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Fenning v. American Type Founders Inc.

Decided: November 19, 1954.


Eastwood, Goldmann and Schettino. The opinion of the court was delivered by Schettino, J.s.c. (temporarily assigned).


Appeal is taken from a judgment of involuntary dismissal at the conclusion of plaintiffs' case.

Plaintiffs brought this action, charging breach of an exclusive license agreement involving a patented device called "Speed-Jack" and demanding the following relief: (a) a determination that defendant abandoned the sale of

the device, (b) possession of dies, molds and tools used in the manufacturing of the device, and (c) damages. Defendant's answer denied (1) that defendant abandoned the sale of the devices, (2) that defendant was obliged to exercise reasonable efforts and due diligence in the exploitation of the sale of the devices, (3) that defendant failed to discharge any such obligation, and (4) that defendant negligently failed to render the license agreement productive. Defendant after pretrial moved for summary judgment and the application was denied. The trial was held by a court without a jury.

It is "well settled that upon motions for dismissal * * * the court cannot weigh the evidence, but must take as true all evidence which supports the view of the party against whom the motions are made, and must give him the benefit of all legitimate inferences which are to be drawn therefrom in his favor." Visaggi v. Frank's Bar and Grill, Inc. , 4 N.J. 93, 98 (1950); Peter W. Kero, Inc., v. Terminal Construction Corp. , 6 N.J. 361, 370 (1951).

The facts are substantially as follows: On July 1, 1949 plaintiffs entered into a written agreement with defendant under the terms of which plaintiffs granted to defendant an exclusive license under two certain United States letters patent which permitted defendant to manufacture devices covered by the letters patent and to sell them to others, and further granted to defendant the exclusive use of the name "Speed-Jack." During the full life of the patents, unless otherwise terminated by provisions of the agreement, defendant agreed to pay plaintiffs royalties upon the direct or indirect sale of the devices covered by the patents. Under the agreement plaintiffs sold to defendant certain dies, molds, tools, customers' lists, literature, records, good will and other assets. Plaintiffs agreed not to compete directly or indirectly or cause others to compete in the manufacture, sale or use of devices. Defendant paid $10,001 cash and agreed to pay $1.50 royalty for each device manufactured and sold.

The license agreement contains under paragraph 9, entitled Termination , a sub-paragraph as follows:

"(e) If during the terms of said license the sale of devices covered by said license shall be abandoned by American, unless such abandonment shall be caused by governmental restrictions, strikes, acts of God or other causes beyond the control of American, or if this agreement shall be terminated by Speed-Jack pursuant to sub-paragraph (a) or by American pursuant to sub-paragraph (b) of this paragraph, the dies, molds and tools purchased by American from Speed-Jack, or such of them as shall not have been scrapped, and all replacements thereof and other dies, molds, and special tools acquired by American exclusively for manufacture under this license shall be delivered by American to Speed-Jack f.o.b. Elizabeth. New Jersey in their then condition, and the fair value thereof shall be considered as an additional royalty paid by American in such case; and thereupon American shall no longer be entitled to use the name 'Speed-Jack' and any good will acquired by American from Speed-Jack shall revert to Speed-Jack."

The agreement contains no express provision for payment of minimum royalties and refers to no minimum standard of performance. It further specifies that it contains the whole understanding of the parties, supersedes all previous oral or written representations and that no amendment would be effective unless in writing.

Plaintiffs' testimony and the legitimate inferences therefrom are as follows. There was a ready market for the Speed-Jack at the time the contract was signed and it was a device that had been on the market for five years, with the name "Speed-Jack" established in the trade. They had a previous agreement with another company to sell the product, which was terminated, apparently because of dissatisfaction with quality. Nevertheless that company's sales were at a reasonable level. The product had been off the market for a while and plaintiffs were anxious to get it back in sale and enjoy royalty returns, since the 17-year patent life of the device was running out. The defendant knew this. Before the agreement was executed defendant had made tests of the device and knew that production and sale were feasible. It had represented to plaintiffs that, with the proposed program it was undertaking and its large sales organization, the yield to plaintiffs would conservatively be $15,000 to $20,000 per annum.

After the agreement was executed defendant began to manufacture a device called "Adjust-O-Matic" at a much higher price. Meanwhile, plaintiffs were turning over to defendant "hundreds" of names of potential customers, gleaned from a backlog of orders prior to July 1949, as well as letters of inquiry which went unanswered for periods, in some cases exceeding one year. Even when answered, defendant mentioned the licensed device only in a derogatory manner while praising its own device, "Adjust-O-Matic." Protests made by plaintiffs were met by assurances by defendant that "Speed-Jack" would be manufactured and marketed as promised in the contract. But since July 1949, when the exclusive license was granted, defendant never used the name "Speed-Jack" or manufactured it. In August of 1950 defendant stated it would not make the lower price "Speed-Jack" but would make only "Adjust-O-Matic," the higher priced item. Plaintiffs were receiving royalties on the sale of the "Adjust-O-Matic" and wrote expressing belief that both units could be marketed, but were informed that "Adjust-O-Matic" would take care of the market that formerly used the "Speed-Jack."

After extensive legal argument on the motion the trial court granted the motion "for the reason stated" by defendant's counsel. R.R. 4:42-2(b) provides in part that, if at end of plaintiff's case, defendant moves for a dismissal of the action and "If the court renders judgment on the merits against the plaintiff, the court ...

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