Hope Basket Co. v. Product Advancement Corp.

• Decision Date: 02 June 1950
• Docket Number: No. 1104.,1104.
• Citation: 89 F. Supp. 116
• Parties: HOPE BASKET CO. et al. v. PRODUCT ADVANCEMENT CORPORATION et al.
• Court: U.S. District Court — Western District of Michigan

89 F. Supp. 116

HOPE BASKET CO. et al. v. PRODUCT ADVANCEMENT CORPORATION et al.

No. 1104.

United States District Court W. D. Michigan, S. D.

February 17, 1950.

As Corrected June 2, 1950.

COPYRIGHT MATERIAL OMITTED

Herbert H. Porter, Washington, D. C., Edwin T. Bean, Buffalo, N. Y., Harold W. Bryant, Grand Rapids, Mich., for plaintiffs.

Spencer, Marzall, Johnston & Cook, John A. Marzall and Lloyd C. Root, Chicago, Ill., Frank E. Liverance, Jr., Grand Rapids, Mich., for defendants.

STARR, District Judge.

This suit involves principally questions as to the rights of the parties under five royalty license agreements dated April 1, 1930, and as to the validity of Schmidtke basket patent No. 1,895,586 issued January 31, 1933.

The material facts necessary for a determination of the decisive issues in the case are not in dispute. The plaintiff Hope Basket Company, an Arkansas corporation, is engaged in the manufacture of baskets at Hope, Arkansas. The plaintiff Walter Verhalen Company, a partnership, of Dallas, Texas, successor to a former partnership of the same name, is the principal stockholder of the Hope Company and is its sales agent. The defendant Product Advancement Corporation of Benton Harbor, Michigan, is successor by change of name to the Straight Side Basket Corporation, and both are herein referred to as "Advancement Corporation." This company is engaged in licensing the manufacture of baskets under certain patents, including those hereinafter mentioned. Defendant St. Joe Machines, Inc., of St. Joseph, Michigan, is successor by change of name to the St. Joe Iron Works, and both are herein referred to as "St. Joe Machines." It manufactures machinery and machine attachments for making baskets.

On March 25, 1926, Albert H. Schmidtke, an employee of St. Joe Machines, filed original patent application entitled "Basket and Method and Apparatus for Making Same." The patent office required a division of the application between the basket claims and the method-and-apparatus claims, and a divisional application on the basket claims was filed and was copending with said original patent application. After the conclusion of interference proceedings as to each application, method-and-apparatus patent No. 1,752,856 was issued April 1, 1930, and basket patent No. 1,895,586 was issued January 31, 1933. The method-and-apparatus patent is herein referred to as the "machine" patent, and the patent relating to basket construction is referred to as the "basket" patent. The patent applications had been assigned to St. Joe Machines, which became the owner of both patents. While the applications were pending, St. Joe Machines granted exclusive licensing rights under the applications, and patents when issued, to defendant Advancement Corporation.

Following the issuance of the machine patent, Advancement Corporation called a meeting of basket manufacturers to be held in Cincinnati, Ohio, on April 10, 1930, for the purpose of licensing such manufacturers to use certain machine attachments and to manufacture straight-side, broken- and bent-bottom baskets. The meeting was attended by representatives of Advancement Corporation and by a number of basket manufacturers, including plaintiff Walter Verhalen. Prior to the meeting Advancement Corporation had printed a proposed form of "attachment license" to be submitted to the basket manufacturers, and during the meeting there were discussions and negotiations regarding amending and changing this form of license so that it would include patents relating to baskets, thereafter issued, on which Advancement held licensing rights. The president of Advancement testified regarding this discussion at the Cincinnati meeting as follows:

"Paragraph (section) 15 was first criticized by prospective licensees on the ground that it was somewhat unilateral. It did not include the basket patent in its terms, and it gave no rights to the basket patent as such; and we agreed * * * that for their protection and for our own protection, to more clearly include the basket patent which was to issue, as well as the machine patent, (the first) paragraph (of section) 15 was cancelled and paragraph (section) 25 was substituted therefor.

"When we printed the contract we did not feel that it was necessary to put the basket patent application in there, because we considered it part of the machine application, and we told the people down there that this basket patent was to issue. Now, as to whether or not I personally told Mr. Verhalen individually about the basket patent, I cannot say; it is too many years ago for me to definitely say, but I do know that the meeting was very informal, we would talk to individuals and the prospective licensees would talk with one another, so I do know that the knowledge of the pending basket patent was wide-spread throughout that meeting."

The general manager of Advancement Corporation testified relative to the discussion and the amendment of the first paragraph of section 15 of the proposed form of license as follows: "When we went to Cincinnati, * * * we had our printed form of contract, * * * Mr. Sturdivant (attorney) was there, representing some of the eastern (basket) manufacturers, and he approved, I would say, 95% of the contract as presented. But he was in doubt about that paragraph (section) 15, whether it adequately protected these patent licensees upon the issuance of the basket patent, which we told everyone about, and which was then in application, and then, after he having brought up that point that it was perhaps not adequately covered, we commenced to wonder whether we had the validity phase of it properly covered; so, as a result we sat down with Mr. Sturdivant and his associates, and worked out paragraph 25, which would protect the licensees when the basket patent was issued — he would have full protection, and there would be no question but what the licensee would admit the validity of any newly issued patent."

The testimony of these witnesses, which was undisputed and was corroborated by that of the secretary-treasurer of Advancement Corporation, clearly establishes that at the Cincinnati meeting Advancement Corporation and the basket manufacturers agreed upon certain changes and amendments to the proposed printed form of attachment license; that is, they agreed that the first paragraph of section 15 should be cancelled and new section 25 substituted therefor, and that new sections numbered 26, 27, and 28 should be added. Some manufacturers executed the amended attachment licenses there in Cincinnati, and others executed them later.

As of April 1, 1930 (date of issuance of machine patent), defendant Advancement Corporation and plaintiffs entered into five separate "attachment license" agreements, each being identified by the number of the machine attachment therein referred to, that is, 140, 141, 142, 160, and 161. These five licenses were substantially identical and contained the amendments agreed upon at the Cincinnati meeting. A copy of No. 140 is set forth in appendix A following this opinion. The parties continued their operations under these five licenses until about 1940, when question arose as to what basket plaintiffs were obligated to pay royalties on. The matter was adjusted by the parties' executing a supplemental agreement, a copy of which is set forth in appendix B. This agreement was not dated, but the parties stipulated on the record that it was executed in 1940. Plaintiffs continued to manufacture baskets under the five attachment licenses and the supplemental agreement, using the machine attachments therein referred to, or replacements thereof, and paid the specified royalties to Advancement Corporation until the machine patent expired on April 1, 1947, and for several months thereafter.

Many other manufacturers of baskets had executed similar attachment licenses with defendant Advancement Corporation and were using the machine attachments therein referred to and paying royalties to defendant. Beginning in 1946 plaintiff Walter Verhalen and others promoted a movement among these basket manufacturers to contest defendants' right to collect royalties under the attachment licenses after the machine patent expired on April 1, 1947. As a result of these activities several manufacturers contributed to a fund to be used in the employment of counsel and for the expense of prosecuting the present suit against defendants. On January 8, 1948, plaintiffs wrote Advancement Corporation as follows:

"We have held certain attachment licenses dated April 1, 1930, and executed by Straight Side Basket Corporation, your predecessor.

"Under paragraph 18 thereof, these licenses terminated as of April 1, 1947, the same being the date of expiration of the Schmidtke machine and method patent No. 1,752,856; and we hereby confirm the termination of said licenses as of that date.

"The attachments referred to in the said licenses are crated ready for delivery to you at Benton Harbor, or to such other place as you direct us. You have not informed us, since the said date of termination, where such attachments are to be shipped: and we await your early instruction concerning the same.

"Although said attachment licenses terminated April 1, 1947, you are continuing to claim from us moneys allegedly due as royalty under the said licenses, your claim being based on the Schmidtke basket patent No. 1,895,586.

"We hereby specifically deny any liability in such connection and refuse to make such payments, now or hereafter: for the reasons that no basket we have made or sold since April 1, 1947 is covered by or is an infringement upon said basket patent; that said basket patent is not set out in license agreement; that said basket patent is inoperative against us because we have already paid royalties under the machine and method patent for seventeen years; and that said basket patent is void.

"We have, in the past and since the expiration of said attachment...