Opinion
No. 50/687.
07-18-1922
LOWY v. McMINIMEN et al.
Frank E. Bradner, of Newark, for complainant. Henry J. Gaede and Dougal Herr, both of Hoboken, for defendants.
Suit by Otto Lowy against William V. McMinimen and others. Decree for complainant.
Frank E. Bradner, of Newark, for complainant.
Henry J. Gaede and Dougal Herr, both of Hoboken, for defendants.
BACKES, V. C. This bill is in effect a suit for the specific performance of a contract. Dr. Lowy, the complainant, invented a process for permanently liquifying powdered arsenical compounds used in the treatment of syphilis, for which be obtained letters patent. He sold his invention to one McMinimen, who, in turn assigned it to the Lowy Laboratory, Inc., a corporation which he formed for the purpose of making and marketing the compounds. Dr. Lowy received a cash consideration and some of the capital stock, and was to receive an annual royalty of the gross sales in the United States on the following sliding scale: For all sales of 1 to 100.000 ampules, six-tenths grain arsphenimine, 10 per cent.; 100,001 to 200,000 ampules, six-tenths grain arsphenimine, 8 per cent.; 200.001 to 300,000 ampules, six-tenths grain arspbenimine, 6 per cent; 300,001 to 400,000 ampules, six-tenths grain arsphenimine, 4 per cent; 400,001 to 500,000 ampules, six-tenths grain arspbenimine, 2 per cent. The royalty on sales outside of the United Stateswas also on a scaling rate, but it plays no part in this suit. The company assumed the contract, paid the doctor royalties from time to time up until January, 1921, but the output never reached the maximum of the first division of 100,000 ampules annually. The business was not profitable, and in July, 1921, the company was about to go on the financial rocks. Failure was imminent, and bankruptcy was staring it in the face, when Dr. Lowy, cooperating with his associates, interested E. R. Squibb & Sons, a wholesale drug supply house, and negotiations resulted in a contract granting to Squibb & Sons the sole and exclusive license to make, use, and sell the products of Dr. Lowy's invention, for which Squibb & Sons agreed to pay the company "for the plain arsphenimine solution a royalty of 45 cents for each gram of arsphenimine contained in the solution sold by Squibb calculated according to analysis." There was also a provision for an adjustment of the royalties in the event that competitors of Squibb & Sons should undersell them, the formula of which is set out in the contract. Dr. Lowy was personally a party to the agreement. It was the understanding beforehand that his right to royalties under his contract was to remain unimpaired, but a new rate had to be fixed, and it was agreed that if he consented to the Squibb & Sons contract his royalty would be adjusted upon "an equitable basis." The bill so charges, and it is admitted by the answer. The parties have not been able to agree. The principal defense is an attack upon the jurisdiction of the court, the contentions being that the bill is one for an accounting and cognizable at law, citing Daab v. N. Y. C. & H. R. R. Co., 70 N. J. Eq. 489, 62 Atl. 449; Olds v. Regan (N. J. Ch.) 32 Atl. 827, and that the court is powerless to fix the rate of the royalty, and that the remedy is at law for a breach of the contract. The suit is manifestly for more than an accounting—the accounting is incidental to the main relief for enforcement. At the hearing the defendant's officers professed anxiety to settle on a royalty basis, and to test their sincerity I suggested that they withdraw their jurisdictional objections and allow the court, unhampered, to adjust their differences, which they promptly rejected, in the hope, no doubt, of driving the complainant into the law courts for damages, and ridding themselves of the contract. Tbe remedy at law is entirely inadequate. Damages could not be even approximately measured. The fruits of Dr. Lowy's invention depend, upon; the successful marketing of the product. What that will be is problematical. Feigenspan y. Nizolek, 71 N. J. Eq. 382, 65 Atl. 703; People's Brewing Co. v. Levin, 81 Atl. 1114, it is Dr. Lowy's privilege to have his contract specifically enforced, and as the parties themselves have established a standard by which the royalty may be determined with certainty—"equitable basis"—it is within the power of equity to grant him relief.
Reported in full in the Atlantic Reporter; reported as a memorandum decision without opinion in 78 N. J. Eq. 583.
"It is not necessary that the price be specified in figures or words at length. It is sufficient if a standard is established by which the price may be determined with certainty; as, for instance, the 'fair value' or 'market value' (Van Doren v. Robinson, 16 N. J. Eq. 256), or at a price offered by another upon a certain event, and accepted (Race v. Groves, 43 N. J. Eq. 284, Hayes v. O'Brien, 149 Ill. 403), or the appraisal of arbitrators (Woodruff v. Woodruff )." McClung Drug Co. v. City Realty & Invest. Co., 91 N. J. Eq. 216, 108 Atl. 767; affirmed, 92 N. J. Eq. 237, 111 Atl. 926.
I can perceive no distinction in standards between "fair value" or "market value" and "an equitable basis," as used and understood by the parties. It is said that the royalty contracts of Dr. Lowy and Squibb & Sons are so inharmonious as not to admit of an adjustment on an equitable basis. That is more apparent than real. The Adjustment is simply one of proportional abatement, and simple of computation, thus: By taking as the basis for the calculation Lowy Laboratory's net profit per gram of arsphenimine earned under its own manufacture and that derived from the Squibb & Sons contract and apportioning the latter to the Lowy Company and Dr. Lowy on the basis of the division of profit prevailing during the existence of tbeir contract. I am making the calculation upon the first division of output of 100,000 ampules. The uncontradicted testimony is that the Lowy Laboratory's gross selling price per ampule of six-tenths grain of arsphenimine was $2.26. Of this Dr. Lowy was entitled, under his contract, to 22.6 cents. The cost of production and marketing was $1.90, leaving a net profit of 36 cents, divided thus, 22.6 to Dr. Lowy and 13.4 to Lowy Laboratory, Inc.—approximately two-thirds and one-third. The royalty from Squibb & Sons to the Lowy Laboratory is 45 cents per gram, or 27 cents for six-tenths of a gram. The rate per gram of profit to the Lowy Laboratory under its own output was 60 cents. Its income from Squibb & Sons at 45 cents per gram means simply a drop of 25 per cent., which should be proportionally borne. Thus, calculated on the basis of a gram at 45 cents, Dr. Lowy's yield will be 28.25 and the Lowy Laboratory's 16.75. But Dr. Lowy is willing to make concessions and offers to accept, as counsel says in his brief, as an equitable division, 60 per cent. for the Lowy laboratory and 40 per cent. to him of the proceeds of the royalties coming from Squibb & Sons. It will be so decreed and an accounting ordered.
For present purposes the foregoing will suffice. If in the future sales reach beyond 100.000 ampules, or 100,000 units of six-tenths gram of arsphenimine, then the slidingscale above set out will be a factor to be taken into the reckoning, but not until the division of the royalty from Squibb & Sons, calculated on the equity basis, touch the CO to 40 ratio accepted by the complainant.
The bill can also be sustained on this theory. If the arrangement to adjust the royalty on an equitable basis be not an enforceable contract, then the original contract between the two may be enforced. That contract retains its legal vitality, save as to the percentage of royalty. If the Squibb & Sons contract should terminate and Lowy Laboratory, Inc., should resume manufacturing, it would be restored to its full vigor. On an accounting, therefore, to which the complainant is entitled, at all events, he would be allowed his royalty, modified, however, consistently with the new situation he helped to bring about. This, clearly, would not be less than the complainant agreed to take.