Ohio Citizens Trust Co. v. Air-Way Electric App. Corp.

• Decision Date: 01 September 1944
• Docket Number: Civ. No. 4860.
• Citation: 56 F. Supp. 1010
• Parties: OHIO CITIZENS TRUST CO. v. AIR-WAY ELECTRIC APPLIANCE CORPORATION et al.
• Court: U.S. District Court — Northern District of Ohio

56 F. Supp. 1010

OHIO CITIZENS TRUST CO. v. AIR-WAY ELECTRIC APPLIANCE CORPORATION et al.

Civ. No. 4860.

District Court, N. D. Ohio, W. D.

September 1, 1944.

Geo. P. Smith and Effler & Eastman, all of Toledo, Ohio, for plaintiff.

George D. Welles and Fred A. Smith, both of Toledo, Ohio, Munson H. Lane, of Washington, D. C., George E. Kirk, of Toledo, Ohio, Jacobs, Blankenburg & May, of San Francisco, Cal., Joseph Robie, Mulholland, Robie & McEwen, Charles W. Owen, and Owen & Owen, all of Toledo, Ohio, and Hadsell, Sweet & Ingalls, of San Francisco, Cal., for defendants.

KLOEB, District Judge.

The question before the Court in this case is upon the motion of the Air-Way Electric Appliance Corporation (referred to herein as Air-Way) for a summary judgment in its favor against the defendants representing or succeeding to the interests of D. Ben Replogle and F. M. Ray, the original licensors (referred to herein as Replogle-Ray).

This case was begun by the filing of a complaint by the plaintiff pursuant to the provisions of Section 41 (26), 28 U.S.C.A., reciting that the plaintiff, as trustee under patent license agreements between Replogle-Ray and Air-Way, had in its custody by reason thereof certain property concerning which those parties were adverse claimants. The additional pleadings now filed making up the issues consist of answer and cross-claim of Mrs. Agnes Ray, answer of Air-Way to complaint in interpleader and claim of said defendant (for declaratory judgment in that its "Sanitizor Model" proposed to be manufactured by it after the war does not come within the patents of Replogle-Ray), reply of Air-Way to cross-claim of Mrs. Agnes Ray, amended answer and claim of Belle T. Replogle et al., to complaint, answer of Belle T. Replogle et al., to claim of Air-Way, answer of Air-Way to claim of Belle T. Replogle et al., reply of Air-Way to answer of Belle T. Replogle to claim of Air-Way, amendment to claim of Air-Way, answer of Mrs. Agnes Ray to claim of Air-Way, amended answer of Belle T. Replogle et al., to the amendment to the claim of Air-Way Paragraph 28(a), answer of Mrs. Agnes Ray to amendment to claim of Air-Way, answer of Belle T. Replogle et al., to the amendment to claim of Air-Way Paragraph 28 (a).

I. The motion for summary judgment asked the Court for an order "finding, adjudging and decreeing that the agreement of December 18, 1918, (the original license agreement between the parties), as amended by the agreement of November 16, 1927, and the several other amendatory agreements, between this defendant and D. Ben Replogle and F. M. Ray are, and at all times have been, contrary to law, invalid and unenforceable, and that there is no existing or future liability of any kind on the part of said defendant Air-Way to the other defendants herein, or any of them, or for the payment of any fees and expenses of the plaintiff herein, and that said defendant, Air-Way Electric Appliance Corporation, is entitled to the return to it of the $5837.08 heretofore paid in by it to the Clerk of this Court."

The contention of Air-Way on the above point is that the said agreements are "invalid because they constitute an unlawful attempt to enlarge the patent monopoly of the Replogle and Ray defendants, and to unlawfully restrain interstate commerce."

This contention is based upon the claimed effect of the language in the agreement of November 16, 1927, reading as follows: "(i) The second party, its successors or assigns, or any sub-licensees, may manufacture or sell, during the term of this agreement, any article or articles which compete with any or all of the articles manufactured or authorized to be manufactured or sold under this agreement, but in any such event or events, the trustee shall retain the title to any and all patents or applications for patents heretofore or hereafter assigned by first parties to the trustee, and it shall be wholly optional with second party as to whether it will manufacture or sell any articles under said patents or applications for patents, or any of them, heretofore or hereafter assigned to the trustee, but in any and in every such event or events, second party shall pay to first parties the same royalties that it would be required to pay to first parties if said competitive article or articles so manufactured or sold had been manufactured or sold under any patents or applications for patents, assigned by first parties to the trustee, it being the intention of this paragraph, and it is agreed that second party shall have the right in its uncontrolled discretion to use parts patented by others or unpatented, either in lieu of or in combination with parts covered by patents or application for patents covered by this agreement; but the royalty must be paid to first parties upon the Air-Way Sanitary System as a whole, and royalty must be paid to first parties upon any articles sold separate for use upon the cleaner, which in any way relate or pertain to the art of cleaning."

The theory of counsel for Air-Way is indicated by the following statement from their brief, to-wit: "In the present case, the minimum price at which the Air-Way cleaners are to be sold is, in effect, fixed by the royalty provision at a figure higher than it otherwise would be, because the amount of the royalty must be added in on every sale, and therefore the restrictions in the license contract have the effect of a price restricting clause in connection with the sale of unpatented articles and constitute an unlawful restraint of trade."

Counsel for Replogle-Ray contend that the provisions complained of in Paragraph (i) of the agreement of November 16, 1927, merely prescribe the basis upon which the royalties to be paid under the license agreements between the parties should be calculated, and that there is no invalidity in an arrangement by which the basis of royalties should be calculated upon the sales of articles involving patented parts as well as parts which are not covered by the licensed patents.

Counsel for Air-Way cite in support of their contention a number of cases which, upon examination, do not seem analogous on the facts to those admitted or uncontradicted in the pleadings and affidavits on file. Neither do any of these cases, so far as our examination discloses, lay down any general principle of law applicable to and determinative of the question in this case. Among those cases cited by counsel for Air-Way are: National Lockwasher Co. v. George K. Garrett Co., Inc., 3 Cir., 137 F.2d 255, in which the license provided that the licensee agrees to make no form of spring washers except those covered by licensor's patent, with the same provision in all its licenses, and the Court held licensor was using patent to suppress competition and extend its patent monopoly; Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 60 S.Ct. 618, 84 L.Ed. 852, in which, through the use of license agreements, the licensor controlled the prices at which fuel could be sold; Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363, in which licenses tied in with use of patented devices requirement that licensee use unpatented article sold by licensor; United States v. Masonite Corp., 316 U.S. 265, 62 S.Ct. 1070, 86 L.Ed. 1461, in which license agreement required licensees manufacturing under patent to distribute at fixed prices; Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 37 S.Ct. 416, 61 L.Ed. 871, L.R.A.1917E, 1187, Ann.Cas.1918A, 959, in which license required licensee to sell machines embodying invention under arrangement that purchaser could use same only for projecting certain kinds of film; Mercoid Corp. v. Minneapolis Honeywell Regulator Co., 319 U.S. 739, 63 S.Ct. 1328, 87 L.Ed. 1697, in which licensee of combination patent for heating system refused to license use of system unless unpatented switch manufactured by it were purchased; Mercoid Corp. v. Mid-Continent Investment Co., 319 U.S. 737, 63 S.Ct. 1319, 87 L.Ed. 1696, in which the same conclusion was reached; Barber-Colman Co. v. National Tool Co., 6 Cir., 136 F.2d 339, in which licensor had patent on process and machine to utilize process in making unpatented article, and license attempted to fix prices of unpatented articles produced by process and machine; Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. 165, which holds that licensee may set up that price fixing agreement in license is in violation of anti-trust laws, and to prove this may show that the patent is invalid. Also that price fixing is unlawful unless article on which price is fixed is covered by patent; Nachman Spring Filled Corp. v. Kay Mfg. Corp., 2 Cir., 139 F.2d 781, which held similar to the Sola case; United States v. Univis Lens Co., 316 U.S. 241, 62 S.Ct. 1088, 86 L.Ed. 1408, holding that price fixing after sale by manufacturing licensee to finishing licensee is invalid in that sale of the blanks to the finishing licensee relinquished the patent monopoly; Standard Oil Co. v. United States, 283 U.S. 163, 51 S.Ct. 421, 75 L.Ed. 926, holding that power to fix royalties may amount to price fixing if patent owner dominates industry; Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, 463, 58 S.Ct. 288, 82 L.Ed. 371, which is somewhat similar to the Morton Salt case, involving a process patent, and in which the patentee allowed the practice of the patent only with unpatented emulsion purchased from it; Carbice Corp. v. American Patents Development Corp., 283 U.S. 27, 51 S.Ct. 334, 75 L.Ed. 819, holding similar to the Morton Salt case; B. B. Chemical Co. v. Ellis, 314 U.S. 495, 62 S.Ct. 406, 86 L.Ed. 367, involving a method patent, holding similar to the Morton Salt case, and in which the license was on condition the material used be purchased from licensor. Other cases cited, but which seem to be not in point, are: Interstate Circuit v. United States, 306 U.S. 208, 230, 59 S.Ct. 467, 83 L.Ed. 610; Vulcan...