Carey v. United States, 112-58.

• Citation: 326 F.2d 975
• Decision Date: 17 April 1964
• Docket Number: No. 112-58.,112-58.
• Parties: Henry A. CAREY, Jr., Edwin D. Hicks, J. Pierre Kolisch and Joseph Schulein v. The UNITED STATES.
• Court: Court of Federal Claims

326 F.2d 975 (1964)

Henry A. CAREY, Jr., Edwin D. Hicks, J. Pierre Kolisch and Joseph Schulein v. The UNITED STATES.

No. 112-58.

United States Court of Claims.

January 24, 1964.

Rehearing Denied April 17, 1964.

Paul D. Hanlon, Portland, Or., for plaintiffs, Gerhard P. Van Arkel, and Van Arkel & Kaiser, Washington, D. C., on the briefs.

M. Morton Weinstein, Dept. of Justice, Washington, D. C., with whom was Asst. Atty. Gen., John W. Douglas, for defendant.

Before JONES, Chief Judge, and WHITAKER, LARAMORE, DURFEE and DAVIS, Judges.

WHITAKER, Judge.

Plaintiffs, claiming to be the owners of a patented process for manufacturing titanium, sue to recover royalties on the use of that process. They claim that defendant, by virtue of its seizure of the assets of Siemens & Halske, a German corporation, under the authority of the Trading with the Enemy Act, succeeded to the contractual obligations of that corporation, which had agreed to pay the inventor a royalty in return for an exclusive license to use the patent and to permit others to do so. Plaintiffs say that, from August 1, 1951 to June 25, 1957, defendant, by its own agencies and through contracts with private business concerns, caused the production of a large quantity of titanium by the patented process, and that this was done through the exercise of the exclusive license. Hence, they say, defendant is obligated to pay royalties in accordance with the terms of the exclusive license.

This case is before us for the second time. In Carey, et al. v. United States, 276 F.2d 385, 149 Ct.Cl. 587 (1960), we held that plaintiffs were entitled to maintain this action against defendant for contractual royalties arising from defendant's use, either by itself or by its sublicensees, of the Kroll process of producing titanium. We remanded the case to our Commissioner to determine: (a) a proper royalty under the contract; (b) whether all the titanium was produced under the exclusive license or all or a part under sublicenses granted by the exclusive licensee; and (c) the total amount of production by the patented process.

Dr. Wilhelm Kroll, a metallurgist and inventor, was a citizen of Luxembourg, where he had a private laboratory. On March 26, 1934, Kroll entered into a contract with a German corporation called Siemens & Halske (hereinafter referred to as S&H) under which he was to collaborate with S&H on certain metallurgical processes. The agreement provided that S&H was to receive an exclusive license on any patentable invention developed by Kroll and that S&H would also have the right to grant non-exclusive sublicenses. The royalty rate payable was to be computed "depending on the importance of the invention." Any royalties paid by sublicensees were to be divided equally between the parties.

In 1936, Kroll developed a process for producing titanium. This process was within the scope of the 1934 agreement. On June 25, 1940, Kroll secured the issuance of United States Letters Patent No. 2,205,854 on his invention.

Titanium-bearing ore is relatively abundant, but prior to Kroll's invention refined titanium was brittle and unworkable because of its high oxygen content. Kroll's purpose was to eliminate the oxygen. Simply stated, his method for refining titanium from titanium-bearing ore was to heat a titanium halide, such as titanium tetrachloride, in a crucible in combination with an alkaline earth metal. An inert gas was introduced into the crucible to exclude air. The resultant chemical reaction produced relatively pure titanium; magnesium chloride contamination was washed away with water. This method of refining titanium was a "batch" process: after the end-product was removed from the crucible, the crucible was cleaned and used to produce a new batch of titanium.

With certain refinements necessary to develop Kroll's small-scale process to the point where the output was large enough to justify commercial exploitation, it is the method in use today. These refinements were the result of technical studies begun in 1938 by the United States Bureau of Mines. Attempts to develop a continuous production process or to refine commercially useable titanium by other methods, such as an electrolytic process, proved unsuccessful.

After the Second World War broke out and the Germans overran and occupied Luxembourg, the Alien Property Custodian, acting pursuant to Section 12 of the Trading with the Enemy Act, 40 Stat. 411, 423 (1917), 50 U.S.C.App. § 12 (1958), "vested", i. e. took title to, Kroll's patent. The statute permitted the Custodian to do so upon a finding that Kroll was an enemy alien or resided in enemy-held territory. The Custodian erred in so finding: Kroll had come to the United States in February of 1940, prior to the vesting. In 1947, Kroll instituted a suit against the Alien Property Custodian in the United States District Court for the District of Columbia under section 9(a) of the Trading with the Enemy Act, claiming his patent was not subject to seizure by the Custodian. The District Court held that, inasmuch as Kroll was neither an enemy alien nor in enemy-held territory at the time of the vesting, he was entitled to the return of his patent, but that, since S&H was an enemy alien, the Attorney General, who had succeeded the Alien Property Custodian (Exec.Order No. 9788, 11 Fed.Reg. 11981 (1946)), could retain that firm's rights under the 1934 agreement. The judgment, which was affirmed in Kroll v. McGrath, 91 U.S. App.D.C. 172, 199 F.2d 187 (1952), also provided that the parties should negotiate a proper royalty for sublicenses, but that, if they failed to do so within 30 days, the court would set the rates. The parties could not agree. Accordingly, on December 1, 1953, the District Court made an order setting a royalty rate, retroactive to April 3, 1951, of 5 percent of the gross sales price of the first 50,000 pounds of titanium produced by any sublicensee under the patent claims, 3 percent on the next 50,000 pounds, and 1 percent on all production in excess of 100,000 pounds. The order also provided that any sublicense issued by defendant must provide that one-half of the royalties should be paid directly to Kroll.

So far as appears from the record before us, neither party appealed from the order fixing the royalty rate or asked the court to modify it.

The Attorney General thereupon transferred title to the patent to Kroll, but retained the rights of S&H under the 1934 agreement.

Before discussing the Commissioner's report on the matters referred to him, we shall dispose of the defendant's defense, that these plaintiffs have not adequately proved that they acquired Kroll's rights. The evidence adduced at the trial, however, amply substantiates plaintiffs' claim to ownership of the patent. It shows that Kroll assigned his rights to a Nevada corporation that dissolved. The plaintiffs herein, being all of the shareholders of that corporation, became joint owners of Kroll's patent rights as a result of the dissolution. According to the transcript and the exhibits, defendant, on many occasions, treated with plaintiffs and their predecessor corporation as owners of the patent. In the absence of any countervailing proof, these admissions have sufficient evidentiary weight to establish plaintiffs' ownership and right to sue. Consequently, we think defendant's contention is not well taken.

After World War II ended, it became clear to various Government officials that the advent of military jet aircraft made expansion of existing titanium facilities well-nigh mandatory. Titanium alloys combine a favorable strength-weight ratio with a high melting point. They are, therefore, vital in the construction of high performance jet aircraft, particularly in airframes and jet engines, where aluminum is not an adequate lower-cost substitute. The Bureau of Mines had constructed a pilot plant for producing titanium through the Kroll process. Various private concerns were invited to examine this facility to encourage them to develop similar facilities of their own. After the Korean War began, the need for large-scale production of titanium became even more critical.

In the consideration of this case it is necessary to keep in mind that some of the Government's actions affecting the production and sale of the titanium here involved have been in its character (1) as the successor to the rights of S&H under the contract with Dr. Kroll, and (2) as the sovereign. We must exclude from our consideration whatever it may have done as sovereign and consider only its rights and liabilities as the successor of S&H.

As such successor it had all the rights of an exclusive licensee of the Kroll patent, which meant that it had the right to produce titanium by using the Kroll patent, to use the titanium so produced, and to sell it. For the exercise of this right it was obligated to pay to Kroll a royalty "depending on the importance of the invention." It also had the right to grant sublicenses. For titanium produced by the Kroll process by a sublicensee, the sublicensee was obligated to pay one-half of the stipulated royalty to Kroll and one-half to the United States, as the successor of S&H, the exclusive licensee.

Beginning in 1951, defendant entered into a series of contracts with private manufacturers under which these producers would construct or expend facilities for producing titanium by the Kroll process. The licenses that were subsequently issued to implement these contracts provided for the payment of royalties by the manufacturers, in accordance with the rate fixed in the 1953 District Court order above referred to, with one-half of the royalty to be paid to the owners of the patent and the other half to the defendant. The parties agree that, during the period here involved, these various producers paid $1,786,083 to Kroll and his successors in title and a like amount to the United States. No royalty was ever paid to the patent owners on the titanium produced by...