Black v. Richfield Oil Corporation

• Decision Date: 25 April 1941
• Docket Number: No. 230.,230.
• Citation: 41 F. Supp. 988
• Parties: BLACK v. RICHFIELD OIL CORPORATION.
• Court: U.S. District Court — Southern District of California

41 F. Supp. 988

BLACK v. RICHFIELD OIL CORPORATION.

No. 230.

District Court, S. D. California, Central Division.

April 25, 1941.

COPYRIGHT MATERIAL OMITTED

Lyon & Lyon and Robert E. Paradise, all of Los Angeles, Cal., for defendant.

Oliver O. Clark and Philip Subkow, both of Los Angeles, for plaintiff.

HARRISON, District Judge.

The plaintiff in this action seeks relief under three separate counts. All three counts revolve around a certain licensing agreement for use of inventions entered into by the plaintiff with the Pan American Petroleum Company, under date of September 15, 1925. Under the first count, plaintiff seeks, through declaratory relief, to have the rights of the parties under said agreement determined. The second count is brought for the purpose of reforming said agreement so that it will include certain inventions of plaintiff not specifically described therein. The third count seeks an accounting. By stipulation the trial of the third count was continued until after a determination of the first two counts, consequently, this opinion is confined solely to the first two counts.

The main difficulty between the parties arises over the fact that the licensing agreement omitted to specifically mention patent application No. 599,403, filed November 6, 1922, which culminated in patent No. 2,075,164, issued March 30, 1937. This patent covers the use of chrome alloy tubing used in the cracking of oil and is described in the said patent as "Method and Apparatus for Converting Hydrocarbons". The nature of the patent is not necessarily material to this opinion but a detailed description of the same and its importance in the refining of oil is fully set forth in Gasoline Products Co., Inc. v. Coe, 66 App. D.C. 333, 87 F.2d 550.

From the evidence it appears that on January 1, 1920, the plaintiff commenced his employment as General Superintendent of Refineries for the Doheny interest, which at the time controlled the Pan American Petroleum and Transport Company and the Pan American Petroleum Company. At the time of his employment he had developed a high pressure process for the cracking of oil, commonly known in the industry as "Black's Process".

On October 30, 1924, plaintiff licensed in writing to the Pan American Petroleum and Transport Company certain patents described therein. In 1925 the Doheny interest disposed of the Pan American Petroleum and Transport Company but retained the Pan American Petroleum Company, and on August 25, 1925, Olin Wellborn, acting for the latter named company wrote to the plaintiff, who was then in New York, asking that a licensing agreement be executed between the plaintiff and the said Petroleum Company. The proposed agreement was enclosed in the letter and among other things Mr. Wellborn stated:

"As you know, I am not familiar with these various inventions and accordingly have used the patent numbers employed in the old contracts; stating that letters patent had been issued with respect to some, that applications for patent were pending with respect to others; that some deal with the process for the extraction of synthetic gasoline and that others have no connection with this process. I am leaving the matter of checking these numbers and also the references to them entirely up to you."

Thereupon plaintiff executed the said agreement and inserted therein two additional application numbers and returned the same to Mr. Wellborn. Thereafter, Mr. Wellborn redrafted the agreement and sent the same to the plaintiff for signature, which was duly executed by the plaintiff. As a result the evidence disclosed two agreements executed between the same parties, both bearing the date of September 15, 1925. The court is of the opinion that the later agreement is the real agreement between the parties and therefore finds that the agreement between the parties is plaintiff's Exhibit 5, which in part provides:

"The Licensor is the owner of certain new and useful inventions for the extraction of gasoline from petroleum, also the reduction of viscosity of petroleum products, consisting of certain high pressure processes. The Licensor represents that by means of these processes and apparatus an amount of gasoline in addition to the natural gasoline content of the petroleum can be extracted by "cracking" of the oil. Three letters patent of the United States, numbered 1426813, 1431772 and 1456419 respectively, have been issued, and ten applications for letters patent, numbered 714070, 602439, 569757, 344406, 492337, 596836, 712156, 49843, 53334 and 596837 respectively, are now pending in the United States Patent Office, with respect to these inventions. These patents and applications are referred to for full particulars with respect to the nature and character of said processes and apparatus and are hereinafter for convenience referred to as the processes for the extraction of synthetic gasoline.

"The Licensor has also invented and perfected and is now engaged in perfecting a number of other inventions useful in the conduct of the business of the Licensee and which relate to matters other than the extraction of gasoline and the reduction of the viscosity of petroleum products. Applications for letters patent with respect to these inventions are now pending in the United States Patent Office and are numbered 569156, 712156, 596837, 595660, 690207, 690874, 587006, 622386, 630147, 690206 and 371399 respectively. These applications are referred to for full particulars as to the nature and character of said inventions.

"The Licensee is engaged in the business of producing, refining, buying, selling and generally handling petroleum and petroleum products, and in its operations it is now using certain of the inventions above referred to (including both the processes for the extraction of synthetic gasoline and also some inventions with respect to other matters,) and desires to continue such use and also desires to obtain the right to use and employ any or all of the above mentioned inventions, processes and apparatus in connection with the conduct of any of its business.

"Now, therefore, in view of the facts above recited, and in consideration of the covenants and agreements of the parties hereto hereinafter contained, the parties hereto covenant and agree as follows:

"(1) The Licensor for himself, his heirs and assigns, hereby grants to the Licensee, its assigns and successors in interest, the right, privilege and license to use and employ in the conduct of the business of the Licensee any and all of the above mentioned inventions, processes and apparatus and any and all improvements thereto and inventions of a similar nature which may be hereafter made by the Licensor.

"(2) The Licensee agrees to pay to the Licensor, for the use of any and all of said above mentioned inventions, processes and apparatus, a royalty to be computed upon the gasoline extracted by means of the processes for the extraction of synthetic gasoline and paid in the manner following, to wit:"

Then follow provisions for the computation and payment of royalties and other provisions not pertinent to this action.

Thereafter on or about June 21, 1928, the Richfield Oil Company of California acquired the controlling interest in the Pan American Petroleum Company. Later a receiver was appointed for the Richfield Oil Company of California and in due time, it, together with the Pan American Petroleum Company, were brought under the provisions of § 77B of the National Bankruptcy Act, 11 U.S.C.A. § 207.

In due time defendant corporation was organized and submitted a plan to the court whereby it proposed to purchase the assets of the old Richfield Company and its subsidiaries and assume certain existing liabilities of the trustee, including such contracts that had been affirmed by the court. To this end, the new Richfield Company raised some $20,000,000.00 in cash and acquired by purchase the assets of the old company and entered into an agreement assuming certain liabilities, including the licensing agreement of September 15, 1925.

Defendant contends that the licensing agreement involved in this litigation was never affirmed by the court and was never specifically assumed under the reorganization agreement. The evidence clearly indicates that the trustee recognized the agreement and the conduct of the defendant corporation establishes that it too assumed the said licensing agreement had been affirmed by the court and that they were bound by the terms of the same. For the purposes of this opinion, I have acted on the assumption that the new corporation specifically assumed the said agreement and is bound by the terms thereof, to the same force and effect as if the said agreement had been specifically affirmed by the court in accordance with the usual procedure under § 77B.

At the time of the reorganization, the new company contemplated the abandonment of the "Black Process" of refining and planned entering into a refining management contract with the Sinclair Refining Company. To this end Mr. Ragland, attorney for the new company, employed a patent attorney to examine the license agreement in litigation for the purpose of ascertaining whether or not the new company would be liable for the payment of royalties if in the operation of a new plant, it ceased using the plaintiff's process.

The sale under the provisions of § 77B was completed and the new company thereupon entered into a refining management contract with the Sinclair Refining Company and under the said contract constructed a new refinery, and upon its completion abandoned the old plant using the "Black Process". The new company continued the payment of the royalties to the plaintiff up to the time of such abandonment.

Upon the ceasing of the payment of royalties, plaintiff had an interview with representatives of the defendant and was thereupon advised by the defendant that it was no longer using any of the inventions described in the licensing agreement of...