Reynolds Spring Co. v. LA Young Industries

• Decision Date: 07 February 1939
• Docket Number: No. 7634.,7634.
• Citation: 101 F.2d 257
• Parties: REYNOLDS SPRING CO. v. L. A. YOUNG INDUSTRIES, Inc.
• Court: U.S. Court of Appeals — Sixth Circuit

101 F.2d 257 (1939)

REYNOLDS SPRING CO. v. L. A. YOUNG INDUSTRIES, Inc.

No. 7634.

Circuit Court of Appeals, Sixth Circuit.

February 7, 1939.

Otto F. Barthel, of Detroit, Mich. (Barthel, Flanders & Barthel, of Detroit, Mich., on the brief), for appellant.

Otis A. Earl, of Kalamazoo, Mich. (Chappell & Earl, of Kalamazoo, Mich., on the brief), for appellee.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This is an appeal from a decree of the district court overruling exceptions to a Master's report in an action of accounting for infringement of letters patent No. 1,058,285 issued April 8, 1913, to L. A. Young for upholstering spring construction and assigned by him to the appellee, L. A. Young Industries, Inc.

The nature and value of the claims of the patent infringed are fully described in the former opinion of this court in an action between the same parties and reported in 6 Cir., 36 F.2d 150, and will not be repeated here.

The accounting period covers the years 1923, 1924, 1925 and 1926. The defendant made and sold to its customers during this period, 1,843,927 spring structures embodying the claims of the invention and received therefor $1,527,427.58.

It realized no profits from its venture but sustained a loss of approximately $250,000. The Master found that the appellant had made sales to the Ford Motor Company and the Chevrolet Motor Company of the device embodying appellee's invention which it otherwise would have made to these companies and as a direct result thereof appellee had been damaged in a large sum not determinable with accuracy.

He also found that the case was one for a reasonable royalty under Section 70, Title 35, United States Code, 35 U.S.C.A. § 70, and that five cents on each of the spring seat constructions made and sold by the appellant was reasonable. He found that the appellee was entitled to recover $92,196.35 together with interest thereon in the sum of $28,152.70, a total of $120,349.05.

Prior to August 22, 1919, the appellee, L. A. Young Industries, Inc., was engaged in manufacturing spring seat constructions and parts thereof for automobiles, vehicles and the like, under numerous letters patent and licenses, among which was the patent here in question which appellee owned. On that date it licensed Ford under all of its patents and licenses then owned or subsequently acquired, to manufacture for its own use in automobiles and parts thereof, spring seat construction or parts thereof, and also as a part of the license granted to Ford the right to use in said manufacture appellee's shop methods, machines, tools, fixtures, jigs and patterns.

In consideration for said license Ford agreed to purchase from appellee a minimum of sixty percent of the total number of seat springs used in equipping its automobiles each year during the life of the agreement. If appellee was at any time incapacitated from furnishing seat springs as agreed, Ford was to do its own manufacturing during the period of incapacity, Young supplying the material up to the quantity then possessed or controlled by it, Ford to furnish the remainder. Ford cross-licensed the appellee to use any shop method, means, license or patents it owned or controlled for seat spring construction or any acquired during the life of the agreement.

The licenses and assignments were nontransferable and neither party was authorized to grant or permit others to use, make or sell said construction or parts or use said shop methods.

The parties mutually agreed to forever release each other from any claim or claims arising during the life of the contract for damages for infringement of any of the patents described in the agreement or others owned or later acquired or controlled by either of them.

The life of the agreement was for such time as Ford should use in the manufacture and sale of its automobiles, said type of seat spring construction, covered by the patents specified and those granted Young while the agreement was in force. If the Ford Company should discontinue the use of such seat construction, the agreement became null and void. It was provided, however, that either party could terminate the agreement on twelve months' written notice.

Appellee was to be paid for each appliance manufactured by it and used by Ford in accordance with the schedule of prices attached and made a part of the agreement, subject to change with the fluctuation of the general market and by mutual agreement.

Appellee, beginning December 12, 1922, entered into a contract with the Chevrolet Motor Company wherein it agreed to sell and the Motor Company agreed to buy from it at a stated price per unit two-thirds of its requirements for seat spring construction for the period from January 1, 1923, to July 1, 1923. On April 6, 1923, it entered into a similar contract for fifty percent of its requirements. The next three contracts covered sixty percent of Chevrolet's requirements, each being for a six-month period, the last expiring July 1, 1925.

As a part of the sales agreement, appellee agreed to save harmless and protect the buyer, its successors and assigns, customers and users of its product against any claim or demand based upon infringement of any letters patent and defend at its expense any suits arising therefrom. Ford and Chevrolet obtained from appellee the requirements of their respective contracts and their remaining seat spring constructions from appellant, which were identical with those made and supplied by appellee.

The Special Master, in his findings included in the number of spring structures on which he awarded a reasonable royalty, those supplied by appellant to the Ford and Chevrolet Companies. Appellant excepted to this finding but the lower court affirmed and approved this as well as all other findings of the Master.

Appellant insists that it was an implied licensee insofar as it sold any devices embodying appellee's invention to the Ford and Chevrolet Companies. Appellee urges two procedural objections to this question being considered on this appeal, the first of which is that on the former trial in the district court it found that appellant was not an implied licensee and that error was assigned to that ruling on the former appeal to this court, and thus the law of the case was established.

An examination of the record shows that error was assigned to the ruling of the district court, but the opinion of this court shows that it was not considered on appeal.

It is a well-recognized rule that an appellate court on a second appeal may review and revise a conclusion reached on the first appeal, it becoming the law of the case only as to the lower court. Messinger v. Anderson, 225 U.S. 436, 444, 32 S.Ct. 739, 56 L.Ed. 1152; Lawrence-Williams Company v. Societe Enfants Gombault Et Cie, 6 Cir., 52 F.2d 774; United States v. Stevens, 8 Cir., 64 F.2d 853; Des Moines Terminal Company v. Des Moines Union Railway Company, 8 Cir., 52 F.2d 616. The second objection is that there is no pleading on behalf of appellant which would support evidence of an implied license.

The Bill of Complaint is the conventional one in patent cases. Appellant's answer is a general denial of infringement and the validity of the patent, with an affirmative plea that appellee was guilty of laches and that appellant was a licensee of appellee under a patent for spring seat construction, other than the one in suit.

In equity the proof must conform to the allegations, and the examination of the court is confined to the issues made by the pleadings. Providence Rubber Company v. Goodyear, 9 Wall. 788, 799, 804, 19 L.Ed. 566; Agawam Woolen Company v. Jordan, 7 Wall. 583, 610, 19 L.Ed. 177; Andrews v. Drake, 6 Cir., 83 F.2d 767; Lewis Teese et al. v. Huntingdon et al., 23 How. 2, 14, 16 L.Ed. 479; Ferguson Contracting Company v. Manhattan Trust Company, 6 Cir., 118 F. 791; Hitchcock v. American Plate Glass Company, 3 Cir., 259 F. 948; General Electric Company v. Continental Lamp Works, 2 Cir., 280 F. 846.

It follows from this that where a license, express or implied, is relied on as a matter of defense to a bill of equity for patent infringement, the answer must set up the express license or if implied, the facts upon which predicated, and if not specifically plead, the defendant cannot avail himself of it, though the facts relating to it may appear in evidence.

The contention of appellant that it was not required to affirmatively plead this defense because not affirmative, but a matter of mitigation of damages, is without merit. It claims an equitable interest in the patent and the proof shows that practically all of the infringing devices on which the court awarded damages based on reasonable royalties were manufactured and sold by the appellant to the Ford and Chevrolet Companies. To permit it to go forward with such defense without a supporting pleading would lead to confusion and befog the issues the court must try and take the opposite party unaware. All reasonable means to simplify and narrow issues in controversy by the use of pleadings should be used. Such practice expedites the trial of cases and lessens the expense of litigation.

Appellant further contends that appellee waived the insufficiency of its pleadings by not objecting to the introduction of evidence on the agreements it had with Ford and Chevrolet. An examination of the record shows that these contracts were not referred to in evidence except by immaterial questions on cross-examination by appellant's counsel before the case was closed by the Master.

After the case was closed by both parties, the appellant for the first time argued before the Master its reliance on the implied licenses and thereupon appellee asked leave to reopen and...