Scottish Court of Session Decisions

The United Horse-Shoe and Nail Company (Limited) was incorporated, under the Companies Acts 1862 to 1880, in June 1883 for the purpose of acquiring the whole assets of the United Horse-Nail Company (Limited) and of the Horse-Shoe Manufacturing Company (Limited), and an agreement was made between the United Horse-Nail

Company (Limited) and the new company, dated 27th June 1883, whereby it was agreed that the whole business, property, and liabilities of the old company should be transferred to and taken over by the new company. The United Horse-Nail Company (Limited) had been incorporated under the Companies Acts in April 1881 for the purpose of acquiring the whole assets of the European Globe Nail Company of Boston, including the patents and inventions belonging to that company. Among these patents thus acquired by the United Horse-Nail Company were—“Letters-patent, dated 15th August 1872, No. 2432 of 1872, granted unto the said William Morgan Brown for an invention entitled ‘Improvements in machinery for the manufacture of horse-shoe nails,’ a communication from abroad by Thomas House Fuller, of Boston, aforesaid; and letters-patent, dated 14th October 1878, No. 4078 of 1878, granted to Gerald Clarence Hopper, of 38 Southampton Buildings, Chancery Lane, London, for an invention entitled ‘Improvements in mechanism for and in the method of manufacturing blanks for animal shoe nails,’ a communication from abroad by Thomas House Fuller, of Boston, aforesaid.” Along with these patents the United Horse-Shoe and Nail Company (Limited) acquired works at Gothenburg and the machinery therein, and from and after June 1883 carried on their works for the manufacture of horse-shoe nails by means of machinery made in accordance with the patents above mentioned. By an assignment dated 23d May 1884, executed in pursuance of the foresaid agreement, the United Horse-Nail Company (Limited) assigned to the new company all the foresaid patents, and all and singular the benefits, privileges, and advantages arising therefrom.

Towards the close of the year 1883 the United Horse-Shoe and Nail Company (Limited) came to believe that large quantities of horse-shoe nails, made by machines constructed in the mode and on the principles described in the specifications of the foresaid inventions, but without any licence from the company, or any right to use the said inventions, or any of them, had been imported by John Stewart & Company into this country from Sweden, and had been sold by them to merchants and others in various towns and places throughout the country. The nails so imported were made by Messrs Kollen at their works near Gothenburg, in Sweden, by means of machines which the company considered to be imitations of the machines described in the specifications of the foresaid inventions, and infringements of the patents acquired by the company.

On 19th January 1884 the company brought a suspension and interdict against Messrs Stewart & Company, and on March 20th 1885 the Lord Ordinary pronounced judgment interdicting Messrs Stewart & Company from making use of the letters-patent numbered 2432, and dated 15th August 1872, and the letters-patent numbered4078, dated October 1878. Messrs Stewart & Company acquiesced in the judgment, and it became final.

Upon the 5th May 1885 The United Horse Shoe and Nail Company (Limited) raised an action against Messrs Stewart & Company, concluding for £10,000 damages. They stated that between 1st January 1882 and the date of the interdict the defenders had infringed the rights and privileges granted by the letters-patent, No.

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2432 of 1872, and 4078 of 1878, by importing and selling horse-shoe nails made by machinery and apparatus constructed according to these two patents or an imitation thereof; that this had been done by travellers and otherwise at prices below the pursuers' price; that such selling and offering to sell had seriously injured the pursuers' business and profits and caused them serious loss; that their business had thus been curtailed in its growth, particularly in Scotland, and their trade connection, in addition, interfered with and spoiled, which would be a source of loss for a considerable time to come. They estimated the damage thus caused at the sum sued for.

Messrs Stewart & Company averred (and the note of the Lord Ordinary in the process of interdict showed) that the letters-patent, No. 2432 of 1872, concluded with two claims, and that the interdict was granted only in respect of an infringement of the second, and that the less important claim; that the letters-patent No. 4078 of 1878 concluded with six claims, and interdict was granted in respect of the infringement of one of the six, and that the least important claim. They averred further, that nails of the same character and quality as those sold by the defenders could be and had been manufactured without adopting the mechanism described in any of the parts of the letters-patent in respect of which interdict was granted, and that without making important modifications of the mechanism described in the letters-patent founded on nails of the character sold by them could not be made at all. Further, they stated that the nails sold by them, or some of them, had not been manufactured by the use of machinery described in the portions of the letters-patent against the infringement of which interdict has been granted. If there was therefore any infringement at all, it was only as regarded a subsidiary and unimportant part of the machinery, and the pursuers' claim was grossly exaggerated.

Messrs Stewart & Company pleaded, inter alia,—“(2) The pursuers not having acquired right to the patents alleged to have been infringed till 23d May 1884, and the assignment in their favour not having been registered in the Register of Patents till the 11th September thereafter, they are not entitled to claim damages for the period prior to the date of registration, or at all events prior to the date of the assignment. (3) The pursuers having suffered no damage in consequence of the defenders' actings, absolvitor should be pronounced with expenses.”

The parties put in a joint-minute, in which the defenders, with the view of limiting the proof in the action, but merely for the purposes of the action, admitted that all the horse-shoe nails imported by them from Sweden prior to 20th March 1885, consisting of 6515 boxes of 25 lbs. each, and all the horse-shoe nails sold by them prior to 20th March 1885, consisting of 5752 boxes of 25 lbs. each (of which 1390 boxes were made entirely without the use of the “interceptor” forming part of the subject of the letters-patent No. 2432 after mentioned) were made by machines not differing from the machines belonging to Messrs Kollen, which were referred to in the opinion of the Lord Ordinary of 20th March 1885 granting the interdict, and in contravention of claim 2 of the letters-patent No. 2432 of 1872, and claim 6 of No. 4078 of 1878, in respect of which interdict was granted, and that of said 5752 boxes, 2481 boxes were made and sold prior to the 23d May 1884, 200 of which were made without the use of the interceptor, the remaining boxes being made between that date and the 20th March 1885, of which 1459 boxes were made without the use of the said interceptor. The pursuers, on the other hand, only for the purposes of the action, did not maintain that said nails were made by mechanism constructed in contravention of claim 1 of No. 2432, nor of the claims of No. 4078 other than the 6th.

The import of the proof as affecting the question of damages appears from the note of the Lord Ordinary, and in the opinion of the Judges of the Inner House.

On the 11th March 1886 the Lord Ordinary ( Lord Kinnear) decerned against the defenders for the sum of £530.

“ Opinion.—I think it is clear, from the evidence which has now been adduced, that from the date of the agreements with the United Horse-Nail Company the pursuers were in right of the patents which were subsequently formally assigned to them by the assignation founded upon. They were bound by the agreement to take over the pending contracts and liabilities of the former company as from its date, and the evidence shows that they did in fact take over the business on the 28th of June, or at all events in the beginning of July 1883, and I think it follows that any infringement of the patent right after the 28th of June or the beginning of July was an injury to the pursuers, for which they are entitled to compensation.

“Now, that leaves only one question—the question of the amount of damages—and I do not think it is in general necessary or desirable to give reasons in detail for fixing damages, because although the elements which ought to be taken into account may be capable of more or less exact definition, still in most cases the estimate of the particular sum which the pursuer may be entitled to as compensation must be made upon somewhat vague and conjectural considerations. It is really a jury question. But there are one or two points in this case as to which I think it is due to the parties that I should say how far I take them into consideration.

“In the first place, the defenders say—and I think rightly—that the pursuers can only recover compensation for the actual loss which they have sustained; and, on the other hand, it is said with equal justice, that every sale of a patented article is an injury to the patentee or to the assignees of the patent, and prima facie, therefore, it would appear to me that the true measure of damage should be the amount of profit which the as signees of the patent would have made if they had themselves carried through those sales, because the loss which they have sustained is simply the loss of profit upon sales, which it may be presumed they would have made were it not for the wrongful intervention of the defenders. But then it is said—and there is force in the consideration—that it is rather an assumption than a matter of certain inference to say that if the infringers had not interfered the sales made by them must necessarily have been made by the pursuers; because there are other considerations which go to the effecting of sales, such as connection in trade, and energy and skill in the conduct of business, and

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therefore it does not necessarily follow that the pursuers would have made every sale which the defenders succeeded in making if the defenders had not interfered at all. There is another consideration which the defenders have urged, and perhaps a more formidable one, because they say that the patents have only been infringed in so far as they apply to two separate parts of the process of the manufacture of shoe nails, and that those two parts are in themselves of subordinate importance, and therefore they say that they have derived no material advantage from the infringement, because the real merit of the nails they have sold is not attributable to the patented mechanism or to any process or mechanism that is not open to the public. And therefore they say that since no considerable portion of the profit they have made upon the sales in question can be traced to their use of the patented machinery the pursuers are entitled only to nominal damages, if they are entitled to damages at all. Now, as to the matter of fact upon which that argument was founded, I think that if I were to proceed merely upon the evidence which has been adduced in this case, and which was not adduced in the former action, as to the value and utility of the particular part of the punching-machine which is covered by the claim which the defenders are said to have infringed, there might have been considerable force in the defenders' argument. But then the argument goes too far, because the purpose of the device in question is to save waste, and the evidence, according to their view of it, is that so far from saving waste it really involves greater waste than the former process of manufacture, or, in other words, that the supposed invention is perfectly worthless, and therefore that the patent is void from inutility. But it is an admission in the case that the patent No. 4078 has been infringed by the defenders in the particular respect set forth in their minute. Now, that means that there is a good patent, which necessarily means that there is a patent for a useful and meritorious invention, which the defenders have infringed, and that is the admission upon which I am asked to proceed in considering the question of damages, and therefore I cannot assume anything contrary to that, but must, on the contrary, assume that the particular piece of mechanism which is covered by this part of the patent is a useful and meritorious part of the invention—that the value of the patent is what the patentee alleges—that it saves waste, and therefore saves cost of manufacture. I should not, however, have thought the matter of very much importance, in so far as the argument rests upon this patent alone, if the pursuers had been in a position to say that all the sales of which they complain involved an infringement of the other patent, No. 2432; because, in order to the production of the manufactured article which forms the subject of this complaint, it is necessary to use not only the machine which is covered by the patent No. 4078—the punching-machine—but also the fiuishing-machine, which is covered by No. 2432, and according to the opinion of the late Professor Fleeming Jenkin, and according to the evidence in the former case, the finishing-machine is certainly an exceedingly ingenious and useful invention. It is covered by three separate patents—the pursuers at least maintained it was covered by three separate patents—but of these there was only one that I was able in the former action to sustain as valid, but still the mechanism covered by that single patent, No. 2432, is undoubtedly very ingenious and useful, and therefore if every nail that has been sold by the defenders involved in its production an infringement of that patent I should not have thought it very material to consider, for the purposes of this question, whether it involved the infringement also of any part of patent No. 4078.

“But then the admission that the defenders by importing and selling the nails in question have infringed the patent for the finishing-machine is qualified by the counter admission that the infringement of that machine arises only with reference to the sale of a certain portion of the cases of nails imported and sold by the defenders. I think something like 1800 odds out of 5000 odds cases of nails have been produced, according to the admission, without infringing that patent. As to the question of law that was suggested as arising upon that admission all I think it necessary to say is, that it is a misapprehension to suppose that it was decided in the former case that there could be no infringement of the patent without taking the interceptor as well as the moveable gate, which is patented as in combination with the interceptor. That was not decided. It was a question that did not arise, and was not necessary to be considered, because there was no question in the former case that the defenders had imitated the interceptor, nor that they had imitated the combination, if I was right in the view I took of the evidence as to the similarity of their machine to the pursuers' machine. Therefore it is a misapprehension to suppose that there was any decision as to the possibility of infringing No. 2432 without taking both the moveable gate, which is a material part of that invention, and the interceptor, which is also a material part of it. Of course I say nothing for the purpose of deciding it now, because for the purposes of this action the parties are agreed as to what is to be taken as the condition of the infringement—the admitted fact as to the infringement is that the defenders are to be held as having infringed No. 2432 by the importation and sale of those cases of shoe nails, but of those cases alone which were produced by the use of the interceptor.

“Now, that being the state of facts upon which this argument for reducing the damages to nominal damages is founded, the question is, whether the defenders are well founded in maintaining that, by reason of the infringement being applicable only to those portions of the patented machine which I have described, the pursuers are precluded from saying that the loss which they have sustained by the infringement is the loss of the profit they would have made upon the sale of the nails if they had sold them themselves? And there certainly is a great deal of authority for saying that where only a part of a complex machine is protected by a patent the infringer cannot be made liable for the aggregate profit derived from the entire machine, as if that were the profit he had made by the use of the patent. But then the cases cited by the Solicitor-General, in which that consideration was thought to be material, were not actions of damages for infringement. They were suits in equity for ascertaining

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the profits obtained by the infringers charging them as trustees for the patentee, and in such case it would be exceedingly material to show that a part of the profit for which they were asked to account was really attributable to processes which were not covered by the patent at all. For the only question in these cases is, what advantage the infringer has derived from the use of the patent over and above what he would have got from the use of the processes open to the public, and this is very clearly explained in the American case of Mouray v. Whitney [ infra], quoted by the Solicitor-General. The question as to the patentee's loss does not enter into the consideration at all, because as the law was stated in the House of Lords in Betts v. De Vitre [ infra], the basis of the claim for profits is that the patentee condones the infringement and does not complain of it, but seeks to recover the whole profit made by the infringer as if it had been made as trustee for him. But this is an action of damages for infringement, and the question is not what profit the infringer has made, but what loss the patentee has sustained; and what the pursuer complains of is, that he having a sale for articles of common use, which was of great value to him by the use of his patented machine, the defenders have infringed his patent right by interfering with his business and depriving him of the sales which he alone would have made if the defenders had not pirated his machine. Now, if the pursuers have lost the profit they would have made upon these sales by reason of the defenders' infringement, it does not appear to me to be of very much importance whether you can trace the profit which they would have made, or how much you can trace to the use of a particular portion of their machine. What they have lost is the sale. The great value of all machines of that kind consists not merely in their producing a superior article, but in their producing that article at a cost which enables the patentees to put it upon the market so as to command large sales, and that is what they lose by an infringement which enables others to compete with them.

“Therefore it appears to me to be a fair enough ground for estimating their damages to take the whole profits which they would have made upon the sales actually made by the defenders if the defenders had not interfered so as to prevent the pursuers effecting those sales themselves. That would mean the difference between the cost of manufacture and the prices at which they were selling at the time to their own agent. No doubt there are the considerations to which I have adverted which ought to be taken into account. I cannot hold it as absolutely certain that they would have made the whole of these sales. That is a consideration, however, which I think is not capable of being estimated very exactly in money, and before determining as to the weight which is to be given to it, there is another point to be taken into view—a ground upon which the pursuers maintain that the profit upon their sales—I mean the profit upon the defenders' sales at the actual rate at which the pursuers are selling for the time—is by no means sufficient to compensate them for the loss which they have actually sustained, because they say that they have been compelled by the wrongful competition of the defenders to lower their prices to their own agent in Scotland, and therefore that to give them full compensation the profits of which they have been deprived by the defenders are not to be estimated at the rates at which they were selling at the dates when the actual infringement took place, but at the higher rate at which they were enabled to sell before the defenders began to compete with them, or before the competition of the defenders had brought down their prices so considerably, as they say it in fact succeeded in doing, and for the same reason they say it follows that they must also have the difference between the prices which they actually earned on their own sales to their agent in Scotland and the rates they would have earned if there had been no competition. Now, I think this additional claim would not be unreasonable if the grounds in fact upon which it rests could be satisfactorily established, for if they have the sole right of manufacturing and selling horseshoe nails produced by their machine they might well be entitled to damages for interference with their business over and above loss of profit on the actual sales of nails imported by the defenders. But then I think they have failed to prove damage on this account, at least to such an extent as would enable me to make any satisfactory estimate of the amount which they have lost in this way, because though it is true there has been a considerable fall in prices since the beginning of 1883, when the defenders first began to sell nails made by the machines which have been found to infringe the pursuers' patents, I do not think it is proved that the competition of the defenders was the sole cause of that fall. There is evidence that, however excellent the pursuers' nails may be, there were other nails in the market with which they had to compete; and independently of competition there are other causes for the fluctuation of prices which do not appear to me to be excluded by the evidence. Therefore I am not able to give any precise pecuniary value to this element of loss which the pursuers allege. The result is, that there are considerations tending on the one hand to increase, and on the other to diminish, the compensation to which the pursuers would be entitled if their loss of the profits which they might have earned upon the sale of the same number of cases of nails as the defenders have sold in violation of their patent were to be taken as the true measure of damage. But they are neither of them capable of any precise pecuniary estimation, and I think the fair result is that these considerations on either side, which cannot be estimated with precision, should be allowed to neutralise one another, and therefore that the measure of damage should be the difference between the cost of manufacture and the profit which they would have obtained upon the sale to their own agent in Scotland of as many cases of nails as are admitted to have been sold by the defenders in violation of the patents, taking the rates which they obtained at the time when the infringement actually took place.

“Now, the evidence as to that is, that if the whole 5752 boxes were in question, the amount of damages would be £611; but the pursuers were not in right of the patents until the end of June 1883, and I think about 700 of the 5752 boxes were imported by the defenders prior to the end of June 1883, and therefore I think the sum of £611 brought out in the pursuers' evidence must suffer

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the deduction to the extent of 700 boxes. The result of that is, that I think a fair compensation to the pursuers will be £530. I do not know that that is the exact amount, but it is within a few pounds of the profit which I think they might have obtained if the defenders had not interfered. It is right to add, though I daresay I have said it already with reference to the argument which the defenders urged upon the extent of the infringement of the pursuers' patent, that in my opinion the defenders have infringed, and have admitted upon their admissions a very substantial infringement of a really valuable patent, and therefore the suggestion that this is a case for mere nominal damages is entirely without foundation.”

The pursuers reclaimed, and argued—The infringement was admitted, and the only question was one of damages. The admitted infringement was without excuse, and therefore the damages should be estimated on the highest scale. The evidence showed that the pursuers' trade increased until 1882. It began to decrease in 1883, when the defenders put their nails upon the market, and revived the moment the interdict was pronounced. Till the defenders entered the market the pursuers enojoyed a practical monopoly, and consequently all the defenders sold would have been been sold by the pursuers. Besides, it was proved that the defenders undersold the pursuers, and thus caused them serious loss, not only by interfering with their business connection, but by forcing them to lower their prices. Accordingly in estimating the pursuers' loss the calculation must proceed on an estimate of the profits which the pursuers would have made on the sales which the defenders actually made. And the value of these Sales must be computed not at their actual value, but at the value which they would have realised had the prices not been lowered by competition. Moreover, the allegation of the defenders that they reaped no material advantage from the infringement could not be considered, as the question was not what profit the defenders had made, but what loss pursuers had sustained— De Vitre v. Betts, January 10, 1873, L.R. 6 (H. of L.) 319; Watson v. Halliday, June 7, 1882, L.R., 20 Ch. D. 780; Yale Dock Manufacturing Company v. Sargent, April 5, 1886, 117 U.S. Rep. 536; Terrell on Patents, 1884, 177; Parsons on Contracts (7th ed.). 1883, book iii. chapter 13, section 11. The Lord Ordinary had taken off 700 boxes on the ground that the pursuers were not in right of the patents until the end of June 1883, but the question was not regarding the importation, but the sale, of the nails.

Argued for the defenders—While in the previous case they had admitted that they had saved by the infringement, they had proved in the present case that they had derived no material benefit from it. The previous admissions had consequently been made in error, and they must be construed in their narrowest interpretation, i.e., the advantage admitted must be taken as merely nominal— Jones v. Morehead, December 1863; Wallace's Reports (United States' Supreme Court), 155. In any case, only subsidiary portions of the patents had been infringed, and if any damage was due it was limited to the profit derived from these partial infringements— Mowry v. Whitney, December 14, 1871, ib. 620. These and such considerations must receive effect in assessing damages— The Suffolk Company v. Hayden, December, 1865, 3 ib. 315; Seymour v. M'Cormick, 16 How. 480, quoted in Curtis on Patents (4th ed.), 1873, 459. The Lord Ordinary's note was based entirely on the assumption that the defenders' ability to compete depended on the use of the pursuers' mechanism, and that had it not been for the former competition the pursuers would have had complete control of the market. But there were, leaving both pursuers and defenders out of consideration, twenty other nails in the market. Besides, the defenders would have been strong competitors without any infringement at all, as apart from any use of the pursuers' patent they could put a cheaper nail upon the market. They did not under sell the pursuers; theirsuccesswasingreat measure due to the greater activity of their agents. All these circumstances must go to the question of the amount of damages. Accordingly the question for the Court to'decide was,'whether the process, adoption of which constituted the infringement, effected a saving, and whether the loss of the pursuers was occasioned by infringement in excess of what was implied in the admissions. It was only for this excess that the defenders were liable, and there was no such excess.

At advising—