Art Metal Works, Inc. v. Abraham & Straus, Inc.

70 F.2d 641, 21 U.S.P.Q. (BNA) 534, 1934 U.S. App. LEXIS 4249

Opinions

MANTON, Circuit Judge.

After the affirmance of an interlocutory decree entered below granting an injunction and an accounting, and holding the Aronson patent, No. 1,673,727, for a lighter, valid and infringed [Art Metal Works, Inc., v. Abraham & Straus, Inc. (C. C. A.) 61 F.(2d) 122], the court permitted the appellant,to •file an amended answer. This answer set forth allegations of inequitable conduct by the appellee in misrepresenting to the trade, including appellant’s customers, the scope and effect of the decision rendered by this court. The various methods of accomplishing this result have been set forth.

In granting the appellant’s motion for permission to apply to the District Court-for leave to file an amended answer, we said:

“We are satisfied from the affidavits presented that there has been misrepresentation both by salesmen and written communications to customers of the manufacturer as well as by advertising in the trade papers.” Art Metal Works, Inc., v. Abraham & Straus, Inc. (C. C. A.) 62 F.(2d) 79, 80.

In granting leave to file the answer, the District Judge, after a review of the affidavits and exhibits, stated:

“The defendant makes by far the more impressive showing, and indeed the Circuit Court of Appeals was so convinced. If there were any question open in that regard, it would be dissipated by a consideration of the plaintiff’s advertising matter. It seems to me that the misrepresentations, which apparently were deliberate, though they may have resulted from overzealousness on the part of plaintiff’s executives, adds strength to the defendant’s contentions that the misrepresentations of the salesmen were not innocent. * * *

“The probable effect of the foregoing was to mislead the trade in respect to the scope and effect of this litigation.

“The plaintiff’s conduct was reprehensible.

“To what extent it has damaged the Evans Company is, of course, a matter that cannot be decided on this motion, but that some damage resulted seems obvious.” Art Metal Works, Inc., v. Abraham & Straus, Inc. (D. C.) 2 F.Supp. 292, 293.

After a hearing, the reiief prayed for was denied by the court below because the appellant had failed to establish bad faith on the part of the appellee and a decree was entered accordingly. Art Metal Works, Inc., v. Abraham & Straus, Inc. (D. C.) 4 F. Supp. 298. This appeal seeks a review of that decision.

Patent No. 1,673,727 was for a cigar lighter, and this court held that it was infringed by the lighters, “Evans Automatic” and “Evans Roller Bearing,” manufactured by the Evans Case Company and sold by the appellant. We did not hold, in that decision, that all automatic lighters, or that the Evans new Trig-a-lite infringed. The Evans Case Company, manufacturers of the lighters, are openly defending this suit.

After this court’s decision, the presi- ' dent of the Evans Case Company interviewed the appellee’s president and suggested a compromise, stating, “I think we would be better off making lighters than fighting,” to which answer was made, “Further, I want to say to you that there isn’t room for two of us in the lighter business * * * I have found out in my business experience if you make competition expensive enough the competitor won’t stay in business very long.” Although this was said in the presence of another officer of the appellee, that witness was not called, and, while the version of the appellee’s president is given by him, the threat of the statement above quoted is not denied. With an apparent determination to eliminate the Evans Case Company as a competitor in the manufacture and sale of lighters, the ap-pellee proceeded and went beyond reasonable limits or rights acquired by its patent litigation and entered upon a campaign of misrepresentation in circulars, in advertisements in trade papers, and through its salesmen and representatives. We think it forfeited its right to the protection of a court of equity. Gerosa v. Apco Mfg. Co., 299 F. 19 (C. C. A. 1); Perfection Mfg. Co. v. B. Coleman Silvers Co., 270 F. 576 (C. C. A. 7) . An owner of a patent has a right to protect his patent in accordance with the statute under which he is granted a monopoly. He may protect his business under the patent from the attacks of infringers. He may, to this end, advertise truthfully and in good faith the extent to which the courts have granted him protection against an infringer. He may proceed against other infringers and say in advance that he intends to do so. But no court should continue to protect patent rights while the patent owner is representing to his customers, and to his competitor’s customers, that he has been awarded more rights or protected to a greater extent than the court has actually decreed. Courts cannot permit unfair practices to go on to harass or obstruct a rival in business. Panay Horizontal Show Jar Co. v. Aridor Co., 292 F. 858 (C. C. A. 7); Luten v. Wilson Reinforced Concrete Co., 263 F. 983 (C. C. A. 8) . Attacks inspired by a desire to unlawfully intimidate purchasers, who might lawfully buy other than the patented article, which results in substantial loss to the in-fringer, places the patent owner in the class of suitors with unclean hands.

After the decision of this court, the ap-pellee on August 23, 1932, sent a telegram to its salesmen and representatives announcing a “sweeping victory” against the Evans Case Company, expressed their delight, and said it was “okay to advise your trade but be careful not to indulge in any threats until definite plan of campaign for damages is completely worked out.” The next day instructions were sent by letter to salesmen which, among other things said:

“It must be borne in mind by you that this decision naturally covers not only the pocket form of lighters but also their combinations, whether in sets or as units imitating our Tuxedo. It covers also their table lighters.

“Steps will be taken by us immediately to notify all trade by means of letters, also through full page announcements in the trade papers. We will also take steps without delay to proceed against the manufacturers of the Marathon lighter and the Golden Wheel lighter, with a view to obtaining injunctions preventing their further infringement of our adjudicated patent. * 3 3'

“The Evans Case Co., also their customers are now liable to us for all the tremendous damage which they have done to us during the past years in their sale of infringing products. Naturally, we are keenly alert to the necessity of recovering every possible penny of this damage so that the trade may understand it is not desirable for them to push the sale of infringements even where they can buy and sell them at low prices.”

The decision did not cover cigarette ease and lighter sets. Thus portraying the plan of campaign to the salesmen, they proceeded to write to the trade, and, on August 24, 1932, they sent to many of the Evans Case Company customers a telegram referring to their “sweeping victory on every point involved in our suit against the Evans Case Company,” and announced that further details would follow this telegram and promptly convey this information to them. The telegram was followed on August 25th and 26th with circular letters advising the trade that “Evans lighter and others of similar construction constitute infringements of our patent” and that it was their purpose to proceed with an accounting for profits made by the infringers and substantial damages would be asked for past infringements to which they had been subjected.

“Furthermore, we must advise the trade that any further sale of these Evans lighters or others of similar construction now becomes illegal according to the decision of the Court of Appeals.”

This reference to others of similar construction had its intended effect upon the trade as testified to by witnesses. In substance it conveyed to members of the trade and they understood, so they testified, that the decision covered all other automatic lighters and not merely the Evans automatic lighter and roller bearing lighter. Witnesses who bought lighters, questioned as to their understanding of this statement and its effect, said they believed that all automatic lighters would infringe and that they could no longer handle any automatic lighters except those made by the appellee or otherwise made under the patent. One witness said a representative of the appellee told him, after showing him a circular letter, that not only must he not sell the Evans lighters which he had on hand, but he could not sell the Golden Wheel lighter for the patent rights covered “any automatic lighters, Evans or Golden Wheel or any automatic lighters.” While some witnesses said they were not misled, still there was ample evidence that this misrepresentation caused many customers to be deceived. In trade journals, appellee, in its advertisements, announced to the trade that its patent covered cigarette ease and lighter sets and that all infringers would be vigorously prosecuted; although one of its officers testified that he knew cigarette case and lighter sets-were not manufactured under the patent. The testimony of buyers indicates that they thought that anything pertaining to Ronson (the name of appellee’s product), lighters, cigarette cases, or combination cases, infringed, and this was the result of representations made by sales agents to them. The Evans Case Company customers refused to buy any lighters from them and returned some.

The Evans Case Company had another automatic lighter, the Trig-a-lite. Appellee sued for infringement because of the manufacture and sale of this lighter. The District Court has held that that lighter did not infringe. We have affirmed that decision this day (70 F.(2d) 639). But the appellee wrote its trade claiming that it did infringe. It was of different construction. The claim that it did infringe could only be based upon • the thought that that patent eovéred “any kind of automatic lighter.” Indeed, registered letters were sent out making this statement to customers of the Evans Case Company in an attempt to prevent sales of that lighter. In the trial of this patent ease, appellee’s expert and counsel maintained that a spring actuated lighter (Trig-a-lite) was different in substance from the appellee’s patented lighter. This was done to avoid prior art references and a contrary claim could not be consistently made.

After advertising, their salesmen and representatives carried on a campaign against those who had purchased from the Evans Case Company. The salesmen and representatives called upon the trade; the record shows that seven different representatives of appellee in six large cities made about the same oral representations, indicating a concerted action and a common plan. Indeed, it was stated by some that the president of the appellee was “out to break Reilly” (president of the Evans Case Company); that Mr. Aronson, president of the appellee company, was a man of substantial wealth and that he would fight to the finish to get Reilly. It was stated that, because of the victory in the patent litigation, the appellee was alone in the field and that all lighters were an infringement upon their product; that the customers could not sell automatic lighters except appellee’s, and the only lighter they could handle, if they wanted to, was the appellee’s. The result was that some of the customers of the Evans Case Company removed from their catalogues combination lighters and lighter sets manufactured by the Evans Case Company and instructed their branch houses to discontinue the sale of Evans lighters and sets. One customer said the agent told him, “You axe not allowed to sell any automatic lighters, Evans or Golden Wheel, or any automatic lighter.” And another buyer said an agent told him, “They claimed that under their patent they will not have the, privilege of selling the said cases and lighters.” It is unnecessary to recite in detail these misrepresentations. But it is sufficient to say that the campaign threatened was carried on and the appellant established that the appellee, by its circular letters, registered letters, and advertisements, and by representations made by its agents, has misrepresented the scope and effect of this court’s decision in the patent ease.

Good or bad faith is to be judged only by the spoken word and conduct of the parties; the charge of bad faith is amply supported by the evidence. The District Court was of the opinion that the appellee was not bound by the agents’ acts and statements; that knowledge thereof must be shown to the appellee as well as its bad faith. The master is bound by torts committed by his agent when acting within the real or apparent scope of his authority, and liability is not limited to torts resulting from acts which he has expressly authorized or directed. He is liable for any of the torts which the agent commits in the course of his employment, even though he was ignorant thereof, and the agent in committing the acts exceeded his actual authority or even disobeyed direct instructions of his principal. Washington Gas Light Co. v. Lansden, 172 U. S. 534, 19 S. Ct. 296, 43 L. Ed. 543; Dysart v. Missouri, K. & T. Ry. Co., 122 F. 228 (C. C. A. 8); Blumenthal v. Shaw, 77 F. 954 (C. C. A. 3). Here the agents were expressly authorized to visit the trade, solicit business, give information concerning d'ppellee’s lighter, and they were acting at the time for their principal and within the scope of the business intrusted to them. The plan of campaigning for business and the misuse of the court’s decision in the patent litigation was planned for them. It was all part of the “campaign for damages.” It was the pursuit of the policy of molestation, of driving the appellant’s manufacturer out of business. The right of fair competition did not justify the acts committed. Evenson v. Spaulding, 150 F. 517, 9 L. R. A. (N. S.) 904 (C. C. A. 9). What the agents said and did was consistent with and in consequence of the instructions given to them, to advise the trade of the “sweeping decision” and to use the “decision as a tremendously powerful influence.” The widespread use of circulars with notices charging infringement, some followed by suit and .others not, and the subsequent suit against the Trig-a-lite lighter as an infringement, was inspired by a purpose to intimidate the Evans Case Company customers, to coerce them to refrain from purchasing from others, and to compel them to buy all automatic lighters from the appellee. Adriance, Platt & Co. v. Nat'l Harrow Co., 121 F. 827 (C. C. A. 2). Such inequitable conduct, after the decree of validity and infringement, is sufficient to deprive the appellee of its injunction and the accounting order to determine damages. See Alliance Securities Co. v. De Vilbiss Mfg. Co., 41 F.(2d) 668 (C. C. A. 6); De Forest Radio Tel. & Tel. Co. v. Radio Corp. of America (D. C.) 4 F.(2d) 134; Asbestos Shingle, S. & S. Co. v. H. W. Johns-Manville Co. (C. C.) 189 F. 611.

In Keystone Driller Co. v. General Excavator Co., 290 U. S. 240, 54 S. Ct. 146, 147, 78 L. Ed. 293, the rule was stated that one coming into a court of equity must do so with clean hands, and, "after quoting from Story’s Equity Jurisprudence (14th Ed.). § 98, that the court will refuse to interfere in Ms bill if he does not, the court said:

“ ‘To aid a party in such a case would make this court the abetter of iniquity.’ Bein v. Heath, 6 How. 228, 247, 12 L. Ed. 416. And again: ‘A court of equity acts only when and as conscience commands; and, if the conduct of the plMntiff be offensive to the dictates of natural justice, then, whatever may be the rights he possesses, and whatever use he may make of them in a court of law, he will be held remediless in a court of equity.’ Deweese v. Reinhard, 165 U. S. 386, 390, 17 S. Ct. 340, 341, 41 L. Ed. 757.”

Applying that principle of equity, the appellant should have had granted the relief asked for in its amended answer to the extent of denying injunctive relief as well as an accounting.

Decree reversed with costs, and a decree will be entered in accordance with tMs opinion.