Perbal v. Dazor Mfg. Corp.

• Citation: 436 S.W.2d 677
• Decision Date: 31 December 1968
• Docket Number: No. 2,No. 53029,53029,2
• Parties: Albert C. PERBAL and Martha L. Perbal, Appellants-Respondents, v. DAZOR MANUFACTURING CORP., a Corporation, Appellant-Respondent, and Percy L. Read, Respondent
• Court: United States State Supreme Court of Missouri

Page 677

436 S.W.2d 677

161 U.S.P.Q. 169

Albert C. PERBAL and Martha L. Perbal, Appellants-Respondents, v. DAZOR MANUFACTURING CORP., a Corporation, Appellant-Respondent, and Percy L. Read, Respondent.

No. 53029.

Supreme Court of Missouri, Division No. 2.

Dec. 31, 1968.

Motion for Rehearing or to Transfer to the Court En Banc

Denied Feb. 10, 1969.

Morris E. Stokes and Jerome A. Gross and Moser, Marsalek, Carpenter, Cleary & Jaeckel, St. Louis, for plaintiffs-appellants.

R. H. McRoberts, Marion S. Francis, St. Louis, for defendants-respondents.

Bryan, Cave, McPheeters & McRoberts, St. Louis, of counsel.

STOCKARD, Commissioner.

By four counts of their petition plaintiffs, as owners of certain patents, sought royalties alleged to be due under licensing agreements on items or devices manufactured and sold by Dazor Manufacturing Corp. and its predecessors. In a fifth count plaintiffs sought to hold defendant Percy L. Read personally liable for the royalties. Judgment in excess of $559,000 was entered in favor of plaintiffs on Counts I, III and IV, and Dazor Manufacturing Corp. has appealed. Judgment was entered for defendants on Counts II and V, and plaintiffs have appealed.

Dazor Manufacturing Corp. was incorporated March 2, 1938, with plaintiff Albert C. Perbal and Harry L. Dazey as two of its incorporators. Mr. Perbal was director and also was secretary-treasurer. On March 1, 1941, Mr. Perbal surrendered all of his interest in the corporation, it was dissolved, and its assets transferred to Harry L. Dazey, the then sole stockholder. Defendant Percy L. Read, a partner in an accounting firm formerly employed by Dazor Manufacturing Corp., acquired one half of the business and became a partner of Mr. Dazey. In February 1946, Mr. Read purchased the interest of Mr. Dazey, and the business was then incorporated under the name of Dazor Manufacturing Corp. with Mr. Read as the sole stockholder. We shall hereafter refer to the above described business enterprises as 'Dazor' without regard to the form of ownership.

Mr. Perbal applied for and on May 14, 1940 was granted a patent (No. 2,200,518) on what is described as an adjustable bracket structure (hereafter referred to as an 'adjustable bracket'), a device which permitted movability of an arm used on desk lamps and other items. With Mr. Perbal's permission this patented device was manufactured by Dazor and incorporated into its products. On August 31, 1940, at a time prior to the acquisition by Mr. Read of any interest in Dazor, Mr. Perbal and Dazor entered into a license agreement which, excluding recitals and provisions immaterial to the issues herein, was as follows:

'(1) Perbal hereby grants to Dazor the exclusive and universal right and license to manufacture and sell lamps and other devices embodying the invention described and claimed in patent No. 2,200,518 for the full life of said patent, unless this grant is otherwise terminated as hereinafter provided.

'(2) Perbal agrees that Dazor shall have the exclusive and universal right to manufacture and sell lamps and other devices embodying any improvements on the invention aforesaid, and this License Agreement shall extend to and include any patent or patents which may hereafter issue to him on such improvements, even though such improvements may not, at the time of this Agreement, have been conceived by him.

'(3) Dazor agrees to pay Perbal royalties equal to five (5%) percent of the net sales of all devices manufactured and sold by Dazor which come within scope of this agreement; net sales are herein defined as the gross sales, less sales upon which devices have been returned for credit, as billed F.O.B. Dazor factory less delivery charges and cash discounts; and a licensed device shall be deemed to be sold when it has been billed.

'(4) The aforesaid royalties provided for herein shall become due and payable on the 15th day of September, December, March and June of each year, and each such payment shall be for all royalties accruing during the three calendar months preceding said dates.

'(5) Dazor agrees to keep accurate accounting records of the sale of lamps or other apparatus or devices embodying the inventions of Perbal, and to render to Perbal, at the time royalty payments are made as provided in paragraphs (3) and (4), a written itemized account setting forth the number of articles sold, the sale price, and all other information showing how the amount of the royalty payment was computed; and further, Dazor hereby grants Perbal the privilege of examining its books, at reasonable times, concerning the sale of devices affected by this agreement.

'(6) Upon failure of Dazor to make payment for royalties and to render the statement of the royalty account on the day when such payment and account are due, as herein provided, Perbal may terminate this license upon sixty (60) days written notice to Dazor, but if payment is made and the statement of account rendered within said sixty (60) days notice period, this license shall remain in full force and effect.'

On October 20, 1942, Mr. Perbal was granted two patents, one for an electrical switch (No. 2,299,250) and the second for an improvement of the adjustable bracket (No. 2,299,251). On November 16, 1943, he was granted a fourth patent (No. 2,334,436) on a joint for electrical fixtures (hereafter referred to as a 'swivel joint').

In March 1941 Mr. Perbal had 'some disagreement' with Mr. Dazey who then owned all the stock in the Dazor corporation, and 'resigned his position as employee of the corporation,' and moved to California. In 1946 at the invitation of Mr. Read (after he became the sole owner of Dazor) Mr. Perbal returned to St. Louis and thereafter spent at least some of his time at the Dazor office and place of business although he apparently continued to maintain a residence in California. However, in 1952 he had a disagreement with Mr. Read (a letter from him indicates that he thought his abilities were not being fully appreciated) and he wrote Mr. Read that 'from now on I shall devote my time to other interests,' and apparently he did not thereafter go to Dazor's place of business.

Dazor manufactured and used the improved adjustable bracket, the electrical switch, and the swivel joint with the consent of Mr. Perbal. In April 1947 a supplemental agreement was entered into between Dazor and Mr. Perbal and his wife, she having received half ownership of the patents. After reciting that the Perbals were the owners of the four patents above mentioned, and that Dazor was the 'exclusive licensee' under the first patent (No. 2,200.518), it was provided that 'all terms and conditions' set forth in the agreement of August 31, 1940 were affirmed and ratified, and 'The said agreement * * * is extended to include, cover and embrace' the said four patents, and that Dazor was 'thereby granted an exclusive and universal license to manufacture and sell devices embodying the inventions of each of said Letters Patent.' It was further provided that 'this agreement shall continue to the full end of the term of the last-to-expire of said Letters Patent,' unless sooner terminated. In December 1947, the Perbals and Dazor entered into an agreement reducing the rate of royalty payments. This will be discussed subsequently in our consideration of plaintiffs' appeal as to Count II. Reference hereafter to the 'license agreement' refers to the terms of the agreement of 1940, as modified by the two amendments made in 1947.

In Count I plaintiffs alleged that from January 1, 1947 through October 20, 1959, (1) Dazor manufactured and sold lamps 'not of the 'floating arm' as originally invented by plaintiff Perbal but which nevertheless embodied electrical switches substantially as described in Plaintiffs' Patent No. 2,299,250,' and that (2) Dazor manufactured and sold 'certain lamps and kindred apparatus not of the 'floating arm' type as originally invented by plaintiff Perbal but which nevertheless embodied joints for electrical fixtures substantially as described in plaintiff's Patent No. 2,334,436,' but that Dazor did not include the 'full sales price' of the lamps and apparatus in computing and paying royalties.

Dazor admits that during the time alleged in Count I, (a) on advice of counsel royalties were computed on 'all lamps and other devices embodying the Perbal switch and no other Perbal invention on the basis of the sales value of the switch only, at 42 cents,' and not on the basis of the 'net sales,' as defined in the license agreement, of the lamps or other devices in which the switch was embodied, and (b) after 1948 (when there was made what Dazor contends to have been a basic change in the swivel joint) royalties were not paid on the 'net sales,' as defined, of lamps and other devices which embodied a swivel joint only because, on advice of counsel, it did not consider the swivel joint it was then using to be covered by the Perbal patent. Royalties were paid on all devices sold during the period covered by Count I which embodied the adjustable bracket.

The trial court found that the swivel joint embodied by Dazor in lamps and other devices after 1948 was covered by the license agreement, and that during the time alleged in Count I, Dazor, by reason of its license agreement, was obligated to pay royalties based on a percentage of the 'net sales,' as defined on all lamps and other devices embodying either a switch or a swivel joint. An account was had, and judgment on Count I in favor of plaintiffs was entered in the amount of $174,618.21.

We have no issue presented to us pertaining to the application of the statute of limitations. Dazor's contention on this appeal is that as to the claims made in Count I it does not owe royalties, in addition to that paid, because (1) Dazor furnished plaintiffs a quarterly accounting with each royalty payment which constituted and 'account stated or series of accounts stated' which were accepted by plaintiffs, and (2) in...