Grantham v. McGraw-Edison Company, 18394.

• Decision Date: 10 June 1971
• Docket Number: No. 18394.,18394.
• Citation: 444 F.2d 210
• Parties: Paulette GRANTHAM, Fred Grantham, Charles R. Grantham, Individuals, Plaintiffs-Appellants, v. McGRAW-EDISON COMPANY, Essick Investment Co., "Automatic" Sprinkler Corporation of America, Corporations Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

444 F.2d 210 (1971)

Paulette GRANTHAM, Fred Grantham, Charles R. Grantham, Individuals, Plaintiffs-Appellants, v. McGRAW-EDISON COMPANY, Essick Investment Co., "Automatic" Sprinkler Corporation of America, Corporations Defendants-Appellees.

No. 18394.

United States Court of Appeals, Seventh Circuit.

May 7, 1971.

Rehearing Denied June 10, 1971.

Albert Langeluttig, Chicago, Ill., Robert A. Felsman, Fort Worth, Tex., Paul H. Gallagher, Chicago, Ill., Wofford & Felsman, Fort Worth, Tex., Simon & Simon, Henry W. Simon, Sr., Fort Worth, Tex., for appellants.

James Van Santen, Hill, Sherman, Meroni, Gross & Simpson, Chicago, Ill., for McGraw-Edison Co.; Charles A. Prudell, Elgin, Ill., of counsel.

Before SWYGERT, Chief Judge, FAIRCHILD, Circuit Judge, and GORDON, District Judge.^*

SWYGERT, Chief Judge.

The principal question in this appeal is whether suit for infringement of a patent may be brought by a patent owner who has granted to another the sole and exclusive license to practice his invention but has reserved the right to receive royalties and to protect his royalty interest by suing infringers if his licensee fails to do so.

Paulette, Fred, and Charles R. Grantham appeal from a district court order denying their motion to reinstate their complaint. The suit, charging McGraw-Edison Company with patent infringement and seeking legal and equitable relief, had been dismissed (with leave to reinstate) on the ground that the Granthams, though they held legal title, had assigned all their substantial rights under the patents allegedly infringed and therefore lacked capacity to sue.

The patents in question, No. 2,604,313, dated July 22, 1952, and No. 2,643,463, dated June 30, 1953, issued to Frederick W. Grantham who assigned his interest in them to his wife, JoAnn E. Grantham. On Mrs. Grantham's death, her rights in the patents descended to her children, who are the plaintiffs in this action. On March 21, 1956, JoAnn E. Grantham, at a time when she owned the patents, granted what was termed an "exclusive license" to the T. L. Smith Co. of Milwaukee, Wisconsin. As the result of a subsequent merger, T. L. Smith became a division of a company then known as Smith-Essick, Inc., a California corporation, which succeeded to T. L. Smith's rights under the licensing agreement.

On May 1, 1967, Smith-Essick transferred substantially all of its personal property to "Automatic" Sprinkler Corporation of America, an Ohio corporation. Smith-Essick then changed its name to Essick Investment Co. and continues to carry on business under that name. By reason of this sale of assets, Automatic succeeded to Essick's rights under the "exclusive license" agreement and performed its obligations under that agreement throughout the life of the two patents, both of which expired during the pendency of this litigation.

The Granthams' original complaint named Essick as a party-plaintiff. (It should be noted at this point that Essick is not subject to service of process in Illinois and has never formally appeared in this action.) McGraw-Edison sought dismissal of the complaint on the ground that the then exclusive licensee, that is, Automatic, was an indispensable party and had not been joined in the suit. Thereafter, the Granthams amended their complaint by naming Automatic as a defendant and changing Essick from a party-plaintiff to a defendant. After Automatic had appeared and filed answer, McGraw-Edison requested that Essick and Automatic be realigned as plaintiffs. Automatic objected to the request and waived all damages for infringement, stating that it had no dispute with McGraw-Edison.

McGraw-Edison then moved that the complaint be dismissed on the grounds that: (1) the Granthams lacked capacity to sue in their own name; and (2) there was no case or controversy in light of Automatic's waiver of damages. On July 24, 1968, the district court entered a memorandum and an order dismissing the case on the ground that the "exclusive license" agreement which JoAnn Grantham had granted to the predecessor of Automatic, that is, T. L. Smith, was in effect an assignment of all substantial rights under the patents and that only the assignees were entitled to sue for infringement. The court ruled that since Automatic refused to become a party-plaintiff the Granthams lacked standing to sue for infringement; this disposition made ruling on the "case or controversy" issue unnecessary.

On October 25, 1968, the district court vacated its dismissal order of July 24 and reinstated the case; but on February 27, 1969, the suit was again dismissed with leave to reinstate within ninety days. The leave was granted to permit the plaintiffs time within which to bring Essick into the case or to abandon its claim for damages for the period during which Essick was the exclusive licensee. On June 11, 1969, the district court denied the motion to reinstate the complaint for the period prior to May 1, 1967, on which date Smith-Essick transferred its assets to Automatic. The court deferred ruling on the remainder of the complaint. Plaintiffs obtained a thirty-day extension of the period within which they were required to file their appeal from this June 11 order; and they did file their notice of appeal on August 11, 1969. On September 18, 1969, the district court denied the motion to reinstate the complaint for the period after May 1, 1967. Plaintiffs filed a notice of appeal from this order on October 16, 1969.

I

McGraw-Edison challenges our appellate jurisdiction to consider the merits of the question of the Granthams' capacity to sue for the alleged infringement. McGraw-Edison contends that no appeal from the dismissal order of February 27, 1969, was filed within the time prescribed by Rule 4 of the Federal Rules of Appellate Procedure. It argues that the orders of June 11 and September 18, denying plaintiffs' motions to reinstate, were in effect denials of requests to vacate the February 27 order. Motions for rehearing or to vacate a final order and like motions are addressed to the discretion of the trial court; and the denial of such an order is not itself appealable. Bass v. Baltimore & O. Terminal R. R., 142 F.2d 779 (7th Cir.), cert. denied, 323 U.S. 775, 65 S.Ct. 135, 89 L.Ed. 619 (1944). But the Bass case is not applicable to the situation before us. The district court's February 27 order dismissing with leave to reinstate did not terminate the litigation on the merits, see Asher v. Ruppa, 173 F.2d 10, 11 (7th Cir. 1949); it gave the plaintiffs the opportunity to amend their complaint. A dismissal with leave to amend is not a final order. See Jung v. K. & D. Mining Co., 356 U.S. 335, 78 S.Ct. 764, 2 L.Ed.2d 806 (1958); Western Electric Co. v. Pacent Reproducer Corp., 37 F.2d 14 (2d Cir. 1930); and 9 J. Moore, Federal Practice ¶ 110.081 (2d ed. 1970).

After the dismissal order and during the reinstatement period, plaintiffs elected to stand on their complaint and moved that it be reinstated without amendment. It was not until this motion was denied that the plaintiffs were unequivocally denied the relief they requested. Since plaintiffs filed notices of appeal from both the June 11 and the September 18 orders within the time limits allowed by Rule 4 of the Federal Rules of Appellate Procedure, defendant's contention that there is no appealable order properly before us is without merit.

II

McGraw-Edison contends that the Granthams are collaterally estopped from recovering in this action by an adverse judgment in a related infringement suit. They refer to Grantham v. Morgan Linen Service, Inc., No. 68 C 252 (N.D.Ill., July 28, 1969), appeal dismissed, 426 F.2d 237 (7th Cir. 1970), a suit raising the same issues, where it was held that the Granthams lacked capacity to sue for infringement of the patents involved here. McGraw-Edison argues that that judgment precludes the Granthams from relitigating the same issues.

The established rule of res judicata and the related doctrine of collateral estoppel is that "the estoppel of a judgment must be mutual." Bigelow v. Old Dominion Copper Mining & Smelting Co., 225 U.S. 111, 127, 32 S.Ct. 641, 642, 56 L.Ed. 1009 (1912). As the result of Triplett v. Lowell, 297 U.S. 638, 56 S.Ct. 645, 80 L.Ed. 949 (1936), the requirement of mutuality is particularly strong in patent litigation. Technograph Printed Circuits, Ltd. v. United States, 178 Ct.Cl. 543, 372 F.2d 969 (1967); Nickerson v. Kutschera, 419 F. 2d 983 (3d Cir. 1969). The rule in this circuit is that the mutuality requirement prevents a litigant from invoking the collateral estoppel effect of a prior judgment rendered in an action to which he was not a party. McVeigh v. McGurren, 117 F.2d 672, 677-678 (7th Cir. 1940), cert. denied, 313 U.S. 573, 61 S.Ct. 960, 85 L.Ed. 1531 (1941); Aghnides v. Holden, 226 F.2d 949 (7th Cir. 1955); Technograph Printed Circuits, Ltd. v. Methode Electronics, Inc., 356 F.2d 442 (7th Cir.), cert. denied, 384 U.S. 950, 1002, 86 S.Ct. 1570, 16 L.Ed.2d 547 (1966). Since McGraw-Edison was not a party to the Morgan Linen Service litigation, mutuality is lacking and the decision in that case cannot estop the Granthams in this case.

Of course, regardless of collateral estoppel, a prior judgment which disposes of the same issues as those raised in a later suit, may be given weight in the later suit either as precedent or as the result of comity. See Technograph Printed Circuits, Ltd. v. Methode Electronics, Inc., supra at 449. Indeed, that is what occurred in the instant case when the district judge adopted the opinion which had been announced in Grantham v. Morgan Linen Service, Inc., supra. There is nothing in the record to indicate that he invoked the collateral estoppel doctrine in reaching his decision; but even if he had done so, its invocation would have been erroneous.

III

The principal issue raised in this appeal concerns the Granthams' capacity to sue for infringement. The Granthams rely primarily on paragraph eleven...