Whitfield & Sheshunoff, Inc. v. FAIRCHILD E. & A. CORP.

• Citation: 269 F.2d 427
• Decision Date: 04 August 1959
• Docket Number: 25121.,Dockets 25120,153,No. 152,152
• Parties: WHITFIELD & SHESHUNOFF, INC., Plaintiff-Appellee, v. FAIRCHILD ENGINE & AIRPLANE CORPORATION, Defendant-Appellant. FAIRCHILD ENGINE & AIRPLANE CORPORATION, Plaintiff-Appellant, v. WHITFIELD & SHESHUNOFF, INC., and Marshall G. Whitfield, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

269 F.2d 427 (1959)

WHITFIELD & SHESHUNOFF, INC., Plaintiff-Appellee, v. FAIRCHILD ENGINE & AIRPLANE CORPORATION, Defendant-Appellant.

FAIRCHILD ENGINE & AIRPLANE CORPORATION, Plaintiff-Appellant, v. WHITFIELD & SHESHUNOFF, INC., and Marshall G. Whitfield, Defendants-Appellees.

Nos. 152, 153, Dockets 25120, 25121.

United States Court of Appeals Second Circuit.

Argued December 3, 1958.

Decided August 4, 1959.

Milton E. Schattman, New York City, for plaintiff-appellee Whitfield & Sheshunoff, Inc., in first action.

Gibson Yungblut, Cincinnati, Ohio, for plaintiff-appellee Whitfield & Sheshunoff, Inc. on counterclaim in first action and for defendants-appellees in second action.

Walter H. Free, New York City (John F. Neary, Jr. and Brumbaugh, Free, Graves & Donohue, New York City, on the brief), for defendant-appellant and plaintiff-appellant, Fairchild Engine & Airplane Corporation.

Before SWAN, MEDINA and WATERMAN, Circuit Judges.

MEDINA, Circuit Judge.

Fairchild Engine & Airplane Corporation, asserting a large number of miscellaneous alleged prejudicial errors, appeals from a judgment in two consolidated actions that in substance found all the facts as claimed by appellees, granted the relief prayed against Fairchild in the first action, and, except for issues abandoned or withdrawn on consent, rejected all the contentions advanced by Fairchild and dismissed its counterclaim in the first action and its complaint in the second action.

Marshall G. Whitfield and Victor Sheshunoff are two metallurgical inventors whose skill and persistent experimentation produced many interesting and valuable inventions that are disclosed in a great variety of patents in evidence in this record. For some years they were associated with Fairchild, whose principal interest in the beginning of the relationship was in finding some means of dissipating or reducing the heat generated in the cylinders of its airplane engines. As the end of World War II approached and the demand for airplane engines began to diminish, a controversy developed between the inventors and Fairchild concerning the proper interpretation of the series of contracts between the parties. There had been reserved to the inventors an irrevocable, exclusive, royalty-free license to manufacture, use and vend "apparatus, equipment, appliances and chattels of any and all kinds and descriptions, and any parts thereof," later limited to "the field of aluminum-coated sheet, strip and wire," by and in connection with certain processes, apparatus, products and improvements described by the parties as Al-Fin processes. Fairchild claimed the reference to "apparatus, equipment, appliances and chattels" was restricted to a prior agreement or agreements that had been amended and superseded, and that the inventors were limited to the practice of the patented processes in the manufacture of sheet, strip and wire for commercial sale. The inventors, on the other hand, asserted that their license covered the entire "field of aluminum-coated sheet, strip and wire," including any article made of or containing sheet, strip or wire and thereafter coated with aluminum in accordance with the disclosures of the Al-Fin processes. This dispute as to the interpretation of the contracts is the subject matter of the action by the company bearing their name, to which the inventors had assigned their rights pursuant to the terms of the license agreed upon. As Fairchild had gone ahead with "the pots and pans" and other articles in the disputed area, and brushed aside the protests of the inventors, injunctive relief and an accounting were sought.

Fairchild not only denied any violation of the license granted to the inventors and pleaded laches as a defense, but it advanced by counterclaim in the first action and by affirmative allegations in the separate action later brought by Fairchild, and characterized by the trial judge as a "procedural maneuver," a series of contentions and issues, including some sought to be introduced by amendment at the trial, so numerous and so complicated as to smack of harassment. The counterclaim alleged that four applications for Letters Patent filed by the inventors in 1949 and 1950, long after the parties had ceased to work together, constituted inventions made during the employment of the inventors by Fairchild or within six months thereafter, according to the terms of one of the agreements, and that a decree should be made directing the assignment of these applications to Fairchild. These were applications bearing Serial Numbers 116,634, 160,086, 179,878 and 190,063. The counterclaim was later and before the trial amended so as to include similar allegations relative to Serial Numbers 757,920; 198,235; 240,446; 240,448; 54,152 (now patent No. 2,604,415); 673,880 (now patent No. 2,682,101); 104,436 (now patent No. 2,702,525); 238,278 (now patent No. 2,752,265); 240,447 (now patent No. 2,752,268); and an unnumbered application described as "Casting Light Metal Against Iron, and Articles Formed Thereby," executed by Whitfield September 13, 1952. The complaint in Fairchild's "procedural maneuver," the second of the two actions, charged that the corporate plaintiff in the first action and Whitfield personally "under the purported and exaggerated guise of a license" from Fairchild had been engaged in actively inducing others to infringe Patents Nos. 2,396,730, 2,435,991, 2,453,772, 2,455,457 and 2,481,962 (the Al-Fin patents), in violation of 35 U.S.C. § 271.

The complaint in the action by the inventors alleged diversity of citizenship; the complaint in Fairchild's action alleged jurisdiction "under the Patent Laws of the United States."

We shall now describe the facts in chronological sequence as a background for the discussion of the law points. Where necessary in connection with the discussion of the several legal questions, a more detailed statement of certain groupings of facts will be made.

The two inventors had been working with Reynolds Metals Company for some years prior to their association with Fairchild. The interest of Reynolds at that time was in the production of continuous lengths of metal with a thin coating of aluminum. Certain patents in that type of production (the Al-Wac process) were assigned by the inventors to Reynolds (Patent Nos. 2,166,510 and 2,203,606) and there were others. The inventors were also experimenting with other aluminum-coated articles, and "gadgets," including a skillet, as their work was not confined to work for Reynolds.

There came a time in 1940 when the inventors thought they had perfected a secret process for adding to ferrous metals a thick coating of aluminum. This later became the Al-Fin process, and it consisted in immersing the ferrous article in an aluminum bath so that, at a proper temperature and after the lapse of a proper interval of time, there would form a layer or interface of aluminum alloy bonded to the iron or steel. Against this interface a thick layer of aluminum could then be added by casting, and this thick layer could be machined into any desired shape or form.

They sent a piece of steel pipe with a thick aluminum "slug" around it to Duncan B. Cox, vice-president of Fairchild in charge of the Ranger Engine Division, and Cox showed such interest that the inventors and their lawyer Michael F. Markel were asked to come immediately to Farmingdale for a conference. At that very conference on December 30, 1940 the first agreement between the parties was drafted. It was in the form of a letter to Fairchild and the offer contained in the letter was accepted by Fairchild on January 10, 1941. What the inventors got was employment at $100 a week each for one year plus proper laboratory facilities for their work and a 51% interest in a corporation or partnership to be formed, the new company to become the owner "of all processes relating to the application of aluminum fins to cylinder barrels" and other processes developed by the inventors "which relate to the aviation industry." What Fairchild got was the possibility of solving one of its most pressing problems, on which the success of its Ranger Division might well depend, i. e., the affixing of aluminum fins to the cylinder barrels of its airplane engines, which were of the in-line rather than the radial type, which made it necessary to reduce or dissipate some of the heat, this being a well-known characteristic of aluminum.

So the inventors got to work and by September they were able to turn out aluminum-finned cylinders to the satisfaction of the Fairchild engineers. The process was still secret; no disclosures had yet been filed in the Patent Office. Accordingly Al-Fin Corporation was formed, as contemplated in the letter contract of December 30, 1940, and on October 14, 1941 the parties signed a formal contract to "restate and amplify" their respective rights and obligations. The application for the basic patent (No. 2,396,730) was filed by Whitfield and by Sheshunoff on October 24, 1941.

The agreement of October 14, 1941 provides for the 51-49% interest in Al-Fin Corporation, the inventors are employed for "not less than one year from January 10, 1941" at $100 a week each and Fairchild may extend this for an additional six months at $125 a week each. The inventors are to transfer to the Al-Fin Corporation all inventions and improvements "which relate to or can be utilized in the aviation industry, or which result from their work directly or indirectly, during any period while they or either of them are in the employ of Fairchild" and for six months thereafter. It is obvious that the exploitation of the fruits of the labors of the inventors is contemplated, as Fairchild agrees "To use its best efforts in assisting Al-Fin to negotiate license agreements in respect to all Al-Fin owned patent rights."

As to the aircraft industry paragraph Eighth (c) provides that Al-Fin Corporation "hereby" grants to Fairchild an irrevocable, non-exclusive...