Gentlemen:

Having spent the last two months in a fruitless endeavor to come to any kind of a satisfactory agreement with your concern we are now forced to cease all negotiations and withdraw all offers made by us and reject all offers submitted by you.

-Ted Case in a letter to Lee de Forest, December 5, 1925

Case vs. de Forest, Part II

Case vs. de Forest, Part II

Case vs. de Forest, Part II

Case vs. de Forest, Part II

Case vs. de Forest, Part II

Case vs. de Forest, Part II

Case’s formal break from De Forest Phonofilm, to his joining of Fox Film Corporation and furious litigation from de Forest all spanned a very brief period of only nine months! Explore the firsthand accounts of the correspondence between the former partners turned bitter rivals.

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In September of 1925, Case formally sent the first proposals for the Case Lab to break from De Forest Phonofilm, highlighting the many contract violations which de Forest made. In a show of impatience, the same letter was sent only five days later, with all courteous text purposely scratched out in pencil, and an entire paragraph blacked out  that would have allowed DeForest Phonofilm to request additional technology from the Case Research Laboratory. This letter was the beginning of the end for the partnership.

Case Lab Proposes Break from de Forest

September 25, 1925

To DeForest Phonofilm

Dear Sirs,

We are in receipt of your letter of September 19th, in which you state that “you should have taken during the year beginning October 1, 1923 and ending October 1, next, a minimum of 200 Thalofide Cells.” You state that your records show that you have taken only 36 cells during the year to date and should take an additional 164 under the terms of the contract. You ask as to the dates during the current month on which you can expect shipment of these 164 cells.

(skip paragraph)

During the first year you failed to comply with the terms of the contract, but realizing your financial difficulties as well as the practical difficulties in inaugurating the program in contemplation of which our agreement was drawn, we were tolerant of such default. However, on October 16, 1923 in connection with the beginning of the second year, Mr. Case gave notice that we would insist that during the second year you keep running 200 installations of 42 weeks. See also Mr. Case’s letter of November 15, 1924. We also pointed out that your general business and financial position were such that we were apprehensive that you would be able to carry out the contract. This apprehension on our part has, in fact, now been realized, as…you have not only failed to put into commercial use for 42 weeks 200 installments, but you have not taken or put into commercial use at any time even a single additional installment….It is apparent that the basic purpose which we have in mind in entering into the contract is not being fulfilled by reason of your failure to comply with your explicit obligations thereunder.

In view of this situation, we have no alternative but to notify you formally, as we hereby do, that we regard the agreement and license as terminated by reason of your defaults under the agreement, and we request you…forthwith to deliver to us such appliances, lights or cells as are in your possession.

Chaos of conflicting egos and legal counterproposals came to a head in December of 1925 when de Forest submitted the following new contract to redefine the relationship between De Forest Phonofilm and the Case Lab.

de Forest Responds with Personal letter and Legal Counter Proposal

December 5, 1925

Addressed to Theodore Case

Dear Mr. Case:

Both Mr. Bolster and myself sincerely hope that you will incline favorably to the suggested proposal which Mr. Eldred made yesterday afternoon that, in view of the conditions, particularly the uncertainty as to just what next year would develop both as regards the needs of the Corporation and as regards your own developments, during that period, it would be the fairies and most reasonable basis for us to enter into a tentative arrangement covering one year only. During this time, the Company would be willing to pay you on the basis of your expenditures up to a maximum of $24,000 and a small block of stock. This arrangement would reimburse you for your expenses and enable both the Company and yourself to carefully determine just what could be the best and fairest way to proceed as to future.

Mr. Eldred was quite positive that you would not accept my alternative proposal. 

As regards the other proposal…I think it is only fair to your to state how I feel on this mater. In view of the fact that the Company now has less than 25,000 shares of stock in its treasury, and that 15,000 shares of this stock at the last sales’ price will represent $750,000, and in view of the fact that we are not using nor intend to use the thalofide cell nor the aeo light and in view further fo the patene situation…I have come to the fixed and carefully considered conclusion that your proposition would work a very great and irreparable unjust to the stockholders of this Corporation. I could not conscientiously permit this to happen even though I were not, as I am by far, the largest stockholder and would therefore necessarily suffer the greatest loss of anyone.

I have recently made a proposition to the Directors to purchase an additional block of stock from the Treasury…which will cost me $75,000. Your proposal would practically amount therefore to my giving you out of my own pocket in three years this $75,000 to say nothing of depleting the treasury of more than 70% of its remaining stock.

I feel so deeply in this matter that I am prepared to warn the Board, should your proposition come up to them for final acceptance, that I as a stockholder would be compelled to hold each and every individual on the Board personally liable for his section in thus dissipating the assets of the Company; and I am well advised legally that I could expect to succeed in this effort. 

I most sincerely hope therefore that a way will be found to work out the one year tentative arrangement as suggested by Mr. Eldred.

Believe me very sincerely,

Lee de Forest

Case Responds to de Forest

Addressed to DeForest Phonofilm

Gentlemen:

Having spent the last two months in a fruitless endeavor to come to any kind of a satisfactory agreement with your concern we are now forced to cease all negotiations and withdraw all offers made by us and reject all offers submitted by you.

Yours truly,

Case Research Laboratory, Inc.

While he considered his options for going independent, Case was most concerned about litigation from de Forest. He received the following legal advice from Livingston Gifford, a well established patent attorney, who advised Case in person and provided this advice in writing, indicating his confidence in Case’s strong claim to his inventions.

Case Receives Litigation Advice

De Forest is limited to an alternating current…Case does not employ either an alternating current or high frequency oscillation and therefore cannot infringe…

It had long been desired to produce a film combining a speech record with a moving picture record and various systems had been proposed for doing so, but I am informed that none of them, until the Case system, had met with industrial success…

The freedom of the Case system from any infringement of de Forest seems so clear as to make any further discussion unnecessary.

Finally, for the reasons above expressed I have reached the opinion set forth at the outset that there is no valid claim in either Ries or de Forest which is infringed by Case.

Yours truly,

Livingston Gifford

Case would soon test that theory when he brought his system to Fox Film Corporation.

By May of 1926, Case and William Fox were actively entering into their business relationship. When de Forest learned of Case’s defection to one of his most hated competitors (de Forest had been actively snubbed by Fox on multiple occasions, and his own anti-semetic views left him with a bitter fury over Fox’s growing prominence) he immediately served legal notice to the company. 

Litigation from de Forest

May 14, 1926

To the William Fox Theatres 

Gentlemen: 

It has been called to our attention that your company has recently been approached by Theodore W. Case…with a view of interesting you in the use of his apparatus and films for producing talking moving pictures.

We beg to advise you of the fact that our clients, the De Forest Phonofilms, Inc., own and control the basic patents for talking pictures or phonofilms, said patents having been issued to Lee de Forest and Elias Ries, and that the apparatus and films being exploited by the said Theodore W. Case, or his company infringes upon these patent rights.

We also wish to advise you that any use by your company of the Case apparatus or films will likewise constitute an infringement upon our clients’ rights…

Darby and Darby, Attorneys and Counselors at Law

Letter Describing de Forest’s Reaction to Case Working with Fox

May 17, 1926

My dear Eldred:

There has been merry h—— around here today due to the fact that de Forest has learned that you have shown your proposition to the Fox people. He telephoned my hotel this morning and asked if I would call at the studio that he had a matter he would like to take up with me. I kept this appointment and the topic of the conversation was your “Talking Pictures.” He asked me if I had seen them (not knowing he was aware of this information) and I told him that I had. His reply was, “Well what do you think of theirs compared to mine?” I answered in all truthfulness that your sound recording was not alone superior to his but anything that I had ever listened to…

After wrangling pro and con with both he and his brother he blurted out that he had or was about to serve papers on the Fox Company, as well as William Fox personally, that you were infringing on eight patents and that he was going the limit to prevent your showing them; also that if I knew of any exhibitor that was interested in playing same to keep their hands off – that whoever played them was inviting a lawsuit. I told him that this matter was entirely up to him and if I knew of any exhibitor that was interested in using your product, that I would very enthusiastically endorse it. This put him in a rage…De Forest does not know why you have been making these visits and I did not lead him to believe anything pertaining to them. I SIMPLY TOLD HIM THAT I WAS IN THE DARK as to anything that was happening.

(Letter Sender Unclear)

While Fox was initially cautious, his belief in Case’s system and its superiority led him to proceed with the Movietone system, and De Forest Phonofilm would soon declare bankruptcy in the following years as Fox Film Corporation ascended into competition with the Warner Brothers.

Thanks for reading!

Crediting for Images on this Page

Header: Ted Case, c. 1920 (CMHA) & de Forest with AEO light, c. 1923, Bison Archives

Image: Fox Case Movietone camera

Image: Ted Case w/ movie camera, c. 1930s

Image: Lee de Forest w. Audion tubes

Image: Ted Case w/ co-workers in CRL, c. 1925

Image: Bain News Service, Publisher. Lee De Forest. , ca. 1920. [Between and Ca. 1925] Photograph. https://www.loc.gov/item/2014715931/