Bristol Locknut Co. v. SPS Technologies, Inc.

• Decision Date: 24 May 1982
• Docket Number: Nos. 80-5234,80-5236,80-5240 and 80-5241,s. 80-5234
• Citation: 216 USPQ 867,677 F.2d 1277
• Parties: BRISTOL LOCKNUT COMPANY, Plaintiff/Appellee/Cross-Appellant, v. SPS TECHNOLOGIES, INC., Defendant/Appellant/Cross-Appellee. CA
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1277

677 F.2d 1277

216 U.S.P.Q. 867

BRISTOL LOCKNUT COMPANY, Plaintiff/Appellee/Cross-Appellant, v. SPS TECHNOLOGIES, INC., Defendant/Appellant/Cross-Appellee.

CA Nos. 80-5234, 80-5236, 80-5240 and 80-5241.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 6, 1981.

Decided May 24, 1982.

John W. Logan, Jr., Ferrill & Logan, Fort Washington, Pa., for SPS Technologies, Inc. R. Douglas Lyon, Lyon & Lyon, Los Angeles, Cal., for Bristol Locknut co.

Appeal from the United States District Court for the Central District of California.

Before HUG, TANG, and FARRIS, Circuit Judges.

FARRIS, Circuit Judge:

BACKGROUND

The validity and infringement of two patents and a trademark held by SPS Technologies, Inc. are at issue. The Skidmore Patent No. 3,208,494 claims and describes what is known in the industry as a prevailing torque locknut. ¹ A locknut differs from a free spinning nut in that it requires greater effort to remove it from a bolt. Because locknuts will not vibrate loose, they are widely used in the automotive industry in critical places on vehicles. The Burt Patent No. 2,955,301 describes and claims a tool for converting certain free spinning nuts into locknuts by deforming the nut's conical end. ²

SPS Technologies, Inc. (formerly Standard Pressed Steel Company) entered into a licensing agreement with Bristol Locknut Company (formerly Magnolia Screw Products, Inc.). Bristol Locknut was licensed to sell, under SPS's trademark "Conelok," the Skidmore locknut and locknuts made by the Burt tool.

Six years later, Bristol Locknut renounced the licensing agreement and brought a declaratory judgment action, seeking a determination that the patents were invalid and not infringed by Bristol Locknut's manufacturing practices. SPS then brought an action for breach of contract and infringement of its patents and trademark. Both parties made various claims for royalties. The actions were consolidated by the district court, which found that both patents were invalid and were not infringed and that the trademark was not infringed. It held that Bristol Locknut was not entitled to a return of royalties, and that Bristol Locknut had no obligation to pay SPS the royalties it withheld and underreported. Both parties appealed. We affirm in part and reverse in part.

SUMMARY

We agree with the court's holding that both patents were invalid. We need not reach the question of whether the patents were infringed.

Bristol Locknut's obligation to pay royalties arises out of contract and federal patent law principles. SPS performed fully and Bristol Locknut received substantial benefit under the licensing agreement. Consequently, Bristol Locknut's obligation to pay the full royalties owed under the contract continued until it challenged the validity of the patents. To hold otherwise, under these facts, would be inequitable and would undermine federal patent law policy.

We agree with the court's holding that the trademark was not infringed. We do not address Bristol Locknut's claim that the trademark was invalid, because that issue was not raised at trial.

ANALYSIS

I. MODIFICATION OF THE PRETRIAL ORDER

As a preliminary matter, SPS claims the court improperly departed from the pretrial order. A pretrial order governs the subsequent course of the action unless modified to prevent manifest injustice. Higgins v. Harden, 644 F.2d 1348, 1353 (9th Cir. 1981). Here, the trial court properly departed from the pretrial order because it found that "(i)t was a mistake to go to trial on that pretrial conference order. It helped not at all to limit the issues, define the issues, and make clear what the true issues were that were to be tried before the Court." SPS has not shown that any issues were wrongfully included or excluded, or that its interests were prejudiced by the court's action. We find no error in the court's departure from the pretrial order.

II. VALIDITY OF THE PATENTS

Although patent validity is a question of law, Sakraida v. Ag Pro, Inc., 425 U.S. 273, 280, 96 S.Ct. 1532, 1536, 47 L.Ed.2d 784 (1976); M-C Industries, Inc. v. Precision Dynamics Corp., 634 F.2d 1211, 1213 (9th Cir. 1980), a patent enjoys a presumption of validity, 35 U.S.C. § 282 (1976), which is rebuttable only by clear and convincing evidence, Saf-Gard Products, Inc. v. Service Parts, Inc., 532 F.2d 1266, 1271 (9th Cir.), cert. denied, 429 U.S. 896, 97 S.Ct. 258, 50 L.Ed.2d 179 (1976); Del Mar Engineering Laboratories v. Physio-Tronics, Inc., 642 F.2d 1167, 1173 (9th Cir. 1981).

The trial court based its holding that both patents were invalid for obviousness upon 35 U.S.C. § 103 (1976), which provides:

A patent may not be obtained ... if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.

Obviousness is a question of law based on three factual determinations: 1) the state of the prior art, 2) the differences between the challenged patent and the prior art, and 3) the level of ordinary skill in the pertinent art. Graham v. John Deere Co., 383 U.S. 1, 17, 86 S.Ct. 684, 693, 15 L.Ed.2d 545 (1966).

SPS contends that the court made inadequate findings on these issues. While more specific findings would have facilitated review, the record demonstrates that the court considered each of them.

Although "strict observance" of the factual inquiries set forth in Graham is necessary ... this court has not required a precise articulation of the Graham analysis where a reading of the court's entire opinion, in the context of the record, "reveals that the district court in fact appropriately examined the prior art" in comparison with the patent in question and "took into account the level of ordinary skill in the pertinent art". Satco, Inc. v. Transequip, Inc., 594 F.2d 1318, 1321 (9th Cir. 1979), cert. denied, (444 U.S. 865), 100 S.Ct. 137, 62 L.Ed.2d 89 (1979).

Palmer v. Orthokinetics, Inc., 611 F.2d 316, 319 (9th Cir. 1980). Accord M-C Industries, 634 F.2d at 1213. Here, the court received evidence and heard testimony from several witnesses about the state of the prior art, the differences between that art and the disputed patents, and the level of ordinary skill in the art. ³ Based on the evidence before it, the court could properly conclude that the patents were invalid. Its findings on these issues are not clearly erroneous. See M-C Industries, 634 F.2d at 1213; Saf-Gard Products, Inc. v. Service Parts, Inc., 532 F.2d 1266, 1272 (9th Cir.), cert. denied, 429 U.S. 896, 97 S.Ct. 258, 50 L.Ed.2d 179 (1976).

SPS argues that the court gave inadequate weight to the patents' commercial success. We reject the argument. Although commercial success may be a relevant secondary indication of obviousness, Graham v. John Deere Co., 383 U.S. at 17-18, 86 S.Ct. at 693-694, "commercial success without invention will not make patentability," Great Atlantic & Pacific Tea Co. v. Supermarket Equipment Corp., 340 U.S. 147, 153, 71 S.Ct. 127, 130, 95 L.Ed. 162 (1950). Further, this secondary factor is considered only when the three primary factual determinations do not dispose of the obviousness issue. See SSP Agricultural Equipment, Inc. v. Orchard-Rite Ltd., 592 F.2d 1096, 1101 (9th Cir. 1979).

Where, as here, the obviousness of the patent is in issue, the presumption of a patent's validity will disappear if the applicant failed to disclose prior relevant art to the patent office. Kamei-Autokomfort v. Eurasian Automotive Products, 553 F.2d 603, 605 (9th Cir.), cert. denied, 434 U.S. 860, 98 S.Ct. 186, 54 L.Ed.2d 133 (1977). SPS alleges that the court erred in finding that SPS failed to disclose relevant prior art. The record reflects that the undisclosed prior art included an identically shaped free spinning nut. ⁴ The court's finding was not clearly erroneous. See M-C Industries, 634 F.2d at 1213. In any event, the court could properly find from the evidence that any presumption of validity either patent might have had was clearly and convincingly rebutted. See Saf-Gard Products, 532 F.2d at 1271.

III. THE PARTIES' CLAIMS FOR ROYALTIES

A. BACKGROUND

Under the licensing agreement, Bristol Locknut agreed to pay SPS a royalty based on a percentage of the sales of Skidmore locknuts and locknuts manufactured by the Burt tool. In return, SPS agreed not to sue for patent infringement.

The original agreement was signed on December 11, 1970. Bristol Locknut started making royalty payments in 1971. It was purchased by Frank Klaus in late 1972 and sales were thereafter underreported and the royalties consequently underpaid. On January 28, 1977, Bristol Locknut wrote to SPS, explaining it was delaying payment of the fourth quarter 1976 royalties until it received copies of SPS's licensing agreements with other locknut manufacturers. Bristol Locknut never resumed payment of royalties, but soon thereafter filed this action, on March 22, 1977, for a declaratory judgment that both patents were invalid and not infringed. SPS's separate action for breach of contract and infringement of its patents and trademark was consolidated. Bristol Locknut sued for a return of all royalties it had paid, and SPS sued for the unpaid royalties that accrued during the two fiscal quarters before the action was filed. SPS also sued for the underpaid royalties Bristol Locknut was obligated to pay. The parties stipulated that the total amount of underreported and unpaid royalties that accrued to the date of filing totalled $69,396.43.

The district court left the parties as they were. It held that since both patents were invalid and the trademark not infringed, SPS was not entitled to any additional royalties. We assume the court concluded that the holding of invalidity terminated Bristol Locknut's obligation to pay any further royalties. The court also held that, under ...