Gillons v. Shell Co. of California

• Decision Date: 30 November 1936
• Docket Number: No. 7931.,7931.
• Parties: GILLONS et al. v. SHELL CO. OF CALIFORNIA.
• Court: U.S. Court of Appeals — Ninth Circuit

86 F.2d 600 (1936)

GILLONS et al. v. SHELL CO. OF CALIFORNIA.^*

No. 7931.

Circuit Court of Appeals, Ninth Circuit.

November 30, 1936.

John L. McNab, of San Francisco, Cal., Raymond Ives Blakeslee, of Los Angeles, Cal., and Walter Christie, of San Francisco, Cal. (S. C. Wright, of San Francisco, Cal., and Kelly L. Taulbee, of Los Angeles, Cal., of counsel), for appellants.

Chas. M. Fryer and Alfred C. Aurich, both of San Francisco, Cal., for appellee.

Before WILBUR, GARRECHT, and MATHEWS, Circuit Judges.

GARRECHT, Circuit Judge.

On February 27, 1930, the appellants filed a bill of complaint against the appellee, asking for an accounting because of the alleged infringement of United States letters patent No. 1,084,080, issued, by assignment, to the appellant Richfield Oil Company. By consent of the parties, the appellant Richfield Oil Company, which had originally appeared as one of the plaintiffs, was ordered by the lower court to be made a party defendant. The appeal has been brought to this court, however, with the title of the cause as it originally was set out in the court below.

The patent purports to deal with "new and useful Improvements in Oil-Refining Mechanism," one of the objects of which is "to provide an apparatus in which a device is employed capable of thoroughly breaking up and separating the oils to be refined, after they have been given a preliminary heating, the portions which are not driven off in vapor being returned and further heated."

The bill was amended several times. It alleges that, within the six years prior to the filing of the suit, the appellee, which owns and operates a petroleum refining plant at Martinez, Cal., has infringed and continues to infringe the patent in controversy.

The trial in the court below occupied about 21 days, during which time 27 witnesses gave oral testimony before the chancellor. The court found in favor of the appellee on the grounds of laches and non-infringement, and entered a final decree dismissing the bill. From that decree, the present appeal was taken.

Since the defense of laches alone, if established, is of itself determinative of this case, we will set forth briefly the facts bearing upon that point.

In 1919, eleven years before the instant suit was filed, the United States Department of the Interior published a bulletin entitled "Removal of the Lighter Hydrocarbons from Petroleum by Continuous Distillation, With Especial Reference to Plants in California." Of this publication, the appellant Gillons, who was the applicant for the patent in suit, made the following comment in an affidavit filed in the court below: "It clearly appears from a consideration of the said Government bulletin, with respect to the said Martinez plant of the appellee, that the disclosures therein correspond materially and substantially with the disclosures of the said Gillons patent in suit."

In 1920, ten years before the filing of the present suit, the case of Shell Company of California v. American Oilfields Company, In Equity, No. B-60,¹ was tried in the United States District Court for the Southern District of California, Northern Division, at Los Angeles, Cal. That suit was for the alleged infringement of United States patent No. 1,070,361, issued to Trumble Refining Company, assignee, on August 12, 1913. In that case, the appellee herein, which owned the Trumble patent, was suing the American Oilfields Company, which was a user of the Gillons apparatus, for the alleged infringement of the Trumble patent. The court found that there was no infringement. The appellant Gillons attended the hearings and was a witness in that suit. Gillons testified in the instant case that, during the trial of the American Oilfields Case, his suspicions that the appellee herein was infringing his patent were aroused, and that after the decision in that case was rendered, his suspicions "matured or culminated and became fixed." On this point he further testified as follows: "Upon the filing of this Oilfields suit by the Shell Company I became suspicious. During the trial there was nothing occurred to relieve me of that suspicion. After the decision was rendered, I was convinced that it was the same, in other words, was an infringement."

On June 17, 1921, nine years before this suit was filed, Judge Edward C. Crow, former attorney general of Missouri, and at that time one of the owners of the patent in controversy, sent the following formal notice of infringement to the appellee:

"We call your attention to the fact that the plants operated by you at Coalinga and Martinez, California, infringe United States Letters Patent One Million, Eighty-four Thousand and Eighty (1,084,080) issued on January 13, 1914, and owned by the undersigned and his associates.

"We request that you desist from the use of such plants at once and account to us for the past profits and benefit had by you through the past use of said infringing devices.

"We trust that you will give this matter your immediate attention, otherwise we will be compelled to seek legal relief against you."

On July 22, 1921, Graham and Harris, a firm of attorneys representing the appellee, wrote to Judge Crow, formally denying infringement:

"Referring to your letters of June 17, addressed to our clients, the Shell Company of California and the Roxana Petroleum Corporation, we beg to advise you that we have carefully considered your charge of infringement of the Gillons patent by these companies.

"We have arrived at the conclusion that no plant operated by either of the above named companies infringes the Gillons patent and have so advised our clients."

Judge Crow sent a copy of his letter of June 17, 1921, to Gillons, but Gillons testified that, up to the moment of giving his testimony, it had always been his understanding that the appellee's attorneys had "paid no attention whatever" to Judge Crow's notice. Accordingly, there is no force to the appellant's suggestion that the appellee's denial of infringement contributed toward justifying Gillons "in believing that at that time Shell was not using Gillons' patent." Indeed, it is somewhat naive to suggest that even Judge Crow, who did receive the letter of denial, was in any way misled by it. In view of his definite charge of infringement and threat of suit, it is not reasonable to suppose that an experienced lawyer would have been lulled into security by the bare denial of the alleged infringer. Judge Crow's letter was not one of inquiry; it was a direct statement of infringement and a demand for an accounting.

If, as his letter clearly indicated, Judge Crow knew that the appellee was infringing, he should have carried out his threat of seeking "legal relief" when the appellee failed to give "immediate attention" to his request for an accounting.

Judge Crow's threat of "immediate attention or otherwise legal relief" having failed, the Gillons patent interests tried again — this time adopting a less hostile tone. On August 6, 1927, John H. Miller, a San Francisco attorney, sent the following letter to the appellee:

"Mr. B. T. Spalding and The Gillons Process Company have placed in my hands the Gillons patent for treating petroleum oil, with authority to negotiate for sale of the same; or, in default of a sale being made, to prosecute infringers.

"Your Company is the logical one to own this patent, because you already own the Trumble patent. Therefore, I would like to make an appointment with you at your earliest convenience to discuss this matter. I have full authority from Mr. Spalding."

On August 15, 1927, Mr. Miller wrote another letter to the appellee, in an even friendlier vein:

"I am in receipt of a letter from Mr. Spalding which says that he has just received from another an offer to pay $250,000 for the Gillons patent, coupled with a covenant to prosecute infringers and pay over one-half the royalties collected. The companies using the process in infringement of the patent, he says, are California Petroleum, Pan-American, Associated, General Petroleum, Standard Producers and Refiners, Midcontinent and Texas — thirty plants all told. He has also received an offer from a Texas company offering to pay $35,000 for the right to use the process in Texas.

"He feels a moral obligation to allow your Company to have the first chance to secure the patent, and therefore he is holding up the above offer temporarily until you decide whether your Company cares to take over the patent at the sum of $300,000.

"Without desiring to appear unduly persistent, he requests that you advise me at an early date of your attitude with regard to his offer to sell for $300,000, which I recently submitted to you.

"Inasmuch as your Company owns the Trumble patents, your position would be strongly fortified by owning the Gillons.

"I await an early answer."

It will be observed that in the foregoing letter the appellee no longer is named among the alleged infringers of the Gillons patent.

In view of the fact that, in 1920 or 1921, the applicant for the patent in suit had become "convinced" that the appellee was infringing upon his alleged invention, it is somewhat surprising to learn that a person interested in the Gillons patent felt a "moral obligation" to allow the alleged infringer "the first chance to secure the patent" — for $300,000. The appellant Shaw admitted that he contacted Spalding, and saw the above-quoted letters from Mr. Miller to the appellee. The appellant Gillons, however, states that the letters were written without his knowledge, but adds that "there were others, my associates, as I have said, whose business it was to conduct these things."

On August 23, 1927, the appellee addressed to Mr. Miller the following letter:

"Referring to your letter of August 15, 1927:

"We find that we would not be interested in your proposal to acquire the Gillons patent. We are not using the apparatus described therein, nor do we contemplate its use as it would have no advantage...