Julius Garst vs. Hall and Lyon Company

Massachusetts Supreme Judicial Court1901-10-17

179 Mass. 588

Summary · law.co

Holding. The court dismissed Garst's bill, holding that contractual price-maintenance restrictions do not bind purchasers who obtain the product through subsequent resales and that a trademark owner cannot restrict the alienation rights of purchasers who have received absolute title to the goods.

Julius Garst manufactured a proprietary medicine called phenyo caffein and sold it only under contracts requiring retailers to maintain set prices and agreeing to repurchase unsold inventory. Garst's registered trademark protected the product's origin and source. When the defendant, a drug retailer, purchased the medicine through secondary channels—buying from someone who had purchased from Garst's original retailers rather than directly from Garst—Garst sued, claiming the defendant obtained the medicine fraudulently and with knowledge of the resale restrictions.

The court found that Garst's contractual price-maintenance terms bound only those with whom he directly contracted. Once Garst's retailers received title to the medicine through complete sales, they gained absolute ownership rights, including the unfettered ability to resell. A subsequent purchaser in the chain obtained equally absolute rights over the property. The court determined that no contractual restriction can follow property through successive sales that each transfer full ownership. Garst's trademark protects against deception about the product's origin but does not function like a patent to restrict how the product is sold or by whom.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether price-maintenance contract terms bind non-contracting parties
Whether sold goods carry contractual restrictions through successive transfers of title
Scope of trademark rights as against resellers
Rights of property ownership versus contractual remedy against breaching vendors

Procedural posture

The case was decided on the plaintiff's bill, the defendant's demurrer, the defendant's answer, and agreed facts, with the defendant's demurrer rights reserved.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

ICnowlton, J.

This case is reserved on the bill, demurrer, answer and agreed facts, the defendant’s rights under the demurrer not being waived.

The plaintiff is the owner and manufacturer of a proprietary medicine known as phenyo caffein, which is made from a secret formula. His trade-mark for said medicine is registered in the patent office of the United States and in the office of the secretary of the Commonwealth of Massachusetts. The defendant corporation is a retail dealer in drugs and medicines. The plaintiff sells all phenyo caffein subject to the conditions of a contract in which each purchaser agrees that he will not sell nor allow any one in his employ to sell it for prices less than those specified in the agreement for the different sizes of boxes, and promises to pay the plaintiff an agreed sum as damages if he violates this contract. The plaintiff also agrees, as a part of the contract, that in case the vendee at any time desires to discontinue the sale of this medicine and notifies the plaintiff in writing of that fact, he will buy of the vendee any of the medicine which he has on hand at the net cost price at which it was sold to him. Besides these facts the plaintiff’s bill avers that the. defendant, with full knowledge of the conditions under which the medicine is sold by the plaintiff, has fraudulently obtained large quantities thereof with the intention of retailing it in violation of these conditions and against the right of the plaintiff. The defendant demurs for want of equity and for other causes.

It is not averred that the defendant ever made any contract or agreement with the plaintiff, or had any dealings with him. No fraudulent act or conduct of the defendant in obtaining the medicine is set out, although the word “ fraudulently ” is used in characterizing his acts. This word adds nothing to the averments of fact in the bill. The statement of the alleged fraud is too general to be the foundation of a decree. Nichols v. Rogers, 139 Mass. 146. Nye v. Storer, 168 Mass. 53. The averments of the bill in this particular would be entirely satisfied by showing a purchase of the medicine by the defendant from a person who bought it of the plaintiff’s vendee, or from one who bought it of a purchaser from the vendee. The agreed statement of facts shows that the defendant obtained it in this way. The defendant did not buy the medicine of the firm of wholesalers who received it from the plaintiff and who agreed to sell it sub-; ject to the above conditions, but bought it of a person who bought either from this firm or from a purchaser from this firm.

The transactions between the plaintiff and his vendee set out in the bill plainly are sales which pass the title to the property..

It is equally, or perhaps more plain that the contract contemplated sales by retailers which shall pass an absolute title to the property. The purchaser from a purchaser has an absolute right to dispose of the property. He may consume it or sell it to another. The plaintiff has contracts from his vendees in regard to the prices at which they will sell if they sell at all. If they sell in violation of their contracts with the plaintiff he has a remedy against them to recover his damages. Garst v. Harris, 177 Mass. 72. This right is founded on the personal contract alone, and it can be enforced only against the contracting party. To say that this contract is attached to the property and follows it through successive sales which severally pass title is a very different proposition. We know of no authority nor of any sound principle -which will justify us in so holding.

The plaintiff’s trade-mark does not give him the rights of a patentee in property manufactured under a patent. His trademark is to secure him and the public from deception and fraud as to the origin and source of these goods and of similar goods sold in the market.

The law of copyright also gives privileges to authors and publishers that do not pertain to property which anybody may make and sell if he can ; but even under the law of copyright, when the owner of a copyright and of a particular copy of a book to which it pertains, has parted with all his title to the book, and has conferred an absolute title to it upon a purchaser, he cannot restrict the right of alienation, which is one of the incidents of ownership in personal property. Harrison v. Maynard, 61 Fed. Rep. 689. See also Clemens v. Estes, 22 Fed. Rep. 899 ; Meyer v. Estes, 164 Mass. 457; Waterman Co. v. Waterman, 27 App. Div. (N. Y.) 183.

In the present case there was not only no contract between the plaintiff and the defendant, as in Fowle v. Park, 131 U. S. 88, but there is no averment or proof that the defendant fraudulently induced and procured the breach of a contract between the plaintiff and any of his vendees, to the detriment of the plaintiff, as did the defendant in Exchange Telegraph Co. v. Central News, [1897] 2 Ch. 48, and in Standard American Publishing Co. v. Methodist Book Concern, 33 App. Div. (N. Y.) 409.

Bill dismissed.