Metro-Goldwyn-Mayer Corporation v. Fear

• Decision Date: 06 June 1939
• Docket Number: No. 8991.,8991.
• Parties: METRO-GOLDWYN-MAYER CORPORATION v. FEAR.
• Court: U.S. Court of Appeals — Ninth Circuit

104 F.2d 892 (1939)

METRO-GOLDWYN-MAYER CORPORATION v. FEAR.

No. 8991.

Circuit Court of Appeals, Ninth Circuit.

June 6, 1939.

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Loeb & Loeb, Milton H. Schwartz, Lyon & Lyon, Frederick S. Lyon, and Leonard S. Lyon, all of Los Angeles, Cal., for appellant.

Alton & Ratcliff and H. Edward Alton, all of Beverly Hills, Cal. (I. Parker Veazey, Jr., of Los Angeles, Cal., of counsel), for appellee.

Before WILBUR, GARRECHT, and HANEY, Circuit Judges.

WILBUR, Circuit Judge.

Appellant brought this action to secure a declaratory judgment to determine the rights of appellant and appellee under certain contracts between them. These contracts were in the form of letters, the first of which was directed by the appellee to appellant and dated October 19, 1928, and the second, directed by appellant to the appellee, was dated November 9, 1928. Both letters relate to an invention by appellee of a machine for developing and processing photographic film. Under these contracts the appellee was employed to build, and did build, a developing machine embodying his invention, and granted a license thereby to the appellant to manufacture and use such machines throughout the world. This right to use, however, was limited by the proviso that such machines could not be manufactured nor used "other than for their own use." The principal controversy between the parties is as to the proper interpretation of the phrase "other than for their own use" in the letter of October 19th, signed by the appellee, and the phrase "other than for our own use", contained in the letter of November 9th, signed by the appellant. More concretely, the primary question is whether or not the contract between the parties prohibits the use of such machines to develop film exposed by others and to expose and develop prints from negatives exposed and developed by and for others.

The trial court, in its conclusions of law, held: "That the words `for our own use' in said agreement dated November 9, 1928, mean for the use of plaintiff in processing the film of its own production, that is to say, treating or processing raw exposed film to produce either and both positives and negatives of pictures made by plaintiff, Metro-Goldwyn-Mayer Corporation, and excludes the use of such machine for hire to process film for any other motion picture producer or producers, excluding also the leasing or renting of such machines directly or indirectly, whether such machines remain in the possession of the plaintiff, or whether their possession is turned over to another."

It also held in the conclusions of law that the agreement of November 9, 1928 conveyed to the Metro-Goldwyn-Mayer Corporation a restricted license for manufacturing such machines for processing film of its own production, and did not convey to appellant any right or license to process any film for any other producer or concern, and that the processing of film for other producers for hire was a breach of the contract.

The declaratory judgment was to the same effect. The plaintiff appeals from the judgment.

The appellant was engaged in the business of producing film for exhibit in moving picture theatres throughout the world. It produced the picture, that is to say, employed the actors and actresses, made the scenes which were photographed. The exposed film was developed and positive prints therefrom were made, developed, processed and distributed to moving picture theatres for exhibition. The appellant had established a laboratory but much of its work, particularly the production of the positive film, known as release prints which were sent to the theatres, was done for appellant by commercial laboratories. Appellant planned to erect larger laboratory buildings and to install therein more extensive equipment for processing film than it had theretofore used. This step was made necessary by the changes in the industry resulting from the reproduction of dialogue and sound effects with the moving picture.

The appellee who was familiar with the problems of a moving picture laboratory, particularly with relation to the development of exposed film, believed that he had overcome one of the difficulties involved in the process resulting from the expansion or contraction of the film while passing through the various liquids used in developing, washing and fixing the film.

In the process of developing, the film is kept constantly in motion through the developing machine, but instead of passing directly through the machine is moved vertically, as well as transversely, through the liquid by passing over a series of rollers, some at the bottom and others at the top of the liquid bath. By this method the film, although moving continuously, is detained for a sufficient length of time in the developing and processing baths to permit the chemical changes necessary to develop the latent image in the film, to wash away the developing and fixing fluid, and also treat the film so that when the film emerges from the machine it is mounted in rolls for use, either in the printing or exhibiting machine.

The appellee had conceived the idea that if the bakalite rollers over which the film passed were mounted loosely upon the spindle, or shaft, around which they revolved there would be sufficient play to prevent the tearing of the film when it shrank and to take up the slack when it expanded. The amount of play in the individual mounting was very small, according to the exhibit shown us, probably not more than one-sixteenth of an inch, but in the aggregate it was believed would provide for such shrinkage or expansion as might occur in the development process.

The appellee had not constructed a developing machine but had satisfied himself from experiments with rather crude devices that his plan would work in practice. He had approached a number of concerns interested in the use of developing machines, but had not been able to secure acceptance of his idea. He approached the appellant and secured the agreement of October 19, 1928, in which he agreed to construct an experimental machine. This agreement is set out in the foot-note.¹ The developing machine thus produced gave sufficient promise of success so that the appellant employed the appellee to construct a larger developing machine which it contemplated using in its business. The appellee, after proceeding with the employment a short time, insisted upon a more definite written statement of the terms of the contract. This was prepared in the form of the letter of November 9, 1928, and is shown in the foot-note.²

Appellant contends that the agreement concerning the manufacture and use of the machines was solely a license and, consequently, was a release from any patent monopoly appellee might acquire and that the limitation provision of paragraph six of the letter of November 9, 1928 (note 2) was not a contract on the part of appellant to limit its use. It contends that if it used the developing machines outside the scope of the license the only remedy of appellee would be for patent infringement; that no action would lie for breach of contract. We conclude, however, that the words limiting the right to use was a promise or covenant by the appellant to confine its use of the machines to its "own use". If the words were not of themselves a covenant by appellant one would be implied. See, Cassidy v. Evan L. Reed Mfg. Co., D. C., 293 F. 797.

Appellant contends that the agreement not to use the machines other than for its own use only prohibited the rental of the machines to other parties for use by them. It contends that the right to use the machine for its own use included the right to use the machine to process films for other companies for hire. The appellee on the other hand contends that the limitation clause is an agreement by appellant not to use the machines except to process films of its own production and that the contract did not license appellant to process films produced by other companies.

Testimony was offered and received to aid in the interpretation of the phrase "other than for our own use". The position of the parties and the rulings of the trial court with relation to the admissibility of evidence concerning what was said during the negotiations leading up to the contract are not altogether consistent. Much of the evidence deals with undisputed facts but upon some points the evidence is sharply conflicting. The witnesses all appeared before the court and under these circumstances the decision of the trial court upon the credibility of witnesses is presumptively correct and should not be disturbed unless manifestly erroneous. United States v. Mammoth Oil Co., 8 Cir., 14 F.2d 705, 717; United States v. Sands, 10 Cir., 94 F.2d 156, 161; Aro Equipment v. Herring-Wissler Co., 8 Cir., 84 F.2d 619; Nygard v. Dickinson, 9 Cir., 97 F.2d 53, 58; Easton v. Brant, 9 Cir., 19 F.2d 857.

The trial court found that while the appellant was doing "outside work" in violation of its contract of November 9, 1928, its officers denied that it was doing such work, and stated to appellee, "you know we are restricted from doing outside work according to your contract".³

According to the evidence this statement was made sometime after April 10, 1935. These statements were attributed by the appellee to John M. Nickolaus who was in charge of appellant's laboratory and had participated in negotiations leading up to the contract of November 9, 1928, and to Edgar J. Mannix, appellant's vice-president and general manager.

Ray C. Wilcox, an employee of the appellee, corroborated the appellant only in the statement that Mr. Nickolaus denied that the appellant was doing any outside work.⁴ But he fully corroborated appellee in the statement that Mr. Mannix stated that the contract in question "prohibited them from doing any films other than their own films". Mr. Nickolaus and Mr. Mannix each denied making such statements.

Appellant contends that in addition to such...