Hall Laboratories v. National Aluminate Corp., Civ. A. No. 1192.

• Decision Date: 20 September 1950
• Docket Number: Civ. A. No. 1192.
• Citation: 93 F. Supp. 376
• Parties: HALL LABORATORIES, Inc., et al. v. NATIONAL ALUMINATE CORP.
• Court: U.S. District Court — District of Delaware

93 F. Supp. 376

HALL LABORATORIES, Inc., et al. v. NATIONAL ALUMINATE CORP.

Civ. A. No. 1192.

United States District Court D. Delaware.

September 20, 1950.

Aaron Finger and Robert H. Richards, Jr., of Richards, Layton & Finger, of Wilmington, Del., and Walter J. Blenko and James K. Everhart, Jr. of Blenko, Hoopes, Leonard & Glenn, of Pittsburgh, Pa., for plaintiffs.

Arthur G. Connolly, of Wilmington, Del., John T. Chadwell, Victor P. Kayser and Richard L. Johnston, of Chicago, Ill., for defendant.

LEAHY, Chief Judge.

On January 31, 1949, plaintiff sought a declaratory judgment that they need to pay no royalties stipulated by the terms of a license agreement between defendant and plaintiffs under No. 2,358,222, the Fink-Richardson patent, and that the license agreement should be cancelled. Defendant then asked for summary judgment and dismissal of the complaint.

Years before, on March 17, 1945, the plaintiffs sought declaratory judgment against defendant in this court—our C.A. No. 538—to adjudicate their non-infringement and the invalidity of the Fink-Richardson patent. After negotiations the parties reached a settlement. An agreed judgment of dismissal was entered on February 10, 1948.¹ At the time of settlement inclusion was made for (1) a license to plaintiffs under the Fink-Richardson patent; (2) an agreement between the parties whereby defendant released plaintiffs and their jobbers, agents and customers from claims for past infringement, defendant was paid $10,000 and plaintiffs and defendant gave mutual releases and agreed to the dismissal of the pending litigation; (3) an agreed form of final judgment of dismissal (noted in the margin) without prejudice of the complaint and counterclaim; and (4) a covenant not to sue for infringement respecting another patent not in issue in the earlier or present case.

The license agreement granted plaintiffs a non-exclusive, non-transferrable license to practice and participate in the practice of the inventions claimed in the Fink-Richardson patent. The term of the license runs from January 29, 1948 to the date of expiration. There is no expressed right to discontinue payment of royalties prior to the expiration of the patent except in the event of an adjudication of invalidity of the Fink-Richardson patent² in any suit filed for its infringement or failure by the defendant to prosecute infringers.³ The agreement recites that certain activities of plaintiffs constitute participation in the practice of the invention claimed in the Fink-Richardson patent for the treatment of incrusted water.

Under the license agreement plaintiffs made payment of royalties for three calendar quarters of the year 1948 at the royalty specified in the license agreement. Several months later they filed their complaint in the present case and asked this court to declare that they have been "evicted" from the benefits of the license agreement and that the license be cancelled by appropriate decree. Plaintiffs allege that their present use and practice is justified by prior art and accordingly they should not be subject to the payment of royalties under the license agreement, notwithstanding the specific provisions of that agreement. To support their position, plaintiffs now set forth certain patents and uses which they contend anticipate the alleged inventions claimed in defendant's Fink-Richardson patent. Plaintiffs rely particularly on the "Fresenius text" as it has been judicially interpreted in the decided case of Hall Laboratories, Inc., v. Economics Laboratory, Inc., D.C., 72 F. Supp. 683, affirmed 8 Cir., 169 F.2d 65. It is clear that all the prior art uses and disclosures relied on by plaintiffs, including at least one of the judicial interpretations placed on the Fresenius text, were known by plaintiffs and in existence at the time of the execution of the license agreement. In addition, defendant made the following admission: "But even assuming that their activities do correspond with the prior art (which defendant does not admit but assumes to be true only for the purpose of its pending motion), plaintiffs nevertheless are liable for the royalty, for the reason that they expressly agreed that such activities are within the scope of the license agreement."

On this record the parties urge a large number of legal arguments to support their respective positions. I have followed through their contentions and weighed each one. Defendant contends that (1) the license agreement sets forth the sole conditions under which plaintiffs may be relieved of their obligation to pay royalties and these conditions have not occurred; (2) as a matter of fact, it appears in the record that plaintiffs have not been evicted from the benefits of the license; (3) plaintiffs are obligated to pay royalities under the license agreement regardless of the prior art because the processes they now admittedly use are the same as those described in the license agreement and which form the basis of the use on which they agreed to pay royalties; (4) plaintiffs' past royalty payments operate as an estoppel of their right to discontinue royalty payments; and (5) plaintiffs are seeking to re-litigate the same issues earlier compromised and settled in the previous litigation in this court involving the same patent and inventions. It seems to me that all these reasons except (2) above are, at bottom, estoppel arguments; they will be so treated as one argument under that theory.

On the other hand, while they do seriatim deny and discuss each of defendant's arguments, plaintiffs contend mainly that this suit is controlled and should be disposed of by the doctrine of the Marcalus case,⁴ and that defendant's admission that the practices upon which it exacts royalities "correspond with the prior art" brings this case within the Marcalus doctrine; and both thus operate to defeat defendant's right to summary judgment. My conclusion is that the sole issue in the case at bar is whether the doctrine of the Marcalus case can be held to defeat defendant's right to judgment here.

I think defendant's motion for summary judgment should be denied. The basis of the conclusion is not that I think the Marcalus doctrine controls so as to defeat defendant's right but, rather because of a doubt as to the proper construction and limitations that should be placed on defendant's admission that plaintiffs' activities "correspond with the prior art". This aspect of the case may be determined after considering the Marcalus case in some detail. Marcalus involved the question whether an assignor of a patentee is estopped by virtue of his assignment to defend a suit for infringement of the assigned patent on the ground that the alleged infringing device is that covered by a prior art expired patent. In deciding in such circumstances the assignor was not estopped, the Supreme...