Detachable Bit Co. v. Timken Roller Bearing Co.

• Decision Date: 02 February 1943
• Docket Number: No. 9219.,9219.
• Citation: 133 F.2d 632
• Parties: DETACHABLE BIT CO. v. TIMKEN ROLLER BEARING CO.
• Court: U.S. Court of Appeals — Sixth Circuit

133 F.2d 632 (1943)

DETACHABLE BIT CO. v. TIMKEN ROLLER BEARING CO.

No. 9219.

Circuit Court of Appeals, Sixth Circuit.

February 2, 1943.

W. B. Morton, of New York City (John B. Hull, of Cleveland, Ohio, and H. Stanley Mansfield, of New York City, on the brief), for appellant.

Luther Day, of Cleveland, Ohio, and John G. Ketterer, of Canton, Ohio (H. C. Pontius, of Canton, Ohio, Leslie Nichols, of Cleveland, Ohio, James A. Carr and Joseph J. Gravely, both of St.. Louis, Mo., Jones, Day, Cockley & Reavis, of Cleveland, Ohio, Lynch, Day, Pontius & Lynch, of Canton, Ohio, and Carr, Carr & Gravely, of St. Louis, Mo., on the brief), for appellee.

Before HICKS, SIMONS, and MARTIN, Circuit Judges.

SIMONS, Circuit Judge.

The bill of the appellant setting up two causes of action, the first for breach by the appellee of obligations arising out of fiduciary relations, and the second for infringement by it of Thurston reissue patents No. 16,061 and No. 17,557, each for a drill, was dismissed below. The District Court concluded that the dealings of the parties did not create a joint venture giving rise to equitable or fiduciary responsibilities, and that in consequence there was no breach of legal duty by the appellee in the acts complained of. It found the first reissue patent invalid for failure of sufficient disclosure, and the claims of the second invalid by reason of anticipation. The appellant assails the entire result reached below.

The Detachable Bit Company is successor to the Detachable Bit Corporation, acquiring all its rights and liabilities of the latter prior to its dissolution in 1936. The predecessor had, since 1929, been a manufacturer of detachable bit rock drills embodying the invention of the Thurston patents. The subject matter of such patents is a detachable bit for percussion rock drills. A detachable bit is a removable cutter attached to the end of a drill rod, and the concept of such removable cutter was quite old. The appellant claims, however, that notwithstanding its antiquity, drilling of rock at the time of the applications, was universally carried out with a conventional hollow drill steel, the bit or cutting end of which was formed by forging a cutting edge upon the end of the drill rod itself and then tempering it to desired hardness. The failure of others to devise a successful detachable bit was due to the fact that the shocks and stresses to which a pneumatic percussion hammer drill is subjected, is so great that breakage offsets the advantages resulting from removable bits. Breakage was likewise true of the conventional piston drill, which was a single unitary piece of hollow rolled steel of full cross-sectional area from end to end. Prior to the efforts of Thurston, it is said, numerous attempts were made by inventors to produce a practical detachable bit, but the mining and quarrying industry became skeptical of its ultimate success by reason of repeated failures.

While Thurston disclosed both 3-piece and 2-piece assemblies, the 3-part assembly was selected by the Detachable Corporation for commercial exploitation. It was considered the more advantageous because the operator could not only supply himself with a number of bits, but also with spare couplings, either of which could readily be substituted on the drill rod in case of failure of original parts. The Detachable Bit Corporation organized in 1926 for the purpose of exploiting the inventions, at first operated under license, but later purchased the patents. Its earlier efforts were directed toward the development of manufacturing methods for quantity production of bits and couplings, and in 1928 it commenced distribution in a limited area out of New York City. Its capital was small but it hoped, when its product was demonstrated by commercial operation, to secure additional capital for extending the business throughout the country.

The Timken Company, in addition to other activities, was a producer of specialized steels. In 1929 negotiations were opened between it and the Bit Corporation, looking to some sort of an arrangement between them. The purpose of the Timken Company was to obtain an outlet for its steel; that of the Bit Corporation to secure the assistance of the highly skilled metallurgists and engineers of the Timken Company in developing its factory processes and their advice in the selection and treatment of material out of which the bits were to be fabricated. The engineer sent by the Timken Company to investigate the business of the Bit Corporation, made a favorable report.

Whether the negotiations were initiated by Timken or by the Bit Corporation, we regard as wholly immaterial. The result was an agreement on July 9, 1929, by the terms of which Detachable undertook to purchase all of its steel requirements from Timken, Timken to loan it $100,000 by the purchase of its convertible notes in that amount, and to receive an option permitting it to convert the notes into an equivalent amount of stock at any time within nine months after their issue. Timken was also to receive an option, good until June 30, 1930, to execute a further contract pursuant to the form attached to the principal contract. Neither option was ever taken up by the Timken Company. In response to the agreement, Timken, during the summer of 1929, made recommendations as to the form of coupling, the design of bit, and the annealing methods of Detachable, and made numerous analyses of its steel, Much of the experimentation, looking to improvements in the bit and the development of manufacturing processes, were cooperative efforts by employees of both corporations. There was also some exploration of the national market for detachable bits. In February, 1930, Timken notified Detachable that it would not exercise the option reserved in the agreement and demanded payment of its notes. On February 11, 1930, the parties entered into an agreement providing that all contracts and agreements between the parties, including those dated July 9, 1929, were canceled and terminated, and each party released from all further obligations thereunder. The reasons for terminating the agreement are in controversy. Detachable argues that Timken desired to take advantage of its financial necessities to force it into a receivership and so to acquire its properties including the patents. There is no proof of this. Timken suggests improper representations by Detachable, that it had agreed to purchase Detachable securities and share in its management. Of this, as ground for cancellation, there is likewise no proof. We regard this issue, too, as immaterial, for whatever may have been the reason for the termination of the contract, it was ended by the voluntary agreement of the parties on February 11, 1930. Detachable repaid its loan and released Timken from all further obligations.

In 1932 Timken commenced the manufacture and sale of detachable bit rock drills in competition with Detachable. It had, after the termination of its agreement in 1930, carried on experimental and development work on its own account which resulted in the granting of patent No. 1,876,565 in 1932, to its employee Buchwalter, and in later patents to Baker, No. 1,953,095 in 1934, No. 2,052,011 in 1936, and No. 2,052,019 in 1936, all of which Timken acquired and now owns. It was not until 1936 that the appellant acquired the business and assets of the Detachable Bit Corporation. It does not appear that that corporation had ever complained of any breach of fiduciary relationship by Timken, although in 1933 it had notified Timken that it was claiming infringement of its patents. On January 28, 1937, the appellant secured the assignment to it of the Thurston reissue patents, and in August, 1938, began the present suit.

Following the termination of the agreement between Timken and the Detachable Corporation, Timken continued to supply steel to it for the remainder of the year 1930, and to furnish it with technical information concerning steel analysis. That the results of the combined efforts of the two corporations failed to transform the Bit Company into a successful enterprise, is implicit from its subsequent history. It continued to lose money. In the spring of 1931 Detachable ceased manufacturing bits and their manufacture was taken over by the Flannery Corporation of Bridgeville, Pennsylvania, under license. There is evidence that Flannery, which had been given full information as to Detachable's methods of manufacture, found it necessary to develop processes of its own. The coupling was never satisfactory and Flannery received thousands of returned bit assemblies and later undertook to design a new type of bit wherein the coupling member was omitted. This evidence becomes important in view of the contention of the appellant that Timken acquired information as to valuable secret processes which formed the basis for its own subsequent development of detachable bits.

To demonstrate that Timken occupied to Detachable's predecessor a fiduciary relationship which imposed upon Timken an obligation not to compete with it in...