Powder Power Tool Corp. v. Powder Actuated Tool Co.

• Decision Date: 17 January 1956
• Docket Number: No. 11412.,11412.
• Citation: 230 F.2d 409
• Parties: POWDER POWER TOOL CORPORATION, Plaintiff-Appellee, v. POWDER ACTUATED TOOL COMPANY, Inc., and Frank J. Klunk, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

230 F.2d 409 (1956)

POWDER POWER TOOL CORPORATION, Plaintiff-Appellee, v. POWDER ACTUATED TOOL COMPANY, Inc., and Frank J. Klunk, Defendants-Appellants.

No. 11412.

United States Court of Appeals Seventh Circuit.

January 17, 1956.

Warren C. Horton, James A. Davis, Chicago, Ill., for appellants.

James P. Hume, Chicago, Ill., Harper Allen, Los Gatos, Cal., Wm. Marshall Lee, Chicago, Ill., for appellee.

Before DUFFY, Chief Judge, and MAJOR and LINDLEY, Circuit Judges.

DUFFY, Chief Judge.

Defendants are charged with infringement of U. S. Patent No. 2,637,241 issued on May 5, 1953, to C. R. Webber, et al., covering "stud for explosive installations." The complaint also alleged unfair competition. Defendants denied any unfair competition and insisted the trial court had no jurisdiction as to that portion of plaintiff's asserted claim. Defendants alleged nonvalidity of the patent because of anticipation and lack of novelty or invention, and because of late insertion of claims after defendants' structure became known to plaintiff, and after it had been in public use for more than one year. Defendants also denied infringement.

The trial court did not file an opinion but adopted, without change, findings of fact and conclusions of law as prepared by plaintiff's attorneys. The court found the patent valid and to have been deliberately infringed since the early fall of 1950, and awarded treble damages including costs and attorney fees. The court also found that defendants were guilty of unfair competition and issued an injunction. The court held defendant Klunk was personally liable along with the defendant corporation for the acts complained of by plaintiff.

The claimed invention covered by Patent No. 2,637,241 relates to studs adapted for explosive installations used in connection with a hand-held tool. The tool has a bored barrel similar to the barrel of a gun. The stud is mounted in the bore of the tool separately and independently of the explosive charge which is usually a .22 cal. blank cartridge. The stud has a penetrating shank and an elongated head of greater diameter than the shank. It provided a shoulder which limited the penetration of the stud into the work piece. The head of the stud had a plain surface or a threaded surface, depending on whether it was desired to fasten a nut thereto or use the protruding head of the stud for other purposes. On the shank was placed a resilient washer referred to in the patent as a "deformable resilient frictional retainer." When the cartridge is fired, the stud is propelled through the bore of the tool and is caused to penetrate a predetermined distance into a hard surface such as concrete or steel. The patent in suit has but two claims¹ both of which are in issue.

The method of inserting fastening studs was not new with the patentees, and the gun or driving tool is the subject of separate patents, and somewhat similar guns or tools are made by a number of manufacturers other than plaintiff. In fact, powder actuated guns to drive studs into work pieces are more than thirty-five years old. The gun or tool itself is not an issue in this case.

Defendants moved to dismiss the cause of action based upon alleged unfair competition. One of the grounds for the motion was the court did not have jurisdiction of the subject matter of the alleged acts of unfair competition. Defendants' answer had specifically alleged the complaint failed to state a claim for unfair competition.

We are of the view that there is no support in the record for the trial court's finding of unfair competition, and such finding is clearly erroneous. We shall not discuss that issue in detail because, in our opinion, the jurisdictional question involved is controlling. Nevertheless, a somewhat detailed statement of the evidence seems to be in order, because of the trial court's conclusion that Frank Klunk, Sr. should be held personally liable, and also because of the court's conclusion that the infringement of the patent by defendants was wilful and deliberate.

Plaintiff is an Oregon corporation organized in 1947, and is the owner of the Webber et al. patent. It has been engaged in manufacturing and selling explosively operated tools and studs used in connection therewith. Up until late 1949 plaintiff was selling tools and studs acquired from the Iron Fireman Company. Up to December, 1949 plaintiff had one James C. Laulis working in Chicago as a factory representative. Laulis attempted to form a distributorship but failed in raising the necessary funds.

Frank J. Klunk, Sr. was a painting contractor. In December, 1949, his son Francis G. Klunk was looking for a business opening and his father attempted to assist him. The father had seen powder actuated tools made by plaintiff and sent a letter of inquiry to plaintiff as a result of which a meeting was arranged on March 1, 1950 in Chicago, attended by Daniel W. Creary, president of the plaintiff; Erickson, the chief engineer of plaintiff; Laulis; Klunk, Sr., and Klunk, Jr.

It was agreed that a corporation would be organized wherein Laulis was to own 49% of the stock, Klunk, Sr., 49% and Klunk, Jr., 2%. This was done. Defendant's corporate name was then selected with the approval of plaintiff's officers, and was chosen for its descriptive significance with respect to the powder actuation of stud-driving tools which defendants contemplated purchasing from plaintiff and others to be sold to customers. Defendant Powder Actuated Tool Company, Inc., was organized as an Illinois corporation on May 19, 1950.

Much argument appears in the briefs as to the relationship between plaintiff and defendant corporations. Plaintiff insists defendant corporation was its interim distributor. In its complaint, plaintiff designated the defendant corporation as its sales representative. Defendant insists that the relationship was manufacturer and dealer, and that it was understood that defendant corporation would purchase from plaintiff tools and studs manufactured by it, and would be billed therefor at a 46% discount. Whatever may be the proper terminology for the business relationship, all parties are agreed that it was to be of a temporary nature on a trial basis, and that after three or four months either party could terminate the relationship. Certainly defendant company was not an agent of plaintiff — it merely bought tools and studs from plaintiff and sold them. There is no evidence of any agreement or understanding that if such relationship were terminated that defendant corporation would not be permitted to continue business under its corporate name. Plaintiff admits, and the Court so found, that after the relationship theretofore existing had been terminated, it was agreed defendant company was to have the exclusive right, as a dealer, to sell plaintiff's products to the governments of the State of Illinois and the City of Chicago.

Klunk, Sr. advanced the money to put the defendant corporation in operation, even lending to Laulis the money for his share of the capital stock. Plaintiff sold and delivered to defendant company $14,000 worth of inventory. No claim is made that title to any items in the inventory remained in the plaintiff. Defendant company continued to sell tools and studs purchased from the plaintiff during the months of March, April, May and June, 1950. Laulis drew from the defendant company a salary of $500 a month plus an expense account. Neither Klunk, Sr. nor Klunk, Jr. received any money or income from defendant company. No rent was paid by defendant company to Klunk, Sr. who owned the premises which it occupied. Laulis was in active charge of the conduct of defendant company's business, and he was the only one of defendant's officers or stockholders who had had any previous experience in powder activated tools or studs used in connection therewith. Klunk, Sr. did not take any active part in the conduct of the business until difficulties arose between plaintiff and the defendant company.

The first complaint of defendants was that Thomas Hoist Company of Chicago, who sold plaintiff's tools and studs, was selling these items to the trade at a large discount. In response to defendant's protest, plaintiff replied it could do nothing about it, and would continue to sell its products to Thomas Hoist Company. Thereafter, in May, 1950, Laulis, the active executive officer of defendant company, began to absent himself from defendants' business for days at a time. Klunk, Sr. became concerned about this, and in the latter part of May, 1950, made a trip to Portland, Oregon, to talk with Mr. Creary, president of the plaintiff.

Klunk, Sr. spent one morning at plaintiff's plant in Portland. The greater portion of that time was consumed in discussing the problems of defendant company. Mr. Creary took Klunk through plaintiff's plant and then on a tour of Portland. Klunk did not seek information as to how the studs were manufactured, but plaintiff claims that he obtained such information while making the trip through the plant.

Creary told Klunk, Sr. that he could do nothing about Thomas Hoist Company selling goods at a discount, and that there was nothing he could do about the irresponsible actions of Mr. Laulis. Klunk, Sr. then returned to Chicago, visited the Thomas Hoist Company and endeavored to have it follow a uniform price for plaintiff's goods. This it refused to do. Klunk, Sr. then telephoned to Creary in Portland and told him that defendant could not successfully carry on its business with such competition. He offered to sell the entire business of defendant company to plaintiff, turning over the entire business including the corporate name and good will, the entire stock of inventory and all company records, if plaintiff would pay to defendant the amount which had been invested in the business which was some $3,000 over and above the inventory and accounts receivable. Creary refused this proposal.

On July 12, 1950, Klunk, Sr. sent a...