Opposition Brief — De Bothezat Impeller Co. v. American Machine & Metals, Inc.

Office-Supreme Court, U. S

FILED

MAY 18 1950

CHARLES ELMORE CROPL

CLER

IN THE

Supreme Court of the United States

October Term, 1949

De Boruezat IMPELLER Company, INo.,

Petitioner,

v.

AMERICAN MacuHINE AND Metats, INc.,

Respondent.

Ee

BRIEF IN OPPOSITION TO PETITION FOR A WRIT

OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE SECOND CIRCUIT

eee ree ee a RR Ee TEN NE

e AupHonsE KEnIson,

Attorney for Respondent.

_ Leonarp P. Moors,

| CHarLEs PICKETT,

of Counsel.

INDEX

PAGE

No Reason Exists to Invoke the Jurisdiction of this

RG imine enesiecel oe aS lt Mio 1

EE SED atk she ncard' Aiienadincan Ghaknactuk a 3

EASES Le ere RRP Tee 3

The Parties’ Situation in 1934 ................ 3

The Contract of April 3, 1934 ................. 4

Metals’ Absolute Right to Terminate .......... 5

The Proceedings Below ...................... 7

Point I—The Contract Plainly Does Not Prevent

Metals, after Termination, from Making Fans

Which Do Not Infringe Valid Patents .......... 9

Point II—The Four ‘‘Defenses’’ Pleaded by Peti-

tioner Were Clearly Insufficient .............. 18

A. The Fear “‘Defenses”® .................. 19

B. The Acts Charged Do Not Affect Metals’

eee 22

C. The Acts Charged Do Not Affect Metals’

Right to Make Fans after Termination .... 27

PE Nea Cain tiie uneec de lasik ackeec oc 29

ere

ii

TABLE OF AUTHORITIES

CasEs:

PAGE*

American Machine and Metals, Ine. v. DeBothezat

Impeller Company, Inc.

ek I GUE A ba VES WA VONS So sheen eeees 3

fe rec ee eeer res Serer 3

Anheuser-Busch Ice & Cold Storage Co., Ine. v.

Reynolds, 221 App. Div. 174, 222 N. Y.S. 650 .... 27

Antisdel v. Chicago Hotel Cabinet Co., 89 Fed. 308

(7 Cir.), modified on rehearing, 90 Fed. 828 ...... 10

Barth v. Addie Co., Inc., 271 N. Y. 31,2 N. E.2d34.. 2

Beck v. Fybern Holding Corp., 238 App. Div. 25, 263

By ie We We Ske AoA Ee Ades Reba s eh came dens ers 25

Biber Bros. News Co., Inc. v. New York Evening Post,

Inc., 144 Misc. 405, 258 N. Y.S. 31 .............02. 24

Bitterman v. Gluck, 256 App. Div. 336, 9 N. Y. S. 2d

BEE Aa Cua ee Cha aes ccahee vee ae Adeeb eteedenrs 25

Bituminous Products Co. v. Headley Good Roads Co.,

2 F. 2d 83, affd. on opinion below, 14 F. 2d 607 (3

Ss ce raise 6 us SAC TASWSR OR SCAR Cab eaaebneies 10

Blain v. Sullivan-Waldron Products Co., 78 F. Supp.

661, affd. on the opinion below, 172 F. 2d 221 (3

GG. hain nicenh obekackomven nes secede hessacasuns 10, 13

Bogy v. Berlage, 265 App. Div. 249, 38 N. Y. S. 2d

25

WE wees vancdasveke snasteseseldsanecaendeeeseaa

Cammack v. Slattery & Bro., Inc., 241 N. Y. 39, 148

15-18, 23

|

* Full citations for Supreme Court cases, and unofficial citations

for New York cases, appear in this table. In the body of the brief,

references are given only to the United States Reports and the official

New York reports except where the case has not been officially

reported in full.

iii

PAGE

Chatham Plan, Inc. v. Clinton Trust Co., 246 App.

Div. 498, 286 N. Y. S. 179, app. dismissed, 272 N. Y.

stteisboientgep garbage ELE 25

Conmar Products Corp. v. Universal Slide Fastener

Co., Inc., 172 F. 2d 150 (2 ORE cotihixeakew st us 11

Crossley v. Dixon, 10 H. L. Cas. 293 ............ 10

Dalzell v. Fahys Watch Case Co., 1388 N. Y. 285, 33

Pe MED NEUEN Eeviorewinie Siscbeigacdec. .. 27

De Cew v. Union Bag & Paper Corp., 57 F. Supp. 388 11

Demeo, Ine. v. Doughnut Mach. Corp., 62 F. 2d 23

(4 Cir.), cert. den. 288 U. §. 605, 53 S. Ct. 396, 77

ERM nahh 2565 ben ew ins genisindicass....., 10

DeMille Co. v. Casey, 121 Misc, 78, 201N. Y.8.20.... 10

Denise v. Swett, 142 N. Y. 602, 37 N. E.627.......... 10

Dueber Watch-Case Mfg. Co. v. Robbins, 75 Fed. 17

MME DLE SH hss chev b dake shcbe didi sci.s., | 10

Dutchess Tool Co. v. Kolb, 44 App. Div. 624, 60 N. Y.

Mee, eins ATVs 0544s ys fohees Se ye ek, 10

Electric Regulator Mfg. Corp. v. American Mechan-

ical Laboratories, Inc., 225 App. Div. 37, 232 N. Y.

EI hace tcccexiiviscy. 10

Eskimo Pie Corp. v. National Ice Cream Co., 26 F.

seg ss on ee Eis 10, 11, 13

Friedman vy. Connecticut General Life Ins. Co., 251

App. Div. 292, 296 N. Y. S. 146, leave to appeal de-

sig a ics a ON 24

Gallo v. Mayor, ete., of New York, 15 App. Div. 61, 44

MN niin yconvavxauretolycaec .. 25

General Motors Corp. v. Rubsam Corp., 65 F. 2d 217

(6 Cir.), cert. den. 290 U. S. 688, 54 S. Ot. 123, 78

an EE a NG ate 10

Goodwin vy. Camp, 295 Fed. 785 a) Rn ee ae 13

Hart v. Hart, 188 App. Div. 283, 176 W. Y. §. 790 . nae. ae

Henderson y. Dougherty, 95 App. Div. 346, 88 N. Y. S,

PM treks vias ntnenssys viebeen bocce.

iv

PAGE

Hirsh & Schofield, Inc. v. Gusmer, 179 App. Div. 347,

165 N. Y. S. 555, affd. without opinion, 226 N. Y.

Se St Acne auwabaenabanns cdbscuwsd odoin 29

Howe v. Atwood, 47 F. Supp. 979 ...............4.. 10

Hyatt v. Ingalls, 124 N. Y. 93, 26 N. BE. 25........ 10, 13, 28

Inglesi v. Hickson, Inc., 195 App. Div. 585, 186 N. Y. S.

Adit HCAS ches bes hays Need veeWs ve Cs bhEewck es 25

International Burr Corp. v. Wood Grinding Service,

pee ee ee ee ree 10

International Life Ins. & Trust Co. v. Franklin Fire

pe Ys ee rae 24

Johnson v. Union Switch & Signal Co., 129 N. Y. 653

CURE GRD, TBs BNE oe visercesdsscevenscncece 12

Jones v. Commercial Travelers’ Mut. Accident Assn.,

201 N. Y. 576, 95 N. E. 1130, modifying 134 App.

Div. 936, 118 N. Y. S. 1146, affirming 114 N. Y. S.

ae eS ay er em Se Pie et ee ee 24, 26

K-W Ignition Co. v. Temco Electric Motor Co., 243

Fed. 588 (6 Cir.), cert. den. 260 U. S. 746, 43 S. Ct.

ee EE a aah ned FeCE ON ene b edu beteens. 13

Lamont, Corliss & Co. v. Bonnie Blend Chocolate

Corp., 135 Misc. 537, 238 N. Y. S. 78 ............. 29

Lipman v. Niagara Fire Ins. Co., 121 N. Y. 454 ...... 23-24

MacDonald Bros., Inc. v. Halston, 63 N. Y. S. 2d 909 24

Mark v. Hyatt, 135 N. Y. 306, 31 N. E. 1099 ........ 10, 28

Marston v. Swett, 82 N. ¥. SOG... 60. cece ccc ccecees 13

Mason v. Electrol, Inc., 292 N. Y. 482, 55 N. E. 2d 747 ~—25

Measurements Corp. v. Ferris Instrument Corp., 159

i ee MD os cabs tdnee oteasbs ndeviabowns 10, 11

Miehle Printing Press & Mfg. Co. v. Publication Corp.,

OR Bie iick bine one baes Weee wie 10, 11

Motion Picture Trade Directory Co., Inc. v. Wallace,

186 N. Y. S. 80, affd. without opinion, 197 App. Div.

SS PT ee eePeT ere erty or er 26

v

PAGE

New York Telephone Co. v. Jamestown Telephone

Corp., 282 N. Y. 365, 26 N. E. 2d 295 .............. 16, 22

ETD S55c's cK cS wih Sus dons onc ccues 10

Okst v. Metropolitan Life Ins. Co., 50 N. Y. S. 2a 919° 24

Paine & Williams Co. v. Baldwin Rubber Co., 113 F.

II Ah ng nos Sh cones eacsS eke lt 10

Pelham v. Edelmeyer, 15 Fed. 262 (C.C.S.D.N.Y.) 10

Corp., 136 F. 2d 210 (2 Cir.) .................... 11

cert. den. 317 U.S. 651, 63 S. Ct. 46,87 L. Ed.524.. 11

Pitts v. Jameson, 15 Barb. 310 ..................... 27

Randall v. Michelin Tire Co., 137 Misc. 570, 244 N. Y.

0 SESS SO ee 25

Redges v. Mulliner, 10 R. P.C.21.................. 10

Redican v. Interchangeable Magnetic Sign Co., Inc.,

162 App. Div. 803, 146 N. Y.S.596 ............... 29

Robertson v. Charles Frohman, Inc., 198 App. Div.

782, 191 N. Y. S. 55, app. dismissed, 233 N. Y. 530,

I linn Sitch dS onlhicnnn ss... 25

Rosenthal Paper Co. v. National Folding Box & Paper

Co., 226 N. Y. 313, 132 N. E.766.............._. 27

Saltus v. Belford Co., 133 N. Y. 499, 31 N. E. 518. .10, 13, 28

Schalkenbach v. National Ventilating Co., 129 App.

yore, anaes Ce a 10, 13

Schulder v. Edward R. Ladew Co., Inc., 178 App. Div.

gS Ca eed 27

Scott Paper Co. v. Marcalus Mfg. Co., Inc., 326 U. §.

249, 66 S. Ct. 101, 90 L. Ed. 47 ................... 9, 18

lina Railroad Company, 99 U. S. 191, 25 L. Ed. 319 26

vi

PAGE

Stanley v. Chris-Craft Corp., 21 N. Y. S. 2d 898, affd.

without opinion, 259 App. Div. 1038, 21 N. Y. S. 2d

ee eee? erry Cet rere rrr i ses eee er Tree 25

Stimpson Computing Scale Co. v. W. F. Stimpson

ig Ie es re NE eis teed carcerecvasians 10, 14

Tams-Witmark Music Library, Inc. v. New Opera

Company, Inc., 298 N. Y. 163, 81 N. E. 2d 70...... 14

Thuman v. Clawson & Wilson Co., 211 App. Div. 507,

ge Th Re OR Ra ee ere nee: rere 27

Union Switch & Signal Co. v. Johnson, 72 Fed. 147 (3

Ce Cie wah eed WONG AG Cease bested dghceveh saeeecs 10

United States Aluminum Co. v. Calvert Lithograph-

ing Co., 49 Misc. 491, 97 N. Y. S. 1042 ............. 26

Warth v. Liebovitz, 179 N. Y. 200, 71 N. E. 734 ...... 25

Watson v. Russell, 149 N. Y. 388, 44 N. FE. 161........ 25

Wilcox v. Williams, 92 Hun 250, 36 N. Y.S.944...... 26

Wilde v; Gunith, © Daly 106 o.oo. i ec cedees 13

OTHER AUTHORITIES

Federal Rules of Civil Procedure

Re rer eee ee ere erry ee ree 19

3 Moore’s Federal Practice (2d Ed., 1948) .......... 19

Restatement of the Law of Contracts

CMD Sik do soad be guktan se4 eS anes Ads oe RES ON 26

Revised Rules of the Supreme Court of the

United States

SE re ee er rr CEE ry

IN THE

Supreme Court of the United States

October Term, 1949

No. 763

De Boruezar IMPELLER Company, Inc.,

Petitioner,

v.

AMERICAN MacHINE AND Merats, Inc.,

Respondent.

ay.

v

BRIEF IN OPPOSITION TO PETITION FOR A WRIT

OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE SECOND CIRCUIT

Defendant seeks review of a unanimous judgment (A. N.

Hanp, Cuase and Cuark, C.JJ.) affirming a declaratory

judgment (Coxz, D.J.) construing a contract between these

two parties.

No Reason Exists to Invoke the Jurisdiction

of This Court

No constitutional or Federal question is involved. No

important question of local law is presented. The decision

concerns only these two private litigants.

The main issue is over the construction of a long con-

tract executed in 1934. The contract expressly gives re-

spondent an absolute right to terminate it on six months’

notice. The question is whether, after termination, the

contract requires respondent to go out of the fan business

for all time.

The contract was not a standard form in general use.

It was specially prepared by the parties’ counsel over

months of negotiations. Its interpretation depends, basic-

ally, on its own particular language. The courts below,

construing the contract in light of its detailed provisions,

agreed that petitioner’s specious arguments were without

merit. That eminently correct conclusion involves no ques-

tion of general interest.

Even less consequential is the subsidiary issue. Claim-

ing that certain breaches occurred in the past, petitioner

asked, in four counterclaims also labelled as ‘‘defenses,’’

that respondent be compelled to pay stated damages and,

in addition, be visited with a special, novel penalty. It

argued that the contract should be rewritten to deprive

respondent of the right of termination or of the right to

make, after termination, unpatented goods which all the

world is free to handle.

The courts below—following New York law, which con-

cededly is controlling here—agreed that this astonishing

claim finds no basis in the local law. No case cited by peti-

tioner lends any support to its claim, which flies in the face

of numerous local decisions. The point is utterly lacking

both in merit and in general importance.

Review on writ of certiorari ‘‘ will be granted only where

there are special and important reasons therefor.’’ Rule

38, par. 58.* Here there is no reason whatever for granting

the writ—much less a ‘‘special’’ or ‘‘important’’ reason.

* Italics are ours throughout unless otherwise stated.

Opinions Below

The opinion of the Court of Appeals (628-645)* is

reported, 180 F’. 2d 342. The trial court wrote no opinion

but voiced his views during argument (377-420). The earlier

opinion of the District Court, holding petitioner’s four

‘‘defenses’’ insufficient (70-80), is reported, 82 F. Supp.

556.

Statement of Case

The Parties’ Situation in 1934

Prior to the contract petitioner (sometimes called ‘‘De

Bothezat’’) made and sold fans and ventilating equipment

in part of a loft building in New York City (F7, 608).

Petitioner was practically unknown in the business

(453). Its enterprise was a failure. From 1929 its gross

sales—never over $174,000 a year—declined steadily, fall-

ing to only $58,000 in 1933 (F8, 608; 174). Its net loss rose

to over $100,000 (F'8, 608; 485).

When the contract was made, petitioner’s operations

had virtually ceased. It had only 6 unfinished orders on

hand (35). It had long had only a skeleton force (F16, 610-

611; 270).

While petitioner had some equipment and machinery,

‘in very bad shape’’ (279), its principal asset consisted

* Unless otherwise stated, references in parentheses are to pages

of the record. When preceded by F, they designate findings of the

trial court; thus (F24, 613) denotes Finding 24, page 613 of the

record.

4

of certain patents and patent applications (on which pat-

ents later issued), which we shall call the ‘‘DeBothezat

patents.’’ Actually they were quite limited in scope (148-

150, 261-262), but petitioner thought them unequalled (Ex.

V, not printed). Its products embodied, or were supposed

to embody, these patented devices (F7, 608; 8, 97).

Despite intimations to the contrary (e.g., Pet. Br., pp.

3, 6), respondent’s organization was no stranger to the fan

business in 1934. Its immediate predecessor was actively

engaged in the fan business until 1931. Its subsidiaries

were making and selling fans when the contract was signed

(F'6, 607 ; 282-283, 355-358).

The Contract of April 3, 1934

Under the contract (7-52) Metals (respondent) did not

buy—or agree to buy—‘‘the DeBothezat fan business on

the installment plan’’ (Pet. Br., p. 6.). In fact, the ‘‘busi-

ness’’ is not even mentioned in the agreement, doubtless

because it was practically extinct.

The contract begins by referring to the DeBothezat pat-

ents (8). The very first paragraph provides for their quali-

fied conveyance to Metals ‘‘subject to the conditions of this

agreement’’ (9). One condition is that Metals must recon-

vey them on termination (19).

Certain ‘‘plant and equipment’’ was also assigned to

Metals (12), with a covenant to reconvey it, if still in ex-

istence, on termination (19-20). Other ‘‘plant and equip-

ment’’ was leased to Metals, with an option to buy it for

$1 after July 1939 (13-14).

5

In exchange, Metals agreed among other things to pay

petitioner royalties. Royalties are paid not on profits but

‘net sales’’ (15-16). Petitioner bears no part of Metals’

expenses or losses. Royalties have long exceeded the guar-

anteed annual minimum of $5,000. In recent years they

have averaged about $30,000 annually. By the end of Janu-

ary 1949, they had aggregated $250,000 (F'30, 615; 428).

Metals’ Absolute Right to Terminate

Paragraph Tenth of the contract gives Metals the ab-

solute right to terminate after the first year (F4, 607;

18-19):

‘One year after the date hereof or at any time

thereafter, Metals Corporation may give the De-

Bothezat Company notice, in the manner hereinafter

provided, of its intention to terminate this agreement,

and six (6) months after the notice shall have been

so given, this agreement .. . shall thereupon termi-

nate and Metals Corporation shall not be liable for

any payment under the provisions of Paragraph

Kighth hereof [the royalty provisions] accruing after

the period ending upon such termination.”

Elaborate provisions govern the parties’ rights after

termination. As just seen, even though Metals makes ar-

ticles on which royalties would formerly have been due, it

has no contractual obligation to pay petitioner anything.

In addition:

* Although petitioner dislikes the word “royalties,” the first

amendment to the contract ( prepared by petitioner in 1936) refers

to the “minimum royalty” and the “royalty payments” (36). Peti-

tioner’s representatives repeatedly referred to “royalties” (214, 472,

572, 573, 594).

1. On termination Metals reconveys the DeBothezat

patents (19).

2. For one year petitioner may require Metals (on pay-

ing its expenses) to assign patents or patent applications

‘‘covering any new inventions or new discoveries or im-

provements in the manufacture of the Products’’ (19).

There have been several such patents (F31, 616).

3. On termination Metals returns ‘‘such of the plant

and equipment’’ assigned to it ‘‘as it may then have on

hated’’ (19-20).

4. Fora year after termination petitioner may examine

and copy Metals’ ‘‘books and records’’ (20).

5. Within four months after termination Metals must

pay all royalties accruing before termination (20).

6. After termination Metals’ right to use the DeBothe-

zat name ceases (23).

Thus on termination Metals gives up certain rights and

retains all others. It keeps its factory, raw materials, work

in process and orders. It keeps all new machinery and

equipment it has acquired, its good will, its own name and

all trademarks and trade names it has developed.

Likewise Metals retains after termination the right—

which it always had—to make and sell fans not infringing

outstanding patents.

The Proceedings Below

The Court of Appeals has outlined the history of the

litigation (631-632). While the action continued, petitioner

received about $3,000 in royalties each month. It used

every means, therefore, to avoid and delay an adjudication.

So successful were its tactics that $70,000 in royalties were

paid during pendency of the action down to early 1949

(F30, 615; 428-430).

At the trial petitioner contended that the contract was

‘‘perfectly clear’’ (88), ‘‘clear on its face’’ (158), and un-

ambiguous (168). Nonetheless it submitted parol evidence

on its claim that the parties had orally agreed that Metals

would not stay in the fan business if it terminated the con-

tract. This evidence was offered to show that the contract

should be construed as petitioner claims or else reformed

so to provide.

Actually the parol evidence made it doubly plain that

the contract does not mean what petitioner claims. The

contract itself, however, clearly shows that Metals need not

quit the fan business after termination. Neither court be-

low found it necessary, therefore, to fall back on the parol

evidence to support its interpretation of the agreement.

One might suppose from petitioner’s brief that the

parol evidence was not passed upon. The fact is otherwise.

Most of the trial was devoted to taking the parol evi-

dence, pro and con. The witnesses’ testimony was conflict-

ing. No shred of documentary evidence supported peti-

tioner’s claim. On the contrary, between December 1933

and April 4, 1934, seven drafts of the proposed contract

were prepared by the parties’ lawyers (F13-21, 609-612),

8

but none—not even the four drafts of petitioner’s counsel

—contained any reference to the supposed oral agreement

(F25, 613). At one time, indeed, petitioner’s lawyer (and

vice-president) suggested that Metals make such an agree-

ment, but the suggestion was spurned (F'22, 612; 554-555).

During oral argument it was apparent that the trial

court did not credit petitioner’s story. At the last minute,

therefore, petitioner argued that the court should simply

omit findings on the issues raised by the parol evidence.

Of course the judge rejected that suggestion (417).

There are, in fact, voluminous findings on the parol evi-

dence (F'10-28, 608-615; F'36, 618). The court flatly found

that no agreement or representation was ever made—

either before or after the contract was executed—that

Metals would not make or sell fans after termination (F22,

24-25, 28, 36; 612-614; 618). Thus petitioner’s parol evi-

dence was considered and repudiated.

Petitioner’s main brief in the Court of Appeals again

raised the claim of an oral agreement. But its reply brief

expressly withdrew the reformation claim (633). On oral

argument, its counsel asked the court to disregard those

parts of Metals’ brief dealing with the parol evidence,

and the reformation issue was again withdrawn. Ac-

cordingly, as the Court of Appeals said, ‘‘we shall say

no more as to it’’ (633).

POINT I

The contract plainly does not prevent Metals, after

termination, from making fans which do not infringe

valid patents.

The Court of Appeals discussed petitioner’s tenuous

arguments so fully (633-641) that only a few points need

be added.

1. Had no contract been made, Metals would have

been free to make any unpatented fans it wished. Once

a DeBothezat patent expired, moreover, Metals would have

been entitled to make the fans formerly covered thereby,

for the patent laws ‘‘dedicate to all the public the ideas

and inventions embodied in an expired patent.’’ Scott

Paper Co. v. Marcalus Mfg. Co., Inc., 326 U. S. 249, 256.

What petitioner argues, therefore, is that after termi-

nation Metals is worse off than if it had never made the

contract. Metals is supposed to have foreclosed itself from

making any fans whatever except under the contract—to

have surrendered, for all time, rights which the whole

world enjoys, and which Metals would have had if the con-

tract had never been made.

Such a sweeping restraint on Metals’ freedom to com-

pete would be so extraordinary (to say nothing of its il-

legality) that one would naturally expect it to be expressed

in the plainest language. Business men represented by

experienced counsel do not leave such an onerous restric-

tion to fine-spun argument.

2. Particularly is that so because any competent lawyer

would know that no such restriction would exist in the ab-

10

sence of an express covenant. For it has long been settled

law that all disabilities arising out of a patent license or

agreement disappear when the contract ends.

When the contract is over, the former licensee or as-

signee will not be enjoined from making the self-same

goods as before, or compelled to pay for doing so, as long

as he infringes no patent. That is true whether he ter-

minates the contract himself,? or it is forfeited for his

breach,* or it ends in some other way.*

2 See, ¢.g., Antisdel v. Chicago Hotel Cabinet Co., 89 Fed. 308,

311-312 (7% Cir.), modified on rehearing, 90 Fed. 828; Stimpson

Computing Scale Co. v. W. F. Stimpson Co., 104 Fed. 893, 895

(6 Cir.) ; Bituminous Products Co. v. Headley Good Roads Co.,

2 F. 2d 83, 86, affd. on opinion below, 14 F. 2d 607 (3 Cir.) ; Demco,

Inc. v. Doughnut Mach. Corp., 62 F. 2d 23, 26 (4 Cir.), cert. den.

288 U. S. 605; Miehle Printing Press & Mfg. Co. v. Publication

Corp., 166 F. 2d 615, 618 (7 Cir.); Blain v. Sullivan-Waldron

Products Co., 78 F. Supp. 661, 662, affd. on opinion below, 172 F. 2d

221 (3 Cir.) ; Howe v. Atwood, 47 F. Supp. 979, 990; Dutchess Too!

Co. v. Kolb, 44 N. Y. App. Div. 624; Crossley v. Dixon, 10 H. L.

Cas. 293, 308; Redges v. Mulliner, 10 R. P. C. 21.

3 See, e.g., Dueber Watch-Case Mfg. Co. v. Robbins, 75 Fed. 17,

26 (6 Cir.) ; Eskimo Pie Corp. v. National Ice Cream Co., 26 F. 2d

901, 902 (6 Cir.) ; General Motors Corp. v. Rubsam Corp., 65 F. 2d

217, 222-223 (6 Cir.), cert. den. 290 U. S. 688; N. S. W. Co. v.

Wholesale Lumber & Millwork, Inc., 123 F. 2d 38, 41 (6 Cir.);

Pelham v. Edelmeyer, 15 Fed. 262, 264 (C. C. S. D. N. Y.); Hyatt

v. Ingalls, 124 N. Y. 93, 105; Mark v. Hyatt, 185 N. Y. 306, 309;

Saltus v. Belford Co., 1383 N. Y. 499, 504; Henderson v. Dougherty,

95 N. Y. App. Div. 346, 351-352 ; Schalkenbach v. National V entilat-

ing Co., 129 N. Y. App. Div. 389, 393-394; Electric Regulator Mfg.

Corp. v. American Mechanical Laboratories, Inc., 225 N. Y. App.

Div. 37; DeMille Co. v. Casey, 121 N. Y. Misc. 78, 86-88.

* See, ¢.g., Union Switch & Signal Co. v. Johnson, 72 Fed. 147,

152 (3 Cir.) ; International Burr Corp. v. Wood Grinding Service,

Inc., 34 F. 2d 905, 907 (2 Cir.) ; Paine & Williams Co. v. Baldwin

Co., 113 F. 2d 840 (6 Cir.) ; Measurements Corp. v. Ferris Instru-

ment Corp., 159 F. 2d 590, 593 (3 Cir.) ; Brusie v. Peck Brothers &

Co., 185 N. Y. 622, 625-626; Denise v. Swett, 142 N. Y. 602, 605.

11

Clear, unequivocal language must therefore be used to

deprive a contracting party of his right, after termination,

freely to make goods infringing no valid patent.° Of course

that right persists after the contract ends, unless it is ex-

pressly abridged. To argue (Pet. Br., pp. 8, 13) that the

right is lost unless expressly preserved is frivolous. It

would be just as unsound to argue that, because petitioner’s

right to make unpatented fans after termination is not

expressly preserved, it may not make such fans when the

contract ends.

3. Indeed, when a party’s right to compete was to be

restricted after termination of the contractual relation-

ship, this very agreement said so unequivocally.

The contract obliged Metals to employ for a year Dr.

DeBothezat (petitioner’s president and the inventor of

the DeBothezat patents) under an agreement called Sched-

ule D (15), which provided (29) :

‘“‘Dr. DeBothezat further agrees that, provided and

while said agreement [i.e., the main contract] is in

force and while he is in the employ of the Metals

Corporation, and in any other event for five years

after the date of the termination of such employment,

he will not, directly or indirectly, engage in the busi-

° See, ¢.9., Eskimo Pie Corp. v. National Ice Cream Co., 26 F. 2d

901 (6 Cir.) ; Picard v. United Aircraft Corp., 128 F. 2d 632, 637

(2 Cir.), cert. den. 317 U. S. 651; Pennington Engineering Co. v.

Houde Engineering Corp., 136 F. 2d 210, 216 (2 Cir.) ; Measure-

ments Corp. v. Ferris Instrument Corp., 159 F. 2d 590, 593 (3 Cir.) ;

Miehle Printing Press & Mfg. Co. v. Publication Corp., 166 F. 2d

615, 618 (7 Cir.); Conmar Products Corp. v. Universal Slide

Fastener Co., Inc., 172 F. 2d 150, 156 (2 Cir.) ; De Cew v. Union

Bag & Paper Corp., 5% F. Supp. 388, 403-404.

12

ness of manufacturing or selling fans or impellers

that are competitive with any products manufactured

or manufacturable pursuant to or under any of the

inventions, applications or Letters Patent referred

to in said agreement.’’

Thus if the parties intended to prevent Metals from

making fans, after termination of the contract, apt words

lay right at hand. They had only to say that ‘‘after the

termination of this contract, Metals will not, directly or

indirectly, engage in the business of manufacturing or

selling fans or impellers.’’ They said nothing of the sort.

4. Petitioner relies on the following sentence (23):

‘‘Metals Corporation further agrees that the New

Company will not engage in the manufacture and

sale of any products which compete with the Products

to be manufactured and sold hereunder.’’ ®

This covenant manifestly was intended to prevent di-

minution of the royalties which petitioner would receive,

while the contract lasted, on the sale of the Products made

under the agreement. Of course, like every other provi-

sion in the contract not specifically preserved after termi-

nation, this covenant dies with the contract, for ‘‘after such

termination all parts of the contract would cease to have

further operation.’’ Johnson v. Union Switch & Signal

§ “Products” is a word of art in the contract, designating all fans

and other products made under Dr. DeBothezat’s inventions (8).

“New Company” means “a new corporation to be formed, under

the name of DeBothezat Impeller Corporation or such other name

as Metals Corporation may select, hereinafter referred to as the New

Company” (21-22). It is utterly different from Metals.

13

Co., 29 N. E. 964, 965, reported as memo only in 129 N. Y.

653.7

Indeed, the covenant cannot apply after termination.

No ‘‘Products’’ could ‘‘be manufactured and sold here-

under’’ after termination of the contract, and no ‘‘prod-

ucts’’ could ‘‘compete with’’ such Products thereafter.

Thus petitioner is forced to rewrite the covenant by

adding to, and changing, its language:

‘*Metals Corporation further agrees that, after ter-

mination of this agreement, Metals Corporation will

not engage in the manufacture and sale of any prod-

ucts identical with or competitively similar to the

Products which were formerly to be manufactured

and sold hereunder.’’

That is not construction; it is complete revision.

Little need be added to the Court of Appeals’ analysis.

After termination of the contract, Metals ‘‘could not fur-

ther proceed under it,’’ Hyatt v. Ingalls, 124 N. Y. 93, 105,

and ‘‘cannot be said to be manufacturing under the con-

tract’’ Schalkenbach v. National Ventilating Co., 129 N. Y.

App. Div. 389, 393. ‘‘Any future manufacture of the

patented article could not be under the license,’’ Saltus v.

Belford Co., 133 N. Y. 499, 504, and articles falling within

the patents would be made ‘‘not under the patent but in

hostility to it,’’ Marston v. Swett, 82 N. Y. 526, 534.

* For other applications of this principle to royalty contracts see,

e.g., K-W Ignition Co. v. Temco Electric Motor Co., 243 Fed. 588,

590 (6 Cir.), cert. den. 260 U. S. 746; Goodwin v. Camp, 295 Fed.

785, 791-792 (6 Cir.) ; Eskimo Pie Corp. v. National Ice Cream Co.,

26 F. 2d 901, 902 (6 Cir.) ; Blain vy. Sullivan-Waldron Products Co.,

78 F. Supp. 661, 662, affd. on the opinion below, 172 F. 2d 221

(3 Cir.) ; Wilde v. Smith, 8 Daly (N. Y.) 196, 208.

14

In Stimpson Computing Scale Co. v. W. F. Stimpson

Co., 104 Fed. 893 (6 Cir.),® the licensee had ‘‘the right

to determine this contract, and their obligation there-

under . . . by giving six months’ notice in writing . . .

of their intention to discontinue the manufacture and sale

of such scales under this contract.’’ The court held that,

after the notice was given, the licensee had a perfect right

to keep making the same scales as before unless he in-

fringed some outstanding patent. It said (p. 895):

‘“We think it gave the licensee the right to determine

the contract by giving the prescribed notice of its

intention not to proceed further under the contract

after the time stated in the notice shall expire. The

manufacture and sale of such scales ‘under this con-

tract’ would then cease. Effect must be given to all

the language of a contract where possible, and we see

no difficulty in applying this rule of construction

here. There was nothing in the contract which im-

posed a further disability upon either party after it

should have been brought to an end by the exercise

of a right reserved therein.’’

5. Petitioner argues that it would have been ‘‘foolish’’

to ‘‘have given away its business . . . on such terms”’

(Pet. Br., p. 7). The short answer is that Metals would

have been doubly foolish to have given up, forever, its right

to make fans except under the contract, for the dubious

privilege of trying to revive the bankrupt, moribund

DeBothezat enterprise. But the argument is unsound.

Petitioner gave nothing away. It made an excellent

bargain under which it has received over $250,000 without

8 This case was recently cited in Tams-Witmark Music Library,

Inc. v. New Opera Company, Inc., 298 N. Y. 163, 173.

15

lifting a finger. It made sure that on termination it would

both get back the DeBothezat patents and acquire new

patents which it had no part in devising. Thus its com-

petitive position would not merely be maintained but en-

hanced. To compensate for any possible loss of the

‘knowledge of its business’’ it ensured itself access to

all Metals’ ‘‘books and records’’ for a year after termina-

tion. Any possible ‘‘impediment’’ which might be ‘‘caused

by the interruption of its operations’’—which had all but

ended anyhow—was evidently deemed trifling compared to

the manifold benefits which petitioner expected to (and

did) derive from the contract. The plea for sympathy

is simply specious.

6. How misguided is petitioner’s reliance on Cammaci

v. Slattery & Bro., Inc., 241 N. Y. 39, was pointed out

below (640-641).

Cammack owned an unpatented invention for radia-

tors which he kad never disclosed. While he kept it to

himself no one could use it. To induce him to disclose

it, Slattery agreed to pay him ‘‘a royalty of ten per cent

of the selling price of all . . . radiators, manufactured

by them, their heirs, assigns or successors’? (209 App.

Div. 877, 878). That obligation had no time limit. The

contract had no termination clause. Slattery sent a no-

tice saying it was terminating, but kept on making the

radiators. Of course it was held liable for the promised

royalties.

(a) The lower courts thought that Slattery could not

terminate. The Court of Appeals preferred to say that

Slattery had ‘‘elected to continue to operate’’ under the

contract (p. 47). ‘‘If we assume, as I think is the fact,

16

that defendant might have terminated its contract at any

time and did serve purported notices of intention so to do,

the answer is that it did not as a matter of fact terminate

the contract but continued to manufacture and sell radia-

tors’’ (p. 45).

But here the contract expressly provides how and when

it can be terminated. After one year Metals can terminate

merely by sending a notice of termination. As pointed out

in New York Telephone Co. v. Jamestown Telephone Corp.,

282 N. Y. 365, where (as here) the contract expressly con-

fers the right to terminate on notice, the Cammack case

is quite inapplicable. There notice of intention to termi-

nate was ‘‘accompanied by acts inconsistent with any in-

tention to terminate’’ (p. 373), and, as Chief Judge Lehman

added (pp. 373-374) :

‘*Notice of intention to terminate a contract is an

empty gesture where it appears that the intention is

to terminate only the obligation imposed by the con-

tract and not the right to benefits derived from the

contract, for the contract gives no right of partial

revocation. So we held in that case, but the rule has

no application here for here on the date when the

notice became effective according to the terms of the

contract, nothing had been said or done which ren-

dered the notice ineffective. Then the contract was

at an end,”’

So here, when the notice becomes ‘‘effective according

to the terms of the contract,’’ the entire agreement is ‘‘at

an end’’—both the ‘‘obligation imposed by the contract’

and the ‘‘benefits derived from the contract.’’

(b) Since the Cammack contract was silent on termi-

nation, the court had to speculate what the parties prob-

i

17

ably would have said on that subject if they had considered

it. It thought it was fair to imply that Slattery should not

be compelled to make the radiators but, if it chose to do

so, should abide by its unlimited promise to pay royalties

‘‘such as it had agreed to pay’”’ (241 N. Y., at p. 45). Other-

wise Slattery would keep everything and give up nothing.

Unlike Slattery, however, Metals never ‘‘agreed to

pay’’ royalties forever. On the contrary, the obligation

to pay royalties ceases on termination: ‘‘Metals Corpora-

tion shall not be liable for any payment . . . accruing after

the period ending upon such termination’’ (19). That

language would be pointless if Metals were precluded from

making fans on termination. It makes it plain that Metals

is free to make fans after termination without incurring

any contractual liability to petitioner.

(c) Furthermore, Metals does not keep everything

and give up nothing on termination. It is absurd to argue

that Metals claims ‘‘a supposed alternative to pay or not

to pay for what has been received’’ (Pet. Br., p. 17).

On termination Metals surrenders its immunity from

infringement suits, gives up the DeBothezat name, and so

on. It also loses the benefit of petitioner’s continuing cove-

nants to disclose new inventions (11) and to refrain from

competition (23). In fact, Metals relinquishes ‘‘benefits’’

which were not ‘‘derived from the contract,’’ e.g., its im-

provement patents.

Thus this contract—unlike the Cammack agreement—

specifies the ‘‘benefits’’ which Metals must relinquish ou

termination. Implications as to what the parties might

have thought equitable, if they had been silent, are there-

fore beside the point. The contract itself specifies exactly

what rights Metals must equitably give up on termination.

18

(d) Finally, the right which Slattery was trying to

exercise was truly a ‘‘benefit derived from the contract”

—the common-law right to use an undisclosed secret in-

vention. But the rights which Metals wants to enjoy after

termination are not ‘‘derived from the contract”’ at all.

Metals wishes to make fans which do not embody the

invention of any DeBothezat patent. Metals always had

that right; it did not come from the contract. It also wishes

to make fans embodying the inventions of expired patents.

Far from being derived from the contract, that right is

conferred by the patent laws.°

In short, the Cammack case is wholly inapposite from

start to finish. It involved utterly different questions un-

der an utterly different contract.

The agreement is quite clear—Metals is free to make

fans, after termination, which do not infringe patents then

subsisting.

POINT II

The four “defenses” pleaded by petitioner were

clearly insufficient.

Certain matters having nothing to do with Metals’

right to terminate, or to make unpatented fans after ter-

mination, were pleaded by petitioner both as counterclaims

and ‘‘defenses.’’ At a pre-trial conference the District

Court held that these counterclaims were insufficient as

‘‘defenses’’ (75-80). The Court of Appeals agreed (641-

645). Petitioner cites no case even indicating that ap-

plicable local decisions are in conflict.

® Scott Paper Co. vy. Marcalus Mfg. Co., Inc., 326 U. S. 249,

255-256.

19

A. The Four “Defenses.”

Petitioner’s discussion goes so far afield that it is note-

worthy to see just what its ‘‘defenses’’ actually said.”

No ‘‘irreparable injury’’ was charged—though it would

be immaterial if alleged. On the contrary, these four

‘‘defenses’’ alleged specific money damages. Nowhere was

it averred that the acts charged would ‘‘impair’’ peti-

tioner’s ‘‘capacity to resume operations’’ (Pet. Br., p. 21).

Certainly there was no allegation that the usual remedies

provided by law would be ineffectual to afford complete

relief.

1. The second ‘‘defense’’ alleged that Metals had ‘‘con-

verted to its own use or destroyed the leased equipment

referred to in paragraph Third and Schedule B of said

agreement of April 3, 1934, to the damage of defendant in

the amount of $100,000’’ (56), and argued that Metals

should not be allowed to terminate ‘‘until [it] turns over

to defendant equivalent equipment’’ (56-57).

While the contract does not require Metals ‘‘to return

the leased machinery in the event of cancellation’’ (Pet.

Br., p. 21)—on the contrary, it was to be redelivered in

10 Petitioner faintly suggests that sufficiency of the “defenses”

should not have been resolved at a pre-trial conference (Pet. Br., p.

20). It is enough to say that (a) it is completely immaterial that the

“defenses” were held insufficient at a pre-trial conference, rather

than at motion part or at the trial, (b) of course the sufficiency of

“defenses” may be determined at a pre-trial conference, as shown

by the cases cited below (72) and in 3 Moore’s Federal Practice

(2d Ed. 1948), pp. 1105, 1111, 1121-1123, and (c) the District Court

properly acted under Rule 16 to simplify the issues, speed the trial

and lift the case from the procedural morass in which petitioner had

bogged it down (67-69, 71-72).

20

1940 unless Metals bought it for $1 (13-14)''—it would

make no difference if it did. The leased equipment was

second-hand even in 1934. It was bound to wear out. In

1940 it could be bought for $1. Actually petitioner had so

little interest in the leased equipment that it did not sue

until 1948. If the worn-out remnants would now have any

useful value, damages would afford petitioner complete

relief.

2. The third ‘‘defense’’ avers that at some unstated

time, by some unstated act, Metals ‘‘violated its contrac-

tual obligation to use the name DeBothezat in the promo-

tion and sale of said products to the damage of defendant

in the amount of $50,000’’ (57).

For all that appears, the name—as a result of Metals’

extensive use of it (603; Exs. D, W)—is a thousand times

better known now than in 1934. But if petitioner ever

supposed that Metals was not using the name as required,

it had only to apply for injunctive relief. None was sought

in the answer. None has been sought to date.

3. Petitioner suggests that the certified audits alluded

to in its fourth ‘‘defense’’ were intended to enable it to

‘*plan in advance its campaign to reestablish its business”

(Pet. Br., p. 21). Actually the audits have nothing to do

with ‘‘reestablishment’’ of petitioner’s activities after

termination."* They simply enabled petitioner to have

11 Moreover, Metals has no duty to redeliver on termination “any

part of such plant and equipment which it shall have used or dis-

posed of or which shall have been destroyed or discarded, whether

or not by [its] negligence or fault’’ (20).

12 That subject is taken care of by the totally different provision

affording petitioner access, for one year after termination, to Metals’

“books and records” (20).

21

Metals’ certified public accountants check, annually, on

Metals’ own monthly statements of ‘‘net sales and receipts

from licenses’’ (18).

But if petitioner was dissatisfied with the audits pre-

pared by Metals’ certified public accountants, and thought

that the $10,000 damages claimed (57) would not afford

sufficient relief, it had ample remedies at hand. It had

only to sue to compel fuller reports to be furnished. Or

petitioner could—and still can—have an audit made by

independent accountants (18). No such relief has ever

been sought.

4, The sixth ‘‘defense’’ merely says that Metals ‘‘failed

to use its best efforts to promote the sale of said products,

to defendant’s damage in the amount of $500,000’’ (58).

It does not even claim that the unrevealed acts affect

Metals’ right to terminate.

Before the contract, petitioner’s sales had dwindled to

$58,000 in 1933, and it was steadily losing money (F8, 608).

Under the contract its royalties have been paid on net sales

which, for years, have been over $1,000,000 (605). But if

petitioner had ever supposed that Metals was not using

its best efforts to promote sale of the Products, it had ample

legal measures to remedy the situation.

Indeed, if petitioner had ever thought—as it now ar-

gues—that the supposed breaches were of any consequence,

it would have taken prompt action to remedy the situation

long ago. As far back as 1946, it knew that Metals in-

tended to terminate and keep on in the fan business (F33-

34, 617). Petitioner did nothing. When this action was

brought, indeed, it claimed that there was no dispute to

resolve (631-632).

22

Certainly, if the imaginary evils which petitioner now

conjures up had been regarded as of moment, at the very

least it would have asked for injunctive relief when its

answer was filed. It chose not to do so. Over two years

have gone by since then. No injunctive relief has yet been

sought.

The assertions that petitioner ‘‘has been here stayed

from pressing its counterclaims”’ (Pet. Br., p. 24), and that

the courts enjoined it ‘‘from seeking equitable relief’’ (Pet.

Br., p. 26), are unworthy. No such stay or injunction has

ever been granted or even applied for. The decision not

to invoke the usual equitable remedies was petitioner’s own.

Doubtless it thought that its inaction would lend some

color to its present arguments.

Possible breaches of the contract afford no ground for

revising the contract to extinguish or limit Metals’ ab-

solute right to terminate and keep on in the fan business.

B. The Acts Charged Do Not Affect Metals’

Right to Terminate.

An absolute power of termination is not, as petitioner

seems to think, a reward for due performance. It is simply

‘‘a right given by contract to limit its life by notice that

the contract will terminate at a time fixed by the notice.”

New York Telephone Co. v. Jamestown Telephone Corp.,

282 N. Y. 365, 372.

The contract specifies what happens if Metals ‘‘shall

fail or neglect to keep or perform any of the terms, cove-

nants and conditions of this agreement on its part to be

performed’’ (20). Breaches do not suspend or extinguish

23

Metals’ right to terminate. Petitioner may notify Metals

‘‘wherein it is claimed to have been in default’’ (21). If

Metals does not dispute the default, and it continues for

thirty days, petitioner may ‘‘terminate this agreement and

all rights granted hereunder’’ (21).* Clearly all Metals’

‘‘rights granted hereunder’’ (including its absolute right

to terminate) remain alive, despite breaches, until the con-

tract is terminated by the prescribed procedure.

Thus—even though possible breaches by Metals were

contemplated when the contract was executed—the ‘‘de-

fenses’’ try to rewrite the contract by inserting limitations

on Metals’ right to terminate which the parties chose not

to include.

Petitioner cites no New York case justifying such dras-

tic surgery on a contractual right of termination.

1. Cammack v. Slattery & Bro., Inc., 241 N. Y. 39 (Pet.

Br., p. 22), is utterly irrelevant. The court did not even.

suggest that a person would be debarred from exercising

a right to terminate, expressed by contract, because of his

supposed prior breaches. It merely held, as already seen,

that defendant had ‘‘elected to continue to operate’’ under

the contract (p. 47).

2. Lipman v. Niagara Fire Ins. Co., 121 N. Y. 454 (Pet.

Br., p. 23), contains an obiter dictum that a company which

has been paid to insure against a risk cannot cancel the

policy when it knows that the risk is on the very verge of

maturing and the insured cannot obtain other insurance

18 Tf Metals disputes the claimed default in good faith, the thirty

days do not “run until a final determination against such contention

shall have been made by a tribunal of competent jurisdiction” (21).

24

before it does mature.'* Obviously the dictum has nothing

to do with this case. Besides, in a later decision an in-

surance company was held free to cancel the policy, even

though it had previously breached its obligations, and even

though termination would cause the insured irreparable

injury because he had become uninsurable. Jones v. Com-

mercial Travelers’ Mut. Accident Assn., 201 N. Y. 576,

where the Court of Appeals refused to apply the Lipman

dictum, which had been relied on by the lower court, 114

N. Y. 8. 589.

3. Friedman v. Connecticut General Life Ins. Co., 251

App. Div. 292, leave to appeal denied, 275 N. Y. 649 (Pet.

Br., p. 23), far from supporting petitioner, followed the

Jones case and allowed the insurance company to cancel

the policy.

Actually petitioner’s argument is contrary to estab-

lished principles of local law. Repeatedly the New York

courts have refused to make an entirely new agreement

for the parties by importing restrictions into an absolute

power to terminate.

Thus, the right to terminate may be exercised regard-

less of purpose or motive,” or the serious effect of cancella-

14 The point did not arise in the Lipman case at all. Indeed, the

court held that the termination notice was perfectly valid and effective

when given, although it afforded the insured no time at all to obtain

new insurance (121 N. Y., at p. 461).

18 See e.g., International Life Ins. & Trust Co. v. Franklin Fire

Ins. & Trust Co., 66 N. Y 119, 123; Friedman vy. Connecticut Gen-

eral Life Ins., Co., 251 App. Div. 292, 293, leave to appeal denied,

275 N. Y. 649; Biber Bros. News Co., Inc. v. New York Evening

Post, Inc., 144 Misc. 405, 408; Okst v. Metropolitan Life Ins. Co,

50 N. Y. S. 2d 919, 92%; MacDonald Bros., Inc. v. Halston,

63 N. Y. S. 2d 909, 911-912.

25

tion on the other contracting party.’* Similarly, breach

by a party does not affect his exercise of that right." Thus

the measure of damages for breach by wrongful repudiation

of a contract is only the amount which would have been

payable thereunder if the right to terminate had been duly

exercised.’* That is true even if suit based on a prior

breach was pending when the wrongful repudiation oc-

cured.’® Nor is exercise of the right to terminate affected

by the fact that damages for existing breaches are incapable

16 See, e.g., Chatham Plan, Inc. v. Clinton Trust Co., 246 App.

Div. 498, 499, app. dismissed, 272 N. Y. 497; Stanley v. Chris-Craft

Corp., 21 N. Y. S. 2d 898, affd. without opinion, 259 App. Div. 1036 ;

Randall v. Michelin Tire Co., 137 Misc. 570, 571.

17In fact, Mason v. Electrol, Inc., 292 N. Y. 482, held that,

where the agreement so purports to provide, the breach can actually

result in the termination of the contract. The court rejected the

argument that the breaching party should be “estopped from assert-

ing its own default as a ground for extinguishment of its obligation”

(p. 487).

18 So, if an employer reserves a right to terminate on notice, a

wrongfully discharged employee can recover only the wages pay-

able during the period of notice. See, ¢.g., Watson v. Russell, 149

N. Y. 388, 392; Barth v. Addie.Co., Inc., 271 N. Y. 31, 35; Gallo

v. Mayor, etc. of New York, 15 App. Div. 61, 64; Inglesi v. Hickson,

Inc., 195 App. Div. 585, 587; Robertson v. Charles Frohman, Inc.,

198 App. Div. 782, 787, app. dismissed, 233 N. Y. 530; Beck v.

Fybern Holding Corp., 238 App. Div. 25, 28; Bitterman v. Gluck,

256 App. Div. 336, 337. The rule is not confined to employment

contracts, but applies to all contracts. Warth v. Liebovitz, 179 N. Y.

200, 204-205; Chatham Plan, Inc. v. Clinton Trust Co., 246 App.

Div. 498, 500, app. dismissed, 272 N. Y. 497.

1® “Tt is hard to see how that circumstance could add to the value

of the contract to the plaintiff or diminish a privilege reserved by

the contract to the defendant.” Barth v. Addie Co., Inc., 272 N. Y.

31, 36; see also Bogy v. Berlage, 265 App. Div. 249, 251.

26

of precise computation and therefore irreparable.” Like-

wise it is immaterial that termination by the breaching

party would cause irreparable damage.”

These rules are perfectly sensible and just. The law

provides a contracting party with adequate remedies if he

thinks a breach of contract has occurred. Courts cannot

appropriately rewrite contracts to deprive a party of a

right to terminate without which he would never have made

the agreement in the first place. One reason, indeed, why

a party reserves the right to terminate is to enable him to

end his continuing liability under the contract and thus

protect himself against new claims of additional breaches.

Moreover, petitioner’s argument runs afoul of a more

general principle of New York law. A party affected by

a breach of a contract has a choice. He may keep the con-

tract alive and sue for damages and injunctive relief. Or,

if the breach is substantial, he may terminate the contract.

But he cannot keep part of the contract alive and terminate

2© United States Aluminum Co. v. Calvert Lithographing Co., 49

Misc. 491, 492 (App. Term), breach by unauthorized misuse of

patented inventions; Motion Picture Trade Directory Co., Inc. Vv.

Wallace, 186 N. Y. S. 80, 82 (App. Term), affd. without opinion,

197 App. Div. 938, breach by failure to return special List deemed

so precious that contract provided that defendant had to return it

before it could terminate.

21 Jones v. Commercial Travelers’ Mut. Accident Assn., 201

N. Y. 576, supra, p. 24. The same rule underlies the principle

that “Specific performance will not be decreed against a party who

has the power of terminating his contractual duty,” Restatement

of the Law of Contracts, §377; Wilcox v. Williams, 92 Hun (N. Y.)

250, 252; Hart v. Hart, 188 App. Div. 283, 284-285. As this court

tersely put it, “A court of equity never interferes where the power

of revocation exists.” Southern Express Co. v. Western North

Carolina Rd. Co., 99 U. S. 191, 200.

27

the rest. If he keeps it alive at all, it ‘‘exists for the

benefit of both parties;’’ he can no longer use the breach

defensively, and his sole ‘‘remedy is the recovery, in coun-

terclaim or action, of [his] damages.’’

Here, despite the alleged breaches, petitioner did not

terminate but insisted (and still insists) that the contract

be kept alive. Consequently all provisions of the contract

—the termination clause included—remain in full force and

effect. The decision below to that effect was entirely

correct.

C. The Acts Charged Do Not Affect Metals’

Right to Make Fans After Termination.

Even more fanciful is petitioner’s contention that the

alleged breaches affect Metals’ right to make, after termi-

nation, fans infringing no subsisting patent.

No case is cited which supports this argument. Russell

Hardware & Implement Mfg. Co. v. Utica Drop Forge &

Tool Co., 195 N. Y. 54 (Pet. Br., pp. 24-25), is really op-

posed to it. There the court held that the exclusive license

of a patented staple puller should be cancelled because of

the licensee’s acts, and it enjoined the licensee from exer-

cising any further rights under the contract. But the li-

censee was not enjoined from making any article whatever

22 The quotations are from Rosenthal Paper Co. v. National

Folding Box & Paper Co., 226 N. Y. 313, 324. For other examples,

see Dalzell v. Fahys Watch Case Co., 138 N. Y. 285, 290; Anheuser-

Busch Ice & Cold Storage Co. v. Reynolds, 221 App. Div. 174;

Thuman v. Clawson & Wilson Co., 211 App. Div. 507, 510; Schulder

v. Edward R. Ladew Co., Inc., 178 App. Div. 458, 462; Pitts v.

Jameson, 15 Barb. (N. Y.) 310, 317.

28

(patented or unpatented) after the contract ended.” On

the contrary, the court said that the ‘‘only adequate relief

. was to terminate the contract and, thus, to cancel all

rights to manufacture under the patents;’’ ‘‘annulment of

the contract proper’’ was ‘‘the only just remedy to be

applied’’ (p. 61).

Numerous other New York cases are contrary to pe-

titioner’s contention. Hyatt v. Ingails, 124 N. Y. 93, was

cited in the Russell case (195 N. Y., at p. 62). There a

license to make goods under plaintiffs’ patent was judicially

cancelled because defendants had failed to pay royalties

and report sales. Because of these grave breaches, the trial

court enjoined defendants from making the patented articles

after cancellation. On appeal the injunction was dissolved.

It was erroneous because it ‘‘restrained the licensees per-

petually from manufacturing the patented article without,

in express terms, merely forbidding it under the license.”’

Mark v. Hyatt, 135 N. Y. 306, 309. ‘‘Any future manu-

facture of the patented article could not be under the license

judicially rescinded, and must of necessity be either lawful

or an infringement over which the court could have no

jurisdiction.’’ Saltus v. Belford Co., 133 N. Y. 499, 504.

That is settled New York law. Even when the breaches

by one party are so serious that the court will cancel the

contract, he will not be prevented from making any goods

28 The injunction restrained defendant “from further exercise

of any of the rights in the business, trade and good will of the

Russell staple puller [i.e., plaintiff's patented device], received by it

under said contract or pursuant thereto, and from using any of the

cuts, illustrations and testimonials of the Russell stape puller, a¢-

quired of plaintiff or pursuant to said contract, in advertising or

selling a staple puller” (Record on appeal, fols. 331-333).

29

whatever after the contract is ended. Once the contractual

relationship ends, in short, both parties are equally free

to make any and all goods which do not infringe valid

patent rights.* The Court of Appeals correctly so held.

CONCLUSION

No reason exists why this Court should review the case.

The petition is singularly without merit and should be

denied.

Dated: New York, N. Y., May 17, 1950.

Respectfully submitted,

AupHonsE KENISON,

Attorney for Respondent,

233 Broadway,

New York 7, N. Y.

Leonarp P. Moore,

CHaARLEs PICKETT,

of Counsel.

*4Other New York cases to the same effect are cited supra,

notes 3 and 4. For other examples, see Hirsh & Schofield, Inc.

v. Gusmer, 179 App. Div. 347, 353, affd. without opinion, 226 N. Y.

649; Redican v. Interchangeable Magnetic Sign Co., Inc., 162 App.

Div. 803, 805; Lamont, Corliss & Co. v. Bonnie Blend Chocolate

Corp., 1385 Misc. 537, 539.