Kobe, Inc. v. Dempsey Pump Co.

• Decision Date: 13 October 1952
• Docket Number: 4314.,No. 4313,4313
• Citation: 198 F.2d 416
• Parties: KOBE, Inc. et al. v. DEMPSEY PUMP CO. et al. DEMPSEY PUMP CO. et al. v. KOBE, Inc. et al.
• Court: U.S. Court of Appeals — Tenth Circuit

198 F.2d 416 (1952)

KOBE, Inc. et al. v. DEMPSEY PUMP CO. et al. DEMPSEY PUMP CO. et al. v. KOBE, Inc. et al.

Nos. 4313, 4314.

United States Court of Appeals Tenth Circuit.

July 5, 1952.

Writ of Certiorari Denied October 13, 1952.

Rufus S. Day, Jr., Cleveland, Ohio, Ford W. Harris, Jr., Los Angeles, Cal., and William A. McAfee, Cleveland, Ohio, (McAfee, Grossman, Taplin, Hanning, Newcomer & Hazlett, Cleveland, Ohio, Harris, Kiech, Foster & Harris, Los Angeles, Cal., Fairfield & Woods, James A. Woods, and Charles J. Beise, Denver, Colo., on the brief), for appellants.

R. B. McDermott and Charles M. McKnight, Tulsa, Okl. (Robert F. Davis, Washington, D. C., Bradford J. Williams, Fenelon Boesche and T. Hillas Eskridge, Tulsa, Okl., on the brief), for appellees, Dempsey Pump Co. and Oscar E. Dempsey.

Anne Moroney, Tulsa, Okl., for Specialty Sales and Service, Inc.

Before PHILLIPS, Chief Judge, and MURRAH and PICKETT, Circuit Judges.

Writ of Certiorari Denied October 13, 1952. See 73 S.Ct. 46.

PICKETT, Circuit Judge.

Kobe, Inc.,¹ and Alta Vista Hydraulic Company, Ltd., California corporations, sued Dempsey Pump Company, an Oklahoma corporation, Oscar E. Dempsey, its president, Specialty Sales and Service, Inc.,² an Oklahoma corporation, and M. L. Walraven, Jr., for infringement of five patents. The amended complaint also alleged that the defendants, which included a former employee of Kobe, Inc., conspired to use information of Kobe obtained from former employees for unfair competition and unfair business practices. The defendants denied the validity of the patents or that they were infringed if valid. The unfair business practices were denied. As a further defense and by cross-complaint, the defendants alleged abuse of the patent monopoly in violation of Secs. 1 and 2 of the Sherman Anti-Trust Act, 15 U.S.C.A., §§ 1 and 2, and counterclaimed for triple damages under Sec. 4 of the Clayton Act, 15 U.S.C.A. § 15.

The trial court held that the plaintiff was the owner of patents numbered 1907951, 2081220, 2473864 and 2081223, and that it was a licensee under patent 1907947, all relating to hydraulic pumps. It held patent 1907947 valid and infringed in each claim in suit. Three of the other patents were held to be invalid but infringed if valid. The fifth patent, number 2473864, was held to be invalid but infringed if valid. The cause of action relating to the unfair business practices was dismissed. The court held the plaintiffs guilty of unlawful monopolization under the Sherman Act and awarded triple damages.

On the counterclaim the court found that Dempsey had suffered losses as a result of the unlawful monopoly in the sum of $143,364.50. It included expenses and attorney fees in connection with the defense of the infringement action totaling $23,045. It found that Specialty had suffered a loss of commissions on the sale of pumps and auxiliary equipment in the sum of $23,481.41. It also allowed Dempsey $25,000 attorney fees incurred in the prosecution of the counterclaims and $5,000 attorney fees to Specialty. Under the Clayton Act judgment was entered in favor of Dempsey for $430,093.50 and for Specialty in the amount of $70,444.23, and the plaintiffs were enjoined from continuing the monopoly.

On appeal the basic contentions of the plaintiffs for reversal are that the court erred in holding that the plaintiffs or their predecessor was guilty of monopolizing a part of trade or commerce for the reasons that: (1) the evidence did not show that the plaintiffs or their predecessor had any power to monopolize the field of the hydraulic pump for oil wells; (2) that there was no evidence of any purpose or intent on the part of the plaintiffs or their predecessor to monopolize that field; and (3) that even if the plaintiffs' predecessor, herein referred to as Old Kobe, had been guilty of unlawful monopoly there was no evidence that the plaintiffs were guilty of such monopoly for the reasons: (a) that Kobe or its parent company, Dresser Industries, Inc., was not responsible for a monopoly of the predecessor in the absence of proof that Kobe was guilty of continuing the monopoly; (b) that the patents acquired by Kobe in the reorganization did not give it power to monopolize the field of hydraulic pumps; (c) that there is no evidence that Dresser or Kobe had any purpose or intent to monopolize that field; and (d) that Kobe was not guilty of such monopoly even though it had the power and the purpose to monopolize the hydraulic pump field because it had never refused to grant licenses on a reasonable basis and had not otherwise misused its patents. It is also contended that the record does not warrant the findings of damages in favor of the cross-claims even if the plaintiffs were guilty of monopolization. The correctness of the court's finding as to two of the patents is also questioned by the appeal and the cross-appeal.

To determine the antitrust issues, it is necessary to explore the background and history of the development of the hydraulic pump for oil wells and the business conduct of Old Kobe leading up to the creation of and the business conduct of Kobe.

Clarence J. Coberly, an engineer, inventor and industrialist, organized Old Kobe in 1923 and was its president throughout its existence. In 1925 there was no hydraulic pump available to the oil industry for pumping oil from wells, and Coberly recognized the need for such a pump and its commercial opportunities. Due to the increasing depth of oil wells and the unevenness of wells caused by rotary drilling, the need for improved methods for lifting oil from wells was generally recognized. Inventors Crum, Scott, Humphreys and Gage, separately and independently of each other, conducted experiments and obtained patents relating to hydraulic pumps. It was during this time that Gage built and sold the first pump of this kind. At this point Crum, Scott and Humphreys were attempting to manufacture and market a pump under their patents but the ventures did not meet with financial success. These patents were then conveyed to Scott-Ross & Company which continued experiments under the direction of Scott. In order to separate the hydraulic pump enterprise from the other business of Scott-Ross, the Rodless Pump Company was organized in 1929. Up to 1932 Rodless had manufactured and sold a small number of pumps. It had also acquired patents issued to Yungling and Knox. In 1932 Rodless was in financial difficulties but it was the holder of important patents for the production and marketing of hydraulic pumps.

The Gage pump, during this time, was showing signs of success. The Alta Vista Hydraulic Company, Ltd., was created and certain of the Gage patents were assigned to it, among which was patent 1907947, one of the patents in suit. By 1932 Gage and Alta Vista had advanced in the actual manufacture of hydraulic pumps to such an extent that they had entered the Mid-Continent Field of oil production through a licensee. Also during this time, Coberly, through Old Kobe was ready to market a hydraulic pump. He was satisfied that his design infringed the Humphreys patents and possibly others, but was unable to secure a license from Humphreys and consequently did not press his experiments at this time but was granted several valuable patents. In 1929 Coberly learned that Rodless had secured a license under the Humphreys and Crum patents. He approached Rodless and proposed that Rodless and Old Kobe consolidate their patents for the use of both. This resulted in the First Rodless-Kobe Agreement of March 1, 1933. This agreement provided that a corporation should be created for the purpose of holding title to the patents assigned to a pool. The new corporation was called Roko Corporation. It had no function other than the holding of the pool patents, granting licenses according to the terms of the agreement, and the acquiring of other patents relating to hydraulic pumps. Kobe and Rodless were to assign to Roko all of their patents and all future inventions or patents acquired for the 25 year period provided for in the agreement. The pool provided for was not an open pool. It was to issue only a license to Old Kobe, but Rodless was to have the right to a similar license if it should elect to claim that right within three years from the date of the agreement. This right was never exercised and was cancelled out by agreement within about one year. It was specifically agreed that Roko should not issue any license to other persons except upon unanimous vote of the Board of Directors, three of whom were nominated by Old Kobe and three by Rodless. The agreement provided that Roko should establish a schedule of prices and terms of sale which was to be controlling of all sales by its licensees and included a form of license agreement requiring the licensee to comply with the prices fixed by the patent pool. The price fixing provision was eliminated in a subsequent amendatory contract after Rodless had surrendered its option to be licensed, and Old Kobe was then the sole licensee of the pool and was able to control its own prices.

The agreement provided that the purpose of the pool was to acquire patents relating to hydraulic pumps and to do everything reasonably within its power to "build up and maintain its patent monopoly." At the time of the execution of this agreement, the desirability of acquiring the Gage patents for the pool was recognized. This was accomplished on April 19, 1934, when Roko executed two agreements whereby it acquired the patent rights of Gage and Alta Vista. Seven patents were purchased from Gage as an individual for $12,000 in cash. In this agreement Gage agreed that he would not engage in any business or accept any employment in any way detrimental to Roko or its licensees for a period of five years. It also required Gage to assign to Roko any inventions or patents relating to hydraulic pumps which he might acquire within a period of 10 years. The Alta Vista...