Champlin Refining Co. v. Gasoline Products Co., 2285.

Decision Date30 November 1928
Docket NumberNo. 2285.,2285.
Citation29 F.2d 331
PartiesCHAMPLIN REFINING CO. v. GASOLINE PRODUCTS CO.
CourtU.S. Court of Appeals — First Circuit

William S. Linnell, of Portland, Me., and Horace G. McKeever, of Enid, Okl. (Carl C. Jones, of Portland, Me., Harry O. Glasser, of Enid, Okl., and Emery O. Beane, of Augusta, Me., on the brief), for appellant.

John B. Marsh and Taylor, Blanc, Capron & Marsh, all of New York City (Robert Hale and Verrill, Hale, Booth & Ives, all of Portland, Me., on the brief), for appellee.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge.

As amended, this was a suit at law to recover royalties amounting, with interest, to $103,004.35, admittedly due under a written contract for a nonexclusive license to use the patented Cross cracking process. The defendant (appellant) filed a counterclaim for damages, specified in detail, grounded on an alleged breach of a contemporaneous contract with plaintiff to construct a plant for, and to use, royalty free, the Cross vapor phase treating system. Evidence was received from defendant in support of this counterclaim; plaintiff offered no evidence in reply.

At the close of the defendant's evidence, the court granted plaintiff's motion:

"That said account in set-off be stricken from the record and that all testimony offered under and in support of said account in set-off be stricken from the record, and for ground of its motion the plaintiff sets forth that the testimony offered under and in support of said account in set-off fails to establish any claim or right of action by the defendant herein against the plaintiff herein."

The main question is whether, interpreting defendant's evidence in the light of the surrounding circumstances in the aspect most favorable to defendant, it was entitled to go to the jury. Union Pacific R. R. v. Huxoll, 245 U. S. 535, 539, 38 S. Ct. 187, 62 L. Ed. 455; Gray v. Davis (C. C. A.) 294 F. 57, 58, and cases cited. This calls for a fairly detailed statement of the situation and the evidence.

Plaintiff is a New York corporation, with its headquarters in New York City. It alleges that it has the right to grant nonexclusive licenses under some 80 named patents, owned by it, by the Texas Company, by the Standard Oil Company of Indiana, by the Standard Oil Company of New Jersey, by the Standard Development Company, and others, as well as under future patents to be hereafter acquired by these oil companies, covering processes and apparatus for treating hydrocarbons. It is a large and responsible concern, carrying on its extensive business in close interrelated affiliation with numerous other corporations.

The defendant is a Maine corporation, producing, refining, and marketing petroleum products at Enid, Okl., and vicinity; it has a capacity of about 20,000 barrels of crude oil per day, and an investment of several millions of dollars. Its president and chief executive (apparently its founder) is H. H. Champlin, an experienced and competent business man. Prior to 1926, defendant had for some years been operating an oil-skimming plant at Enid, a process under which only part of the gasoline really available in the crude oil is made marketable. "Cracking," and a purifying process to eliminate undesirable odors, colors, and elements, are necessary for full utilization of the real market values in crude oil.

In 1925 and 1926 a number of patented cracking and purifying processes were in general commercial use, and sharply competing for the patronage of such concerns as this defendant. As early as March, 1925, Guy N. Harcourt, of the M. W. Kellogg Company, submitted orally and in writing to Slater, defendant's superintendent, a list of licensees using the Cross cracking process, together with an estimate of the profits obtainable by defendant through using this process. M. W. Kellogg was, as Champlin later testified that he knew, "the erecting company" — that is, the concern that the plaintiff caused to erect plants to use the Cross cracking process under licenses granted by the plaintiff. The Kellogg Company was also, as might be found from a letter written by plaintiff on November 17, 1926, then the plaintiff's "representative in negotiating license agreements and matters in connection with such agreement."

As plaintiff's counsel themselves state in their brief: "Mr. Harcourt continued during 1925 to communicate with the defendant in an effort to interest it in making an installation of Cross cracking units." In a letter to President Champlin dated November 27, 1925, signed, "The M. W. Kellogg Company, by Guy N. Harcourt," Harcourt says:

"I wanted to call your attention particularly to the Barnsdall installation of the Cross process, which they have direct connected to the Gray vapor phase treating towers. They are obtaining 30-plus color directly from the towers. The gasoline passes directly from the cracking plant into the towers and is delivered ready for marketing without any re-running. The Cross process is the only one which can be connected with a vapor phase treating plant in this way."

Harcourt then suggested that Champlin and defendant's superintendent, Slater, see the Barnsdall installation for the Cross cracking process. This Slater did. Slater also made a general study of various competing processes, such as the Dubbs, and Jenkins, and Holmes-Mankey, comparing them with the results achieved by the Cross processes. The general result was a favorable opinion of the Cross processes and devices by both Champlin and Slater.

Again quoting from the plaintiff's brief, which states the fair effect of the parol evidence:

"Harcourt was succeeded by P. C. Keith, Jr., in the negotiations with the defendant and some time in January, 1926, Keith and Charles H. Welling, a vice president of the plaintiff, called on Champlin in Enid, Okl. At this conference the negotiations initiated by Harcourt for the sale of a Cross cracking plant were continued."

Champlin says:

"I was willing to buy. * * * Well, they told me, and Mr. Keith had told me prior to this meeting, that the Cross Development Company had lately developed what they termed a Cross vapor phase treating plant to be used in conjunction with the Cross cracking plant, and that if I would purchase one of their plants and their royalty agreements that they would give me free from royalty this new plant that the Cross Development Company had just patented. They were to install it, and I was to pay for it after it had been in operation successfully. * * * Mr. Keith and Mr. Welling told me that they would give me royalty free a Cross vapor phase treating plant if I would purchase one of their cracking plants and pay for their royalty. That they would install the plant —

"Q. (By the Court): Which?

"A. The Cross vapor phase treating plant, and put it in operation and if it worked successfully why then I should pay for it, without — there was to be no profit in the erection, to them in the erection of the vapor phase treating plant. * * *

"As it passed through the Cross vapor phase treating plant it was to decolorize it and otherwise make it merchantable. * * *

"Well, * * * it was a new process and a great deal cheaper. * * *

"Well, it was to be operated conjointly with the cracking plant and the product was to be finished all at one operation whereas in other processes why the synthetic crude had to be run to stills and vaporized and condensed and then further treated with chlorine gas."

On February 6, 1926, Keith and Harvison, a vice president of the Kellogg Company, took up the negotiations with Champlin, and Champlin says:

"They proposed to sell me the plant and I finally agreed to accept it. * * * They offered to give me the Cross vapor phase treater, Mr. Welling and Mr. Keith, on prior business had offered to give it to me. * * *

"Q. When you use the word `plant,' will you identify that?

"A. I mean the cracking plant in conjunction with the Cross vapor phase treating plant. * * *

"Well, when they finally left my office they said they would go and prepare contracts, and I should meet them that evening at the Oxford Hotel."

In the evening at the hotel, Champlin, Superintendent Slater, Harvison, and Keith present, Harvison and Keith presented four documents: (a) Draft of the license agreement now sued upon; (b) draft of contract with the Kellogg Company for the erection of the Cross cracking plant, at a cost of over $440,000; (c) contract of guaranty by the plaintiff licensor that the plant thus to be installed would do the work effectively; (d) a document reading as follows:

"Enid, Oklahoma, February 6, 1926. "Champlin Refining Company, Enid, Oklahoma. "Attention Mr. H. H. Champlin.

"Dear Sir: Directed by Mr. C. H. Welling, vice president of the Gasoline Products Company, Inc., we are pleased to outline in this letter their proposition covering the installation of a Cross vapor phase system treating tower.

"The installation is to be made solely at the expense of the Gasoline Products Company, and no moneys are to be paid by the Champlin Refining Company to the Gasoline Products Company until the installation is operating in a satisfactory and feasible manner. The unit shall be said to be satisfactory when the gasoline produced from it has a color, when measured by a standard Saybolt color machine as ordinarily used in the refining industry, of twenty-five (25) or better, is sweet to the "doctor" test as ordinarily understood, passes the copper strip corrosion test, and after eight hours continuous exposure to the sun still has a color of 21 or better.

"When the installation is functioning in a satisfactory manner the Champlin Refining Company is to reimburse the Gasoline Products Company, for the cost only of the installation.

"We are directed to state that the Gasoline Products Company will, in the event that any suits are instituted against the Champlin Refining Company for infringement of patents, undertake and...

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    • United States
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