PPG Industries, Inc. v. Guardian Industries Corp.
| Decision Date | 26 January 1977 |
| Docket Number | No. C 72-71.,C 72-71. |
| Parties | PPG INDUSTRIES, INC., Plaintiff, v. GUARDIAN INDUSTRIES CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
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Robert B. Gosline, Toledo, Ohio, William H. Webb, Pittsburgh, Pa., for plaintiff.
James R. Jeffery, Toledo, Ohio, Bernard J. Cantor, Cullen, Settle, Sloman & Cantor, Detroit, Mich., for defendant.
PPG Industries, Inc. hereafter PPG brought this action charging Guardian Industries Corporation hereafter Guardian with infringement upon eleven of its patents. Two of the patents, Nos. 3,223,501 and 3,293,015, originated as the result of development work carried out at PPG. The remaining nine patents, Nos. 3,281,229, 3,282,447, 3,291,590, 3,332,759, 3,332,760, 3,332,762, 3,338,697, 3,399,042, and 3,402,036 originated as the result of development work carried out at Permaglass, Inc. hereafter Permaglass, a corporation which merged into Guardian in 1969.
Guardian has raised the defenses of license, patent invalidity and non-infringement. Because resolution of the license defense in Guardian's favor would be dispositive of some or all of the patents in suit and would thus eliminate the need for trial on the validity and infringement issues, the Court ordered an evidentiary hearing limited to the license defense. Fed.R.Civ.P. 42(b). See generally 5 J. Moore, Federal Practice ¶ 42.03 (2d ed. 1976). Trial on this issue was had before the Court on August 8 and 9, 1976. Post-trial briefs have been submitted and the matter is now ripe for determination. As authorized by Rule 52(a), the Court's findings of fact and conclusions of law will be set forth in the memorandum which follows.
Guardian's two-pronged license defense is based on two separate agreements entered into by PPG and Permaglass in 1964 and 1969. The first prong of Guardian's defense is based on the 1964 agreement. In that agreement Permaglass was granted a "non-exclusive, non-transferable" license to use the patents in suit. Guardian argues that as a result of the 1969 statutory merger of Permaglass into Guardian it succeeded to these license rights notwithstanding the transferability restriction contained therein. Before discussing the merits of Guardian's 1964 license defense it will be helpful to briefly set forth the facts surrounding both the 1964 license agreement and the 1969 merger.
Permaglass was an Ohio corporation founded in 1948 by Harold A. McMaster. Initially Permaglass' business was limited to the tempering of flat glass pieces used in the appliance and automotive industries. Subsequently, McMaster and others employed at Permaglass began working on the "gas hearth" or "air float" process. In this process glass is supported on a bed of hot air while being bent and tempered.
In 1963, after completing experimental work, Permaglass constructed its first gas hearth line in Millbury, Ohio. Production on this line began in August of 1963. At about the same time Permaglass discovered that PPG had also been working, independently, on this same technology.
Permaglass then entered into discussions with PPG in an effort to determine where it stood in relation to PPG's patent position. Ensuing negotiations resulted in the January 1, 1964 license agreement.
In the 1964 agreement Permaglass granted to PPG an "unlimited exclusive license, with right of sublicense" to use its patents and technical data. § 3.2. From this grant, however, Permaglass reserved a "non-exclusive, non-transferable, royalty-free, world-wide right and license" for its own use. § 3.3. The license so reserved was to be "personal" and non-assignable. § 9.2. This reserved license applies to nine of the eleven patents in suit.
In return for receiving the licenses described above, PPG granted Permaglass a "non-exclusive, non-transferable, royalty-free right and license" to use PPG gas hearth patents. § 4.1. This license was also "personal" and "non-assignable except with the consent of PPG first obtained in writing." § 9.2. Moreover, the license under the PPG patents was to terminate in the event that a majority of the voting stock of Permaglass at any time became owned or controlled by another manufacturer or fabricator of glass. § 11.2. This license, and the termination clause applicable thereto, applies to only two of the eleven patents in suit.
In 1969, Harold McMaster, then President of Permaglass, learned that Guardian had announced plans to construct its own raw glass-producing facility and that the facility's proposed output would exceed Guardian's needs. He then approached Edward Sczesny, Director of Engineering and Corporate Planning at Guardian and suggested that a merger of Permaglass and Guardian would benefit both corporations.
At the time of the merger Guardian was primarily a manufacturer of windshields for the automotive industry. Some of these windshields were sold directly to bus and truck manufacturers for use as original equipment. The remaining windshields were sold through a national distribution complex. Guardian's sales approximated 15 million dollars annually.
Permaglass was a manufacturer of architectural glass and tempered glass for automobile back and side windows. It did not manufacture its own raw glass. Permaglass' annual sales approximated 10 million dollars.
The raw glass-producing facility that Guardian planned to construct was expected to generate 20 million dollars in sales. Guardian's needs, however, amounted to about 8 million and an outlet for the remaining raw glass was needed. Because Permaglass was a raw glass purchaser the proposed merger would reduce Guardian's need to locate consumers for its excess raw glass.
A merger of Guardian and Permaglass would also make the resulting company more competitive in the original equipment market. Automobile manufacturers prefer to purchase their glass needs from a company that produces glass for the entire vehicle. The merger would create an organization capable of producing windshields as well as back and side windows.
Subsequent negotiations between the two corporations resulted in an Agreement of Merger, executed on October 7, 1969, pursuant to which Permaglass was merged into Guardian. Permaglass shareholders surrendered their shares and received shares of Guardian in return and the separate corporate existence of Permaglass ceased.
After the merger Guardian continued to operate the furnace units that had been constructed and operated by Permaglass. Guardian did, however, construct one additional furnace unit at its Carleton, Michigan Plant in 1973.
Because Permaglass was an Ohio corporation and Guardian a Delaware corporation, the merger was consummated in accordance with the laws of the respective states. Both states authorize a merger of a domestic corporation with a foreign corporation. Ohio Revised Code § 1701.82; 8 Del.C. § 252(a). Section 1701.83(B)(3), Ohio Revised Code, provides that the effect of the merger shall be the same as in the case of a merger or consolidation of domestic corporations "except in so far as the laws of such other state otherwise provide."1
Section 1701.81(A)(4) provides that when the merger becomes effective the surviving corporation shall possess all the "property of every description, and every interest therein." Delaware law is substantially the same. 8 Del.C. § 259(a). It provides that when the merger shall have become effective "all property, rights, privileges, powers and franchises, and all and every other interest" of the constituent corporation "shall be thereafter as effectually the property of the surviving or resulting corporation as they were of the several and respective constituent corporations." Property passing from the constituent corporation to the surviving corporations passes by operation of law. See Levitt v. Bouvier, 287 A.2d 671, 673 (Del.1972); Bokat v. Getty Oil Co., 262 A.2d 246, 249 (Del.1970); Heit v. Tenneco, Inc., 319 F.Supp. 884, 887 (D.Del.1970).
It is Guardian's contention that Permaglass' 1964 license rights passed to Guardian pursuant to the statutory merger. Its argument continues that property which passes from a constituent corporation to the surviving corporation in a statutory merger passes not by assignment or transfer, but by operation of law. Thus, argues Guardian, the transferability and assignability restrictions contained in the 1964 agreement were not violated.
Neither the parties nor the Court have been able to discover a case that is on all fours with the facts involved in this suit. Guardian, however, has offered a number of cases which it argues, by analogy, support its position.
As a general rule, patent licenses are personal to the licensee and non-assignable unless expressly made so in the agreement. Hapgood v. Hewitt, 119 U.S. 226, 7 S.Ct. 193, 30 L.Ed. 369 (1886); Unarco Industries, Inc. v. Kelley Co., Inc., 465 F.2d 1303 (7th Cir. 1972), cert. denied, 410 U.S. 929, 93 S.Ct. 1365, 35 L.Ed.2d 590 (1973); Rock-Ola Mfg. Corp. v. Filben Mfg. Co., 168 F.2d 919 (8th Cir.), cert. denied, 335 U.S. 892, 69 S.Ct. 249, 93 L.Ed. 430 (1948). See generally 4 A. Deller, Walker on Patents ¶ 409 (2d ed. 1965). Contra, Farmland Irrigation Co. v. Dopplemaier, 48 Cal.2d 208, 308 P.2d 732 (1957). Similarly, a shop right, an implied license, is also personal and non-assignable. Lane & Bodley Co. v. Locke, 150 U.S. 193, 14 S.Ct. 78, 37 L.Ed. 1049 (1893); Hapgood v. Hewitt, 119 U.S. 226, 7 S.Ct. 193, 30 L.Ed. 369 (1886). Yet in spite of this restriction it has been held that non-assignable licenses will pass from constituent corporations to a new corporation formed by the consolidation of those corporations. Lightner v. Boston & A. R. Co., 15 F.Cas. 514 (No. 8343) (C.C.D.Mass.1869). And it has also been held that non-assignable shop rights will pass from a constituent corporation via merger to the surviving corporation. Papazian v. American Steel and Wire Company of...
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PPG Industries, Inc. v. Guardian Industries Corp.
...that its alternate defense based on an equipment license agreement was ineffective. The district court opinion is reported at 428 F.Supp. 789 (N.D.Ohio 1977). I Prior to 1964 both PPG and Permaglass, Inc., were engaged in fabrication of glass products which required that sheets of glass be ......