Garter-Bare Co. v. Munsingwear Inc.

• Decision Date: 13 January 1984
• Docket Number: GARTER-BARE,Nos. 82-5270,82-5439,s. 82-5270
• Citation: 221 USPQ 751,723 F.2d 707
• Parties: COMPANY, an unincorporated association (a limited partnership), and Knut L. Bjorn-Larsen, Plaintiffs and Appellants, v. MUNSINGWEAR INC., a corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 707

723 F.2d 707

221 U.S.P.Q. 751

GARTER-BARE COMPANY, an unincorporated association (a limited partnership), and Knut L. Bjorn-Larsen, Plaintiffs and Appellants, v. MUNSINGWEAR INC., a corporation, et al., Defendants-Appellees.

Nos. 82-5270, 82-5439.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 26, 1983.

Decided Jan. 13, 1984.

John E. Wagner, Glendale, Cal., Lillian Tomich, Robert W. Driscoll, Driscoll & Tomich, San Marino, Cal., for plaintiffs and appellants.

Lawrence C. Brown, Faegre & Benson, Minneapolis, Minn., Leonard Janofsky, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., Douglas J. Williams, Merchant, Gould, Smith, Edell, Welter & Schmidt, Dwight H. Oglesby, Minneapolis, Minn., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before CHAMBERS, ELY and WALLACE, Circuit Judges.

CHAMBERS, Circuit Judge:

This action was filed by Garter-Bare, a limited partnership, and by Larsen, its general partner, in California Superior Court on January 20, 1972, and was then removed to the United States District Court where summary judgment was rendered in favor of the defendant, Munsingwear. In Garter-Bare v. Munsingwear, 650 F.2d 975 (9th Cir.1980), (hereafter "Garter-Bare I ") we reversed the summary judgment on the ground that there were triable issues of fact that precluded its use. On remand, the jury rendered its verdict for the plaintiffs granting them $3,000 for breach of contract, royalties (in an amount to be determined) of 7% for patent infringement, $500,000 for trade secret misappropriation, and $15 million compensatory damages and an additional $15 million as punitive damages, for fraud.

Munsingwear moved for judgment notwithstanding the verdict or for new trial and thereafter made a second motion for new trial, now alleging the discovery of new evidence. The district judge granted judgment n.o.v. as to all but the fraud claim, or a new trial if the judgment n.o.v. were overturned. He granted a new trial on the fraud claim, but thereafter granted summary judgment in favor of Munsingwear on the ground that the claim was barred by the California statute of limitations (C.C.P. Sec. 338(4)). An interlocutory appeal from the final judgment (No. 82-5270) merged with an appeal from the final judgment (No. 82-5439), after the order for summary judgment on the fraud issue had been entered. The complaint is stated in several claims. We will discuss them separately and, as we do so, the interrelationship of the claims will become self-evident.

Contract Claims:

Judgment n.o.v. was granted as to the claims founded on the written contract executed by the parties, on the basis that they were barred by the four-year statute of limitations under California law (C.C.P. Sec. 337(1)). The standard for reviewing judgments n.o.v. is the same with this Court as it is with district courts and it applies not only to the contract claims, but to other claims raised by the complaint (see infra ).

Judgment n.o.v. is proper if the evidence permits of only one reasonable conclusion as to the verdict. California Computer Products v. International Business Machines Corp., 613 F.2d 727, 733 (9th Cir.1979); Fountila v. Carter, 571 F.2d 487 (9th Cir.1978). On appeal from judgment n.o.v., we view the evidence in a light most favorable to the party against whom the motion is made. Shakey's Inc. v. Covalt, 704 F.2d 426, 430 (9th Cir.1983); Kaplan v. Burroughs Corp., 611 F.2d 286, 290 (9th Cir.1979). The key issue is that of the existence of substantial evidence to support the jury's verdict.

In their Agreement of July 9, 1965, the parties agreed to a three-phase program for the commercial application of the Larsen process for a garterless device for supporting women's hosiery: a six-month research and development phase, followed by a two-year phase during which Munsingwear would have an exclusive license, followed by a third phase during which the parties would share proceeds from industry-wide licensing.

Executed contemporaneously with the Agreement, which by its terms said nothing about cancellation, was a First Amendment to the Agreement, providing such right to both parties. The provision giving Munsingwear this right stated that it might cancel:

... upon 90 days prior written notice to the licensor Garter-Bare; however, any and all royalties due and accruing to Garter-Bare at the cancellation date shall be paid within 30 days of cancellation."

A Second Amendment extended the original six-month research and development phase for six months and provided for monthly payments of $1000 per month, "or said Agreement is terminated as provided for therein." The collaboration of the parties continued at times without any formal extension of the research and development period. But a Third Amendment was executed extending it for a six-month period, to expire on January 1, 1968, and its wording was substantially the same as the Second Amendment.

In Garter-Bare I, we held that disputed fact issues relating to the contract claims precluded pretrial summary judgment based on the statute of limitations (C.C.P. Sec. 337(1)). At the trial, on remand, the jury determined that a letter from Munsingwear on December 22, 1967, was accepted by Garter-Bare "as a termination of the agreement to pay the $1000 per month", but that Garter-Bare "retained its claims to the three monthly payments which it contends was [sic] due it." The jury also specifically found that the parties did not mutually intend the research and development phase to be extended beyond January 1, 1968.

Given these findings as the intent of the parties we conclude, with the district judge, that the four-year statute of limitations began to run at least by December 22, 1967, or surely by January 1, 1968 when the first of the three disputed $1000 payments was not paid. In any event, by January 18, 1968, when Munsingwear notified Garter-Bare that it intended to make no further payments.

In Garter-Bare I, 650 F.2d at 979, we unwisely did what we had chastised the district judge for doing, i.e. anticipating the jury on questions of fact. Our statement that C.C.P. Sec. 337(1) could not begin to run until the first payment was due and was not paid (which we stated would be thirty days after December 22), was not accurate and we retract it. The terms of the Agreement called for payment at the first of the month; this is what the parties agreed to. Therefore, the failure or refusal of Munsingwear to make the payment due on January 1, 1968, was of unquestionable significance in the factual history of the case. As the complaint was not filed until January 20, 1972, judgment n.o.v. was the appropriate action for the district court to take on the issue of the claims based on written contract.

Patent Claims:

The amended complaint claims infringement of the Larsen patent, namely his '748 patent for a process of making an effective single-layer garterless panty-girdle leg. At the time that the parties executed their Agreement, in 1965, Larsen warranted that the device that he was disclosing to Munsingwear either was, or would be, covered by patents. The process referred to at that time was for a double-layer cuff on the girdle leg. The jury accepted his contention that the parties "by their conduct mutually intended that the research and development program be extended to include the single-layer garment." There is substantial evidence to support their finding on this issue. The jury also held that Larsen's single-layer patent, thereafter obtained as '748, was valid and that it had been infringed by Munsingwear.

The district judge granted judgment n.o.v. on the ground of the obviousness of the '748 patent, accepting the jury verdict as advisory only, and as was his right exercising the duty to determine the issue of obviousness as a matter of law. Appellants appropriately concede that obviousness is a question of law for the court. Sarkisian v. Winn-Proof Corp., 688 F.2d 647, 651 (9th Cir.1982), cert. denied sub nom. Carsonite International Corp. v. Carson Mfg. Co., --- U.S. ----, 103 S.Ct. 1499, 75 L.Ed.2d 930 (1983). However, they contend that the district judge did not review the Larsen patent claims against the standard set by Graham v. John Deere Co., 383 U.S. 1, 17, 86 S.Ct. 684, 693, 15 L.Ed.2d 545 (1966), i.e., by considering 1) the scope and content of the prior art, and 2) the differences between the prior art and the claims at issue, and 3) the level of ordinary skill in the art. We must reject their argument on this score. The district judge held that the claimed patentable aspects of the '748 device were not novel and that Larsen had not produced anything beyond the ordinary skill in the art, but rather that his claimed novelty was reflected in two patents that had not been before the patent examiner. We cannot say on this record that the district judge's conclusions were clearly erroneous. F.R.Civ.P. 52(a); Sarkisian v. Winn-Proof Corp., supra, at 651. The judgment n.o.v. on this issue is affirmed; the jury's award of royalties based on the claimed infringement of the '748 patent is reversed.

Fraud Claims:

The jury awarded Garter-Bare $15 million as compensatory damages for Munsingwear's fraud and also awarded Garter-Bare a further $15 million as punitive damages. The district judge granted a new trial on the ground that the patent was not valid and the jury's consideration of the fraud issues was contaminated by its reliance on the supposed validity of the '748 patent.

The jury had also specifically found that the complaint, filed on January 22, 1972, was timely-filed insofar as the statute of limitations for fraud (C.C.P. Sec. 338(4)) was concerned.

That statute provides for a three year period for fraud, or mistake but:

The cause of action in such case [is] not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud...