American Lecithin Co. v. Warfield Co.

• Decision Date: 15 July 1939
• Docket Number: No. 6767,6768.,6767
• Citation: 105 F.2d 207
• Parties: AMERICAN LECITHIN CO. v. WARFIELD CO. WARFIELD CO. v. AMERICAN LECITHIN CO.
• Court: U.S. Court of Appeals — Seventh Circuit

105 F.2d 207 (1939)

AMERICAN LECITHIN CO. v. WARFIELD CO.

WARFIELD CO. v. AMERICAN LECITHIN CO.

Nos. 6767, 6768.

Circuit Court of Appeals, Seventh Circuit.

June 13, 1939.

Rehearing Denied July 15, 1939.

Ira J. Wilson, of Chicago, Ill., and John W. Thompson and Daniel L. Morris, both of New York City, for American Lecithin Co.

Russell Wiles, Charles J. Merriam, Marcus A. Hirschl, George A. Chritton, William S. Warfield III, and Chritton, Wiles, Davies, Hirschl & Dawson, all of Chicago, Ill., for Warfield Co.

Before MAJOR, TREANOR, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

These are cross appeals taken from the decree of the district court in a suit charging infringement of the Working patent, No. 1,781,672 (dated November 11, 1930), by the use of lecithin in the production of chocolate in accordance with the method defined in the claims of the patent. The district court denied relief on the ground that the patentee was attempting, without sanction of law, to employ the patent to secure a limited monopoly of unpatented lecithin, a natural organic substance occurring in small amounts in practically all living cells and in considerable quantities in egg yolk and in seeds of most plants.¹

For many years the chocolate industry had suffered heavy losses from changes in the appearance of the chocolate, known as "graying" or "blooming", which is generally considered in the confectionery art to be due to the melting and movement of the cocoa butter, a constituent of most chocolate and chocolate preparations. The Working patent, owned by the American Lecithin Company, relates in particular to the addition of .1% to 1% of lecithin (an unpatented article of commerce) to the cocoa butter content of chocolate in the course of manufacture, whereby the stability of the chocolate is improved (graying is retarded), the amount of cocoa butter is reduced (around 5% is saved), and better working qualities result when the chocolate is melted for the coating of confections (fluidity is increased).

After stating the invention substantially as above described, the patent recites thirteen claims, of which claims 3, 8, and 13 may be regarded as typical and as distinctly involved in this case:

"3. In the art of making confectionery, the herein described improvement which comprises incorporating, at any stage of the manufacture, with confectionery material including chocolate carrying such amounts of fatty material as to be normally, subject to `graying', a sufficient percentage of lecithin to retard `graying'.

"8. A chocolate coating mass which contains a smaller amount of fat than that normally required for satisfactory dipping, and an amount of lecithin sufficient to impart a sufficient degree of fluidity thereto, to make it satisfactory for application as a coating, by dipping.

"13. In the preparation of chocolate mass, the step of adding, at any stage of the manufacture, about 0.2% to 0.3% of lecithin whereby `graying' of the finished chocolate product is at least retarded."

In this case the pleadings, i. e., the complaint and the amended answer, show, and the facts clearly bear these pleadings out, that the plaintiff, the American Lecithin Company, which supplied the unpatented lecithin to purchasing chocolate manufacturers, did not practice the Working patent (that is, it did not itself make chocolate) or issue to chocolate manufacturers licenses to make such patented chocolate upon payment of a stipulated royalty. Instead of this the plaintiff sought to obtain its profits by the sale of the lecithin to the chocolate manufacturers.

Anyone buying lecithin from the plaintiff for the purpose of using the commodity to make the patented chocolate was entitled to practice the invention by implied license. At first the defendant, the Warfield Company, whose business is to make chocolate and to sell it chiefly to candy makers who use it in making solid chocolate bars and in coating confections, purchased its lecithin from the plaintiff. Plaintiff placed no restrictions on the use of the lecithin sold by it and acquiesced in its use by defendant in making the chocolate bars. Later the defendant bought lecithin from the plaintiff's competitors. The alleged infringement of the patent consists of the defendant's buying lecithin from the plaintiff's competitors and of using this lecithin in accordance with the method defined in the claims of the patent.

The plaintiff then brought this suit to enjoin infringement by the defendant, for an accounting of profits, and for damages. The defendant in turn set up several defenses, namely, invalidity, non-infringement, implied license, and monopoly. In addition, the defendant counterclaimed for an injunction against future suits and asked for damages accruing from plaintiff's monopolizing conduct. The district court did not deem it necessary to discuss validity, found as a matter of fact that the defendant made and sold chocolate incorporating lecithin in amounts within the range as claimed in the patent, concluded that the license to practice the patent ceased as soon as the lecithin purchased from the plaintiff had been consumed, and dismissed the counterclaim. The court, however, held the monopoly defense good and denied relief on the ground that the patentee was attempting to employ the Working patent to secure a limited monopoly of the unpatented lecithin.

From this decree the plaintiff appealed on the ground that the monopoly defense, admittedly valid in contributory infringement cases, e. g., Carbice Corp. v. American Patents Development Corp., 283 U.S. 27, 51 S.Ct. 334, 75 L.Ed. 819; Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, 58 S.Ct. 288, 82 L.Ed. 371; J. C. Ferguson Mfg. Works, Inc., v. American Lecithin Co., 1 Cir., 94 F.2d 729, was not available in a direct infringement case. We shall dispose of this contention later. The defendant also appealed from the decree on the grounds that the district court erred in dismissing the counterclaim, in limiting the license to the lecithin purchased from the plaintiff, and in not ordering the patent invalid and not infringed. We shall dispose of these contentions at this time.

The district court did not deem it necessary to pass on the validity of the patent. With the view that we take of the instant situation, believing as did the district court that the monopoly defense is impregnable, it is thought best not to dispose of the matter. Were we inclined to reverse on the monopoly ground, it is probable that under the circumstances we would consider it proper to remand the case for the trial court's consideration, rather than pass on the validity of the patent in the first instance. In this connection it is to be noted that the Working patent here in question was recently subjected to judicial scrutiny. In American Lecithin Co. v. Ferguson Mfg. Works, 19 F.Supp. 294, the district court, sitting in the district of Rhode Island, discussed the Working patent at great length and concluded in favor of its validity. In the review of the case on appeal, the Circuit Court of Appeals for the first circuit, in 94 F.2d 729, reversed on another ground, namely, plaintiff's monopolizing conduct, without ruling definitely on the matter of validity.

The defendant argues that the "infringement of the claims relating to the retardation of graying has not been proved" and suggests that it is possible that the use of the lecithin purchased from the plaintiff's competitors does not retard graying as the use of the plaintiff's lecithin does. Even if it was essential to discuss this argument on this appeal, we would not be convinced by the logic urged upon the court. The district court found, and the defendant's special answer to one of the plaintiff's interrogatories clearly shows, that the defendant made and sold chocolate having lecithin added thereto in the amounts within the range as claimed in the patent. Nowhere in the record is there even an intimation that lecithin, as sold in the trade for its use as a component of chocolate, possessed different qualities as far as its effect on graying was concerned.

It is interesting to note, at this time, that the defendant concedes that the use of lecithin purchased from the plaintiff's competitors results in cocoa butter reduction and that in this regard it infringes the patent. We can not appreciate the cocoa butter concession and the graying retardation denial. The inconsistency which we perceive here might well be expressed in the words of defendant's witness Warfield, who stated that "the more cocoa butter you have in chocolate, the more graying you get. * * * We use the lecithin to reduce the cocoa butter," or in the words of plaintiff's witness Harris, who stated that "the graying is due to the amount of cocoa butter present" and "the lecithin permits the use of a lower percentage of cocoa butter in the chocolate."

Considering further the basis of defendant's contention, we find that the defendant in its amended answer, in pleading the defense of monopoly, admitted in effect that the lecithin bought from others was used in precisely the same way as plaintiff's lecithin was. Going directly to the evidence adduced, we find no conflict as to the effect on graying of chocolate with or without lecithin. Edwards, general consultant to manufacturers of chocolate and users of chocolate coating, testified that the use of lecithin retarded graying in chocolate. Harris, consulting chemist for chocolate manufacturers, corroborated this testimony. Sobol, buyer of chocolate coating from the defendant, stated that the defendant's chocolate coating, admittedly treated by an addition of lecithin in amounts within the claims of the patent, resisted graying better than chocolate without lecithin.

The defendant's contention that the district court erred in dismissing the counterclaim does not challenge our serious consideration. We are convinced that the defendant failed to establish the basis necessary to...