United States v. Youngstown Sheet & Tube Co.

• Decision Date: 06 December 1948
• Docket Number: No. 10780.,10780.
• Citation: 171 F.2d 103
• Parties: UNITED STATES v. YOUNGSTOWN SHEET & TUBE CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

171 F.2d 103 (1948)

UNITED STATES v. YOUNGSTOWN SHEET & TUBE CO. et al.

No. 10780.

United States Court of Appeals Sixth Circuit.

December 6, 1948.

Roy C. Hackley, Jr., of Washington, D. C. (H. G. Morison and Roy C. Hackley, Jr., both of Washington, D. C., and Don C. Miller, of Cleveland, Ohio, on the brief), for appellant.

Howard F. Burns and Frank Harrison, both of Cleveland, Ohio, for appellees.

Howard F. Burns and Baker, Hostetler & Patterson, all of Cleveland, Ohio, William H. Webb and Stebbins, Blenko & Webb, all of Pittsburgh, Pa., Clarence B. Zewadski and Whittemore, Hulbert & Belknap, all of Detroit, Mich., and Franklin B. Powers and Manchester, Bennett, Powers & Ullman, all of Youngstown, Ohio, for Cold Metal Process Co., and Union Nat. Bank of Youngstown, Ohio, trustee of the Leon A. Beeghly Fund.

Leland K. Neeves and Scott, MacLeish & Falk, all of Chicago, Ill., and Andrew P. Martin, Frank Harrison and Squire, Sanders & Dempsey, all of Cleveland, Ohio for Signode Steel Strapping Co.

John B. Putnam and Andrews, Hadden & Putnam, all of Cleveland, Ohio, and Cravath, Swaine & Moore, of New York City, for Youngstown Sheet & Tube Co. and Bethlehem Steel Co.

Andrew P. Martin, Frank Harrison and Squire, Sanders & Dempsey, all of Cleveland, Ohio, and Breed, Abbott & Morgan, of New York City, for Armco Steel Corporation (name formerly American Rolling Mill Co.)

W. C. Plummer, of Pittsburgh, Pa., and T. F. Veach and Jones, Day, Cockley & Reavis, of Cleveland, Ohio, for Jones and Laughlin Steel Corporation.

W. A. McAfee, and McAfee, Grossman, Taplin, Hanning, Newcomer & Hazlett, all of Cleveland, Ohio, for Wheeling Steel Corporation.

Hershey, Donaldson, Williams & Stanley, of Baltimore, Md., for Crown Cork & Seal Co., Inc.

Harry W. Lindsey, Jr., and Davis, Lindsey, Hibben & Noyes, all of Chicago, Ill., for Inland Steel Co.

H. E. Hackney and Reed, Smith, Shaw & McClay, all of Pittsburgh, Pa., for Crucible Steel Co. of America.

Smith, Buchanan & Ingersoll, of Pittsburgh, Pa., for Allegheny Ludlum Steel Corporation and Wallingford Steel Co.

Before ALLEN, MARTIN and MILLER, Circuit Judges.

MARTIN, Circuit Judge.

This appeal presents the direct question: Does the Royalty Adjustment Act of October 31, 1942, U.S.C.A., Title 35, §§ 89-96, apply to payments of money made in settlement of claims for damages for past infringement of patents? The district court held that sums aggregating $9,749,000 so paid and on deposit in the registry of the court are not "royalties" and are, therefore, not within the purview of the Royalty Adjustment Act.

The United States has appealed from the denial of its motion for a preliminary injunction impounding, pendente lite, the aforementioned amount in the court registry. The district court ordered its clerk to pay over the impounded funds to the trustee, which had succeeded to the rights of the owner of the patents.

The order also overruled separate motions of two of the manufacturers who had settled for infringement, seeking inhibition of the distribution to the trustee of any part of the sums deposited by each into the registry of the court. It was decreed that the payment to the trustee of the $9,749,000 should constitute a full discharge of the defendant manufacturers from any claim by the United States that the various amounts paid by each, aggregating the total sum in the registry of the court, "were in any respect affected by the Royalty Adjustment Act or any notices or orders purporting to have been made thereunder." The complaint of the United States, as amended, insofar as it sought to recover the moneys on deposit in the registry or equivalent amounts from the defendant manufacturers, was dismissed.

A bit of background touching this case may be helpful to an understanding of how the present issue has been reached. In United States v. Cold Metal Process Company, D. C., 62 F.Supp. 127, the United States, upon grounds of fraud or mutual mistake, sought cancellation of two Steckel patents pertaining to the rolling of metal. The patents were owned by the Cold Metal Process Company. After trial of that case, District Judge Miller (now a member of this court) dismissed the complaint of the United States; and his judgment was affirmed by this court. 6 Cir., 164 F.2d 754, certiorari denied 334 U.S. 811, 68 S.Ct. 1016, rehearing denied 334 U.S. 835, 68 S.Ct. 1343.

Before the trial of the attempted patent-cancellation case, the district court, by an order dated October 9, 1944, enjoined Cold Metal Process Company, until entry of final judgment, from collecting or receiving any moneys from royalties, settlement of claims, judgments for damages, or otherwise, on account of the two Steckel patents, and from undertaking to collect any payments by virtue of the patents. The order expressly permitted the reduction of claims to judgment and the effectuation of settlements, upon the express condition, however, that any moneys so received should be deposited with the clerk of the court to await further orders of court. The Cold Metal Process Company was also enjoined from distributing to its stockholders any moneys received by way of royalties, payments in settlement of claims, satisfactions of judgments, or otherwise, on account of the patents. The express purpose of this interlocutory order as recited therein was to preserve the status quo pending the trial of the case.

Between the end of December, 1945, and October 11, 1946, the $9,749,000 involved herein was paid in settlement of unliquidated claims for past patent infringements and was deposited in the registry of the court. The government's counsel conceded at the hearing below that the respective sums paid by nine of the defendant manufacturers were paid in settlement of their infringements of the patents. Each settlement agreement between the patent owner and the infringing manufacturer included a license for operation under the patents in the future. The record discloses that no part of the sums so paid constituted royalty payments. This appears, not only from the documentary evidence, but also from the affidavit of counsel for Cold Metal Process Company who was active in the negotiation of the settlement agreements with the nine infringers, and the fact is uncontradicted in the record. Counsel for the government conceded at the trial that the contention was not being made that "the term `royalty' as it's commonly understood normally applies to settlements of infringement cases."

After denying certiorari on May 3, 1948, the Supreme Court, by denial on June 1, 1948, of a rehearing brought to an unsuccessful end the effort of the United States to cancel the Steckel patents. United States v. Cold Metal Process Co., 334 U.S. 811, 68 S.Ct. 1016; Id., 334 U.S. 835, 68 S.Ct. 1343.

On June 15, 1948, the district court directed its clerk to pay over, not earlier than June 25, 1948, to the trustee for the patent owner the impounded $9,749,000. On June 23, 1948, the complaint in the instant action was filed. A temporary restraining order was entered to allow time for the taking of evidence and the hearing of the case. After the hearing, as stated at the outset, the district court refused to grant a preliminary injunction impounding the funds paid into its registry in the manner heretofore described; and ordered its clerk to pay over the impounded funds to the trustee of the patent owner. Application of the United States for a stay of execution pending appeal was denied, but the appellant was allowed a ten-day stay to permit the United States to apply to this court for like relief. Upon presentation of the application to Judge Allen, a member of this court, the petition for stay pending appeal was denied upon condition that the clerk of the district court should disburse the impounded money to the trustee, who would be required to invest it in the Federal Reserve Bank at Cleveland, Ohio, to be held there pending disposition of this appeal and the further order of this court.

In denying the motion for preliminary injunction, the district court, finding that the impounded moneys were paid in settlement of infringement claims, held that the Royalty Adjustment Act is limited in its application to royalty payments by licensees to licensors. This interpretation is in direct conformity with the language of the act. Nowhere therein can be found any expression by Congress indicating that the scope of the act extended to the settlement of patent infringement claims.

The Royalty Adjustment Act, approved October 31, 1942, 56 Stat. 1013, et seq., 35 U.S.C.A. §§ 89-96, is entitled, "An Act to provide for adjusting royalties for the use of inventions for the benefit of the United States, in aid of the prosecution of the war, and for other purposes." The first sentence of the enacting clause provides that whenever an invention, whether patented or unpatented, shall be manufactured, used, sold or otherwise disposed of for the United States, with license from the owner thereof or any one having the right to grant licenses thereunder, and such license includes provision for the payment of royalties the rates or amounts of which are believed to be unreasonable or excessive by the head of the department or agency of the government which has ordered such manufacture, use, sale, or other disposition, such department or agency head shall give written notice of such fact to the licensor and to the licensee.

The act then sets up the procedure and machinery for determination by the head of the government department or agency concerned of the rates and amounts of royalties found to be fair and just, taking into account the conditions of wartime production. Notice, as specified, is required to be given to the licensor and to the licensee, with reasonable opportunity permitted them to present any fact or circumstance considered to have bearing upon the rates or amounts of royalties. After the effective date of notice, the licensee is forbidden to...