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FORCE v. SAWYER-BOSS MFG. CO. et al.

(Circuit Court, E. D. New York. August 10, 1904.) 1. PATENTS--ACCOUNTING FOR INFRINGEMENT—Cost oF MANUFACTURE.

A corporation organized and owned entirely by persons who joined in the sale and assignment of a patent to complainant, and which subsequently engaged in the manufacture and sale of an infringing article, cannot avoid an accounting for profits made on the ground that by reason of its having also made and sold other articles the cost of the infringing articles cannot be definitely ascertained, nor because it lost money on its entire business, where it does not appear that it lost on the infringement. In such case the cost of the article as made by complainant where shown

may be made the basis for the accounting. 2. SAME-PROFITS_USE OF PATENTED IMPROVEMENTS.

Where it appears that the improvements covered by complainant's patent constituted the chief value of the infringing articles sold by defendant, and that without them no sales would probably have been made, complainant is entitled to recover the entire profits realized from the sale.

In Equity. On accounting for infringement.
William E. Warland and Henry Schreiter, for complainant.
H. A. West, for defendants.

THOMAS, District Judge. The defendant Sawyer-Boss Manufacturing Company was composed of the four persons who sold the patent in suit to the complainant, Force. After such sale such persons formed the defendant corporation, and through it and the firm of Stewart & Co. made and sold their entire product, including a large number of infringing machines. The vendors' action in making and selling a patented article, after transferring the patent, was unconscionable. They knew what the patent was, and gave it every assurance of validity. They began the manufacture after selling. They substantially reduced the price of the machine, and compelled the complainant to do the same. They sought by the tortious use of the patent to enrich themselves, and to that end sought to limit their assignee's beneficial use of what they had sold him. Their present defense in this accounting is that the defendant corporation made other articles, and that the expense of one product is so confused with the expense of others that the expense of making cannot be singled out, and, moreover, that they lost some $5,000 on the entire undertaking. cuse for persons who deliberately seek to deprive their assignee of his merited profit upon the thing sold is claimed to be justified by law. If such law prevent a recovery herein, a gross injustice will follow. The defendants have, for their own gain, and with full knowledge, injured their assignee, and now conceal themselves behind their confusion of products. They put down the price, made the person who had the sole right to sell lower his price, and then assert that "there is such complication in our varied manufactures that the expense of and profit on the infringing article cannot be determined. Their entire business was probably done at a loss, but neither they nor their books show that the infringing articles were made and sold at a loss. Because they failed to profit by what they legitimately did, it does not follow that they failed of profit by that portion of their business, which they illegally did. They do not know the expense of the manufacture of the infringing Defiance machine, but they do not show that there was no profit. The complainant has given satisfactory evidence of the cost of labor and material of the Defiance machines. The number made and sold was 4,024. The cost of such labor and material should have been $5,352.06. The complainant shows that the proportion of other expenses that should be borne by these machines is $1,165.61; making their total cost $6,517.67. These machines were sold to Sawyer & Co. for $13,389.19; hence a profit is shown of $6,871.52. Some special items are pointed out by the defendants that are alleged to impugn the correctness of the corporation's expenses. For instance, the cost of boxes to the amount of $254.19 is mentioned, and then some other details. If an additional $500 be allowed the defendant corporation to cover such items, there would still remain a profit of $6,371.52, and that amount, at least, the defendant corporation should pay. The complainant shows that Stewart & Co. realized a profit of $2,215.26 from the sale of the Defiance machine; that Holihan, a partner of that firm, was entitled to $1,222.63 thereof, and that sum he should pay. It is undoubted that the wrongdoer compelled the complainant to reduce its prices, but the complainant even then probably made a profit, and it sold more machines on account of the reduced price. What, on the whole, it lost, does not appear. It was within the power of the complainant to illustrate to what extent its whole profit fell off by reason of the competition. It did not do so, and the court is unable to know to what extent it was finally injured by the competition. Therefore no damages growing out of this unlawful competition can be allowed. It is urged that the complainant must be limited to the damages arising from the improvement shown by the patent. The Defiance machine infringed the first and second claims. It is considered that the combination shown in the first claim covered the substantial profit of the patented article, and that the chief value is found therein, although the stop pin may have facilitated sales. It is further considered that the sales of the Defiance machines were made possible by employing the patented combination; in other words, the salability of the device resulted from the use of the patent. This conclusion results from the evidence of the business done by means of the patented device both by the complainant and the defendants. The whole history of the business shows that the new article was the inducement to the sale. There is no satisfactory evidence from which it could be concluded that any sales would have been made had not the machine involving the combination been offered.

This ex

1 1. Accounting for profits by infringer of patent, see note to Brickill v. Mayor, etc., of City of New York, 50 C. C. A. 8.

1 2. See Patents, vol. 38, Cent. Dig. 88 572, 573.

The complainant should recover pursuant to the views above expressed.

UNITED STATES V. HARTS

(District Court, N. D. California. June 30, 1904.)

No. 1,635. 1. Customs DUTIES-SMUGGLING-PASSENGERS' BAGGAGE-INTENT TO DEFRAUD.

Under section 2802, Rev. St. U. S. [U. S. Comp. St. 1901, p. 1873), providing for the forfeiture of, and the imposition of penal duties on, dutiable articles found in passengers' baggage, it is not necessary that there should have been an intent to defraud the revenue in order to incur the penalties

there prescribed. 2. SAME-PENAL DUTY-FAILURE TO ENTER BAGGAGE.

Articles subject to duty were found in the baggage of a person arriving in the United States, which he had intentionally failed to mention to the collector of customs before whom the entry of the baggage was made. Held, that he was liable to a penalty of treble the value of the articles, under section 2802, Rev. St. U. S. (U. S. Comp. St. 1901, p. 1873), though it was

not shown that there had been any intention to avoid the payment of duty. 3. SAME-EVIDENCE OF INTENT TO DEFRAUD THE REVENUE.

On the examination of a passenger's baggage dutiable articles were found placed in the skirts of dresses in such a way that they could not be seen until the skirts were unfolded. Held, that this evidence would not justify the conclusion that the owner of the baggage bad intended to avoid the

payment of duty upon such articles. 4. SAME-FORFEITURE-PASSENGERS' BAGGAGE–EXEMPTED ARTICLES.

The provision in paragraph 697, Tariff Act July 24, 1897, c. 11, § 2, Free List, 30 Stat. 202 [U. S. Comp. St. 1901, p. 1689), exempting $100 in value of dutiable articles in the baggage of returning residents of the United States, is not applicable in proceedings under section 2802, Rev. St. U. S. (U. S. Comp. St. 1901, p. 1873), for the forfeiture of, and the collection of penal duty on, dutiable articles not mentioned on the entry of the baggage. It applies only when a proper entry has been made of the articles

entitled to such exemption, and not otherwise. 5. SAME-APPRAISEMENT OF FORFEITED MERCHANDISE-PASSENGERS' BAGGAGE.

The statute does not contemplate that in an action to enforce the forfeiture or penalty prescribed by section 2802, Rev. St. U. S. [U. S. Comp. St. 1901, p. 1873), relative to dutiable articles found in passengers' baggage, the court shall be required to make an appraisement of the value of such articles for the purpose of ascertaining what portion would have been entitled to admission free of duty if a proper declaration and entry thereof had been made.

At Law. Action for penal duties on merchandise imported in violation of customs laws.

Note Buckley v. U. S., 4 How. 251, 11 L. Ed. 961, and Dodge v. U. S., 131 Fed. 849, herewith.

Benj. L. McKinley, Asst. U. S. Atty.
Wright & Lukens, for defendant.

DE HAVEN, District Judge. This action is prosecuted by the United States under section 2802 of the Revised Statutes [U. S. Comp. St. 1901, p. 1873). It is alleged in the declaration that the defendant came from Japan to the port of San Francisco on the United States transport Thomas, bringing with him certain baggage, and that in making entry of the same before the collector of customs he did not mention certain dutiable articles contained therein of the value of $657.04, and by reason thereof judgment is demanded against him for the sum of $1,971.12, three times the alleged value of the goods, with interest and costs of suit.

It appears from the evidence that the defendant is a captain in the engineer corps of the United States army, and on July 10, 1903, arrived at the port of San Francisco as a passenger on the United States transport Thomas, with his baggage. Part of this baggage was brought by him from Manila, and a part was purchased at Nagasaki, Japan, and there placed on board the Thomas for shipment to San Francisco. Upon his arrival the defendant was furnished by the customs officers with a printed form entitled, “Baggage Declaration and Entry," and was requested to fill out and sign the same. This form contained the following clause:

“That all the articles in said baggage or on my person, or that of the members of my family accompanying me, that have been purchased abroad, or in any other manner procured or obtained abroad, are fully set forth and described in the annexed entry, together with cost price for each item, or the actual market value if obtained by gift or otherwise than by purchase.”

These words were struck out by the defendant, and he made no detailed list of any articles contained in his baggage. The declaration and entry, however, as made out and delivered by him, truly stated that he had with him, belonging to himself and members of his family, “six trunks, three bags or valises, one box, and one other package, making a total of eleven pieces," and that no article contained in his baggage or upon his person or that of those accompanying him was intended directly or indirectly for sale, or for the use of any person other than himself and the members of his family. The defendant testified that he did not at the time have any memorandum by which he could fully set forth and describe the articles purchased abroad and the cost price of each, and for that reason did not specifically mention them in his declaration; and that he was ready and willing at all times to pay the duties legally chargeable thereon. After the baggage was landed upon the wharf, the defendant requested the proper officer to examine it, and in doing so made no suggestion that the examination should not be careful and thorough, but he made no mention of the fact that any dutiable articles were in his baggage. The baggage was then examined in his presence, and it was found that many dutiable articles, such as pieces of silk in the original fold or bolt, had been placed in skirts of dresses in such a way that they could not be seen until the skirts were unfolded. It is insisted upon the part of the government that this was done for the purpose of concealment, and with the expectation that the silks would not be discovered by the customs officers, and thus the payment of duty thereon be avoided; that such was the intention of defendant in failing to mention to the officer that merchandise of that character was in his baggage. But I am not inclined to adopt that view. The trunks were packed by the wife of the defendant, and her testimony to the effect that the silks were folded in the dress skirts as a matter of convenience in packing, and also for their protection, seems reasonable. But, independently of this consideration, a conclusive answer to the contention of the government on this point is that the articles referred to were not packed in such a way as to prevent their being seen upon a proper examination of the baggage, and they were in fact discovered as a result of the usual examination which is given to baggage coming from foreign ports; and not only was there no attempt at concealment of the trunks, but, as before stated, the defendant himself requested the customs officers to make an examination of their contents. In view of this action, which is certainly not consistent with an actual intention on his part to defraud the government of its revenue, and upon consideration of all the evidence in the case, and giving due weight to the presumption of innocence, my conclusion is that it has not been shown that defendant intended to avoid the payment of duties upon such articles as were dutiable.

The question for decision, then, is whether the failure of the defendant to mention to the proper officers, at the time of making entry of his baggage, the dutiable articles contained therein, was a violation of section 2802 of the Revised Statutes of the United States (U. S. Comp. St. 1901, p. 1873), and rendered him liable to the penalty prescribed by that section. The section is as follows:

"Whenever any article subject to duty is found in the baggage of any person arriving within the United States, wbich was not, at the time of making entry for such baggage, mentioned to the collector before whom such entry was made, by the person making entry, such article shall be forfeiteil, and the person in whose baggage it is found shall be liable to a penalty of treble the value of such article."

It was provided by section 16 of Act June 22, 1974, 18 Stat. 189, that in proceedings to enforce a forfeiture for the violation of the customs revenue laws no judgment of forfeiture should be given unless the court or jury should find that the alleged act of violation was committed with an actual intention to defraud the government. That section, however, was repealed by section 29 of Act June 10, 1890, c. 407, 26 Stat. 141, and it has been held in United States v. One Pearl Necklace, 111 Fed. 164, 49 C. C. A. 287, 56 L. R. A. 130, that in actions to enforce a forfeiture under section 2802 of the Revised Statutes [U. S. Comp. St. 1901, p. 1873] it is not incumbent upon the government to prove that the owner of the goods intended to defraud the revenue. This decision rests upon the principle “that, where a statute imposes a duty upon a citizen, for the protection of the revenue, or for any other specific purpose, to do specific acts, and establishes penalties or forfeitures as a part of the consequences of not doing the required acts, the motive of the person incurring the penalty has nothing to do with it.” United States v. One Pearl Necklace (D. C.) 105 Fed. 359. While in this case there was no intention on the part of the defendant to defraud the revenue, still the evidence shows that his failure to comply with the requirements of section 2802 was intentional, and this was all the government was required to prove to entitle it to recover in this proceeding. This rule may seem harsh, but its apparent hardship is greatly modified by the fact that “the statutes confer upon the Secretary of the Treasury the widest discretion to remit forfeitures and penalties accruing for a violation of the customs and revenue laws. This discretion has always been liberally exerted in cases where violation was unintentional or excusable upon any consideration." United States

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