Vulcan Mfg. Co. v. Maytag Co.

73 F.2d 136, 23 U.S.P.Q. (BNA) 96, 1934 U.S. App. LEXIS 2620

• Court: Court of Appeals for the Eighth Circuit
• Decided: September 25, 1934
• Docket: 9947
• Status: Published

Opinion

STONE, Circuit Judge.

Appellee, as licensor under various patent b M ^ aetion to -oin appeI£nt, ifc, lice from of lie^se íln<¡ for an ae<4Ilti of d g on aeecrant of violations. Upc>n flnal hearing tho eourt de. creed a permanent injunction, an allowance images, appointed a master to take ^10 aecounting in damages. Prom that decree aPPoa^ *s brought,

The patents covered by the license had to do with a swinging wringer and its gear meehaiiism for use on power-operated washing machines. Appellee granted a license to en ■dure until expiration of the longest patent covered thereby, under certain conditions set forth in the license, in return for payment of a fixed royalty for each swinging winger and gear mechanism made and sold by the lieensee. One of the conditions of the license was to manufacture and sell “swinging wringers and gear mechanisms shown in the attached circular, for use only in connection with and .as a part of power-operated washing ma-chines of the general type and design shown m the circular attached hereto and made a part hereof under said patents and patent application, and to sell the same in accordance with the provisions hereinafter contained. v(Italics added.)

A related provision of the license is as follows: “Second party further agrees not to sell any of said patented devices separately or as a part of any other mechanism than on the washing machines made by it of the general type shown in the attached circular to any person, firm or corporation, except for repairs to machines previously sold by seeond party.” (Italics added.)

Attached to and made part of the license were illustrations and descriptions of the washing machine manufactured by the licensee and'referred to in the'license in the two above quotations.

After proceeding under this license for several years, the licensee abandoned the type of washing machine formerly made by it and covered by the license. Refusing to cease attaehing the wringers and gearing covered by the license to this new type of machine this action resulted. In the court below there were issues as to the construction of the license and as to whether this hew machine was a departure therefrom, but those issues are not in the.appeal, so we may enter our consideration with the established situation that attachment of the licensed apparatus to the machines made and being made by appellant is a violation of the terms of the license. The issues on this appeal concern the binding effeet of the license under the situation here presented.

I. Invalidity of License.

One important issue urged here is that this license is invalid as a violation of the Clayton Anti-Trust Act § 3 (15 USCA § 14). The basis of this contention is that the wringer and gear mechanism covered by the patents and the license are for attachments to power-operated washing machines, which -are not covered by patents; that such attachments are necessary to salability of such washing machines; that to limit, through license, the use of the patented device to a particular bind of washing machine, thus preventing its use upon other and more desirable types of washing machines which are manufactured by appellant, has the effect of giving appellee a monopoly over unpatented articles through the device of such character of license.

It ^ be conceded that the evidence establisbes tbat it is aiffieult, if not impraetieal; to dispose of power-operated washing maebbDLeg without the wringer and gearing attaebmellts covered by tIiese patents. Also, tbat tll6re are varkms types of washing ma_ chines, and that a limitation of license to a less desirable and salable washing machine would seriously hamper, if it did not practieally prevent, competition with a more desirable and a more salable machine, and that this lessening of competition would have a tendency to create a monopoly. Also, that these patents cover only the wringer and gearing mechanism, and have no reference to the washing machines themselves.

These concessions, however, fall short of establishing a situation which invalidates this license. It is well established that the essence of a patent is monopoly in the subject-matter of the patent. E. Bement & Sons v. National Harrow Co., 186 U. S. 70, 91, 22 S. Ct. 747, 46 L. Ed. 1058. The sole incentive offered by the patent laws to encourage development in the arts and sciences is the right monopoly for a given term of yeais. n is not against such bind of monopoly that the anti-trust laws are armed or to which they have any application. It is true, however, that it is possible for a patentee to so employ the force of this legitimate monopoly, through a license, through sales of the patented arti°le> or otherwise, as to effect another and additional monopoly unrelated to that accorded hy the patent. When this is done, such license, sales, or other device is unlawful. In declaring the rule of law applicable to this latter situation the Supreme Court has said that the patentee may grant a license “upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure.” United States v. General Elec. Co., 272 U. S. 476, 489, 47 S. Ct. 192, 196, 71 L. Ed. 362. Therefore, the question here is whether the condition of this license (that the patented matters should be used only in eonnection with a particular type of washing machine) is reasonably within the reward of monopoly granted by the patent.

Obviously, there was no obligation on the patentee» to grant any license whntsoever. If tne situation in the washing maenine business was such that there would be no com-manna. demand for washing machines v.itliotit these patented attachments, ¡fie natmal and legitimate result flowing from the monopoly of these attachments would be a monopoly of the washing machine business, although the machines themselves were entirely unpatemed. This is a situation brought about by the excellence of tho patent m a eommerc;ial sense, and not by any arrangement, contract, or other act of the patentee than tho bare ownership of the patent and the monopoly ox use of the subject-matter covered thereby. If this bo the situation of the evidence, the only effect of granting a license to use the patented attachments would be one; beneíicial to the licensee, since it would enable him to continue in a business where he could not commereiallv remain without the license. Obviously, the* patentee is not compelled to choose between granting full and complete 4T% , , ° i- „ use under the patent or granting no use. Ho may attach such limitations upon tho use as do not go beyond the influence of his compíete monopoly without granting licenses. Under the situation here, it is clear that this limitation in the license to use of tho patent-i ■« , , , . . fi , . od attachments to certain types ox washing , . . „ .,,. i, , n .r maemnes is well within the monopoly of tho , , rn j} x. ¿i j. fi j • • j patent. The very fact that ap-peJlani insists £ . on going outside of the license, and testifies ,, ’ i-t i , (through its president) that it would have to v ° . • go out of business unless it did, is eonvineing f, . « i i at i 11 that the commercial situation is such that the , <> ,, , , , j, i . , monopoly oi, these patentea attachments has ,, a- i -tm j u i n ,n file practical eixect of a monopoly of the pow- f. x. -L* i • ir er driven washing machine business. Ixone js .. . f. . n „ * ,, . ,. of appellant's ngms are invaded by this iim- .. ^ ,, *7 , , ila,tion, since it may cease using tho patented device and manufacture any character of washing machines it desires with any other wringer and gearing attachments or with no such attaenments. As to it, the aimcult sit-nation is one naturally resulting. It has no standing of itself to claim a right to use the patented device. Nor is the public harmed by this limitation, because the patentee is en~ titled to all the benefits naturally flowing from the monopoly of his patent and, under the commercial situation here shown, a natural benefit of this monopoly is its extension to the entire machine. This limitation in the license is well within the language and the intent of the rulo as quoted above from the Suprome Court.

II. Estoppel, etc.

It ig quito evident tbat tho main reliailec 0.j jn the court below and hero is upon itg eontontion tbat t}ie oondllct of ap_ penoe in connection with the violation of tho p(Jcnse j^y appellant is such as to defeat this aetion. In presenling tMs nlattCT; tbe in. getlldty 0f aj-q0 counsel has left no legal oToim¿ untouched. They claiin estoppel, ratifloation> acquiescence, approval, implied 11-cñns0j election, and kindred, doctrines, ^yby.e there aro differences in the rules of law goy^mfeg these various grounds, it seems unnoeossary to burden tMs opinion with such los?al dcfinitions, as we are convinced there is p<) giwmd ia the eyid8nc6 f(>r sustaining any of tbem. T}¡is involyes a disffugsion 0f the pllrpor¿ 0f g0 much 0f the evidence as relates ^ ^ matters

^ A(,_, „ . n n0T pto 2 appellant discovered that of ^n&mshecl frü,m fte Patuented attachments) which it was ^fang was being replaced m the purchasing public esteem by machines differently com l, , , _ r(,/ .. _ . ,, J stmcted “d forming the wash- ^ operation. I hereupon, it set to meet this ,m. p^° J í T xt devised the machine objected to by the MÍ[nsoi. y ep um er or c o r, ■ , it had constructed, by hand, a wotdang model, n . , « ° , Convinced of the practicability and sales at- , ,. * ,, . x , ,. traction of this construction, it laid out mon- „ . 7 . . p ey±{>r dies and machinery designed for pro- / ,e T auction ox this new type machine. In the n , -norr i <> , . , December, 19¿(, number of a trade journal u . it advertised this new machine, describing ® it and oifenng* introductory samples on afc- , .. . , P 47, . * tractive terms. A few machines were pro- •. . ,, , , , „ , mf duced m the last days of that month. There ,, ;J . .r was a small production m January, 1928, an . . ,, , , ,, ,.w, , increase m the subsequent months until “good produotion„ was rea8hod in j 1928. From thence on to the trial, it produced this mac).dne for geveral years, replacing the form and character of material of the washing tub in iater models, but preserving in all the washing machinery and methods,

The sitmtioll relied upon by appeiiant to sll0W estoppol; ete^ is made up of various p;ems concerning* each of which something should be said- 0ne of these is that appellee, with full knowledge that appellant intended to make this new machine -and apply thereto tbe licensed articles and knowing that such would require the expenditure of substantial money for dies and machinery to make this change, stood by and did not object until after such expenditures had been incurred. The evidence does not justify this position. As to these matters, there is but one dispute in the evidence as to which there is a direct eonflict, depending on the remembrance or veraeity of the two conflicting witnesses and withont anything in the evidence outside of their testimony to point to a determination of that eonfliet in favor of appellant. 1 The trial court found that the first information appellee had of this contemplated change in type of machine was in January, 1928. We think this finding is slightly inaccurate. The first information coming to appellee was some time in December, 1927, when the above advertisement in the trade journal was brought to the attention of the chairman of the hoard of the Maytag Company. On December 14, 1927, this chairman (F. L. Maytag) notified his district manager, at Kansas City, that appellant was “advertising a cast aluminum tub, which in appearance to the laymen would be recognized as the Maytag”;' and that the advertisement stated appellant would, during Deeember only, ship a sample machine at ear-load discount. He requested that Ireland procure one of these machines through one of the Maytag nearby dealers and sMp it “as soon as you get it. Your prompt attention to tMs will he appreciated.” To tMs Ireland replied, December 16th, that he had arranged to have a dealer at Liberty, Mo., order the macMne and ship it direct from Kansas City, stating, “they hope to be able to do this tomorrow or Monday at the latest.” There was a further letter from Ireland to Maytag, of December 17th (not set out but referred to in the record), advising that appellant would not be in production until after January 1st. Tó tMs Maytag answered, on December 19th, suggesting that Ireland have the dealer “submit Ms order and let it stand for delivery as soon as the machine is in production.” The thirteenth machine produced was delivered to the dealer, about January 16th, and promptly shipped to appellee, at Newton, Iowa, where it seems to have been received about January 24th. It was then sent to the attorneys of appellee, in Chicago, for their inspection and action. April 2, 1928, the attorneys wrote appellant calling attention to the terms of the license limiting the application of the licensed articles to the type of machine covered thereby; calling aftention to a recently litigated ease between appellee and another company in Ohio, re-gar ding a similar subject-matter; and demanding that appellant immediately diseontinue the use of the patented wringers on this new machine and discontinue marking such machines licensed thereunder, and also informing them that unless they heard promptly appellee would he obliged to take steps neeessary to prevent such “wrongful acts.” Shortly after receipt of this letter the president of appellant made a trip to Toledo to investigate the litigation referred to in the above letter. Although he determined that the decree entered in that litigation was by consent, he sent an attorney to Chicago to con-f er with the attorney of appellee regarding the matter. The result of this conference was that appellant’s attorney was told that appellant could not attach the licensed meehanism to that machine.. Thereafter, appellant continued to make the machine and, apparently, to build up production, since Ms testimony is that “good production” was not reached until Jime. July 19, 1928, this suit was filed. The above recital makes clear that there was no standing by on the part of appellee. As soon as it had information of the change it acted to procure an actual maeMne for submission to its counsel for their judgment of the rights of appellee. It obtained tMs maeMne as soon as possible, and it was promptly submitted to counsel. About a month after such submission the above letter of April 2d, notifying appellant that it was violating and must cease violating the license, was sent. After that letter there appears to be no unjustifiable delay in bringing the aetion. Another matter which should be notieed in tMs connection is the expenditure claimed by appellant. The testimony shows a total expenditure of something over $64,-000. Of this amount, over $16,000 was spent before production began; that is, before appellee bad knowledge of the change in machine. $35,000 was spent after April 2d, when the notice of violation was sent to ap pellant; thus, more than $51,000’ of the more thau $01,000 spent was expended either before knowledge of appellee or after notice to appellant. There was neither standing by on tho part of appellee nor any expenditure by appellant which was induced by the attitude of appellee.

Another matter strongly pressed by appeilant is that royalties were accepted and retained upon the changed machines. This is true, but it is also true that appellee had a legal right to sueh royalties; the question here being whether its acceptance and retention thereof was an indication that it consented, to the violation of tho license or was such action that appellant might properly infer such eon-sent and act thereon. When it is considered that the matter was under investigation until April 2,1928, was in suspension between then and the time suit was filed, on July 19th following, and that this suit was filed, it seems impossible for the appellant to reasonably infer any such consent. There is no basis for such position. To this may be added that the evidence clearly shows that this action of appellee had not the slightest influence upon appellant continuing its violation of the license, The reason why it continued to violate this lícense is tersely stated by its president, who, being asked as to his going ahead with plans to complete the machine and put it on the market after investigating the Ohio ease, answered, “We had no alternative. It was either 'that or go busted.”

In August, 1928, and because of a suggestión from its counsel, appellee instructed the National Household Devices Company, which was the royalty collecting ageney of appellee, to write appellant not to send any royalties on the new machine, and to advise it whether appellant had been paying royalties on the new machine and, if so, the amount thereof, with the understanding that it should be refunded 1.0 you.” TMs letter was refen-ed by appellant to its counsel, who wrote a careful, noncommittal answer, stating that they regarded the letter as “but a studied attempt to lay a foundation for Mr. Maytag and Ms company to avoid the legal consequences of their knowledge and acts,” and stating that Mr. Maytag and Ms company had known for a long time that the royal-tics were being paid on “all machines” maimfaetured by appellant, and that all of sueh machines had been manufactured with the knowledge, acquiescence and approval of the Maytag Company, both by words and by con-duet. The letter also stated that all royalties that had been paid “have been properly paid and properly due under its contract and subsequent circumstances, and it expects to eontinue to pay the royalties thereunder in the future, the same as it has in the past.” This correspondence seems to have ended this attempt at segregating future or refunding past royalties. We see nothing in this situation “rning ^ yaitíes to avoid the effect of 0 leens0‘

Another item bearing upon this matter js the furnishing of license labels to place up- an ¿he machines made by appellant. This matter, standing alone, might cause hesitation, although it is explainable on the theory that certainly up into 1931, appellee had no reason to believe that all machines made and soid hy appellant were violative of the license, and since it had requested (in August, 1928) information concerning the number of machines in connection with the royalty payments and had been rebuffed it might, without ioss 0f right, continue to furnish labels. But w},en this item is considered in the entire sit-nation, it is impossible to give it great irnportance. There was never a moment from the letter of protest of April 2, 1928, when appellant did not know that appellee was vigor-0usly denying the right of appellant to appjy the licensed attachments to any machines except those covered by tho license. It never jiaci reason to believe any change in that position, and it never acted'in reliance upon any SUch change,

Another matter is the contention of appellant tllat ofchers nndor lieenses of identical form WGT0 permitted to use the licensed apparatus 0n washing machines other than eoverod py tjjejr licenses. Whether this is true or notj or ^ reagon is of ll0 eonse_ q^ence to appellant. It cannot affect the rights of the parlies under tMs lieense. There js I10 business or legal connection between this iieense and that t0 any one 0lse. Each stands upon jt® own terms, and the action of appellee in regard to any one of them has no efiect u the legal rights of the parties to any ©ther iieonse

Another matter, not greatly stressed here, is delay in prosecution of this action to judgment. Tlie record reveals the suit filed July 19, 1928. A considerable number of pleadings resulting in a reply to an amended answer and cross-bill, filed December 8, 1930, followed by defendant’s application for corn-mission to take depositions, filed December 27, 1980, allowed by order, March 18, 1931, depositions taken as late as November 2,1931, by appellant, with trial beginning July 7, 1933. This record, unquestionably, shows delay in determination of this suit, but tó what sueh delay is attributable does not at all appear in the record. If appellant desired to rely upon this ground, it should have presented and preserved in the record evidence justifying the conclusion that culpable delay was attributable to appellee.

. . III. Admission of Evidence.

Appellant presents here claimed errors in connection with the exclusion of two pieces of evidence. The first of these oceurred during the redirect examination of the president of appellant. He was asked if, at the taking of the depositions, in October or November, 1931, a statement was made to Mr. Magtag, either by witness or by examining counsel, “with reference to the royalties that had been paid and on what machines they had been paid.” An objection to the competency of this testimony was sustained, and counsel made an offer of proof that Mr. Maytag had been then informed “what royalties had been paid on the particular type of machine, including the machine in eontroversy.” Obviously, the purpose of this offer was to bring home, as of that date, knowledge to appellee that it was receiving royalties in connection with the objectionable machines. This testimony was admissible, but, in view of what has been above expressed coneeming the effect of receipt and retention of the royalties, we are certain that its exclusion was harmless error.

The second piece of evidence has to do with the same general matter, that is, with nofice that the royalties, in whole or part, were in connection with the new machine. Appellant had taken the deposition of H. W. Power, secretary of the National Household Devices Company. The patents covered by this license had been issued to various parties who had combined the ownership in the Maytag Company under an agreement to share royalties from licenses according to a specified percentage. This agreement _ prordded that the National Household Devices Company, a separate corporation, should ant as the royalty collecting agency. Such collections were paid over by it to a trustee who made the distribution among the parties to the agree- ^ Iff vided that the royalties should be paid to National Household Dew*» Company, and that appellant would allow that company “as the duly authorized representative of first party [appellee] to inspect its books at all reasonable' times for the purpose of ascertaining the accuracy of such reports,” meaning monthly royalty reports by appellant. Power was the individual in the Household Company who cheeked up and verified the reports and royalty payments of licensees. At the trial appellant did not offer the deposition of Power which it had taken, but offered extracts therefrom as admissions of appellee against interest. These admissions had to do with knowledge gained by Power, from checking the books and reports of appellant in connection with royalty payments, that royalties were being paid covering the objectionable machines,' and the amount of such payments thereon. An objection that Power was not shown to be the agent of appellee so that his knowledge was that of appellee was sustained. The evidence abundantly sustains that ruling, The trial court held that it had been shown that Power was the agent of appellee in eolleeting and cheeking up royalties, but that it had not been shown that he was a general agent for all purposes. The evidence sustains this ruling of the court, and goes no further.

Counsel for appellant have presented this case with great ability, but even such ability cannot overcome the law and the facts, and the decree should be, and is, affirmed,

1 This conflict is as to whether the witness Shaeffer, divisional manager of appellee, at Kansas City, was shown the working model at the plant of the appellant some time in September or October, 1927 (when he was division manager of Oklahoma). The president of appellant testified that this was true. Shaeffer testified that he had never seen the machine at that time, and had never been in the plant. The president of appellant also testified that two salesmen of appellee had seen the model in the plant during the above two months. There was, however, no evidence that these salesmen had communicated that information to any officer of appellee, and, obviously, the knowledge of the salesmen was not the legal knowledge of appellee,