Neon Signal Devices v. Alpha-Claude Neon Corp.

• Decision Date: 12 December 1931
• Docket Number: No. 2557.,2557.
• Citation: 54 F.2d 793
• Parties: NEON SIGNAL DEVICES, Inc., v. ALPHA-CLAUDE NEON CORPORATION.
• Court: U.S. District Court — Western District of Pennsylvania

54 F.2d 793 (1931)

NEON SIGNAL DEVICES, Inc., v. ALPHA-CLAUDE NEON CORPORATION.

No. 2557.

District Court, W. D. Pennsylvania.

December 12, 1931.

Byrnes, Stebbins, Parmelee & Blenko, of Pittsburgh, Pa., for plaintiff.

Brown & Critchlow, of Pittsburgh, Pa., for defendant.

THOMSON, District Judge.

This litigation arises over letters patent No. 1806429, dated May 12, 1931, granted on the application of the inventor, William B. McGill, to Neon Signal Devices, Inc., as assignee, covering a certain improvement in traffic signals.

The bill alleges infringement and prays for an injunction restraining the defendant from the manufacture, sale, or use of the patented device. The validity of the patent is not controverted, but infringement is denied because defendant claims it possesses an irrevocable, equitable license or shop right to manufacture, use, and sell the invention disclosed and claimed in the letters patent.

This raises a single issue, viz., the existence of the shop right in question. This right must be determined under the facts of the case and the principles of law applicable thereto.

The nature of an equitable license or shop right very clearly appears in the authorities, depending, in each particular case, on the circumstances disclosed.

The doctrine of the shop right is of equitable origin. The principle involved is that where an inventor or owner of an invention acquiesces in the use of the invention by another, particularly where he induces and assists in such use without demand for compensation or other notice of restriction of the right to continue, he will be deemed to have vested the user with an irrevocable, equitable license to use the invention. This situation between the inventor and employer might, of course, arise by mutual agreement, but generally the situation arises where the inventor induces his employer to proceed and not only fails to object to the use, but stands by or assists, while permitting his employer to assume expense and put himself in a position where it would be to his detriment to be compelled to relinquish further use of the invention. McClurg v. Kingsland, 1 How. 202, 11 L. Ed. 102; Solomons v. United States, 137 U. S. 342, 11 S. Ct. 88, 34 L. Ed. 667; Gill v. United States, 160 U. S. 426, 16 S. Ct. 322, 40 L. Ed. 480.

The doctrine is aptly set forth in Walker on Patents (6th Ed.) vol. 1, p. 442: "Where a man is employed by another party, to work in a particular business of the employer; and where, at any time before the end of that employment, he conceives an invention which appears to be applicable to his employer's business; and where during that employment, he uses the property of the employer in reducing that invention to practice; and where he sees the employer thereupon proceed to make, use, or sell, specimens of that invention, and does not thereupon demand any present or prospective compensation therefor, on account of any present or prospective patent thereon; an implied license or shop `right' results to the employer, under any patent that may be granted on that invention, in pursuance of any application of that employed man."

The case of Tin Decorating Company v. Metal Package Corporation et al. (D. C.) 29 F.(2d) 1006, which was affirmed by the Second Circuit Court of Appeals, at 37 F.(2d) 5, reviews the authorities and sets forth the doctrine with precision and clearness.

While it is generally true that questions of shop right arise between employer and employee, such right is not restricted alone to the case of an employer, as the doctrine is only a phase of the broad doctrine of estoppel. A shop right may arise through any permissive use of the invention, and particularly so where the inventor instigates such use and participates in it. Robinson on Patents, vol. 2, p. 641, explains and illustrates such a situation.

The doctrine is broad enough to include a case of the permissive use of a person other than an employer. De Forest Radio v. U. S., 273 U. S. 236, 47 S. Ct. 366, 367, 71 L. Ed. 625. In this case it was held that the government of the United States had an implied license to practice an invention where the rights were owned by a corporation not an employee of the United States. Mr. Chief Justice Taft in this case said: "No formal granting of a license is necessary in order to give it effect. Any language used by the owner of the patent or any conduct on his part exhibited to another, from which that other may properly infer that the owner consents to his use of the patent in making or using it, or selling it, upon which the other acts, constitutes a license, and a defense to an action for a tort."

Naturally, the scope of an implied license depends upon the circumstances which created it, and it rests ultimately upon the intention of the parties. Withington-Cooley Mfg. Co. v. Kinney (C. C. A.) 68 F. 500, Tin Decorating Co. v. Metal Package Corp., supra.

Like all equitable doctrines which have ultimate justice only in view, the doctrine we are considering has been greatly enlarging the rights of the employer and increasing the scope of his license.

Turning now to the evidence:

There is much conflict of testimony, and out of this conflict and the conceded or clearly established facts, the court has endeavored to determine the material and controlling facts upon which the issue must turn. These, I find to be as follows:

The Gardner Sign Company was incorporated in 1928, its business consisting in the manufacture and sale of advertising signs, largely those using Neon tube illumination. The president of the company was William Gardner, who occupied that position up to the time the company was taken over by the Alpha-Claude Neon Corporation, the present defendant. The treasurer and general manager of the company during its entire life was C. E. Rafter. For the sake of brevity, the Gardner Sign Company will be referred to as the Gardner Company and the Alpha-Claude Neon Corporation, as the Alpha Company.

Some time in the late spring or early summer of 1929, McGill made to the officers of the Gardner Company the suggestion that they bid for traffic signal business, which was then in contemplation by the city of Pittsburgh; McGill, at the same time, disclosing an idea concerning the construction of such signs. At that time, McGill had been employed for some weeks by the company, but this was the first that Gardner had heard about McGill's idea.

Both Rafter and Gardner were interested in McGill's suggestion, and the latter was authorized to proceed with the development of his ideas at the expense of the Gardner Company. McGill was not only active in inducing the Gardner Company to enter this field, but was active in developing improvements in his original idea, and actively participated in seeking and obtaining the city order.

As the matter proceeded with the city, it became necessary to build several models, varying in their essentials, before a construction was obtained which was satisfactory to the city officials, and this construction is that covered by the patent. These models, representing changes in construction, were made on the premises of the Gardner Company and at their expense.

The Gardner Company obtained the city contract for a total of 107 signals, after submitting various models to the city, and McGill was instrumental in securing this order. As it was then situated, the Gardner Company was not equipped to undertake the manufacture of these signs, and had to purchase the tools to complete the order.

McGill supervised the construction and installation of these signs, both for the Gardner Company, and for its successor, the defendant herein. The Gardner Company attempted to sell the signals, generally to municipalities, and McGill participated in those efforts.

When McGill was first employed by the Gardner Company, he was paid a commission determined by his sales. That mode of payment continued until after the contract had been awarded to the city of Pittsburgh. He was then placed on a flat salary, which was considerably greater than his average weekly commissions, as shown by the company's books. By way of additional compensation for the time of development of the aforesaid models, McGill was paid, retroactively, for the period of three weeks, the sum of $180. He also received a commission of $5 for each of the signs sold, or a total of $535. He made no demand for royalty, as shown by his own testimony.

From these material and vital facts so found, a shop right would arise in the Gardner Company unless it be overthrown by other circumstances.

Plaintiff seeks to overcome the effect of the foregoing facts by alleged notice that the company's rights were restricted to the Pittsburgh order alone. This position rests for support largely on the testimony of McGill and a letter dated January 3, 1930, written by McGill, directed to the attention of Mr. Rafter, treasurer of the Gardner Company. This letter is as follows:

"Dormont, Pa., Jan. 3, 1930. "Gardner Sign Co. "Pittsburgh, Pa "Dear Sirs: Attention of Mr. C. E. Rafter Treasurer....