Underhill v. Schenck

Blackmar, P. J. (dissenting in part):

Even after the contract by which plaintiff granted to Herndon the exclusive right to produce the English spoken drama under the title “ The Passion Flower,” he retained an interest therein by way of a percentage of the gross receipts. This interest, although small, is a sufficient basis for the action. The judgment of injunction is not founded on any property right in the plaintiff to the production of the motion pictures, for these rights passed from the author, Benavente, through Gonzalez and Herndon, to Schenck, who owns them. Neither, as Mr. Justice Young points out, had plaintiff any property in the title “ The Passion Flower.” Nor is the judgment based on the copyright, for this court has no power to enjoin the infringement of a copyright. But the justification for the judgment is the proposition that the production of the motion pictures under the title “ The Passion Flower ” is an unfair competition with the drama presented on the spoken stage under that title. Whether it is such an unfair competition is, I think, a question of fact; and although the right to be protected seems to me shadowy and unsubstantial, I do not feel inclined to dissent on that ground.

But I cannot concur in the nature and extent of the judgment granted. I propose to consider, first, the question of damages and profits as applied to the usual cases of unfair competition in merchandising, and second, as to the special facts in the case.

In cases of unfair competition in trade the cause of action rests on the proposition that the defendant by deceit of the purchasing public palms his goods off as those of the plaintiff. He thereby injures the plaintiff, first, because the plaintiff loses the sale, and second, if the infringing goods are inferior in quality the plaintiff’s reputation is injured. The plaintiff is entitled to complete compensation for the wrong. Logically what he is entitled to is damages. But in some cases the difficulty or impossibility of determining damages may result in a failure of justice. To avoid this the profits of defendant are awarded plaintiff; not, however, as an addition to damages, but as a method of ascertaining them. The theory is that if the unjust competitor had not made these profits they would have been enjoyed by plaintiff. Therefore, in law and equity, as in logic, the rule of compensation is damages. Damages may be measured by profits, but they may be more, for the injured party might, if he had secured the trade diverted by the unfair competition, have made greater profits, and he may have been injured in his reputation by the competitor palming off an inferior article on the public. This is the rule which I draw from many reported cases, as applied to unfair competition in merchandising.

But the question before us is different. There is no question of deceiving the public into the belief that a motion picture is a spoken drama. The only possible claim is that the motion picture representation competes with the English-spoken drama by diminishing the attendance at the play. This diminution, reflected in the gross receipts, is the only conceivable injury. What relation to this injury do the profits made by the motion picture production bear? Obviously none. If this case were founded on the infringement of a copyright, profits might be recovered under the statute, because the defendant is using plaintiff’s property. But it is not. The basis of the action is the damages inflicted by unfair competition. The recovery cannot go beyond those damages, and the profits made in the motion picture production have no relation to the amount of damages. The interlocutory judgment should not have decreed an accounting for profits; and in fact the counsel who wrote the complaint seems to have appreciated that the measure of liability was damages, for he did not ask for profits.

I cannot conceive upon what theory Herndon should account to plaintiff for the profits that he made on the sale of the motion picture rights to Schenck. The plaintiff had no interest in those rights. Herndon owned them and made a profit by selling his own property to Schenck. Why should plaintiff have those profits? I can understand how it might be held, in an action framed for that purpose, that Herndon acquired those rights for the joint account of himself and Underhill under the contract of January 2, 1920. If the action were founded on that contract the proper judgment would be that Herndon account to plaintiff for one-half the value of the motion picture rights, or, at plaintiff’s election, for one-half of the profits which Herndon made on the sale to Schenck:. Incidentally I will say that upon all the facts such a judgment-would do complete justice between the parties, and if the pleadings permitted, such a judgment should be rendered. The parties recognized this and had practically agreed on this basis of adjustment in their attempt to settle the case. But the plaintiff would not have it. He claims that the contract was abrogated and insists on the purely artificial claim for an injunction and damages and profits. Plaintiff’s claim against Herndon for buying and selling the motion picture rights has no existence except on the confidential relations created by the contract, for plaintiff has not and never had any title to those rights. ' His only interest in them was that in the United States courts he could enjoin their production in competition with his copyright. This interest, negative in its nature, Herndon’s sale to Schenck did not affect.

I think also that the interlocutory judgment should be modified so as to eliminate seeds of error which it seems to me may destroy any final judgment that would be - entered thereon. It will be recollected that Underhill does not own the right to produce the drama under the title of “ The Passion Flower,” but only a small royalty upon the gross receipts — call it ten per cent, although it is less. The reasonable interpretation of the interlocutory judgment would be that Underhill is entitled to that portion of the profits and damages which bear the same relation to the whole as his percentage of the gross receipts bears to the whole; or it might possibly be interpreted to mean that Underhill is entitled to all. The latter interpretation appears to me unquestionably erroneous and should be avoided by the referee to whom the matter is referred. Such interpretation would give to Underhill not only his percentage of the profits and damages, but also Herndon’s, and then would compel Herndon to account for the whole. I advise recasting the interlocutory judgment so as to avoid an erroneous interpretation.

Again, I can find nothing in the interlocutory judgment which authorizes a recovery of the profits which Herndon made in selling the motion picture rights to Schenek, as suggested in the prevailing opinion. The action, as we are all agreed, is for unfair competition. The profits Herndon made in selling the motion picture rights to Schenck have no relation to unfair competition, and, therefore, 1 think that those profits were not within the purview of the interlocutory judgment.

I, therefore, dissent from the affirmance and think the judgment should be modified in accordance with this opinion.

Kelby, J., concurs.

Interlocutory judgment modified in accordance with opinion by Mr. Justice Young, and as so modified affirmed, with costs of this appeal to the plaintiff.