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Legally Speaking - with Bob Mionske: The Monopoly Machine, Part 3
Dear Readers,
Over the last two columns, (see "Part1" and "Part2" )attorney Bruce Epperson has been describing how Colonel AlbertPope, the “Rockefeller of Bicycles,” used the 1866 Lallement patent, thebasic patent covering all bicycles made in the United States, to monopolizethe then-infant bicycle industry, and how this monopoly was threatenedby an obsure patent lawsuit dealing with, of all things, whale-oil lamps!This week, in the last of three parts, we look at how Pope’s lawyers triedto save the Lallement patent by creating a monopoly that would not onlylast until the patent expired in 1886, but forever. The result was, asone contemporary trade magazine headline put it: “Its Pope Against Gormully!The Greatest Lawsuit in the History of the Velo!” Together, both men spentabout a half-million dollars on the suit, the equivalent of some fifteenmillion dollars in today’s money, which may mean the headline is stilltrue!
-Bob
The Monopoly Machine, Part 3
Although Pope and his lawyer, Charles Pratt, had finally talked Gormully& Jeffery into joining their combination, Albert Overman soon droppedout when the Pope firm would not let him use their latest ball-bearingpatents in his tricycle. Pope sued Overman in fall 1884 for $50,000 forinfringing on the patents. When Philip Gormully wrote Pratt in Octoberthat "I see by the late publications that the Overman Co. are going tobring out a line of bicycles next March," Pratt’s curled in disgust: "OvermanCompany making bicycles for sale in March next?--are you so childlike asto believe everything that is published? The Overman Wheel Company hasnot yet made a bicycle . . .this is absurd."On the first of March, 1885, the cycling press oohhed and aahhed overthe new "Victor" bicycle. Finished in Overman's unmatchable British bakedenamel, it offered several innovations even Pope's premier "Special Columbia"lacked, while priced $7.50 less. Pope sued, and Overman countersued, retainingformer Massachusetts governor B. F. Butler as his lawyer.The following November, Albert Pope paid a visit to R. Philip Gormullyin Chicago and as the two men took a leisurely fall drive in an open broughamthrough the city's parks, they tried to thrash out their differences. Gormullyhad agreed to an extension of the original contract in December, 1884 thatlasted until April, 1886. It kept the existing royalty structure mostlyintact, but allowed Gormully and Jeffery to make their American Ideal witha front wheel up to 52 inches. As they rode through Chicago's parksGormully told Pope that "I saw no reason for continuing any longer withthem, as I did not know of any patents that they owned that would be ofuse to me." Pope, however, was clearly not thinking just in terms of patents.When Gormully mentioned that he was preparing to convert Gormully &Jeffery from a partnership to a corporation, Pope excitedly offered tobuy into the new enterprise. Gormully hurriedly found his own Chicago backers.Over the winter, the Pope-Overman war grew increasingly bitter. In abreach of the unofficial rules of engagement in the patent wars to date,Pope named Ames as a party to the suit and included their machinery andreal estate in the attachment. The monopolist, Overman complained, wasnow trying to intimidate honest workmen. Privately, J. T. Ames admittedto one of his shareholders that the cost of the suit was dragging downproduction of the new bicycle.Springfield, Massachusetts was the scene of the East's largest summercycling fair, assembled around its annual race meet. Neither Pope nor Overmanspent much time at the 1886 meet watching the racing, however. Conferringfirst through intermediaries and then face-to-face the two men announcedthat that they had agreed to terms resolving their conflict.
Soon after the Treaty of Springfield, Gormully & Jeffery introducedtheir “American Champion” to compete head-to-head with the Columbia inprice and quality. To Gormully's surprise "I received a number of threateningletters both from the Pope Manufacturing Company and the Overman WheelCompany, from which I inferred that they wished to bulldoze me me intotaking licenses from both of them." Unknown to Gormully, the treaty requiredPope to now actively enforce the same Overman-held patents he had justbeen attacking. A deeper mystery to both partners was why Pratt was demandingGormully adhere to an expired contract covering a score of now-defunctpatents.Gormully & Jeffery had deliberately waited until after the expirationdate of the Pope contract to introduce the American Champion, and its featureswere covered in a series of independent patents Jeffery had either acquiredor developed himself since 1882. This had been a sticking point back inthe 1884 negotiations updating the original agreement. The 1884 licenseallowed Gormully & Jeffery to use 15 Pope patents, but prohibited themfrom using another 65 Pope patents or to use any similar feature. For example,Gormully & Jeffery were prohibited from using hollow metallic rims,even though they had their own patent for a hollow rim.Pratt had originally proposed a ten-year license agreement. Gormullywrote back arguing that he wasn't about to sign a ten-year license forpatents that expired in two years. "I can see no possibility of you renderingme any protection after the spring of 1886," he complained, "In my lastletter I asked you to simply extend the present contract I have with youto allow me to make larger sizes . . . Why not do that?" Pratt respondedsoothingly that “You should not be so much afraid of our wishing or tryingto cripple you," and agreed to a shorter contract, but never really explainedwhy all the "unnecessary verbage" was necessary.Gormully made one last attempt to sort out the problem. In October 1886Colonel Pope asked him to attend a conference in Boston "to form an alliancefor the general good of the business." When he arrived, Gormully was surprisedto find Overman in attendance. With the signing of the Treaty of Springfield,the two Colonels had apparently buried the hatchet, at least for the timebeing. Attempting to smooth over his lieutenants' strong-arm demands forrenewed royalty payments, Pope asked Gormully to "chip in" to a fund "tosupport the business." "They wished to extort money from me" Gormully recalled.Having already paid Pope about $27,000 in fees and royalties, Gormullyhad enough. He told the attendees he would get back to them after he returnedfrom a planned trip to Europe. While he was away Pope's lawyers filed suitin Illinois federal court.The parties and their lawyers filed into a Chicago courtroom on a coldwinter day in early 1888. Pratt was not an Illinois attorney, so he satand watched from across the courtroom as Edmund Wetmore explained his contracturalhandiwork. What Mr. Pratt had prepared, explained Wetmore, was not merelya license, but a contract. While the license terminated by mutual agreementin April 1886, the end of the license term did not terminate the contract,and did not discharge Gormully & Jeffery from the obligations containedin the rest of the agreement. Thus, explained Wetmore, in exchange fora fourteen-month license, Gormully & Jeffery had agreed to abide bythe terms of the remaining contract in perpetuity.Furthermore, the contract did not merely say that Gormully & Jefferywas prohibited from using Pope's patents, it said that it could not usethe features contained in those patents. For example, even though ThomasJeffery had developed his own independent process for building a hollowfront fork and patented it, Gormully & Jeffery would still be breachingthe contract by using his patent because they had agreed to forego theuse of the entire feature, not just a single specific patent. In addition,if Gormully & Jeffery fought this prohibition, they would be breachingthe covenant against contesting Pope's patents, because that clause alsoreferenced broad features, not just specific patents.Wetmore dismissed Pratt's reassuring letters:
[Mr. Gormully], in his correspondence and in his negotiations,evidently treated the words 'license' and 'contract' as meaning the samething . . . [he] is not a lawyer, and in the negotiations of the termsof this contract of December 1, 1884, did not consult a lawyer.
What Gormully thought Pratt had meant, or even what Pratt had led him tobelieve was immaterial; Gormully was out of his league, Pratt had outmaneuveredhim, Gormully was stuck; how he got out of it was his problem. Gormully'sattorney responded that his client's interpretation of the document wasa "natural conclusion that any unsuspecting man, not a lawyer, would havedrawn."The court agreed:
The contract, read in conjunction with [Pratt's correspondence]shows, as it seems to us, was an artfully constructed snare to bind thedefendant in a manner which he did not contemplate at the time he becamea party to it. The law should not encourage parties holding such patentsto invent or devise schemes by which to obtain admissions.
Even with this stinging rebuke, Pope pressed for an appeal. The U.S.Supreme Court split the suit into four separate cases, the first appealingthe decision invalidating the licensing contract and the other three debatingthe validity of the patents themselves. On 4 April Justice Brown deliveredthe Court's opinion. "It is rarely that this court is called upon to considerso unique a contract," began Brown, "and we have found some difficultyin assigning it to a proper place among legal obligations."Pope and his lawyers must have taken a deep breath at this point. JusticeBrown continued:
. . . from time immemorial it has been the recognized dutyof courts to exercise a discretion to refuse to aid in the enforcementof unconscionable, oppressive or iniquitous contracts. . . we are clearlyof the opinion that it is of such a character that [the Pope Company] hasno right to call upon a court of equity to give it the relief it has sought.
Although the justices found Pratt's cleverly worded agreement "unusualand oppressive," Brown almost apologetically explained that "we are notsatisfied that [Gormully's] assent to this contact was obtained by anyfraud or misrepresentation." In this narrow sense, the Supreme Court overruledthe lower court. However, while the Supreme Court may have lacked the powerto invalidate the contract, it could refuse to enforce it. Nothing preventedthe nine justices from simply looking the other direction as Gormully &Jeffery walked away from the contract without as much as a slap on thewrist. Yes, it was a legal technicality, but a devastatingly effectiveone.Having dealt with the core legal question, Justice Brown quickly ranthrough the individual patent disputes: Veeder's Patent of 1882, not infringedby reason of limitation of previous patents; Moran's Patent of 1881, notinfringed as it does not involve a valid invention; Latta's Patent of 1885,not infringed as the patent is held void for want of novelty; and so ondown the list.Pope was utterly routed. None of the disputed patents were infringedbecause they were all defective. Furthermore, Pope was barred from usinghis patent catalog to control the business and technical activities ofhis licensees. The Lallement patent was now, once and for all, truly dead.Years later, R. Philip Gormully estimated that both sides together spentabout a half-million dollars on the case.The Gormully & Jeffery case was Charles Pratt's last project forthe Colonel. Never a robust man, he had been forced to curtail his ridingin 1885 because of ill health. He now began a quiet withdrawal from thecompany, gradually turning the patent department over to William Redding,who had argued the case before the Supreme Court. He died in Roxbury in1898 at age 53. One journalist recalled that “Pratt sat quietly at thehead of the patent department, and made and unmade the destinies of ambitiousimporters and manufacturers . . ."The great patent wars were over. It was time to build bicycles.
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.
