HPM Development Corporation v. Watson-Stillman Co.

• Decision Date: 15 April 1947
• Docket Number: Civil Action No. 7301.
• Citation: 71 F. Supp. 906
• Parties: H-P-M DEVELOPMENT CORPORATION et al. v. WATSON-STILLMAN CO.
• Court: U.S. District Court — District of New Jersey

71 F. Supp. 906

H-P-M DEVELOPMENT CORPORATION et al. v. WATSON-STILLMAN CO.

Civil Action No. 7301.

District Court, D. New Jersey.

April 15, 1947.

Toulmin & Toulmin, of Dayton, Ohio (H. A. Toulmin, Jr., and Clayton E. Crafts, both of Dayton, Ohio, and S. Collin Minton, Jr., of Trenton, N. J., of counsel), for plaintiffs.

Stein, Stein & Hughes, of Elizabeth, N. J. (Kenyon & Kenyon, of New York City, of counsel) for defendant.

FORMAN, District Judge.

The H-P-M Development Corporation is the successor to the Hydraulic Press Corporation, Inc., which latter company together with the Hydraulic Press Manufacturing Company entered into a contract with the Watson-Stillman Company on September 11, 1937. The successor company and the Hydraulic Press Company are plaintiffs in this action and they allege, among other things that they own nineteen patents for inventions and designs on systems, apparatus for, and methods of operation of hydraulic presses of the self-contained, high speed and pressure type including all types of circuits, open and closed and methods of control. The companies named in the contract, a copy of which is annexed to the complaint, granted a license to defendant, Watson-Stillman Company, to make and sell apparatus embodying the subject matter of the patents as set forth in Schedule A of the contract, but not the power and control elements per se covered by Schedule C of the contract. It provided that the license was to run from September 15, 1937 for 10 years and that defendant was to pay a royalty of $1500 a year, 2½% on the first $250,000, 1¾% on the next $500,000 and 1½% on all sales above these amounts in any one year under conditions set forth in the contract as follows:

"* * * on all equipment manufactured and sold by Defendant embodying systems, apparatus for and methods of operation of hydraulic presses, the self-contained, high speed, oil pressure type, including all types of circuits and methods of control, including open and closed circuits and the power and control elements per se, unless such power and control elements were purchased from plaintiffs. It was further specifically covenanted and agreed by and between the parties to said agreement that said royalty would be paid on all of the foregoing apparatus irrespective of whether or not any particular patent or patents of Plaintiffs was embodied therein."

It was further alleged that royalty payments should be accompanied by a report setting forth the serial number of the machine sold, date of sale, the sale price, and that suitable books of account should be kept by defendant of such transactions which should be open to inspection by the licensors, that defendant agreed to give preference to the purchase of the licensors' equipment where its value was equal to or better than that of the licensors' competitors, that defendant would not purchase, nor recommend the use of equipment known to be an infringement of the licensors' patents, that defendant agreed to mark the machines licensed with a suitable statutory notice of said patents, and that the parties agreed to communicate to one another any improvements in the respective fields of the subject matter of the patents.

The complaint further alleges that defendant manufactured an unknown number of machines under the license listed in Schedule A of which no reports were made of royalties, that defendant has failed to pay royalties under the license, has failed to report the serial numbers of machines sold under the license and has failed to permit plaintiff to inspect its books as agreed. Complaint is made that defendant has failed to give preference to plaintiffs' equipment, has neglected to mark machines with a suitable statutory notice, and has failed to communicate improvements as required by the contract. Plaintiffs further complain that defendant has placed an arbitrary interpretation on the term "self contained" as used in the contract in order to avoid payment under the contract.

In the prayers for relief plaintiffs request an injunction restraining defendant from destroying, secreting or moving its books of account from the jurisdiction of this court, and that defendant be required to account for profits.

Following the filing of the complaint plaintiffs moved for discovery and production of documents under Rule 34 of the Federal Rules of Civil Procedure, 28 U. S.C.A. following section 723c.

Defendant opposed this motion. It moved to dismiss the complaint, among other things, for insufficiency of statement, because the contract is unenforcible on the ground that it is contrary to public policy and in violation of the anti-trust statutes.

The plaintiffs contend that the motion to dismiss is improper since issues are raised which should not be determined until after answer and trial, that the illegality of the contract must be pleaded affirmatively as required by 8(c) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, and that it does not set forth with particularity the grounds therefor as required by 7(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c.

The objections raised by the defendant will be considered in the light of the complaint and the contract annexed thereto, to determine whether the issues propounded by the plaintiffs raise a doubt, for if so, the defendant must answer and the trial proceed.

The first objection raised by the defendant is that the contract unlawfully ties in as a condition of the license a provision that defendant must purchase from the licensors the power or control devices listed in Schedule C and under which defendant is not licensed or give the licensors a preference in the purchase thereof. This argument is predicated upon a series of cases holding tie-in agreements an abuse of rights acquired by the patents, and denying recovery under them as is set forth in the case of National Lockwasher Co. v. George K. Garrett Co., 1943, 3 Cir., 137 F.2d 255. They are: Motion Picture Patents Co. v. Universal Film Mfg. Co., 1917, 243 U.S. 502, 37 S.Ct. 416, 61 L.Ed. 871, L.R.A. 1917E, 1187, Ann.Cas.1918A, 959 (license agreement authorized manufacture and sale of patented machine but limited its use to unpatented films); Carbice Corporation of America v. American Patents Development Corporation, 1931, 283 U.S. 27, 51 S.Ct. 334, 75 L.Ed. 819 (patent for refrigerating transportation package, license limited its use to unpatented dry ice); International Business Machines Corp. v. United States, 1936, 298 U.S. 131, 56 S.Ct. 701, 80 L.Ed. 1085 (licensee of patented tabulating machine required to use unpatented tabulating cards); Leitch Mfg. Co. v. Barber Co., 1938, 302 U.S. 458, 58 S.Ct. 288, 82 L.Ed. 371 (patentee of concrete curing process required use of unpatented bituminous emulsion); Interstate Circuit, Inc. v. United States, 1939, 306 U.S. 208, 59 S.Ct. 467, 83 L.Ed. 610 (owners of motion picture film copyrights licensed exhibitors for subsequent runs requiring minimum price); Ethyl Gasoline Corp. v. United States, 1940, 309 U.S. 436, 60 S.Ct. 618, 84 L.Ed. 852 (patentee of fluid compound licensed use of fluid for mixture with gasoline, controlled resale price, etc.); Morton Salt Co. v. G. S. Suppiger Co., 1942, 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363 (patented dispensing machines required use of unpatented tablets); B. B. Chemical Co. v. Ellis, 1942, 314 U.S. 495, 62 S.Ct. 406, 86 L.Ed. 367 (owner of method patent authorized manufacturer to use it only with unpatented material furnished by him); United States v. Univis Lens Co., Inc., 1942, 316 U.S. 241, 62 S.Ct. 1088, 86 L.Ed. 1408, and United States v. Masonite Corp., 1942, 316 U.S. 265, 62 S.Ct. 1070, 86 L.Ed. 1461 (patentee in each of the two cases last mentioned granted licenses by which it sought to control resale price of patented article). The court in the case of National Lockwasher Co. v. George K. Garrett Co., supra, stated:

"The Supreme Court has made it abundantly clear in the series of decisions above cited that the patentee cannot use his patent monopoly to force upon customers his brand of a non-patented article to be used by the customer in connection with the patented article sold or leased. The Carbice and International Business Machines cases are typical of this point. And not only is a patentee under such circumstances open to attack by the public authorities, but he is precluded from the enforcement of his rights as patentee against an infringer so long as he is making such a use of a patent. The Morton Salt Company and the B. B. Chemical Co. decisions bring this out clearly. `The patentee, like these other holders of an exclusive privilege granted in the furtherance of a public policy, may not claim protection of this grant by the courts where it is being used to subvert that policy,' says Mr. Chief Justice Stone in the Morton Salt case at page 494 of 314 U.S., 62 S.Ct. at page 406, 86 L.Ed. 363." 137 F.2d at page 256.

Article 3 of the contract in this case provides that defendant will "give preference to the purchase of such equipment * * * where the value of the equipment of Hydraulic is equal to or better than that of Hydraulic's competitors." Article 4(d) provides that royalties due by defendant to plaintiff for the use of the Schedule A and other patents shall be subject to a reduction, rebate or credit amounting to 5% on the first $50,000, 7½% on the second $50,000, and 10% on the balance, on all equipment shown on Schedule C, purchased by defendant from plaintiff in any current year. At the end of Schedule A annexed to the contract there appears the following provision:

"In connection with the foregoing it is to be understood that any special controls or valves or other operating elements set forth in any of the foregoing patents under Schedule A are to be purchased by the licensee from the licensor: they are specified on Schedule C."

From these references defendant concludes that the contract...