Esco Corporation v. HENSLEY EQUIPMENT COMPANY

• Decision Date: 08 September 1965
• Docket Number: No. 39806.,39806.
• Citation: 265 F. Supp. 863
• Parties: ESCO CORPORATION, Plaintiff, v. HENSLEY EQUIPMENT COMPANY, Inc., Defendant.
• Court: U.S. District Court — Northern District of California

265 F. Supp. 863

ESCO CORPORATION, Plaintiff, v. HENSLEY EQUIPMENT COMPANY, Inc., Defendant.

No. 39806.

United States District Court N. D. California, S. D.

September 8, 1965.

Thelen, Marrin, Johnson & Bridges, San Francisco, Cal., Dawson, Tilton, Fallon & Lungmus, Jerome F. Fallon, Chicago, Ill., for plaintiff.

Flehr and Swain, San Francisco, Cal., for defendants.

MEMORANDUM OPINION AND ORDER

ZIRPOLI, District Judge.

Esco Corporation, the plaintiff, is an Oregon corporation, located at Portland, Oregon. It also maintains a plant at Danville, Illinois. Esco's business includes, among other things, the manufacture and sale of expendable products for construction equipment, such as excavating teeth and replacement points for those teeth.

Hensley Equipment Company, Inc., the defendant, is a California corporation, located at San Leandro, California. Defendant is also engaged, among other things, in the manufacture and sale of excavating teeth and replacement points for those teeth. Defendant sells its products through various dealers in the United States, and among those dealers is one W. M. Hales Company, Inc., of Danville, Illinois, which latter company, in addition to being a dealer, is also an independent warehouse operator and operates a warehouse at Danville not only for the benefit of defendant, but also for other manufacturers.

This suit was brought on United States Letters of Patent 2,483,032, hereinafter called the "Baer Patent", and under the Patent Laws of the United States (35 U.S.C. §§ 271, 281; 28 U.S. C. §§ 1338(a), 1400).

The subject matter of the Baer Patent is an excavating tooth. Excavating teeth are metal devices which fit on the front or digging edges of dippers, shovel buckets and the like and serve to aid in the penetration and breaking up of earth or rock in which such equipment is working. The particular type of teeth concerned in this suit are two-part excavating teeth, including an "adapter" portion and a wedge-shaped wear "point". The point is a separate, relatively small tip that fits on the adapter and provides the actual cutting edge of the overall tooth. The commercial value of such excavating teeth lies in the fact that the point can be easily fitted on to the adapter, maintained securely thereon during the heavy stresses encountered in field operations and yet readily releasable for replacement when worn down or when it otherwise becomes time to replace the point. The resultant savings in man hours and metal have been a boon to the heavy construction industry.

While excavating teeth of a two-part nature were known to the art as early as 1909 (Patent No. 915,809 issued to B. C. Thomas) and had had some limited commercial use in the late Thirties and early Forties, extensive commercial use of such two-part excavating teeth did not commence until about 1945 or shortly thereafter.

The patent in suit, the Baer Patent, of which only claims 5, 8 and 9 are at issue for decision by this Court, was granted on September 27, 1949 to Josef Baer on an application filed in the United States Patent Office on June 6, 1945. Prior to issuance, the application and all rights therein were assigned to Electric Steel Foundry Corporation, which by change of name became Esco Corporation, plaintiff in this suit. Plaintiff is now, and at all times during the commission of the acts complained of by plaintiff has been, the owner of the entire right, title and interest in and to the Baer Patent, including the right to sue for patent infringement.

In the year 1947 defendant started making its own two-part excavating teeth and in the year 1948 it started making replacement points for the teeth of other manufacturers of two-part teeth. These included the Caterpillar type, for which it paid a royalty, H & L type, the patent on which had expired, and Ateco type and Saker type, which latter two types were not patented. About 1960 defendant entered into the manufacture of the Esco (Baer) type replacement points For this purpose defendant purchased five Esco two-part teeth (points and adapters) in order that it might "capture the dimensions" that are necessary to fit its manufactured Esco type points to the Esco adapters. Defendant, at the time of the purchase of these Esco points and adapters, knew that these pieces carried patent numbers on them. After the defendant had manufactured 109 Hensley-Esco type wear points, Clyde Hensley, the President of defendant corporation, received a visit from Hal Robb of the plaintiff corporation, who said to him, "Oh, you have ears that fit snugly into the recesses of our adapters. You are infringing our patent." (R. 181). Defendant immediately stopped production and made certain changes in the pattern of its Hensley-Esco type points in order to keep the ears (more often described as tongues) of the wear points from fitting snugly into the recesses of the Esco adapter by changing the formation of the tongues in such manner as to provide "an eighth of an inch clearance and a hardened piece of steel." (R. 181). As the witness Clyde Hensley said, "I didn't want to infringe the patent, so I immediately changed so that it didn't interlock." (R. 182). He further testified that he "just changed the shape of the tongues" and made no testing other than to try the new wear points on the adapters to see that there was an eighth of an inch clearance.

It is admitted by the defendant that if the Baer Patent is valid, the first 109 points manufactured by defendant infringe claims 8 and 9 of that patent. This admission of infringement of claims 8 and 9 appears from the record in several places. In the pretrial order, approved as to form and content by the defendant, it is provided as follows: "6. The admitted and undisputed facts in the case include: * * * (i) That the defendant has manufactured a small number of points as defined in Claims 8 and 9 of the patent in suit, and that these points infringe said claims if the claims are valid." At the hearing on motion of summary judgment, counsel for defendant admitted that this small number of points infringe the Baer Patent when he said, "We admit that they (referring to these 109 points) would infringe and we also admit that the defendant would be liable for such infringement if the Baer patent were valid.", and during the course of the trial counsel again admitted that these points infringed. In answer to the Court's question, "You have admitted that the first teeth would infringe if a patent exists", counsel for defendant replied, "Yes, Your Honor, we did." (R. 23).

As to the defendant's subsequently manufactured wear points, plaintiff complains (1) that the manufacture and sale of such wear points directly infringe claims 8 and 9 of the Baer Patent and (2) that because of defendant's relationship with W. M. Hales Company, Inc. of Danville, Illinois, the defendant infringed claim 5 of the Baer Patent by inducement in that defendant induced W. M. Hales to purchase new adapters from plaintiff and new replacement points from defendant for the purpose of assembling the two together for sale by W. M. Hales as a complete unit.

Before turning to claims 8 and 9, which relate generally to the wear point itself and which form the heart of this case, the Court finds that the plaintiff's allegation that defendant infringed claim 5 (which relates to the overall combination of the wear point and the adapter of the Baer Patent) by inducement is without substance. The induced party is supposedly W. H. Hales Company of Danville, Illinois; however, there is not the slightest bit of evidence from which one could reasonably conclude that any inducement occurred. Plaintiff appears to be attempting to show an agency relationship between defendant and W. H. Hales Company, but the evidence will not sustain plaintiff's contention:

"MR. HERBERT: Q. Mr. Hensley, Do you know Mr. Herbert Hales?

"A. Yes, I do.

"Q. What is your relationship with him?

"A. He is one of my warehouse outlets in Danville, Illinois, and also a dealer for Hensley Products within his trading area.

"Q. Would you explain what your relationship, or rather, what your business arrangement is with Mr. Hales with respect to warehousing and with respect to his dealership?

"A. Well, we have an arrangement with W. M. Hales Company whereby we pay him a fee for stocking our merchandise and reshipping to other dealers on the eastern seaboard, for which we pay him a warehousing fee and three per cent handling charge for products reshipped for us. Then the other phase of his business as far as we are concerned, he draws from our warehouse and sells direct to the contractors in his trading area, immediately around Danville, Illinois.

"Q. Do other of your dealers draw from that warehouse?

"A. They do.

"Q. You mentioned W. M. Hales Company. How is this related to —

"A. W. M. Hales Company —

"THE COURT: Well, let's start first with, has this always been the relationship?

"THE WITNESS: Yes, it has been, since the—

"THE COURT: It hasn't varied at any time?

"THE WITNESS: No, sir.

"THE COURT: All right.

"THE WITNESS: Well, yes, sir, I might qualify that, because over the years, prior to him becoming a warehousing agent, from time to time he bought other products or products in the Hensley line, on an occasional basis, but not on a regular basis.

"THE COURT: All right.

"MR. HERBERT: Q. And what did you say was W. M. Hales Company?

"A. W. M. Hales is the company of which Herb Hales is the General Manager and President — I assume, although I am not sure he is President.

"Q. But Herbert Hales is connected with W. M. Hales?

"A. He is considered the owner of W. M. Hales Company, yes.

"Q. Have you instructed W. M. Hales Company or Herbert Hales or any one with that company how to sell your points?

"A. No, sir, I have not.

"Q. Have you ever instructed or suggested that your points be sold on new Esco adapters?

"A. No, sir, I have not.

"THE COURT: Did you ever become aware of that fact?

"THE WITNESS: I never

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