license contracts;
no more.

We take issue on these statements of the facts
and also on the stated proposition of law.

The patents involved here do not properly cover
and lawfully monopolize the industry. The mo-
tion-picture industry rests upon all the wonderful
discoveries and advances made in the photographic
art in the last three score of years. Many in-
ventions made in that period have become the
property of the public by reason of the expira-
tion of the patents. If the owners of a few
patents in any line of industry may at any time
lawfully combine and incorporate restrictions and
conditions such as were incorporated in the license
agreements in this case, the Sherman Act means

70

nothing. A few patentees by combining their in-
ventions may deprive other inventors of the use
of their inventions by excluding them from the
industry. Similarly, they may deprive the public
of the rights acquired in inventions where the pat-
ents have expired.

This demonstrates the soundness of the rule laid
down by the Supreme Court that the Sherman Act
prohibits every combination no matter what form
it may take. The question in every case is whether
or not the combination the lawfulness of which
is under consideration has brought about the evils
and injury to the public from which the statute
is designed to protect the people. We are deal-
ing here with a combination of conditions, with
interlocking restrictions imposed by a powerful
group of manufacturers, and not with legal and
reasonable conditions imposed independently and
in the normal and usual course of business by the
owner of one patent.

The agreements are being enforced to-day. On
this point we refer to our main brief, pages 240 et
seq. When the petition in this suit was filed, the
license agreements of June 6, 1912, were in force
and had superseded the earlier agreements of
December, 1908. The change effected by the agree-
ments of June 6, 1912, did not materially alter
the earlier agreements. These modifications are
described in the answer of the Patents Company,
fols. 348-355. (See also our main brief, p. 241.)

The agreements of June 20, 1913, did not super-

71

sede the earlier agreements until all the testimony
in this suit on behalf of the Government had been
taken. The modifications effected by the agree-
ments of 1913 are stated in defendants' principal
brief, pages 316 et seq.

The defendants vigorously assert the lawfulness
of every condition and restriction contained in
the earlier license agreements, and unless these
are pronounced unlawful by this court defendants
will undoubtedly replace in the license agreements
such conditions as they may have temporarily
abandoned in their later agreements. In view of
the fact that all the conditions as described in the
petition were in force and being observed by the
defendants when the petition in this case was
filed, they should be declared unlawful. (See
authorities cited in our main brief, pp. 242-245.)

Mr. Moon's brief contains a curious inaccuracy.
He states (p. 34) that Mr. Thomas A. Edison
" stands before the bar of this court as a defend-
ant." In this statement he is mistaken. There
is no word of evidence in the record connecting
Mr. Edison with any of the acts of which the
Government complains. It does not appear that
he is an officer of any of the defendant companies,
nor that he attended any of the meetings at which
the unlawful acts were planned. On the other
hand, the Government put in evidence Mr. Edi-
son's testimony in an earlier case that he was not
the inventor of the film. This evidence was intro-

72

duced by the counsel for the Government for the
express purpose of showing that Mr. Edison does
not make the extravagant claims for which the
counsel for the defendants in this case so stoutly
contend. Mr. Edison stated:

I did not regard the film as a part of my
invention ; I looked to the people who made
it for that. (VI, 3309, fol. 2.)

In spite of this statement by Mr. Edison, de-
fendants say in their answer: " The films that
Edison sold embodied his inventions only." (Ans.
Pat. Co., fol. 91. See also fols. 101 to 105.)

In the answer page 11, fol. 22, they say: " The
film contains one essential invention, Edison's
only.'' (See examination of Mr. Marvin on this
point, I, 228-232.)

The term " Edison film " is used on the dia-
grams (defendants' Exhibits Nos. 180 and 181,
VI, 3266) in a misleading manner. The term is
applied to the film as it appears in the diagrams
although nothing is done to the film after it is
bought from Eastman except to place it in the
camera. (See cross-examination of Mr. Marvin
in respect to the use of this term, VI, 3278, et
seq.)

The Vitagraph Company copyrights every pic-
ture. (Defendants' main brief, p. 381; Smith,
III, 1784.) A copyright does not protect the
owner from violation of the Sherman Act. Straits
v. American Publishers Assn., 231 U. S., 222 (see

73

our main brief, p. 287). How in reason can it be
said that the copyrighted article is also a patented
article ?

As to the decree.

We respectfully submit that the decree should
grant relief along the lines prayed in the petition.
If the full relief prayed for in the petition be
granted, this will not prevent the lawful owners
of the patents from issuing normal and legal
licenses to use the patents. The decree in the so-
called Bathtub Trust case was similar to that
prayed for here in respect to the license agree-
ments. There was inserted in that decree a saving
provision respecting the patents which can be in-
corporated in the decree in this case. That clause
of the decree read as follows :

That this decree shall not be construed to
prevent whoever may be the owner or own-
ers of the Arrott patent and other dredger
patents relating to the manufacture of sani-
tary enameled ironware from granting law-
ful licenses to any of the defendants or
others to use such patents or to prevent the
defendants or others from taking lawful
licenses to use any of such patents.

The Bathtub Trust case also decreed :

The defendants in the manner set forth
in the petition have entered into and are
engaged in a combination in restraint of
trade and commerce among the several
States in sanitarv enameled ironware and

74

are attempting to monopolize said trade and
commerce in said ware. * * *

That the so-called manufacturers' license
agreements and the jobbers' license agree-
ments and the price lists made part of said
agreements, all described in the petition
herein, have been and are the means adopted
and used by the defendants in order to
carry into effect the objects and purposes
of said unlawful combination in restraint
of said interstate trade and commerce in
violation of said act of Congress, and that
the said agreements and price lists are
therefore hereby declared illegal and the
defendants and all and each of them and
their officers, agents, servants, and em-
ployees are enjoined and prohibited from
doing anything in furtherance of said manu-
facturers'license agreements and jobbers'
license agreements, and from enforcing in
any manner said agreements or any of the
terms thereof, and from adopting or enforc-
ing said price lists in interstate commerce
in sanitary enameled ironware.

That the defendants, their officers,
agents, servants, and employees, are en-
joined and prohibited from continuing
their attempt to monopolize interstate com-
merce in said ware by means of the un-
lawful combination hereinbefore described,
and more particularly by means of said
manufacturers' license agreements and job-
bers' license agreements, and said price
lists, or by any other means similar thereto.

75

That the said defendants, their officers,
directors, agents, servants, and employees,
are enjoined and prohibited from resuming,
engaging in, continuing, or carrying into
further effect the combination adjudged
illegal hereby, and from engaging in or en-
tering into any like combination or attempt
to monopolize the effect of which will be to
restrain commerce in sanitary enameled
ironware among the several States of the
United States, or in the Territories of the
United States, by making any express or
implied agreement or arrangement together,
or one with another, like that adjudged
illegal herein, relative to the control or
management of the business of the said de-
fendants in sanitary enameled ironware
the effect of which will be to prevent each
and any of them from carrying on inter-
state trade and commerce in sanitary enam-
eled ironware in competition with the
others.

In our main brief, pages 302-320, we discuss the
form of decree necessary in the cases of the Patents
Co. and General Film Co.
Respectfully submitted.

T. W. Gregory,

Attorney General,
G. Carroll Todd,
Assistant to Attorney General.
Edwin P. Grosvexor,
Special Assistant to the Attorney General.

O