Automatic Draft & Stove Co. v. Auto Stove Works

• Decision Date: 16 July 1940
• Docket Number: No. 18.,18.
• Citation: 34 F. Supp. 472
• Court: U.S. District Court — Western District of Virginia
• Parties: AUTOMATIC DRAFT & STOVE CO., Inc., v. AUTO STOVE WORKS.

34 F. Supp. 472

AUTOMATIC DRAFT & STOVE CO., Inc., v. AUTO STOVE WORKS.

No. 18.

District Court, W. D. Virginia.

July 16, 1940.

Charles R. Fenwick and J. Howard Flint, both of Washington, D. C., and Douglas A. Robertson, of Lynchburg, Va., for plaintiff.

Richard E. Babcock and Arthur M. Hahn, both of Washington, D. C., and Royston Jester, Jr., of Lynchburg, Va., for defendant.

PAUL, District Judge.

The plaintiff in this case is a Virginia corporation having its principal place of business at Lynchburg, Virginia. The defendant-intervener, which will hereinafter be called the defendant, is an Illinois corporation having its place of business at New Athens, Illinois.

The case involves the alleged infringement of two patents owned by the plaintiff, the first being patent No. 1,786,931, issued to Camb J. Ashley on December 30, 1930, and the second a patent No. 2,170,728, issued to Charles D. Montague on August 22, 1939. These patents respectively will hereinafter be referred to as the Ashley patent and the Montague patent.

The patents relate to wood-burning stoves equipped with a thermostatically controlled draft, which will be hereinafter more particularly described. This suit was originally brought against Bailey-Spencer Hardware Company of Lynchburg, Virginia, which was charged with selling a stove alleged to infringe the patents owned by the plaintiff. The alleged infringing stoves had been purchased by Bailey-Spencer Hardware Company from the Auto Stove Works, which had manufactured them, and the latter company, by agreement, intervened and was substituted as defendant and Bailey-Spencer Hardware Company was eliminated as a party to the action.

As a prelude to considering the merits of the case, and as throwing some light upon the merits, a recital of the history of these patents and of the alleged infringing device is material.

During the year 1932 Mr. H. C. Adams, of Lynchburg, in the course of a business trip through eastern Virginia, had his attention attracted to a wood-burning stove being used for the brooding of young chickens in that section. He learned that this stove was made at a small town named Guinea, Virginia, and found that this brooder stove had been patented by C. J. Ashley, who was manufacturing and selling it in limited quantities. Being interested in the possibilities of the stove, Mr. Adams acquired the right thereto from Mr. Ashley.

Thereafter, and possibly a year or so later, Mr. Adams and certain associates organized a small corporation for the purpose of manufacturing the Ashley stove and moved the business to Fredericksburg, Virginia. At that time Mr. C. D. Montague, then living in Fredericksburg, and who had been trained as a mechanical and electrical engineer, became associated with the plaintiff company with duties which placed him practically in entire charge of the manufacturing and selling of its product.

The Ashley stove consisted of an airtight wood-burning stove with a down-draft stack arranged on the exterior of the stove with the damper of the draft at the upper end of the draft stack, the damper being controlled by a thermostat located at the top of the draft stack and in which the thermostatic element was of the wafer type. In the course of his duties with the plaintiff company while at Fredericksburg, Mr. Montague developed certain changes in the thermostatic control which were supposed to be improvements and which consisted of the elimination of the wafer as the thermostatic element and the substitution therefor of a rigid bi-metallic element, and which provided further for surrounding the top of the down-draft stack together with the thermostatic element in a cap or cover in order to exclude as far as possible the influence of room temperature and air currents. Montague made application for a patent on his improved stove under an agreement to assign his rights in said patent to the plaintiff corporation. A patent was later issued, which is the second patent in suit, known as the Montague patent.

Due to lack of capital and other causes not necessary to discuss, the plaintiff's business did not make satisfactory progress at Fredericksburg and, in 1937, it was found advisable to remove the business to Lynchburg, Virginia, and this was done. The officers of the corporation were eager to have Mr. Montague continue in charge of the business, but he did not want to leave his residence at Fredericksburg; and on the removal of the business to Lynchburg, he severed his connection with it. Thereafter a disagreement occurred between Montague and the corporation as to compensation for the services which he had previously rendered and this resulted in litigation which was finally comprised by the plaintiff meeting in part the monetary demands of Montague. Apparently the severance of relations between Montague and the plaintiff corporation was not completed in a spirit of good will.

In September, 1937, a Mr. H. J. Waff, Jr., who is in the business of selling stoves, as the representative of five or six stove manufacturing concerns, had heard of the Ashley stove being manufactured at Fredericksburg and went to that place to learn of the prospects of including it in the line of stoves which he sold. He came in contact with Mr. Montague there, who informed him that he was no longer connected with the business and that it had been moved to Lynchburg. Mr. Waff shortly thereafter went to Lynchburg and, being impressed with the stove, discussed with the plaintiff the possibility of having the stove manufactured by established stove manufacturers who could distribute it upon a larger scale. The plaintiff corporation was interested in this and furnished Mr. Waff with descriptive literature and advertising matter; and for the next ten months or a year, Waff seems to have made some efforts to develop the manufacture and sale of the stove, but apparently without results.

During this time Waff continued his acquaintance with Montague and in discussion with him he was told by Montague that he (Montague) was working on a further improvement of the Ashley stove on which he expected to apply for another patent. The Auto Stove Works, the defendant here, was one of the stove manufacturers whose line of stoves Waff was selling; and during the latter part of 1938, Waff brought Montague and the defendant company together with a view to interesting the defendant in the manufacture of a stove equipped with the device which Montague was at that time working on and for which he had applied for a patent, although no patent has as yet issued. As a result of this, the defendant had some stoves equipped with Montague's device and, after trying them out and after other negotiations with Montague, entered into an agreement dated July 1, 1939, in which it is recited that Montague has filed application for a patent on his second device and agrees to give the defendant an exclusive license to manufacture and sell stoves equipped with this device upon a royalty basis. Among other terms of this agreement was one to the effect that if any litigation ensued, either for the protection of rights under any patent that might be granted on this new device or for the defense of any suit brought by third parties against either Montague or the Auto Stove Works, the parties were to share equally the expense of any such litigation. The defendant then embarked on the manufacture of stoves equipped with the device perfected by Montague, and which will hereinafter be referred to as the second Montague device or the infringing device, in order to distinguish it from the previous improvement devised by Montague, the patent on which is owned by the plaintiff.

In the meanwhile, the business of the plaintiff conducted at Lynchburg had met with considerable success and was expanding from year to year; and when the plaintiff became aware in May, 1939, that the defendant was manufacturing and selling stoves equipped with the second Montague device, it gave notice to the defendant of infringement and later instituted this suit, as heretofore related.

The defendant had begun the manufacture and sale of stoves equipped with the second Montague device prior to the date of its formal agreement with Montague. It had been notified in May, 1939, by the plaintiff that the latter considered its stove an infringement of the Ashley patent, and Mr. George P. Wirth, Jr., the secretary and treasurer of the defendant company, who seems to have conducted the negotiations with Montague and on behalf of the company executed the contract with Montague, testifies that at the time of his negotiations with Montague and the entrance into the contract he knew of the Montague patent and that it was owned by the plaintiff. It is apparent, therefore, that on July 1, 1939, when the contract between the defendant and Montague was entered into, the defendant company knew of the existence of both the Ashley and the Montague patents and their ownership by the plaintiff and had previously been notified by the plaintiff that the defendant's stove was an infringement of the Ashley patent. It seems probable that knowledge of the ownership of these two patents and of the notification of infringement were the causes which induced the inclusion in the contract between Montague and the defendant of the provisions relating to the defense of any suit that might follow.

Mr. Wirth testifies that in acquiring the rights to Montague's second device, the defendant company caused no investigation to be made by lawyers, patent experts or otherwise as to whether the device used by it was an infringement of the patents owned by the plaintiff, but accepted Montague's assurance that it would not infringe and proceeded on that assurance. It develops in the course of the evidence in this case that Montague, in compliance with the terms of his agreement with the defendant, is bearing half of the expense of defending this suit, although it is stated that he has no control...