Kenyon v. Automatic Instrument Co.

• Decision Date: 17 March 1947
• Docket Number: No. 10250.,10250.
• Citation: 160 F.2d 878
• Parties: KENYON v. AUTOMATIC INSTRUMENT CO.
• Court: U.S. Court of Appeals — Sixth Circuit

160 F.2d 878 (1947)

KENYON v. AUTOMATIC INSTRUMENT CO.

No. 10250.

Circuit Court of Appeals, Sixth Circuit.

March 17, 1947.

COPYRIGHT MATERIAL OMITTED

Eugene C. Knoblock and Milton A. Johnson, both of South Bend, Ind. (Oltsch & Knoblock and Hammerschmidt & Johnson, all of South Bend, Ind., and Bidwell & Schmidt, of Grand Rapids, Mich., on the brief), for appellant.

Clarence J. Loftus, of Chicago, Ill., and Marshall M. Uhl, of Grand Rapids, Mich. (Clarence J. Loftus, of Chicago, Ill., and Uhl, Bryant, Snow & Slawson, of Grand Rapids, Mich., on the brief), for appellee.

Before HICKS, ALLEN, and MARTIN, Circuit Judges.

HICKS, Circuit Judge.

Appellant, Blanche M. Kenyon, individually, and as Executrix under the Will of Bertram C. Kenyon, brought suit against appellee, Automatic Instrument Company, a Michigan corporation (herein called the Michigan corporation) for $150,000 for alleged breach of an agreement dated December 7, 1925 (Exhibit "A" to Complaint), to pay royalties upon the manufacture of a multiple disc phonograph alleged to have been invented by Kenyon.

The answer, among other things, set up the defense, that the agreement under which appellant claimed was non-assignable and non-transferable, and was not transferred to appellee by the Receiver of Automatic Instrument Company (herein called the Delaware corporation) with which company the agreement (Exhibit "A") was made; and that appellee did not accept or agree to its terms and was therefore not liable under its provisions.

The appellee filed a motion for judgment on the pleadings. The court, treating the motion as one to dismiss, and relying on the pleadings plus certain other documents and matter which had been introduced, dismissed the complaint.

The agreement of December 7, 1925, was entered into between the Delaware corporation as first party, and Bertram C. Kenyon as second party. By its first paragraph, the Delaware corporation agreed to employ Kenyon until July 11, 1926, and to pay him $60 per week for the purpose of perfecting a multiple disc phonograph. By the second, Kenyon agreed to accept employment and cooperate with the Delaware corporation.

By the third, Kenyon represented that he was the inventor of the multiple disc phonograph and that he, or the first party in his name, would attempt to cover the mechanism and operation of the machine by proper letters patent. Quoting —

"In the event that said patents are obtained by either said first or second party, the title thereto and all interest therein shall be the property of and belong to said first party, and the said second party does hereby give and grant, sell and assign unto said first party the exclusive right to make, manufacture, market, vend and operate the said phonograph, under his present rights and under future letters patent, according to the terms hereof, in any manner which it may desire to do, and covenants to and with the said party that performing its obligation under this contract it shall have, hold, and enjoy all the rights, benefits, titles, and returns of and from said invention, and that he will when so requested by said first party, duly and properly sign, seal, execute and deliver unto said first party proper assignments and any rights which may hereafter accrue under and by virtue of said invention."

The fourth paragraph stated in part:

"In consideration of the foregoing assignments and licenses, the said first party agrees that for each, of said machines manufactured by it, it will on or before the tenth day of the month succeeding the completion of such machine, pay to the order of the said second party * * * the sum of five Dollars. * * *"

The paragraph concluded that the license obligation was contingent upon the patents not being attacked in court or before a commission, etc.

The fifth and last paragraph is quoted in its entirety:

"The terms upon which the license to manufacture and the assignment of prospective patents upon the said phonograph are given shall be and remain in force during the life and continuance of any or all patents issued upon the said mechanism to said second party, his heirs or assigns."

The instrument was executed by the first party by its President and Secretary, and by Kenyon, in the presence of two witnesses.

By an additional Memorandum executed on the same day, the Delaware corporation agreed to manufacture as many Multiple Record Phonographs as was consistent with their business policies — and to pay second party a minimum of $1000 a year for five years on the undertaking in Paragraph Four of the Agreement, namely, to pay $5 royalty for each machine.

Appellant's Bill of Particulars, which under Rule 12(e) of the Rules of Civil Procedure, became a part of her complaint, states, that Kenyon's invention, as disclosed to the Delaware corporation, prior to December 7, 1925, was constructed substantially as set forth in Patent No. 1,879,693, application for which was filed on July 15, 1927, and granted to the Delaware corporation September 27, 1932.

The following quotation is taken from the face of the Letters Patent:

"Bertram C. Kenyon, Wilmur W. Boa, and Clifford H. Green of Grand Rapids, Michigan, Assignors to Automatic Musical Instrument Company, of Grand Rapids, Michigan, a corporation of Delaware" (the Delaware corporation).

Appellee's bill of particulars stated that the record changing mechanism in its machines and in which appellant was primarily interested, was substantially the same as in all machines manufactured since October 18, 1935.

The case of Sligh Furniture Co. v. Automatic Musical Instrument Co.¹ (the Delaware corporation), a general creditors' bill, was brought in the District Court of the Western District of Michigan, and on February 10, 1931, a Receiver was appointed for the Delaware corporation. Appellant's bill of particulars stated that the basis of the claim here sued upon is that the license and grant of rights and obligation to pay royalties contained in Exhibit "A" was transferred to appellee, pursuant to an order in the Sligh case confirming the sale, a supplemental order confirming the sale dated December 20, 1932, the order authorizing the Receiver to execute assignment of patents in the same cause dated February 2, 1933, and the assignment of January 28, 1933, from Receiver to appellee, then known as Automatic Musical Instrument Company, a Michigan corporation; and, that appellee manufactured and sold certain multiple disc phonographs since October 18, 1935, which embody Kenyon's invention, as disclosed by him to the Delaware corporation on or before December 7, 1925.

The District Court construed the contract of December 7, 1925 (Exhibit "A"), "as a license granting exclusive right to first party" (the Delaware corporation) "therein to make, sell and operate the devices in consideration of a royalty of $5.00 for each machine manufactured; and also, an agreement to assign the naked legal title in the patent if and when issued. No right to make, sell or use arose from this agreement to assign the naked legal title. That right was created by the license operating in presenti." The court ruled that the license was simply a non-assignable, executory contract which never became an obligation of the Receiver and that the complaint failed to state a cause of action.

Before appellant could recover, she was required to show (1) that the agreement of December 7, 1925, constituted an assignment of the patent to the Delaware corporation and not a license; and (2) that the Receiver of the Delaware corporation in selling the patents to appellee as receivership assets sold them subject to the assignor's right to royalties.

Rights in patents are of course established by statute. Title 35 U.S.C.A. § 40, provides in part, —

"Every patent shall contain a short title or description of the invention or discovery, correctly indicating its nature and design, and a grant to the patentee, his heirs or assigns, for the term of seventeen years, of the exclusive right to make, use, and vend the invention or discovery * * *."

By section 47 of the same title:

"Every patent or any interest therein shall be assignable in law by an instrument in writing, and the patentee or his assigns or legal representatives may in like manner grant and convey an exclusive right under his patent to the whole or any specified part of the United States. * * *"

The classic case on the subject of patent assignments and licenses is Waterman v. Mackenzie, 138 U.S. 252, 255, 11 S.Ct. 334, 335, 34 L.Ed. 923. It points out that the "exclusive right to make, use, and vend the invention or discovery" is one entire thing and cannot be divided by law. Further —

"The patentee or his assigns may, by instrument in writing, assign, grant, and convey, either (1), the whole patent, comprising the exclusive right to make, use, and vend an invention throughout the United States; or (2) an undivided part or share of that exclusive right; or (3) the exclusive right under the patent within and throughout a specified part of the United States. Rev.Stat. § 4898 35 U.S.C.A. § 47. A transfer of either of these three kinds of interests is an assignment, properly speaking, and vests in the assignee a title in so much of the patent itself * * *. Any assignment or transfer, short of one of these, is a mere license, giving the licensee no title in the patent, and no right to sue at law in his own name for an infringement. * * *"

The case points out, that an assignment to constitute a grant of title, must include the three rights, namely, to make, to use and to sell. There may be an assignment of an undivided part. See discussion in United States v. General Electric Co., 272 U.S. 476, 489, 47 S.Ct. 192, 71 L.Ed. 362; and in Green v. LeClair, 7 Cir., 24 F.2d 74.

The Waterman case further points out, that whether the transfer of an interest or right under a patent is an assignment or a license, does not depend upon the name by which it is called,...