Gasoline Products Co. v. Champlin Refining Co.
| Decision Date | 20 January 1931 |
| Docket Number | No. 1180,1186.,1180 |
| Parties | GASOLINE PRODUCTS CO., Inc., v. CHAMPLIN REFINING CO. |
| Court | U.S. District Court — District of Maine |
Taylor, Blanc, Capron & Marsh, of New York City, and Verrill, Hale, Booth & Ives, of Portland, Me., for plaintiff.
Beane & Beane, of Augusta, Me., Bradley, Linnell & Jones, of Portland, Me., and McKeever, Moore & Elam, and Harry O. Glasser, all of Enid, Okl., for defendant.
The above two suits were heard together by me without a jury by virtue of a stipulation to that effect. The suits are to recover for royalties due under a license agreement whereby the plaintiff granted to the defendant a nonexclusive license under letters patent owned by the plaintiff and others to construct and operate at its plant in Oklahoma two Cross cracking units for cracking petroleum oils. The amount of royalties covered by the two suits, as stipulated by the parties, aggregates upwards of $200,000. The two suits will be treated as one for the purposes of this discussion.
The defendant admits execution of the license agreement, construction of the Cross cracking units thereunder, operation of them during the time described in the plaintiff's writs, and the treatment therein of the number of barrels of oil as claimed by the plaintiff; and also admits its agreement to pay royalties on the oil at the rate of 10 cents per barrel. The only controversy between the parties is one based on the alleged illegality of the license agreement, the defendant in its plea alleging that the plaintiff and other corporations, prior to the date of the license contract sued on, were "and thereafter continued to be parties to an illegal combination in restraint of trade and in violation of Sections 1 and 2 of the Sherman Anti-Trust Act," wherein plaintiff and others in effect fixed prices for cracked gasoline and controlled the markets by fixing the royalties to be charged and provided for a division of royalties among the plaintiff and others, and by other means did the said corporations "step outside the limits of lawful monopolies which arose from the issuance of the patents held by them, by fixing the rates of royalty to be charged to licensees, by pooling the agreements between the holders of said patents whereby said royalties are fixed and the division of the profits derived therefrom among said plaintiff and said aforenamed corporations"; further charging that the plaintiff was in conspiracy with others to form a monopoly to realize "huge profits by extorting from all manufacturers engaged in the manufacture of cracked gasoline, including this defendant, and under said contract set out by plaintiff herein, large sums of money in the guise of royalties"; that defendant, by virtue of the execution of the contract sued on, became a licensee of said illegal combination, and that the royalties sought to be collected are a part of the royalties plaintiff seeks to assess and divide with other corporations in the combination, and "that said contract is a result and a part of the fruits of said illegal combination and violation of Sections 1 and 2 of the Sherman Anti-Trust Act, * * * and that it is therefore illegal, void and uninforceable."
The plea also alleges that defendant, in order to continue operation of its cracking plant, was virtually compelled to execute the license agreement and to pay exorbitant royalties fixed thereby, or else execute a similar agreement with some other member of the combination, and that without such a license could not continue the manufacture of cracked gasoline; that the effect of the license agreement was to make defendant a party to the illegal combination, and it was thus compelled to become a party or discontinue the manufacture of cracked gasoline. And also, evidently anticipating a defense that might be made, the plea alleges that the royalties sued on were not fixed by an independent collateral contract, but with direct reference to and in conformity with and with the object of enforcing the illegal agreements by which the illegal combination was formed, and that the royalties sued for are exorbitant and grossly higher than the defendant would have had to pay had the illegal combination not been in effect.
The defendant under this affirmative defense having assumed the burden of proof and submitted evidence, the plaintiff maintains that there is no evidence of any illegal combination to which it ever became a party, and that, if there were such a combination, it would be no defense in this action which is on a contract collateral to the agreements forming the alleged combination and unaffected by them.
This brings us to consideration of the contract under which the royalties sued for accrued and around which centers the controversy.
The contract is dated February 26, 1926, and opens with a guaranty that the licensor, the plaintiff, is the owner of, or has the right to grant, the nonexclusive license thereby granted under certain patents owned by the plaintiff, the Texas Company, the Standard Oil Company of Indiana, the Standard Oil Company of New Jersey, and the Standard Development Company, and under certain Lewis patents relating to processes for treating hydrocarbons and the products derived therefrom and the apparatus used in connection therewith; and that it has the right to grant licenses under all United States letters patent thereafter acquired by said companies prior to certain dates, which should cover processes and apparatus used or made in the exercise of the license granted. A schedule of numerous letters patent owned by the corporations referred to is annexed to the license.
Article first contains the grant to the defendant of a nonexclusive license to construct and operate two Cross cracking units of a rated capacity of 4,000 barrels throughput of charging stock per twenty-four hours, in which a process of oil conversion therein defined is practiced.
In article second the licensee agrees to construct within one year two units in conformity with plans and specifications furnished by the licensor.
Article third provides for the payment of royalties on the basis of 10 cents a barrel, and provides that the licensee may commute the royalties on payment of a lump sum.
Articles fourth and fifth provide for the mechanics of computing the royalties.
Article sixth provides that, in the event infringement suits are brought against the licensees, the licensor will assume the defense and pay the costs of the defense.
Article seventh provides that improvements on any of the patents, applications, inventions, or processes obtained by the licensee during the continuance of the agreement shall belong to the licensor, subject however to a shop right in the licensee in the event of termination.
Article eighth prohibits assignment of the license without consent and the sale of the units to any person who shall not have agreed to comply with the terms of the license.
Article ninth makes available to the licensee the benefit of any reduction of royalties granted by the licensor to other licensees.
Article tenth provides that the license shall remain in force for the full term of the patents then or thereafter owned by the licensor upon any processes or inventions licensed, unless sooner terminated as provided.
Article eleventh defines the terms used, barrels, gallons, etc.
Article twelfth provides for a termination of the license for breach of its covenants.
Article thirteenth gives the addresses of the parties.
Article fourteenth deals with the rights of successors to the parties.
Article fifteenth contains a clause stating that the agreement embodies the entire understanding between the parties and provides for amendment.
The defendant claims that the illegality of this license contract between it and the plaintiff has already been passed upon and established by the decision of the Special U. S. District Court in Illinois, whose opinion is reported in 33 F.(2d) 617.
Counsel for defendant say, in their brief: "The defense in this case rests upon the case of the United States v. Standard Oil Co. et al," 33 F.(2d) 617, and say that this and other similar contracts offered in evidence in that suit were held by the court to be illegal and void. A study of the opinion of the court in the suit referred to...
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