
    Elmer E. Alexander et al., Plaintiffs, v. The American Encaustic Tiling Company, Defendant.
    (Supreme Court, New York Special Term,
    November, 1908.)
    Patents — Licenses and contracts — Eights and liabilities of licensee — May not collaterally attack validity of patent.
    One having a license from the patentee to manufacture certain patented articles under a contract for a definite period of time may not, during that period, so long as the patents are not declared invalid by a court of competent jurisdiction of last resort, attack their validity collaterally, where the patentee has agreed to use reasonable measures to protect the patents and to notify the licensee at once of any litigation involving his rights thereunder but it is agreed that he shall not be responsible for loss from infringements or from their being declared invalid, though, if declared invalid by a court of competent jurisdiction of last resort, the agreement shall terminate.
    Action to recover royalties for manufacturing patented articles.
    Esselstyn & Ketcham, for plaintiffs.
    Flammer & Elammer, for defendant.
   Dayton, J.

Action to recover $4,682.50' and interest for royalties accrued under an agreement between plaintiffs’ assignor and the defendant, dated'July Y, 1898, pursuant to which Davis, Eeid and Alexander, patentees, granted to the defendant a license to make and sell circular tile covered by specified letters patent during the term thereof and any improvements thereon, the agreement, however, to continue for a period of ten years from the date thereof, subject to the provisions and conditions therein contained. The amended answer admits the agreement, contains certain denials, and for a first defense alleges the invalidity of the patents; that such invalidity was not known to the defendant at the time of making the agreement and did not become known until shortly prior to February 21, 1906, at about which time defendant gave notice of refusal to pay further royalties. For a second and separate defense it is alleged that subsequently to the agreement numerous other manufacturers used the invention in open defiance thereof, with the knowledge of and without protest on the part of the patentees, whereby defendant was evicted from all rights in said manufacture. For a third and separate defense it is alleged that the patentees did not use reasonable measures for the protection of the patents, and thereby violated said agreement, and that numerous other manufacturers were permitted to use said invention with the knowledge of and without protest or license from said patentees. For a first counterclaim it is alleged that defendant believing that said patents furnished protection paid the rates provided in the agreement; that the patents were not for the making of circular tile or pasting said tile on paper, but were for an alleged design for a tile and an alleged improvement in tiling; that since the agreement defendant has not utilized the design for a tile or improvement on tiling, but only manufactured circular tile, pasted them on paper, and sold such tile since March 14, 1902; that defendant’s payments, aggregating $7,673.87, were received by the patentees with knowledge that they were made solely for making and selling circular tile, and that defendant was" not using the design or improvement in tiling covered by such patents, wherefore said payments were by mistake and without consideration. For a second counterclaim it is alleged that numerous parties other than plaintiffs and not licensees were permitted extensively and successfully to use the alleged invention in open defiance thereof with the knowledge of and without protest from the patentees or their assigns; that since March 14, 1902, defendant paid plaintiffs as royalties $7,673.87, which payments were for the right to use said inventions exclusive only of the right of plaintiffs under, and those who might be licensed pursuant to, the terms of an agreement, which right was not obtained by the defendant, and that said payments were without consideration. Judgment is demanded for $7,673.87. Plaintiffs demur to the first, second and third defenses as insufficient in law upon the face thereof, and to the first and second causes of action or counterclaims as not stating facts sufficient to constitute a cause of action. The agreement gave to plaintiffs’ assigns the right and option forthwith to terminate it upon notice, at which time all rights of the defendant should cease. Eo license to any other manufacturer was to be granted of the same extent at less thán the rates specified. All tile manufactured or sold by the defendant to be stamped “ patent ” or patented.” Plaintiffs’ assignor expressly reserved the right to manufacture and deal in said circular tile, and said agreement was not to be “ considered an exclusive license,” and plaintiffs’ assignor was permitted to license at its option any manufacturer other than defendant to malee and sell circular tile under said patents or either of them.” The third paragraph of the agreement reads as follows: The said party of the first part (plaintiffs’ assignor) hereby further agrees to use reasonable measures for the protection of each of said patents and to promptly inform the said party of the second part (defendant) of the nature of any litigation that may be instituted to determine the rights of the said party of the first part under either of said patents; but it is mutually agreed and understood between the parties hereto that said firm (plaintiffs’ assignor) shall in no way and in no event be held responsible to the said company (defendant) for any loss or damage which said company may sustain in case of an infringement of said patents or either of them by any party or parties, or in the event that said patents or either of them shall hereafter be declared invalid.” The fourth paragraph provides that if the patents or either of them shall be declared invalid by any final judgment of any court of competent jurisdiction of last resort the agreement shall terminate; and further the defendant covenants to recognize the validity of the patents, to protect plaintiffs’ assignor thereunder, and to take no action directly or indirectly to the impairment or detriment of the interests of said patentee. A contract giving a licensor greater scope or more thoroughly binding the licensee could hardly be devised. Defendant made payments under the agreement for about seven years, and so long as the patents are not declared invalid by a court of competent jurisdiction of last resort their validity may not be attacked collaterally by the' defendant during the term or under the conditions of this contract. The averment that plaintiffs did not use “ reasonable measures ” to prevent others not licensees from using their patents is a conclusion. Ho monopoly was intended to be granted, nor is the agreement void as against public policy. Defendant expressly took the risk of infringements. Ho remedy for the reformation or annulment of the instrument for fraud or a misrepresentation or other causes is sought. It seems to me that while this contract is in force defendant is bound to its performance unless, irrespective of the validity of the patents, its breach by the plaintiffs is alleged and shown. If defendant did not manufacture the articles alleged in the complaint it may so show by a proper plea without attacking the patents. If plaintiffs have not used reasonable measures for the protection of these patents (assuming that the word “protection” means the use of said articles by others than licensees, i. e., infringers) defendant may by rescinding and alleging" and proving necessary facts recover damages. In my opinion the demurrer to each of the defenses and to each of the counterclaims should be sustained, with costs, with leave to the defendant to answer over, without alleging the invalidity of the patents or the manufacture thereunder by the plaintiffs or other licensees.

Demurrer sustained.  