Globe Steel Abrasive Co. v. NATIONAL METAL A. CO., 7638.

• Decision Date: 08 February 1939
• Docket Number: No. 7638.,7638.
• Citation: 101 F.2d 489
• Parties: GLOBE STEEL ABRASIVE CO. v. NATIONAL METAL ABRASIVE CO.
• Court: U.S. Court of Appeals — Sixth Circuit

101 F.2d 489 (1939)

GLOBE STEEL ABRASIVE CO. v. NATIONAL METAL ABRASIVE CO.

No. 7638.

Circuit Court of Appeals, Sixth Circuit.

February 8, 1939.

F. J. Perkins, of Cleveland, Ohio (McKeehan, Merrick, Arter & Stewart, of Cleveland, Ohio, and Weil, Christy & Weil and Brown, Critchlow & Flick, all of Pittsburgh, Pa., on the brief), for appellant.

John Chamberlain, of Cleveland, Ohio (Chamberlain & Royon, of Cleveland, Ohio, on the brief), for appellee.

Before SIMONS, ALLEN, and HAMILTON, Circuit Judges.

SIMONS, Circuit Judge.

Begun as a patent infringement suit, the controversy presented by this appeal now revolves about the validity of a release and license asserted by the appellee in confession and avoidance but challenged by the appellant as having been obtained by fraud. Judgment of dismissal was entered below on the pleadings.

Both parties being Ohio corporations and the suit having been turned by the answer and replication from one for patent infringement to one requiring adjudication of the validity of a written instrument, a question of jurisdiction appears, which, suggested below, though pressed neither there nor here, nevertheless requires our attention. Actions brought to enforce contracts between private parties relevant to patent rights are not generally actions arising under the patent laws of the United States and therefore are not cognizable as such in the United States courts, and actions to set aside such contracts fall in the same category. 1 Walker, Patents, 6th Ed. 531; Standard Dental Mfg. Co. v. National Tooth Co., C.C., 95 F. 291; Wade v. Lawder, 165 U.S. 624, 17 S.Ct. 425, 41 L.Ed. 851. So it has been held that where the complainant states a patent right, its use by the defendant and a license claim by the latter as justification for that use, but avers the non-existence of such license, and where the defendant admitting the patent right and use defends only on the ground of license, the action is not one arising under the patent laws. Hartell v. Tilghman, 99 U.S. 547, 25 L.Ed. 357. Where, however, the suit is for infringement of patent without reference to license, and the defense, though not traversing the bill asserts a license by way of confession and avoidance, there is jurisdiction, and the decision in Hartell v. Tilghman does not control, since if it did an infringer might defeat every suit by making one defense in the State court and another in the Federal court, and it is now settled that where one is sued as a naked infringer the jurisdiction cannot be ousted by any answer which the defendant may interpose. Walker, supra, 534; Luckett v. Delpark, Inc., 270 U.S. 496, 46 S.Ct. 397, 70 L.Ed. 703. That is the situation here.

Since the case was decided upon the pleadings they must be read in the light most favorable to the statement of a cause of action. The appellant is the owner as assignee of Martin Patent No. 1,886,285, relating to a process for making metal abrasive materials. The petition charges infringement, due notice of ownership and demand that infringement cease, alleges loss of profits and the withholding of royalties, and seeks treble damages. The defendant in its answer admits notice of infringement but denying knowledge of the patent prior to the notice avers that as promptly as possible after notification it discontinued the patented process and removed from its plant the apparatus by which it was practiced. The answer then alleges that effective as of August 1, 1934, the plaintiff had given the defendant a release discharging it from all liability on account of things done prior to August 1st, and a license for the practice of its patented process subsequent to August 1st, and denies the validity of the patent and its infringement.

To the defendant's answer the plaintiff rejoins that it had by letter of November 19, 1934, rescinded the release and license agreement as having been obtained by fraud. Discursive and verbose though the replication be, it alleges with sufficient clarity as inducements to the execution of the release and license agreement the withholding from it by the defendant of all information that the practice of the patented process had been discontinued before the end of April and that the machines for its practice had been removed from its plant, and the fact that statements oral and written had been made by which it was led to believe that the defendant had used the patented processes continuously since 1931, that it would avail itself of the license, and that the royalties which the plaintiff would receive through the license contract would be substantial.

Upon demurrer to the replication, the District Judge, though conceding the principle that fraud may be predicated on promises made with an intention not to perform, held it inapplicable because the reply did not aver a promise by the defendant to use the patented process and denied the plaintiff's request for leave to amend on the ground that if it averred such promise it would conflict with a written contract which contained no such promise, and so violate the parol evidence rule. He thereupon entered judgment for the defendant upon the pleadings.

It requires no citation of authority for the principle that concealment of a material fact may be ground for the avoidance of a contract, and it is likewise the general rule that a promise made with a present intention not to perform is a misrepresentation of an existing fact which may be shown by extrinsic evidence to have induced the execution of a contract, and so as ground for avoiding it. 1 Page on Contracts, §§ 286, 298; Contract Restatement, § 473. So far as we are advised the law of Ohio is not otherwise. S. J. Clarke Publishing Co. v. Mann, 41 Ohio App. 93, 179 N.E. 814.

Whether the principles thus stated are here applicable requires consideration of the circumstances...