Cold Metal Process Co. v. UNITED ENGINEERING & F. CO.

• Decision Date: 08 November 1935
• Docket Number: No. 5756.,5756.
• Citation: 79 F.2d 666
• Court: U.S. Court of Appeals — Third Circuit
• Parties: COLD METAL PROCESS CO. v. UNITED ENGINEERING & FOUNDRY CO.

79 F.2d 666 (1935)

COLD METAL PROCESS CO. v. UNITED ENGINEERING & FOUNDRY CO.

No. 5756.

Circuit Court of Appeals, Third Circuit.

September 27, 1935.

Rehearing Denied November 8, 1935.

Thomas G. Haight, of Jersey City, N. J., Hugh M. Morris, of Wilmington, Del., and Walter J. Blenko, John J. Heard, and John G. Frazer, all of Pittsburgh, Pa., for appellant.

Patterson, Crawford, Arensberg & Dunn and Brown, Critchlow & Flick, all of Pittsburgh, Pa., for appellee.

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

DAVIS, Circuit Judge.

This is an appeal from an order of the District Court refusing a preliminary injunction to restrain the defendant from prosecuting certain suits which it had brought in the Northern District of Ohio and in the Northern District of Indiana.

A. P. Steckel filed an application on June 30, 1923, for a patent for "a revolutionary advance in the art of rolling thin sheet metal." Steckel assigned this application to the plaintiff, the Cold Metal Process Company, hereinafter called "Cold Metal." On April 20, 1926, Biggert and Johnson filed a conflicting application which was assigned by them to the defendant, United Engineering & Foundry Company, hereinafter called "United." In order to avoid future trouble, the parties herein on June 20, 1927, entered into an agreement for a license from Cold Metal to United called the "1927 agreement." After providing for a "conference" between the parties "immediately" after its execution, the agreement provided:

"3. When and if such claim or claims to common subject-matter are granted in any patent issued on Cold Metals' applications, Cold Metals shall grant to United a license to make, use and sell rolling mills under such claim or claims, which license shall be exclusive to United for 4-high hot mills and for 4-high cold mills, in which the major portion of the power required by a roll stand is supplied to the rolls directly and not through tension exerted on the material for pulling it through the rolls; Cold Metals, however, reserving the right to make or have made for its own use and to use in its own plant or plants such hot and cold mills, and provided further that Cold Metal shall have the right to make, use, and sell, or to license others to make, use, or sell, such 4-high hot mills in combination with means for coiling the rolled strip between passes as described in the pending application of A. P. Steckel, Serial No. 198,915, filed June 15, 1927.

"4. Immediately after such conference and without waiting for such claims to be secured, the parties shall negotiate the payment to be made by United to Cold Metals for such license, when and if granted. If the parties cannot agree upon such payment, the matter shall be submitted to three arbitrators, whose majority decision shall be accepted as final by both parties. The three arbitrators shall be as follows:

"Marshall A. Christy, of Pittsburgh, Pa.,

"Rollin C. Steese, of Youngstown, Ohio,

"Charles H. Booth, of Youngstown, Ohio.

"In case any of the arbitrators cannot serve, another or other arbitrators may be selected by the parties, but in case the parties cannot agree on such substitute arbitrator or arbitrators, then the above named arbitrators shall select the substitute arbitrator or arbitrators."

On October 20, 1930, a patent, No. 1,799,195, for the invention disclosed in the application, was issued to Cold Metal.

United found itself embarrassed by the "1927 agreement." It discovered that the larger part of its business, the manufacture and sale of mill rolls, would be seriously and detrimentally affected, if it enforced the 4-high mill patent in the trade for the reason that its general machinery customers threatened to deal with its competitors and not to deal with it, if it enforced that contract. It took the position (in the face of its agreement that it would "immediately after such conference" negotiate for the payment of royalties) that it would not negotiate or arbitrate the question of royalties which it was to pay Cold Metal until the patent had been declared valid by a court of last resort.

United proposed a substitute agreement which would contain certain provisions desired by it and which would practically put the control of the patent in United, but Cold Metal declined to make such agreement.

Cold Metal believing that its patent was being infringed by United brought suit against it on March 7, 1931, in the District Court for the Western District of Pennsylvania, Equity No. 2506 (3 F. Supp. 120). Thereupon on October 28th of that year, United entered into a secret agreement with Mesta Machine Company, hereinafter called "Mesta," its chief competitor, wherein it referred to the suit against it by Cold Metal and its desire to secure help from Mesta for the defense of the suit. Mesta on its part agreed: That it would try to secure a license from Cold Metal; that it would grant a sublicense to United, if it secured a license; that if it failed, it would "use every reasonable effort" to induce Cold Metal to sue it, and that "if sued it will vigorously defend such suit with a view of invalidating said patent"; and that it would not acquire or take any license or right under the patent except such as it could grant to United. United agreed to grant a sublicense, to the extent that it could, to Mesta on the same royalties which it had to pay Cold Metal in case it secured a license under the patent, and further agreed not to acquire or take any license or right under the patent which it could not grant to Mesta. In other words, this agreement is evidence of a union or combination between United and Mesta, whereby they practically pooled their interests for the advantage of each other, and if need be, to the disadvantage of Cold Metal to the extent of "invalidating" the patent under which they hoped to secure mutual benefits if it was finally declared valid.

Cold Metal did not know of this secret agreement until it came out at the hearing in the proceedings by Cold Metal against United for a preliminary injunction in 1934 in equity suit No. 2506. Not only was the agreement not disclosed, but the situation, for which United was largely, if not altogether, responsible was misrepresented in that it complained about the condition for which it was wholly or in part responsible. In the proceedings in that case, United said that its competitors "were paying no attention" to the patent and treated it as invalid. When the matter was before this court on motion to dismiss the appeal 68 F.(2d) 564, United said:

"Competitors of United, before and since the issuing of these patents, without hesitation ignored the application and patent and built 4-high roller bearing mills covered by the patents above referred to.

"The Mesta Machine Company, one of the largest rolling mill manufacturers, began building such mills in 1926, and at the date of trial had built between forty and fifty. E. W. Bliss Company had built ten mills."

It even offered to prove that Mesta was disregarding the patent and assumed that it was invalid. United was thus trying to take advantage of a situation which it had to a great extent secretly created and offered this situation as an excuse for not keeping its agreement with Cold Metal. Its defense of that suit was based upon the ground, first, that the patent was invalid, and, second, if valid, it was protected by the "1927 agreement." Its position was inconsistent and was designed to protect itself, at the expense of Cold Metal, upon the happening of either contingency; if the patent was held to be invalid, then it was protected by its agreement with Mesta and others, or if the patent was held to be valid, then it was protected by the "1927 agreement."

The conclusion is inescapable that United was playing fast and loose with Cold Metal. Its contract with that company was a mere "scrap of paper," except when it might be invoked against Cold Metal and for its own advantage. However, United did enter into agreements with other companies than Mesta by which it sought to avoid all the disadvantages which the "1927 agreement" would or could bring to it, while it was at the same time claiming an exclusive license under the agreement if the patent was held to be valid.

Pretending that it desired to have the patent declared valid, United brought suit against E. W. Bliss Company in the United States District Court for the Northern District of Ohio. That suit is predicated on the purchase of a mill by H. M. Naugle, one of United's directors. Cold Metal charged United with being hostile and alleged that this suit was collusive. Under the evidence in this case, Cold Metal had good ground to reach that conclusion. If United had honestly wanted to test the validity of the Steckel patent, it could easily have joined in the suit already brought in New Jersey, where immediate action could have been had before the District Judge and not a master. All the negotiations between the parties herein relating to this suit in Cleveland against the Bliss Company indicates that it is brought with the hope and intention that the patent, under which it purports to have the right to an exclusive license, be declared invalid, as was indicated in its secret agreement with Mesta. Suit was brought without written notice of the infringement to the Bliss Company. The Bliss Company aided United in equity suit No. 2506 and its counsel openly declared that it believed the patent to be invalid. The same counsel, and so far as is known, with the same belief, is representing United in the case against the Bliss Company in Cleveland, although Cold Metal has requested that he withdraw.

Cold Metal was requested by United to bring suit against the Continental Company and this it did in the District of Delaware immediately following the request and advised United of this fact. United thereupon notified Cold Metal that it proposed to bring suit against the Continental Company in Indiana and...