EF Drew & Co. v. Reinhard

• Decision Date: 03 November 1948
• Docket Number: Docket 21052.,No. 46,46
• Citation: 170 F.2d 679
• Parties: E. F. DREW & CO., Inc. v. REINHARD.
• Court: U.S. Court of Appeals — Second Circuit

170 F.2d 679 (1948)

E. F. DREW & CO., Inc. v. REINHARD.

No. 46, Docket 21052.

United States Court of Appeals Second Circuit.

November 3, 1948.

Watson, Bristol, Johnson & Leavenworth, Tracy R. V. Fike and Harry C. Bierman, all of New York City (Leonard A. Watson, of New York City, of counsel), for appellant.

Klein, Alexander & Cooper, of New York City, and Guy W. Calissi, of Woodridge, N. J., for appellee.

Before L. HAND, Chief Judge, and SWAN and CHASE, Circuit Judges.

L. HAND, Chief Judge.

This is an appeal from a judgment dismissing the complaint in an action to compel the defendant, Reinhard, specifically to perform a contract to transfer to the plaintiff an invention made by him while in its employ. The only issues are: (1) whether the contract of employment gave to the plaintiff the right to inventions made by the defendant; and (2) whether the defendant made the invention while he was in the plaintiff's employ. The judge found that the plaintiff had failed to prove that the contract did give to the plaintiff the right which it claimed; but made no finding upon the second issue. The substance of the evidence, so far as it is necessary to state it, is as follows:

On January 2, 1930, Reinhard and two others — Whitlock and Hainley — organized a corporation, known as the American Colloid Corporation, one-half of whose shares were issued to one Drew, and the other half were divided equally between Whitlock, Hainley and Reinhard. The company contracted with these three that Whitlock should be sales manager at $700 a month; Hainley, plant manager at $400 a month; and Reinhard "Chief Chemist" at $550 per month. In addition to their salaries, they were to divide among themselves fifteen percent of the net profits after the payment of a preferred dividend. The defendant testified that he and Whitlock operated and managed the administrative side of the company in New York, while Hainley was primarily engaged in operations at the plant in Boonton, New Jersey. He described his own duties as involving "primarily sales work, writing of technical literature, advertising matter, drawing up forms, establishing methods of analysis and control on boiler water, the handling of salesmen's reports, the management of the office staff, watching expenses, costs, handling formulations, establishing plant control conditions, and in general the general management of the business with the possible exception of having final say in the matters of finances." However, he spent from five to seven percent of his time in the laboratory "either working directly or in a supervisory capacity," although this was primarily to check the work of subordinates and to give them instructions, and occasionally to make a test of what they had done. The work of the company was principally to prevent water, fed to boilers, from developing a scale on the inside of the boiler; but it also included making paints, coating, auto specialties, protective hand-creams for mechanics and "laundry blue." On October 1, 1934, the defendant and the company made a new contract by which he merely agreed to "devote his entire time and energy to the furtherance of the business of Colloid under the supervision and direction of the Board of Directors." This agreement, in containing no covenant to transfer any inventions to the company, differed from the contracts made with other employees which did contain such a covenant.

Differences arose between the company and Reinhard which culminated in 1945 in his withdrawal; but when he left, concededly he made no claim to a number of formulas used in the business which he had devised while he was with it. Moreover, he had assigned to the company an application for a patent for cleansing the interior of combustion engines and the like, which he had invented in cooperation with an employee, named Amthor. A little over a year before he left the company he submitted to it an "Inter-Office Letter" (February 29, 1944), whose subject he entitled: "Outline of Suggested Projects for Investigation and Development for the American Colloid Division." This began by declaring that Reinhard was submitting an "outline of problems and suggestions of approach, pertinent to the operations of the American Colloid Division, and which if prosecuted to a successful culmination, could be commercialized upon to more or less degree." The first of the subjects discussed was "Boiler Water Treatment," followed by three others which need not concern us. Having outlined the projects, he took up in detail "Boiler Water Studies," in the course of which he said: "a novel method of making a colloidal iron hydroxide, relatively free of salts is known to me and this, the most difficult phase, is easily overcome. This would not have to be developed. * * * A short step removed from the principle of iron hydroxide and its resulting floc as internal boiler coagulant, would be the utilization of a magnetic floc of iron hydroxide, the preparation of which also is known to me and presents no particular problem." He then went on to explain the advantages of such a "floc," and to say: "Search will, I believe, reveal that these principles will in more than one way be subject to good sound patent protection, thus giving us exclusive rights to these advances in this science and art, advantages over competition and merchandising advantages that will be welcomed by any sales organization." Later on, in speaking of the possibility of commercializing the work of another employee, Pollack, he said: "this work, in connection with coagulation with colloidal alumina (process of preparation also known to me) colloidal iron hydroxide, magnetic floc, etc., may well enable us to become well established in this related line of endeavor." Finally, after discussing the other activities of the plaintiff, he concluded: "Such are the many problems in our diversified line of business. It is an auspicious program on which the best concentrated cooperative efforts are demanded. Suggestions for approach and coordination of effort will be appreciated." Reinhard testified that he prepared this letter only to show his qualifications as a chemist, and that he did not mean by it to describe his legal relations with the plaintiff.

On February 8, 1945, a few months before he left the company, he wrote a letter to Whitlock, in which, after complaining how much the business had changed since he and Whitlock had founded it, he said: "The products have all been virtually mine to more or less degree. * * * The auto products are hooking on well and they were my idea. Radiator cleaner was my patent. Duosol was mine. Fuel Oil Treatment Crankcase treatment and all." This letter he ended thus: "But, besides what I have originated for Drew, my mind hasn't been idle. There are more where they came from and I can assure you I have some beautiful ideas. Next time they'll be exploited by me for my sake and not for someone else to grab off till he thinks he has the cream and then kick me in the tail. No, I've learned my lesson and I'm certain that the change I'm making will benefit me greatly, financially, as to prestige, position, ego, pride and all that goes with it."

As to when Reinhard had made the invention — the second issue — he testified: "The basic idea for the magnetic floc predated my employ by the American Colloid Corporation. * * * It occurred at a time while I was still engaged pursuing my studies at Cooper Union Night School, which would be about 1923 or 1924." Again: "on an experimental basis, on what might be termed a basic experiment, during the discussions that occurred while I was pursuing my studies at Cooper Union my curiosity was aroused. It was at that time...