Robeson Process Co. v. Robeson

• Decision Date: 26 October 1923
• Parties: ROBESON PROCESS CO. v. ROBESON et al.
• Court: U.S. District Court — District of New Jersey

293 F. 70

ROBESON PROCESS CO. v. ROBESON et al.

United States District Court, D. New Jersey.

October 26, 1923

Duell Warfield & Duell, of New York City (F. P. Warfield and D. A Woodcock, both of New York City, A. M. Houghton, of Washington, D.C., and A. Dayton Oliphant, of Trenton, N.J of counsel), for plaintiff.

Irving M. Obreight, of New York City (Clair W. Fairbank, of New York City, and John O. Bigelow, of Newark, N.J., of counsel), for defendants.

RUNYON District Judge.

This suit is brought for infringement of patent, and is based upon two United States patents, No. 833,634, for process of treating waste sulfite liquor and compound obtained, and No. 1,069,029, for process of treating roads, etc. The acts charged by plaintiff as infringement are set forth in its bill of complaint as follows:

'And said defendants have further threatened within the district of New Jersey to infringe said patents in suit, and each of them, by offering to supply and apply to roads within the state and district of New Jersey a lignin binder, which, in its composition and use, will necessarily infringe said patents in suit; that defendants have * * * caused to be delivered to the New Jersey state highway commission a letter and inclosures, * * * and defendants have submitted bids under specifications of the state highway commission of the state of New Jersey; * * * that defendants intend and threaten to supply and treat roads with lignin binder specified in said specifications, * * * and that by so doing defendants will necessarily infringe plaintiff's patents in suit.'

The road contracts referred to in the bill of complaint were awarded to the defendant corporation August 3d, 1922, and the bill of complaint and motion for preliminary injunction filed August 7th, four days later. A preliminary injunction was issued August 29th, and upon appeal therefrom a hearing was ordered before the Court of Appeals on October 6th, which resulted in the vacating of the injunction upon the giving of a $25,000 bond by the defendants to abide the event.

These two patents in suit were issued to the defendant Jacob S. Robeson, and by him assigned to the plaintiff, Robeson Process Company. Robeson originally was the organizer, and for a considerable period of time the president, of the plaintiff company. In this connection, and in return for the transfer of the patent rights secured under the two patents, he received all the stock of the plaintiff company.

This course was adopted by certain paper manufacturers, to whom the Robeson patents came as a great boon-- the J. J. Rogers Company, of Ausable Forks, N.Y., and the West Virginia Pulp & Paper Company, which has one of its plants at Covington, W.Va. The disposition of waste sulfite liquor is a serious problem to those manufacturers of wood pulp, whose processes bring it into being, and there had long been attempts on the part of many to solve the problem of its menacing properties. It polluted streams, and still does. It had been made the subject of threatened legislation in many states against paper manufacturers, and that legislation still threatens. It had for years been a veritable Frankenstein monster ever and always increasing in bulk and consequently the Rogers Company, to which Mr. Robeson made his early overtures, having spent upwards of $30,000 in experimental work designed to rid itself of the waste liquor and without success, welcomed a plan which seemed to offer a fair promise of deliverance from its troublesome by-product. At the outset, the potential marketability of the Robeson product did not especially interest the Rogers Company. Its chief concern was to rid itself of the liquor, and in furtherance of that concern, and in conjunction with the West Virginia Pulp & Paper Company, it contributed the funds necessary to build a plant for the operation of the Process Company, taking the company's bonds, secured by mortgage, in return therefor.

The company began its operations in 1905, and continued in a somewhat small and unprofitable way for several years, or until 1910, when, for the first time, the annual returns showed a profit. About 1914 or 1915 differences arose between the Rogers Company and the defendant Robeson, the nature of which is disputed, but with which we need not concern ourselves, otherwise than to note that as a result thereof the West Virginia Company purchased Mr. Robeson's stock, and there ensued on February 26, 1915, and June 26, 1916, respectively-- (1) an agreement between Robeson and the Robeson Process Company for sale of the Robeson patents and the payment of royalties to Robeson; and (2) mutual releases covering all matters in difference between the parties.

Thus ended Robeson's connection with the Process Company, which continued in business, and has, during these intervening years, attained large proportions and established a substantial financial rating, being possessed of a plant and other assets of the approximate value of $1,000,000.

On or about May 21, 1919, the defendant J. S. Robeson entered into an agreement with the York Haven Paper Company, of Pennsylvania, for the establishment of a plant for the manufacture of a product through processes belonging to him, 'which he may or may not cause to be patented,' and dealing with sulfite waste liquor; said agreement also having to do with the question of sales, royalties, etc. Upwards of a year thereafter, or on August 2, 1920, the defendant company was incorporated, and the defendant Robeson, on August 9, 1920, assigned all his interest in the above-mentioned agreement to said company.

On September 24, 1920, Robeson filed an application for a patent for the 'treatment of sulphite cellulose liquors,' and on August 3, 1921, an application for a patent for 'process and composition for making roadways,' both of which patents were granted on February 13, 1923, six or more months after the bill of complaint herein was filed.

The above constitutes in outline the history of the genesis and progress of events leading up to the present case. The question before the court has been expressed by defendant's counsel as follows:

'This is not an unfair competition case, nor one of interpretation of contracts, nor one of honest or dishonest business dealing. It is purely a case of alleged patent infringement. If the patents are not infringed, then the decree must be for the defendant; and, if they have, it must be for the plaintiff.'

In reply to which plaintiff's counsel says:

'Now, I take it we can rely on that as establishing a fact, * * * and your honor has only then to determine whether or not the patents have been infringed.'

Pursuant to well-established principles of law and practice, the defendant Robeson was not allowed to deny the validity of the patents in suit, and for reasons and facts which, in my opinion, were compelling, the estoppel as to such denial was extended to include the defendant J. S. Robeson, Inc. The defendant Robeson was the main factor in the organization of this company, and to him was issued all the common stock thereof, which said stock, at the outset, carried the voting power. While he owned but 50 shares of the preferred stock, a small minority, and while, in accordance with the terms of the incorporation, four regular dividends having been omitted, the voting power was shifted from the common to the preferred stock, even under these conditions Mr. Robeson, to all intents and purposes, continued in control of the company. To him alone, or to him and one other, were issued, from time to time, the proxies for the election of the officers of the corporation, and he and his joint proxy holder never had any dispute concerning this phase of the company's affairs. While the board of directors was composed of men of large interests and of the highest integrity and ability, they were of his own selection, were apparently satisfied with Mr. Robeson's management, and left him with so commanding a power as virtually to make the company, in the matter of its officers, activities, pronouncements, and policy, his alter ego. In my opinion, this state of facts has produced a condition which properly denies to the incorporation any rights not possessed by the defendant Robeson personally, so far as estoppel of any right to deny the validity of the patents in suit is concerned.

'If the estopped assignor enters into business with others, who derive from him their knowledge of the patented process or machine, and, availing themselves of his knowledge and assistance, enter with him upon a manufacture infringing the patent which he has assigned, they are bound by his estoppel. By the application of this test the defendants Pharaoh and Forbes are here bound by the estoppel of Carroll. When individuals thus estopped establish a corporation to carry on a business which they would be restrained from carrying on as individuals, then the corporation also is deemed in privity of estoppel with them, even though it contain some stockholders more or less ignorant of the history of the patent and of the transactions leading up to the incorporation. From these considerations it follows that all the defendants are here estopped to deny the validity of the patent here in suit. Were this not true, then any estopped assignor could escape the effect of his estoppel by incorporating himself, and securing for his corporation a single bona fide stockholder for value. ' (Italics mine.) Mellor v. Carroll (C.C.) 141 F. 992, 993, 994.

'We do not think, however, that the defendant company can be said to be disassociated from Thomas. The facts that it entered upon its business under a license from Thomas and that he is its manager tend strongly to support the conclusion that the corporation is doing business...