Cold Metal Process Co. v. United Engineer. & Fdry. Co.

• Decision Date: 19 July 1956
• Docket Number: No. 11582,11617.,11582
• Citation: 235 F.2d 224
• Parties: The COLD METAL PROCESS COMPANY and The Union National Bank of Youngstown, Ohio, Trustee, v. UNITED ENGINEERING & FOUNDRY COMPANY. Appeal of UNITED ENGINEERING & FOUNDRY CO. Appeal of the COLD METAL PROCESS COMPANY and the Union National Bank of Youngstown, Ohio, Trustee.
• Court: U.S. Court of Appeals — Third Circuit

235 F.2d 224 (1956)

The COLD METAL PROCESS COMPANY and The Union National Bank of Youngstown, Ohio, Trustee, v. UNITED ENGINEERING & FOUNDRY COMPANY Appeal of UNITED ENGINEERING & FOUNDRY CO Appeal of the COLD METAL PROCESS COMPANY and the Union National Bank of Youngstown, Ohio, Trustee.

Nos. 11582, 11617.

United States Court of Appeals Third Circuit.

Argued October 3, 1955.

Decided July 19, 1956.

Rehearing Denied September 7, 1956.

William H. Webb, Pittsburgh, Pa. (Clarence B. Zewadski, Detroit, Mich., William Wallace Booth, Webb, Mackey & Burden, Pittsburgh, Pa., Whittemore, Hulbert & Belknap, Detroit, Mich., Reed, Smith, Shaw & McClay, Pittsburgh, Pa., on the brief), for plaintiffs.

Jo Baily Brown, Pittsburgh, Pa. (Patterson, Crawford, Arensberg & Dunn, Brown, Critchlow, Flick & Peckham, Pittsburgh, Pa., James S. Crawford, Julian Miller, James D. Morton, Pittsburgh, Pa., on the brief), for appellee.

Before BIGGS, Chief Judge, and MARIS and GOODRICH, Circuit Judges.

MARIS, Circuit Judge.

On January 20, 1927 the plaintiff, The Cold Metal Process Company,¹ an Ohio corporation, entered into a contract in Pittsburgh, Pennsylvania, to grant a license to the defendant, United Engineering & Foundry Company, a Pennsylvania corporation, under a patent thereafter to be obtained, to manufacture, use and sell 4-high steel rolling mills.² The patent contemplated by the contract, Patent No. 1,779,195, was issued to Cold Metal as assignee of the applicant, Steckel, on October 21, 1930 on a division of the original Steckel application. On January 14, 1930 Patent No. 1,744,016 had been issued to Cold Metal covering other subject matter of the original Steckel application. Both the contract and patent '195 have been in litigation continuously for a quarter of a century.

In a suit in equity (No. 2506) begun in the District Court for the Western District of Pennsylvania in 1931 between Cold Metal and United it was determined by a decree entered on January 9, 1933 that patent '195 was valid and that the 1927 contract was also valid and gave United the right to a license under it. Cold Metal Process Co. v. United Engineering & Foundry Co., D.C.1933, 3 F. Supp. 120, appeal dismissed, 3 Cir., 1934, 68 F.2d 564, certiorari denied 291 U.S. 675, 54 S.Ct. 530, 78 L.Ed. 1064. On November 17, 1934 the present suit in equity (No. 2991) was instituted by Cold Metal against United in the same district court seeking, inter alia, the enforcement of the 1927 contract and a determination of the amount due thereunder by United. After proceedings therein not now pertinent³ Cold Metal filed a supplemental complaint in which it asked, inter alia, in the alternative for rescision of the 1927 contract and again for a determination of the amount due thereunder by United. Following final hearing the district court refused rescision of the 1927 contract, granted specific performance of it and held that Cold Metal was entitled to be paid by United the amount due under the contract, the amount and basis of payment to be determined by a master. D.C.1938, 83 F.Supp. 914. The judgment in all these respects was affirmed by this court. 1939, 107 F.2d 27.

Thereafter a master was appointed by the district court to determine the amount due by United to Cold Metal.⁴ The master held extensive hearings and filed an elaborate report. He found United liable to Cold Metal in the amount of $387,650.00 for 91 mills sold under the license, that Cold Metal was not entitled to interest on that sum prior to the time of filing his report and that United was not liable for 32 mills manufactured in the United States and sold outside its territorial limits. Exceptions were filed by both parties. The district court adopted the master's report in toto and directed the entry of a judgment in favor of Cold Metal in the amount of $387,650.00, with interest from the date of the filing of the master's report. D.C.1955, 132 F.Supp. 597. Both parties have appealed from this judgment. In directing its entry the district court, in compliance with Rule 54(b) of the Federal Rules of Civil Procedure, 28 U.S.C., expressly determined that there was no just reason for delay in entering a final judgment.⁵

We consider first the appeal of Cold Metal. Its primary contention is that the master erred in determining the amount of the royalties due it under the 1927 contract. Its position is that recovery should have been based on the value of the rights obtained by United under the license. Our review of the record satisfies us that the amount of royalties arrived at by the master comports with the intention and understanding of the parties at the time the license contract was executed and that this was the proper standard to apply.

The background facts of this case which we have stated above in barest outline have been so many times recounted in opinions of the district court, of this court and of the Supreme Court,⁶ as well as in opinions of other courts,⁷ that it is unnecessary to go over them again in detail here. Suffice it to recall that in 1927 Cold Metal and United each had applications pending in the United States Patent Office relating to 4-high steel rolling mills which were believed to include common subject matter. On June 20, 1927 they executed the contract already mentioned which provided that if the claims to the common subject matter in their applications were granted in any patents to Cold Metal, it would grant to United a license to make, use and sell rolling mills under such claims.⁸ They further agreed immediately, without waiting for such claims to be secured, to negotiate the payments to be made by United for the license, when and if granted, and that if they were unable to agree, the matter be submitted to three arbitrators named therein.⁹

On October 21, 1930, Patent No. 1,779,195 was granted to Cold Metal and United thereafter made and sold 4-high rolling mills which were within the claims of that patent. No formal license was ever executed nor has United paid any royalties for its use. However, in accordance with their contract, the parties had started to negotiate the basis for payment by United for the license contemplated by the contract. Under date of January 11, 1928 United forwarded the following letter to Cold Metal:

"Jan. 11, 1928 "Mr. A. P. Steckel Cold Metal Process Co 1200 City Bank Bldg Youngstown, O.

Dear Mr. Steckel —

Relative to our conversation of the 9th, we understand that the royalty we are to pay on the 4-high mills, is to be at the following rate:

Mills having rolls 18" body length and less $500.00 per stand of mills.

Mills having rolls longer than 18", $500.00 plus $65.00 per inch for each inch over 18" length of body.

We are writing this letter merely as a confirmation, as we have asked Byrnes, Stebbins & Parmelee, to put the matter in the form of an agreement which will meet their requirements.

Very respectfully

UNITED ENGINEERING & FOUNDRY CO. F. C. Biggert Jr. President."

Under date of January 12th, 1928 Cold Metal replied as follows:

"January Twelfth 1928 "Mr. F. C. Biggert, Pres., United Engineering & Foundry Co., Farmers Bank Bldg., Pittsburgh, Pa.

Dear Mr. Biggert:

We are pleased to acknowledge receipt of your letter of the 11th, confirming our verbal understanding as to royalties.

We understand, of course, that these royalties will appear in a definitive agreement which the attorneys will draw up.

Appreciating very much the manner in which you have handled this matter, we remain,

Yours very truly, THE COLD METAL PROCESS COMPANY A. P. Steckel, President"

After the exchange of the January 1928 letters a license agreement incorporating the provisions of United's letter of January 11, 1928 was drafted but never signed. Upon the basis of this exchange of letters the master concluded that the royalty rate to be paid by United under the 1927 contract for mills manufactured and sold under the contract was as follows:

Mills having rolls 18" body length and less, $500 per stand of mills.

Mills having rolls longer than 18", $500 plus $65 per inch for each inch over 18" length of body.

The district court approved and adopted this conclusion. 132 F.Supp. 597, 600.

Cold Metal contends that the court erred in so doing because the conclusion is predicated upon a proposal made and rejected by both parties in 1928 before the patent issued and before there was any opportunity to determine the real value of the invention covered by the patent, whereas it is the real value of the license to which it is entitled. For this proposition Cold Metal relies on statements made by United during the various proceedings conducted during the litigation of this case. The contention is without merit. For we are not concerned with the fact that the royalty rate proposed in the 1928 correspondence now appears to be low in the light of subsequent developments. What does concern us, in the absence of a formal agreement as to the royalty rate, is the intention of the parties at the time the contract was made.

In the opinion of this court rendered in this case in 1939 upholding the validity of the 1927 contract the court said:

"This `contract\' has been partly performed and equity requires that it be completed by supplying the amount which United must pay for the license in accordance with the intention of the parties. * * * The evidence shows what that intention was, for the parties had an `understanding\' as to what the royalties would be and what that understanding was can readily be ascertained from the evidence by the master appointed or to be appointed by the District Court." 107 F.2d 27, 32-33.

We are satisfied that the master correctly performed the duty thus laid upon him by this court. The January 1928 letters were obviously what this court had in mind. It is perfectly clear from reading them that the minds of the parties had met on the royalty rate. They had agreed upon the figures and had turned the matter over to counsel merely...