Hazeltine Research, Inc. v. Zenith Radio Corporation

• Citation: 388 F.2d 25
• Decision Date: 23 January 1968
• Docket Number: No. 15246,15247,15563,15564.,15246
• Parties: HAZELTINE RESEARCH, INC., Plaintiff and Counter-Defendant, Appellant, v. ZENITH RADIO CORPORATION, Defendant and Counter-Claimant, Appellee. HAZELTINE CORPORATION, Plaintiff and Counter-Defendant, Appellant, v. ZENITH RADIO CORPORATION, Defendant and Counter-Claimant, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

388 F.2d 25 (1967)

HAZELTINE RESEARCH, INC., Plaintiff and Counter-Defendant, Appellant, v. ZENITH RADIO CORPORATION, Defendant and Counter-Claimant, Appellee.

HAZELTINE CORPORATION, Plaintiff and Counter-Defendant, Appellant, v. ZENITH RADIO CORPORATION, Defendant and Counter-Claimant, Appellee.

Nos. 15246, 15247, 15563, 15564.

United States Court of Appeals Seventh Circuit.

December 19, 1967.

Rehearing Denied January 23, 1968.

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John T. Chadwell, Victor P. Kayser, C. Lee Cook, Jr., Joseph V. Griffin, M. Hudson Rathburn, Chicago, Ill., Laurence B. Dodds, Little Neck, N. Y., John W. Thomas, Chicago, Ill., for appellant.

Thomas C. McConnell, Dugald S. McDougall, Francis W. Crotty, Chicago, Ill., for appellee.

Before CASTLE, KILEY and CUMMINGS, Circuit Judges.

Rehearing Denied January 23, 1968, en banc.

KILEY, Circuit Judge.

This infringement suit was begun by Hazeltine Research, Inc. (HRI) in November, 1959, against Zenith Radio Corporation for patent infringement. In May, 1963, Zenith counterclaimed, seeking treble damages for HRI's violation of the antitrust laws in the use of its patents. The district court entered judgments¹ against HRI and Hazeltine Corporation, its parent, on the issues of validity, infringement, patent misuse and antitrust violations, and awarded treble damages of $34,961,631 to Zenith on its counterclaim. HRI has appealed from the judgments against it. Hazeltine Corporation has made a motion to vacate the judgments against it and has filed provisional appeals from the judgments.

We vacate the judgments against Hazeltine Corporation. We affirm the district court judgment holding the patent in suit invalid. We affirm the judgment of the district court for Zenith, and against HRI, with respect to its domestic patents for treble the amount of $50,000, or $150,000. We reverse the judgments for treble damages based upon HRI's alleged participation in foreign patent pools in violation of the antitrust laws. We modify in some respects the injunction issued by the district court. And we remand for the sole purpose of entry of a judgment against HRI and for Zenith in the amount of $150,000 and entry of a modified injunction in accordance with this opinion.

Hazeltine Corporation's Motions

Under Rule 15(f)² of this court Hazeltine Corporation has made motions to vacate the judgments against it, upon Zenith's counterclaim, as void for want of jurisdiction over its person. We ordered that the motions be taken with the case on the full record.

Hazeltine Corporation is sole owner of HRI. The Corporation is engaged primarily in the business of research, development and manufacture of electronic equipment for military and commercial use. HRI is engaged primarily in research, development, ownership and licensing of United States patents relating mainly to radio and TV. The Corporation was not named as a party in the counterclaim, was not served with process, did not participate in the trial and filed a "special appearance" contesting entry of judgment after the district court adopted findings of fact and conclusions of law naming the Corporation as a party for the first time.

The district court found that "the parties stipulated that for the purposes of this litigation Hazeltine Research, Inc. and its parent, Hazeltine Corporation would be considered as one entity operating as a patent holding and licensing company, engaged in the exploitation of patent rights in the electronics industry in the United States and in foreign countries." The court made no other findings relating to "piercing the corporate veil," and our reading of the colloquies between counsel and the court leads us to the conclusion that the stipulation was the principal if not the only basis for binding the Corporation in the judgments.

Hazeltine Corporation contends that the trial court had no jurisdiction to enter judgment against it because it was not served and was not a party; that in its counterclaim Zenith recognized the separate identities of HRI and Hazeltine Corporation and sought judgment against counter-defendant HRI alone; that Hazeltine Corporation did not defend against the charge; that the stipulation, drawn by Zenith and signed by Zenith and HRI, did not justify binding the Corporation in the judgments sought; that before and during the trial Zenith indicated no construction of the stipulation as making the Corporation a party and did not move to amend the pleadings by naming the Corporation; that the findings of January 25, 1965, indicate no intention that the judgments would run against the Corporation; that it learned Zenith would seek to enforce judgment against it the day following entry of findings; and that the first suggestion in the district court of being bound came only in the proposed form of judgment submitted by Zenith on March 19, 1965.

Zenith relies upon (a) the stipulation, (b) Hazeltine's disregard of the "corporate fiction" during discovery beginning in June, 1960, by responding to subpoenas duces tecum against the Corporation without question, by submitting to deposition of the Corporation at its offices in New York with production of files of domestic and foreign patents and by the obedience of the Corporation to court orders, and (c) the dual office of plaintiff's attorney Dodds as officer of both HRI and the Corporation, certain correspondence during 1963 and "control" of the litigation by the Corporation. It relies too upon a finding of fact proposed by plaintiff:

8. It is stipulated that, for the purposes of this Action, Hazeltine HRI and H. C. may be considered a single legal entity to avoid the issue of whether or not it is appropriate to "pierce the corporate veil," but it is proper to consider the separate and unrelated activities of the two companies separately.

It further depends upon proposed findings of fact and conclusions of law favoring the Corporation. On the basis of all this, Zenith contends that Corporation is the alter ego of HRI and that the finding "piercing the corporate veil" was not clearly erroneous.

The general principle controlling this case was well stated by the Supreme Court in Hansberry v. Lee, 311 U. S. 32, 40-41, 61 S.Ct. 115, 117, 85 L.Ed. 22 (1940):

It is a principle of general application in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process. * * * A judgment rendered in such circumstances is not entitled to the full faith and credit which the Constitution and statute of the United States * * * prescribe * * *; and judicial action enforcing it against the person or property of the absent party is not that due process which the Fifth and Fourteenth Amendments require.

Since Hazeltine Corporation was neither named nor served, the sole basis for liability on the judgment is the theory that HRI is its alter ego. We cannot say that the Corporation was "adequately represented" here on the alter ego issue. 311 U.S. at 42-43, 61 S.Ct. 115, 85 L.Ed. 22. The resolution of the alter ego issue can be made only after an adversary determination of the facts involved. This court cannot make an initial determination of these facts, and the district court did not do so.

The issue became apparent in the district court only after the district court had filed its findings and conclusions. And at no time during the trial did the Corporation have an opportunity to show that it was not the alter ego. The Corporation's appearance to argue the issue after the trial was not sufficient opportunity to be heard under the due process clause.

Zenith's contention that HRI adequately represented the Corporation's interests on the alter ego issue begs the question. On this issue, only the Corporation itself could have protected its own interests.

We think Merriam Co. v. Saalfield, 241 U.S. 22, 36 S.Ct. 477, 60 L.Ed. 868 (1916), refutes Zenith's contention that control of the litigation by Hazeltine Corporation made it amenable to joinder after findings of fact and conclusions of law were adopted without service of process. In Merriam it was clear that Ogilvie had controlled the defense for Saalfield, the defendant named in the original suit. Here the facts are only that Dodds, attorney for plaintiff HRI, was an officer and a counsel for the Corporation. There is no showing that he was authorized to act for the Corporation. We find no basis for joining the Corporation because of its claimed participation in the trial.

The stipulation relied upon by Zenith and the district court was signed only by the "parties" to the counterclaim, and the Corporation was not a party. And there is no showing that the Corporation authorized HRI's representative to sign on its behalf.

We see no reason why the Corporation's disclosures of its files and obedience to subpoenas in connection with HRI's infringement suit should bind the Corporation as a party to a subsequent antitrust counterclaim in which it is not joined as a party.

No case cited by Zenith is applicable to the facts here. The cases cited assume there was such control of HRI as to render the latter the Corporation's agent (and in our view there is no showing of that fact on the record); and that HRI and the Corporation are the same identity, an alter ego relationship unwarranted on this record. Zenith had the burden of establishing clearly that Dodds had authority to represent the Corporation in entering the stipulation prepared by Zenith or that the Corporation was in fact the alter ego of HRI. We hold Zenith did not meet that burden.

The judgments against the Corporation are void and must be vacated.

The Patent Issues

The HRI patent in suit, 2,547,648, (648), and Zenith's accused device, are both circuits used in TV receivers. The pertinent claims in issue have the purpose of automatically adjusting the variations in strength of...