Western Battery & Supply Co. v. Hazelett Stor. Battery Co.

• Decision Date: 30 September 1932
• Docket Number: No. 9447,9448.,9447
• Citation: 61 F.2d 220
• Parties: WESTERN BATTERY & SUPPLY CO. v. HAZELETT STORAGE BATTERY CO. SAME v. WEBSTER.
• Court: U.S. Court of Appeals — Eighth Circuit

61 F.2d 220 (1932)

WESTERN BATTERY & SUPPLY CO. v. HAZELETT STORAGE BATTERY CO.

SAME v. WEBSTER.

Nos. 9447, 9448.

Circuit Court of Appeals, Eighth Circuit.

August 10, 1932.

Rehearing Denied September 30, 1932.

Carle Whitehead, of Denver, Colo. (Henry S. Conrad, of Kansas City, Mo., and Malcolm Lindsey, D. K. Wolfe, Jr., and Whitehead & Vogl, all of Denver, Colo., on the brief), for appellant.

Hadley F. Freeman, of Cleveland, Ohio (Harry S. Weidman, of Cleveland, Ohio, George M. Albrecht, of Milwaukee, Wis., and Lynn Webb and McCune, Caldwell & Downing, all of Kansas City, Mo., on the brief), for appellees.

Before STONE, KENYON, and VAN VALKENBURGH, Circuit Judges.

KENYON, Circuit Judge.

Appellees (herein at times called plaintiffs) brought their respective suits in the District Court of the United States for the Western District of Missouri to restrain appellant (henceforth frequently called defendant) from further infringement of certain letters patent held by plaintiffs, and to obtain an accounting for past infringement. Defendant did not question the validity of the patents sued on, and admitted the doing of acts which, unless authorized, would constitute infringement; but pleaded license and estoppel as affirmative defenses. The two cases were consolidated for trial and we consider both in this opinion.

The only evidence before the District Court was that taken by defendant in support of its affirmative defenses. On the basis thereof the District Court made findings of fact and conclusions of law in favor of plaintiffs; and by its decrees enjoined defendant from further infringement, and ordered an accounting before a master.

The findings of fact made by the District Court were not made with reference to any dispute in the evidence, and were less expressive of primary fact than of conclusions of ultimate fact or of law. Hence they are in no way binding upon this court. Uihlein et al. v. General Electric Co. et al. (C. C. A.) 47 F.(2d) 997, 1001.

The facts are rather involved, and a some-what extended statement thereof seems necessary. Prior to February 26, 1923, the Hazelett Storage Battery Company, an Ohio corporation doing business at Cleveland, Ohio, was the legal and beneficial owner of all the rights embodied in the applications for the nine patents, since matured, which form the basis of the present suits. Said patents all relate to a process for the manufacture of plates for storage batteries, and are the invention of C. W. Hazelett, president of the Hazelett Storage Battery Company. Three formed the basis of the suit by the Hazelett Storage Battery Company and six the basis of the suit by Webster.

In February, 1923, the Hazelett Storage Battery Company was in some financial difficulties. It was indebted as follows:

                  To George J. Feiss .......... $1,500
                  To McConnell Shank ..........  1,500
                  To L.J. Wolf ................  1,500
                  To C.W. Hazelett ............  2,100
                  To S.J. Hazelett ............    500
                                                ______
                       Total .................. $7,100
                

With the exception of S. J. Hazelett, the above-named creditors were all directors in the Hazelett Storage Battery Company at the time. Through later events subsequently to appear, Feiss and Wolf seem to have ceased to be directors, and to have been replaced by "dummy" directors, to wit, Helen Lichtenberg, stenographer for Hazelett Storage Battery Company and Hazelett Manufacturing Company, and one R. A. Richter. S. J. Hazelett likewise later became a director, but gave complete power of attorney in the matter to his brother C. W. Hazelett. Control of the company thus gravitated completely into the hands of Shank, the two Hazeletts, and one H. L. Sherman.

To secure this indebtedness the Hazelett Storage Battery Company on February 26, 1923, assigned to the Cleveland Trust Company of Cleveland, Ohio, as trustee, its entire interest in certain patents and applications for patents, including the applications that have since matured into the six patents, which form the basis of the Webster suit. The nature of the trust, and the duties of the Cleveland Trust Company, were thus determined in the instrument of assignment:

"The trust Company will hold the title to said applications and patents to be granted thereon until the sums mentioned, with interest thereon, have been paid and thereupon will reassign such applications or patents to The Battery Company provided said payments are made within two years from the date hereof.

"If said debts are not fully paid within two years from date hereof, or if The Battery Company or any Company hereafter formed by it, shall become insolvent before two years from date hereof, The Trust Company shall, at the request of the Loaners, or any of them, sell said applications and the patents granted or to be granted thereon subject to the prior contracts mentioned, at the best price obtainable at private or public sale, as directed by The Battery Company, and shall convey title thereto to the purchaser and after deducting any amount due The Trustee, hereunder, shall disburse the funds received pro rata among the above mentioned loaners in accordance with amount of the loan, including interest, then due them, the balance if any, to be paid to The Battery Company."

By agreement of March 4, 1929, plaintiff Webster was substituted for the Cleveland Trust Company as trustee of the above trust.

The Hazelett Storage Battery Company has at all times held legal title to, and the complete beneficial interest in, the three patents which now form the basis of the suit in which it is plaintiff.

As to the six patents, the beneficial interest was in the five creditors of the Hazelett Storage Battery Company whom the assignment in trust was designed to secure, and in the Hazelett Storage Battery Company.

The Western Battery & Supply Company is a Colorado corporation that has been doing business since March, 1920, at Denver, Colo. Its first connection with the Hazelett Storage Battery Company was through an arrangement made in 1925 by which it was to assemble into batteries at its Denver plant, for distribution through its territory, plates manufactured by the "Hazelett process," by the Hazelett Storage Battery Company, at Cleveland. Early in 1926, however, negotiations were in progress looking toward the Western Company's engaging directly in the manufacture of plates by the Hazelett process, with equipment to be furnished by the Hazelett Storage Battery Company, instead of confining itself, as it had theretofore done, to assembling into batteries plates manufactured by the Hazelett process at Cleveland, or manufactured by itself by hand. The general intent of the negotiations was that Western Company purchase equipment for the manufacture of plates by the Hazelett process, receive a license for such manufacture and be assigned exclusive territory, and pay royalties to Hazelett Storage Battery Company on all plates so manufactured and sold.

At this time one C. V. Chermendy was claiming that he already had a license from Hazelett Storage Battery Company to manufacture plates under the Hazelett process in states west of the Mississippi river. He had some kind of an agreement authorizing him to organize assembly plants for storage batteries, etc., in states west of the Mississippi river using plates manufactured by the Hazelett processes and under the Hazelett patents. The possibility of competition or suit by Chermendy was a much-discussed question throughout the negotiations between Hazelett Storage Battery Company and appellant, as Chermendy and his assignee the Mascot Company continued to claim rights under his alleged contract and to operate thereunder. An agreement was finally arrived at, however, on May 19, 1926, covering what is designated Denver territory. It provided in a general way for the purchase by the defendant of Hazelett plate-making machinery for not to exceed $10,000, payable $2,500 down, $2,500 August 15, 1926, $2,500 September 15, 1926, and the balance on approval of the machinery by appellant, for exclusive right to operate under the Hazelett patents in Denver territory, and royalty of one-half cent per plate for minimum quarterly royalties were to be paid. We set forth certain important provisions thereof:

"It may be terminated at any time by the party of the first part in case of default of the party of the second part in paying the accrued or minimum royalties aforesaid, except and unless the payment of said royalty is withheld by second party because of the failure of the first party to comply with the covenants and agreements on its part to be kept and performed.

"This agreement may also be terminated by the party of the second part on giving three months' notice to that effect to the party of the first part in which case the prescribed minimum royalty is applied until the end of said three months' period. However, terminated, the party of the second part shall have the right to complete the manufacture of any material on hand provided the prescribed royalty is paid thereon, except as herein above provided in case of breach by first party.

"It is expressly understood, stipulated and agreed that no royalty shall be due first party and payable hereunder during such time as second party may be prevented by conflicting claim of others from exercising the territorial rights and privileges under said patent rights from manufacture or sale in the territory from which said royalties would otherwise be due.

"In case the above conditions obtain and the party of the second part is prevented from exercising the rights and privileges in Denver territory, the party of the first part shall purchase said equipment and all rights under this agreement from the party of the second part within ninety days of notice by party of the second part to party of the first part and pay to the party of the second part, the cost of said equipment delivered to Denver less depreciation at...