Chadeloid Chemical Co. v. H.B. Chalmers Co.

• Decision Date: 11 June 1917
• Docket Number: 269.
• Citation: 243 F. 606
• Parties: CHADELOID CHEMICAL CO. v. H. B. CHALMERS CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

243 F. 606

CHADELOID CHEMICAL CO. v. H. B. CHALMERS CO. et al.

No. 269.

United States Court of Appeals, Second Circuit.

June 11, 1917

The bill, filed in May, 1916, demands that defendants convey or have conveyed and transferred to plaintiff two patents (1,066,251 and 1,079,635), issued to one Dunham in 1913, on applications of the individual defendant Chalmers, and also all other 'formulae improvements and inventions made or devised by Chalmers relating to paint and varnish removers. ' Injunction against dealing with or in or disposing of said patents, formulae, etc., was also prayed for, as was further relief. The decree enjoined defendants from any further use of Chalmers' patents or inventions, directed their conveyance to plaintiff, and ordered that an account be taken of profits resulting to defendants from the manufacture, etc., of removers under said patents, and of damages suffered by plaintiff by reason of the wrongful retention of the same by defendants. This appeal is under section 129, Judicial Code.

A paint remover is a chemical compound for softening and cleansing from wood, etc., hardened paint or varnish, without the application of heat. This suit is the latest chapter of litigation over the business in removers established upon the Ellis patent (714,880) as a foundation. Plaintiff company owns that patent, which has been much contested and very broadly sustained. ^[1]

Ellis' patent issued in 1902, plaintiff was organized in 1905, and immediately acquired it, under circumstances and for reasons shadowed forth by the fantastic name 'Chadeloid,' which is a composite of Chalmers, Ellis, and Elting, with some flavor of Adelite and Phenoid.

The patentee Ellis and defendant Chalmers, as partners, and afterwards shareholders in the Ellis-Chalmers Company (hereinafter called Ellis Company), owned the patent until 1905, sought a market for the remover which they called Phenoid, and fought infringers. This produced an action against the Adams & Elting Company (hereinafter called Adams Company), which made and sold Adelite. Such suit was pending and very expensive in the winter of 1904-5.

On January 17, 1905, an agreement in writing was made between Ellis Company, Adams Company, and Elting, Adams, Chalmers and Ellis, reciting the ownership of the Ellis patent by Ellis Company, of sundry patents and applications therefor by Adams Company, and the pendency of the aforesaid suit, and agreeing that said suit be abandoned, the validity of Ellis patent recognized, the Chadeloid Company (this plaintiff) organized with the four individual contracting parties and (semble) their counsel as directors, that Chadeloid stock be distributed in a manner agreed upon (making Chalmers a large shareholder) that the Ellis and all other existing or thereafter acquired paint remover patents belonging to the parties should forthwith be assigned to the newly formed company, and that both Adams Company and Ellis Company should have free license to make, use, and sell under the Ellis and all other patents then or thereafter acquired by Chadeloid Company and relating to removers. Finally all the natural persons contracting covenanted to assign to the intended corporation 'all improvements or inventions which any of the parties hereto may have made, or may hereafter make, relating to paint and varnish removers' and to 'execute an agreement in favor of said Chadeloid Chemical Company that (they) will without further consideration disclose and assign to said company all inventions which (they) may now have made or may hereafter make relating to removers'; and also specifically give 'the right to apply for letters patent thereon.' There was also a covenant to furnish further documents, as might appear necessary to effectuate the objects indicated.

Accordingly and on February 27, 1905, Chadeloid Company having been created, Adams, Elting, Ellis, and Chalmers in one writing 'severally' covenanted and agreed as they had in the previous month contracted to agree. A nominal or $1 consideration is specified as moving from Chadeloid Company to each of Chalmers et al., and the contract is under seal.

The effect of this business arrangement was to make a holding company for the Ellis and all other existing and future paint remover inventions, made by any party to the agreements referred to. The holding company (this plaintiff) was a convenience or method of keeping the peace between Adams and Elting and their corporation on the one hand and Chalmers and Ellis and their corporation on the other. Each licensed concern could manufacture under all the owned patents, and they pooled their interests as to infringers, against whom the campaign indicated by the list of decisions just given was then opened, with sufficient success to make an income for the holding company out of royalties resulting from such vigorous legal warfare, of which (by agreement) the Adams-Elting side of the bargain paid four-fifths of the cost for two years, or until (as the event proved) Chadeloid Company became self-supporting.

Chalmers continued to be actively concerned in Ellis-Chalmers Company until 1911, when he sold his interest, having previously disposed of his Chadeloid stock. Soon thereafter he organized the defendant Chalmers Company a concern always controlled by himself. He had apparently become dissatisfied with the action of Chadeloid Company in paying a salary or retainer to Ellis that chemical experiments looking to new or improved remover devices might be conducted under the latter's supervision. But he also probably intended to start a rival business, for on October 11, 1911, he applied for the patent subsequently issued as 1,079,635. Then or shortly thereafter he sent to plaintiff a sample of his 'Chalco' remover, was told that it infringed Ellis, and had his attention called to his agreement of 1905. He replied that he doubted the validity of the agreement, but that the 'Chalco' formula was not his own, but that of 'one of the greatest chemists of the country,' although he had the right to use it.

Formal notice was promptly given H. B. Chalmers Company that the articles sold by it were infringements, and when in 1913 the earliest Chalmers patent issued, demand for its assignment was at once made by plaintiff upon Dunham. It appears by the answer herein that Dunham was the secretary of Chalmers Company, that the applications had been assigned to him as secretary, and that the inventions were always the company's property, although the patents were not formally assigned to defendant corporation until May, 1914. When demand was made on Dunham, he disclosed none of these facts to plaintiff, and from his attitude it was a fair inference that he personally was or might claim to be a...