COLD METAL PROD. CO. v. Crucible Steel Co. of America
| Decision Date | 28 December 1956 |
| Docket Number | Civ. A. No. 1231-52. |
| Citation | 147 F. Supp. 25 |
| Parties | The COLD METAL PRODUCTS COMPANY, Plaintiff, v. CRUCIBLE STEEL COMPANY OF AMERICA, Defendant. |
| Court | U.S. District Court — District of New Jersey |
O'Mara, Schumann, Davis & Lynch, Jersey City, N. J., for plaintiff, by Edward J. O'Mara, Jersey City, N. J., Webb, Mackey & Burden, Pittsburgh, Pa., by William H. Webb, Pittsburgh, Pa., of counsel.
Pitney, Hardin & Ward, Newark, N. J., for defendant, by Frank C. O'Brien, Newark, N. J., Fish, Richardson & Neave, New York City, by Charles H. Walker, New York City, of counsel.
This action was commenced by The Cold Metal Products Company, an Ohio corporation, against Crucible Steel Company of America, a New Jersey corporation. Plaintiff's claims are that defendant owes it money for royalties pursuant to a patents' license contract dated September 30, 1946.1 The opinion and decisions of this court relating to several preliminary motions are reported in D.C., 126 F.Supp. 546.
The license contract dated September 30, 1946, covered Cold Metal's Reversing Hot Mill Patents. All of the licensed patents related to methods and equipment for rolling metal ingots such as steel, heated to an elevated temperature, into relatively wide and thin gauged strip in lengths sufficiently long to permit coiling the metal on reels during the hot rolling operation. In 1948 and early 1949, Crucible installed a hot strip mill and began commercially to operate it about April 1, 1949. From that date until November 30, 1951, Crucible paid contract royalties amounting to $655,189.54. One of plaintiff's claims is that additional royalties amounting to $161,668.72 are owed for that period. A second claim is that Crucible owes royalties amounting to $329,226.07 for the period from November 30, 1951, to April 1, 1953, during which period Crucible did not pay any royalties.
In addition to the license contract issue, there are patent issues. Cold Metal alleges that although the license contract has been terminated, Crucible's continued operation of its mill infringes three of Cold Metal's patents.2 Crucible contests the validity of the three patents.
Cold Metal's Claim for Additional Royalties for the Period from April 1, 1949, to November 30, 1951.
1. Crucible computed and paid royalties on hot rolled stainless steel which it later cold rolled, by deducting from the base price of hot rolled stainless steel extra charges for annealing and pickling the hot rolled stainless steel.3 Cold Metal's claim for additional royalties is based on the argument that Crucible should have used the "prevailing regular market price" required under Section III, Paragraph 4 of the contract but that instead Crucible deducted from that price 4½¢ a pound because the material was annealed and pickled before being cold rolled or fabricated.4 Crucible agrees that the prevailing regular market price controls, but it argues that such price of hot rolled stainless strip, unannealed and unpickled, intended for further reduction by cold rolling, was the base price less the established extras of 4½¢ a pound for annealing and pickling.
The court concludes that Crucible's deduction was improper. The prevailing regular market price was the "base price" and that price was for the hot rolled stainless strips and coils in the annealed and pickled condition, no extra having been charged to the purchaser for those operations. It is clear from the evidence that it was the practice in the industry to sell hot rolled stainless annealed and pickled strip at the base price without any charge to the purchaser of an extra for annealing and pickling.5 The reason there was no such charge was that the hot roller manufacturers insisted on performing those operations to permit them to inspect the material before selling it and thereby avoid later rejections by purchasers.
2. The second contract issue is whether Crucible should have included in its computations, scrap resulting in its Agricultural Department from manufacturing disks and plowshares.6 In addition to Crucible's Hot Rolling Department it has an Agricultural Department where it manufactures agricultural disks and plowshares. Scrap is produced during the operations, and in computing the royalties due on the hot mill operation, Crucible excluded all that operational scrap. Crucible argues that it is required under the contract only to pay royalties on revenue-producing material. Specifically, Crucible points to Section III, Paragraph 5 of the contract, providing that royalty payments shall be made covering "salable production" which is defined as all material "shipped or used."7
The court concludes that the operational scrap which Crucible failed to include in its royalty computations was "used" by it within the meaning of Section III, Paragraph 5. The contract does not exclude all scrap from computations under the royalty formula; the only excluded scrap is defective material rejected by a customer or by Crucible and later used by Crucible as scrap or sold at scrap prices. The court agrees with Cold Metal's argument that it is the weight of the material used, i. e., the weight of good material transferred to and used in the Agricultural Department and the selling price of the material transferred there that is the basis for royalties.
3. The third contract issue is whether Crucible should have included in its computations and paid royalties on scrap resulting from slitting in its Cold Rolling Department.8 In computing royalties, Crucible excluded the scrap resulting from the slitting of material after it had been transferred from the Hot Rolling Department to the Cold Rolling Department. Again, Cold Metal argues the deduction was improper because royalties must be computed on the basis of the weight of the material transferred to and "used" in the Cold Rolling Department. And again, the court concludes that Crucible's deduction was improper for all the material was used by Crucible in its Cold Rolling Department.
4. As to the fourth contract claim, the issue is whether scrap resulting from Crucible's inspection of coldrolled pickled and annealed strip is includible as a royalty base.9 Here, unlike the other so-called scrap materials, clearly the scrap is rejected by Crucible. Under Section III, Paragraph 5, such material is excluded from royalty computations.
Cold Metal's Claim for Royalties for the Period from November 30, 1951, to April 1, 1953.
Cold Metal's second claim is that Crucible owes royalties for the period from November 30, 1951, to April 1, 1953. Cold Metal contends that each of the Montgomery '122, '065, and '107 patents contains one or more claims covering Crucible's hot strip mill and its operation. Crucible, of course, cannot contest the validity of those patents.10
The '122 patent relates to improvements in reversing hot mills. The pertinent claims are Nos. 6, 10, 18, and 19.11 The improvements are directed at the difficulty in causing the material being rolled to enter the rolls properly to prevent cambered strip.12 Also, there had been difficulty in causing the leading end of the material properly to engage the coilers within the furnaces on opposite sides of the mill and frequently the leading end of the piece was bent, making it difficult to cause the material properly to engage the coiler. The patented solution consists of side guides on both sides of the mill, operation of the guides successively to provide a parallel guiding throat on the entering side of the mill and a tapered guiding throat on the other side of the mill. The patent also provides pinch rolls for feeding the material toward the mill and, after passing through the mill, toward the coilers, between passes, whereby the strip is properly started on the coilers. The pinch rolls are automatically raised when the strip has been properly started and they are withdrawn when the material being rolled is handled back and forth through the mill in the flat without coiling between passes. (Exhibit P-3, p. 1, col. 1, line 31 through col. 2, line 6). In the patent it is pointed out that after the strip is started through the mill and into the coilers, the pinch rolls are positioned in the low-lift position on the winding and unwinding sides so that the strip is freed of any pinching action between the mill and the winding and unwinding coilers.
The '065 patent relates to a reversing type of hot mill employing both a roughing mill unit and a finishing mill. All of the claims are pertinent.13 That patent points out that for certain classes of product it is desirable to provide a finish on the hot strip superior to that which can be obtained with a mill in which the entire reduction from the slab to the thin strip is effected by the same pair of rolls. The patentee, Montgomery, proposed taking a slab after it was properly heated and subjecting it to repeated passes through a roughing mill to elongate it and then passing the material, in the same heat, to another reversing mill with heated furnaces on opposite sides and rolling the material while coiling it between passes. Montgomery also proposed trueing the edges in the roughing mill, cropping at least one end between the rolling on the roughing mill and the rolling on the finishing mill, and continuing the rolling on the roughing mill until the breakdown cools to a temperature below that at which free scale forms. According to the patentee the advantages of the patent are that a higher finish is obtained than by using one mill stand for both breakdown and finishing operations because the heavier scale is eliminated from the material before it reaches the rolls on which the finishing operations are performed; also the output of the finishing mill can be increased because the mill can be operated at higher speeds a greater portion of the time than when the breakdown operations are also carried out on the same mill stand.
The '107 patent is a method patent related to the...
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