Automatic Radio Mfg. Co. v. Hazeltine Research

• Decision Date: 22 August 1949
• Docket Number: No. 4381.,4381.
• Citation: 176 F.2d 799
• Parties: AUTOMATIC RADIO MFG. CO., Inc. v. HAZELTINE RESEARCH, Inc.
• Court: U.S. Court of Appeals — First Circuit

176 F.2d 799 (1949)

AUTOMATIC RADIO MFG. CO., Inc. v. HAZELTINE RESEARCH, Inc.

No. 4381.

United States Court of Appeals First Circuit.

Argued December 8, 1948.

Decided August 22, 1949.

Floyd H. Crews, New York City (George K. Woodworth, Boston, Mass., and Darby & Darby, New York City, with him on the brief), for appellant.

Laurence B. Dodds, New York City (Richard F. Walker and Roberts, Cushman & Grover, of Boston, Mass., with him on the brief), for appellee.

Before MAGRUDER, Chief Judge, WOODBURY, Circuit Judge, and SWEENEY, District Judge.

MAGRUDER, Chief Judge.

This is a suit for royalties alleged to be due under a patent license agreement between the defendant, Automatic Radio Manufacturing Company, Inc., a Massachusetts corporation (hereinafter called Automatic), and the plaintiff's assignor, Hazeltine Corporation, a Delaware corporation. Plaintiff Hazeltine Research, Inc., is an Illinois corporation organized as a wholly owned subsidiary of Hazeltine Corporation. Hazeltine Electronics Corporation, another wholly owned subsidiary of Hazeltine Corporation, conducts the research program about to be mentioned. We shall refer to these corporations collectively as Hazeltine.

For many years Hazeltine has engaged in a program of radio research, as a result of which it has developed many patented inventions. Other patents have been acquired by it through various business arrangements. At the time of this suit, Hazeltine owned, or had the right to grant licenses under, five hundred and more patents and approximately two hundred patent applications, chiefly pertaining to radio and television. As one of the largest licensors in the radio field, it has granted non-exclusive licenses to radio manufacturers, permitting them to use any or all of Hazeltine's patents, in return for a royalty payment of a fixed percentage of gross sales of various types of radio equipment.

Automatic first became a licensee of Hazeltine in 1935. It defaulted on its royalty obligations under the first two agreements with Hazeltine. However, in each instance a settlement was reached, and the relationship continued. The present contract between the parties became effective September 1, 1942, to run ten years, subject to an option of earlier termination by the licensor upon the happening of certain specified events. Automatic was given a non-transferable, non-exclusive license, under a schedule of enumerated patents and all other patents with respect to which Hazeltine should acquire the right to grant licenses during the period of the agreement. The license authorized Automatic to utilize such patents in the manufacture and sale of certain described radio, phonographic, and other equipment, "limited to use in homes, use for educational purposes and private noncommercial use". Automatic agreed to pay royalties expressed in terms of a specified percentage of the selling price of each piece of the enumerated types of equipment manufactured and sold by the licensee, whether or not any of such patents were actually used in the manufacture of the particular apparatus. In any case, the agreement called for a minimum royalty payment of $10,000 per year.

The contract, in Article VI further provided — and appellant makes much of this — that the licensee "agrees to mark all licensed apparatus manufactured and sold by Licensee hereunder, in readily legible form, with the statement `Licensed by Hazeltine Corporation only for use in homes, for educational purposes, and for private, non-commercial use, under one or more of the following patents and under pending applications:' followed by the word `Patent' and the numbers of the patents which are, in the opinion of Licensor, involved in apparatus of the types licensed hereunder manufactured by one or more licensees of Licensor. The marking required by this section shall be affixed to said licensed apparatus by attaching plates bearing the required marking or by affixing said marking on said apparatus in some other form equally permanent and apparatus not bearing such marking is not licensed."

It was found by the district court that the contract was executed in New York, and that at least part of the performance thereunder was due in New York. The concluding article of the contract provided that it was to be "governed by and interpreted in accordance with the laws of the State of New York."

Because of wartime restrictions on the production of radio sets for private use, Hazeltine waived demand for payment of the minimum annual royalties from September, 1942, through August 30, 1945. Upon refusal of Automatic to pay royalties thereafter, Hazeltine filed its complaint in the present case on April 9, 1947. Plaintiff prayed for a judgment that Automatic pay to Hazeltine the minimum sum due under the contract for the year ending August 31, 1946, with interest; that an accounting be had and that the further sums due be determined and decreed to be paid to the plaintiff with interest; "that defendant render to the plaintiff the statements required by said agreement throughout the continuance in force of said agreement"; that defendant pay plaintiff's costs herein; and that plaintiff have such other and further relief as may be just.

After Automatic's answer was filed, both parties filed motions for summary judgment and submitted supporting affidavits. A hearing was held on the motions, and the district court concluded that the case was one appropriate for the application of summary judgment procedure since there was "no genuine issue as to any material fact". Hazeltine's motion was granted and Automatic's motion denied. D.C., 77 F.Supp. 493.

On June 21, 1948, an "Interlocutory Judgment" was entered, in which it was adjudged and decreed as follows:

(1) That the license agreement between the parties dated as of September 1, 1942 "is good and valid at law and in full force and effect."

(2) That plaintiff recover from defendant as minimum royalty under the license agreement for the year ending August 31, 1946 the sum of $10,000 with interest, "and that execution may issue therefor."

(3) That plaintiff recover such further sums as are due from the defendant at the date of this judgment under said license agreement, and that the case be referred to a Master to take and state an account thereof.

(4) That "a permanent injunction issue out of and under the seal of this Court directed to defendant, its officers and agents, enjoining and restraining them and each of them throughout the continuance in force of said license agreement from breaching such provisions of Articles IV and V thereof as relate to defendant's obligation to plaintiff to pay royalties and to keep records and render statements from which the proper amounts of such royalty payments may be determined."

This court has jurisdiction to entertain the present appeal from such judgment, pursuant to provisions of the Judicial Code now found in 28 U.S.C.A. §§ 1291, 1292(1), and 1294(1). Counsel for both parties approved the judgment "as to form," and no question is presented here as to the scope of the injunction.

Automatic raised, and the district court considered, numerous defenses. In examining the judgment of the district court, we confine our attention only to those matters presented in this appeal. In its brief, Automatic has enveloped the case in an atmosphere of overreaching and chicanery hardly warranted on the record. A lengthy affidavit executed by one of counsel for Automatic, and filed by Automatic in support of its motion for summary judgment, contains many sweeping claims and charges, but the affidavit was made for the most part "on information and belief", and not on personal knowledge, as required by Rule 56 (e), Federal Rules of Civil Procedure, 28 U.S.C.A.

I. Patent Misuse

Appellant has advanced a variety of defenses to sustain the proposition that Hazeltine has so misused the monopoly of its patent grants as to have disentitled itself to any relief under the present complaint.

Restrictive Use Notices. — Automatic argues that the requirement in the license agreement that licensed apparatus be marked with a "restrictive use" notice, as above stated, constitutes such a misuse of the patent as to render the agreement unenforceable. This contention must be rejected on the authority of General Talking Pictures Corp. v. Western Elec. Co., 1938, 304 U.S. 175, 58 S.Ct. 849, 82 L.Ed. 1273, and upon rehearing, 1938, 305 U.S. 124, 59 S.Ct. 116, 83 L.Ed. 81. In that case a non-exclusive license "was expressly confined to the right to manufacture and sell the patented amplifiers for radio amateur reception, radio experimental reception, and home broadcast reception." 304 U.S. at page 180, 58 S.Ct. at page 852, 82 L.Ed. 1273. The agreement required the licensee to affix to all amplifiers sold under the license a notice stating that the apparatus was licensed only for the aforesaid uses. Amplifiers with such notices attached were sold by the licensee to a purchaser who intended to and did put them to use in theaters as part of talking picture equipment. At the time of order, manufacture and sale, both the licensee and the purchaser knew of the purchaser's intended commercial use, and the purchaser knew that the license did not authorize the licensee to make and sell amplifiers for that use. Speaking through Mr. Justice Brandeis, the Supreme Court on rehearing reaffirmed its earlier view that the purchaser was accountable as an infringer. "That a restrictive license is legal seems clear. * * * The practice of granting licenses for a restricted use is an old one, see Rubber Company v. Goodyear, 9 Wall. 788, 799, 800, 19 L.Ed. 566; Gamewell Fire-Alarm Telegraph Co. v. Brooklyn, C.C., 14 F. 255. So far as appears, its legality has never been questioned. * * * As the restriction was legal and the amplifiers were made and sold outside the scope of the license, the effect is precisely the same as if no license whatsoever had been granted to...