Monsanto Chemical Works v. Jaeger

• Decision Date: 23 January 1929
• Docket Number: No. 1892.,1892.
• Citation: 31 F.2d 188
• Parties: MONSANTO CHEMICAL WORKS v. JAEGER et al.
• Court: U.S. District Court — Western District of Pennsylvania

31 F.2d 188 (1929)

MONSANTO CHEMICAL WORKS v. JAEGER et al.

No. 1892.

District Court, W. D. Pennsylvania.

January 23, 1929.

Sterrett & Acheson, James R. Sterrett, Mark W. Acheson, Jr., and William B. Wharton, all of Pittsburgh, Pa., and Paul Bakewell, of St. Louis, Mo., for plaintiff.

H. Dorsey Spencer and Robert A. Norton, both of New York City, and Alter, Wright & Barron, George E. Alter, and Ralph D. McKee, all of Pittsburgh, Pa., for defendant Jaeger.

THOMSON, District Judge.

This is a bill in equity praying for specific performance of two written contracts, one relating to sulphuric acid and the other relating to phthalic anhydride.

The plaintiff owns and operates two manufacturing plants, one at East St. Louis, Ill., and the other at St. Louis, Mo. At the former plant, one of its products of manufacture is sulphuric acid and at the latter phthalic anhydride.

The defendants are experienced chemists, and are the inventors and discoverers of certain new processes and contact masses for the manufacture of sulphuric acid and phthalic anhydride. The chemists being desirous to sell, and the company to purchase, the exclusive rights to use said processes and contact masses and all their United States and foreign patents, when and as issued on the same, written contracts were entered into to effect such purpose, the one relating to sulphuric acid and the other to phthalic anhydride, which agreements form the basis of this suit. Each agreement consisted of two parts, designated respectively an "option agreement" and a "purchase agreement"; both documents relating to sulphuric acid being dated June 26, 1925, and those relating to phthalic anhydride both being dated July 23, 1925. In both option agreements the company was given the right to investigate such processes and contact masses to determine whether they were satisfactory. For this purpose the chemists agreed, in the sulphuric acid contract, to start immediately the preparation of their contact masses and the testing of these masses in the laboratories of the company and diligently proceed with the work until a sufficient amount of the contact mass or masses had been prepared for the company's semicommercial test. At least one of the contact masses prepared was to be a nonplatinum containing mass, which will give, on laboratory test, a conversion of S O2 to S O3 of from 97.3 per cent. to 98.5 per cent. During the time for preparation of such contact mass or masses, the company agreed to pay the chemists a salary of $500 each per month, and certain other designated expenses extending over an estimated period of three months from the date of the agreement. This salary, if the company exercised its option of purchase, to be deducted from any royalty payments due under the purchase agreement. The company agreed to furnish the chemists a laboratory for preparation of their contact masses and testing the same, and to supply, at its own expense, such small equipment and supply of chemicals as are reasonably required. The period of four months was given for the delivery of the contact mass to the company for its semicommercial test. At the time of such delivery, the chemists to furnish the company full data for calculating the cost of manufacture of their contact mass or masses on a commercial scale, guaranteeing to the company that the cost of a contact mass equal in all respects to that delivered for test will not exceed a given sum per pound or litre, for material or labor required to manufacture such mass.

In case such contact mass could not be produced by the company at a cost equal to, or less than, that specified in the guaranty, the company to be released from its obligation to pay royalties under the contract, and shall discontinue the use of said contact mass. The chemists conveyed to the company an exclusive option for the purchase of all their processes for sulphuric acid contact masses and their preparation, and an exclusive option to all United States patents and foreign patents which may be later granted on their inventions on sulphuric acid contact masses, "the terms of which purchase are set forth in the proposed purchase agreement attached to this option agreement and initialed by the parties." The option runs for a period of four months from the date of the delivery of the contact mass for the company's tests. If the company accepted the option, it was to notify the chemists in writing before the expiration of said four months.

The purchase agreement prepared and signed as aforesaid, contemporaneously with the option agreement, was to carry into effect the proposed purchase specified in the option agreement, in the event the company exercised its option of purchase within the time limit specified, namely, on or before June 26, 1926. In that event, "the chemists agree to comply immediately and will assign to the company an exclusive license to all patents, domestic and foreign, which have been, or may be, granted to the chemists on their inventions concerning contact masses for sulphuric acid, and on the processes of manufacturing such contact masses. The chemists will immediately file patent applications on all inventions they have made concerning all contact masses for sulphuric acid manufacture, and will do everything possible to insure the prompt granting of the patents. * * *" "The chemists will, at the request of the company, carry out any additional research work which the parties agree is necessary to allow the filing of other patent applications to properly protect their mutual interests, and it is agreed that the cost of such research work shall be paid for by the company." Then follow terms as to the royalties which shall be paid to the chemists for the period of five years, provisions for licensing other sulphuric acid plants, and other provisions not important in the determination of the present issue.

In like manner, the phthalic anhydride option agreement provided for the company's right to investigate the processes and contact masses for its manufacture; the chemists agreeing to start immediately the preparation of such masses and their testing in the laboratories of the company, proceeding diligently with the work until a sufficient amount of the contact mass or masses had been prepared for the company's semicommercial test. The mass prepared was expected to give, on test, a yield of 100 parts sublimed phthalic anhydride quality equal to Monsanto specifications. The mass or masses were to be prepared in the laboratories of the company, the latter supplying, at its own expense, such small equipment and such supplies of chemicals reasonably required to make the contact masses which the company desired to test on a semicommercial scale in co-operation with one or both chemists.

Very generally stated, the chemists proceeded under the sulphuric acid contract, furnished the contact mass or masses, the same were tested by the company, the necessary descriptive data was furnished for the use of the company, and the latter, on June 8, 1926, notified the chemists that it exercised its option of purchase under the contract.

During the period prior to June 21, 1926, the defendants drew up and filed in the Patent Office joint applications for letters patent, ten in number, covering a wide range of invention.

The phthalic anhydride contract was not carried into effect, the chemists leaving the premises on June 21, 1926, and the company having given no notice of its intention to accept the option of purchase. Each party attributes to the other the failure to consummate the agreement.

The issues here involved may be briefly stated as follows:

(1) As of what date does the sulphuric acid contract speak, June 26, 1925, its date, or June 8, 1926, the date of acceptance?

(2) What did the chemists agree to sell by virtue of the written provisions of that contract?

(3) Under a proper interpretation of the scope of the contract of sale, to what patents and patent applications is plaintiff entitled?

(4) Is the company entitled to damages for a breach of the phthalic anhydride option agreement on the ground that defendants did not give the plaintiff an opportunity to exercise its option of purchase under the agreement?

(5) Is Dr. Jaeger entitled, under his counterclaim for additional compensation for work in connection with the new converter, for work done in connection with the additional experiments in the phthalic anhydride field, and for designing and superintending the construction of a commercial plant for the manufacture of contact masses?

As to the first question: It is reasonably clear that the contract speaks as of its date, June 26, 1925. In the eye of the law, the two documents executed by the parties at the same time, for the same purpose, having a common date, in fact amount to a single option agreement; the terms of sale, for convenience, being inserted in a separate instrument. Just as in any other option agreement, the chemists were bound under the purchase agreement from the beginning; their release being dependent solely on the failure of the company to exercise its option. On the other hand, the company was not bound unless and until it exercised its option of purchase. This is the legal situation in every option agreement. That the purchase agreement was intended to be an agreement effective on June 26, 1925, is clearly shown by the fact that it is so dated, and that it was fully executed by all the parties on that date. The terms were agreed upon and definitely fixed. On the part of the chemists, nothing remained to be done; on the part of the company, nothing but the acceptance of the option.

Second: What did the chemists undertake to sell, and the company to buy, under the contract? Plaintiff claims that the contract covers all masses and processes then invented and discovered, including those resulting from the research work which the chemists had carried out and reported at the plaintiff's laboratory in...