Bear Brand Hosiery Co. v. Tights, Inc.

• Decision Date: 05 September 1979
• Docket Number: No. 78-1116,78-1116
• Citation: 605 F.2d 723
• Parties: BEAR BRAND HOSIERY COMPANY, Appellant, v. TIGHTS, INC., Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 723

605 F.2d 723

203 U.S.P.Q. 803

BEAR BRAND HOSIERY COMPANY, Appellant, v. TIGHTS, INC., Appellee.

No. 78-1116.

United States Court of Appeals, Fourth Circuit.

Argued Dec. 4, 1978.

Decided Sept. 5, 1979.

Karl N. Hill, Greensboro, N. C. (William B. Rector, Jr., Jordan, Wright, Nichols, Caffrey & Hill, Greensboro, N. C., on brief), for appellant.

Frank J. Sizemore, III, Greensboro, N. C. (Jack W. Floyd, Smith, Moore, Smith, Schell & Hunter, Greensboro, N. C., on brief), for appellee.

Before HAYNSWORTH, Chief Judge, BRYAN, Senior Circuit Judge, and BUTZNER, Circuit Judge.

HAYNSWORTH, Chief Judge:

In this contract case within our diversity jurisdiction, the district court held that, after proper termination of the contract of indefinite duration, the terminating party had no obligation with respect to monies collected after the termination date but due and accrued before. He granted summary judgment, relying principally upon a provision that such payments were to be made with respect to collections each month by the tenth of each succeeding month. We think that, at the least, the contract is reasonably susceptible to a different construction and reverse.

I.

The plaintiff, Bear Brand Hosiery Company, is a manufacturer of women's hosiery. It had developed technology in that field and an effective quality control program. The defendant, Tights, Inc., is a licenser of patents and technology in the hosiery business. It also seeks to control the quality of goods manufactured by its licensees.

In 1970 Tights and Bear Brand executed two agreements. Under the first contract, Tights, for substantial consideration, licensed to Bear Brand its "Rice Patent" for use in the production of seamless panty hose. Under the second agreement, Bear Brand assigned to Tights all of its "inventions, patent applications, . . . patent rights, (and) technical know-how, related to the production of seamless panty hose or tights." Bear Brand agreed to use its best efforts to persuade other manufacturers to become Tights' licensees, to assist Tights in developing and enforcing its quality control program and to share its training materials with Tights. In return, Tights agreed to pay Bear Brand 12.5 percent of "the gross royalty collected in the future" under Tights' licensing program, including royalties collected from Bear Brand. Tights also agreed to pay to Bear Brand 30 percent of the gross royalty collected in the future on licenses of patents assigned by Bear Brand to Tights. Section 6 of the contract provided that the payments by Tights to Bear Brand "shall be made on or before the tenth day of each calendar month for collections made by Tights during the preceding month . . . ." In Section 8 there was a provision for termination upon ninety days' notice by either party. Upon termination, Bear Brand was given certain options about the reacquisition or use of its patents and patent rights, but, with that exception, the contract provided that the party giving the notice of termination would be relieved of all further duties under this agreement upon the effective date of termination.

In the years that followed, a number of hosiery manufacturers used the disclosure of the Rice Patent without becoming licensees of Tights. Tights brought numerous patent infringement actions against such manufacturers, who contested the validity of the patent. In 1976 this court affirmed a judgment upholding the patent. Tights, Inc. v. Acme-McCrary, 541 F.2d 1047 (4th Cir. 1976). The Rice Patent had expired in March of 1975. With the holding of patent validity, however, Tights was left with very substantial claims against the infringers.

In September 1976, Tights collected $465,649.69 from some of the infringers. In that sum there were increments of interest and court costs, but there were $379,820.36 which had been computed at the rate of 2 cents per dozen on the sales of the settling infringers.

In October, Tights reported these collections to Bear Brand. It thought that Bear Brand was due nothing out of the receipts of interest and court costs, and it attempted to draw a distinction between the receipts of royalties from licensees and the receipt of the $379,820.36 in settlement of its infringement claims. However, while stating that Tights did not feel that Bear Brand was entitled to any portion of the September collection, it tendered a check in an amount computed on the basis of 12.5 percent of $379,820.36.

In a subsequent exchange of letters, Tights confirmed Bear Brand's expectation that it would receive similar monthly payments in the future, but limited its stated obligation to the time within which the agreement remained in effect. It stated that no one intended to modify the provision providing for termination at will upon ninety days written notice.

On October 28, 1976, Tights gave written notice of termination of the contract. The termination took effect on January 31, 1977.

Tights paid Bear Brand 12.5 percent of all sums received before January 31, 1977 in settlement of the infringement claims, less interest and court costs. It refused, however, payment of anything to Bear Brand with respect to any receipts upon its infringement claims collected thereafter.

Bear Brand brought this action seeking a declaratory judgment that Tights was required by the contract to share its subsequent infringement claims collections with Bear Brand, since the collections were constructive royalties fully accrued while the contract was in full effect. As noted at the outset, however, summary judgment was awarded to Tights on the basis of the termination and payment-collection clauses.

II.

Summary judgment could properly have been entered in favor of Tights only if the contract unambiguously permits Tights to retain all royalties collected after, though accrued before, the effective termination date, without payment of 12.5 percent to Bear Brand.

We hold that it does not.

No one questions the right of Tights to terminate the contract as it did or the effectiveness as of January 31, 1977 of its exercise of that right. What is involved is the consequence of that termination in the context of sums fully due and payable to Tights long before the termination date but uncollected until thereafter.

When the validity of the patent was finally upheld, Tights had obtained an entitlement to damages from all infringers of its patent. As characterized by Bear Brand, a right to damages had "vested" and constructive royalties had "accrued."

Settlement negotiations and continuing litigation delayed collection of some of these sums until after January 31, 1977.

In considering the propriety of summary judgment in a contract case, the court may not look beyond the four corners of the document. Only an unambiguous writing justified summary judgment, and no writing is unambiguous if "susceptible of two reasonable interpretations." American Fidelity & Cas. Co. v. London & Edinburgh Ins. Co., 354 F.2d 214, 216 (4th Cir. 1965). See Cram v. Sun Ins. Office, Ltd., 375 F.2d 670, 674 (4th Cir. 1967); 10 C. Wright & A. Miller, Federal Practice & Procedure, § 2730, at 584-87 (1973). This accords with the principle that the intention of the contracting parties is a question of fact. If there is more than one permissible inference as to intent to be drawn from the language employed, the question of the parties' actual intention is a triable issue of fact.

Tights, of course, relies upon Section 6 and Section 8 of the contract. Section 6 obligated Tights to pay to Bear Brand 12.5 percent of royalties collected. It contained a provision that payment should be made to Bear Brand on or before the tenth day of each calendar month for collections by Tights during the preceding month. Coupled with the provision for termination at will upon ninety days written notice, Tights contends that the contract unambiguously imposes upon it no obligation of payment to Bear Brand with respect to any sums collected after January 31, 1977.

We need not consider whether that construction of the contract by Tights is impermissible, for we find the contract readily susceptible of another reasonable reading.

It seems obvious that the parties intended to relate the timing of payments by Tights to Bear Brand to collections by Tights. If a licensee was slow in remitting accrued...