Mainland Industries, Inc. v. Timberland Machines and Engineering Corp.

• Decision Date: 06 August 1990
• Docket Number: No. 7,7
• Citation: 58 Or.App. 585,649 P.2d 613
• Parties: , 218 U.S.P.Q. 662 MAINLAND INDUSTRIES, INC., a Delaware corporation, Appellant-Cross-Respondent, v. TIMBERLAND MACHINES AND ENGINEERING CORPORATION, an Oregon corporation, E. H. Swafford, F. L. Miller and John Does 1 through 20, Respondents-Cross-Appellants
• Court: Oregon Court of Appeals

Page 613

649 P.2d 613

58 Or.App. 585, 218 U.S.P.Q. 662

MAINLAND INDUSTRIES, INC., a Delaware corporation Appellant-Cross-Respondent, v. TIMBERLAND MACHINES AND ENGINEERING CORPORATION, an Oregon corporation, E. H. Swafford, F. L. Miller and John Does 1 through 20, Respondents-Cross-Appellants.

No. 78-6-90; CA 19614.

Court of Appeals of Oregon.

Argued and Submitted April 2, 1982.

Decided Aug. 18, 1982.

Reconsideration Denied Sept. 29, 1982.

Michael J. Esler, Portland, argued the cause for appellant-cross-respondent. With him on the briefs were John W. Stephens and Esler & Schneider, Portland.

J. Pierre Kolisch, Portland, argued the cause for respondents-cross-appellants. With him on the briefs were Francine H. Gray, and Kolisch, Hartwell & Dickinson, Portland.

Before RICHARDSON, P. J., and THORNTON and VAN HOOMISSEN, JJ.

VAN HOOMISSEN, Judge.

Plaintiff Mainland Industries, Inc. (Mainland) appeals from a trial court decree that (1) ordered defendant Miller to assign a patent to Mainland, but allowed Miller a lifetime license in the patent, and (2) denied Mainland's prayer that a constructive trust be imposed on any profits earned by defendants as a result of their wrongful use of the disputed patent. Defendants cross-appeal, contending that the trial court erred in holding that Mainland owns the patent and in holding that certain documents in defendants' possession belong to Mainland. We review de novo.

Mainland manufactures sawmill equipment. Defendant Miller was an employee of Mainland or of its predecessor company, Chipper Machines and Engineering Corp. (CM&E), from 1953 until 1978. ¹ As Mainland's chief engineer, Miller was in charge of the firm's engineering department. His duties included inventing, designing, developing and engineering products and improving Mainland's product line. ² He also served as Mainland's chief troubleshooter, solving problems and handling customer complaints. When something went wrong, it was his responsibility to assign the work to another engineering department employe or to solve the problem himself.

The type of knife used in Mainland's product line is crucial. Miller realized that Mainland's headrig slabber would work better if its slotted knife could be eliminated. In the early 1970s, he began working on a new design. That effort led to a 1973 patent, which belongs to Mainland and is not in issue here. While the 1973 patent had the advantage of doubling knife life, users complained about the knife holder. Rather than assigning the problem, Miller handled it himself. He conceived a solution in 1976. ³ By changing the clamping mechanism, he designed a device that used an unslotted knife and that substantially eliminated the knife holder problem. The new design also simplified production, reduced costs and made service easier. Miller did not disclose his new design to his employer.

In late 1976 and early 1977, after Miller had conceived of the new design, Mainland received more complaints about its 1973 knife holder. When a customer in British Columbia reported problems, Miller went there to investigate. After a meeting with management, he reported that "no known solution" to the problem existed. In 1977, Miller filed an application for a patent on his new design, and a patent was granted in 1978. Because Mainland was unaware of the new design, it continued to replace its 1973 knife holders with an older model using slotted knives. The older model reduced some customer complaints, but at the expense of shorter knife life.

Miller retired from Mainland about two months prior to the issuance of the 1978 patent. He immediately began working for defendant Timberland Machines & Engineering Corporation (TM&E), a company that he and defendant Swafford, Mainland's former chief accounting officer, organized to manufacture and sell products that compete with Mainland's product line. Shortly after Miller began working for TM & E, one of Mainland's customers purchased a 1978 knife holder from TM & E as a replacement for one of Mainland's 1973 knife holders. That customer had experienced problems with the 1973 holder and believed that TM & E's 1978 design would solve those problems.

The 1978 Patent

The first question is whether the trial court properly awarded the 1978 patent to Mainland. Absent an agreement to the contrary, when an employe is hired to invent, or is assigned the responsibility for solving a particular problem, any resulting invention belongs to the employer. ⁴ When the employment relationship is general, an employe is entitled to retain any patent he procures, even though the patent relates to the employer's product line. U. S. v. Dubilier Condenser Corp., 289 U.S. 178, 187, 53 S.Ct. 554, 557, 77 L.Ed. 1114 (1933); Standard Parts Co. v. Peck, 264 U.S. 52, 58-59, 44 S.Ct. 239, 240-241, 68 L.Ed. 560 (1924); Solomons v. United States, 137 U.S. 342, 346, 11 S.Ct. 88, 89, 34 L.Ed. 667 (1890); see Blum v. Commissioner of Internal Revenue, 183 F.2d 281, 287 (3rd Cir. 1950); Marshall v. Colgate-Palmolive-Peet Co., 175 F.2d 215, 217, 81 P.Q. 517 (3rd Cir. 1949); Daniel Orifice Fitting Co. v. Whalen, 198 Cal.App.2d 791, 797-98, 18 Cal.Rptr. 659 (1962); see also Restatement (Second) of Agency, § 397 (1958).

Defendants contend that Miller and Alfred Maede, CM&E's founder, entered into an express oral agreement under which Miller is entitled to the patent. At trial, Miller testified that before he consented to work for CM&E, Maede agreed

"(t)hat anything that I invented on my own time, including my own materials and other facilities, would be my property alone. And following that, anything that I did in the office that was done with company time and materials, would be assigned normally to the company."

The testimony of Edmund Gurney, CM&E's former president, tended to corroborate Miller's testimony regarding the existence of some sort of an agreement. The existence of some agreement was also substantiated by Elford, who had received independent engineering assistance from Miller at Maede's suggestion. Schermerhorn, Mainland's patent attorney, testified that it was

"(his) understanding that the patents that belonged to CM&E were those that were made on company time and at the company expense. And that any work that Fred Miller did outside of company time and at his own expense would be his own patent."

Apparently discounting the testimony of Gurney, Elford and Schermerhorn, the trial court found that "The only evidence that such an agreement ever existed is Miller's word." The court concluded that no such agreement existed and that Miller's practice of assigning other patents related to the company's business to the company belied the existence of such an agreement. The trial court also found:

"As a professional engineer Miller was obliged to seek an express agreement with his employer if he wished to retain for himself any patents on improvements to his employer's product line, if he wished to compete with his employer on his own time, and if he wished to alter his basic duties of loyalty and as a trustee of his employer's interests."

We conclude that there was some sort of an oral agreement between Maede and Miller relating to when Miller was obliged to assign a patent to CM&E. In evaluating the evidence on that agreement, we look particularly to Miller's practice of assigning patents to the company. During his employment with CM&E, Miller obtained six patents. With the exception of the 1978 patent, he had assigned every patent that directly related to the company's product line to CM&E. The practice by an employe of assigning patents to his employer constitutes persuasive evidence of a duty to assign. See Perkins v. Standard Oil Co., 235 Or. 7, 15, 383 P.2d 107, 383 P.2d 1002 (1963) (course of conduct pursued by parties to contract over course of years is reliable evidence of parties' intent); see also Fish v. Air-O-Fan Products Corporation, 285 F.2d 208, 210, 128 P.Q. 4 (9th Cir. 1960); Marshall v. Colgate-Palmolive-Peet Co., supra, 175 F.2d at 217-18; E. F. Drew & Co. v. Reinhard, 170 F.2d 679, 683, 79 P.Q. 252 (2d Cir. 1948); Daniel Orifice Fitting Co. v. Whalen, supra, 198 Cal.App.2d at 797-98, 18 Cal.Rptr. 659.

Miller was not able to recall where he was or when he conceived of the idea for his new design, but it seemed likely to him that he thought about it at work. Miller was a salaried employe. He did not work specific hours. It was his practice to work evenings, both at and away from his employer's premises. Arguably, he developed his new design at home. However, the place where an invention is developed is not determinative of whether the employer or the employe is entitled to a patent. Under similar facts, the court stated in Daniel Orifice Fitting Co. v. Whalen, supra:

" * * * It is difficult to understand how (the employe) could cut his mind off and on at will under the circumstances, i.e., think of things during the lunch hour, for example, which would constitute an improvement to plaintiff's product, and later claim such improvement as his own because he was not working for the company at that particular moment when the thought struck him. * * * " 198 Cal App at 798.

See Crown Cork & Seal Co. v. Fankhanel, 49 F.Supp. 611, 57 P.Q. 518 (D.Md.1943); National Development Co. v. Gray, 316 Mass. 240, 55 N.E.2d 783, 788, 153 A.L.R. 973 (1944); Parker Rust-Proof Co. v. Allen, 231 Mich. 69, 203 N.W. 890 (1925). Miller conceded that he often worked on office projects at home. Mainland's other engineering employes did the same. Miller testified that, almost without exception, he was the only employe who worked with Mainland's patent attorney. He admitted that the 1973 patent idea probably came to him at home. Yet, there was no question in his mind but that the 1973 patent belonged to Mainland. In many respects the 1978 design incorporated the same features as the 1973 design. How Miller could concede that Mainland was entitled to the 1973...