Kaiser Industries Corp. v. Jones & Laughlin Steel Corp.

• Decision Date: 04 April 1975
• Docket Number: No. 74-1312,74-1312
• Citation: 515 F.2d 964,185 USPQ 343
• Parties: KAISER INDUSTRIES CORPORATION, a Nevada Corporation v. JONES & LAUGHLIN STEEL CORPORATION. KAISER INDUSTRIES CORPORATION, a Nevada Corporation, et al. v. JONES & LAUGHLIN STEEL CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 964

515 F.2d 964

185 U.S.P.Q. 343

KAISER INDUSTRIES CORPORATION, a Nevada Corporation v. JONES & LAUGHLIN STEEL CORPORATION.

KAISER INDUSTRIES CORPORATION, a Nevada Corporation, et al. v. JONES & LAUGHLIN STEEL CORPORATION, Appellant.

No. 74-1312.

United States Court of Appeals, Third Circuit.

Argued Nov. 22, 1974.

Decided April 4, 1975.

Walter J. Blenko, Walter J. Blenko, Jr., Pittsburgh, Pa., Arthur J. Goldberg, Washington, D. C., William H. Webb, Webb, Burden, Robinson & Webb, P. A., Gordon R. Harris, Blenko, Buell, Ziesenheim & Beck, Pittsburgh, Pa., for appellant; T. A. Zalenski H. David Rosenbloom, Peter Van N. Lockwood, Richard E. Timbie, Caplin & Drysdale, Washington, D. C., for appellees; John M. Webb, David C. Bruening, Pittsburgh, Pa., Webb, Burden, Robinson & Webb, P. A., of counsel.

Gerald K. White, Jones & Laughlin Steel Corp., Pittsburgh, Pa., of counsel.

Alexander Unkovic, P. Christian Hague, Meyer, Unkovic & Scott, Pittsburgh, Pa., Marcus B. Finnegan, Laurence R. Hefter, Kenneth E. Payne, Finnegan, Henderson, Farabow & Garrett, Washington, D. C., for amicus curiae, Crucible, Inc.; Clair X. Mullen, Jr., Crucible, Inc., Pittsburgh, Pa., of counsel.

Before ADAMS, GIBBONS and WEIS, Circuit Judges.

OPINION OF THE COURT

ADAMS, Circuit Judge.

Before the landmark case of Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation ¹ was catapulted onto the legal horizon, the rule was that no general collateral estoppel effect attached to a judicial determination of patent invalidity. In Blonder-Tongue, the Supreme Court held that a prior adjudication of invalidity may be asserted as a defense to a subsequent attempt to enforce the patent, and that such defense must be accepted unless it is demonstrated that the patentee was denied a full and fair opportunity to litigate in the earlier action.

The plaintiffs here sought to enforce a patent that had been held invalid in a previous suit. ² The defendant asserted the defense of collateral estoppel, but the district court refused to accept it. ³ Since in the first suit the patentees were afforded a full and fair opportunity to litigate that satisfied the criteria established in Blonder-Tongue, we hold that the district court was obliged to accept the defense of collateral estoppel.

A. The Parties and the Cause of Action.

The patent in question, ⁴ referred to as the Suess patent, is the fundamental United States patent that teaches a process for producing steel by utilizing substantially pure oxygen to react with, and remove, impurities from molten pig iron. The "basic oxygen process," as it is commonly denominated, has been adopted by steelmakers throughout the world as a material technological advance over previously available processes for manufacturing steel.

The three plaintiffs in this case control the Suess patent in the United States and indeed throughout the world. They are VOEST, ⁵ a steel manufacturing company operated by the government of Austria, which presently owns the patent- ; BOT, ⁶ a European corporation formed by VOEST, Brassert and others to be the exclusive licensing agent for a group of patents involving oxygen steel production; and Kaiser Industries, the exclusive United States licensee of BOT. The defendant, Jones & Laughlin Steel Corporation, is a major United States steel producer.

Two cases are before the Court: one for royalties, filed by Kaiser in 1961 against Jones & Laughlin for alleged breach of a licensing agreement to use the Suess process at a plant in Aliquippa, Pennsylvania; and another, filed in 1961 by all three plaintiffs, for alleged infringement of the Suess patent by Jones & Laughlin at an unlicensed oxygen steel production plant in Cleveland, Ohio. ^6a The actions were begun in the Northern District of Ohio and removed to the Western District of Pennsylvania. There they were consolidated and tried without a jury. Judgment was for the plaintiffs and defendants appealed.

In light of our disposition of the over-arching issue of collateral estoppel, we need not address the other contentions presented, such as the patent's validity and the alleged infringement.

B. Steel Refining and the Advent of the Oxygen Process.

Reducing steel making to its essentials, iron is converted into steel via a two-step transformation. ⁷ In the first stage of the operation, the oxides contained in the iron ores are removed and the ore is reduced to pig iron. This process, known as smelting, is performed in a blast furnace.

It is the second step of the steel making operation, refining, that forms the backdrop for this litigation. The pig iron includes various chemical impurities, such as phosphorus, carbon, silicon, manganese and sulphur. Refining is directed to lowering the amounts of the impurities in the pig iron to levels congruent with desirable steel qualities, while at the same time avoiding the introduction into the steel of additional impurities such as nitrogen or oxides.

Several methods have been employed in modern times for the conversion of pig iron into steel. ⁸ The most efficient technique presently available for refining steel is the basic oxygen process, which jets a stream of high purity oxygen downward from above the surface of the molten metal bath. As practiced commercially, the advantages of the basic oxygen process are substantial. The resulting product is high quality steel, with low and controllable phosphorous and nitrogen content. And the steel can be rapidly manufactured in large batches, with relatively low capital and operating costs.

The remarkable success of the oxygen technique of steel refining is evidenced by the swift expansion of the industrial capacity for producing such steel. Most newly constructed facilities for the manufacture of steel adopt the basic oxygen method. The percentage of total steel produced by this process in the United States rose rapidly after the early 1960's and by 1970 oxygen steel production accounted for more tons of raw steel produced in the United States than the open hearth process. ⁹

Initial efforts to refine steel utilizing pure oxygen forcefully propelled from above the bath surface were patented in Germany in 1943 by Schwarz, ¹⁰ and in Belgium, Britain and France, shortly thereafter, by Miles. ¹¹ However, the specific techniques taught by Schwarz and Miles were never exploited commercially.

Experiments in Austria in 1949 produced superior results under a modified version of prior oxygen steel making. The Austrian experiments were conducted under the aegis of VOEST, a plaintiff in this case. In contrast to the earlier schemes, that taught deep penetration of the oxygen stream into the bath, the Austrians employed an oxygen jet of more moderate force, so that the oxygen did not penetrate so deeply into the bath. Under the new process, the oxygen, hitting on the center surface of the bath, reacts with impurities in the area of impact. The oxidized manganese and phosphorous leave the bath and float up into the slag layer that is created. The carbon monoxide that is produced by the process, however, is believed to form minute explosive bubbles that are driven downward toward the bottom of the vessel. Great heat is generated by the exothermic reactions at the point of oxygen contact, and a thermally induced circulation occurs inside the bath. The general circulation pattern is described as downward in the bath center, and around and upward along the sides of the hemispheric vessel. Because of the circulation pattern, unreacted portions of the bath are constantly exposed to the oxygen reaction area. The locally evolved heat at the reaction center is dissipated and absorbed in secondary, endothermic reactions along the sides of the refractory vessel.

On occasion, various elements of the multi-faceted physical-chemical Suess process have been singled out as the essence of the invention. However, in order to distinguish the Schwarz and Miles patents that teach that oxygen should be blown deep into the molten metal bath, emphasis has been consistently placed on avoidance of deep penetration by the oxygen stream, and the chemical and physical effects that flow therefrom. ¹²

C. Patenting the Suess Process.

After developing the concept of an oxygen jet of moderate force, the Austrians proceeded to seek patent protection. However, to avert conflict with the rather similar Schwarz patent, owned by Brassert, and in order profitably to commercialize the basic oxygen process, VOEST and Brassert in 1952 formed an exploiting firm, the plaintiff BOT. By agreement, BOT acquired exclusive rights to license oxygen steel making patents controlled by either of the partners. Pursuant to the plan of the parties, BOT licensed plaintiff Kaiser in 1954 as its sole licensee in the United States. Once the United States patent for the Suess process was secured, rights under the Austrian process thus accrued to Kaiser. ¹³

The original filing for the United States patent that forms the basis for the present suit was by Suess, in 1951. Suess applied for the patent in his own name and designated himself as sole inventor. However, in 1955, VOEST succeeded to the world-wide patent rights of Suess, and both BOT and Kaiser thereby acquired a derivative interest in any United States patent that issued to VOEST on the basic oxygen process developed by Suess. A short time later, three Austrian co-workers of Suess, Drs. Trenkler, Rinesch and Hauttmann, were included in the patent application as co-inventors of the process.

The Suess application followed a labyrinthine course through the United States Patent Office, only a limited portion of which is relevant here. Ultimately, the 1951 claims and specification were definitively rejected by the Patent Office and abandoned by the plaintiffs. ¹⁴

A continuation-in-part application covering the same invention was filed November 16, 1955. The specification of the continuation application contained a more particularized...