Leesona Corp. v. Cotwool Mfg. Corp., Judson Mills Div.

• Decision Date: 19 March 1963
• Docket Number: No. 8684.,8684.
• Citation: 315 F.2d 538
• Parties: LEESONA CORPORATION, Appellant, v. COTWOOL MANUFACTURING CORPORATION, JUDSON MILLS DIVISION, Deering Milliken Research Corporation, and Whitin Machine Works, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

315 F.2d 538 (1963)

LEESONA CORPORATION, Appellant, v. COTWOOL MANUFACTURING CORPORATION, JUDSON MILLS DIVISION, Deering Milliken Research Corporation, and Whitin Machine Works, Appellees.

No. 8684.

United States Court of Appeals Fourth Circuit.

Argued January 23, 1963.

Decided March 19, 1963.

Robert F. Conrad, Washington, D. C. (Raymond P. DeMember, and Watson, Cole, Grindle & Watson, Washington, D. C., on brief), for appellant.

Frederic P. Houston, New York City (James D. Poag, and Price & Poag, Greenville, S. C., Melvin Liebowitz and Otterbourg, Steindler, Houston & Rosen, New York City, on brief), for Deering Milliken Research Corp., appellee.

Before HAYNSWORTH, BOREMAN and BRYAN, Circuit Judges.

ALBERT V. BRYAN, Circuit Judge.

Arbitration provided for in a patent license covering machinery and processes has been temporarily stayed by the District Court from enforcement by appellant licensor who was seeking thereby to recover royalties of the licensee on products made with an assertedly infringing process and machine. The suspension is effective until the conclusion of a current suit instituted by the licensor against the alleged infringers. The licensor maintains here that neither the pendency of the suit, nor its outcome, may preclude licensor from a decision of the infringement and royalty issue by arbitration. It is both a contractual right based on the license, licensor asserts, and one secured also by the United States Arbitration Act, 9 U.S.C. §§ 1-14.

But we uphold the decree as a temporary injunction auxiliary to the defense of the licensor's suit. The order was one within the discretion of the trial judge and we find no misuse of his responsibility.

Licensor is the Leesona Corporation, the owner of three patents (the patent) covering certain textile machinery and processes. Licensee is Schwarzenbach Huber Company. The license, dated June 17, 1955, permits licensee itself to make the machines, or have them made, as well as to manufacture the products under the patented process. The arbitration clause is in these words:

"Any dispute or controversy arising under, out of, or relating to this agreement shall be submitted to arbitration in accordance with the rules at the time prevailing of the American Arbitration Association, New York City, New York, U.S.A. The decision of the arbitrators shall be final and binding upon the parties hereto and shall be available to the parties hereto as the basis for judgment in any of the United States, at the instance of the party entitled to any award given by the said arbitrators."

The primary, accused infringer is Deering Milliken Research Corporation. In 1957 it obtained the exclusive right to allow the use in the United States of a process and machine devised and constructed in France and competing with the process and machine of licensor Leesona. Thereafter Whitin Machine Works obtained the exclusive right to manufacture and distribute the French machine in the United States. Deering and Whitin approved use of the French machine by Leesona's licensee Huber who then put it into productive operation. Thus Huber was at the same time a licensee of Leesona and a holder of use-rights on the French machine from Deering and Whitin.

Leesona charges first that the French process and machine are an infringement of its patent. It then claims, as initially noted, that Huber is using the French process and machine to turn out products protected by the Leesona patent. On this basis Leesona predicates its claim against Huber and invokes the arbitration clause of the license agreement.

Before the claim for arbitration was asserted, Leesona had commenced the present suit in the United States District Court for the Western District of South Carolina against Cotwool Manufacturing Corporation, an affiliate of Deering. It averred infringement by Cotwool in using, under permit of Deering and Whitin, one of the French machines at its South Carolina plant. Whitin then began an action in the Federal District Court in Massachusetts for a declaratory judgment to the effect that Leesona's patent was invalid. Later, Deering and Whitin were made parties defendant to Leesona's South Carolina action.

At the instance of Whitin and for the convenience of the parties the District Court severed Leesona's complaint as against Whitin and transferred that part of the litigation to the Massachusetts Federal District Court. The South Carolina Court simultaneously suspended further proceedings in the action as against Deering and Cotwool. We heretofore approved the severance, transfer and suspension. Leesona Corp. v. Cotwool Manufacturing Corp., 308 F.2d 895 (4 Cir. 1962).

With the issue of infringement thus before the Massachusetts District Court, the District Judge in South Carolina believed the arbitration demanded by licensor Leesona of licensee Huber should be stayed until a determination of the litigation in Massachusetts, inasmuch as the arbitrator would have the same question before him.

Leesona argues that the Court had no authority so to interfere with the contractual right and obligation established by the license as between Leesona and Huber. It urges that the intent of the parties to save expense and time by providing for arbitration in lieu of suit to resolve their differences has been thwarted. It acknowledges the accepted practice of enjoining related suits to enforce a patent until its validity has been adjudged in an action pending between the principal parties to determine that question. Telephonics Corp. v. Lindly & Co., 291 F.2d 495 (2 Cir.1961); International Nickel Co. v. Martin J. Barry, Inc., 204 F.2d 583, 585-586 (4 Cir.1953). Nevertheless this course is not appropriate here, Leesona continues, first because the parties have expressly contracted otherwise, and secondly, because the underlying reason for the procedure is absent, the court decision in Massachusetts having no binding effect in the arbitration between licensor and licensee. Leesona also emphasizes its objection to the decree by stressing that the stay was granted at the instance of Deering, not of licensee Huber who was not a party to the suit.

The answer to this argument, however, is that...