Hope Basket Co. v. Product Advancement Corp.

• Decision Date: 29 March 1951
• Docket Number: 11242.,No. 11241,11241
• Citation: 187 F.2d 1008
• Parties: HOPE BASKET CO. et al. v. PRODUCT ADVANCEMENT CORP. et al. PRODUCT ADVANCEMENT CORP. et al. v. HOPE BASKET CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

187 F.2d 1008 (1951)

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

Nos. 11241, 11242.

United States Court of Appeals Sixth Circuit.

March 29, 1951.

COPYRIGHT MATERIAL OMITTED

Edwin T. Bean, Buffalo, N. Y., Herbert H. Porter, Washington, D. C., Edwin T. Bean, Buffalo, N. Y., on brief; Harold W. Bryant, Grand Rapids, Mich., of counsel, for Hope Basket Co.

Lloyd C. Root, Chicago, Ill., Spencer, Johnston, Cook & Root and Lloyd C. Root, all of Chicago, Ill., Frank E. Liverance, Jr., Grand Rapids, Mich., on brief, for Product Advancement Corp.

Before HICKS, Chief Judge, and SIMONS and MILLER, Circuit Judges.

MILLER, Circuit Judge.

This action was filed by the Hope Basket Company and the Walter Verhalen Company to determine their rights as licensees under five royalty license agreements executed April 1, 1930, and to have Schmidtke Basket Patent No. 1,895,586 declared invalid. They have appealed from a ruling adverse to their claims under the license agreements and upholding the validity of the patent. The defendants below, Product Advancement Corporation and St. Joe Machines, Inc., have appealed from that portion of the judgment which denied them a recovery of damages and sought by way of counter-claim. The appeal and cross-appeal were heard together on a joint record.

The facts are stated in detail in the opinion and findings of the District Judge, reported in 89 F.Supp. 116. A short résumé will suffice for this opinion. The plaintiffs and defendants below will be referred to as appellants and appellees, respectively.

The appellant, Hope Basket Company, is engaged in the manufacture of baskets at Hope, Arkansas. The appellant, Walter Verhalen Company, is a partnership of Dallas, Texas, and is the principal stockholder and the sales agent of the basket company.

The appellee, Product Advancement Corporation, of Benton Harbor, Michigan, hereinafter referred to as Advancement Corporation, is successor by change of name to the Strait Side Basket Corporation and is engaged in licensing the manufacture of baskets under certain patents, including those involved in this action. The appellees, St. Joe Machines, Inc., of St. Joseph, Michigan, hereinafter referred to as St. Joe, is successor by change of name to the St. Joe Iron Works and manufactures machinery and machine attachments for making baskets.

Albert H. Schmidtke, an employee of St. Joe, filed in the Patent Office on March 25, 1926, an original patent application entitled "Basket and Method and Apparatus for Making Same." The Patent Office required a division of the application between the method and apparatus claims and the basket claims, and a divisional application on the basket claim was filed and was copending with the said original basket application. These patent applications were assigned to St. Joe. The Schmidtke Method and Apparatus Patent No. 1,752,852 was issued April 1, 1930, and it is referred to hereinafter as the machine patent. The Schmidtke Basket Patent No. 1,895,586 was issued January 31, 1933 and is referred to hereinafter as the basket patent. The appellee, St. Joe, granted the appellee, Product Advancement Corp., exclusive licensing rights under the Schmidtke patent application and under both the Schmidtke machine patent and basket patent.

Advancement Corporation called a meeting of basket manufacturers for April 10, 1930 in Cincinnati, Ohio, for the purpose of licensing manufacturers to use certain machine attachments and to manufacture baskets. At that meeting a proposed printed form of attachment license was submitted to the basket manufacturers and discussed. The first paragraph of Section 15 was criticized on the ground that it did not by its terms specifically include the basket patent, not yet issued. Accordingly, Section 25, reading as follows, was added to the printed form:

"(25) It is agreed that paragraph 1 of Section 15 is cancelled and the following is substituted therefor:

"Licensee admits the validity for the full terms expressed in the grants thereof of all the patents, respectively, covered by this license, and it is understood that this agreement also covers patents hereafter issued to Licensor, on the subject matter of these patents."

The appellants and the appellee, Advancement Corporation, entered into five separate attachment license agreements as of April 1, 1930 covering five machine attachments therein referred to. The parties operated under these licenses until about 1940 when some question arose concerning what baskets were covered. The matter was adjusted by a supplemental agreement executed in 1940. The appellants continued to operate under these agreements, paying the specified royalties, until several months after the expiration of the machine patent on April 1, 1947.

On January 8, 1948, appellants wrote Advancement Corporation that the Attachment Licenses terminated as of April 1, 1947, the date on which the Schmidtke machine patent No. 1,752,856 expired, confirmed the termination of the licenses as of that date; stated that the basket patent was not set out in the license agreement, was not operative against them because they had already paid royalties under the machine patent for 17 years, and, in any event, was void; and demanded repayment of $2,800.49 paid in error as royalties under the Attachment License on sales of baskets since April 1, 1947. Two days later appellants filed this declaratory judgment action setting out these contentions and asking that they be upheld. Appellees by answer asserted that the basket patent was valid; that appellants as licensees thereunder were estopped to contest its validity; that the basket patent was within the terms of the Attachment Licenses; that the licenses did not terminate on April 1, 1947, but continued in force during the life of the basket patent which would expire January 31, 1950; and that the baskets manufactured and sold by appellants after April 1, 1947 were within the claims of the basket patent. The appellees also filed a counter-claim which alleged that appellants had wrongfully induced other basket manufacturers who had executed attachment licenses to breach their licenses and refrain from paying royalties to appellee's damage. The District Judge upheld the contentions of the appellees with the exception of the damages sought by their counter-claim. The appeal and cross-appeal followed.

We agree with the ruling of the District Judge that the basket patent is included within the terms and scope of the Attachment Licenses. As pointed out by him, the change in Section 15 made by Section 25 at the Cincinnati meeting was for the purpose of removing possible doubt about the inclusion of the basket patent, and specifically provided "this agreement also covers patents hereafter issued to Licensor, on the subject matter of these patents." When the basket patent was subsequently issued, Advancement Corporation sent its Bulletin No. 76, dated February 3, 1933 to its licensees, including appellants, advising them of the issuance of the patent and that these additional rights accrued to the licensees through the license agreement. For many years thereafter appellants manufactured baskets which came within claim 2 of the basket patent and paid royalties thereon. Although they were licensees, they were not barred from contesting appellees' construction of the contract. See Westinghouse Co. v. Formica Co., 266 U.S. 342, 45 S.Ct. 117, 69 L.Ed. 316. The District Judge pointed out other facts supporting this conclusion, which we need not repeat here. In support of their contention to the contrary, appellants point out that the Agreements specifically identify the machine patents by number, make no specific reference to any pending application for a basket patent, although such an application was pending, and that appellants did not stamp their baskets with the number of the basket patent. The evidence shows, however, that appellants requested dies for the purpose of so marking the baskets, but that the Licensor did not furnish them as it was not required by the Agreement to do so. The evidence, on the whole, fully sustains the Court's ruling.

Section 18 of the Attachment License provided that the contract would terminate "at the expiration of the longest lived patent now or hereafter covering the said attachment, methods, or processes licensed hereunder." Since the basket patent was covered by the contract, it follows that the license did not terminate until the expiration date of that patent, namely, January 31, 1950, rather than on April 1, 1947 as contended by appellants.

It is settled law that a licensee of a patent is estopped to contest its validity in a claim for royalties. United States v. Harvey Steel Co., 196 U.S. 310, 317, 25 S.Ct. 240, 49 L.Ed. 492; Westinghouse Co. v. Formica Co., 266 U.S. 342, 349, 45 S.Ct. 117, 69 L.Ed. 316; Reynolds Metals Co. v. Skinner, 6 Cir., 166 F.2d 66, 73. This action was brought while the license was still in existence, so it is not necessary to rely upon the express covenant contained in Section 15 of the Attachment License preventing the licensee from contesting the validity of the patent after the termination of the license. Eskimo Pie Corp. v. National Ice Cream Co., 6 Cir., 26 F.2d 901. This basic rule of estoppel may have been somewhat modified by the ruling in Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 66 S.Ct. 101, 90 L.Ed. 47, relied upon by appellants, but it was not abolished. In fact, that case restated the rule, and then held that the rule did not prevent an assignee from using the invention of an expired patent. In the present case, the appellants are charged with using the invention of the existing basket patent. Nor do we think that the Supreme Court decisions in Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U.S. 394, 67 S.Ct. 416, 91 L.Ed. 374, and MacGregor v. Westinghouse Co., 329 U.S. 402, 67 S.Ct....