CMS Industries, Inc. v. L. P. S. Intern., Ltd.

• Decision Date: 22 April 1981
• Docket Number: No. 79-3893,79-3893
• Parties: CMS INDUSTRIES, INC., Plaintiff-Appellee, v. L. P. S. INTERNATIONAL, LTD. and Sam C. Evans, Defendants-Appellants. MINNESOTA MINING AND MANUFACTURING COMPANY, Etc., Plaintiff-Appellee, v. SEE INTERNATIONAL, LTD., Stop-Loss Incorporated, Sam Evans, Defendants-Appellants, v. Elmer WHITAKER, CMS Industries, Inc., and Fred Langley, Defendants-Appellees. . Unit B
• Court: U.S. Court of Appeals — Fifth Circuit

Page 289

643 F.2d 289

217 U.S.P.Q. 20

CMS INDUSTRIES, INC., Plaintiff-Appellee, v. L. P. S. INTERNATIONAL, LTD. and Sam C. Evans,

Defendants-Appellants.

MINNESOTA MINING AND MANUFACTURING COMPANY, Etc., Plaintiff-Appellee, v. SEE INTERNATIONAL, LTD., Stop-Loss Incorporated, Sam Evans, Defendants-Appellants, v. Elmer WHITAKER, CMS Industries, Inc., and Fred Langley,

Defendants-Appellees.

No. 79-3893.

United States Court of Appeals, Fifth Circuit.

Unit B

April 22, 1981.

Hanes & Young, Paul L. Hanes, Atlanta, Ga., for defendants-appellants.

Haas, Holland, Lipshutz, Levison & Gibert, Hugh W. Gibert, Atlanta, Ga., for Elmer Whitaker and Fred. R. Langley.

Johm M. Sikes, Jr., Atlanta, Ga., John C. Barnes, Stanley G. DeLaHunt, St. Paul., Minn., for Minnesota Mining Mfg. Co.

Appeal from the United States District Court for the Northern District of Georgia.

Before GODBOLD, Chief Judge and HATCHETT, Circuit Judge, and MARKEY ^*, Chief Judge.

MARKEY, Chief Judge:

SEE International, Inc. and Sam C. Evans (collectively, SEE) appeal from a judgment that Elmer Whitaker (Whitaker) is entitled to royalties from Minnesota Mining and Manufacturing Company (3M), under a license to make, use, and sell anti-theft systems covered by six patents. ¹ We affirm.

Background

In 1969 SEE, owner of the involved patents, concluded a license agreement with 3M. ² In Article II of that agreement, SEE purported to grant to 3M "an exclusive license and right to license others ... throughout the world." That grant, however, was made subject to a "retention by (SEE) (or a company in which (SEE) owns at least fifty-one (51) percent of the outstanding voting stock) of a non-transferable right ... to make, use and sell...." ³ 3M agreed to pay a royalty calculated as a percentage of sales.

On June 27, 1972, SEE executed an assignment of the patents to its majority-held subsidiary, Stoplifter International, Inc. (Stoplifter), in which SEE sold, assigned, and transferred to Stoplifter "the entire right, title and interest in and to the said patent(s)...." The assignment was recorded in the Patent and Trademark Office pursuant to 35 U.S.C. § 261.

On the same day, June 27, 1972, Stoplifter and SEE signed another agreement, unrecorded in the Patent and Trademark Office, in which SEE purported to reserve "the unrestricted right and license ... to contract for, make, design and sell ... systems embodying the invention ... without the payment of any royalty ...," and SEE retained all rights to any "present or future agreements, royalties, or license fees which are due...." The unrecorded agreement also provided that SEE reserved the unrestricted right "which may be exercised by ... any duly authorized assignee" to practice the invention, and that SEE would enjoy "all the benefits under said ... Patents ... as if the same had been retained."

In February 1973, all assets of Stoplifter were transferred to Stop-Loss, Inc. (Stop-Loss) another majority-held subsidiary of SEE. It is undisputed that whatever rights in the patents existed in Stoplifter were validly transferred to Stop-Loss.

In 1977, after several years of manufacturing and selling equipment covered by the patents, Stop-Loss became subject to liquidation proceedings in Delaware for failure to pay a state franchise fee. On February 23, 1978, the Delaware Chancery Court issued an order requiring publication of a liquidation plan and setting June 5, 1978 as the deadline for filing of claims against Stop-Loss. On July 7, 1978, that court issued an order approving that plan. The plan transferred Stop-Loss's interest in the patents to Whitaker, a stockholder, officer and director of Stop-Loss, in discharge of a secured claim Whitaker held against Stop-Loss. An assignment of the patents to Whitaker was executed for Stop-Loss on July 11, 1978.

On February 8, 1978, Whitaker, obviously without waiting for completion of the Chancery proceeding, entered an agreement with CMS Industries, Inc. (CMS), reciting that Whitaker was the owner of the patents and granting a non-exclusive license throughout the United States to CMS to make, use, and sell the patented equipment in return for royalty payments to Whitaker.

On February 22, 1978, CMS filed a patent infringement suit against L. P. S. International, Ltd. (LPS), a subsidiary of SEE, and Sam Evans, a principal in both SEE and LPS. SEE had licensed LPS to make, use and sell equipment covered by the patents. The CMS complaint alleged that it was the "assignee" of Whitaker's interests in the patents and that LPS and Evans were infringing those patents.

3M filed an interpleader complaint on June 22, 1978, naming as defendants SEE, Stop-Loss, Evans, Whitaker, CMS and Fred Langly, (as custodian of the Delaware liquidation proceeding involving Stop-Loss), alleging that several defendants were demanding royalty payments from 3M, and requesting the money be paid into court and the defendants allowed to interplead their claims.

The district court entered an order dismissing the infringement action. ⁴ The court granted summary judgment in favor of Whitaker in the interpleader action, holding him owner of the patents and entitled to the royalty payments from 3M.

Issue

The sole issue presented is whether the district court erred in granting Whitaker's motion for summary judgment.

OPINION

There being no material issue of fact, the district court based its judgment on two conclusions of law: (1) that the Chancery Court proceeding was entitled to full faith and credit, and (2) that the unrecorded agreement between SEE and Stoplifter had no legal effect.

(1) The Chancery Court Proceeding

SEE argues that the Chancery Court proceeding does not bind it because (1) though it had notice of the proceeding, it did not have notice that a judgment affecting it was about to be entered, that is, no notice of a duty to object to the plan of distribution, and (2) it was not a named party in that proceeding.

The argument regarding notice is unpersuasive. The Chancery Court proceeding followed a statutory framework designed to provide notice and an opportunity to be heard to all creditors and stockholders of a corporation the affairs of which are being wound up. SEE having had notice of the proceeding, its unawareness of a deadline to object to the judgment resulting from that proceeding, if that unawareness existed, cannot be permitted to render the judgment unenforceable against it. SEE does not and cannot argue that it was unable to file a claim, but contents itself with the implication that its unawareness of a deadline somehow precluded its filing of a claim in the proceeding. The courts have been silent on the question of subsequent notices, perhaps because reasonable persons having notice of proceedings affecting their interests have universally investigated their duties and obligations in relation to the protection of their own interests. ⁵ In all events, the proper repose of Chancery proceedings requires that where, as here, a majority stockholder is notified that a proceeding is underway to wind up its subsidiary, it cannot be permitted to belatedly impede the grant of full faith and credit to the judgment emanating from that proceeding on the ground that it ignored its obligation to itself to maintain awareness of deadlines and other events affecting its interests. It is axiomatic in the law that one may not profit from having slept on one's rights. ⁶

Nor was it necessary that SEE be named as a party in the liquidation proceeding. As the trial court succinctly stated: "It is elementary that a state court, pursuant to applicable statute, has the power to wind up the affairs of a corporation which is a creature of the laws of that state." As part of that winding up, it may dispose of the property of the company being liquidated. In this case that company was Stop-Loss, not SEE.

Thus, the district court properly gave full faith and credit to the Chancery Court proceeding and its resulting transfer to Whitaker of whatever patent rights Stop-Loss had.

(2) The Unrecorded Agreement

The legal effect of the unrecorded agreement between SEE and Stoplifter is strenuously argued, SEE urging that the effect was to transfer the right to 3M's royalties back to itself, thus immunizing that right from the Chancery proceeding, and Whitaker arguing that the unrecorded agreement had no legal effect.

The unrecorded agreement contains these provisions:

WHEREAS, SEE owns the entire right, title and interest in and to the following U. S. Patents ...

WHEREAS, STOPLIFTER is desirous of acquiring a certain specified ownership in and unto the letters Patent and Patent Applications subject nevertheless to the below mentioned reservations:

NOW THEREFORE, in consideration of One Dollar ($1.00), paid to SEE by STOPLIFTER, receipt of which is hereby acknowledged, SEE does hereby agree to execute the necessary Patent assignment documents subject however, to the following express conditions and reservations to which STOPLIFTER assents by the acceptance of this instrument or by doing any act in accordance with it SEE reserves the unrestricted right and license (which may be exercised by SEE or by any duly authorized assignee) to contract for, make, design and sell, without limitations; systems embodying the invention or improvements described and set forth in said letters Patent and Patent Applications without the payment of any royalty or license whatsoever and in addition SEE retains all rights to any present or future agreements, royalties, or license fees which are due or may become due from any source whatsoever. It being expressly understood and agreed that SEE shall enjoy all the benefits under said letters Patent...