Oxford Varnish Corporation v. General Motors Corp., 8221.

• Decision Date: 16 May 1941
• Docket Number: No. 8221.,8221.
• Citation: 120 F.2d 44
• Parties: OXFORD VARNISH CORPORATION et al. v. GENERAL MOTORS CORPORATION et al.
• Court: U.S. Court of Appeals — Sixth Circuit

120 F.2d 44 (1941)

OXFORD VARNISH CORPORATION et al. v. GENERAL MOTORS CORPORATION et al.

No. 8221.

Circuit Court of Appeals, Sixth Circuit.

May 16, 1941.

W. J. Belknap, of Detroit, Mich., A. R. Golrick, of Cleveland, Ohio (Whittemore, Hulbert & Belknap, William J. Belknap, and William H. Gross, all of Detroit, Mich., and Bates, Golrick & Teare, of Cleveland, Ohio, on the brief), for appellants.

Stuart C. Barnes, of Detroit, Mich. (Barnes, Kisselle, Laughlin & Raisch, Stuart C. Barnes, and Arthur Raisch, all of Detroit, Mich., on the brief), for appellee.

Before HICKS, ALLEN, and MARTIN, Circuit Judges.

ALLEN, Circuit Judge.

This is an appeal from a decree dismissing a bill of complaint upon the ground that all claims in suit of four patents alleged to be infringed are invalid. Appellants prosecuted no appeal from the holding as to Casto and Lang, 1,807,894. The case involves Claims 1, 2 and 5 of Henry 1,548,465, issued August 4, 1925; Claims 7 and 8 of Von Webern and Hamant, 1,900,030, issued March 7, 1933, and Claims 1 and 4 of Casto and Von Webern, 1,946,483, issued February 13, 1934.

Appellant Oxford Varnish Corporation manufactures wood-graining equipment and licenses such equipment and methods under patents to which it has title. Appellant Motor Products Corporation is an exclusive licensee of Oxford Varnish Corporation for the automotive industry. Appellee Ternstedt Manufacturing Company manufactures automotive parts for motor cars built by appellee General Motors Corporation, and appellee Cerre Company produces photogravure plates used in the processes alleged to infringe. Ternstedt Manufacturing Company also manufactures the devices alleged to infringe under the Von Webern and Hamant and the Casto and Von Webern patents.

We first consider the Henry patent, and in this connection discuss at the outset the assignment of error directed to the refusal of the trial court to strike out paragraph 30 of the answer and the court's construction of the legal effect to be given the evidence introduced in this phase of the case. The principal facts alleged in paragraph 30 are proven by voluminous evidence, and the District Court's summary of them in its findings of fact and opinion is conceded by appellants to be "substantially accurate." It appears that Oxford was sued by the National Cash Register Company, then owner of the Henry patent, and by the Vance Manufacturing Company, for infringement. All parties were fully informed of the Cott-a-lap prior use, hereinafter described, and joined in asking the advice of an eminent patent attorney, who gave his considered opinion that in view of the Cott-a-lap use it was "questionable" whether the patent would withstand attack on validity, and recommended settlement. Oxford, the National Cash Register Company, and Vance then joined in a consent decree which held the Henry patent valid. Among other things Oxford paid $150,000, received all the stock of the Vance Manufacturing Company, and acquired the Henry patent, for which it gave licenses thereafter for a nominal consideration to parties that in any way acquired knowledge of the Cott-a-lap prior use. It purchased the engraving business of the Cott-a-lap Company, making its payments therefor run through the life of the Henry patent. Thereafter Cott-a-lap, when questioned as to the prior use of the photogravure process for reproducing wood grains, referred the inquiry to Oxford and at the latter's direction wrote a letter calculated to mislead the parties inquiring and to throw them off the scent as to the validity of the Henry patent. Oxford, as party plaintiff, entered into a second consent decree in the Eastern District of New York, which held all the claims of the Henry patent valid and infringed. Under the decree the alleged infringer purported to pay $25,000 damages, but a release and waiver of this amount was in the hands of the infringer before the decree was signed and payment was never made. Ample evidence exists sustaining the finding of the District Court that the parties were trying to use a worthless patent, known to them to be invalid, to stifle competition and regulate prices. Although the record showed substantial commercial success and the issuance of many licenses under Henry, the District Court held that the Henry patent should be accorded no greater presumption of validity than if it had been an ordinary paper patent. We think that this conclusion was correct, and must be affirmed. The negotiations and the circumstances surrounding them and the issuance of two consent decrees of this nature went very far to explain the success of the Henry patent. Whether or not by deliberate design, Oxford's system of giving parties who disputed the patentability of the Henry process or were in the possession of dangerous information a financial stake in the maintenance of its validity must have had a powerful effect in the decision of other corporations to accord or deny recognition of the patent.

The fact that a process has been recognized by competitors as a new and valuable contribution is entitled to consideration as evidence of invention. New Process Fermentation Co. v. Maus, 122 U. S. 413, 7 S.Ct. 1304, 30 L.Ed. 1193. It follows that facts tending to account for such apparent recognition on some other basis are also pertinent, and particularly when that basis is one of substantial financial advantage resulting from the suppression of facts relevant to the authenticity of the recognition. The character of the license agreements executed indicates that they were sought because of the nuisance value of a patent valid on its face and untested on the merits in adversary litigation. As in John E. Thropp's Sons Co. v. Seiberling, 264 U.S. 320, 330, 44 S.Ct. 346, 350, 68 L.Ed. 708, this was a case where the "purchase of peace" was a wise course for the licensees and also particularly wise for Oxford, the licensor. A similar contention that the giving of many licenses demonstrated patentability was overruled in Toledo Pressed Steel Co. v. Standard Parts, Inc., 307 U.S. 350, 356, 59 S.Ct. 897, 83 L.Ed. 1334, affirming 6 Cir., 93 F.2d 336.

The District Court did not err in denying the motion to strike paragraph 30 from the answer nor in ruling that the evidence offered thereunder was relevant as bearing upon and diminishing the weight to be accorded evidence of the general acceptance of the patent with reference to the question of validity.

The Henry patent is for a process for the reproduction of wood grain. The Von Webern and Hamant patent is for a surface decorating machine, and the Casto and Von Webern patent is for a surface decorating method and apparatus, both to be used with the Henry process.

Appellees reproduce wood grain on metal automobile parts and use such parts, and this is claimed to be infringement of the Henry patent. They use devices and processes claimed to infringe the other two patents. Appellees admit that the claims in suit of the Henry patent "will read on what we do," but contend that the process is old. They deny infringement of the other two patents. Assuming that appellees' answers to the interrogatories in evidence establish infringement of all three patents if they are valid, we consider the contest as turning upon validity.

The Henry patent states that its purpose is the reproducing of the graining of woods on substances other than woods, such as sheet steel. Claim 2 is typical of the claims in suit, and reads as follows:

"The process of reproducing the grain of wood on a solid surface which consists in staining the piece of wood to be simulated to accentuate the grain thereof; producing a photographic negative of the wood so prepared; producing from the negative a grained plate, the recesses produced by the graining varying in depth with the shade to be produced and arranged to simulate the graining of the original material; filling the plate with coloring matter; withdrawing the coloring matter from the recesses of the grained plate by means of an elastic roller to which the coloring matter adheres; transferring the coloring matter from the elastic roller to the surface to be grained and merging the masses one into the other so as to obliterate the lines of union."

The Henry application had a stormy history in the Patent Office. It was rejected repeatedly by the examiner for lack of invention, and on appeal the board of examiners in chief and the commissioner of patents sustained the examiner.

In an appeal taken to the Court of Appeals of the District of Columbia In re Henry, 55 App.D.C. 396, 6 F.2d 699, it was held that the process was patentable. The only prior art presented before that court was Herzog, 700,493, Saalburg, 923,799, Leicester, 13,987 (British patent), and a London Times article on Rembrandt Photogravure. Owing to the failure of the Patent Office's representative to present other instances of prior art, the court had the misconception that "the only prior patent in this particular art was that to Herzog," and since neither Herzog, Saalburg, nor Leicester, in the view of the court, solved the problem of transferring to a metal surface a "facsimile of the intricate grains of wood," the court ordered the issuance of the patent.

In the instant case many other prior patents were presented and numerous instances of prior art and prior uses not before the Court of Appeals of the District of Columbia. We agree with the District Court that every step of the Henry process is old. Many of the steps are described in the specifications as well known to the prior art. They teach that the natural wood desired to be reproduced is stained and photographed, reproducing the grain in negative "by the usual photographic process." A positive is then made in the "ordinary" manner from which a print is taken on a sensitized photogravure carbon tissue paper such as is "ordinarily employed" in the intaglio process of printing. The print is exposed to light through a...