Painton & Company v. Bourns, Inc.
| Decision Date | 27 April 1971 |
| Docket Number | No. 425,729,Dockets 34959,71-1089.,425 |
| Citation | 442 F.2d 216 |
| Court | U.S. Court of Appeals — Second Circuit |
| Parties | PAINTON & COMPANY, Ltd., Plaintiff-Appellee-Cross-Appellant, v. BOURNS, INC., Defendant-Appellant-Cross-Appellee. |
C. Dickerman Williams, New York City (Baker, Nelson, Williams & Mitchell, New York City, and John P. Dellera, New York City, of counsel), for plaintiff-appellee.
Clyde F. Willian, Chicago, Ill. (Hume, Clement, Hume & Lee, Ltd., Roy E. Hofer and Robert L. Harmon, Chicago, Ill., William C. Conner, Curtis, Morris & Safford, New York City, of counsel), for defendant-appellant.
Roger M. Milgrim, New York City (Milgrim, Thomajan & Jacobs, New York City, of counsel), submitted brief as amicus curiae.
Edward Halle, New York City, for the New York Patent Law Assn., New York
City (Robert S. Dunham, Bert A. Collison, Pauline Newman and Robert J. Sanders, Jr., New York City, of counsel), submitted brief as amicus curiae.
Before WATERMAN and FRIENDLY, Circuit Judges, and McLEAN, District Judge.*
Painton & Company, Ltd., plaintiff in this action in the District Court for the Southern District of New York, in which federal jurisdiction was based on diverse citizenship, 28 U.S.C. § 1332(a) (2), is a British corporation engaged in the manufacture and sale of electronic components. Defendant Bourns, Inc., a California corporation, having its principal place of business in that state but doing business in New York, is likewise so engaged. The controversy concerns Painton's continued right to use information, relating to electronic circuit components known as potentiometers, which was supplied by Bourns under an agreement that has expired.
Painton had developed and had been manufacturing and selling a lead screw actuated linear motion potentiometer known as Flatpot. Bourns had been developing, manufacturing, and selling more technologically advanced potentiometers, including one known as Trimpot. In August 1958 the two companies entered into an agreement whereby Bourns contracted to furnish Painton, on a confidential basis, engineering and manufacturing services and techniques necessary to enable Painton to manufacture lead screw actuated linear motion potentiometers. The agreement was to continue for a term of eight years and thereafter until either party, on six months notice, elected to terminate or modify it. Painton was to pay fees on all products covered by the agreement, which excluded Flatpot, on a scale descending from 5% of the net selling prices in the first year to 2½% in the sixth and thereafter. If these were insufficient to accrue fees of $5,000 in any two-year period, Bourns could cancel the agreement on 60 days notice. There was no provision for post-termination payments by Painton, other than for those which were "due and payable or becoming due prior to the date of such termination," and the agreement was silent with respect to its post-termination rights to use the information supplied thereunder.
In 1960 the earlier agreement was superseded by another which included, in addition, worm gear potentiometers. As in the 1958 agreement, the term was for eight years and thereafter until either party, on six months notice, elected to terminate or modify. The fee was to be 3½% of the net selling prices except that on Flatpot there was a sliding scale ranging downward from 4% in the first year to 2½% in the fourth and thereafter. There was the same clause as to termination for failure to accrue minimum fees of $5,000 in any two-year period. Again there was no provision for post-termination payments by Painton, other than for those specified in the 1958 agreement; and again the agreement was silent with respect to its post-termination rights. Under both agreements Painton had an exclusive right to manufacture and sell the covered products in certain areas — Western Europe and Australia in the 1958 agreement, all of Europe, Australasia and Africa in the 1960 agreement. There were many other provisions, but this summary is sufficient for present purposes.
On March 25, 1962, Bourns sent a letter purportedly terminating the agreement as revised in 1960 for failure by Painton to make payments — within the time required — for materials, supplies, and completed units sent to it by Bourns. Painton retained American counsel who challenged the validity of Bourns' action and subsequently brought suit in a related matter to enjoin Bourns from selling, marketing, or distributing its products in Europe, Australasia, and Africa in violation of the 1960 agreement. There ensued an extensive exchange of correspondence and meetings looking toward the execution of a new agreement more satisfactory to Bourns. The negotiations, which we shall later discuss in detail, culminated in a new agreement dated November 1, 1962. Its provisions important to the present controversy were as follows:
a) Paragraphs 1 and 2. All previous agreements, save several separate sales agreements not here relevant, were canceled and all claims under them were released except for amounts owing to Bourns from fees or from the sale of products, parts, or materials.
b) Paragraph 3. The products subject to the agreement were "all models heretofore, or hereafter during the term of this Agreement" manufactured by Bourns of worm gear or lead screw actuated potentiometers; the Flatpot and modifications thereof; and other devices manufactured by Bourns as might be mutually agreed.
c) Paragraph 4, entitled "License Granted," read in pertinent part as follows:
d) Paragraph 5. With the exception of non-wire-wound elements, improvements made by either party were to be available to the other. "No change in the design of Bourns' products covered hereby may be made by Painton without written consent of Bourns."
e) Paragraph 6, entitled "Term of Agreement," read as follows:
Unless otherwise terminated as herein provided, this Agreement shall terminate at midnight October 24, 1968, California time. However, although this Agreement may have been terminated, Painton shall pay the fees provided herein either through termination date or for a four (4) year period after achieving a production rate of 500 pcs. per month on any given model other than the "Flatpot," whichever date is later.
f) Paragraph 7 provided that "the license herein granted to Painton shall be exclusive in the territory indicated." Bourns was not to license others to manufacture the covered products in such area or do so itself "during the period of this Agreement." Paragraph 11 restricted Painton's manufacturing and sales to the British Isles except that any of three affiliated organizations of Painton might sell products manufactured by Painton in territories specified in separate sales and distribution agreements being separately negotiated. These territories were Scandinavia, Benelux, Australia, and New Zealand.
g) Paragraph 8, entitled "Fees," required Painton to pay 5% of the net selling price "for products manufactured hereunder and sold by Painton, with the exception of the Flatpot." On this, "which was developed and marketed by Painton prior to entering into negotiations with Bourns and not substantially modified since," the fee was to be 2½%. If the fees accruing to Bourns (exclusive of the Flatpot sales) should not amount to $2,500 in any year, Bourns might terminate the agreement. Paragraph 9 added that Painton was to make a further payment of $1,000 "for the information covered by this Agreement as to each model, to the limit specified by Paragraph 4, not heretofore actually manufactured by Painton." Such payments were not to apply against the $2,500 minimum.
h) Paragraph 13. Bourns agreed to notify Painton of any United States patent applications relating to inventions applicable to the covered devices. If Painton wanted similar applications filed in any of the territory covered by the agreement, Bourns would furnish the necessary information and Painton would pay the expense. The patents would be issued in Bourns' name and Bourns would license their exclusive use to Painton "for the period of this Agreement."
i) Paragraph 14. All products manufactured under the agreement, except for the Flatpot, were to carry the Bourns trademark and also the word "Painton."
j) Paragraph 16, "Termination," provided for termination by Bourns if Painton committed any breach or default and did not rectify this within 60 days after the sending of written notice by Bourns, or if Painton filed any petition in insolvency or bankruptcy.
k) Paragraph 17. Except for Flatpot, Painton was not to engage in the sale of products performing the same or substantially the same function as those licensed to be manufactured.
l) Paragraph 19, entitled "Trade Secrets," read in pertinent part:
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