Kurt H. Volk, Inc. v. Found. for Christian Living

• Decision Date: 25 February 1982
• Docket Number: No. 76 Civ. 5611 (CHT).,76 Civ. 5611 (CHT).
• Citation: 534 F. Supp. 1059
• Parties: KURT H. VOLK, INC., Plaintiff, v. FOUNDATION FOR CHRISTIAN LIVING, Defendant.
• Court: U.S. District Court — Southern District of New York

534 F. Supp. 1059

KURT H. VOLK, INC., Plaintiff, v. FOUNDATION FOR CHRISTIAN LIVING, Defendant.

No. 76 Civ. 5611 (CHT).

United States District Court, S. D. New York.

February 25, 1982.

Davis, Hoxie Faithfull & Hapgood, New York City, for plaintiff; Thomas E. Spath, Stanley L. Amberg, Robert H. Fischer, New York City, of counsel.

Blum, Kaplan, Friedman, Silberman & Beran, New York City, for defendant; Harold I. Kaplan, Steven B. Pokotilow, Randy Lipsitz, New York City, of counsel.

OPINION

TENNEY, District Judge.

In this action for patent infringement defendant Foundation for Christian Living ("FCL") is charged with infringement of U.S. Letters Patent No. 3,920,267 for multiple folding booklets ("the suit patent") which issued on November 18, 1975 to Randolph S. Lyon, Jr. ("Lyon"), an employee of plaintiff Kurt H. Volk, Inc. ("Volk"). Volk is the owner by assignment of the suit patent.

FCL has answered by denying infringement and by asserting the affirmative defenses of invalidity and equitable estoppel. It has also counterclaimed for a declaratory judgment of invalidity and non-infringement of the suit patent, and further that FCL has an equitable license to practice the invention described and claimed in the suit patent.

The issues of patent validity, non-infringement, and equitable license were presented during a bench trial before this Court on March 4-10, 1981. After careful consideration of the evidence and of the post-trial briefs of counsel the Court concludes that Volk cannot prevail on any of the issues in this case, and that FCL is entitled to the affirmative relief it seeks, including an award of attorneys' fees in defending this action.

I

A. Preliminary History

Although the history of the dispute giving rise to this litigation commences in early 1970 it is necessary to look further to the past to delineate the nature of the relationship between the parties. Plaintiff Volk is a Connecticut corporation engaged in the commercial printing business and located in Milford, Connecticut. Defendant FCL is a nonprofit church corporation of the State of New York with offices located in Pawling, New York. It was formed about forty years ago at the Marble Collegiate Church in New York City by the Reverend Dr. Norman Vincent Peale, the pastor of that Church.

For many years prior to 1970 FCL had, during ten months of the year, distributed to subscribers throughout the United States and the world three individual twelve-page sermon booklets, authored principally by Dr. Peale. Pl. Exh. 49. These three individual booklets each contained a single sermon or was based on a single concept. The individual booklets were printed by Volk in Connecticut and shipped to FCL's offices in Pawling, New York where the three separate booklets were inserted into an envelope, addressed and mailed to subscribers. The primary reason for sending three individual sermon booklets to each recipient was to allow the recipient, after reading the booklets, to pass any one or all of the booklets to a friend or relative who might be interested.

During the early 1950's, Volk became the exclusive printer of the sermons distributed by FCL, and a close personal as well as business relationship grew between Dr. Peale, on the one hand, and the father and grandfather of the present president of Volk, Kurt E. Volk Jr. ("Volk Jr."). Indeed there is a plaque on public display at FCL's offices in Pawling honoring Volk Jr.'s father and grandfather.

FCL's subscriber list grew so dramatically over the years that the handling of the three separate sermon booklets and their insertion into envelopes for mailing during each of ten months during the year became an increasing burden on FCL's personnel and existing machinery. By 1969 the subscriber list had increased to over 400,000, and FCL ran into considerable difficulties in completing the handling and mailing of the three separate sermons to its subscribers in a timely manner. Since FCL receives its funding from voluntary contributions by its readers, the continuing success of the venture was extremely important to it.

FCL's problem in completing the monthly sermon mailings was communicated to Volk Jr. in 1969 on several occasions by Myron L. Boardman, the Executive Director of FCL, ("Boardman"). Boardman, who was aware of the existence of self-mailers not requiring separate envelopes, asked if there was some way that the three sermons could be kept together in a form that would not require insertion in an envelope.

Sometime in late 1969 or early 1970 Randolph S. Lyon Jr. ("Lyon"), the named inventor of the suit patent, heard about the problem from a customer service representative of Volk who had been in communication with Boardman. Lyon, in early 1970, developed several prototypes or unprinted mock-ups of a three-in-one format wherein the booklets were joined together by lines of perforations and folded so that they could be mailed without an envelope. Each mock-up was fabricated manually by folding a piece of paper and using a ruler and razor to simulate perforations. The threein-one format was designed by Lyon in several hours. These unprinted mock-ups were of the same three-in-one structure described in the suit patent. Lyon showed the unprinted mock-up to Volk Jr. who made an appointment to meet with Boardman at FCL's Pawling headquarters. Lyon prepared similar additional unprinted mock-up three-in-one booklets and on March 26, 1970 Lyon and Volk Jr. met with Boardman to show him the booklets.

Boardman was impressed with the three-in-one format as a potential solution to FCL's self-mailing problem, and FCL ordered from Volk a test quantity of 500 monthly sermons in that format for the May 1970 issue, for which Volk charged FCL $821.00 or $1.64 per booklet in addition to charging FCL the usual cost for its May printing of the individual twelve-page booklets. It is not clear whether these 500 were actually mailed or whether, as appears more likely, the test run was to determine whether the booklets could be printed properly in quantity and whether they could be separated. In any event, this preliminary test proved successful and FCL ordered 50,000 for the June issue for which Volk charged 4 ó per booklet. These three-in-one booklets were mailed to readers on FCL's mailing list without any letter or explanation. After no complaints were received from the recipients FCL knew that it had a format that was acceptable. Accordingly, it ordered 510,000 of the three-in-one booklets from Volk for September, 535,000 for October, 463,000 for November, 515,000 for December 1970 and 322,000 for February 1971. There was no mailing for January 1971, and Volk did not produce any booklets for FCL after February 1971.

The reason for the termination of the business arrangement between Volk and FCL is quite clear. It had nothing to do with the quality of the work done by Volk but with the price Volk charged for the new format. It is true that any experimental costs incurred by Volk in the development of the three-in-one booklet were not charged with the initial orders for 500 in May 1970 and for 50,000 in June, and probably not for the third order of 510,000 for September 1970. The cost of the 500 booklets order was approximately 4 ó per booklet, and for the 510,000 order was approximately 3 ó per booklet. There is direct evidence that a total of $1,289.00 of experimental charges were absorbed by Volk. Lyon also testified to other costs incurred in modification of the folding machine and the purchase of a timed hot melt glue system. According to Lyon, the total expenses ran between $7,500-$8,500. Most of this would appear to be costs incurred after the "invention" rather than in devising it.

However, at least as early as August of 1970 Volk Jr. believed that Volk should receive more for the new format, particularly since he felt that FCL would benefit by a reduction in the cost of envelopes, handling, stuffing, and possibly mailing charges. Accordingly he raised the charges to FCL. Although FCL had expected, on the basis of conversations with Volk Jr., that the monthly billing would increase by about $2,000 per month, the proposed increases went well beyond that figure. Def. Exhs. J and M. Therefore, FCL, which had dealt solely with Volk over the years, decided to find out what could be done with competitive bidding. Based on bids received from various printers, FCL ascertained that Volk was charging about $6,000 more per month for each printing run of the three-in-one format than other qualified competitive bidders. These price comparisons were presented to Volk and FCL asked Volk not necessarily to meet the price of the lowest responsible bidder but at least to approach that price in order to keep FCL's business. Volk refused and indicated that the price would be further increased.

After consultation with Dr. Peale, FCL determined that the difference of approximately $6,000 per month was too great to be absorbed by a nonprofit organization funded solely by charitable contributions, and that unless Volk showed some willingness to compete, FCL would be forced to turn to other printers. On December 30, 1970 FCL wrote to Volk Jr. terminating the business relationship as of March 1, 1971. Def. Exh. OO. However, on January 12, 1971 FCL made one final request of Volk to lower its prices. Volk refused and told FCL to take its business elsewhere. Def. Exh. Y. On March 19, 1971 a patent application was filed in Lyon's name, directed to the three-in-one booklets then being distributed by FCL but printed by a new printer.¹

FCL was never advised that a patent application had been filed, nor was it advised of the issuance of a patent until May 25, 1976, more than six months after its issuance on November 18, 1975. In its letter of May 25, 1976 Volk charged FCL with infringement and offered it a nonexclusive license to practice the invention. Pl. Exh. 22; Def. Exh. RR. Further communication established that the...