Dangler v. Imperial Mach. Co.

• Citation: 11 F.2d 945
• Decision Date: 05 March 1926
• Docket Number: No. 3645.,3645.
• Parties: DANGLER et al. v. IMPERIAL MACH. CO. et al.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

11 F.2d 945 (1926)

DANGLER et al. v. IMPERIAL MACH. CO. et al.

No. 3645.

Circuit Court of Appeals, Seventh Circuit.

March 5, 1926.

George P. Fisher, of Chicago, Ill., for appellants.

Ralph M. Snyder, of Chicago, Ill., for appellees.

Before ALSCHULER, EVANS, and ANDERSON, Circuit Judges.

EVAN A. EVANS, Circuit Judge.

Appellees brought this suit against the Maxim Manufacturing Company to restrain the further infringement of claims 1, 2, 3, and 4 of patent No. 809,582, and claim 1 of patent No. 942,932 (known as the Robinson patents), and to recover damages. A decree in their favor, entered in 1922, was affirmed by this court January 2, 1923. 286 F. 79.

Thereafter the Maxim Manufacturing Company was duly adjudged a bankrupt, and the present proceedings were instituted to fasten upon appellants a liability for the damages which resulted from the infringements by said Maxim Manufacturing Company, of which appellants were officers and directors. The decree in appellees' favor enjoined appellants "from directly or indirectly manufacturing, selling, or using * * * defendants' infringing vegetable paring or peeling machines," and decreed that "plaintiffs recover of defendants Maxim Manufacturing Company, David Dangler, and Ralph L. Lapham severally and jointly the profits derived by * * * reason of the infringement of said letters patent * * * from and after January 1, 1921, and from the said Maxim Manufacturing Company the profits derived prior thereto, and in addition to such profits to be accounted for by the defendants Dangler and Lapham the damages for like periods which plaintiffs have sustained by reason of said infringement of said Maxim Manufacturing Company, David Dangler and R. L. Lapham."

Only Dangler and Lapham appeal, and they attack that part of the decree which affects them. Appellees' position is that the Maxim Manufacturing Company had for several years been infringing its patents, and during a certain part of said infringement period it was bankrupt, to the knowledge of appellants, who as its officers and directors managed its affairs; that said company was in fact merely a shell, a sham corporation unable to meet its financial obligations; that appellants lent the Maxim Company large sums of money for the purpose of continuing the infringements, and thereby became parties principal, liable as well as the company for appellees' damages. The following facts were established:

Defendant company was organized July 1, 1914, under the name of the Sanitary Sectional Brush Manufacturing Company, which was changed the next year to the Maxim Manufacturing Company. Dangler was elected president October 18, 1917, resigned in 1918 for war work, returned in the latter part of May, 1919, was re-elected president, and continued to hold that office until January, 1923, when the company was adjudged a bankrupt. Lapham became secretary and treasurer in 1914, and continued to act as treasurer until January, 1923, and was secretary most of the time. Both appellants were directors nearly all of the infringement period. They were both small stockholders until 1921, when they increased their stockholdings to nearly 40 per cent. of the outstanding stock.

Suit was begun on these Robinson patents in 1916, when Illing was the president and principal stockholder. Another company made the machines at this time, and it carried on the pending litigation until about 1920. A reputable patent attorney advised the Maxim Manufacturing Company that its machine could be lawfully made, and the business was continued.

Respecting insolvency, it appears that the company continued in business down to January, 1923, at which time this court announced its opinion sustaining the Robinson patents and holding the Maxim Manufacturing Company as infringers. At this time about 40 to 50 per cent. of its business was in manufacturing and selling the patented potato peeling machines. Prior to this date, the credit of the company was apparently good, and it paid its obligations. A copy of the financial reports of the company is herewith reproduced:

                -------------------------------------------------------------------
                                 |     A      |     B        |        C
                -------------------------------------------------------------------
                                 |            |              | Net Worth Less
                                 |   Surplus  |   Net Worth  |  Intangibles —
                                 |    per     |   per Books. |  (Patents, Good
                      Date.      |   Books.   |              |    Will, etc.)
                -------------------------------------------------------------------
                  Jan. 1, 1917 . |  13,092.22 |   33,542.22  |     9,542.22
                  Jan. 1, 1918 . |  12,415.09 |   35,915.09  |     9,665.09
                                 |            |              | (and less patterns)
                  Jan. 1, 1920 . |   3,705.36 |   27,955.36  |    14,276.48
                                 |            |              | (and less patterns)
                  Jan. 1, 1921 . |   2,005.05 |   35,265.05  |    15,582.46
                                 |            |              | (and less patterns)
                  Jan. 1, 1922 . |   1,789.22 |   36,579.22  |     5,875.82
                                 |            |              | (and less patterns)
                -------------------------------------------------------------------
                Footnote. — No balance sheet for the year 1922 is
                in evidence, but the profit and loss statement of January
                1, 1923, shows an operating loss of $17,460.96
                for the year 1922
                

The business of the company fell off rapidly after the District Court decision in the early part of 1922, and the year ending January 1, 1923, showed a large loss. Loans were made by different officers of the company. The following chart shows the loans made by Dangler and Lapham and the Dangler-Lapham Company; also the number of infringing machines manufactured and sold:

Respecting the liability of officers of a corporation for its infringements of letters patent, the authorities are not in accord. The weight of authority, it seems, denies such liability in the ordinary case. That is to say, if the officers act merely as officers, they are not liable jointly with the corporation. It is only when the officers act outside the scope of their official duties that they become liable. See cases cited below.¹ There are, however, numerous authorities that hold the managing officers liable for damages committed by the corporation in case of infringements. The enforcement of this liability is seldom sought, except in case of insolvency of the corporation.

These latter holdings are on the theory that the corporation commits the tort only under the direction of the managing officers, and therefore these officers, including the directors who authorize the manufacture and sale of the infringing devices, are liable. Hitchcock v. American Plate Glass Co., 259 F. 948, 171 C. C. A. 24; Eddy v. Kramer (D. C.) 247 F. 962; National Cash-Register Co. v. Leland, 94 F. 502, 37 C. C. A. 372. There are numerous cases which might be added to this list, where officers were held with the corporation, but they deal with activities of officers outside their official duties.

The latter view seems to have the support of the text writers. Robinson on Patents, § 912; Walker on Patents, §§ 410-412. This court has heretofore taken the position first announced, namely, that the officers are not liable unless they act outside the scope of their official duties. Cazier v. Mackie-Lovejoy Mfg. Co., 138 F. 654, 71 C. C. A. 104; Reed v. Cropp Concrete Mach. Co., 225 F. 764, 141 C. C. A. 90.

It may be successfully urged that this court in Reed v. Cropp Mach. Co., did not reaffirm the decision announced in Cazier v. Mackie-Lovejoy Mfg. Co., supra. In other words, the court was merely holding that, regardless of what the rule was respecting the officers' liability, the facts in that case made it impossible for the officer to avoid the consequences of...