Phillips Screw Co. v. Amtel, Inc.

Decision Date19 September 1978
Docket NumberCiv. A. No. 74-4523-S.
Citation465 F. Supp. 3
PartiesPHILLIPS SCREW COMPANY, Plaintiff, v. AMTEL, INC., Defendant.
CourtU.S. District Court — District of Massachusetts

Arthur Z. Bookstein, and Edward F. Perlman, Wolf, Greenfield & Sacks, P. C., Boston, Mass., for plaintiff.

Caliste J. Alster, Richard R. Trexler and Todd S. Parkhurst, Olson, Trexler, Wolters, Bushnell & Fosse Ltd., Chicago, Ill., George M. Moriarty and Ropes & Gray, Boston, Mass., for defendant.

FINDINGS, RULINGS AND ORDER FOR JUDGMENT

SKINNER, District Judge.

In this action, plaintiff seeks a declaratory judgment that it is not liable for further royalty payments under a patent license agreement and recovery of alleged overpayments made under a mistake of law. Defendant has counterclaimed for unpaid patent royalties and for an accounting of alleged trademark royalties which it claims are due under the same agreement.

FINDINGS OF FACT

Plaintiff is engaged in research and design of metal fastenings. It does not manufacture, but licenses its inventions to manufacturers. Its principal achievement has been in the development of cross-recessed head screws and drivers, of which the "Phillips head" screw is the most familiar.

The defendant is the successor to Continental Screw Company ("Continental") and the assignee of the rights of Research Engineering & Manufacturing, Inc. ("Research") in the patent license agreement which is the subject of the action. Research was a wholly owned subsidiary of Continental, and is now a wholly owned subsidiary of the defendant. It was in fact merely the research engineering division of Continental, and its work was done by employees of Continental. It was separately incorporated for the sole purpose of licensing inventions developed and patented by Continental and its employees.

In the late 1950's, there arose a demand for a recessed head screw that could be driven with a high torque without causing the driver to slide out of the recess ("cam-out"). The principal companies involved in research and development were the plaintiff, Continental and American Screw Company. They determined to pool their resources and develop a single design which would be developed by the plaintiff and licensed to all manufacturers. In accordance with this plan, American Screw Company assigned its five "Muenchinger" patents to plaintiff and Research on behalf of Continental and licensed plaintiff to use its "Phipard" patents.* Other related patents were acquired from the Parker-Kalon Division of General American Transportation Corporation. Thereafter the plaintiff developed the POZIDRIV line of screws and drivers, and issued licenses under the Muenchinger and Phipard patents to various manufacturers to manufacture the POZIDRIV screw and also license the use of the trademark POZIDRIV.

The Muenchinger and Phipard patents dealt with the shape of the recess. The essential character of the POZIDRIV recess was the combination of a vertical driving wall of the recess with a slanted opposing wall, to permit the driver to be reversed out of the recess easily.

The agreement licensing plaintiff to use the Phipard patents was dated May 13, 1960, and is the agreement at issue in this action (hereinafter referred to as the Agreement). While the POZIDRIV design was based primarily on the Muenchinger patents, plaintiff deemed it necessary to acquire rights to the Phipard patents because the POZIDRIV design was a possible infringement of them.

The Agreement provided for the payment to Research of 12½% of the royalties on all domestic licenses of the POZIDRIV design and 12% of all royalties, domestic and foreign, arising from licensing of the trademark POZIDRIV. The Agreement by its terms expired at "the later of: the expiration of the license granted to PHILLIPS . . .; or the expiration of the last expiring license granted by PHILLIPS relating to POZ-I-DRIV screws and drivers or containing a sublicense or an immunity from suit under the license granted hereby; or the expiration of any license granted by PHILLIPS for use of the trademark `POZ-I-DRIV' or some other mark adopted by PHILLIPS in lieu thereof."

The last of the Phipard patents licensed to Phillips expired on July 28, 1970. Plaintiff asserts, however, and the defendant has not denied, that the only significant patent actually used in the POZIDRIV development was No. 2,592,462, for a recessed head fastener. This patent expired April 7, 1969.

The plaintiff continued paying royalties until March 7, 1973. The payment on that date was for the last quarter of 1972. The amount paid between April 7, 1969 and March 7, 1973 was $78,226.26.

Thereafter plaintiff has not paid any further royalties to the defendant under the May 13, 1960 agreement on the advice of its counsel that the Supreme Court's ruling in Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176, 13 L.Ed.2d 99 (1964), invalidated so much of the contract as extended the period of payment beyond the effective life of the patent.

After the patents were assigned, plaintiff established the POZIDRIV Engineering Program. This was intended as a cooperative venture among plaintiff and the potential licensees of POZIDRIV screws to work out the engineering necessary to mass-produce the particular recess shape without distortion of the screw ("fall away"), and also, and probably primarily, to establish a uniform set of engineering standards for the POZIDRIV screws and drivers. At least six concerns, including Continental and the plaintiff, participated in this engineering program. The bulk of the engineering work was done by plaintiff's engineers and Continental's engineers. Continental's engineers spent about 300 hours on the project.

I find that this was a voluntary effort on the part of Continental and the other screw manufacturers in their own self-interest. The work done by Continental was not consideration for the payments called for by the contract of May 13, 1960. On one occasion, Mr. Phipard, Continental's chief engineer, considered that Continental was doing more than its share of the work and billed plaintiff $470 for engineering services. (The bill was nominally that of Research, but the engineers were on the payroll of Continental.) On another occasion, Continental offered to do further work on the project at an hourly rate of $12.00.

In January of 1960, Phipard invented a design for cross-recessed screws which involved a punch for the head, which, as it made the recess also impressed four crescent "dimples" opposite and outside the interior corners of the recess. The effect of this was to create pressure inward on the wall of the recess at the same time as the punch was exerting radial pressure as it created the recess. The purpose was to reduce "fall away", or radial distortion of the outer wall of the recess resulting from the manufacturing process. Its potential use was not specific to the POZIDRIV fasteners, but was equally applicable to all cross-recessed head screws. The patents involved in the POZIDRIV program were concerned with the configuration of the recess. Reduction of "fall away" was a factor...

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