Bush & Lane Piano Co. v. Becker Bros. , 234 F. 79 ( 1916 )

HOUGH, District Judge

(after stating the facts as above).

[1] The piano business of Becker Bros, is an incorporation of the trade created by Jacob H. Becker, its president. The stockholders have always been Becker himself, his wife, and his attorney. The corporate books of account show that Becker drew on the pay roll only $15 weekly, in what capacity does not appear. At the year’s end, the excess of receipts over expenses was for a time transferred to the “Capital Account of Jacob H. Becker.” This practice continued until after this suit was threatened, if not begun, when the end of the year was marked by charging up salaries to president and secretary (the attorney), which for the year 1912 produced an apparent loss of over $20,-000. The justification for this procedure is a directors’ vote that J. H. Becker should receive for his services 85 per cent, of gross profits, and the secretary 5 per cent. Whether this vote was taken and entered on the very informal minute book of this corporation before or after suit brought is a matter of contest, into which we need not enter, because it makes no difference when 90 per cent, of gross profits was voted' to the president and secretary for services. Such disposition was but one method of distributing earnings to stockholders in a “close corporation” (as Becker called it)"which has never paid a dividend. The formality was unnecessary, for if tire owners of the concern drew 90 per cent, of profits, it made no difference to them by what name theifi gains were called.

Defendant’s contention that it is only answerable for such profits-as remain after paying out nearly all the difference between expenses- and receipts in salaries credited at year’s end is absurd. The District Court rightly took evidence as to the usual cost of superintending and managing a business of the kind and extent shown by Becker himself, added that to factory cost of product, and, having thus fixed manufacturing and selling expense, credited the same against receipts acknowledged by Becker. The difference is the' profit of the business.

[2] The question as to how to ascertain a patentee’s share in the gains of an infringer, when the infringement constituted but a part, possibly a small part, of the business from which ‘ profits flowed, has several times received our attention on occasions other than the first appeal in this cause. Tuttle v. Claflin, 76 Fed. 227, 22 C. C. A. 138; Wales v. Waterbury Mfg. Co., 101 Fed. 126, 41 C. C. A. 250; Westinghouse v. New York Air Brake Co., 140 Fed. 545, 72 C. C. A. 61 ; Force v. Sawyer-Boss Mfg. Co., 143 Fed. 894, 75 C. C. A. 102; Underwood, etc., Co. v. Stearns & Co., 227 Fed. 74, 141 C. C. A. 622. Whether the decree below is consonant with these rulings as modified or enlarged by Westinghouse v. Wagner, etc., Co., 225 U. S. 617, 32 Sup. Ct. 691, 56 L. Ed. 1222, 41 L. R. A. (N. S.) 653, Dowagiac, etc., Co. v. Smith, 235 U. S. 641, 35 Sup. Ct. 221, 59 L. Ed. 398, and Hamilton-Brown, etc., Co. v. Wolf Bros. Co., 240 U. S. 251, 36 Sup. Ct. 269, 60 L. Ed. 629, is one way of putting the chief problem here presented.

There is said to be a radical difference between the principles governing recovery on design, as compared with other, patents. This is thought to arise from the act of February 4, 1887. That act (after granting $250 for any infringement of design) provides that in case the total profit made by an infringer from the manufacture or sale of the article or articles to which the design has been applied exceeds $250, the infringer shall be further liable for the excess of such profit over and above $250. Plaintiff asserts that, having shown infringement by something sold with and as part of a piano, the “article to which the design” was applied must be the whole piano. Defendant insists that under the statute all recoveries for design infringement are penalties, and therefore strictissimi juris; consequently, plaintiff not having shown any separate or special profit derived from the case, recovery can be $250 only, because it was to the case, and not to the piano as a whole, that the design was applied.

As pointed out on the previous appeal, the act of 1887 was intended to mitigate the harsh rule of the Dobson Cases, 118 U. S. 10, 6 Sup. Ct. 946, 30 L. Ed. 63. It is true that in Dunlap v. Schofield, 152 U. S. 244, 14 Sup. Ct. 576, 38 L. Ed. 426, the minimum recovery of $250 was said to be “in the nature of a penalty,” and it has usually been referred to as a penalty since that time. Lichtenstein v. Phipps, 168 Fed. 62, 93 C. C. A. 483; Frank v. Geiger (C. C.) 121 Fed. 126. But when a design patentee seeks to recover more than $250, because either he lost a greater sum by the infringement, or the infringer made a greater profit thereby, no reason is seen for departing from the construction of the statute announced by us in Untermeyer v. Freund, 58 Fed. 212, 7 C. C. A. 190:

“The manifest purpose of Congress was to enlarge the remedy against in-fringers of design patents, and to declare that the measure o£ profits recoverable on account of the infringement should be the total net profits upon the ‘whole article.’ ”

But there is no statutory definition of the phrase “whole article.” Each litigation presents its own problem; it is impossible to define in advance. Probably each solution depends on the relation to the business whole of the part embodying the patent, and that relation must be considered from all viewpoints, technical, mechanical, popular, and commercial. Thus a patented design for a “portable house” would seem to apply to the whole structure; otherwise, if for an “entrance door.” A patent for a “book binding” cannot, either justly or logically, be so identified with the entire book as to give all the profits on a work of literary genius to the patentee of a binding, although the binding was manufactured with and for that one book, and has no separate commercial existence. The binding and the printed record of thought respond to different concepts; they are different articles.

Accordingly we held on the former appeal herein that the article to which the patented design had been applied was the piano case, and all the evidence taken since mandate confirms that view.

Impediments to recovery of both damages and profits have arisen, not so much from difficulty in ascertaining in what the infringing thing or article consisted, as in assigning to that infringement any particular or specified portion of the gains made or prevented by a defendant’s wrongdoing. The main source of such difficulties has been the narrow field of evidence, suggested by counsel or approved by the courts, in endeavors to precisely assign profits or damages to their source; after the act of infringement, the tiling or article containing the infringement and the existence of profits or losses have been amply demonstrated. Great hardship has been wrought by the rule of impossibility enunciated in Garretson v. Clark, 111 U. S. 120, 4 Sup. Ct. 291, 28 L. Ed. 371, concerning the popularity of which case with infringers we entirely agree with, the remarks of the court in Yesbera v. Hardesty, 166 Fed. 120, 92 C. C. A. 46. The other extreme is to treat an infringer as a trustee ex maleficio in the manner approved in Westinghouse, etc., Co. v. Wagner Co., supra.

It is not often that giving all the profits to the patentee can be justified, as in Wales v. Waterbury Co., supra, on the ground that there would have been no profits, had it not been for the appropriation of the patented idea. The enormous increase in improvement patents and minor inventions has of late greatly accentuated these long-recognized obstacles.

Dowagiac v. Smith, supra, related to an assessment of damages and a mechanical patent; but the court pointed out that the introduction of evidence as to what would have been a reasonable royalty should be regarded as a proper method of ascertaining damages, having regard to the nature of the invention, its utility, advantages, and extent of usq involved. Such evidence was declared to be “quite as admissible as that of an established royalty.” There is no reason why this view of proper evidence should not be applied to the estimation of profits, as well as the ascertainment of damages.

There is here ample proof that profit was derived from the use of plaintiff’s design, which was chosen because it gave to the piano something which the trade demanded, namely, a “massive appearance.” It also appears from the whole testimony (which largely consists of Becker’s admissions and opinions) that there was just as large profit (proportionally) on the ornamented and infringing casing, which attracted the customer’s eye, as upon the piano mechanism, which pleased the ear. The cost of each separate element of the finished product is known, and there is no difference perceivable between admitting expert opinions as to a proper royalty and similar opinions as to the origin1 and expense of the constituent parts of a piano. Indeed, as between expert opinions upon royalties and the statements of expert manufacturers and accountants, w.e consider the latter rather more reliable and persuasive,

Since, therefore, the plaintiff has shown a real profit attributable in some degree to the infringed design, the ends of justice are best served by apportioning, and thus separating, profits which were derived from the investment in infringment. Exactly this method was approved in Herman v. Youngstown Car Mfg. Co., 216 Fed. 607, 608, 132 C. C. A. 612; and of it the appellate court for the Sixth circuit remarked that:

“Semi-independent parts [oí the whole device] may each Involve substantially the same cost of material and labor and may each contribute equally to the final marketability. In, that event, an equal division of the profits a moni? these parts is'both arbitrary and reasonable; arbitrary because of its form, but reasonable because obviously fair and just.”

The Circuit Court of Appeals for the Sixth Circuit in Underwood, etc., Co. v. Fox, etc., Co., 220 Fed. 887, 136 C. C. A. 446, has referred to this decision with approval. We think there could be no better set of facts for the application of this method of separating or segregating profits than is presented by this case.

Some phrases in the opinion of this court upon the former appeal herein assumed for purposes of argument that the piano case could he shown to be a separate thing with possibly a separate market from the action or mechanism. This appears unsupported by the evidence ; hut it makes no difference in the rule of law, when once the article to which the design was applied has been ascertained.

It is not held that such evidence as was here received is always the best, nor that the method pursued is preferable to all others, nor that, where other and better means of measuring liability exist, they can be neglected. But it is held that this method of allotting profits in correspondence to cost of production between the whole and its parts is permissible.

As both parties have appealed, the decree below will be affirmed, without interest, and without costs in this court.