Straus v. . American Publishers' Assn.

Chief Justice MARSHALL said long ago, in Grant v. Raymond (6 Pet. 217, 241): "To promote the progress of useful arts is the interest and policy of every enlightened government. It entered into the views of the framers of our Constitution, and the power ``to promote the progress of science and useful arts, by securing for limited times to authors and inventors, the exclusive right to their respective writings and discoveries,' is among those expressly given to Congress. * * * It is the reward stipulated for the advantages derived by the public from the exertions of the individual, and is intended as a stimulus to those exertions. The laws which are passed to give effect to this purpose ought, we think, to be construed in the spirit in which they have been made, and to execute the contract fairly on the part of the United States, where the full benefit has been actually received; if this can be done, without transcending the intention of the statute, or countenancing acts which are fraudulent or may prove mischievous. The public yields nothing which it has not agreed to yield; it receives all which it has contracted to receive. The full benefit of the discovery after its enjoyment by the discoverer for fourteen years is preserved and for his exclusive enjoyment of it during that time, the public faith is pledged."

That case and many others were considered recently by the United States Supreme Court in Bement v. National Harrou Co. (186 U.S. 70), Mr. Justice PECKHAM writing. After an examination of the cases which may be said to restrict the exceptions which grow out of a proper exercise of the police power of the state — of which Patterson v. Kentucky (97 U.S. 501) is an illustration — he says (186 U.S. 91): "Notwithstanding these exceptions, the general rule is absolute freedom in the use or sale of rights under the patent laws of the United States. The very object of these laws is monopoly, and the rule is, with few exceptions, that any conditions which are not in their very nature illegal with regard to this kind of property, imposed by the patentee and agreed to by the licensee for the right to manufacture or use or sell the article, will be upheld by the courts. The fact that the conditions in the contracts keep up the monoply or fix prices does not render them illegal."

That reasoning is employed as to patent rights. It is equally applicable to copyrights, the protection of which was perhaps the leading object of the association and agreement attacked in this action. And it points to the principle underlying the decision in the Park Sons Co. Case (175 N.Y. 1), upon which defendants apparently rest their claim that the judgment of the Appellate Division should be reversed. But there is a feature in this case not to be found in that one, and which requires a different judgment than the one rendered therein — which will now be pointed out.

While the leading object of this association and agreement purports to be to secure to the owner and publisher of copyrighted books that protection which the Federal government permits them to enjoy for the reasons stated by Chief Justice MARSHALL (supra), it does not stop there. It also affects the right of a dealer to sell books not copyrighted at the price he chooses, or to sell at all, if he fails to comply with the rules of the association. A combination creating a monopoly of the sale of books not protected by copyright offends against the law of this state as much as if it related to bluestone (164 N.Y. 401) or to envelopes (166 N.Y. 292), and according to this complaint, which must be accepted as true on this review, such an outcome is not only possible but probable. But it is not of moment whether such a result is probable or not, for the test to be applied is, What may be done under the agreement?

Reference to the complaint makes it clear that the association has undertaken to provide for the practical exclusion from the business of selling books not protected by copyright all who refuse to be bound by the rules of the association. And it appears from the complaint that the practical construction given to this agreement by those operating together under it is that if a dealer is suspected of selling copyrighted books at less than the arbitrary net price it is quite sufficient to exclude him from selling books altogether. The agreement nowhere suggests that it is the object of the association to control the sale of books not protected by copyright. Indeed, the object of the association seems to be merely to protect the copyrighted books. But while the other part of the scheme is apparently sought to be hidden, it is after all uncovered by the clauses authorizing the exclusion of any members of the association, or those who refuse to be bound by its rules, from selling books ofany description.

The 15th paragraph of the complaint alleges "That during the year 1900 a number of prominent publishers, including defendants, hereinbefore described as publishers (for the purpose of securing to themselves an unreasonable and extortionate profit and at the same time with intent to prevent competition in the sale of books and for the purpose of establishing and maintaining the pricesof all books published by them, or any of them, and all booksdealt in by them, or any of them, and preventing competition in the sale thereof, unlawfully, illegally and contrary to the public policy and the statutes of the state of New York * * * combined and associated themselves together," etc. The 16th paragraph refers to the method of organization, and the fact of the adoption of a resolution, and an agreement to carry out their object; while the 17th states the nature of the agreement as follows: "That as a part of said unlawful scheme and combination the members of said association agreed that such net copyrighted books, and all other books, whether copyrighted or not, or whether published by them or not, should be sold by them to those booksellers only who would maintain the retail net price of such net copyrighted books for one year, and to those booksellers and jobbers only who would furthermore sell books [the word "copyrighted" is omitted at this point] at wholesale to no oneknown to them to cut or sell at a lower figure than such net retail price, or whose name would be given to them by theassociation as one who cut such prices."

It will be seen that while the leading object of this portion of the agreement apparently is to maintain the retail net price of copyrighted books it operates in fact so as to prevent the sale of books to dealers who sell books of any kind to one who retails copyrighted books at less than the net retail price.

And the agreement further provides that evidence shall not be required by the bookseller or jobber in order to restrain him from selling to one who has been blacklisted, but that all that shall be required to govern his action, and to prevent him from selling to such a person, shall be that the name has been given to him by the association as one who cuts such net prices. It has been admitted, and must be, that the agreement may be so worked out as to deprive a dealer from selling any books whatever, thus breaking up his business.

But, it is said, that is only intended as a punishment for one who refuses to be bound by the wishes of the owner of the copyrighted book as to its selling price; in other words, that the association inflicts upon him the penalty of a destruction of his business, because of his refusal to abide by the the rules of the association. It is of course of no consequence how this course of action may be described by those who invented it, for if it be the fact that the combination which agrees to exclude others from an unprotected business violates the statute, then it matters not what excuse may be offered for it. It is the excuse, not the statute, which must give way.

The 18th paragraph of the complaint contains what purports to be a practical construction given to this agreement by the members of the association. It states "That, in pursuance of said unlawful combination and agreement, said American Booksellers Association and its members have continuously co-operated with and assisted the American Publishers' Association and the members thereof in establishing and maintaining prices of such books, and preventing competition in the supply and sale of the same, and still continues so to do; and plaintiffs say that in compliance with said agreement neither said associations nor any of the members thereof will sell or supply books at any price to anydealer, whether a member of said association or not, and whether such books arecopyrighted or not, or are not published by said American Book Publishers' Association or its members, who resells, or issuspected of reselling, such copyrighted books at less than the arbitrary net price fixed by said unlawful combination, nor will the said association nor any of their members sell or supply anybooks whatever to any one who resells, or is suspected ofreselling, such copyrighted books to any dealer who thereafter sells the same at less than such arbitrary net price."

Here then we have a practical construction of the agreement — one put upon it by the parties to it — and it is such a construction as the language employed calls for. And it discloses that the parties who are acting under the agreement assume it to be their right and their duty by virtue of it not to sell or permit to be sold books of any kind or at any price to any dealer "who resells or is suspected of reselling copyrighted books at less than the arbitrary net price," whether such dealer be a member of the association or not.

The intended effect of this is to prevent any dealer who is even suspected of reselling copyrighted books at less than the net price from obtaining books at any price or on any terms, whether copyrighted or not. And it does not stop there, for the members of the association agree not to supply him any books atany price, whether he resells copyrighted books or not at less than the arbitrary net price, provided he is suspected of selling to any dealer who thereafter sells the same at less than such arbitrary net price. And this means — inasmuch as the members represent 95% of the publishers and 90% of the business done in the book trade — that he may be practically driven out of the business if any one chooses to suspect that a dealer to whom he has sold books has resold them at less than the price fixed.

The members of the association, therefore, have entered into an agreement which by its terms — as we read it, and as they have construed it in their every-day working under it — undertakes to interfere with the free pursuit in this state of a lawful business in which any member of the community has a right to engage, a business in which a monopoly is not secured by the Federal statutes, namely, that of dealing in books which are not protected by copyrights; and hence it is in violation of chapter 690, Laws 1899, which provides: "Every contract, agreement, arrangement or combination whereby a monopoly in the manufacture, production or sale in this state of any article or commodity of common use is or may be created, established or maintained, or whereby competition in this state in the supply or price of any such article or commodity is or may be restrained or prevented, or whereby for the purpose of creating, establishing or maintaining a monopoly within this state of the manufacture, production or sale of any such article or commodity, the free pursuit in this state of any lawful business, trade or occupation is or may be restricted or prevented, is hereby declared to be against public policy, illegal and void."

The order should be affirmed, with costs.