Straus v. Victor Talking MacHine Co.

Background

A New Jersey corporation that made sound-reproducing machines attached a lengthy “license notice” to each machine and placed matching contracts with its dealers. The notice said buyers could only use the machine under many conditions, that title would remain with the maker until patents expired, and that resales required payment of a set “royalty.” The defendants were New York merchants who bought machines from dealers at lower prices and resold them. The maker sued to stop those resales and asked for damages and an accounting.

Reasoning

The central question was whether the notice truly protected the patent owner’s rights or instead unlawfully fixed prices after sale. The Court looked past the words to the real facts. It noted buyers paid the full price before taking possession, the notice did not record any qualified title publicly, users were not required to report or register machines, and title ultimately vested in buyers when patents expired. The Court found evidence of covert low-price sales by dealers. Treating the notice as a disguised attempt to control resale prices, the Court applied prior decisions and held the scheme invalid. The Court therefore found no equitable basis for the maker’s injunction.

Real world impact

The ruling means manufacturers cannot use such hidden “licenses” to keep controlling prices after a full sale. Buyers and dealers who lawfully acquire machines may resell them without complying with the notice’s resale price limits. The District Court’s dismissal of the maker’s bill was affirmed and the intermediate court’s contrary ruling was reversed.

Dissents or concurrances

Three Justices dissented, disagreeing with the majority’s view that the notice was merely a price-fixing device.