Pitney-Bowes, Inc. v. Mestre, 78-1097-Civ-SMA.

• Decision Date: 12 February 1981
• Docket Number: No. 78-1097-Civ-SMA.,78-1097-Civ-SMA.
• Citation: 517 F. Supp. 52
• Parties: PITNEY-BOWES, INC., Plaintiff, v. Celina MESTRE, Personal Representative of the Estate of Luis Mestre, Deceased, Defendant.
• Court: U.S. District Court — Southern District of Florida

517 F. Supp. 52

PITNEY-BOWES, INC., Plaintiff, v. Celina MESTRE, Personal Representative of the Estate of Luis Mestre, Deceased, Defendant.

No. 78-1097-Civ-SMA.

United States District Court, S. D. Florida, Miami Division.

February 12, 1981.

Lars I. Kulleseid, Jesse J. Jenner, Frank L. Politano, Fish & Neave, New York City, William Dunaj, Mershon, Sawyer, Johnston, Dunwody & Cole, Miami, Fla., for plaintiff.

Jerome H. Shevin, Sparber, Shevin, Rosen, Shapo & Heilbronner, P. A., Miami, Fla., for defendant.

MEMORANDUM OPINION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

ARONOVITZ, District Judge.

NATURE OF ACTION

Plaintiff Pitney-Bowes commenced this declaratory relief action pursuant to 28 U.S.C. §§ 2201, 2202, seeking a construction of certain license agreements and a declaration of its rights and obligations under those agreements. The five written agreements in issue were entered into by Defendant Mestre¹ and Thomas Collators Industries, Inc., a wholly owned subsidiary of Thomas Collators, Inc. (hereinafter collectively referred to as "Thomas"), on the following dates:

(1) the Rotary Collator Agreement — October 3, 1958;

(2) the Vertical Collator Agreement — October 16, 1959;

(3) the A-10 Collator Agreement — September 1, 1962;

(4) the Auto-Sorter Agreement — December 30, 1965; and,

(5) a written Amendment to the Agreements —December 30, 1965.

Pitney-Bowes, as successor in interest to Thomas, specifically seeks a declaration:

1. That each of the four machine agreements, as amended by the 1965 Amendment, expires on the expiration date of the last to expire patent licensed under that agreement;

2. That each agreement is unenforceable after the expiration date of the last to expire patent licensed under that agreement; and 3. That Pitney-Bowes may continue to make, manufacture, use, import, export, sell and deal in the machine that is the subject of the agreement, after expiration of the agreement, without entering into a further agreement with Mestre and without paying further royalties to Mestre.

Mestre, on the other hand, seeks a declaration:

1. That the agreements in dispute are in full force and effect;

2. That the agreements licensed "trade secrets and know-how" and that Pitney-Bowes is obligated to pay royalties to Mestre for as long as it manufactures and sells machines licensed by the agreements; and

3. That an accounting be had and that Pitney-Bowes be required to make all royalty payments presently owing to Mestre.

PROCEDURAL POSTURE

Pitney-Bowes filed this action subsequent to a demand for arbitration made by Mestre. The demand for arbitration asserted, inter alia, that Pitney-Bowes was obligated to make royalty payments on the sales of Mestre's licensed machines up to and including the termination date of the license agreements and that Pitney-Bowes could not thereafter manufacture or market the machines unless new agreements were executed. Along with its complaint, Pitney-Bowes also filed a motion to enjoin Mestre from proceeding further in the arbitration proceeding. That motion was granted by Order of this Court dated November 8, 1978, on the grounds that the "claims present issues too intertwined with federal patent law and policy to be arbitrable."

The matter is now before the Court on the parties' Cross-Motions for Summary Judgment. On November 12, 1980, the Court heard oral argument on the cross-motions. See Fed.R.Civ.P. 56(c). The principal issues raised by the parties have been comprehensively briefed and argued, and, in the view of the Court, those issues can be stated as follows:

1. (a) Whether the agreements in question were licenses for the exclusive use of "trade secrets and know-how" which were not conditioned on the procurement of patents; or

(b) Whether the agreements were patent licenses for the exclusive use of the licensee pursuant to the provisions and policies of federal patent law; or (c) Whether the agreements were hybrid licenses granting rights both to "trade secrets and know-how"^1a and to claims of patents.

2. Whether the agreements, because of their nature, are subject to federal patent law, which precludes the extension of royalty obligations beyond the life of the last to expire patent licensed under the agreement.

3. Whether the agreements provide that the exclusive rights revert to the licensor at the expiration of the term of each agreement; or whether the licensee is free to manufacture and sell the machines, which were the subject of the license, without royalty obligation after the license expires.

THE PARTIES

Mestre was a renowned inventor of paper handling equipment, including automatic collating devices. In 1954, Mestre designed and later built a prototype of a machine called the Rotary Collator. Some time in 1957, Pitney-Bowes showed an interest in the machine and recognized its potential in the automatic collator market. Pitney-Bowes decided not to seek a license for the machine at that time, apparently because production costs were too high. Additionally, Pitney-Bowes estimated that three years of development work would be necessary before the Rotary Collator could be produced for sale. Thomas Collators Industries, Inc. observed and developed an interest in the machine and in 1958, after negotiation, executed the Rotary Collator Agreement with Mestre. Within six months of this agreement, Thomas, with Mestre's assistance, had begun production and entered the collator market. Thomas soon became a successful participant — if not a leader — in the business of manufacturing and marketing automatic collators. By 1965, Mestre and Thomas had negotiated three (3) additional agreements covering the Vertical, A-10 and Auto-Sorter collator machines.

In 1965, Pitney-Bowes began the process of acquisition of Thomas. As a condition precedent to acquisition, Pitney-Bowes insisted that the four collator agreements be modified. The 1965 Amendment Agreement was the result.

THE AGREEMENTS

For reasons which the discussion below will make apparent, each agreement requires and merits individualized examination. What follows is a synopsis of the pertinent provisions of the agreements which are in issue here.

1. The Rotary Collator Agreement (1958).

The Rotary Collator Agreement was a product of the combined efforts of representatives of both Mestre and Thomas.² Under the agreement Mestre granted to Thomas the right to manufacture and market the "inventions embodied in the Rotary Collator," which rights are exclusive against Mestre and his assigns.³ The license on the then-existing Rotary Collator was granted to Thomas without reference to and with no express condition upon the issuance of patents on the machine. At the time of the execution of the agreements, there were no patents issued on the Rotary Collator; although two patent applications were pending which subsequently were granted.⁴ Under the agreement, in exchange for the license, Thomas contracted to pay Mestre royalties on each machine manufactured and sold, up to a maximum royalty payment of $975,000. The agreement did not, however, provide for a specific date of expiration.⁵

Under the Term provision (¶ 2(a)-(d)), the agreement established grounds upon which the agreement could be terminated: at the option of Thomas, in the event (1) a competent judgment determined Thomas had infringed a patent owned adversely to Mestre, or (2) Mestre breached the agreement or any warranty therein; or, at the option of Mestre, in the event (1) Thomas breached the agreement, or (2) Thomas was decreed insolvent or bankrupt.

Pursuant to the agreement, Mestre was required to supply Thomas with two prototypes, a set of shop experimental drawings and a parts list. Mestre was not required to provide tools, dies, jigs, fixtures or personal services to Thomas, but the agreement indicated that Mestre could do so at his discretion.

2. The Vertical Collator Agreement (1959).

The Vertical Collator Agreement was the product of negotiation between Mestre and Thomas and was executed before any patents were issued on the Rotary Collator. The agreement granted to Thomas the sole and exclusive license to manufacture and market the Vertical Collator specifically described in patent applications.⁶ There were patent applications (on the machine) pending at the time of execution of the agreement, which applications were subsequently granted. The agreement provides for its expiration upon the death of Mestre, after seventeen years or upon the expiration of the last to expire patent, whichever is greater. The agreement lists the same four grounds for termination mentioned above. Included in the Term Article is a provision requiring Thomas and its assignees and sublicensees to keep secret all confidential information relating to the Vertical Collator.⁷

Pursuant to this agreement, Mestre was required to supply to Thomas two prototypes and a set of shop experimental drawings and a parts list. Mestre had the option, at his discretion, to supply production equipment and personal services to Thomas to assist in production initiation. Apparently, Thomas had begun production of the Vertical Collator prior to the execution of this agreement. Thomas acknowledged the disclosure of Mestre's "know-how" which had been transferred earlier.⁸

The agreement required Thomas to pay royalties to Mestre in exchange for the exclusive license.

3. The A-10 Collator Agreement (1962).

The A-10 Collator Agreement was executed after negotiation between representatives of Mestre and Thomas. Under the agreement Mestre granted to Thomas the sole and exclusive right and license to make and sell the A-10 Collator, parts thereof and attachments thereto, "and under any letters patent which may hereafter issue on the inventions embodied therein."⁹ There were letters patent issued on the A-10 Collator subsequent to the execution of the agreement. Pursuant to the agreement Thomas contracted to pay royalties in exchange for the license.

The agreement, by its...