Marconi Wireless Telegraph Co. of America v. National Electric Signaling Co.

• Decision Date: 22 April 1913
• Citation: 206 F. 295
• Parties: MARCONI WIRELESS TELEGRAPH CO. OF AMERICA v. NATIONAL ELECTRIC SIGNALING CO. et al.
• Court: U.S. District Court — Eastern District of New York

206 F. 295

MARCONI WIRELESS TELEGRAPH CO. OF AMERICA v. NATIONAL ELECTRIC SIGNALING CO. et al.

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

April 22, 1913

Sheffield Bentley & Betts, of New York City (James R. Sheffield and L F. H. Betts, both of New York City, of counsel), for complainant.

Herbert G. Ogden, of New York City (F.W.H. Clay, of Pittsburgh, Pa of counsel), for defendants.

CHATFIELD District Judge.

This action is based upon a charge by the complainant of infringement of United States letters patent No. 837,616 issued to Henry H. C. Dunwoody December 4, 1906, on an application filed March 23, 1906. The answer seeks to interpose a counterclaim in addition to the other defenses by which the defendants charge infringement on the part of the complainant of letters patent No. 706,744, August 12, 1902, No. 727,331, May 5, 1903 (reissued May 26, 1903 under No. 12,115), and No. 731,029, of June 16, 1903. These three patents set forth in the counterclaim are alleged to be the property of the defendants and, it will be noticed, are anterior in date to the patent upon which the complainant has brought suit. The Dunwoody patent has to do with an improved wave responsive or detecting device for wireless telegraph systems, composed of a mass or body of nonmetallic crystalline material. The three other (Fessenden) patents relate to receivers for currents produced by electromagnetic waves-- (1) a device or receiver; (2) an improved current actuated wave responsive device by which the conductivity of the receiving circuit shall be changed; (3) a method for utilizing the energy of waves derived from signal waves by means of a body of coherent material. (The above statement of the subject-matter of each patent is intended merely to be a sufficient description for the purposes of this motion, and is not intended as a full reference to the various patents.) Upon this counterclaim the defendants ask an injunction with an accounting, and it necessarily follows that, if successful upon the counterclaim, the amount recovered upon the accounting would be available in diminution or extinction of the amount which the complainant might recover if it were successful, or might result in a judgment in the defendants' favor, over and above the complainant's recovery.

The pleadings in this action have been interposed since the equity rules (adopted by the Supreme Court of the United States in 1912) have been in force, and under rule 33 (198 F. xxvii, 115 C.C.A. xxvii) the complainant has made a motion to 'strike out' the counterclaim, alleging that the paragraphs of the counterclaim fail to set forth facts sufficient to enable them to maintain the same, and that the allegations are insufficient in law to entitle them to the relief asked. The defendants have stated their alleged counterclaim in the following words:

'As a matter of set-off or counterclaim, arising out of the transaction which is the subject-matter of the complainant's complaint. * * * '

An objection which was raised on this wording (to the effect that the suggested counterclaim on the face of the answer showed that it did not arise from that transaction) having been disposed of upon the argument of the motion, and the defendants having asked leave to modify this language so as to charge the affirmative defense, 'either as a counterclaim arising out of the transaction which is the subject-matter of the suit, or as a set-off or counterclaim against the complainant, and which might be the subject of an independent suit in equity against him,' it is only necessary to state the grounds upon which the amendment was asked and allowed.

Rule 30 (198 F. xxvi, 115 C.C.A. xxvi) requires the defendant to set out his defense to each claim of the bill, and allows as many defenses as may be deemed essential. The second paragraph of this rule then says:

'The answer must state in short and simple form any counterclaim arising out of the transaction which is the subject-matter of the suit, and may, without cross-bill, set out any set-off or counterclaim against the plaintiff which might be the subject of an independent suit in equity against him, and such set-off or counterclaim, so set up, shall have the same effect as a cross-suit, so as to enable the court to pronounce a final judgment in the same suit both on the original and cross-claims.'

It will be noted that a counterclaim 'arising out of the transaction which is the subject-matter of the suit' must be included in the answer. Consideration of the rule and of the subject-matter of the present action indicates that in a suit for infringement of patent the transaction which is the subject-matter of the suit does not mean, on the one hand, the patent rights alone, nor, on the other hand, the particular act of infringement alleged. Either of these might be the transaction in question, but the word 'transaction' is broader in scope, yet narrower when applied to the particular set of circumstances from which the relations and rights of the parties have resulted. The same patent might have to do with entirely separate transactions, or the same infringement might result in establishing various rights, contract or otherwise. But the test of determining the transaction from which the suit arose would require a determination of the precise right (and its breach) about which the parties were litigating, and the attendant circumstances which were involved therein.

Rule 30 plainly requires that as between the parties to an equity action involving the steps to such a transaction, and the determination of rights between the parties growing out of the transaction, all claims shall be litigated in one suit, and that thus the matter shall be rendered res adjudicata and future litigation avoided. For this purpose the rule says that such counterclaims must be made a part of the answer in the first suit which calls into question this transaction. On the other hand, the ordinary relations of persons in business and society, whether with respect to a contract, a tort, or, for illustration, a patent, may give a defendant in his opinion a cause of action against the same party who is bringing a bill in equity against this defendant upon some transaction with which the defendant's claim has no point of contact beyond the identity of the parties to the suit.

The words of rule 30 provide that every and any such cause of action may be set off or counterclaimed by the defendant; that is, used by him, if successful, as a subtraction of diminution against the plaintiff's claim if the plaintiff be successful therein, and also available to the defendant for his own relief in case the plaintiff be unsuccessful. The inclusion of such a set-off or counterclaim without the use of a cross-bill is said to have the same effect as a cross-suit, and is made discretionary, or even optional, under the rule. The purpose of uniting independent suits is plainly to facilitate adjustments and to diminish litigation. But the doctrine of res adjudicata should not be invoked against a man, nor should he be charged with laches, for failing to insist upon prosecuting an independent action against some one who might happen to be suing him, if nothing were to be gained, and not even the convenience of witnesses were furthered by so doing.

The distinction, therefore, between the two parts of the second paragraph of rule 30 is not to be observed by defeating an alleged counterclaim, or construing it so strictly as to make it fall in the other class from that in which it has been cast. Technical errors are to be disregarded. Rule 19 (198 F. xxiii, 115 C.C.A. xxiii). The terms 'set-off' and 'counterclaim' as used in the statute are comprehensive, and do not seem to be intended to be mutually exclusive; that is, to be taken as requiring a matter urged in defense to fall strictly into the one class or the other.

A 'set-off' is generally considered to be a matter which will be capable of use as an offset to any recovery by the plaintiff. A 'counterclaim' is a matter which is capable of use as the basis for a judgment for relief against the plaintiff, and, of course, may be used as a set-off as well. A counterclaim under the New York Code may arise from the 'transaction,' or may be 'any other cause of action on contract,' etc. But all matters of set-off such as payment or claims for depreciation in value or a release, are considered as other 'defenses.' Sections 500 and 501, Code of Civil Procedure. But a counterclaim arising from an entirely different contract, and requiring substantially a separate verdict by jury at the trial of the plaintiff's case, goes further than to allow a cross-action upon a patent as a part of the trial of another patent case. A counterclaim falling in either class should therefore be allowed and considered (if the allegations are sufficient to show that it either arises out of the transaction or can be 'the subject of an independent suit in equity against' the plaintiff) subject to exceptions which will be considered later. The...