Deering Milliken Research Corp. v. Leesona Corp.

• Decision Date: 29 March 1963
• Docket Number: Docket 27628.,No. 76,76
• Citation: 315 F.2d 475
• Parties: DEERING MILLIKEN RESEARCH CORPORATION, Plaintiff-Appellant, Warren A. Seem, Nicholas J. Stoddard, Frederick Tecce and Harold P. Berger, copartners trading as The Permatwist Company, Intervenor, v. LEESONA CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

315 F.2d 475 (1963)

DEERING MILLIKEN RESEARCH CORPORATION, Plaintiff-Appellant Warren A. Seem, Nicholas J. Stoddard, Frederick Tecce and Harold P. Berger, copartners trading as The Permatwist Company, Intervenor, v. LEESONA CORPORATION, Defendant-Appellee.

No. 76, Docket 27628.

United States Court of Appeals Second Circuit.

Argued October 30, 1962.

Decided March 29, 1963.

Granville M. Brumbaugh, New York City (Brumbaugh, Free, Graves & Donohue, New York City, on the brief; Stuart N. Updike, James N. Buckner, and Lee W. Meyer, New York City, of counsel), for plaintiff-appellant.

Robert F. Conrad, Washington, D. C. (Watson, Cole, Grindle & Watson, Washington, D. C., on the brief), (Debevoise, Plimpton, Lyons & Gates, New York City, of counsel), for defendant-appellee.

William J. Fuchs, Obermayer, Rebman, Maxwell & Hippel, Philadelphia, Pa., for intervenor Permatwist Co.

Before CLARK, FRIENDLY and MARSHALL, Circuit Judges.

MARSHALL, Circuit Judge.

This is an appeal by Deering Milliken Research Corporation, plaintiff below, from an order of the United States District Court for the Eastern District of New York, Byers, J., which dismissed plaintiff's amended complaint and entered judgment on the merits for the defendant, Leesona Corporation. The court retained jurisdiction without ruling upon the merits of a complaint filed by the intervenor, The Permatwist Company. The opinion is reported at 201 F.Supp. 776 (E.D.N.Y.1962).

Deering Milliken Research Corporation, which in 1955 succeeded to the business and assets of Deering Milliken Research Trust, is a Delaware corporation having its principal office and place of business in Spartanburg, South Carolina. It is engaged in research and development, rather than manufacturing, in the field of textiles, particularly the area of thermo-plastic synthetic yarns used in the production of hosiery and of fabrics for wearing apparel. Its income is obtained from royalties paid by its licensees for the use of its patents and inventions. Leesona Corporation, which in 1959 changed its name from Universal Winding Company, is a Massachusetts corporation which has its principal place of business in Cranston, Rhode Island, and maintains a research laboratory in Jamaica, Queens County, within the Eastern District of New York. Leesona is engaged in the manufacture and sale of textile machinery and equipment used by mills in the fabrication of hosiery and wearing apparel in which thermo-plastic yarns are used; appellant's brief describes Leesona as "dominant in that segment of the industry which is concerned with the subject matter of this appeal — machinery to produce crimped nylon yarn." Permatwist, a partnership consisting of four men, each of whom is a citizen of Pennsylvania, is a competitor of the plaintiff in the design and licensing of mechanical equipment for use in textile manufacturing. For convenience, each of the parties will be referred to by its present name.

On November 23, 1954, Deering Milliken and Leesona entered into a licensing agreement. By the terms of the agreement, Deering Milliken granted to Leesona a royalty-free license to manufacture and sell to Deering Milliken's use licensees apparatus designed by Deering Milliken for use in the manufacture of elasticized yarn and embodying its technical information and inventions. Deering Milliken also agreed not to license other machinery manufacturers in the United States during the term of the agreement. In a grant-back clause that was to become central to the litigation that resulted, the parties provided:

"3. Any improvements made on the apparatus or process which is the subject matter of this agreement by or through the efforts of UNIVERSAL or UNIVERSAL\'S employees or which are acquired by UNIVERSAL or which come under its control during the term of this agreement together with any and all applications for patent and patents granted thereon shall become the property of RESEARCH TRUST, and UNIVERSAL hereby agrees to assign or to cause the same to be assigned to RESEARCH TRUST to the full extent of the interest therein by UNIVERSAL and the same shall be available to UNIVERSAL exclusively for manufacture and sale to RESEARCH TRUST\'S licensees also without payment of royalty. In the event this agreement is terminated as hereinafter provided, UNIVERSAL shall have the exclusive right to manufacture for sale any improvements assigned to RESEARCH TRUST as herein provided, excepting the manufacture for sale of such improvements for use in the practice of the elasticizing yarn process and/or apparatus defined herein."

The "subject matter of this agreement" had been stated in the preamble to be "certain inventions and technical information relating to elasticized yarn and the apparatus and the process employed in the manufacture of such yarn, which process and apparatus comprise passing yarn under predetermined tension about a sharp edge and equipment therefor * * *." The commercial product of plaintiff's apparatus and process is known by the name Agilon.

Following the execution of this agreement, Leesona made and developed a device for use in textile manufacturing which it designated as its No. 511 Apparatus and Process. Believing that the 511 machine and process constituted an improvement on its own apparatus that was the subject matter of the license agreement, Deering Milliken made demand upon Leesona for assignment to it of Leesona's right, title, and interest in and to the 511 invention, in asserted pursuance to the grant-back clause. Leesona took the position that its 511 apparatus was not an "improvement" upon Deering Milliken's apparatus or process and that it therefore had no obligation under the grant-back clause of the agreement to assign its rights in the invention to Deering Milliken.

The present litigation resulted. Asserting jurisdiction under 28 U.S.C.A. § 1332, Deering Milliken sought specific performance of the contract and related relief. The cause was heard before Judge Byers from June 12, 1961 to July 13, 1961, with the testimony and evidence being directed primarily to the question of whether defendant's 511 apparatus and process constituted an improvement upon plaintiff's apparatus and process within the meaning of the grant-back clause of the parties' agreement.

Judge Byers resolved that question of fact in favor of the defendant, holding that "the testimony demonstrates that the yarn which emerges from the 511 apparatus and process is a thing which did not exist as the product of * * * the plaintiff's Agilon apparatus and process," 201 F.Supp. at 780, and that the "511 apparatus is not an improvement upon the Agilon apparatus within the contemplation of the grant-back clause contained in the license agreement between the plaintiff and defendant * *." Id. at 786-787. He accordingly dismissed plaintiff's amended complaint, rendered judgment for the defendant on the merits, and retained jurisdiction of the intervenor's cause in the event that his findings should be reversed on appeal. This court subsequently denied plaintiff's motion for an injunction pending determination of this appeal....