American Tri-Ergon Corp. v. Ton-Bild Syndikat, A. G.

Untermyer, J.

Upon motion by the defendants Leo Brecher, Max Goldberg and Associated Cinemas of America, Inc., for judgment on the pleadings, the complaint has been dismissed as against them.

The complaint alleges that previous to October, 1926, Tri-Ergon, A. G., a Swiss corporation, was the owner of various patents, inventions and trade-marks known as “ Tri-Ergon Process,” relating to motion pictures and including both “ sound on film ” and “ sound on disc.” On October 14, 1926, Tri-Ergon, A. G., granted an option to William Fox for an exclusive license to the Tri-Ergon process and the products thereof with respect to “ sound on film ” within the United States, Canada, Mexico and the West Indies, which option was exercised by Fox on June 27, 1927. On September 4, 1928, an agreement, subsequently assigned to American Tri-Ergon Corporation, a New York corporation, was executed by Tri-Ergon, A. G., and William Fox, consummating the sale to Fox of the Tri-Ergon process and the products thereof with respect to “ sound on film ” within the contract territory.

In November, 1926, Tri-Ergon, A. G., granted to Tri-Ergon Musik, A. G., a Swiss corporation, license rights to certain of the Tri-Ergon processes for the sole purpose, it is alleged, of producing disc records. On August 30, 1928, Tri-Ergon Musik, A. G., with the written consent of Tri-Ergon, A. G., entered into a contract with Ton-Bild Syndikat, A. G., a German corporation, permitting Ton-Bild to utilize the Tri-Ergon process for the production of sound films. There was expressly excluded, however, from the license so granted to Ton-Bild Syndikat, A. G., the use of the TriErgon process and the resulting products for the United States, Canada, Mexico and the West Indies, these rights having previously been acquired by William Fox. At the time of the execution of this contract, it is alleged that Ton-Bild Syndikat, A. G., was informed of the existence of the rights of William Fox. On June 6, 1930, the rights of William Fox under the contract above referred to were assigned to American Tri-Ergon Corporation and the rights of Tri-Ergon, A. G., and Tri-Ergon Musik, A. G., were assigned to the plaintiff Tri-Ergon Holding, A. G.

By agreement made in March, 1929, Ton-Bild Syndikat, A. G., and Klangfilm G. m. b. H., also a German corporation, granted to each other reciprocal licenses of the patents under which each was operating. It is charged that in disregard of the rights of the plaintiffs, Ton-Bild Syndikat, A. G., has conspired with others, including the defendant Klangfilm G. m. b. H., to engage in unlawful competition with the American Tri-Ergon Corporation within the contract territory. Pursuant to this conspiracy these defendants, and the defendant Universum Film, A. G., have manufactured in Europe and distributed in the United States, Canada, Mexico and the West Indies apparatus and inventions, including films and talking pictures produced by the Tri-Ergon process. This they have done not only through subsidiaries organized in the United States, but through distributors, including the defendants Brecher, Goldberg and Associated Cinemas of America, Inc.

The complaint also contains a second cause of action which, in substance, repeats the allegations of the first, and further alleg'es that the defendants in violation of an express provision of the license agreement between Tri-Ergon Musik, A. G., and Ton-Bild Syndikat, A. G., have failed to designate the various products, processes, patents and inventions used and distributed by them by the name “ Tri-Ergon,” thereby depriving the plaintiffs of the benefits of the advertising value which would result from the use of that name.

The principal relief demanded is that the defendants be restrained from manufacturing, distributing, exhibiting or using any of these patents, inventions or films within the contract territory; that the defendants be required to account to the American Tri-Ergon Corporation for any profits derived from such manufacture, distribution, exhibition or sale of any of such patents, inventions or films used, sold or distributed within the contract territory; that the defendants be restrained from using, distributing, exhibiting, leasing or selling anywhere any films, talking pictures or processes which depend wholly or in part upon Tri-Ergon inventions unless the name “ Tri-Ergon,” either alone or in combination, be used in the designation thereof.

The action is maintained by American Tri-Ergon Corporation as assignee of the party entitled by contract with Tri-Ergon, A. G., to the exclusive right to manufacture, sell and distribute the TriErgon process and films produced thereby within the United States, Canada, Mexico and the West Indies. It is maintained by TriErgon, A. G., as the party, and by Tri-Ergon Holding, A. G., as assignee of the party, with whom the defendant Ton-Bild Syndikat, A. G., contracted to abstain from distribution in that territory. The court at Special Term granted the motion of the defendants Brecher, Goldberg and Associated Cinemas of America, Inc., to dismiss the complaint upon the ground that none of these defendants is in a contractual relation with any of the plaintiffs and that the complaint does not sufficiently allege that they had knowledge that the distribution by them of Tri-Ergon films within this territory constituted a violation of the plaintiffs’ contractual rights. The court for that reason held that these defendants were not liable for inducing the breach of the plaintiffs’ contracts. (Lamb v. Cheney & Son, 227 N. Y. 418, 421.) It further held that “ if the complaint is to rest upon the theory that the moving defendants, with whom plaintiffs have no contractual relationship, have unlawfully exploited the patents of the plaintiffs in this country to their damage, the cause of action is one for infringement of the plaintiffs’ rights under patents ” of which the State court has no jurisdiction. (Wise v. Tube Bending Machine Co., 194 N. Y. 272; Couch Patents Co. v. Berman, 137 App. Div. 297.)

These conclusions might indeed be tenable if this were an action at law and the only relief demanded was the recovery of money damages. It might then be true that the moving defendants would not be hable to the plaintiffs, except for an infringement of patent rights, if unwittingly they had contracted for the distribution of films and talking pictures in violation of the contract between the plaintiffs and other of the defendants. We do not decide that question at this time because the allegations of the complaint are such, and the relief demanded against other defendants is such, that the moving defendants are necessary, or at least proper, parties to the action. (See Delcambre v. Delcambre, 210 N. Y. 460.) It is alleged in the complaint that in violation of the plaintiffs’ rights certain of the defendants have heretofore and now continue to “ sell and contract for the sale ” within the contract territory of films manufactured by the Tri-Ergon process, with distributors, including the moving defendants. Again, it is alleged that certain of the defendants have “ solicited and obtained contracts ” with numerous distributors, including the moving defendants, “ for the distribution and exhibition of films and talking pictures throughout the aforesaid territories ” in violation of the plaintiffs’ contractual rights. As a part of the relief it is demanded that the defendants be restrained from continuing to violate the contracts which accord to American Tri-Ergon Corporation the exclusive right to manufacture, sell and distribute these films and talking pictures in this territory. Assuming that the plaintiffs are not entitled to such relief against those defendants who acted without knowledge of the plaintiffs’ rights, nevertheless if this relief is granted against those defendants who stand in a contractual relation with the plaintiffs it will necessarily prevent performance by them of the contracts which, it is alleged, they have made with Brecher, Goldberg and Associated Cinemas of America, Inc., for the distribution of the films. It is difficult to see how the court could enter a decree which would thus affect the rights of the moving defendants unless those defendants were before the court. If they were not parties to the action it would seem necessary, before any judgment could be entered which would result in abrogating their contracts, to make them so. (Holly v. Gibbons, 176 N. Y. 520.) The complaint, therefore, should not have been dismissed as to them, even though the plaintiffs may not show themselves to be entitled to any affirmative relief as to them.

If the complaint states a cause of action against the moving defendants on this theory, no question of the jurisdiction of the State court can arise, as the court at Special Term appears to have recognized. The action is one to enforce, against certain of the defendants, contracts relating to the distribution of apparatus, devices and films made by the Tri-Ergon process. The fact that that process is protected in whole or in part by patents does not affect the character of the suit. It remains an action to enforce contractual rights, of which the State courts have complete jurisdiction. Any question that may arise concerning the validity of the patents under which these devices and films are produced is merely incidental to the enforcement of these rights. (Pratt v. Paris Gas Light & Coke Co., 168 U. S. 255; Hartell v. Tilghman, 99 id. 547; Becher v. Contoure Laboratories, 279 id. 388; New Era Electric Range Co. v. Serrell, 252 N. Y. 107.)

The order appealed from should be reversed, with twenty dollars costs and disbursements, and the motion denied, with ten dollars costs.

Martin and O’Malley, JJ., concur; Finch, P. J., and Merrell, J., dissent and vote for affirmance.