American Refining Co. v. Gasoline Products Co.

• Decision Date: 05 February 1927
• Docket Number: (No. 11670.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 294 S.W. 967
• Parties: AMERICAN REFINING CO. v. GASOLINE PRODUCTS CO.
• Court: Texas Court of Appeals

294 S.W. 967

AMERICAN REFINING CO. v. GASOLINE PRODUCTS CO.

(No. 11670.)^*

Court of Civil Appeals of Texas. Fort Worth.

February 5, 1927.

Rehearing Denied March 12, 1927.

Appeal from District Court, Wichita County; P. A. Martin, Judge.

Action by the Gasoline Products Company against the American Refining Company. Judgment for plaintiff, and defendant appeals. Affirmed.

Weeks, Morrow, Francis & Hankerson, of Wichita Falls, for appellant.

Hunt C. Moore, of Kansas City, Mo., and J. T. Montgomery, of Wichita Falls, for appellee.

CONNER, C. J.

The appellee, Gasoline Products Company, a foreign corporation, sued the appellant, American Refining Company, in the district court of Wichita county to recover the sum of about $30,000, the aggregate amount of stated payments alleged to have matured and become due during a series of months beginning about June 1, 1923, and ending about December 10, 1923, on account of rents or royalties accruing under a contract issued to the appellant by the appellee as the licensor of certain patented processes involved in what is designated as cracking crude oil in the production of gasoline.

The appellant filed a lengthy answer, consisting of demurrers and a general denial and a special defense, attempting to show that appellee and appellant were conspirators against the Sherman Anti-Trust Act of the United States (U. S. Comp. St. § 8820 et seq.), and that the contract on which appellee sued was a link in the chain of preconceived proceedings intended as aids in the accomplishment of the conspiracy, and that hence the court should deny the enforcement of the contract declared upon.

The appellee urged certain special exceptions in the nature of general demurrers to the special answer above indicated, which were sustained by the court, and, the appellant having declined to amend, the case proceeded to trial upon the plaintiff's pleadings and the general denial on the part of appellant. Appellee introduced its contract, proof of the use of the cracking process by appellant, proof of the number of barrels run upon which royalties accrued, and proof of the termination of the license contract, as a result of which the court entered a judgment in the sum of $32,582.28, besides interest and costs. From this judgment the appellant company has duly prosecuted the present appeal.

There is no controversy over the facts, and the judgment below must be affirmed, unless the special answer of appellant above referred to, tested under rules applied in cases of a general demurrer, constitutes a defense to appellee's action.

Appellant was what is termed a refiner engaged in producing and selling gasoline from crude oil, and the contract declared upon is dated April 4, 1923, and opens with recitals that the licensor, appellee, is the owner of, or has the right to grant licenses under certain enumerated letters patent of the United States relating to processes for treating hydrocarbons and the products derived therefrom and apparatus used in connection therewith, and further recites that it is empowered to grant the limited nonexclusive license therein granted under certain enumerated patents, patent applications, and inventions therein specified or thereafter to be acquired, pertaining to the cracking of oil under pressure. The patents mentioned in the contract were designated as patents issued to "W. M. Cross and R. Cross" on several specified dates extending from October 31, 1916, to November 28, 1922, a series of patents owned by the Texas Company, issued to various individuals on several specified dates extending from October 28, 1919, to November 28 1922, and patents owned by the Standard Oil Company of New Jersey to various individuals at several specified dates extending from September 28, 1919, to October 28, 1922, and patents owned by the Standard Oil Company of Indiana issued to various individuals at several specified dates extending from April 12, 1910, to October 4, 1921.

Article first contains a grant to appellant of a nonexclusive license to construct and operate at a plant or plants owned or controlled by appellant with the United States (except a small area in Ohio and Kentucky) an installation or installations for cracking petroleum oil by the process described in general terms. It is provided that the right of the appellant shall be limited to the treatment of a maximum amount of oil, including recycled oil, of 30,000 barrels of 42 gallons each per day. In article second, appellant (licensee) agrees to construct two units at its plant at Wichita Falls, Tex., and agrees that the installations shall be erected only in conformity with the plans and specifications prepared and furnished free of charge, or approved in writing by licensor or its representative. Article third provides that the appellant shall pay to appellee as a throughout royalty for the rights granted a sum of 10 cents per barrel of 42 gallons each, or in the alternative .833 of one cent per gallon for every gallon of gasoline made available by the process. Articles fourth, fifth, and sixth provide for the mechanics of computing and paying royalties. Article seventh provides that, in the event infringement suits are brought against appellant, appellee will assume the defense thereof, and pay any recovery had through final judgment in suits commenced within two years from the date of the agreement. Article eighth reads as follows:

"Any and all improvements on any of the patents, applications, inventions, or processes hereinbefore referred to, designed, or otherwise obtained by the licensee, during the continuation of this agreement shall be the property of the licensor and duly assigned by the licensee to the licensor, and the licensee will execute and deliver to the licensor, upon its written demand, any and all papers necessary or proper to vest title to any of such improvements in the licensor. Upon the termination of this agreement, the licensee shall have the shop right to use, but not to assign, any of said improvements, except as otherwise specifically provided herein; it being expressly understood and agreed that, upon and after the termination of this agreement, the licensee shall have no right to use any of the patents, patent rights, processes, inventions, and applications hereinbefore described, or any part thereof, or improvements by others than licensee, in connection with such improvements of the licensee or otherwise."

Articles ninth, tenth, and eleventh contain the ordinary provisions against assignment of the license without the licensor's consent, forbidding the license to contest the validity of the patents under which it is licensed, and providing for the license remaining in force for the full term of the patents, unless sooner terminated. Article twelfth makes available to the licensee the benefit of any reduction of royalties granted by the licensor to other licensees. Article thirteenth contains definitions. Article fourteenth contains the usual termination clause permitting the licensee to terminate the contract by giving 60 days' written notice. Article fifteenth gives the addresses of the parties. Articles sixteenth and seventeenth deal with the rights of successors and assigns of the parties under the contract.

As before indicated, the appellant company must admit the making of this contract and the enjoyment of the rights granted thereunder, and that royalties in the amount for which judgment was rendered accrued in accordance with its terms.

Appellant's special plea, attacking this contract as invalid and to which the court sustained the demurrers, covers some thirteen pages of the transcript, and is too lengthy for full insertion here. In substance, however, it is to the effect that appellant, in entering into the contract declared upon by the appellee, acted in good faith, but that subsequently a suit had been instituted in a federal court in Illinois, to which appellant and appellee were made parties, charging a conspiracy between appellee, the Texas Company, the Standard Oil Company of Indiana, and the Standard Oil Company of New Jersey, in violation of the anti-trust statutes of the United States, and that the contract involved in this suit constituted a link in the chain of proceedings which were intended and had the effect to create a monopoly and to restrain interstate commerce. As alleged in the special plea, the appellee, the Texas Company, and the Standard Oil Companies mentioned were each owners of patented processes of what is termed "cracking" crude oil, whereby increased quantities of gasoline was obtained, and that appellee and said oil companies had entered into agreements which in terms authorized each of the parties to lease to and invest in other persons, corporations, and associations the rights conferred by the patents referred to. It is charged that said agreements exempted from their operation a restricted territory in Indiana and Ohio, relieving the parties thereto from the payment of royalties or fees for the use of said processes, and authorizing the acquisition of any and all improvements made by or in behalf of licensees during the use of the patented processes. It is alleged that these provisions, and others not thought to be necessary to mention, were intended and had the effect to give the parties to the combination an unfair advantage over independent refiners of crude oil, to restrict competition among patentees, to impose excessive rentals or fees for the use of the processes, and to stifle the independent inventive genius of the country, and thereby, by contract, unlawfully enlarge the monopolies conferred by the patents.

The contention that the agreements between appellee and the oil companies named, together with other facts alleged, constitute a violation of the anti-trust laws of the United States, is supported by a wealth of argument, illustrations, and citation of authority, by the able counsel of appellant. Among the cases cited...