N. V. Maatschappij Voor Industriele Waarden v. A. O. Smith Corp.

Decision Date08 December 1978
Docket NumberNo. 38,D,38
Parties, 3 Fed. R. Evid. Serv. 1482 N. V. MAATSCHAPPIJ VOOR INDUSTRIELE WAARDEN, Petitioner-Appellee, v. A. O. SMITH CORPORATION and Armor Elevator Company, Inc., Respondents-Appellants. ocket 78-7171.
CourtU.S. Court of Appeals — Second Circuit

John M. Calimafde, New York City (Francis J. Murphy, Hopgood, Calimafde, Kalil, Blaustein & Lieberman and William Pastore, Sacks, Montgomery, Molineaux & Pastore, New York City, of counsel), for respondents-appellants.

Ronald J. Offenkrantz, New York City (M. James Spitzer, Spitzer & Feldman, P.C., and Paul Fields, McAuley, Fields, Fisher & Goldstein, New York City, of counsel), for petitioner-appellee.

Before FRIENDLY, MULLIGAN and GURFEIN, Circuit Judges.

GURFEIN, Circuit Judge:

This is an appeal from a judgment by the United States District Court for the Southern District of New York, Hon. Dudley B. Bonsal, Judge, confirming an arbitration award of.$689,877.75 for breach of a patent and "know-how" license agreement, after trial on a stipulation of an issue assumed to have been reserved for the District Court in a former opinion of this court, 532 F.2d 874, 876 (1976). Appellants, A. O. Smith Corp. and its former subsidiary, Armor Elevator Co. (referred to collectively as "Armor"), 1 challenged the award in the District Court on the ground that the technical information conveyed under the agreement infringes valid patents held by third parties in the United States and Canada. On appeal, appellants contend that they were denied a fair trial on this issue because of erroneous evidentiary rulings and an overly hasty conclusion of the trial.

During the period relevant to this controversy, both Armor and the appellee ("MVIW") were engaged in the elevator manufacturing business appellant in the United States and appellee principally in Australia. 2 During 1972-73 the parties entered into negotiations that culminated in the license agreement presently involved. By this document MVIW agreed to provide Armor with patents and "know-how" necessary for manufacture of gearless elevators in return for certain royalty payments. A dispute arose over the adequacy of the know-how tendered by appellee and whether it would infringe certain patents held by a stranger, Westinghouse Corp. and its Canadian subsidiary, Westinghouse of Canada, Ltd. Appellant Armor refused to pay further royalties, and MVIW, claiming breach of contract, brought an action to compel arbitration under 9 U.S.C. § 4.

In the first round of litigation, Judge Bonsal granted MVIW's petition for arbitration and this court affirmed. 532 F.2d 874 (2d Cir. 1976). In affirming Judge Bonsal's order, however, we reserved for District Court decision Following arbitration Armor's affirmative defenses alleging antitrust violations and challenging "the validity of MVIW's United States patents." Id. at 876 (emphasis in original). Arbitration proceeded forthwith. Appellant there contended that a letter solicited by Armor from a Mr. Robert Fox of Westinghouse of Canada, Ltd. was a "claim of infringement" which triggered certain contractual remedies. The arbitrators held that the letter, which stated that a Patent conveyed to Armor as part of the know-how "probably infringe(d)" one of Westinghouse's Canadian patents, was not a "claim" of infringement. Appellant also contended that the know-how conveyed to Armor was inadequate. The arbitrators held that the defect in know-how was not so material as to constitute a breach. The arbitrators concluded that Armor's refusal to pay minimum royalties did breach the agreement, and that MVIW was entitled to.$689,877.75 in damages. After the arbitration award, the case was returned to Judge Bonsal.

The parties entered into a stipulation of issues before trial which is relevant to the disposition of this appeal. Armor agreed to dismiss, with prejudice, several of the affirmative defenses and counterclaims in its answer and amended answer. 3 The withdrawn claims comprised all of Armor's antitrust claims, as well as its challenges to the Validity of the MVIW Patents. In place of the withdrawn claims, the parties stipulated that there were two issues to be tried:

1) "(T)he assertion by Armor that MVIW conveyed to Armor technical information which infringe(s) patents of other persons in force in the United States and Canada;"

2) "(T)he assertion by Armor that MVIW knowingly conveyed to Armor technical information which infringe(s) patents of another . . . ."

These contentions and their effect, if any, on the license agreement were, by the terms of the stipulation, the sole matters to be determined at trial. 4

Before reviewing appellants' contentions concerning Judge Bonsal's handling of the trial, we pause to identify with some care what was and was not before the court. First, it is clear that Armor was not free to relitigate issues that had been decided by the arbitrators, in particular the question of whether it had received a "claim" of infringement from Westinghouse. Saxis S.S. Co. v. Multifacs International Traders, Inc., 375 F.2d 577, 581-82 (2d Cir. 1967). Second, by withdrawing its allegations of patent Invalidity, we think that Armor gave up any claim that the Patents underlying the license agreement would infringe on prior valid patents owned by third parties. What remained to be determined at trial was only whether the "technical Information " (emphasis added) conveyed by MVIW the know-how infringed on other patents. To put the matter in slightly different terms, even though MVIW's patents were valid, it remained a possibility that its exploitation of the patents in the form of technical know-how itself went beyond the scope of the patent monopoly and infringed on other patents in the elevator art. It is evident in the record that this distinction between patent and know-how was not carefully maintained by either party during the trial, but on appeal we regard it as our duty in assessing possible prejudice from excluded testimony to keep the difference between the withdrawn claim of patent invalidity and the claim of infringement by know-how firmly in mind.

Armor asserts three instances of prejudicial error in the trial below. Only two have been seriously pressed. 5 Armor presented several "expert" witnesses to testify that in their opinion MVIW's United States Patent No. 3,777,855 (the "MVIW patent"), infringed Westinghouse's United States Patent No. 3,589,474 (the "Westinghouse patent"). Armor also presented as an expert witness Mr. Robert Fox, the Canadian patent agent whose letters to Armor had been a major subject of litigation before the arbitrators. Evidently, Mr. Fox was to testify concerning his opinion that the Canadian equivalent of MVIW's United States Patent would also infringe the Westinghouse patent's Canadian counterpart. Mr. Fox was prevented from testifying about his opinion of "probable infringement", which he had expressed in his letter to Armor. The court refused to qualify him as an expert because Fox, who was not a patent lawyer, testified that he was not qualified under Canadian law to render an opinion concerning infringement in a Canadian court. Armor contends that Fox's testimony should not have been excluded and that the exclusion was prejudicial error.

Armor is correct that Fox did qualify as an expert in the federal court. But we do not agree that the error was prejudicial. Though Fox's qualifications as an expert on infringement were satisfactory, his testimony could have been excluded in any event on grounds of relevance.

The qualification of expert witnesses is governed by Federal Rule of Evidence 702. Although the Advisory Committee's Note indicates that Rule 702 broadens the range of admissible expert testimony, the Rule does not alter the well-established principle that assessment of an expert's qualifications lies within the sound discretion of the trial court, which may not be disturbed unless " 'manifestly erroneous.' " Fernandez v. Chios Shipping Co., 542 F.2d 145, 153 (2d Cir. 1976); 3 J. Weinstein & M. Berger, Weinstein's Evidence P 702(01)-(02) (1978); See 7 J. Wigmore, Evidence §§ 1918, 1923 (3d ed. 1940). Armor attempts to meet the heavy burden imposed by this rule by arguing that the court looked to labels rather than to experience in determining Fox's qualifications. Since it was established that Fox was a patent agent with considerable experience in the elevator art, Armor urges that neither his lack of formal training in patent law nor his incompetency to testify in Canadian courts should have barred him from rendering an opinion on infringement. We agree.

Judges are seldom masters of intricate mechanics or engineering. Accordingly, in patent cases, they must often rely on expert testimony to assist them in understanding the disclosures of a patent, the operation of allegedly infringing devices, and the teachings of prior art. Black, Sivalls & Bryson, Inc. v. National Tank Co., 445 F.2d 922, 926-27 (10th Cir. 1971); See Forbro Design Corp. v. Raytheon Co., 532 F.2d 758, 762 (1st Cir. 1976). As in other fields where expert testimony is of vital significance, the opinions of patent experts must often be formulated in conclusory terms that make reference to legal concepts or touch on central issues in the case. Black, Sivalls & Bryson, Inc. v. National Tank Co., supra at 926; See Fed.R.Evid. 704; 3 Weinstein's Evidence, supra, P 704(01). Nonetheless, the proper focus of expert testimony is technical, rather than legal, See Marx & Co. v. Diners' Club, Inc., 550 F.2d 505, 509-10 (2d Cir.), Cert. denied,434 U.S. 861, 98 S.Ct. 188, 54 L.Ed.2d 134 (1977), so that Fox's lack of legal training should not have been an impediment to his giving testimony.

These basic principles are not altered in the present case by the fact that Fox proffered testimony on infringement of a foreign patent, or that he would be disqualified from testimony on...

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