Contract, Assignability. Assignment.
By a contract in writing made in June, 1917, between an inventor and a manufacturer, the inventor granted to the manufacturer a license to build, have built, use and operate machines, covered by certain letters patent granted to him in 1916 and 1917 and by further letters patent to be granted upon improvements upon the machines, during the terms of the letters patent, and the exclusive right and license to sell their product in North and South America, and agreed that, when requested, he would "give to the corporation and its representatives such advice respecting the mode of use of the patented machines and all processes connected with the manufacture of reenforced paper upon said machines as may be necessary to enable it to use said machines and any improvements thereof to the best advantage;" and the manufacturer agreed to pay to the inventor "as rent or royalty" a certain percentage of the net profits from sales of the goods manufactured by machines subject to the letters patent, payments out of profits to be made quarterly, inventories and balances to be "settled in full semi-annually, during the term of the license," and that at all times the manufacturer would use his "best efforts to promote and increase the advantageous sale of the products of the patented machines and to increase and develop the business which it is hereby licensed to carry on, and to secure to the owners the greatest benefits from said inventions and patents;" and it was stated in the contract that it was "the intention that both parties hereto shall in all matters co-operate to improve and increase the business to be carried on hereunder, to their mutual advantage." Held, that by the contract a relation of trust and confidence was created between the parties by the agreement of the inventor to advise the manufacturer during the term of the patent respecting the mode of the use of the patented machines and all processes connected with their product.
In August, 1917, the inventor, in the circumstances above described, made in writing to a third party an assignment of all his rights under the letters patent and inventions and improvements therein subject "to the license granted" to the manufacturer in June, 1917, "to manufacture and sell the product of the patented machines in North and South America," without further description of his contract with the manufacturer; and also of "all the rentals, royalties, profits and moneys that shall or may become due and payable" from the manufacturer "or from any other party under and by virtue of said license agreement," and granted to the assignee "full power and authority to avail" himself "of any and all rights and remedies reserved . . . or existing . . . under said license agreement, and to take any and all proceedings for the enforcement of the rights hereby assigned," in the inventor's "name if need be, but for the benefit of" the assignee. Held, that
(1) The assignment gave to the assignee no right to maintain against the manufacturer an action for an alleged breach by him of the contract above described in procuring from another inventor a right to use a patented machine of the other inventor and, by using it, destroying the market for the product of the machines covered by the contract;
(2) The assignment gave to the assignee no right to maintain against the manufacturer an action, begun in December, 1919, for the percentage, stipulated in the contract between the inventor and the manufacturer, of net profits which had accrued from sales of products of the machines between October, 1918, and May, 1919. American Lithographic Co. v. Ziegler, 216 Mass. 287, distinguished.
A contract which involves personal services and is one of trust and confidence cannot be assigned in part and continue to abide in the original parties to it in part.
PIERCE, J.
This is an action of contract under an agreement in writing granting to the defendant an exclusive license to operate certain patented machines and to manufacture and sell the product thereof in North and South America for the term of the patents issued to, and to be issued upon the application of, the licensors. The plaintiff is a corporation to which the licensors on August 27, 1917, sold, assigned and transferred the letters patent and their right, title and interest in the letters patent and applications for letters patent, for the full end of the terms for which said patents have been or may be granted, "Subject, however, to the license granted by us on June 30, 1917, to the Safe Pack Paper Mills [the defendant] to manufacture and sell the product of the patented machines in North and South America." On the same day by the same instrument the licensors also assigned, transferred and set over to the plaintiff "all the rentals, royalties, profits and moneys that shall or may become due and payable to us, or to which we may become entitled, from Safe Pack Paper Mills or from any other party under and by virtue of said license agreement. . . ." It is to be noted that the instrument of assignment and transfer to the plaintiff makes no mention of any instrument governing the reciprocal contractual rights and obligations of the licensors and licensee, and the plaintiff and the defendant are in agreement that the assignment did not in terms transfer the contract between the licensors and licensee, did not delegate the undertakings of the licensors to the plaintiff, and did not relieve the licensors from their obligations to the defendant.
The declaration is in two counts. The first count alleges the breach of the contractual undertaking of the defendant, as set out in the written agreement annexed to the declaration, to "use its best efforts to promote and increase the advantageous sale of the products of the patented machines and to increase and develop the business which it was licensed to carry on, and to secure to said Jackson and Howard [the licensors] the greatest benefits from said inventions and patents;" and assigns as the particular breach of the undertaking that the defendant procured of one Wandel the right to use a patented machine, which the defendant set up in place of the machine of the licensors, and at less expense substituted its product for that of the machine of the licensors, and thereby purposely destroyed the market for the material produced by the licensors' machine.
By the second count the plaintiff alleges its right under its purchase and the assignment from Jackson and Howard, the licensors, "to all rentals, royalties, profits and moneys that should or might become due or payable to Jackson and Howard or to which they might become entitled from the defendant under and by virtue of said license contract." The plaintiff further alleges that the defendant operated the machine of the licensors between October, 1918, and May, 1919, and that the product of that machine was sold by the defendant at a net profit, "one half of which the defendant was bound under the license contract to pay to the plaintiff as rent or royalty."
The defendant, after the filing of an answer, was allowed by the court to raise the question of law set out in a proposed demurrer annexed to a motion to withdraw its answer, "on condition that the demurrer is to be treated as though embodied in the answer filed on January 23, 1920." We assume the imposed condition is intended to restrict "the questions of law" to matters of substance and to exclude from discussion and decision matters of form. Putting to one side formal questions of law as obnoxious to the condition imposed by the court, we have remaining, applicable to both counts of the declaration, the substantial assignment of the demurrer that the contract was not assignable as a whole or in respect to any accrued rights thereunder.
The contention of the defendant that the contract was not assignable has as its basis the fact that under the contract of license, the licensors and owners of the patents and of the machines built under them agreed "when requested, [to] give to the corporation [the defendant] and its representatives such advice respecting the mode of use of the patented machines and all processes connected with the manufacture of reenforced paper upon said machines as may be necessary to enable it to use said machines and any improvements thereof to the best advantage." It contends that a relation of trust and confidence between the licensors and the defendant was created by the above quoted provision, and by the further provision of the contract that it is the "intention that both parties hereto shall in all matters co-operate to improve and increase the business to be carried on hereunder, to their mutual advantage."
Assuming the existence of the relation of trust and confidence, the defendant invokes as its defence the well established rule that "when rights arising out of contract are coupled with obligations to be performed by the contractor, and involve such a relation of personal confidence that it must have been intended that the rights should be exercised and the obligations performed by him alone, the contract, including both his rights and his obligations, cannot be assigned without the consent of the other parties to the original contract." Gray, J., in Delaware County Commissioners v. Diebold Safe Lock Co. 133 U.S. 473, 488. We think the facts in the case at bar are consistent only with the proposition that a relation of trust and confidence was created between the parties by the agreement of the patentors to advise the licensee during the term of the patents respecting the mode of the use of the patented machines and of all processes connected with the product of such machines. New England Cabinet Works v. Morris, 226 Mass. 246.
To the position of the defendant that the contract was not assignable because it was not intended to be assigned, and because as a matter of law, whatever the intention, it could not be assigned, the plaintiff by way of reply and as a statement of its position asks the court "to observe that the assignment did not purport to transfer the contract or to delegate these undertakings to the plaintiff corporation or relieve the licensors from responsibility for them; and, when the undertakings were in fact later performed, the assignee's right to the consideration was complete. . . . The royalties to be paid by the defendant, and all rights and remedies for the protection of the patents and enforcement of the rights of the former owners against the licensee, all these things were legally assignable. Their assignability was not affected by the fact that something remained to be done by the assignors, at the time of the assignment, if it was in fact done by the assignors later and before action brought." The argument of the plaintiff manifestly only covers a contract which has been fully performed by the assignor, with a consequent duty on the other party to the contract to pay to the assignor the debt which was thereby created. In such a situation the personal element has disappeared, and no reason is perceived why the right to receive the debt may not be assigned. The facts admitted by the defendants in American Lithographic Co. v. Ziegler, 216 Mass. 287, at page 288, distinguish that case from the case at bar.
It is plain that the right to maintain an action for the breach assigned in the first count is a right which is not separable from the contract; that contract was not assignable, and the plaintiff has no right to an action for the defendant's non-performance in its own right and name or in the name and right of the licensors.
Nor do we think the plaintiff has a standing to maintain its action under the allegations of the second count. The license agreement is still executory, the licensors remaining bound by its terms to personal services during the terms of the existing patents and of the pending applications for patents.
We also are of opinion that a contract which involves personal services, and is one of trust and confidence, cannot be assigned in part and abide in the original parties to it in part.
The demurrer in each count should have been sustained.
Demurrer sustained.