Minnesota Min. & Mfg. Co. v. Blume

• Citation: 533 F. Supp. 493
• Decision Date: 07 August 1979
• Docket Number: No. C-1-76-51.,C-1-76-51.
• Parties: MINNESOTA MINING AND MANUFACTURING COMPANY, Plaintiff, v. Walter S. BLUME, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

533 F. Supp. 493

MINNESOTA MINING AND MANUFACTURING COMPANY, Plaintiff, v. Walter S. BLUME, et al., Defendants.

No. C-1-76-51.

United States District Court, S. D. Ohio, W. D.

June 1, 1978.

Opinion After Trial August 7, 1979.

COPYRIGHT MATERIAL OMITTED

John S. Wirthlin, Cincinnati, Ohio, for plaintiff.

Charles G. Atkins, Cincinnati, Ohio, for defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

DAVID S. PORTER, Chief Judge:

This case, which involves patent infringement in the field of magnets and magnetism, demonstrates two noteworthy points. The first is the important role played by magnets and magnetism in our economy. By one estimate, magnets, and magnetism have an economic impact in our economy equivalent to almost 1½% of the Gross National Product (dx 380; Jacobs, The Role of Magnetism in Technology 1, 5 (General Electric Research & Development Center (November 1963)). As Jacobs points out, the basic principles of magnetism, as applied to the vital areas of electric power, communications, and information storage, "permeate our whole modern society." Id. The second noteworthy point which this case demonstrates is one we are told John Stuart Mill emphasized over a hundred years ago — the importance of "having the meaning of a word clearly understood before using it, and the meaning of a proposition clearly understood before assenting to it." Inaugural Address as Rector, University of St. Andrews (February 1, 1867). This latter aspect of the case will hopefully become clear to the reader as this opinion progresses.

The plaintiff in this case, Minnesota Mining and Manufacturing Company (3M Co.), charges patent infringement on the part of the defendants, Walter S. Blume and The Electrodyne Company, with respect to two patents, U.S. Patent No. 3,235,675 (hereinafter the "675" patent) and U.S. Patent No. 2,999,275 (hereinafter the "275" patent).¹ The 275 and 675 patents are, respectively, the process and the product patents for a magnet currently produced by 3M under the name "Plastiform." Both the 275 and 675 patents were originally issued to Blume as patentee, and subsequently assigned by him to his employer at the time, Leyman Corporation, subject to a right to receive royalties. By an agreement of September 30, 1967, Leyman Corporation sold all its rights and interest in these patents (subject to Blume's royalty rights) to 3M, the present plaintiff, as part of the sale of the Leyman Magnetics Division to 3M (jx I). At approximately the same time, 3M signed two agreements with defendant Blume (jx II, III). One of these was an agreement concerning Blume's royalty rights under his patents which included a commutation of royalty payments (jx II). The other was an employment agreement for one year which included a five-year noncompete agreement, effective upon termination of Blume's employment, restraining Blume from entering the broad field of magnetics (jx III). Blume ceased employment on October 1, 1968, and thus, by its own terms, the noncompete agreement would have expired on October 1, 1973, had not the parties executed two letter-amendments to the original agreement on May 3, 1971, and June 26, 1972 (jx IV, VIII). The main dispute between the parties concerns the meaning and effect of these two amendments, particularly the latter.

In their answer, the defendants deny infringing the 675 and 275 patents held by the plaintiff and assert the affirmative defenses of license and estoppel. The license defense is based primarily on the defendants' interpretation of the 1971 and 1972 letter amendments to the 1967 employment agreement. The estoppel defense is primarily based upon various actions taken by 3M (or, rather, inaction on its part) with respect to the possible infringement of the 275 and 675 Blume patents by Polymag, Inc., a manufacturer located in Sag Harbor, New York, producing magnets similar to that produced under the 275 and 675 patents, under its own patent, the Peccerill patent, U.S. Patent No. 3,312,763 (hereinafter the "763" patent). On motion by the defendants, this Court bifurcated the issues raised by these affirmative defenses for trial prior to the issue of infringement. The parties then entered into a joint stipulation of issues for purposes of trial which is as follows:

A. It is agreed that since the entry of the Court's order on September 2, 1976, the defendants have continuously practiced the 275 method in the manufacture of the product sold by the defendants under the trade name "Plastalloy".

B. The issues raised by defendants and controverted by plaintiff are as follows:

1. The defendants assert that since June 26, 1972 they have been released to make and sell "Matrix-Bonded permanent magnets", as that term is defined in the 3M letter to Blume of June 26, 1972, and which at all times since approximately July or August 1975 have been sold by defendants under the trade name "Plastalloy."

2. The defendants assert that they have the right to practice the 275 method and to make, use and sell the product produced thereby and to practice any other patents acquired by 3M from Leyman, specifically including the 675 patent, for the following reasons:

a.) that the letter from 3M to Blume dated June 26, 1972 (amending the October 1, 1967 agreement between 3M and Blume, as amended by 3M letter to Blume of May 3, 1971) immediately released Blume to make "Matrix-Bonded permanent magnets," as defined in the letter agreement of June 26, 1972, free from claims of infringement of the 675 product patent and any other patent which 3M acquired from Leyman on September 30, 1967 except that prior to May 1, 1976 Blume could not use the 275 method patent in the production of the said "Matrix-Bonded permanent magnets."

b.) that 3M is estopped from asserting any infringement by the defendants of the patents it acquired from Leyman on September 30, 1967, and specifically including the patents in suit, namely 275 and 675, because of the position of 3M asserted in the letters dated May 3, 1971 and June 26, 1972 (amending the agreement dated October 1, 1967) together with the written and oral representations which defendant Blume claims were made directly to him and indirectly to him and others (including but without limitations, the 3M-Polymag correspondence and the 3M correspondence with its German associates and the German Patent Office in connection with the German application corresponding to the U.S. 275 method) by authorized representatives of the plaintiff (including, but without limitations, those of Messrs. Granrud, Blankenbaker and Westbee) all of which occurred during the period from October 1, 1967 until the filing of the complaint on February 6, 1976 and all of which Blume asserts were relied upon by him prompting his purchase of property and commencement of business including the manufacture of "Plastalloy" with the full and complete knowledge of 3M.

c.) that the plaintiff is estopped from asserting any infringement by the defendants of the 275 or 675 patents because of the release provisions of the letter of June 26, 1972 by 3M to the defendant Blume.

The trial of the bifurcated issues was held on August 29-September 2, 1977, with daily transcript copy, and the parties have submitted both post-trial briefs and proposed findings of fact and conclusions of law on the stipulated issues. Upon consideration of the issues, this Court makes the following findings of fact and conclusions of law;

The plaintiff, 3M Corp., is a Delaware corporation and has its principal place of business at St. Paul, Minnesota. The individual defendant, Walter S. Blume, resides in Hamilton County, Ohio, within this District and is President of the corporate defendant, The Electrodyne Company, Inc. The defendant, The Electrodyne Company, Inc., is a corporation organized and existing under the laws of the State of Ohio, resides therein, and has a regular and established place of business in Clermont County, Ohio, within this District. The jurisdiction of this Court is invoked under Title 28 United States Code, § 2201, et seq., (declaratory judgment action), § 1338(a) (patent infringement), § 1338(b) (unfair competition), and § 1332(a) (diversity jurisdiction for the breach of contract claim). Venue in this District has not been objected to.

On September 30, 1967, 3M Co. acquired the magnetics division of Leyman Corporation. At the time of the acquisition Walter Blume was an employee of Leyman and Vice-President in charge of the magnetics division (tr. 29). During his twenty-three years of employment with Leyman, Blume had secured a number of patents, including the 275 and the 675 patents, all of which he assigned to Leyman and for which he received 2% of gross sales over $200,000 as royalty payments (tr. 30). Under the agreement between 3M and Leyman, Leyman conveyed all its right, title and interest in the Blume patents to 3M for $2,267,000 (jx I), of which Blume eventually received $566,800 under a separate 3M-Blume agreement providing for a commutation of royalty payments over a five-year period (jx II).²

On the day following the Leyman acquisition, 3M Co. and Blume entered into a one-year employment agreement (jx III). This agreement included a broad noncompete agreement excluding Blume from any participation, direct or indirect, in the "(1) design, (2) development, (3) manufacture, or (4) sale of magnets or magnetic compositions including ... the process of producing magnetic compositions, the process and formula for incorporation of nonmagnetic binders with magnetic compositions, and apparatus for producing or testing magnets or magnetic compositions" (jx III, Article II). By the terms of the agreement, this noncompete covenant came into effect for a period of five years starting on the day Mr. Blume was last employed by 3M. Mr. Blume was employed by 3M from October 1, 1967, to September 30, 1968, and thus the noncompete covenant would have expired by its own terms on September 30, 1973 (tr. 55-56).³...