Red Cross Mfg. Corp. v. Toro Sales Co., 73--1900

• Citation: 525 F.2d 1135,188 USPQ 241
• Decision Date: 08 December 1975
• Docket Number: No. 73--1900,73--1900
• Parties: The RED CROSS MANUFACTURING CORP., Plaintiff-Appellant, v. TORO SALES COMPANY, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1135

525 F.2d 1135

188 U.S.P.Q. 241

The RED CROSS MANUFACTURING CORP., Plaintiff-Appellant, v. TORO SALES COMPANY, Defendant-Appellee.

No. 73--1900.

United States Court of Appeals Seventh Circuit.

Argued Sept. 23, 1974.

Decided Nov. 12, 1975.

Rehearing Denied Dec. 8, 1975.

Malcolm S. Bradway and Dennis M. McWilliams, Chicago, Ill., for plaintiff-appellant.

John W. Hofeldt, Chicago, Ill., for defendant-appellee.

Before FAIRCHILD, Chief Judge, and HASTIE ^* and CASTLE, Senior Circuit Judges.

FAIRCHILD, Chief Judge.

This is a suit charging infringement of plaintiff-appellant Red Cross Manufacturing Corporation's Lautzenheiser United States Patent No. 3,593,930, issued July 21, 1971, on an application filed September 11, 1970 in the name of the assignor-inventor Robert D. Lautzenheiser. The patent in suit is directed to a lawn and garden shredding machine (hereinafter vertical shaft shredder) in which two or more cutting blades are rotated within a shredding compartment by a vertical shaft gasoline engine. The blades are assisted in their cutting function by slotted breaker bars mounted on the inner side wall of the housing through which the ends of the rotating blades pass. Material to be shredded reaches the shredding compartment through a hopper, the bottom of which corresponds to an inlet opening in the top of the housing. An outlet opening in the side wall of the housing adjacent to the inlet provides an exit for the shredded material. After extensive pre-trial discovery, defendant-appellee Toro Sales Company moved for summary judgment 'on the ground that there is no genuine issue as to any material fact and that the defendant is entitled as a matter of law to a judgment that U.S. Patent No. 3,593,930 is invalid under 35 U.S.C. § 102(b) ¹ and is not infringed.' In a memorandum order entered August 2, 1973, the district court granted summary judgment to defendant on the complaint, concluding that the patented invention was 'in public use' and 'on sale' more than one year prior to the date of the application for patent. ² While defendant's answer interposed the defense of obviousness pursuant to 35 U.S.C. § 103, the district court did not consider the issue and determine the differences between the subject matter of the patent and the state of the prior art to which it pertains. Plaintiff appeals.

I

A study of the record discloses the following pertinent and undisputed facts. Red Cross had been operating as a Sears and Roebuck Co. manufacturing source for some 70 years prior to 1969. During those years, Red Cross manufactured and sold a variety of equipment to Sears which was then resold to the public through its catalogue and retail outlets. Sears operated during this period as Red Cross' 'main source of sales' providing between 35% and 95% of Red Cross' business. Commencing sometime in the early 1960's, Red Cross had been manufacturing and selling to Sears a group of home garden and lawn shredding devices. These products included an 'electric leaf mill,' a small shredder powered by a vertical shaft electric motor, and a 'compost mill,' a shredder powered by a horizontal shaft gasoline motor and the subject of Lautzenheiser United States Patent No. 3,240,247.

Sometime during 1967 or 1968, as part of an on-going program at Red Cross of product development and improvement, and in response to some expressed dissatisfaction concerning the performance of the 'compost mill' by Sears personnel, Robert D. Lautzenheiser, Red Cross design engineer, undertook a program of refining the existing product or developing a new device altogether. Among the expressed goals of the program were producing a machine with a simpler design configuration; increasing the volume of material which could properly be fed into the machine; achieving a finer grind; and producing a machine which could utilize a bagging system to collect the shredded product.

By November of 1968, Lautzenheiser had constructed an experimental prototype of a vertical shaft gasoline engine powered shredder. During that month, two Sears employees, James Bateman, a product engineer, and Larry Futch, a buyer, observed the machine at Lautzenheiser's home while visiting on other business and requested a demonstration. They were encouraged by the performance of the prototype and instructed Lautzenheiser to 'pursue' development and further research in the product. The prototype which was demonstrated at this showing is no longer in existence and no drawings, plans, descriptions or test reports were preserved.

Additional work on the concept continued at Red Cross. A second vertical shaft shredder prototype was constructed and tested. This machine was preserved and photographs of it are available as exhibits in the present litigation. This prototype was apparently not displayed to Sears personnel. Testimony on the record concerning the structure indicates that it did not contain an inclined deflecting wall, later added to the patent, and that the configuration of the breaker bars also differed. Lautzenheiser testified that the second prototype required further development work in order to increase capacity, provide a finer grind, and a smoother operation.

Following the November, 1968 exhibition, Sears personnel periodically returned to Red Cross. One important object of these visits was to follow up on the development of the vertical shaft shredder. Testimony from both Red Cross and Sears personnel makes clear that Red Cross was developing the product under the assumption that, when completed to functional utility, Sears would purchase the new product on an exclusive basis. There was, however, no formal requirement or agreement to this extent; rather, the assumption followed from the prior relationship between the parties and the extensive sales to Sears by Red Cross of its product line. ³

Two additional demonstrations of vertical shaft shredders to Sears personnel were conducted by Red Cross during 1969. In the late summer, a prototype was displayed to Sears at its Morton Arboretum testing site outside of Chicago. ⁴ The reaction of the Sears personnel present was favorable and Red Cross was given the 'go ahead.' The device demonstrated at this showing was retained by Sears and was not available for purposes of the present litigation. No drawings, test reports, or other documents concerning this prototype were produced. On September 8, 1969, a fourth vertical shaft shredder prototype was displayed to Sears personnel at the home of a Red Cross employee. During this showing, a private photographer retained by Red Cross was present for the purpose of making motion picture films of the prototype for use in presenting the new machine to Sears' field personnel. Once again, neither the prototype nor any documentary description thereof survived, though a film was admitted into evidence which could well depict the September 9 display.

A vertical shaft shredder appeared in Sears' 1970 edition of its Suburban and Farm Living catalogue. Documentary evidence established that the catalogue was prepared during late summer and early fall of 1969. ⁵ The catalogue was printed and gathered on October 28 and 30, 1969 and made available to the retail outlets on November 8, 1969. On September 9, 1969, Red Cross President Ullman submitted to Sears an Estimated Cost of Tooling form necessary for Sears' purchase of tooling on a 'compost blender' identified as the vertical shaft shredder. This estimate was accepted on October 3, 1969. On October 1, 1969, Red Cross received a contract dated September 16, 1969 authorizing purchase of 1150 vertical shaft shredders by Sears.

II

The district court concluded that the invention described in the patent at issue was 'on sale' as provided in 35 U.S.C. § 102(b) more than one year prior to the date of the application for the United States patent. The date of application was September 11, 1970 and the critical date for purposes of this consideration was therefore September 11, 1969. The parameters of the 'on sale' bar to patent validity were set forth by this court in Amphenol Corp. v. General Time Corp., 397 F.2d 431, 433 (7th Cir. 1968):

Patent applications must be filed within one year of placing the claimed subject matter 'on sale.' Title 35 U.S.C. § 102(b). 'On sale' does not mean an actual accomplished sale but activity by the inventor or his company in attempting to sell the patented idea. Armour Research Foundation v. C. K. Williams & Co., 7 Cir., 1960, 280 F.2d 499, 506; Magee v. Coca-Cola Co., 7 Cir., 1956, 232 F.2d 596, 600.

See also, George R. Churchill Co. v. American Buff Co., 365 F.2d 129, 134 (7th Cir. 1966); Wende v. Horine, 225 F. 501, 505 (7th Cir. 1915).

The policy underlying the 'on sale' bar is to prevent an inventor from holding back the secrets of his invention from general public knowledge while at the same time exploiting it commercially, thereby extending the duration of his legal monopoly. Koehring Co. v. National Automatic Tool Co., 362 F.2d 100, 103 (7th Cir. 1966); Metallizing Engineering Co. v. Kenyon Bearing & A.P. Co., 153 F.2d 516, 520 (2nd Cir. 1946); see generally, New Guidelines for Applying the On Sale Bar to Patentability, 24 Stan.L.Rev. 730, 733--34 (1972). Under the statute, an existing patent is presumed to be valid. 35 U.S.C. § 282. When the objection is asserted, the burden of establishing that the patented product was 'on sale' before the critical date is on the objector. Dart Industries, Inc. v. E. I. Du Pont De Nemours and Co., 489 F.2d 1359, 1364 (7th Cir. 1973), cert. denied, 417 U.S. 933, 94 S.Ct. 2645, 41 L.Ed.2d 236. This burden must be satisfied by clear and convincing evidence. Minnesota Mining & Mfg. Co. v. Kent Industries, Inc.,409 F.2d 99, 100 (6th Cir. 1969). Once such activity has been successfully established, invalidity may be avoided by showing that the sales activity was 'substantially for purposes of experiment.' Smith and Griggs Mfg. Co. v. Sprague, 123 U.S. 249, 256...