Ethyl Corporation v. Hercules Powder Company

• Decision Date: 01 July 1964
• Docket Number: Civ. A. No. 2142.
• Citation: 232 F. Supp. 453
• Parties: ETHYL CORPORATION, Plaintiff, v. HERCULES POWDER COMPANY, Stauffer Chemical Company, and Texas Alkyls, Inc., Defendants.
• Court: U.S. District Court — District of Delaware

232 F. Supp. 453

ETHYL CORPORATION, Plaintiff, v. HERCULES POWDER COMPANY, Stauffer Chemical Company, and Texas Alkyls, Inc., Defendants.

Civ. A. No. 2142.

United States District Court D. Delaware.

December 5, 1963.

Supplemental Opinion July 1, 1964.

COPYRIGHT MATERIAL OMITTED

Arthur G. Connolly and Januar D. Bove, Jr., of Connolly, Bove & Lodge, Wilmington, Del., John W. Nields and William T. Lifland, of Cahill, Gordon, Reindel & Ohl, New York City, of counsel, for plaintiff.

William S. Potter, of Berl, Potter & Anderson, Wilmington, Del., Theodore S. Kenyon, Malvin R. Mandelbaum, Charles R. Brainard and Joseph A. Barbosa, of Kenyon & Kenyon, New York City, of counsel, for Hercules Powder Co.

John J. DeLuca, Wilmington, Del., and Kenyon & Kenyon, New York City, of counsel, for Stauffer Chemical Co.

James M. Tunnell, Jr., of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., and Kenyon & Kenyon, New York City, of counsel, for Texas Alkyls, Inc.

CALEB M. WRIGHT, Chief Judge.

Plaintiff, Ethyl Corporation (Ethyl), has brought suit seeking declaratory and injunctive relief in a case involving the license of certain patent rights. Defendants, Hercules Powder Company (Hercules), Stauffer Chemical Company (Stauffer), and Texas Alkyls, Inc. (Texas), have counterclaimed for patent infringement. The matter is now before the Court on cross motions for summary judgment. The parties have stipulated the facts.

The main issue raised is whether or not the licensing of a process patent may be used to prevent the sale of products manufactured by the licensed use of the patented process when such products are themselves unpatented.

The license granted Hercules encompassed both exclusive and non-exclusive rights. It conveyed a non-exclusive right to make, use and sell the products resulting from the patented process in Canada and the United States, and an exclusive right to sell one of the products produced by the patented process in the United States.

The licensing agreement with Ethyl granted a right apparently more limited conveying merely a non-exclusive right to make and use in the United States the product produced by the patented process and a non-exclusive license to make, use and sell in Canada.

Some background material may be helpful.

Dr. Karl Ziegler of Germany discovered processes by which the production of aluminum trialkyls was made possible at low cost. Due to Ziegler's discoveries aluminum trialkyls have now become of commercial importance.

Ziegler's early work permitted him to achieve a strong patent position in this country. The application for Ziegler Patent No. 2,826,598 was filed June 17, 1952 with claims for processes for the preparation of certain aluminum trialkyls and a product claim reading upon such trialkyls. Process claims eventually issued. A product claim remained in the application until October 2, 1957, when it was cancelled. Ziegler also has obtained another process patent, United States Patent No. 3,032,574, which defendants claim is infringed by plaintiff's use of the patented process beyond the limitation of its license.¹ To the present time Ziegler has not received a patent on the product produced by use of the patented processes in issue.

Ziegler capitalized on his patent position by licensing American companies under his patent rights. In 1954 he granted Hercules a non-exclusive license to use the process and to make, use and sell products resulting from that use. He also granted Hercules an exclusive license to sell aluminum trialkyls in the United States. For a time Hercules, itself, manufactured and sold aluminum trialkyls. In 1959, Hercules agreed with Stauffer to form Texas. That company now manufactures aluminum trialkyls with Stauffer acting as its exclusive sales agent.

In 1958, Ethyl Corporation, the plaintiff in this action, became interested in using Ziegler's patents and carried on negotiations looking to that end. These negotiations culminated in an agreement of October 6, 1958 in which Ziegler granted Ethyl a non-exclusive license to make and use aluminum alkyls in the United States and to make, use and sell them in Canada.

The main thrust of this litigation concerns the validity of Hercules' exclusive license to sell aluminum trialkyls and the breadth of Ethyl's license to make and use in the United States.

Ethyl claims that the language granting Hercules an exclusive license to sell an unpatented product is ineffective. Process patents, Ethyl asserts, cannot be relied on to enforce an exclusive right to sell the unpatented article produced by the process. Hence, Hercules' license is ineffective insofar as an exclusive right to sell is conveyed and Ethyl cannot be prevented from selling unpatented aluminum trialkyls.

Acting in accordance with this theory, Ethyl has been making and selling substantial quantities of aluminum trialkyls in the United States since 1957. In this action, Ethyl seeks a declaratory judgment to the effect that Hercules' exclusive right to sell is invalid. Ethyl also asks the Court to enjoin Hercules, Stauffer and Texas from representing to potential customers for aluminum trialkyls that only Hercules has the right to sell aluminum trialkyls produced by the Ziegler process in the United States. Hercules, with the approval of Ziegler, counterclaims for patent infringement claiming Ethyl's license grants it the right to use the Ziegler process to make aluminum trialkyls in quantities sufficient only for its own consumption and that by selling to others it has violated its licensing agreement.

In Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 492, 62 S.Ct. 402, 405, 86 L.Ed. 363 (1941), the Court said:

"The grant to the inventor of the special privilege of a patent monopoly carries out a public policy adopted by the Constitution and laws of the United States, `to promote the Progress of Science and useful Arts, by securing for limited Times to * * * Inventors the exclusive Right * * *' to their `new and useful' inventions. United States Constitution, Art. I, § 8, cl. 8; 35 U.S.C. § 31. But the public policy which includes inventions within the granted monopoly excludes from it all that is not embraced in the invention. It equally forbids the use of the patent to secure an exclusive right or limited monopoly not granted by the Patent Office and which it is contrary to public policy to grant."

This salutary rule applies to process patents as well as product patents. By a mere agreement, an inventor cannot extend the scope of the monopoly granted under the patent laws of the United States.

A product patent and a process patent are two different things. The former applies to a discovered article, the latter applies to a new method of making an article. "Thus a process patent is not infringed by the sale of a product made by the process, the product itself not being patented, and a product patent is not infringed by one who uses the process by which it is made, the process itself not being patented." In re Amtorg Trading Corporation, 75 F.2d 826, 832 (C.C.P.A.1935); cert. den. International Agricultural Corp. v. Amtorg Trading Corp., 296 U.S. 576, 56 S.Ct. 102, 80 L.Ed. 407 (1935). See also Foster D. Snell, Inc. v. Potters, 88 F.2d 611 (2 Cir. 1937); Gates Rubber Co. v. B. F. Goodrich Rubber Co., 45 F.2d 652 (D.C.Col.1930), rev'd. on other grounds B. F. Goodrich Rubber Co. v. Gates Rubber Co., 54 F.2d 580 (10 Cir. 1931).

Through restrictions on the use of his process, of course, the holder of a process patent may exert control over the end product.² He could, for example, refuse to allow the use of his process at all and thus keep the product produced by that process off the market. See Toulmin's, Anti-Trust Laws of the United States, Vol. 4, § 7.3. One court has held that he may limit the number of articles produced by his process because this is a valid exercise of his process patent rather than an invalid attempt to limit the sale of unpatented articles, Q-Tips, Inc. v. Johnson & Johnson, 109 F.Supp. 657 (D.N.J.1951), aff'd. 207 F.2d 509 (3 Cir. 1953), cert. den. 347 U.S. 935, 74 S.Ct. 630, 98 L.Ed. 1086 (1954).

But by granting a license which purports to give an exclusive right to sell an unpatented article, Dr. Ziegler has overstepped his rights under the patent law. He can restrict the use of his process, but he cannot place controls on the sale of unpatented articles produced by the process.

Dr. Ziegler does not have and has never had the right to exclude others from selling aluminum trialkyls. He could not convey such a right to Hercules. His attempt to do so in the license agreement of 1954 is an invalid attempt to extend the monopoly granted to him with regard to the Ziegler process under the United States patent law.

Granted that such a conveyance of an exclusive right to sell an unpatented product produced by a patented process is ineffective it does not render the entire Ziegler-Hercules contract invalid. With the provision for the exclusive right to sell aluminum trialkyls excised from the contract there remains to Hercules the unrestricted right to use the process. Hercules, therefore, can make all the aluminum trialkyls it can sell in the market. Nor does the abortive conveyance of rights outside the patent under the circumstances of this case warrant the invocation of the doctrine of patent misuse against these defendants and Dr. Ziegler.

Dr. Ziegler attempted to convey something he did not have. But there was no attempt to create a monopoly by tying arrangements or price fixing. In fact, there was no effort made to create a monopoly which did not already exist by reason of the grant to Ziegler of his process patent. As long as Ziegler had a valid patent on the only known process by which aluminum trialkyls could be produced commercially Ziegler could control the commercial production of the unpatented product by the legitimate manipulation of his patent monopoly. Ziegler cannot do what he attempted, not...