Kearney & Trecker Corp. v. Giddings & Lewis, Inc.

• Decision Date: 17 April 1972
• Docket Number: No. 18354.,18354.
• Citation: 452 F.2d 579
• Parties: KEARNEY & TRECKER CORPORATION, Plaintiff-Appellee, v. GIDDINGS & LEWIS, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

452 F.2d 579 (1971)

KEARNEY & TRECKER CORPORATION, Plaintiff-Appellee, v. GIDDINGS & LEWIS, INC., Defendant-Appellant.

No. 18354.

United States Court of Appeals, Seventh Circuit.

October 28, 1971.

Rehearing Denied December 1, 1971.

Certiorari Denied April 17, 1972.

Edward W. Osann, Jr., Chicago, Ill., Marvin E. Klitsner, Milwaukee, Wis., Homer J. Schneider, Chicago, Ill., for defendant-appellant; Wolfe, Hubbard, Leydig, Voit & Osann, Chicago, Ill., Foley & Lardner, Milwaukee, Wis., of counsel.

Edward A. Haight, Chicago, Ill., Thomas W. Ehrmann, Lester S. Clemons, Milwaukee, Wis., for plaintiff-appellee; Quarles, Herriott, Clemons, Teschner & Noelke, Milwaukee, Wis., Haight, Hofeldt & Davis, Chicago, Ill., of counsel.

Before SWYGERT, Chief Judge, and PELL and STEVENS, Circuit Judges.

Certiorari Denied April 17, 1972. See 92 S.Ct. 1500.

STEVENS, Circuit Judge.

There are 60 separate claims in plaintiff's twice reissued Brainard patent.¹ Plaintiff originally contended that 29 of the claims were infringed by defendant's machines.² After discovery, plaintiff dramatically changed its position. Its charges of infringement were limited to the contention that defendant's vertical spindle machine (Model 15V) infringed claim 15 and that its horizontal spindle machine (Model 25H) infringed claims 19 and 20. Moreover, before the trial commenced, plaintiff advised its licensees, and presumably the trade generally, that it would not thereafter enforce claims 36 through 60 of its Brainard patent.³

This dramatic narrowing of the traditional issues of validity and infringement was the consequence of revelations during pretrial discovery. That discovery revealed that immediately after signing the notice of allowance of the original Brainard patent, Primary Examiner Beall retired from the Patent Office and became a paid consultant for plaintiff; his services related to the two reissues of Brainard, as well as the acquisition and reissue of the important Morgan patent.⁴

The district court, 306 F.Supp. 189, held that Brainard's reissue claims 15, 19 and 20 were valid and infringed. These claims were substantially identical with claims in the original Brainard patent.⁵ The principal issue raised by this appeal is whether plaintiff's employment of Beall in connection with the reissues of Brainard renders the claims in suit unenforceable. Defendant also challenges the district court's findings of validity and infringement and its holding that the asserted invalidity of certain broad reissue claims was irrelevant; and contends that it is entitled to affirmative relief under the antitrust laws and an award of attorneys' fees.

I.

Several facets of the record have a bearing on our appraisal of the legal issues. Accordingly, it is appropriate to describe the industry, plaintiff's machines, the Morgan patent, the accused machines, the prosecution of the original Brainard patent and Examiner Beall's connection therewith, the nature of Beall's services to plaintiff after his retirement from the Patent Office, and, finally, the corrective steps taken by plaintiff to cure any possible misuse. We shall then explain why we have decided to reverse.

A. The Industry.

The parties manufacture automatic machine tools which can perform a variety of machining operations, such as milling, boring, drilling, threading and reaming. For each operation, the exact location, diameter and depth of the hole to be machined in the workpiece are predetermined and defined by a numerical code which can be translated into perforations on tape or cards. The operations are thus controlled "numerically." The concept of numerical control of machine tool operations became commercially important in the early 1950s.

The parties use numerical control, not merely to direct specific operations automatically, but also to control a sequence of operations and the selection of the specific tool needed for each operation. Their machines employ automatic tool changers. For the purpose of this case, they have stipulated that the relevant market may be described as "numerically controlled multi-function machine tools with automatic tool changers."

Since a sequence of operations normally requires the use of a variety of tools, the time required to effect a tool change has a direct and significant impact on costs; the efficiency of the tool changer is, therefore, of vital importance. Plaintiff's automatic tool changer was not the first to be developed, but apparently it is the best.

Plaintiff's "Milwaukee-Matic" machines were introduced in 1958 and first sold in 1959; sales increased each year through 1967 when volume exceeded $36,000,000. During those years, plaintiff's sales of Milwaukee-Matic exceeded $150,000,000 compared to competitors' sales of between $75,000,000 and $100,000,000. Moreover, in 1968 plaintiff received approximately $573,000 of royalty income from its Brainard patent. It was a commercial success.

Plaintiff's machines were sold in different models and sizes at prices ranging from about $90,000 to over $350,000 each. Total sales of over 925 units through March, 1968, indicate an average per unit price of about $180,000. Plaintiff did not sell its automatic tool changer except as a part of the Milwaukee-Matic machine, and prior to 1969 was unwilling to discuss a separate license for the tool changer.

Plaintiff's customers include practically all types of manufacturers in the metal cutting industry, including the United States and foreign governments. The precision multiple operating capabilities of plaintiff's machines have contributed to the design and production of new products, especially in the aerospace industry.

Plaintiff's principal competitor in the numerically controlled automatic tool changing field is one of its licensees; at least two competitors are engaged in patent litigation with plaintiff; the total number of manufacturers is apparently about half a dozen. In 1967 plaintiff's sales represented over one-third of the total market.

B. Plaintiff's Tool Changer.

Plaintiff's machine uses a horizontal spindle. The tool changer may be simply described. It uses a rotating arm with two hands, one of which approaches the spindle to withdraw the tool which has just completed an operation, while the other is approaching the storage magazine to grasp the next tool to be used. The arm then rotates, simultaneously delivering the new tool to the spindle and returning the old tool to storage. As the arm returns to a parked position, the storage magazine rotates to place a third tool in position for selection after the second has done its job. The selection is controlled by coding on the tools themselves; this "tool coding" (as contrasted with "position coding") makes it possible to place an old tool in the storage position from which the new tool has just been withdrawn without impairing the machine's ability to find that tool (or any other tool) when it is next needed.

This oversimplified description ignores a number of important features of the tool change mechanism,⁶ but it serves to identify two concepts which are of principal importance in this litigation: (1) the use of tool coding to identify the tool to be selected from the storage magazine; and (2) the use of a two-handed arm to effect a simultaneous interchange between the magazine and the operating station.

Neither of these concepts is expressly identified in the three Brainard claims which the district court held valid and infringed. Defendant contends, however, that these claims are too broad to be patentable unless limited to machines using tool coding, particularly since plaintiff relied on this concept to distinguish the prior art—principally the Morgan patent—during the Patent Office prosecution. These two concepts clearly differentiate plaintiff's machines from the Morgan machine.

C. Morgan.

Mark Morgan was a project engineer for International Business Machines Corporation. Apparently he was primarily interested in applying the concept of numerical control to an automatic tool changer. However, it is the mechanical features of the Morgan machine which are relevant here.

The Morgan machine uses a vertical spindle which may be moved down to grasp a tool positioned beneath it. Tools are stored in a vertical position in notches around the periphery of a disc-shaped magazine which has two horizontal paths of movement. First, it rotates until the position in which the desired tool is located is next to the spindle; and second, the entire magazine then moves laterally to place that tool directly beneath the spindle, where it is grasped by a wrenching mechanism which holds it until the spindle has descended and secured the tool. The magazine then withdraws by again moving laterally. After an operation with a tool has been completed, the magazines moves in to retrieve that tool, withdraws, rotates to a new position, moves back in to deliver the second tool to the wrenching mechanism, and then withdraws again to await the completion of the second operation.

The Morgan tool change sequence is obviously more time-consuming than plaintiff's simultaneous two-handed interchange which, because the tools themselves are coded, permits the old tool to be stored in the position from which the next tool has been withdrawn.

The claims of the Morgan patent are much broader than the particular machine described in its specifications. The claims may be read to cover plaintiff's machine as well as defendant's, and one of them might encompass any numerically controlled multi-purpose machine tool with an automatic tool changer.⁷ Defendant was a licensee under the Morgan patent. Morgan was the principal obstacle to the allowance of plaintiff's Brainard patent. Plaintiff never accepted a license under Morgan, but seriously considered not only a possible license, but also a challenge to the validity of Morgan and ultimately acquired it.

D. Defendant's Machines.

Defendant participated in the...