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Legally Speaking - with Bob Mionske: The Monopoly Machine, Part 2
Published: Feb. 17, 2005
Dear Readers,
In our lastcolumn, Attorney Bruce Epperson described how Colonel Albert Pope,the “Rockefeller of Bicycles” manuvered in 1878 to acquire all the significantpatents covering the basic features of the bicycle, including Pierre Lallement’s1866 “Improvement in Velocipedes,” the first bicycle patent in the UnitedStates. This Week, in Part 2 of “The Monopoly Machine” we look at how theColonel tried to use those patents to create a monopoly over the entirebicycle industry.
-Bob
The Monopoly Machine, Part 2
Once he held the patents, Pope moved quickly. In June, Charles Pratt,Pope’s patent lawyer, notified all the known makers and importers of bicyclesthat they were expected to either pay a royalty to the Pope company orget out of the bicycle business. In July 1879 the Western Toy Company ofChicago was granted a license to make children’s bicycles and in Octoberthe St. Nicholas Toy Company followed suit. The following March, ThomasB. Jeffery of Chicago also took out a license.In purely monetary terms, these first licenses were not particularlyonerous. The non-monetary covenants, on the other hand, were irritatingand invasive. For example, by the 10th of each month, St. Nicholas hadto provide Pope with a written report containing the number of bicyclessold and the names and addresses of each purchaser. If St. Nicholas triedto dispute the validity of any Pope Mfg. Co. patent or its title to them,regardless of whether it was included in the license agreement, the entirelicense would be terminated. The Jeffery and Western licenses were similar.Pope justified these covenants as a means of rationalizing the nascentindustry. He boasted that he extended the same terms to his oldest rival,Cunningham & Co., as he did to anyone else, and that his interventionin the chaotic patent situation actually saved the firm at a time its ownerswere seriously considering abandoning the business. However, for Cunningham,Pope's "salvation" came with a particularly high price. By 1883 Pope'smen were running the company, and George Pope, Albert's cousin, had beeninstalled as the firm's corporate secretary. Another cousin, Walter F.Pope, was running a cyclometer manufacturing business out of the Cunninghambuilding. Pope had "saved" the firm by turning it into the Pope company'simporting arm. In 1886 the Colonel quietly buried his oldest competitorand moved on to newer rivals.Others fought back. In September 1880, McKee & Harrington, the NewYork carriage making firm run by Joseph McKee and Charles F. Harrington,bought out the factory of R. H. Hodgson, an Englishman who had been makingsmall numbers of his "Velocity" and "Newton Challenge" bicycles in Newton,Massachusetts. With a splash of publicity, they introduced their "Union"bicycle. The partners didn't even bother applying for a license, maintainingthat the Pope patents were invalid because one Monsieur Varrecke, a Belgianacrobat, had toured New York and Philadelphia in 1863 featuring a velocipedein his act, thereby invalidating all the later American patents througha public display of prior art.Pope promptly sued, claiming infringement of the Lallement and Reynoldspatents. A couple of months later, Pope was granted an injunction prohibitingthe manufacture or sale of the Union. McKee & Harrington slightly modifiedits design, twice appealed the injunction and kept on making bicycles.In June 1882 a New York judge threw out the second appeal and declaredMcKee & Harrington in contempt for ignoring the injunction. However,before the case could go to trial, the two parties settled out of court.Pope sought $2,000 in back royalties but settled for $300. McKee &Harrington received a license for the 100 or so bicycles then under construction,then agreed to withdraw from the business.Soon afterwards, they issued a statement explaining that they stillbelieved the Pope patents were worthless, but they wanted to get back totheir baby carriage business, and the toil and expense of fighting Pope,who seemed willing to spend unlimited amounts of money defending his patents,simply wasn't worth it. Thomas Jeffery placed an advertisement in BicyclingWorld offering to sell the transcript of the testimony offered duringthe suit and indicated that he was willing to supply information pertainingto the validity of the Lallement patent.After reviewing the patents on which his 1880 license was based, Jefferyconcluded that "they were worthless and if contested would not be worththe paper they were written on." By the time that the McKee & Harringtoncase was settled, he had also stopped making payments. Pope sued, and Jefferyagreed to pay $142.17 for permission to finish up the bicycles then beingbuilt. He sold his business for $2,000 to an old friend, R. Philip Gormully,an outgoing, natural-born salesman who had earned a small fortune in architecturalsheet metal work. Gormully kept his friend on as foreman and carried onbusiness as before under his name.Gormully first wrote Charles Pratt in late 1882 to ask about a license."They, in reply, seemed anxious for me to take out a license," he recalledlater, "they offered to pay one-half my expenses if I would visit them,and finally offered, and did pay, the whole of my expenses to visit themin Boston." At the meeting, Gormully paid $500 for an interim license andtold Pratt that he would think over a long-term contract. "They claimedthat they were in a very awkward position in allowing me to make bicycleswithout a license," Gormully remembered, "they were willing to make mostany terms."Pope was apparently having trouble protecting his own back yard. AlbertH. Overman's career contained many interesting parallels to that of AlbertPope. He moved to Hartford in 1881 and formed the Overman Wheel Company,contracting with the Ames Manufacturing Company, a maker of sewing machinesin Chicopee Falls, Massachusetts to make his machines. To avoid Pope'spatent monopoly, Overman built an adult tricycle. The rivalry between thetwo men quickly grew personal as well as professional. Overman, like Pope,insisted on being called "Colonel," but came by the title through a regulararmy commission, and frequently cast aspirations on Pope's brevet appointment.Pope, in turn, privately told friends that before entering the bicyclebusiness Overman was a bookmaker. In fact, he had been a bookbinder andpapermaker; Pope's slander was a clever but insulting double entendre."For five years thereafter these two colonels were engaged in a rivalrythat was often bitter", recalled one cycling journal, “both men cordiallyhated each other."The Sudden Death of the Lallement Patent
Pope's biggest headaches, however, were still in the courtroom. In1877, a Connecticut court issued a decision in an otherwise obscure patentcase, Miller v. Bridgeport Brass Co., concerning an improved wick-holderfor whale-oil lamps. Its inventor wanted to patent a lamp that would burnwithout a glass chimney, but it didn't work, and was soon forgotten. However,thirteen years later, the Miller Company discovered that it made a perfectexplosion-proof gasoline lamp. They had the patent reissued with a new,second claim incorporating the explosion-proof feature. A competitor sued,claiming that reissues could only be sought to correct errors, not to addnewer, broader claims. The court agreed, and to the Colonel's eternal regret,the Miller Company appealed to the U.S. Supreme Court.In October 1881, the Court rendered its decision. "Nothing but a clearmistake" was sufficient grounds to seek a reissue. Moreover, by expandingthe claims of a patent without demonstrating clear error, its owner admittedthat the original patent contained the features within the expanded claim,but also admitted that those features had been dedicated to the publicat the time he filed the original patent. In essence, the court held thatreissuing the Lallement, Mackenzie and Reynolds patent made them worthless.On 5 March 1883, a week after Philip Gormully returned from Boston,an Ohio court, in Pope v. Marqua, voided a Pope patent license, rulingthat because Miller invalidated the Pope-held patents, Charles Pratt'sthreats to sue non-licensed importers and makers amounted to a fraudulentinducement to enter a contract. "I notice you have lately lost a suit inOhio"," wrote Gormully to Pratt a week later, his letter dripping withsarcasm, "does it amount to anything?" Soon thereafter, the St. NicholasToy Company stopped sending monthly reports to Boston and suspended royaltypayments.Albert Pope, scrambling to cover his now-exposed flank, changed histone, if not his overall strategy. He wrote the next letter to Philip Gormullyhimself. Revealing the poorly kept secret that the St. Nicholas and Westernlicenses restricted them to bicycles "of certain cheap construction," theColonel explained that
They each have their field, and we have ours, and thereis an intermediate field . . . It is that intermediate field we want youto take, and you can do better and make more money in that field than youwill by competing with the others directly . . . with four strong concernsas that would make established . . . and a hold on a trade already workedup for two or three years, we could control the business substantiallyover the whole field of American manufacture, even after the patents haveexpired.
Gormully rose to the bait. A month later he wrote Pratt that "I am willingto give the appearance of your controlling me and not giving others thebenefit of my information . . . [and] to make this arrangement for ourmutual benefit and to continue the business as a monopoly." However, theChicago businessman still wanted a better deal. "I am still willing tokeep a combination to keep others out," said Gormully, "but [I] am unwillingto give you all the profit . . . but if you will make a reduction in royaltiesI should be willing to make this arrangement."Three weeks later Pratt wrote with additional inducement. Since 1880,Weed had been building a less-expensive boy's model for Pope, the Mustang,in sizes up to 46 inches. Pratt now offered to throw this market into thedeal:
We think we should be amongst your best customers. If youturn out the machines you think you are going to and can supply them tous at the discounts you intimate we should probably stop making Mustangsaltogether and sell your goods. The Cunningham Co. is one of our chieflicensees, and we think it probable that they would handle the line ofgoods you will make.
Pope apparently made good on the offer, as a decade later a visitor toPhilip Gormully's office spotted a portrait of Colonel Pope framed withan original copy the contract to sell Gormully & Jeffery's "AmericanIdeal" bicycle in Cunningham's Boston store. At the top of the frame someonehad written "our first agent."Meanwhile, Pratt was trying to mitigate the disaster of Miller andPope v. Marqua by buying up any patent that could be even remotelyapplicable to bicycles, all of which Thomas Jeffery thought "were simplya junk shop". In one case, Pratt used an illiterate sign-painter workingat the Weed factory as a straw-man to hide his identity. The lucky painterearned a quick profit of $200 on a patent worth $500. By the time Gormullyagreed to a licensing contract in June, 1883, Pratt could throw 39 patentsinto the deal. Gormully paid an up-front fee of one thousand dollars anda ten dollar per bicycle royalty. "The money [was] paid for the privilegeof not being molested in our business" later explained Thomas Jeffery bitterly.Next week: “It’s Pope Against Gormully! The Greatest Lawsuitin the History of the Velo!”
Bob Mionske is a former competitive cyclist who representedthe U.S. at the 1988 Olympic games (where he finished fourth in the roadrace), the 1992 Olympics, as well as winning the 1990 national championshiproad race.After retiring from racing in 1993, he coached the Saturn Professional Cycling team for one year before heading off to law school. Mionske's practice is now split between personal-injury work, representing professional athletes as an agent and other legal issues facing endurance athletes (traffic violations, contract, criminal charges, intellectual property, etc).If you have a cycling-related legal question, please send it to mionskelaw@hotmail.comBob will answer as many of these questions privately as he can. He willalso select a few questions each week to answer in this column. Generalbicycle-accident advice can be found at www.bicyclelaw.com.Important notice:
The information provided in the "Legally speaking"column is not legal advice. The information provided on this publicweb site is provided solely for the general interest of the visitors tothis web site. The information contained in the column applies to generalprinciples of American jurisprudence and may not reflect current legaldevelopments or statutory changes in the various jurisdictions and thereforeshould not be relied upon or interpreted as legal advice. Understand thatreading the information contained in this column does not mean youhave established an attorney-client relationship with attorney Bob Mionske.Readers of this column should not act upon any information contained inthe web site without first seeking the advice of legal counsel.
