Hazeltine Research v. Automatic Radio Mfg. Co.

Decision Date28 April 1948
Docket NumberCiv. A. No. 6677.
Citation77 F. Supp. 493
CourtU.S. District Court — District of Massachusetts

Roberts, Cushman & Grover and Clarence H. Porter, all of Boston, Mass., and Laurence B. Dodds, of New York City, for plaintiff.

George K. Woodworth, of Boston, Mass., Samuel E. Darby, Jr., Darby & Darby and Floyd H. Crews, all of New York City, for defendant.

FORD, District Judge.

This is an action on a licensing contract under various patents which provides for the payment of royalties by defendant to plaintiff. Plaintiff, alleging nonpayment, seeks a judgment for the minimum annual royalty of $10,000; an accounting to determine any additional sum that may be due; an order that defendant comply with the terms of the contract in other respects, and such other relief as may be just.

Jurisdiction is based on diversity of citizenship, plaintiff being an Illinois corporation (assignee of a Delaware corporation) and defendant a Massachusetts corporation. The matter in controversy exceeds $3,000.

The plaintiff moves for summary judgment under Rule 56, Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c. Numerous affidavits have been filed by plaintiff in support of its motion. Defendant opposes the motion with affidavits, files a counter motion for summary judgment dismissing the action, and supports its motion with affidavits in opposition to which plaintiff has filed further affidavits.

A brief history of prior events will help to illuminate the conflicting claims. Hazeltine Corporation, a Delaware corporation, was organized in 1924 to exploit the invention of the neutrodyne radio circuit as embodied in three patents, and it did so with great success until the circuit became obsolete about 1929, because of the advent of the screen grid tube. In the meantime, through a program of research, it had developed many more patented inventions in the radio field, and by business arrangements acquired others. In 1946, Hazeltine Research, Inc., the plaintiff here, was organized in Illinois as a wholly owned subsidiary of Hazeltine Corporation, and took an assignment of all of the parent corporation's patents, patent applications and licensing contracts. The research program mentioned above is conducted by a third corporation, the Hazeltine Electronics Corporation, also a wholly owned subsidiary of Hazeltine Corporation. All will be referred to as Hazeltine hereafter.

At present, Hazeltine owns or has the right to grant licenses under some 570 patents and 200 patent applications, largely in the field of radio and television. It is, with RCA, Westinghouse, Philco, etc., one of the largest licensors in the radio field. Its mode of operation is to license manufacturers of radio receivers under non-exclusive licenses entitling the manufacturer to the use of any or all of Hazeltine's patents. In return, the manufacturer agrees to pay therefor a fixed percentage of its gross sales of certain enumerated radio equipment. Defendant Automatic Radio Manufacturing Company is such a manufacturer of radio receivers and is licensed by Hazeltine.

Defendant first took a license with plaintiff on October 1, 1935, but did not make payments thereunder. In December 1936, Hazeltine sued for royalties in the Massachusetts Superior Court, Suffolk County, which suit was settled and an interlocutory consent decree entered by which defendant admitted its use and the validity of numerous Hazeltine patents. A new license agreement was made for a period of five years from October 1, 1937, under which the parties operated for some two and one-half years, till February, 1940, when defendant failed to pay royalties. Upon plaintiff's application, the interlocutory consent decree became final on December 3, 1941, a new settlement was made, and a third license contract was drawn as of September 1, 1942, to run ten years from that date, this being the contract involved in the present litigation. Plaintiff waived any right to minimum royalties under the contract until August 30, 1945 because of the war time prohibition against production of civilian radio sets, but renewed its claim thereunder beginning September 1, 1945. Upon refusal of defendant to pay royalties or to make reports required by the contract, plaintiff filed this action on April 9, 1947.

Article III of the contract grants the licensee a "personal, indivisible, non-transferable and non-exclusive license" to manufacture and sell certain equipment such as radio receivers of sound and pictures, phonographs, and motion picture reproduction equipment, under a long list of plaintiff's patents; "the use in each case is limited to use in homes, use for educational purposes and private non-commercial use."

Article IV provides for royalties of 1.05% of the licensee's selling price on certain of the equipment specified in Article III and 2.1% on other such equipment. Section 4 provides for a minimum payment of $10,000 per year in the event royalties calculated as above do not exceed $10,000.

Article V requires the licensee to render monthly reports for the purpose of calculation of royalties, and designates the time and manner of payment.

Under Article VI, licensee agrees to mark all licensed apparatus with the statement: "`Licensed by Hazeltine Corporation only for use in homes, for educational purpose, and for private, non-commercial use, under one or more of the following patents and under pending applications:' followed by the word `Patent' and the numbers of the patents which are, in the opinion of Licensor, involved in apparatus of the types licensed hereunder * * *."

In Article VIII, the licensor agrees to "* * * diligently prosecute such suits for infringement of the various patents under which licenses are herein granted as may in its judgment be reasonably necessary and prudent for enforcing those patents and preventing unlicensed competition * * *".

These are the provisions of the contract which are principally involved in this suit.

This is an appropriate case for the application of summary procedure under Rule 56. There is no genuine issue as to any material fact, and both parties have moved for summary judgment. The contention of defendant that a genuine issue does arise with respect to certain questions of fact concerning plaintiff's motion is without merit. I have reviewed the pleadings and affidavits and find no specific allegation of facts on personal knowledge required by Rule 56(e). See Engl v. ?tna Life Ins. Co., 2 Cir., 139 F.2d 469, 473; Peckham v. Ronrico Corporation, D. C., 7 F.D.R. 324, 327; cf. Griffin v. Griffin, 327 U.S. 220, 236, 66 S.Ct. 556, 90 L.Ed. 635.

The contract was executed in New York; it provides by agreement of the parties that New York law shall govern; and at least part of its performance is due in New York. The Federal District Court sitting in Massachusetts in diversity cases will apply the Massachusetts rules of conflicts of law. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477; Sampson v. Channell, 1 Cir., 110 F.2d 754, 128 A.L.R. 394. Massachusetts courts determine the validity and interpretation of a contract in accordance with the law of the place where the contract was executed. Adamowski v. Curtiss-Wright Flying Service, Inc., 300 Mass. 281, 15 N.E.2d 467. In so far as it is necessary, I will, therefore, apply New York law. At the same time, it must be remembered that local rules of estoppel to contest the validity of a patent in a suit for royalties cannot override the strong public policy expressed in such federal enactments as the anti-trust laws. It follows that federal law will control the propriety of defenses based on the anti-trust laws. Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 175, 63 S.Ct. 172, 87 L.Ed. 165; Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488, 492, 788, 62 S.Ct. 402, 86 L.Ed. 363.

The contract involved here is essentially a grant by plaintiff of a privilege to defendant to use any patent or patent application which might be held by plaintiff in consideration for defendant's agreement to pay money. It is different from most license contracts in that payment of royalties does not depend on the use of plaintiff's patents by defendant, but is required regardless of any use by defendant. This is a convenient mode of operation designed by the parties to avoid the necessity of determining whether each type of defendant's product embodies any of the hundred of patents which plaintiff controls. There is nothing inherently illegal in such an arrangement. H-P-M Development Corporation v. Watson-Stillman Co., D.C., 71 F.Supp. 906, 912. And non-use of the patents is not a defense to an action on the contract.

The contract requires defendant to pay 1.05% (and in one case 2.1%) of its gross sales of certain specified apparatus, with a minimum of $10,000 per year. Computation in this manner is designed to avoid the difficulties mentioned above. Defendant's...

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