Ferroline Corp. v. General Aniline & Film Corp., No. 10700.

• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)
• Writing for the Court: MAJOR, , and DUFFY and LINDLEY, Circuit
• Citation: 207 F.2d 912
• Docket Number: No. 10700.
• Decision Date: 07 December 1953
• Parties: FERROLINE CORP. v. GENERAL ANILINE & FILM CORP.

207 F.2d 912 (1953)

FERROLINE CORP.
v.
GENERAL ANILINE & FILM CORP.

No. 10700.

United States Court of Appeals, Seventh Circuit.

October 21, 1953.

Rehearing Denied December 7, 1953.

207 F.2d 913

COPYRIGHT MATERIAL OMITTED

207 F.2d 914

COPYRIGHT MATERIAL OMITTED

207 F.2d 915

George I. Haight, William J. Marshall, Jr., Chicago, Ill., Carl Hoppe, San Francisco, Cal., for appellant

Edward R. Johnston, James A. Sprowl, and Wesley G. Hall, Chicago, Ill., and Herbert L. Abrons, New York City, for appellee.

Before MAJOR, Chief Judge, and DUFFY and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

In its complaint plaintiff charged defendant with the wrongful appropriation and use of its allegedly secret process for the manufacture of iron pentacarbonyl and sought damages resulting therefrom. The trial resulted in judgment for defendant, 107 F.Supp. 326 from which plaintiff appeals.

Plaintiff averred that it developed a process for commercial production of iron pentacarbonyl, which it kept secret; that on January 4, 1938, it licensed Ferroline Corporation of California to use the process and made full disclosure to the licensee, imposing on the latter and its employees the obligation to keep and use the information in confidence, and that thereafter, Birbeck and Given, employees of the licensee, in breach of confidence, disclosed plaintiff's process to defendant, who, with knowledge of plaintiff's rights and knowingly participating in the breach of confidence, received the knowledge thus imparted and adopted and used it in the construction and operation of a plant employed in production of iron pentacarbonyl. It is finally averred

207 F.2d 916

that plaintiff first received notice that its process had been wrongfully disclosed to defendant some two years prior to filing suit, and that it did not learn that the process was being used by defendant until a few months prior to filing this action

Defendant denied many of the averments, but admitted that it had purchased certain technical productive apparatus from the California parties and that it had been supplied with full information as to the use of the equipment purchased. In addition the answer set forth certain separate defenses as follows:

(1) The complaint does not state a claim warranting relief;

(2) Defendant, as assignee of certain prior patents, follows only the processes disclosed in them;

(3) Plaintiff's process infringes the patents; therefore, plaintiff is not entitled to assert it against defendant;

(4) Prior to bringing the action, plaintiff conveyed its processes to others, and is not now engaged in manufacture;

(5) Plaintiff disclosed its process to the public;

(6) Defendant purchased the process from Birbeck in good faith;

(7) Plaintiff's claim is barred by laches.

The cause was referred to a special master, who, in his report found the equities to be with plaintiff and recommended that defendant be ordered to account. Sustaining some 84 of defendant's 126 objections, the court held the findings and conclusions covered thereby clearly erroneous and dismissed the cause for want of equity. Ferroline Corporation v. General Aniline & Film Corporation, 107 F.Supp. 326.

Motion to Dismiss the Action.

Defendant has filed a motion to dismiss the action because of the alleged unclean hands of plaintiff. It first invoked this defense in 1950, relying then upon the admissions of Birbeck who had been called as a witness for plaintiff in 1946. His cross-examination revealed that he claimed to have been promised by one Hamilton a contingent share of what was said to be Hamilton's interest in what still another party, Johnsen, was said to be entitled to get out of plaintiff's recovery. Four years later, defendant sought leave to file a supplemental answer pleading the additional defense of unclean hands. Its petition was denied. The defense was renewed on review of the master's report. The District Court concluded that it could not be sustained for the reason that no corrupt motive on the part of plaintiff was shown, relying upon Goodyear Tire & Rubber Co. v. Overman, 6 Cir., 95 F.2d 978. In its present motion to dismiss the action on the doctrine invoked, defendant relies also upon so-called admissions of plaintiff's counsel in final argument in the District Court.

An agreement to pay a witness other than an expert, compensation contingent on the outcome of litigation is contrary to public policy and void. Alexander v. Watson, 4 Cir., 128 F.2d 627; Van Norden v. Metson, 75 Cal.App.2d 595, 171 P.2d 485; Goodrich v. Tenney, 144 Ill. 422, 33 N.E. 44, 19 L.R.A. 371; Gillett v. Board of Sup'rs of Logan County, 67 Ill. 256; Williston on Contracts, Sec. 1716 (Rev.1938). However, in the present case, the testimony of Birbeck contained no express statement or implication that plaintiff had ever authorized Hamilton to make any arrangement with Birbeck. There is no proof that Hamilton had ever been promised anything by plaintiff. The only fact to which Birbeck testified was that a third party, who is dead, had promised him a share of what the third party said he was to receive from still another third party, Johnsen, who is likewise dead, a part of what Johnsen had said he hoped to get out of what plaintiff might recover. In this situation the court held properly that no corrupt motive on the part of plaintiff was shown.

True it is that admissions of fact by counsel during the course of a

207 F.2d 917

trial are binding on the party whom he represents. Oscanyan v. Arms Co., 103 U.S. 261, 26 L.Ed. 539. Here, however, irrespective of whether the closing argument can properly be considered a part of the record, it seems to us that what was said in argument must be attributed solely to the ardor of Mr. Hoppe, a zealous advocate, who was not under oath and who should not be considered as having offered testimony or a mature considered admission against his client. Oral argument, such as we have here, we think, does not come within the category of deliberate admissions of record during the trial. Counsel was not a witness; he was an advocate who had had no part in the negotiations with Birbeck and whose good faith defendant itself does not attack. The circumstances are such that we conclude that no binding effect should be charged against plaintiff for what amounted, at the most, to excessive zeal upon the part of its counsel in the heat of argument

Furthermore if plaintiff were substituted for Hamilton in such an arrangement for the production of Birbeck's testimony as to be illegal, that fact would not destroy plaintiff's cause of action. It would, under certain circumstances, invalidate the agreement so far as the parties thereto are concerned. That the cause of action (of one not a party to the contract) is not destroyed is apparent from Henderson v. Kibbie, 211 Ill. 556, 71 N.E. 1091; Oil, Inc. v. Martin, 381 Ill. 11, 44 N.E.2d 596.

Findings and Conclusions.

To avoid possible confusion, Ferroline Corporation of Louisiana plaintiff herein is referred to only as plaintiff. The word "Ferroline" when unqualified, is used to denote the Ferroline Corporation of California. The product involved, iron pentacarbonyl, hereinafter referred to as carbonyl, is a yellowish liquid derived from the reaction of certain types of porous iron with carbon monoxide. Its chief commercial value lies in its use as an intermediate product in the manufacture of powdered iron, which, in turn, is a vital element in the production of radio cores and radar. It is useful to some degree also as a desulfurization agent for petroleum products and as an antiknock gasoline additive.

Carbonyl was first discovered in Germany in 1891. An efficient process for its commercial production, however, eluded those engaged in research for many years, until a fortunate incident, in an experiment conducted by one Mueller, produced a half-liter of the liquid. This paved the way for future experiments by Mueller and others connected with the I. G. Farbenindustrie Aktiengesellshaft, hereinafter referred to as Farben. Eventually a number of domestic and foreign letters patent, covering the process or various of its specific phases, were granted and assigned to Farben, who, in the early 1920s, constructed a plant at Oppau, Germany, where it has since produced substantial quantities of the product. Farben also holds a number of domestic and foreign patents covering the production of iron powder, which are involved in this controversy only incidentally.

Briefly, the salient facts which gave rise to this dispute are as follows. In the early 1930s one William Johnsen developed an additive designed to raise the octane rating of gasoline, which employed carbonyl as its basic ingredient. In 1936, he entered into an agreement licensing Knox to manufacture the compound, in consideration for which the licensee agreed to construct and operate a plant, to pay Johnsen a royalty on all carbonyl produced, and to keep the process secret.

Shortly thereafter plaintiff was incorporated under the laws of Louisiana, and the contract assigned to it by Knox. Plaintiff employed one Leahy to design and construct its plant. The master found that Leahy was familiar with the patents and the literature bearing on the art and sought to build a non-infringing mill at Shreveport. He designed equipment which employed carbon monoxide temperatures and pressures beyond those

207 F.2d 918

disclosed in the patents. This machinery produced carbonyl, but in disappointing quantities. However, Leahy did construct a pilot plant which produced carbonyl at what the master found to be the equivalent of commercial production

Thereafter, through an arrangement with the Danciger Oil & Refining Company, plaintiff employed one of the latter's chemists, Levine, who was familiar with the art, to design a plant. Levine sketched a "flow sheet" (diagrammatic layout) of the proposed equipment. In accord with this, the Shreveport plant was reconstructed...