This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Whether the invalidity of a patent amounts to failure of consideration is a question on which there is a conflict of authority. The English courts hold that it does not amount to failure of consideration;1 and some of the American courts have taken the same view thereof for a number of different reasons.2 Under a contract between A and B, by which the separate inventions of each of these parties were to be sold together in England by B, and on such sale B was to pay a certain amount to A, it was held that if B sold his own invention and tendered to A a reassignment of A's invention, B was obliged to pay the amount specified in the contract, on the theory that B had intended to take chances as to the possibility of patenting such invention in England where the patent rights were to be sold; and that a comparatively small amount was secured to A by the contract while B took a greater chance of profit and the corresponding risk of loss.3 This result has also been justified on the ground that where there was a formal conveyance of the patent right, the only right of the purchaser was upon the covenants contained in such instrument.4 Under a contract by which A assigned a part interest in his invention to B, and B then reassigned such interest to A and agreed that the patent should issue in A's name, in consideration of which A gave a note to B, it was held that B did not guarantee the patentability of such invention and that A's inability to secure a patent on such invention was not a defense to an action on the note which A gave to B.5 Since the invention was A's invention, and since his assignment of an interest in such invention to B seems to have been for value, A was evidently in no position to set up his inability to obtain a patent, as a defense against B. It appeared, however, that B at once secured a patent on the same invention and that A's application was rejected because a patent had issued to B. Such conduct on B's part was held, however, not to be failure of consideration, apparently on the theory that the court would not inquire into the propriety of the action of the United States government in issuing a patent to B and rejecting A's application.6 If the assignee or licensee has paid money voluntarily for a patent right, it has been held that such payment can not be recovered,7 on the theory that such payment is voluntary and is made with actual or constructive knowledge of the facts.8 Recovery is accordingly denied, even if the holder of the patent is guilty of innocent misrepresentation as to its validity.9 In some of the courts of the United States it is held that if the patent which is sold, or under which a license is issued, is a patent which is issued by the United States, the invalidity of such patent amounts to failure of consideration.10 Even in jurisdictions where this rule is recognized, it is held that the English rule is to be applied if the patent in question is an English patent; and the invalidity of such a patent is held not to amount to failure of consideration.11 Even where the patent is issued by the United States there is held to be no failure of consideration if the instrument by which the patent right is transferred does not purport to be a sale of an existing patent right, but a mere quitclaim of whatever claims or interests the assignor may possess.12 If the patent or the machine made thereunder is worthless, it is held, in a number of jurisdictions, that such fact amounts to a failure of consideration,13 on the theory that there is an implied warranty that such patent right and the machines made thereunder will be reasonably adapted for the purpose for which they are sold. In other jurisdictions the assignee or purchaser is held to assume the risk of the utility of the patent, as well as its validity, even in cases of this sort; and it is held that no failure of consideration exists.14
18 Street v. Blay, 2 6. & Ad. 456.
19 See Sec. 2987.
20 See Sec. 2087 and 2088.
1 Adie v. Clark, L. R. 3 Ch. Div. 134; Hall v. Conder, 2 C. B. N. S. 22; Lawes v. Purser, 6 El. & Bl. 930.
2 Fowler v. Mallory, 53 Conn. 420; Clark v. Smith, 21 Minn. 530; Cansler v. Eaton, 55 N. Car. (2 Jones Eq.) 499.
3 Fowler v. Mallory, 53 Conn. 420.
4 Cansler v. Eaton, 55 N. Car. (2 Jones Eq.) 409. (But in this case, however, there appears to have been no evidence of the existence of a prior patent, although such fact was alleged by the defendant.)
5 Clark v. Smith, 21 Minn. 530.
6 Clark v. Smith, 21 Minn. 539.
7 Taylor v. Hare, 1 Bos. & P. (N. R.) 260; Schwarzenbach v. Odorless Excavating Apparatus Co., 65 Md. 34, 57 Am. Rep. 301, 3 Atl. 676.
8 Schwarzenbach v. Odorless Excavating Apparatus Co., 65 Md. 34, 57 Am. Rep. 301, 3 Atl. 676.
9 Schwarzenbach v. Odorless Excavating Apparatus Co., 65 Md. 34, 57 Am. Rep. 301, 3 Atl. 676.
10 Bliss v. Negus, 8 Mass. 46; Dickinson v. Hall, 31 Mass. (14 Pick.) 217; Bierce v. Stocking, 77 Mass. (11 Gray)
174; Lester v. Palmer, 86 Mass. (4 All.) 145; Nash v. Lull, 102 Mass. 60, 3 Am. Rep. 435; Howe v. Richards, 102 Mass. 64; Jackson v. Allen, 120 Mass. 64; Harlow v. Putnam, 124 Mass. 553.
11 Chemical Electric Light & Power Co. v. Howard, 150 Mass. 495, 2 L. R. A. 168, 148 Mass. 352, 23 N. E. 317, 20 N. E. 92.
12Gilmore v. Aiken, 118 Mass. 94.
13Smith v. High tower, 76 Ga. 629; Snyder v. Kurtz, 61 la. 593, 16 N. W. 722; Nettograph Machine Co. v. Brown, 28 Okla. 436, 34 L. R. A. (N.S.) 737, 114 Pac. 1102; Cragin v. fowler, 34 Vt. 326, 80 Am. Dec. 680.