677 F.2d 1237 (8th Cir. 1982), 81-1829, Span-Deck, Inc. v. Fab-Con, Inc.

Docket Nº:81-1829.
Citation:677 F.2d 1237
Party Name:215 U.S.P.Q. 835 SPAN-DECK, INC., a Tennessee corporation, Appellee, v. FAB-CON, INCORPORATED, a Minnesota corporation; and Rauenhorst Corporation, aMinnesota corporation, Appellants.
Case Date:May 12, 1982
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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Page 1237

677 F.2d 1237 (8th Cir. 1982)

215 U.S.P.Q. 835

SPAN-DECK, INC., a Tennessee corporation, Appellee,

v.

FAB-CON, INCORPORATED, a Minnesota corporation; and

Rauenhorst Corporation, aMinnesota corporation, Appellants.

No. 81-1829.

United States Court of Appeals, Eighth Circuit

May 12, 1982

Submitted Jan. 14, 1982.

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Appeal from the United States District Court for the District of Minnesota. Hon. Robert G. Renner, U.S.D.C., Judge.

Schroeder, Siegfried, Ryan, Vidas, Steffey & Arrett, P.A., Robert O. Vidas, Charles E. Steffey, Faegre & Benson, John D. French, Lawrence C. Brown, John D. Shively, Minneapolis, Minn., for appellants Fabcon, Inc. and Rauenhorst Corp.

Dorsey, Windhorst, Hannaford, Whitney & Halladay, John M. Mason, Stuart R. Hemphill, Minneapolis, Minn., for appellee Span-Deck, Inc.

Before LAY, Chief Judge, ARNOLD, Circuit Judge, and WOODS, [*] District Judge.

LAY, Chief Judge.

Span-Deck, Inc. (Span-Deck) brought this action against Fabcon, Incorporated (Fabcon) and Rauenhorst Corporation (Rauenhorst) to recover royalties and to enjoin the use of equipment, trade secrets, know-how, and patent and trademark rights relating to a manufacturing process for prestressed precast concrete. Following a lengthy and involved jury trial, judgment was entered for Span-Deck upholding the validity of the patents in question and awarding $1,500,000 compensatory damages against Fabcon for breach of the franchise licensing agreement and $2,000,000 punitive damages against Rauenhorst for tortious inducement of breach of contract. The judgment was subsequently amended to hold Rauenhorst jointly and severally liable for the $1,500,000 compensatory damage award. Fabcon and Rauenhorst now appeal primarily on the grounds that the two patents involved are invalid as a matter of law, thereby justifying Fabcon's discontinuation of royalty payments under the Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), doctrine.

Facts.

Span-Deck is a Tennessee corporation engaged in franchising the use of its equipment and process for the large-volume manufacture of prestressed, precast, hollow-core, structural concrete planks. Span-Deck acquired the "Kinnard patent," United States Patent No. 3,217,375, in 1965 for a casting apparatus and method for production of prestressed hollow-core plank in which a moving casting machine deposits liquid concrete around lightweight granular cores in slipforms on a fixed bed to surround tensioned steel cables. A second patent,

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the "Mitchell patent," United States Patent No. 3,523,343, was obtained by Span-Deck in August 1970 for a system which incorporated the Kinnard machine into a centralized, large-volume plank production system utilizing large, moving casting beds. Span-Deck licensed numerous operations in both the United States and foreign countries for the franchised use of its system of moving and controlling a large casting bed in coordination with casting and curing equipment. Rauenhorst, a large Minneapolis-based general construction company, entered into negotiations with Span-Deck in the summer of 1970 with the intention of entering the precast concrete business. Fabcon, a wholly-owned subsidiary of Rauenhorst formed specifically for the concrete plank manufacturing operation, entered into a franchise license agreement with Span-Deck in October 1970. In the agreement Span-Deck agreed: to supply casting equipment and standard detail drawings; to render "reasonable assistance ... experience and knowledge, its know-how and trade secrets regarding the manufacture and use of" the Span-Deck products; to grant the exclusive right for five years to the Kinnard and Mitchell patents in a stated territory; and to grant the exclusive right to the "Span-Deck" and "Insulcore" trademarks for the duration of the contract. In return Fabcon agreed to pay $225,300 for the machinery and equipment, plus continuing royalties during the effective period of the franchise agreement. Finally, the agreement included options for Fabcon to extend the contract term an additional five years and to avoid royalties in the event a final judgment should be entered in a court of competent jurisdiction determining that Span-Deck's machine or processes are not protected by patents. The agreement contained the following post-termination requirements:

4.4 In the event of termination of this Agreement in any manner, LICENSEE shall have the right to complete any and all contracts which it may be obligated to fulfill, paying the royalties thereon, but it shall not further use, either directly or indirectly, the trade-marks or trade names, any trade secrets or valid, protected patented processes of LICENSOR, or use or employ any imitations of LICENSOR'S trade names, trade-marks, or valid, protected patented processes, if acquired during the term of this Agreement; and these obligations shall continue after termination of this Agreement.

Fabcon commenced production under the franchise agreement in July 1971, and soon expanded its operation by doubling its casting bed capacity from August 1972 to February 1973. Meanwhile, Rauenhorst offered to purchase Span-Deck for over $2,000,000, and Fabcon attempted to hire one of Span-Deck's experienced engineers as its production manager; both efforts proved unsuccessful. In February 1973 Fabcon ceased making royalty payments, allegedly because it claimed entitlement to a credit under a "most-favored-licensee" provision. In April 1973, Rauenhorst asserted that Span-Deck's patents were either invalid or not infringed and unsuccessfully urged termination of the franchise agreement.

Span-Deck commenced this action against both Fabcon and Rauenhorst in November 1973. Count I of Span-Deck's complaint alleges breach of contract by Fabcon and seeks payment of royalties and injunctive relief. Count II alleges intentional inducement of breach by Rauenhorst and seeks compensatory and exemplary damages. Count III alleges unauthorized use of trade secrets and know-how and seeks compensatory and exemplary damages and injunctive relief. Counts IV and V allege trademark infringement and seek compensatory and exemplary damages and injunctive relief. Counts VI and VII allege patent infringement and seek compensatory and exemplary damages and injunctive relief.

Fabcon counterclaimed for a declaratory judgment that the franchise agreement was invalid or unenforceable due to failure of consideration and that the Kinnard and Mitchell patents were invalid, unenforceable and uninfringed.

Partial summary judgment was entered for the defendants on that portion of count III regarding alleged misappropriation of "know-how." The trademark infringement

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claims of counts IV and V were withdrawn prior to submission of the case to the jury.

The jury answered 22 special verdict questions, and returned a verdict of $1,500,000 in compensatory damages and $2,000,000 in punitive damages against Fabcon and Rauenhorst, respectively, on counts I and II, respectively. Judgment was entered on the verdict, no injunctive relief was granted, and the counterclaim was dismissed with prejudice. The judgment was later modified pursuant to Span-Deck's motion to reflect joint and several liability of Rauenhorst for the $1,500,000 compensatory damages award.

Fabcon and Rauenhorst now appeal, contending that the trial court erred in failing to direct the verdict for Rauenhorst on the tortious inducement claim because Rauenhorst's actions were justified. They contest the extent of compensatory damages. Appellants assert also that there was error in modification of the compensatory damages part of the judgment because the jury did not find Rauenhorst to be the "alter ego" of Fabcon. Finally, both Fabcon and Rauenhorst urge that the patents in question are invalid as a matter of law.

We vacate the judgment and reverse and remand for further proceedings.

I. Patent Validity.

In Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), the Supreme Court held that a patent licensee is not estopped from challenging the validity of the patent and that he is entitled to avoid payment of all royalties accruing after the patent issued once either he or a third party proves the patent invalid. 395 U.S. at 668-74, 89 S.Ct. at 1910-13.

Fabcon and Rauenhorst urge that the Kinnard and Mitchell patents which lie at the core of the franchise license agreement are invalid as a matter of law, thus precluding compensatory damages for breach of contract under the Lear doctrine. Rauenhorst further asserts that Fabcon's discontinuation of royalty payments was justified under Lear ; and therefore, Rauenhorst could not have tortiously induced Fabcon to breach as a matter of law.

A. Kinnard Patent No. 3,217,375.

Appellants contend that the Kinnard patent is invalid pursuant to 35 U.S.C. § 102(b) 1 because the Kinnard invention was in public use or on sale more than one year prior to filing of the patent application. 2 The jury found as to all seven questioned claims of the patent that it had not been in public use for more than one year prior to its application. 3

The jury's verdict fails to specify what the patent application filing date was or whether or not the invention was found to have ever been "on sale" within the meaning of the statute. 4 However, because there is substantial evidence as to both factual

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theories which might support the verdict, the verdict must be upheld, see Baumler v. State Farm Mutual Automobile Insurance Co., 493 F.2d 130, 134 (9th Cir. 1974). Thus we find no invalidity regarding the Kinnard patent.

B. Mitchell Patent No. 3,523,343.

Fabcon and Rauenhorst contest the validity of the Mitchell patent on the grounds of...

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