Scherr v. Difco Laboratories, Inc.

270 F. Supp. 586, 153 U.S.P.Q. (BNA) 607, 1967 U.S. Dist. LEXIS 11320
CourtDistrict Court, E.D. Michigan
DecidedFebruary 2, 1967
DocketCiv. No. 25532
StatusPublished
Cited by1 cases

This text of 270 F. Supp. 586 (Scherr v. Difco Laboratories, Inc.) is published on Counsel Stack Legal Research, covering District Court, E.D. Michigan primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Scherr v. Difco Laboratories, Inc., 270 F. Supp. 586, 153 U.S.P.Q. (BNA) 607, 1967 U.S. Dist. LEXIS 11320 (E.D. Mich. 1967).

Opinion

OPINION

THORNTON, District Judge.

This action is one for specific performance of a license agreement, for an accounting and for damages. Jurisdiction rests on diversity of citizenship and presence of an amount in controversy in excess of $10,000. We append hereto • a copy of said License Agreement which was entered into on July 1, 1959. Under the terms set forth therein defendant was granted a non-exclusive license under plaintiff’s United States Reissue Patent No. 24557 and Canadian Patent No. 578,055, “to make, use and sell the licensed products” in Canada and the United States. (License Agreement, paragraphs 2 and 3.) A royalty payment of 3% of the net sales price is provided for in paragraph 4. Succeeding paragraphs of the agreement set forth, the method of payment, accounting and conditions under which defendant may cancel the agreement. Because defendant’s defense to this action is planted squarely on the language contained in paragraph 11, we set it forth here:

Paragraph 11
“Difco shall have the right to make, use, and sell, royalty-free, any prod-duct which has been ruled not to infringe the Scherr Reissue Patent 24,-557 by any Court of competent jurisdiction and last resort or from which no timely appeal has been taken by Scherr.”

At the outset it may be well to clarify three particulars — one concerning the [587]*587genesis of this agreement, one identifying the product with which the agreement deals and one concerning the Canadian patent. Prior to the date of the agreement, July 1, 1959, there was pending before another judge of this Court litigation between these same two parties, in which plaintiff Scherr was prosecuting an action against defendant Difco for patent infringement of Scherr’s United States Reissue Patent No. 24557. The License Agreement before us now was consummated in settlement of that litigation. We think that some significance attaches to this fact and we will have occasion to be more specific subsequently. Concerning the product involved herein, it is described in the agreement, at the top of page 2 thereof, as a “sensitivity testing device comprising an essentially flat, integral single piece of absorbent paper material in the form of a ring and having a plurality of peninsular areas which extend from the ring and carry substances useful in assessing the effect of various agents on the growth of microorganisms, which product is presently known by the name ‘UNIDISK’.” Concerning the Canadian patent, the testimony adduced during the course of the trial herein established the fact that Difco, since the inception of the agreement, has not been engaged in the manufacture, use and/or sale of the licensed product in Canada. We are, therefore, not concerned with those provisions of the agreement pertaining to a license under Canadian Patent No. 578,-’ 055.

About the same time as the litigation involving the claim of infringement by Scherr was pending in this Court, Scherr brought another infringement action involving his United States Reissue Patent No. 24557 (the same patent which is the subject matter of the License Agreement here in suit) against National Bio-Test, Inc., a Nebraska corporation, in the United States District Court for the District of Nebraska. In relation to both the Nebraska patent infringement litigation and the Eastern District of Michigan patent infringement litigation there was a financial arrangement in effect between Difco (defendant here) and National Bio-Test. This arrangement was known to Scherr (plaintiff here) and consisted of the following:

“National Bio-Test, Inc. and Difco Laboratories, Incorporated have arranged to share equally the cost of defending the suits brought by plaintiff against Difco Laboratories, Incorporated and National Bio-Test, Inc. The costs of defending each suit does not include any judgment against either company for profits, damages, or other compensation for infringement of the Scherr patent. Each party has conducted its defense independently with attorneys of its own choosing, and neither company, either di-. rectly or indirectly, has exerted any control, either partial or full, of the defense made in the suit against the other on the Scherr patent.”

The existence of the above-quoted financial arrangement between National Bio-Test and Difco plus the fact that Scherr was represented by the same attorney in both the Michigan and Nebraska patent infringement litigation and Difco by the same attorney in the Michigan patent infringement litigation who represented National Bio-Test in the Nebraska patent infringement litigation compel one obvious conclusion — that the parties to the License Agreement involved herein had knowledge at the time of discussing, preparing and entering into said License Agreement that the validity of the patent in suit in the Nebraska litigation (the same patent which is the subject matter of said License Agreement) was an issue for determination in that suit. The patent infringement suit against National Bio-Test was tried in February 1960 by Judge Richard E. Robinson of the United States District Court for the District of Nebraska, and on March 10, 1961 that Court handed down an opinion determining that the “patent in suit is void for want of invention.” Scherr v. National Bio-Test, Inc., D.C., 197 F.Supp. 372, 378 (1961). On April 27, 1962 the Court of Appeals [588]*588for the Eighth Circuit affirmed Judge Robinson’s opinion. Scherr v. National Bio-Test, Inc., 301 F.2d 901 (1962). In his opinion Judge Robinson made no finding of fact, and/or determination on the issue of infringement. The affirming opinion of the Court of Appeals is also silent on the issue of infringement.

In his Amended Bill of Complaint plaintiff states that “[w]hile Defendant paid Plaintiff the minimum payments due in accordance with the terms of the aforesaid agreement, Exhibit A, on July 1, 1960 and July 1, 1961, Defendant has failed to make payments to Plaintiff as provided for in said agreement on July 1, 1962, July 1, 1963 and July 1, 1964, and Defendant has not rendered any accounting to Plaintiff or made any additional payments to Plaintiff, as provided for in said agreement. Thus Defendant has failed to perform its obligations in accordance with the terms of said agreement.”

Difco’s defense to the instant breach of contract action may be best stated in its own words as they appear in its brief. Difco states that when it “executed the settlement agreement with Scherr on July 1, 1969, Difco understood that it had settled its patent controversy with Scherr regardless of the outcome of the Omaha litigation,” the Omaha litigation referring, of course, to the suit in Nebraska previously adverted to herein. Difco also states that:

“It was Difco’s understanding that if the outcome of the Omaha litigation was favorable to Scherr and affirmed on appeal, then Difco would be protected by its license agreement with Scherr, and if the Omaha litigation was adverse to Scherr and affirmed on appeal, then Difco, proceeding under Paragraph 11 of the agreement, would have a royalty-free license under the Scherr Reissue Patent to make the ring type sensitivity disk which was the subject of the agreement. The license would not cover the star shaped disk shown in the Scherr patent which plaintiff Scherr was fhen making and selling.”

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Related

George H. Scherr v. Difco Laboratories, Inc.
401 F.2d 443 (Sixth Circuit, 1968)

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Bluebook (online)
270 F. Supp. 586, 153 U.S.P.Q. (BNA) 607, 1967 U.S. Dist. LEXIS 11320, Counsel Stack Legal Research, https://law.counselstack.com/opinion/scherr-v-difco-laboratories-inc-mied-1967.