[HM88AAT], Report from Sherburne Blake Eaton, October 20th, 1888


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[HM88AAT], Report from Sherburne Blake Eaton, October 20th, 1888

Editor's Notes

Summary: Eaton reviews concerns about a contract with George Gouraud to manufacture and sell phonographs in foreign countries, such to preserve to Edison maximum royalties and fees, control, minimum liability, etc. Text: Mr. Eaton’s Report on Proposed Gouraud Phonograph Contracts for Territory, October 20, 1888 Mr. Eaton’s Mem. On Gouraud Contracts, made for Mr. Insull, October 20th, 1888. Undersecretary [elect? Regent?] for Foreign Countries 1.) This Agreement embraces all patents for these Foreign Countries, which Mr. Edison now owns, proided those patents cover the invention described in his [M.S?] patent of Feb. 14th 1878, no. 200.521: also my new Phonograph inventions made after the State of the proposed agreement. From this it will appear that this agreement does not cover any Phonograph inventions, if any, which are (a) not covered by the said patent No. 200.521, (M.N 1.6?] are invented prior to the date of the execution of the agreement. I assume that Mr. Edison has no inventions which are not covered by the said M.S Patent. Nevertheless I make this comment for what it may be worth. 2.) Suppose Gouraud showed me what becomes of his license and agency given him by this agreement? I think there is no doubt that they would terminate with his life. The care of Oliver or Rumford Chemical Works, decided by Judge Blatchford in the US circuit court 1809 U.S (reports p.76) holds that such a license and agency as this terminates with the life of the license notwithstanding the fact that a period is fixed for the duration of the agreement. You will remember that the last section of the Gouraud contract provides that it shall last in any event for 20 years. Nevertheless, I think that all of his rights will terminate with his life. To avoid any chance do you wish to insert them in the contract? 3.) Gouraud has the option to use the [science? Case?] of Edison or not. See Sec. 1. But so far as the formation of corporations by Gouraud is concerned, he could not have one the [science? Case?] of Edison, against Mr. Edison’s wishes, because the contract provides that practically the details of the formation of corporations shall first be approved of in writing by Mr. Edison, so I think that this can be safely kept as it is. 4.) The contract allows Gouraud practically to take out privileges, rights, patent, etc, in Edison’s name, or otherwise. See the last sentence of the first section. Why not amend thus and apply all these things to be taken on in Edison’s name wherever possible and never in any other name without his obtaining Edison’s consent? 5.) The Second Sec. provides that if the manufacturers profit and Edison royalty he ever rediced, Gouraud territory shall have the benefit. If I remember right, nothing has been done in the Lippincott deal to affect this. Is that so? I would like to look this up when all the papers are within my reach. 6.) Sec. 3 provides that if Articles are manufactured by Gouraud, Mr. Edison shall nevertheless receive fifteen per centum on the cost of manufacture.” Does that cost of manufacture include the manufacturers profit of twenty per centum? Judging from the first part of the second sentence of Sec.2, I think this is in doubt. I suggest that it be made free from doubt, for it would make quite a difference in the amount given to Mr. Edison. 7.) The last sentence of sec. 3 provides among other things that Gouraud may manufacture “supplies” abroad. But he must pay to Mr. Edison a royalty of ten percent on their cost. Does this cost include a manufacturer;s profit? Again, this sentence provides that all supplies necessary for the use of the said Phonographic Apparatus may be manufactured abroad. So the words “the said” limit this privilege to the actual and physical Phonograph manufactured by Gouraud under the next preceding sentence of next third section, or does it refer to supplies for all Phonographs including those manufactured here by Edison? This criticism is in Col. Gouraud’s favor, and is made in the interest of perspicuity. 8.) The first sentence of sec. 5 provides that whenever Gouraud forms a company for any states territory, the consideration shall be divided between him and Edison, but that before such division is made, Gouraud may deduct whatever expenses have been actually incurred. This is very broad language. It is not even limited to expenses incurred in connection with the territory for which the company is formed. Indeed it allows him to deduct for expenses no matter where incurred. Was this intended? Again, it seems to me that Col. Gouraud ought to give Mr. Edison periodical notice of what expenses he is incurring to avoid taking Mr. Edison by surprise as regards their amount. Why not require him to make monthly or quarterly statement and limit his deductions for expenses to the items set forth in such statements. 9.) The last sec. of sec. 6 provides that in a certain event Gouraud shall assign to Edison all rights, concession, patents so obtained by him upon his being paid by Edison all costs and charges incurred in procuring them. This furnishes another reason why Gouraud should wake periodically statements of cost and charges to Mr. Edison. 10.) Sec. 9 provides that the contract shall [-cast?] during the life of any patent covering the invention of Edison used in connection with Phonographs. It does not say Phonograpic inventions. You can see that the language is very braod. However, I suppose it makes little difference, practiaclly speaking. 11) It would be well to insert a clause prohibiting Gouraud from creating any debts as agent for which Mr. Edison would be liable. 12) TO adopt a case but by Mr. Insull suppose Gouraud was to a local company in Mexico, how would the consideration payable to him be divided? The answer is that after Gouraud deducts all his expenses for all the countries covered by the agreement, 1/3 of the consideration wouldd be payable to Mr. Edison, and the other two thirds four and would retain/ But suppose that the territory were not used for cash or stock but was used on the basis of an increased price for Phongraphs, how would that profit be divided? That is to say, suppose the price of Phonographs at Edison's shop, without Edison's royalty was $25, and suppose the Mexican Company were required to pay $60, what would Mr. Edison be entitled to? I cannot answer this question with certainty for the contract does not cover it clearly. But I think the weight of reason is that the provision why Mr. Edison to furnish phonographs to a local company without exacting any rayalty would not apply in this case, and that he would be entitled to be paid from the profit not only his royalty of fifteen per centum but also one third of balance of the increase after taking this royalty. It would be well to make the contract more specific in this regard. 13) I think that the end of the Sec. 5 might be made from doubt. It provides that Mr. Edison will furnish Gouraud's local company with Phongraphs at the American Factory price. It also provides that Edison will not exact any royalty for himself. Does this mean royalty on machines does? In other words is this the need, to wit, Edison will furnish the local company machines at the American Factory prices, but inasmuch as the said American Factory price includes a royalty to Edison of fifteen per cent, this royalty shall be deducted, so that the real price to be [rand's] local company shall be actual cost, plus a manufactuer's profit of twenty percent. I think it would be well to make the agreement clear on this point. 14) Gouraud is allowed to capitalize this contract provided he hold all the stock. If he parts with more than one fourth of the stock, the contract is void. Suppose he were to die, I think that as a matter of law his death would invalidate the contract. The law would hold that inasmuch as he cannot hold three-fourths of the stock after he is dead, the penalty would be enforced, and the contract made void. I am not certain that a court would take this view, but I think it would. Is it desirable to make the contract clear on this point? 15) There is nothing to compel Gouraud to acquire patents, concessions, ec. In countries. The last sentence of Sec. I provides that if Dr. Edison makes new inventions he will furnish Col. Gouraud with data to enable him to obtain frnachises ec, but there is nothing to compel him to obtain it. Should there not be a provision that if Gouraud fails to do this, Edison may step in and do it and charge the expense to Gouraud? 16) This Gouraud contract gives both a license and an agency. I do not quite see why a license was given. Would not any agency alone answered every purpose? Even the right given to Gouraud to manufacture, would be equally valid without the license, and even if it were not, would it not be wise to compel him to give over to Mr. Edison his license to manufacture? On further thought I might change my mind about this, but just now it seems to me that the privisions for a license might better have been omitted from this agency contract. 17) It appears that Gouraud and his agents are exhibiting the Phonograph for an admission fee. Is Mr. Edison entitle to any part of this fee? I think not. There is no doubt that anybody who buys a Phonograph may exhibit it if he pleases. I think that Gouraud stands on the same footing. In the absence of anything in his contract requiring him to account for admission fees. I do not think Dr. Edison could claim a share. (Signed) S.B. Eaton




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Thomas A. Edison Papers, School of Arts and Sciences, Rutgers University
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