Park-In Theatres v. Paramount-Richards Theatres

• Decision Date: 08 May 1950
• Docket Number: Civ. A. No. 1072.
• Citation: 90 F. Supp. 730
• Parties: PARK-IN THEATRES, Inc. v. PARAMOUNT-RICHARDS THEATRES, Inc., et al.
• Court: U.S. District Court — District of Delaware

90 F. Supp. 730

PARK-IN THEATRES, Inc. v. PARAMOUNT-RICHARDS THEATRES, Inc., et al.

Civ. A. No. 1072.

United States District Court D. Delaware.

May 8, 1950.

Arthur G. Connolly, of Wilmington, Del., Richardson Dilworth and Leonard L. Kalish, of Philadelphia, Pa., for plaintiff.

William S. Potter and James L. Latchum (Southerland, Berl & Potter), of Wilmington, Del., Charles R. Fenwick and Thomas B. Van Poole (Mason, Fenwick & Lawrence), of Washington, D. C., and Gibbons Burke of New Orleans, La., for defendants.

RODNEY, District Judge.

The general nature and broad factual basis of this action is stated in the opinion of this court reported in 81 F.Supp. 466.

This opinion is concerned with the motions of defendants, Paramount-Richards Theatres, Inc., Paramount-Richards Enterprises, Inc., and Kennington-Richards Enterprises, Inc., (1) for summary judgment, under Rule 56, Federal Rules of Civil Procedure, 28 U.S.C.A., as to the first and fourth causes of action of the amended complaint, (2) to dismiss the third cause of action under Rule 12(b) (6), and (3) to strike certain paragraphs of the amended complaint as to the first and third causes of action.

The original complaint alleged two causes of action; one was for an accounting for royalties under a patent license agreement and the second and alternative cause of action was based upon alleged patent infringement, in case the defendants should claim that their actions had not been pursuant to the license agreement. Certain defendants moved to dismiss the complaint under Rule 12(b) (6), on the ground that the license agreement contained provisions in violation of public policy, with the legal consequence that it was unenforceable and royalties could not be recovered upon the agreement and with the further consequence that a patent infringement action could not be maintained, because of misuse of the patent. This motion was argued before the court, and in its opinion, reported in D.C., 81 F.Supp. 466, it held that there was incorporated by reference in the license agreement a provision which was claimed to be in violation of the public policy established by the antitrust laws. Action on the motion was deferred so that the parties might have an opportunity to present facts to the court which might or might not have the effect of bringing this case squarely within the factual framework of the cases of National Lockwasher Co. v. George K. Garrett Co., 3 Cir., 1943, 137 F.2d 255, and McCullough v. Kammerer Corp., 9 Cir., 1948, 166 F.2d 759, certiorari denied, 335 U.S. 813, 69 S.Ct. 30, 93 L.Ed. 368, which were held to be generally controlling here.

Thereafter defendants filed certain affidavits tending to show the existence of competitive theatres of the same general type as those which were the subject matter of plaintiff's patent and the license agreement in suit. These affidavits were filed in connection with a motion for summary judgment based on the same contentions as the original motion to dismiss.

Before this motion for summary judgment was disposed of, plaintiff filed its amended complaint. In its opinion dated July 13, 1949 this court held that the amended complaint had been properly filed, and that the pending motion for summary judgment based upon the original complaint must fall.¹ Thereafter defendants renewed the motions for summary judgment and to dismiss with reference to the amended complaint which will be more particularly considered here.

The motion for summary judgment is directed to what are denominated the first and fourth causes of action of the amended complaint. These causes of action are, respectively, for recovery of royalties under the license agreement which was involved in the original complaint and alternatively for patent infringement. The motion to dismiss is directed to the third cause of action which is based upon the alleged failure of defendants to exploit the patent invention in suit in accordance with the agreement of the parties. These motions and the motions to strike will be taken up in order.

Motion for Summary Judgment on First Cause of Action of Amended Complaint

Defendants contend that summary judgment should be granted in their favor with respect to the first cause of action of the amended complaint, because that cause of action simply restates the first cause of action of the original complaint, in lengthier form, and seeks to recover royalties upon the license agreement, which is, it is said, unenforceable because it is in violation of public policy under the principle of the Lockwasher and McCullough cases.

In the previous opinion, reported in D.C., 81 F.Supp. 466, it was held that paragraph 3 of a form of a license agreement² was fully incorporated by reference into the agreement of November 20, 1940, and that the agreement in question would therefore be unenforceable, if certain facts were shown to exist. Plaintiff now contends that the amended complaint shows that the form of license agreement (Exhibit 3-A to the amended complaint) was never in fact executed, and that the understanding of the parties was contained in the agreement of November 20, 1940 (Exhibit 3), as demonstrated by the subsequent conduct of the parties. It argues from this that neither paragraph 3 nor any other part of the form of the license agreement was ever binding on the parties or ever became a part of the existing agreement, and furthermore that it should be given an opportunity to introduce evidence at the trial with respect to the understanding of the parties. I am unable to agree that these new allegations can alter the previous conclusion that paragraph 3 of Exhibit 3-A was an existing part of the agreement of November 20, 1940. The fact that license agreements in the form of Exhibit 3-A were not subsequently executed by these parties is immaterial on this point as its terms were already incorporated by reference in Exhibit 3 and were binding on the parties. It is also clear that the introduction of evidence to show that the understanding of the parties was different from what it appeared to be on the face of the formal written contract, there being no ambiguity, would be a violation of the parol evidence rule. The plain terms of the contract could not be varied by any such evidence or by these allegations of the amended complaint.

Plaintiff also seeks to escape from this court's previous conclusion by alleging that the term "drive-in theatre" was coined by R. M. Hollingshead, Jr., the original patentee of the patent involved in this suit, and that it means only the particular type of outdoor theatre invented by him. This allegation, as far as it concerns the interpretation to be given to the term when it appears in paragraph 3 of Exhibit 3-A, is merely a conclusion of the pleader and does not in any way affect the court's previous opinion that the term is generic.³

I conclude, therefore, that there is nothing in the amended complaint which requires a departure from the earlier ruling, provided that it was correct to say that this case is controlled by the Lockwasher case, and if the factual situation warrants the application of the principles set out in that case.

Plaintiff now argues strenuously that the decision of the Lockwasher case is not properly applicable to this case. Since the plaintiff distinguishes the Lockwasher case upon a basis not heretofore raised, such distinction must be more particularly considered. It is urged that the distinction exists in the nature of the patent license which in the Lockwasher case was a nonexclusive license and in the present case is an exclusive one. Plaintiff argues that an exclusive patent licensee is under an implied obligation to exploit the patented device in good faith and to refrain from the use of competing devices; that the exclusive license being given in consideration of royalties, the failure to exploit or use the device and the inability of the patentee to license others would result in no royalties and consequent loss to the patentee unless or until he moves to rescind the exclusive license because of nonuser. For this may be cited the cases found in the footnote.⁴

From this the plaintiff argues that since the defendant as exclusive licensee was under an obligation to exploit the patented device in good faith and to refrain from the use of competing devices, then an express agreement by the exclusive licensee to the same effect cannot be in violation of public policy.

There are here presented questions concerning the rights and liabilities of an exclusive licensee and the applicability of the same principles to an exclusive licensee for a patented article and to an exclusive licensee for a matter not covered by a patent.

There can be no doubt that in certain cases not involving a patent monopoly contracts can, and do, provide for an exclusive agency of a stated article and an express agreement not to engage in the promotion of a competing article. Of such nature are some automobile agency contracts,⁵ and as to other matters the principle is typified in this circuit by Brosious v. Pepsi-Cola Co., 3 Cir., 155 F.2d 99. This latter case is strongly relied upon by the plaintiff as being applicable here rather than the Lockwasher case. The Brosious case was entirely different from the Lockwasher case. It was purely a suit under the antitrust laws involving questions of interstate commerce, restraint of trade and conspiracy. No question of a possible misuse of a patent monopoly was involved and it is not apparent that the principles of the Lockwasher case were considered as having any application. The learned judge who wrote the opinion in the Lockwasher case also participated in the later Brosious case and no mention was made of the former. The Lockwasher case was followed in McCullough v. Kammerer Corp., 9 Cir.1948, 166 F.2d 759, and applied to a case of an exclusive license.

Upon a careful consideration of the opinion of the Court of Appeals in the Lockwasher...