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ELECTRIC AUTO-LITE CO. v. P. & D. MFG. CO.

May 7, 1934

ELECTRIC AUTO-LITE CO.
v.
P. & D. MFG. CO., Inc., et al.



The opinion of the court was delivered by: INCH

INCH, District Judge.

This is a suit in equity. Plaintiff, an Ohio corporation, with its principal place of business at Toledo, Ohio, sues the defendants, one being a New York corporation, with its principal place of business in the city of New York, the others are the president, and treasurer, respectively, of the corporation, and are citizens and residents of the state of New York.

Prior to 1930, these individual defendants were copartners. Thereafter they incorporated this copartnership in the name of the corporate defendant. Where the word "defendant" is used, I refer to the corporate defendant.

 The bill of complaint sets forth three causes of action, unfair competition, contributory, and in two instances direct, infringement of letters patent belonging to plaintiff, and alleged violation of plaintiff's registered trade-marks.

 As to the cause of action for unfair competition, the amount involved clearly exceeds the statutory requirement.

 The relief asked for in the bill is the usual injunction against infringement, accounting, etc., and that defendants be enjoined from unfair competition in the manufacture and sale of "parts" used by plaintiff in its manufacture and sale of its patented combinations, in which combinations these "parts" are elements.

 The issues raised by the amended answer of defendants were duly tried, and the questions of law were duly argued upon most comprehensive and excellent briefs, previously submitted, by the eminent counsel for the respective parties.

 The issues of fact present little difficulty. There is substantially no dispute as to them.

 The real dispute is as to the respective rights of these two corporations, plaintiff and defendant, in the large and important field of manufacture and sale of "parts" for electrical devices used extensively in the modern automobile, in which industry it plainly appears the corporate defendant is a competitor of plaintiff. Whether this competition is lawful or not is the real question.

 The charge of patent infringement involves alleged contributory infringement of ten patents which will be hereafter referred to, and of direct infringement of the Wollenweber patent, United States No. 1,669,888, and the Gilchrist patent, United States No. 1,735,112.

 The proof shows that plaintiff, at large expense, and after much research, manufactures what it terms an "Auto-Lite System" for automobiles. This system is composed of a number of units, in substance, a starter, generator, distributor, coil, and starter switch. Each of these mechanical devices or units is manufactured by plaintiff and is covered by one or more of the ten United States patents already referred to. Most of them are combination patents and have as elements certain small parts such as screws, contact points, breaker arms, rotors (a little fan-shaped affair which slides over the contact points in the distributor and also acts as a fan), distributor caps, condensers, etc.

 In other words, there are these innumerable small "parts" in this "system" of units, some of which "parts" are expected to wear out long before the particular unit loses its usefulness, because they bear the heavy burden of the modern electric power plant of the present automobile. Also some "parts" prove defective or are broken before the expected usefulness of the particular unit is ended.

 Nevertheless, dealing with the character of this "system," it is plain that a failure of a "part" to properly function may, because of the sensitive character of the "system," seriously impede or prevent the proper functioning of other units in the "system."

 There appear to be other electrical "systems" than those of plaintiff, but the Auto-Lite "system" is being used in a large number of automobiles manufactured by different automobile makers.

 Plaintiff therefore keeps on hand a large supply of small "parts" which it distributes to its various service stations throughout the United States and to others that may require them.

 This service department has approximately 40 central stations, 1300 service stations, and 3,000 parts depots, in this country.

 The defendant operates a plant in the Eastern District of New York, and employs eighteen salesmen throughout the United States. It does not attempt to sell its "parts" to an automobile manufacturer, but devotes its energy to supplying the "parts" to service stations, mechanics, and owners of the automobiles, by and through some 1800 jobbers, with possibly 25,000 outlets in the United States.

 There is no proof here, nor is the claim made, that defendant manufactures and sells a particular patented unit aside from the direct infringement already referred to. On the contrary, it is the right to manufacture and sell these small "parts" that defendant is contending for and which plaintiff contests.

 Since 1922 plaintiff has been prominent in the automobile industry. In 1925 its net worth was close to $5,000,000. In 1928 this increased to nearly $16,000,000. In 1931 a still further increase took place to approximately $21,000,000.

 Naturally there has been, during the period of depression, a falling off in value, but during the four years prior to 1932, the original equipment business of plaintiff amounted to over $60,000,000, and a substantial part of the business of plaintiff has been in the supplying of these small "parts" for its units. Between 1929 and 1932 the volume of this "parts" business amounted to over $5,000,000.

 Then again plaintiff has expended large sums of money in the development and sales promotion of its product. It expended over $1,000,000 for patents and royalties. It has spent over $1,000,000 for sale promotion, engineering, experimenting, and developing.

 Its "parts" business has two branches, one is where a guaranty is given and, if a part is defective, it is replaced without charge. The cost of this branch amounts to considerable, and it also requires furnishing free "parts" to car owners in maintaining a guaranty to car manufacturers.

 There is what is termed in this department slow and fast moving "parts" based on the demand for same. All of this requires plaintiff to manufacture and maintain large stocks of these "parts."

 Seventy-five per cent. of plaintiff's sales relate to these "fast moving" parts. These number approximately 700, or about 14 per cent. of the combined number of "parts" involved.

 The money return is in these fast-moving parts, and it is as to these "parts" that plaintiff meets with competition from defendant.

 I can find no sufficient evidence that defendants ever deliberately and expressly made "parts" and sold them as plaintiff's "parts." In other words, the proof is insufficient that defendants expressly deceived a customer into believing that the "parts" purchased by such car owner was one manufactured and sold by plaintiff.

 To be sure, there were one or two witnesses produced by plaintiff, men operating little automobile repair shops, who did testify that they did cheat the public in this manner, but the great weight of testimony is to the contrary so far as these defendants are concerned. Such isolated cases of dishonesty cannot, in fairness to the defendants, be attributed to them. We can eliminate, therefore, the usual case of an express effort to deceive the public, an unfair competition which needs no citation of authorities to condemn.

 The intention, however, of a competitor to unfairly compete may be ascertained in other ways than by such express statements by it, and the opportunity to unfairly compete may arise and be shown from and by the manner in which an otherwise lawful business is conducted.

 It appears, therefore, that both plaintiff and defendant are conducting a substantial business in these small "parts" that are used in plaintiff's units.

 Defendant sells its "parts" under its own name and in most instances under its own trade-mark.

 Plaintiff claims that defendant cannot lawfully manufacture and sell any of these parts both because to do so is unfair competition as well as being an infringement of the patent monopoly owned by plaintiff.

 The defendant, on the other hand, insists that the market is open to it as long as it does not expressly deceive the public into thinking that it is buying plaintiff's "parts," and that, if plaintiff is successful in this suit, it will simply mean that the court has given plaintiff "a monopoly unlimited as to time, in the business of supplying the unpatented and unpatentable wearing parts of ignition devices," and will "force every car owner, whose car is equipped with plaintiff's ignition devices, to come to plaintiff and pay its price whenever those ignition devices are in need of common repair." This fear on the part of defendant is not without warrant. It is a part of the common experience in an industry, and has been mentioned by the courts. Cortelyou v. Charles E. Johnson & Co. (C.C.A.) 145 F. 933, page 934; Wagner, etc., Co. v. F.S. Webster Co. (C.C.) 144 F. 405; Pyle-National Co. v. Oliver, etc., Co. (C.C.A.) 281 F. 632.

 An important object of the law of unfair competition is the protection of the public, the individual consumer.

 The desire to increase prices to this consumer is aided or retarded by the ability to make the consumer pay the increased price, and a monopoly as to a product for which there is and must be a demand is persuasive towards getting more for the product than otherwise it would be possible or than the product is reasonably worth with a reasonable profit. "The primary purpose of our patent laws is not the creation of private fortunes." Motion Pictures, etc., Co. v. Universal, etc., Co., 243 U.S. 502, 37 S. Ct. 416, 418, 61 L. Ed. 871, L.R.A. 1917E, 1187, Ann. Cas. 1918A, 959.

 It is here that a patent monopoly exists, for a limited time, as a reward for progress in the art and for the benefit to the public because of the advance in the art.

 Unless, however, such patent monopoly clearly belongs to plaintiff, the danger to the public here urged by the defendant cannot be ignored, unless competition, which is a means of preventing the taking of unfair advantage of the public, is fair and honest competition, by competitors who truly stand on their own reputation and are proud of their product.

 I agree with counsel for the defendants that there is no contributory infringement where the "part" supplied by the defendant does not respond to an element recited in a claim of plaintiff's patent or where the part does not serve to "distinguish the invention," marking the advance upon the prior art, or where the facts as to the plaintiff's conduct as to its business fairly imply an understanding or bargain between the plaintiff and the consumer that the quick-detachable, and relatively short lived part, shall be replaced whenever same is worn or burned out, broken, or defective. Wilson v. Simpson, 9 How. (50 U.S.) 109, 13 L. Ed. 66; Mitchell v. Hawley, 16 Wall. (83 U.S.) 544, 21 L. Ed. 322; Motion Picture Patents Co. v. Universal Film Co., 243 U.S. 502, 37 S. Ct. 416, 61 L. Ed. 871, L.R.A. 1917E, 1187, Ann. Cas. 1918A, 959; United States v. General Electric Co., 272 U.S. 476, 47 S. Ct. 192, 71 L. Ed. 362; Heyer, etc. v. Duplicator, etc., 263 U.S. 100, 44 S. Ct. 31, 68 L. Ed. 189; Thomson-Houston, etc., Co. v. Kelsey, etc., Co. (C.C.A.) 75 F. 1005; Wagner Typewriter Co. v. F.S. Webster Co. (C.C.) 144 F. 405; Gillette Safety Razor Co. v. Standard, etc., Corporation (C.C.A.) 64 F.2d 6; Leeds & Catlin Co. v. Victor Talking, etc., Co. (C.C.A.) 154 F. 58, 23 L.R.A. (N.S.) 1027; Goodyear Shoe, etc., Co. v. Jackson (C.C.A.) 112 F. 146, 55 L.R.A. 692; Shickle, etc., Co. v. St. Louis, etc., Co. (C.C.A.) 77 F. 739; Slocomb & Co. v. A.C. Layman, etc., Co. (C.C.A.) 227 F. 94, affirmed (C.C.A.) 230 F. 1021; Foglesong, etc., Co. v. J.D. Randall Co. (C.C.A.) 239 F. 893; Pyle, etc., Co. v. Oliver, etc., Co. (C.C.A.) 281 F. 632; Eclipse Machine, etc., Co. v. J.H. Specialty, etc., Co. (D.C.) 4 F. Supp. 306; Sirdar Rubber Co. Ltd. v. Wallington Co., [1905] 1 Chan. 451 (England); Fetherstonaugh & Fox, The Law and Practise of Letters Patent of Invention in Canada (Toronto 1926) p. 118.

 Thus as far back as 1850 the Supreme Court stated the general law still applicable to this situation where in Wilson v. Simpson et al., 9 How. (50 U.S.) 109, at page 125, 13 L. Ed. 66, in discussing the right of the owner of a patented combination machine to replace new knives, the court says: "The proof in the case is, that one of Woodworth's machines, properly made, will last in use for several years, but that its cutting-knives will wear out and must be replaced at least every sixty or ninety days. * * * The right of the assignee to replace the cutter-knives is not because they are of perishable materials, but because the inventor of the machine has so arranged them as a part of its combination, that the machine could not be continued in use without a succession of knives at short intervals. Unless they were replaced, the invention would have been but of little use to the inventor or to others. The other constituent parts of this invention, though liable to be worn out, are not made with reference to any use of them which will require them to be replaced. These without having a definite duration, are contemplated by the inventor to last so long as the materials of which they are formed can hold together in use in such a combination. No replacement of them at intermediate intervals is meant or is necessary. They may be repaired as the use may require."

 Thus the difference is indicated between the right to repair and replace, as well as forbidding a "reconstruction."

 Motion Picture Patents Co. v. Universal Film Co., 243 U.S. 502, 37 S. Ct. 416, 61 L. Ed. 871, L.R.A. 1917E, 1187, Ann. Cas. 1918A, 959. The grant by patent is limited to the invention described in the claims, and does not empower the patent owner to extend the scope of the patent monopoly by restricting their use to materials necessary for their operation but forming no part of the patented invention.

 Heyer v. Duplicator Mfg. Co., 263 U.S. 100, 44 S. Ct. 31, 32, 68 L. Ed. 189. The court in speaking of the patented machine says: "The machine is costly, the bands are a cheap and common article of commerce. * * * It is assumed for the purposes of argument that the claim (a combination patent) is valid and covers the bank when used in this combination, since otherwise there would be nothing to discuss."

 Gillette Safety Razor Co. v. Standard Safety Razor Corporation, 64 F.2d 6 (C.C.A. 2). The court held that unpatented components of a patented invention which wear out relatively quicker may be replaced without infringement.

 Pyle-National Co. v. Oliver, etc., Co., 281 F. 632 (C.C.A. 8). Here the court held that no one under the guise of merely furnishing needed repair parts to a patented machine "may in fact make or remake the patented device or machine in competition with or in violation of the rights of" the patentee, yet it again asserts the rule in regard to the right to make necessary repairs, and states: "The more accessible and convenient such repair parts are to be had the more valuable and useful the machine." Page 633 of 281 F.

 Wilson v. Union Tool Co. (C.C.A.) 265 F. 669. "The principle that a right of the user of a patented device extends to repairs of the device does not go to the extent of replacing parts, such as obtaining duplicates or spare parts and extras in anticipation of breakage or destruction. National M. Casting Co. v. American Steel Foundries ...


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