Keller v. Clark Equipment Co.
| Decision Date | 11 August 1983 |
| Docket Number | No. 82-2066,82-2066 |
| Citation | 715 F.2d 1280,219 USPQ 585 |
| Parties | Louis J. KELLER and Cyril N. Keller, Appellees, v. CLARK EQUIPMENT COMPANY, and Clark Equipment, A.G., Appellants. CLARK EQUIPMENT COMPANY, Appellant, v. Louis J. KELLER and Cyril N. Keller, Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Herman H. Bains, Malcolm L. Moore, Williamson, Bains, Moore & Hansen, Minneapolis, Minn., for appellees.
John D. Kelly, Nicholas J. Spaeth, Vogel, Brantner, Kelly, Knutson, Weir & Bye, Fargo, N.D., James P. Ryther, McDougall, Hersh & Scott, Fred E. Schulz, Thomas E. Patterson, Wildman, Harrold, Allen & Dixon, Chicago, Ill., Harry G. Thibault, Buchanan, Mich., for appellant Clark Equipment Co.
Before LAY, Chief Judge, HEANEY, Circuit Judge, and RENNER, * District Judge.
This case began as a challenge to the validity of three patents covering various aspects of a successful four wheel loader marketed initially by Melroe Manufacturing Company (Melroe), and subsequently by Clark Equipment Company (Clark), under the trade name "Bobcat." The present appeal involves one of the three patents--a manufacturing patent entitled "tractor vehicle and drive therefore"--which this Court declared invalid under 35 U.S.C. § 102(b) because the application for it was not filed within one year after the invention had been offered for sale. Clark Equipment Co. v. Keller, 197 U.S.P.Q. 209 (D.N.D.1976), aff'd, 570 F.2d 778 (8th Cir.), cert. denied, 439 U.S. 825, 99 S.Ct. 96, 58 L.Ed.2d 118 (1978). Clark now appeals from the district court's holding that Melroe was liable to Cyril and Louis Keller--two of the owners of the manufacturing patent in question--for its negligent failure to file the patent application in a timely manner and that Clark assumed that liability when it purchased Melroe in 1969. We affirm.
In 1956, Louis and Cyril Keller began building a self-propelled, three-wheel loader. The Kellers completed the first loader in February, 1957, and throughout 1957 and 1958, they made various modifications to improve the machine's design. On December 1, 1958, the Kellers filed an application for a patent on the three-wheel loader. The Patent Office issued U.S. Patent No. 3,151,503 (503 patent) on October 6, 1964. The 503 patent was a mechanical patent entitled "transmission system" and its duration was for 17 years.
In about September, 1958, the Kellers became employed by Melroe. They continued to work on the development of their three-wheel loader, which Melroe was marketing with only limited success. In the summer of 1961, Louis Keller and Clifford Melroe, then president of Melroe, began experimenting with a self-propelled four-wheel skid steer loader.
During the experimentation in 1961, four prototypes of the four-wheel loader were produced. While still developing the prototypes, Melroe began demonstrating and promoting the new loader, which would be marketed under the trade name "Bobcat," in August 1961. Shortly thereafter, Melroe offered the new loader for sale to Midland Cooperative on September 29, 1961, and to the Farmers Union Central Exchange one week later. In December, 1961, the company commenced commercial production of the Bobcat. On January 4, 1962, it made its first commercial delivery.
Because of the advertising and sales activity surrounding the Bobcat, Louis Keller began urging Clifford Melroe in September or October, 1961, to seek patent protection on the four-wheel loader. When Clifford expressed no interest, Louis obtained permission from Roger Melroe--the company's vice president and Clifford's brother--to pursue patent protection for the four-wheel loader. In February, 1962, and then in early May, 1962, Louis Keller authorized his attorney to begin preparing applications for a design patent and mechanical patent, respectively.
At a meeting between the Kellers and the Melroes on May 31, 1962, Clifford Melroe learned for the first time of Louis Keller's patent application efforts. Clifford accused Louis of attempting to steal the patents for the four-wheel loader. Although Roger Melroe attempted to explain the circumstances to his brother, Clifford demanded that he be given all material relating to the mechanical patent and that the company's attorney prepare the application for that patent. With respect to the design patent, Clifford agreed to permit the Kellers' attorney to proceed with the patent application since it was nearly completed, and agreed that he, Louis and Cyril should be listed as co-inventors. Clifford, however insisted that the design patent be assigned to the company.
On June 21, 1962, the Kellers and Clifford Melroe signed the documents for the design patent application and the assignment of patent ownership to the company. The design patent application was filed on July 25, 1962, and subsequently was issued on May 21, 1963, as U.S. Patent No. D195,254 (254 patent) under the title "self-propelled loader."
On June 13, 1962, Clifford Melroe contacted the company's patent attorney, John Swindler, concerning a mechanical patent for the new loader. In subsequent conversations, Clifford discussed assigning the mechanical patent to the company and stated that he and Louis Keller were to be named as inventors. Clifford also discussed the application deadline with Swindler. Clifford was generally familiar with the application requirements of the patent laws from his past experience with obtaining patents for Melroe products, and he knew that the four-wheel loader had been demonstrated in the summer or fall of 1961. Nonetheless, Clifford indicated to Swindler that the first loader was not placed on the market until January 4 or 5, 1962.
Swindler, sent the completed patent application and assignment of patent documents to Louis Keller and Clifford Melroe in October, 1962. Keller and Melroe promptly signed the application and returned it to Swindler. They never executed or returned the document assigning the patent to the company, however. Swindler filed the application for the mechanical patent on the four-wheel loader on October 23, 1962--approximately three weeks after the one-year filing deadline. The patent office issued U.S. Patent No. 3,231,117 (117 patent) on January 15, 1966. It was a mechanical patent including eighteen claims which was entitled "tractor vehicle and drive therefor." If the 117 patent had been timely filed, it would have expired on January 25, 1983.
The respective rights and obligations of the Kellers and Melroe, and its successor Clark, with respect to the 503, 117 and 254 patents were governed by three agreements entered into by the parties.
In May, 1959, the Kellers and Melroe entered into an agreement under which the Kellers granted Melroe an exclusive right to manufacture the three-wheel loader, and lifting and scraping devices, disclosed in the 503 patent application. In return, Melroe agreed to pay the Kellers a royalty fee of 2.5 percent of the sales price of each loader sold.
On October 1, 1963, the Kellers executed an agreement with Melroe which superceded their 1959 agreement. 1 The 1963 agreement contained two principal changes. First, the Kellers granted the company an exclusive right to make and sell loaders embodying the invention claimed in the 117 patent application, as well as the 503 patent referred to in the 1959 agreement. Second, Melroe agreed to pay royalties to the Kellers pursuant to a fixed rate, rather than the percentage method utilized in the 1959 agreement. 2 Melroe continued to pay royalties to the Kellers under the 1963 agreement until August, 1969.
On August 11, 1969, Clark and Melroe entered into a purchase of assets agreement. The agreement provided that Melroe, in exchange for 475,000 shares of Clark's voting common stock, would convey to Clark all of Melroe's assets, except as specifically excluded in the agreement. The agreement further provided that Clark would assume all of Melroe's liabilities, obligations, and covenants except as specifically excluded in the agreement. Pursuant to this purchase agreement, Clark continued to pay the Kellers royalties under the 1963 Melroe agreement.
In May, 1971, the Kellers and Clark entered into a license agreement which superceded the 1963 agreement. Again, the new agreement contained two principal changes. First, the 254 patent was covered for the first time, when the Kellers granted Clark an exclusive right to make, use and sell (with a right to grant sublicenses) the inventions claimed in the 503, 117 and 254 patents. Second, the royalty rate was changed, with Clark agreeing to pay the Kellers $15 for each Bobcat it sold and $10 per loader sold by a sublicensee. Clark continued to make royalty payments under the 1971 agreement until approximately the second quarter of 1972.
Shortly after Melroe began marketing the Bobcat loader in 1961, competing loaders appeared on the scene. By 1966, at least five possible unlicensed infringers were in the market. In 1966, Melroe and the Kellers brought a patent enforcement action against Universal Manufacturing to halt its infringing activities. Universal defended on the ground, inter alia, that the 117 patent was invalid because the application for it had been filed too late. In 1968, Owatonna Manufacturing Company, Inc., filed a declaratory judgment action against Melroe and the Kellers to have the 504, 117 and 254 patents declared invalid. Again, the 117 patent was challenged on the ground of late filing. Both the Universal and Owatonna lawsuits were settled without a determination of the validity of the patents.
Subsequently, in 1970, Clark entered into sublicense agreements with Owatonna and J.I. Case Company to manufacture and sell loaders covered by the...
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