Page images
PDF
EPUB

right to maintain prices as a right peculiar to the employment of trade secrets.

The similarity of conditions surrounding the manufacture of articles under patents and under trade secrets is superficial and consists only in the monopoly of production enjoyed by both manufacturers. Even in this similarity there is the vital difference ihat the statutory monopoly of the patentee is under the protection of the law, while the natural monopoly of the possessor of a secret exists only as long as the secret is preserved, and is protected by law only against fraudulent discovery or disclosure. The consideration for the statutory monopoly is the giving of the full benefit of discovery, after a period of exclusive use, to the general public.12 The owner of a trade secret gives nothing to the public, the value of his property being dependent upon its secrecy. Hence public policy, as expressed in statutes or decisions, favors the statutory and opposes the natural monopoly. The natural monopoly is in the secret itself and has no relation to the article manufactured by its use when once it is offered as a subject of commerce.13 The right and power to refrain from production cannot of itself embrace the right to sell, when produced, upon illegal conditions. Nor, as has been suggested,14 can 'such conditions be imposed on the theory that they attach to personal property so as to bind equitably those who take with notice. A condition rightfully imposed on the original vendee cannot bind a sub-purchaser of chattels by operation of notice. 15 It will hardly be contended that conditions

11 Vulcan Detinning Co. v. American Can Co., 67 N. J. Eq. 243 (1904); Stewart 9. Hook, 118 Ga. 445 (1903); Westervelt v. Nat. Paper & Supply Co., 154 Ind. 673 (1900); Peabody v. Norfolk, 98 Mass. 452 (1868); Chadwick v. Covell, 151 Mass. 190 (1890); Tabor v. Hoffman, 118 N. Y. 30 (1889); Chain Belt Co. v. Von Spreckelsen, 117 Wis. 106 (1903); Park & Sons Co. v. Hartman, 153 Fed. 24 (1907).

12 Grant v. Raymond, 6 Pet. (U. S.) 218 (1832); Wheaton & Donaldson v. Peters & Grigg, 8 Pet. (U. S.) 591 (1834); Wilson v. Rousseau & Easton, 4 How. (U. S.) 646 (1846); Bement v. Nat. Harrow Co., 186 U. S. 70 (1901).

13 This conclusion necessarily follows from the reasoning upon which the right of a patentee to exercise monopolistic rights over his product is sustained; and so held in the case under discussion and in Park & Sons Co. v. Hartman, 153 Fed. 24 (1907). See also Chadwick v. Covell, 151 Mass. 190 (1890).

17 Harv. Law Rev. 415. 15 Dr. Miles Med. Co. o. Park & Sons Co., 220 U. S. 373; Bobbs-Merrill Co. v. Straus, 210 U. S. 339 (1907); Park & Sons Co. v. Hartman, 153 Fed. 24 (1907), and cases there cited; Taddy & Co. v. Sterious & Co., (1904) 1 Ch. D. 354 (1903); McGruther v. Pitcher, (1904] 2 Ch. D. 306; Garst v. Hall & Lyon Co., 179 Mass. 588 (1901).

14

illegal as to the original vendees can be legalized as to sub-vendees by the operation of such rule. The statutory monopoly, by the terms of the patent laws, extends to the sale and use of the property created by the use of the invention. The right to impose restrictions upon sales of chattel property manufactured under patent, subsequent to the original sale by the patentee, if such exists, 16 is not an incident to the monopoly of production but is the result of statutory grant.

The right to impose conditions upon the sale or use of inventions, compositions, news or information, railroad tickets, trading stamps, and trade secrets is established. 17 Some courts sustain this right as incidental to the monopoly of the vendor in the property transferred. Because of this reasoning, other courts have yielded to the claims of vendors of articles in whose production trade secrets have been used, basing their decisions upon the existence of an analogous original monopoly. Monopoly of possession cannot, any more than monopoly of production, include the right to part with possession on illegal terms. This monopoly is an accidental similarity and should not be the basis of the determination of the rights of restriction on sales. Articles embodying trade secrets are articles of general commerce in whose unrestricted transfer the public is vitally interested. In this respect they differ essentially from the species of property above enumerated whose common attribute is that none are articles of commerce. The public policy governing their transfer is different from that governing commercial chattels; therefore the rights incident to their sale cannot be determined by rules of commercial law.18

Inventions, compositions, and trade secrets are but concepts 16 Bement v. Nat. Harrow Co., 186 U. S. 70 (1901); Edison Phonograph Co. v. Kaufmann, 105 Fed. 960 (1901); Edison Phonograph Co. o. Pike, 116 Fed. 863 (1902); Victor Talking Machine Co. v. The Fair, 123 Fed. 424 (1903). Because of these and numerous additional authorities apparently sustaining the right of a patentee to retain dominion by contract over the re-sale of his articles after parting with all his title except this right, the writer hesitates in expressing his doubt as to the existence of the right of a patentee to impose general price restrictions upon the subsequent commerce in his product when he has sold the same for the purpose of re-sale.

17 See citations under notes 19, 20, 21, and 22, post.

18 Maxim Nordenfelt Co. o. Nordenfelt, (1893] 1 Ch. D. 630; Fowle o. Park, 131 U. S. 88 (1888); Harrison o. Glucose Co., 116 Fed. 304 (1902); Park & Sons Co. v. Hartman, 153 Fed. 24 (1907); Meyer v. Estes, 164 Mass. 457 (1895); Standard Fire Proofing Co. v. St. Louis Co., 177 Mo. 559 (1903); Hard v. Seeley, 47 barb. (N. Y.) 428 (1865); Tode v. Gross, 127 N. Y.480 (1891); and cases cited post.

which lose their values as saleable property as soon as given to the public use. The public has no interest in whether the invention or concept, process or formula, is used by the vendor or vendee; it has no right to compel the publication and hence loses no right by respecting the conditions upon which a confidential disclosure is made.19 Not to respect these conditions would prevent the transfer of this species of property and would result in injury to the public.20 So, too, news and information are vendible only so long as undisclosed or confidentially communicated. A general publication results in the destruction of marketable value. Hence the policy of the law is to prevent a public disclosure by one who has contracted for a restricted use.21

Railroad tickets and trading-stamp agreements are in the nature of contracts for personal service and neither can properly become the subject of general commerce.22 Like all contracts personal in their nature, they can be transferred and assigned only with the consent of both contracting parties and only upon the conditions to which the contracting parties assent.

These characteristics so widely differentiate each of these kinds of property from chattel property in whose manufacture a trade secret has been employed as to destroy any analogy of rights based upon the original monopoly of possession. The mere use of a trade secret in production does not change the character of the monopoly of possession of the article produced. The producer of any chattel has, until sale, a monopoly of possession in the article produced by him. It follows that the monopoly of possession, and the rights incident thereto, are not dependent upon the employment of a trade secret, and that the right to maintain restrictions upon future sales must be determined by the rules governing the transfer of chattel property in general.

19 Central Transportation Co. o. Pullman Palace Car Co., 139 U. S. 24, 53 (1890); Park & Sons Co. v. Hartman, 153 Fed. 24, 30 (1907).

20 Maxim Nordenfelt Co. v. Nordenfelt, (1893) 1 Ch. D. 630.

21 Exchange Tel. Co. o. Gregory & Co., (1896] 1 Q. B. 147; Board of Trade of City of Chicago v. Christie Grain and Stock Co., 198 U. S. 236 (1904); Nat. Tel. News Co. v. Western Union Tel. Co., 119 Fed. 294 (1902); Dodge Co. v. Construction Information Co., 183 Mass. 62 (1903); Jewelers' Merc. Agency Co. v. Jewelers' Pub. Co., 84 Hun (N. Y.) 12 (1895), 155 N. Y. 241 (1898).

22 L. & N. R. Co. v. Bitterman, 128 Fed. 176 (1904), 144 Fed. 34 (1906), 207 U. S. 205 (1907); Sperry & Hutchinson Co. o. Mechanics' Clothing Co., 128 Fed. 800 (1904), 135 Fed. 833 (1904); Same v. Temple, 137 Fed. 992 (1905); Park & Sons Co. 0. Hartman, 153 Fed. 24, 31 (1907).

The primary test of what is unlawful at common law, as in restraint of trade, is the effect of the restraint upon public interests.23 Any classification of permissible restraints must respond to this basic test, and all subordinate bases of such classifications must imply, as a primary premise, that the public interests are not injuriously affected by the permitted acts.

A careful analysis of the numerous authorities upon this subject discloses that the ruling cases respond to the above test.24 There is some slight confusion in terminology -- a confusion arising from the paucity of our language rather than from lack of definite thought. Restraints are referred to as “general” and “partial.” The facts to which these terms have been applied show conclusively that “general” is not used as synonymous with “total,” nor does “partial” mean "fractional.” “General” is used whenever the restraint affects the general public interests. “Partial” is used when the restraint affects primarily the particular interest of the individual, without being so extensive as to affect injuriously the general interests of the public. Thus a fractional restraint is "general” if it is of such magnitude as to affect the public; a total restraint is necessarily “general” if it covers any subject of general trade and commerce.

From these premises two broad propositions are to be deduced: first, general restraints of trade are always unlawful; 25 and, second, partial restraints of trade are sometimes legal.

Under this second division falls an extensive subordinate classi

23

2 Parsons on Contracts, 7 ed., 887; Fowle v. Park, 131 U. S. 88 (1889); Finck v. Schneider Granite Co., 187 Mo. 244 (1904); Charleston, etc. Co. v. Kanawha Co., 58 W. Va. 22 (1905).

24 Central Transportation Co. o. Pullman Palace Car Co., 139 U. S. 24, 53 (1890); Cummings v. Union Blue Stone Co., 164 N. Y. 401, 404 (1900); Vickery v. Welch, 19 Pick. (Mass.) 523 (1837).

25 “If a man be possessed of a horse or any other chattel, real or personal, and gives his whole interest or property therein, upon condition that the donee or vendee shall not alien the same, the same is void, because his whole interest and property is out of him, so that he hath no possibility of reverter; and it is against trade and traffic and bargaining and contracting between man and man.” Coke on Littleton, Sec. 360. In re Greene, 52 Fed. 104, 116 (1892); United States v. Addyston Pipe & Steel Co., 85 Fed. 271 (1898), aff. 175 U. S. 211 (1899); Swift & Co. v. United States, 196 U. S. 375 (1905); Pacific Factor Co. v. Adler, 90 Cal. 110 (1891); Santa Clara, etc. Co. o. Hayes, 76 Cal. 387 (1888); Chicago, etc. Coal Co. o. People, 214 III. 421 (1905); Cohen u. Berlin & Jones Envelope Co., 166 N. Y. 292 (1901); State o. Standard Oil Co., 49 Oh. St. 137 (1892); Texas Standard Oil Co. v. Adoue, 83 Tex. 650 (1892).

fication, because, although the public interests, in the commercial sense, may not be directly affected by the restraint in question, still the public is interested in preventing the individual from restraining himself in the free exercise of his energies beyond what the circumstances of his case may reasonably demand. Hence, when once it has been determined that the restraint is not of sufficient breadth to affect injuriously the commercial-economic interests of the public, i. e., that it is partial, the further question must be determined whether the restraint is of such character as to affect injuriously the individual-economic public interests, in restraining an individual more than the circumstances of the transaction make reasonably necessary.26

The rule is established that a restraint of trade to be permissible must be ancillary to the main object of the contract by which it is imposed.27 When the restraint is the principal object of the contract it cannot be reasonably necessary for the protection of the covenantee, for the protection contemplated by the rule is to safeguard him in the enjoyment of the benefits attainable under the principal contract, or to protect him against an improper use of its benefits by the covenantor.

Applying the above principles to the restraints involved in a system of contracts to fix prices for all the sales of a distinct article of commerce, it would appear that they are illegal because general and because, even if partial, unreasonable.

It would be difficult to conceive of a restraint of trade more complete than one seeking to fix the prices on all sales from the manufacturer through the intermediate dealers to the consumer. The manufacturer restrains himself by agreeing to sell at only one price and only to contracting dealers. All competition between wholesale dealers is destroyed by their agreement to sell only at a minimum price and only to authorized purchasers. The retail dealer likewise is removed from the possibility of competition by his agreement to sell at fixed prices and to none other than the consumer. No discoverable room for competition is left from the manufacturer to the consumer. The merchandise, the subsequent trade in which the manufacturer is thus attempting to control,

26 Gibbs v. Baltimore Gas Co., 130 U. S. 409 (1888); Nordenfelt v. Maxim Nordenfelt Co., (1894) A. C. 535, 567.

27 United States v. Addyston Pipe & Steel Co., 85 Fed. 271, 282 (1898).

« PreviousContinue »