324 U.S. 806 (1945), 377, Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co.

• Citation: 324 U.S. 806, 65 S.Ct. 993, 89 L.Ed. 1381
• Party Name: Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co.
• Case Date: April 23, 1945
• Court: U.S. Supreme Court

Page 806

324 U.S. 806 (1945)

65 S.Ct. 993, 89 L.Ed. 1381

Precision Instrument Manufacturing Co.

v.

Automotive Maintenance Machinery Co.

No. 377

United States Supreme Court

April 23, 1945

Argued January 31, February 1, 1945

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Syllabus

1. In this suit for infringement of patents and breach of contracts related thereto, the District Court's findings of fact and conclusions of law sustained its judgment of dismissal on the ground of the complainant's "unclean hands," and the Circuit Court of Appeals' reversal of the judgment was erroneous. Pp. 807, 820.

2. The maxim "he who comes into equity must come with clean hands" closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant. P. 814.

3. The "clean hands" doctrine is rooted in the historical concept of a court of equity as a vehicle for affirmatively enforcing the requirements of conscience and good faith. P. 814.

4. While equity does not require that its suitors shall have led blameless lives as to other matters, it does require that they shall have acted without fraud or deceit as to the matter in issue. P. 814.

5. One's misconduct need not have been of such a nature as to be punishable as a crime or as to justify legal proceedings, in order to warrant invocation of the maxim. P. 815.

6. Where a suit in equity concerns the public interest as well as the private interests of the litigants, the "clean hands" doctrine assumes greater significance, for if the equity court in such case properly applies the maxim to withhold its assistance, it not only prevents a wrongdoer from enjoying the fruits of his transgression, but averts an injury to the public. P. 815.

7. A suit to enforce patents and related contracts involves the public interest, as well as interests of the adverse parties. P. 815.

8. The far-reaching social and economic consequences of a patent give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct, and that such monopolies are kept within their legitimate scope. P. 816.

Page 807

9. Those who have applications pending in the Patent Office or who are parties to Patent Office proceedings have an uncompromising duty to report to it all facts concerning possible fraud or inequitableness underlying the applications in issue. Failure in this duty is not excused by reasonable doubts as to the sufficiency of the proof of the inequitable conduct, nor by resort to independent legal advice. P. 818.

10. A settlement of interference proceedings which is grounded upon knowledge or reasonable belief of perjury, not revealed to the Patent Office or to any other public representative, lacks that equitable nature which entitles it to be enforced and protected in a court of equity. P. 819.

143 F.2d 332 reversed.

Certiorari, 323 U.S. 695, to review the reversal of a judgment dismissing the complaints and counterclaims in two suits for infringement of patents and breach of contracts.

MURPHY, J., lead opinion

MR. JUSTICE MURPHY, delivered the opinion of the Court.

The respondent, Automotive Maintenance Machinery Company, charged in two suits that the various petitioners had infringed three patents owned by it relating to torque wrenches.¹ It was further asserted that the allegedly infringing acts also breached several contracts related to the patents. In defense, the petitioners claimed, inter alia, that Automotive possessed such "unclean hands"

Page 808

as to foreclose its right to enforce the patents and the contracts.

The District Court, at the close of a consolidated trial on the sole issue of Automotive's alleged inequitable conduct, delivered an oral opinion holding that Automotive's hands were soiled to such an extent that all relief which it requested should be denied. This opinion was subsequently withdrawn at the request of one of the witnesses, and is not a part of the record. At the same time, however, the court entered written findings of fact and conclusions of law forming the basis for a judgment dismissing the various complaints and counterclaims "for want of equity." On appeal, the Circuit Court of Appeals reviewed the facts at length and concluded that the District Court's findings of fact were not supported by substantial evidence and that its conclusions of law were not supported by its findings. The judgment was accordingly reversed. 143 F.2d 332. We brought the case here because of the public importance of the issues involved.

[65 S.Ct. 995] The basic facts necessary to a determination of the vital issues are clear and without material dispute. In chronological order, they may be summarized as follows:

In 1937 and prior thereto, Automotive manufactured and sold torque wrenches developed by one of its employees, Herman W. Zimmerman. During this period, Snap-On Tools Corporation was one of its customers for these wrenches. Automotive also had in its employ at this time one George B. Thomasma, who worked with Zimmerman and who was well acquainted with his ideas on torque wrenches. In November, 1937, Thomasma secretly gave information to an outsider, Kenneth R. Larson, concerning torque wrenches. Together, they worked out plans for a new wrench, although Thomasma claimed that it was entirely his own idea.

After unsuccessfully trying to interest other distributors, Larson made arrangements to supply Snap-On with

Page 809

the new torque wrench. On October 1, 1938, Larson filed an application for a patent on the newly developed wrench, which application had been assigned to Snap-On several days prior thereto.² Then in December, 1938, Larson, Thomasma and one Walter A. Carlsen organized the Precision Instrument Manufacturing Company to make the wrenches to supply Snap-On's requirements. All three received stock, and were elected officers and directors of the new company. Manufacture of the wrenches began in January, 1939, and Precision succeeded in taking away from Automotive all of Snap-On's business. Thomasma continued to work for Automotive until the latter discovered his connection with Precision and discharged him in June, 1939. Thomasma's connection with Precision was also concealed from Snap-On during most of this period.

Subsequently, on October 11, 1939, the Patent Office declared an interference between certain claims in Larson's pending patent application and those in one filed by Zimmerman. Automotive was the owner of Zimmerman's application. Shortly after the interference was declared, R. E. Fidler, Automotive's attorney, wrote to the president of the company that the "whole situation confronting your opponents in this interference is quite messy, and I will be somewhat surprised if they fight the matter." He further wrote that, if there was a contest "they surely will have a lot of explaining to do."

In August, 1940, Larson filed his preliminary statement in the Patent Office proceedings. In it, he gave false dates as to the conception, disclosure, drawing, description, and reduction to practice of his claimed invention. These dates were designed to antedate those in Zimmerman's

Page 810

application by one to three years. Larson also claimed that he was the sole inventor of his wrench. When Fidler learned of this preliminary statement, he immediately suspected that "there must be something wrong with this picture," and suggested to Automotive's president that a "very careful and thorough investigation" be made of the situation. The president agreed. Fidler then employed several investigators, who made oral reports to him from time to time. According to Fidler's memoranda of these reports, Fidler learned in great detail, in August and September, 1940, the part that Thomasma played in the development of the Larson wrench and in the organization of Precision. He discovered that Thomasma claimed to have invented the wrench and that Larson "was now trying to freeze him out."

From October 24 to November 4, 1940, Larson and eight witnesses testified in the interference proceedings in support of his claims, corroborating his statements as to dates despite cross-examination. The day before this testimony ended Thomasma met with Fidler and Automotive's president and stated that he had developed Larson's wrench and that Larson's patent application was a "frame-up." Fidler then procured from Thomasma an eighty-three page statement concerning these matters, which Thomasma swore to on November 15. As the District Court found, this statement or affidavit

related in extensive detail the statements of Thomasma with respect to Larson's early work and disclosed such intimate knowledge thereof as to leave little doubt of the author's knowledge of the facts.

With these facts before him, Fidler admitted [65 S.Ct. 996] that he "personally was inclined to take the position that I should do something drastic" in the form of taking the matter up with the Patent Office or the District Attorney. He resolved his problem, however, by submitting it to an outside

Page 811

attorney. The latter advised him that his evidence was insufficient to establish Larson's perjury, that the Patent Office would not consider the matter until all proofs in the interference proceedings were in, and that the District Attorney probably would not touch the situation while the interference proceedings were pending. Fidler followed his advice.

A few days later, Fidler informed Larson's patent attorney, Harry C. Alberts, of the information disclosed in the Thomasma affidavit. Alberts admitted that "it looked very much like Larson had given false testimony," and asked that further examination of Thomasma be made in his presence. Accordingly, on November 28, Thomasma was examined orally before Alberts, Fidler, and officials of...