Wathen v. Jackson Oil & Refin. Co., 235 U.S. 635 (1915)

The facts, which involve the constitutionality of certain provisions of the ten-hour labor law of Mississippi and p. 636the right of a stockholder of a corporation to enjoin the corporation from complying with those provisions, are stated in the opinion.

In determining whether an act, limiting the hours of labor in any occupation, is in violation of the provisions of the Federal Constitution, the primary consideration is whether or not the occupation possesses such characteristics of danger to the health of those engaged in it p. 637as to justify the legislature in concluding that the welfare of the community demands a restriction. New York v. Williams, 12 L. R. A. (N. S.) 1130.

Section 266, Judicial Code, does. not extend the jurisdiction of the Federal courts, but only gives authority for the issuance of injunctions in already pending cases in the mode and manner prescribed in this statute, and where the p. 638jurisdiction exists in a Federal court. And a court of equity, neither state nor Federal, has any criminal jurisdiction, and the Federal court of equity having no jurisdiction in respect to criminal cases, § 266 does not apply to injunctions in such cases.

It was alleged in the bill, in substance, that the defendant corporation was engaged in operating a cotton seed oil mill of the value of $100,000; that the complainant owned five hundred and two shares of its stock of the par value of one hundred dollars each and of the actual value of $60,000; that the business required that the mill should be operated continuously, both day and night, two shifts of laborers being employed; that the employment was under wholesome conditions, without any detriment to the physical, mental and moral well-being of those employed; that the statute, if enforced, would work a deprivation of liberty of contract and of property, and an arbitrary discrimination, contrary to the Fourteenth Amendment; that compliance with the statute would involve greatly increased cost of operation and render the corporation insolvent and its property valueless, to the p. 639complainant’s injury; that the statute had been sustained by the Supreme Court of Mississippi in a suit against another manufacturing company; that, although the officers of the defendant corporation desired to disobey the statute, they were complying therewith being constrained to obedience through fear of the enormous penalties imposed; and that these penalties were so severe that no owner or operator in the position of the defendant corporation could invoke the jurisdiction of a court to test the validity of the statute, except at the risk of confiscation.

The objection urged below, and repeated here, that the complainant has failed to show any right to maintain this suit must be sustained. The right of action to restrain the enforcement of the statute as an unconstitutional deprivation of the liberty and property of the corporation was a right existing in the corporation itself, and a stockholder was not entitled to sue without showing to the satisfaction of the court that he had exhausted the means within his reach to obtain action by the corporation in conformity with his wishes. Hawes v. Oakland, 104 U. S. 450, 460, 461; Detroit v. Dean, 106 U. S. 537, 541, 542; Quincy v. Steel, 120 U. S. 241, 248; Doctor v. Harrington, 196 U. S. 579, 588. The former equity rule (Rule 94, 210 U. S. 541) provided not only that the bill must allege that the suit was ‘not a collusive one to confer upon a p. 640court of the United States jurisdiction of a case of which it would not otherwise have cognizance/ but that the bill ‘must also set forth with particularity the efforts of the plaintiff to secure such action as he desires on the part of the managing directors or trustees, and, if necessary, of the shareholders, and the cause of his failure to obtain such action.’ The present rule (Rule 27, 226 U. S. Appx., p. 8) adds to this provision the words,—‘or the reasons for not making such effort’; and these reasons, of course, must be adequate. The rule embraces those cases where the wrong to the corporation arises from unconstitutional legislation. Corbus v. Alaska Gold Mining Co., 187 U. S. 455; Davis & Farnum Mfg. Co. v. Los Angeles, 189 U. S. 207, 220; Ex parte Young, 209 U. S. 123, 143. Here, while it is averred that the suit is not a collusive one in order to confer a jurisdiction which would not otherwise exist, there is no allegation that the complainant has made any request that the corporation should bring the suit to prevent the alleged invasion of its rights; nor does it appear that, by reason of antagonistic control of the corporation, such a request would be futile. Although apparently the holder of a majority of its stock, the complainant does not show any effort whatever to induce the corporation to sue. He contents himself with asserting in effect that, though the directors and officers do not wish to comply with the statute, they will do so through fear of its penalties. But this reason is palpably inadequate inasmuch as the corporation itself would be entitled to protection against the imposition of such penalties as would virtually deny access to the courts for the protection of rights guaranteed by the Federal Constitution. Ex parte Young, 209 U. S., p. 147; Willcox v. Consolidated Gas Co., 212 U. S. 19, 53, 54; Missouri Pacific Rwy. v. Tucker, 230 U. S. 340, 351; Ohio Tax Cases, 232 U. S. 576, 587; Wadley Southern Rwy. v. Georgia, decided this day, post, p. 651. The allegations of the bill show no p. 641235 U. S: Syllabus.

We have here to review two decrees dealing with an accounting of profits and an assessment of damages resulting from the infringement of a patent granted p. 643235 U. 8. Opinion of the Court.

The conclusion that the recovery should be thus restricted was rested upon these grounds: First, that the patent was not for a new and operative drill, but only for designated improvements in a type of drill then in use and well known; second, that the value of drills embodying this invention, as marketable machines, was not wholly attributable to the designated improvements, but was due in a material degree to other essential parts which were not patented; third, that the plaintiff failed to carry the burden, rightly resting upon it, of submitting evidence whereby the profits from the sale of the infringing drills p. 644could be apportioned between the patented improvements and the unpatented parts; and, fourth, that, although the number of sales made by the defendants was disclosed, the evidence did not present other data essential to an assessment of the damage sustained by the plaintiff by reason of the defendants’ infringement.

It is quite plain, as we think, that the patent was not for a new and operative grain-drill, but only for particular p. 645improvements in a type of grain-drill then in use and well known. The invention was so described in the specification forming part of the patent. The inventor there said:

In so far as the profits from the infringing sales were attributable to the patented improvements they belonged to the plaintiff, and in so far as they were due to other parts or features they belonged to the defendants. But as the drills were sold in completed and operative form the profits resulting from the several parts were necessarily commingled. It was essential therefore that they be separated or apportioned between what was covered by the patent and what was not covered by it, for, as was said in Westinghouse Co. v. Wagner Co., supra (225 U. S. 615): “In such case, if plaintiff’s patent only created a part of the profits, he is only entitled to recover that part of the net gains.” In the nature of things the profits pertaining to the patented improvements had to be ascertained before they could be recovered by the plaintiff, and therefore it was required to take the initiative in presenting evidence looking to an apportionment. Referring to a like situation, it was said in the case just cited (p. 617): “The burden of apportionment was then logically on the plaintiff, since it was only entitled to recover such part of the commingled profits as was attributable to the use of its invention.” But the plaintiff did not conform to this rule. It neither submitted evidence calculated to effect an apportionment nor attempted to show that one was impossible; and this, although the p. 647evidence upon the accounting went far towards showing that there was no real obstacle to a fair apportionment. Certainly no obstacle was interposed by the defendants. It well may be that mathematical exactness was not possible, but, as is shown in Westinghouse Co. v. Wagner Co., supra (pp. 617, 620, 621, 622), that degree of accuracy is not required but only reasonable approximation, which usually may be attained through the testimony of experts and persons informed by observation and experience. Testimony of this character is generally helpful and at times indispensable in the solution of such problems. Of course, the result to be accomplished is a rational separation of the net profits so that neither party may have what rightfully belongs to the other, and it is important that the accounting be so conducted as to secure this result, if it be reasonably possible. As was said in Tilghman v. Proctor, 125 U. S. 136, 145, “it is inconsistent with the ordinary principles and practice of courts of chancery, either, on the one hand, to permit the wrongdoer to profit by his own wrong, or, on the other hand, to make no allowance for the cost and expense of conducting his business, or to undertake to punish him by obliging him to pay more than a fair compensation to the person wronged.”

As the exclusive right conferred by the patent was property and the infringement was a tortious taking of a part of that property, the normal measure of damages was the value of what was taken. So, had the plaintiff pursued a course of granting licenses to others to deal in articles embodying the invention, the established royalty could have been proved as indicative of the value of what was taken, and therefore as affording a basis for measuring the damages. Philp v. Nock, 17 Wall. 460, 462; Birdsall v. Coolidge, 93 U. S. 64, 70; Clark v. Wooster, 119 U. S. 322, 326; Tilghman v. Proctor, 125 U. S. 136, 143. But, as the patent had been kept a close monopoly, there was no established royalty. In that situation it was permissible to show the value by proving what would have been a reasonable royalty, considering the nature of the invention, its utility and advantages, and the extent of the use involved. Not improbably such proof was more difficult to produce, but it was quite as admissible as that of an established royalty. In Suffolk Co. v. Hayden, 3 Wall. 315, 320, where a like situation was presented, this court p. 649said that “in order to get at a fair measure of damages, or even an approximation of it, general evidence must necessarily be resorted to.” See also Packet Co. v. Sickles, 19 Wall. 611, 617; Root v. Railway Co., 105 U. S. 189,198. And in many cases in the other Federal courts the damages have been assessed upon proof of a reasonable royalty. The practice is illustrated by the following extract from the opinion in Hunt v. Cassiday, 12 C. C. A. 316, 318, 64 Fed. Rep. 585, 587: “The plaintiff was clearly entitled to damages for the infringement. If there had been an established royalty, the jury could have taken that sum as the measure of damages. In the absence of such royalty, and in the absence of proof of lost sales or injury by competition, the only measure of damages was such sum as, under all the circumstances, would have been a reasonable royalty for the defendant to have paid. This amount it was the province of the jury to determine. In so doing, they did not make a contract for the parties, but found a measure of damages.” True, some courts have regarded Coupe v. Royer, 155 U. S. 565, as impliedly holding that this practice was not permissible, but the decision does not admit of such an interpretation. In that case—an action at law—there was no proof of what would have been a reasonable royalty but only of what the defendant had made or might have made out of the infringement; and all that the court held was (a) that the damages were not to be measured by what the defendant had gained or might have gained but by what the plaintiff had lost, and (b) that, as the evidence disclosed (p. 583) “no license fee, no impairment of the plaintiff’s market, in short, no damages of any kind,” the verdict could not exceed a nominal sum. In Cassidy v. Hunt, 75 Fed. Rep. 1012, where the scope of that decision was carefully considered by one of the Circuit Judges for the Ninth Circuit, the conclusion was reached that it did not militate against an assessment of damages upon the basis of what would have been p. 650a reasonable royalty; and a like view was expressed and applied by the Circuit Court of Appeals for the Third Circuit in McCune v. Baltimore & 0. R. R., 154 Fed. Rep. 63, and Bemis Car Co. v. Brill Co., 200 Fed. Rep. 749, 762, and by the Circuit Court of Appeals for the Sixth Circuit in United States Frumentum Co. v. Lauhoff, 216 Fed. Rep. 610. But, although the plaintiff was entitled to prove what would have been a reasonable royalty, and thereby to show a proper basis for an assessment of damages, no proof upon that subject was presented.

Ordinarily what has been said would lead to an affirmance of the decrees below. But there are special reasons why a final disposition of the cases should not be made upon the present record at this time. The patent was valid and the invention meritorious. The infringing sales p. 651235 U. S. Syllabus.