Saco-Lowell Shops v. Reynolds

• Decision Date: 13 March 1944
• Docket Number: No. 5186.,5186.
• Citation: 141 F.2d 587
• Parties: SACO-LOWELL SHOPS et al. v. REYNOLDS et al.
• Court: U.S. Court of Appeals — Fourth Circuit

141 F.2d 587 (1944)

SACO-LOWELL SHOPS et al. v. REYNOLDS et al.

No. 5186.

Circuit Court of Appeals, Fourth Circuit.

March 13, 1944.

COPYRIGHT MATERIAL OMITTED

Hugh D. McLellan and Hector M. Holmes, both of Boston, Mass. (Julius C. Smith, of Greensboro, N. C., and Fish, Richardson & Neave, of Boston, Mass., on the brief), for appellants.

John M. Robinson and Frank H. Kennedy, both of Charlotte, N. C. (Hunter M. Jones, of Charlotte, N. C., and E. O. Ayscue, of Monroe, N. C., on the brief), for appellees.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from a decree in a suit to recover royalties under a contract licensing the manufacture of patented machinery and to enforce equities arising out of the confidential relationship existing between the parties to that contract. The plaintiffs are W. G. Reynolds, the inventor of an improved process of cotton roving and an improved cotton roving frame, covered by patents Nos. 1,738,796 and 2,238,659, and E. A. Terrell and the Terrell Machine Company, assignees of an interest in these patents. The defendant is the Saco-Lowell Shops, a corporation that holds a license from plaintiffs for the manufacture of machinery covered by the patents and that has admittedly paid plaintiffs royalties in excess of $100,000 on such machinery. The questions in the case are whether certain model J roving frames manufactured by defendant are subject to royalties under the licensing contract and whether plaintiffs are in equity entitled to a roving machine patent obtained by defendant through an employee named Jones but embodying ideas of plaintiff Reynolds communicated to defendant in the course of a confidential relationship. The District Court answered both questions in favor of plaintiffs, granting a recovery of $185,801.11 and interest on account of royalties and directing that defendant assign the Jones patent No. 2,187,830 to plaintiffs. From this decree defendant has appealed.

The questions involved in the appeal are very largely questions of fact and the learned trial judge has given them thorough consideration, hearing testimony with regard thereto for two weeks or more, witnessing the operation of the machines in controversy and finding the facts in detail in 49 separately numbered findings. These findings are binding upon us except to the extent that we are prepared to hold that they are clearly wrong, Rules of Civil Procedure rule 52, 28 U.S.C.A. following section 723c; and they are not weakened or discredited because made by the trial judge in the form requested by counsel. The judge very properly requested counsel for both sides to present their requests for findings in a form which, if approved, could be adopted by the court; counsel for both sides complied with this request; and the opinion filed by the judge shows that he gave careful thought to the questions involved so that the findings adopted embody his well considered views. While the defendant objects to a number of matters embraced in the findings, it does not discuss the findings specifically. A careful consideration of the testimony convinces us that they ought not be disturbed.

The facts necessary to an understanding of the case may be summarized as follows: The invention of Reynolds relates to what is known as the "roving" of cotton fibre in preparation for spinning into cotton yarn. The roving process consists in taking a strand of cotton fibres called a "sliver" and submitting it to pulling or "drafting", as a result of which the sliver is lengthened and attenuated and the fibres of cotton are drawn parallel to each other. Drafting is accomplished by passing the sliver between two pairs of rolls in succession, the second pair operating at a greater rate of speed than the first. The ordinary roving process prior to the invention of Reynolds required three or more distinct drafts; and it was necessary to reform the sliver between drafts by twisting it on a bobbin, so that as many roving frames were required as there were drafts of the sliver.

Reynolds conceived the idea of performing a series of drafts upon a single machine by reforming the sliver without twisting between drafts. He devised a machine, covered by patent No. 1,738,796, which was to reform the sliver between drafts by a folding process accomplished by the use of rollers having a tongue and groove engagement. These tongue and groove rollers not only reformed the sliver by folding after the first draft but also held it against a second draft made by the succeeding pair of rollers which operated at a greater rate of speed than they. The machine of this first patent was not satisfactory, however, and Reynolds improved it by providing that the folding rollers with the tongue and groove should be on a plane slightly lower than the rollers effecting the preceding draft and should be operated at a slightly advanced rate of speed so as to take up any slackness in the sliver due to the folding operation. The effect of the lowering of the tongue and groove rollers was to hold the sliver in tension, first against the surface of the rollers from which it was coming and then against the surface of the groove of the folding roller into which it was entering. The machine with these improvements worked satisfactorily. It embodied three concepts: (1) Reforming the sliver between drafts by a folding process, (2) holding the fibres from vertical and transverse expansion between the drafts by causing the sliver to travel under tension against surfaces, and (3) using a difference in speed, or take up, to eliminate fullness due to folding.

After Reynolds had built a machine of the improved character heretofore described and had placed it in successful operation, the defendant, one of the leading manufacturers of textile machinery in the United States, approached him and proposed that he license the manufacture of the machine by defendant and that he himself enter the service of defendant and work toward perfecting the machine for commercial production. Reynolds agreed to this and spent goodly portions of the years 1933 and 1934 working in defendant's plant with other employees of defendant's experimental department. During this period patent attorneys for defendant cooperated with patent attorneys for plaintiffs in making application for a patent on the improved machine. Application for the patent was filed in July 1934 and the patent, No. 2,238,659, was issued in April 1941.

In the meantime a license agreement had been signed between the parties on December 28, 1933. This license covered not merely rights under the patents then held by plaintiffs, but rights in any future patents that might issue on the Reynolds invention "together with any improvements thereon or relating thereto which either or both of the licensors may have heretofore invented or acquired or may hereafter invent or acquire, whether or not covered by patents, insofar as the licensee may desire to apply the same to machines and/or processes embodying or employing any invention or inventions disclosed and claimed in any of the above named patents and/or in the application for patent above referred to, and/or embodying or employing any improvements upon said invention or inventions." The defendant agreed to pay royalties "on machines embodying any invention covered by any United States patent included or contemplated in this license, and during the pendency of said Reynolds application about to be filed, on machines embodying any invention covered by any claim thereof not finally rejected." There was provision that the defendant as licensee should be under no further obligation to pay royalties on a patent held invalid or not infringed but that the royalties provided for should "be payable on all apparatus embodying the invention of any claim or claims not held invalid." The licensee was granted the exclusive right to make and sell machines and agreed to use its best endeavors promptly to develop, manufacture and sell devices embodying the invention of Reynolds. Royalties were fixed at 15% with provision that, if necessary to meet competition, plaintiffs would agree to a reduction to 10% and this reduction was subsequently made.

The machine and process of the Reynolds patent undoubtedly marked a great step forward in the art. As said in the opinion of the court below, it "revolutionized roving in textile plants and became a pronounced commercial success. Six men with this patented device could do the work generally requiring eighteen; one machine did the work of two, sometimes three." It was hailed by defendant in its advertising bulletins as being revolutionary in character, the following significant statement with regard thereto appearing in its bulletin of October 1934: "From the first we had realized that this new drafting mechanism is a radical departure from conventional ideas of roving machinery and in the matter of doublings it is a wide-open break with tradition * * *. The facts, as developed in actual mill use, regarding the performance, economy and simplicity of the machine square in every respect with the specifications we had set up as our practical ideal. It provides a unique, simple and effective method of eliminating unnecessary roving operations, and for most organizations makes possible the production of roving for the spinning frames of the required quality and size by a continuous controlled draft, in a single operation." There was immediate and widespread demand for the machine; and, as above stated, royalties of more than $100,000 were paid to plaintiffs, most of these from orders received prior to 1937.

In May 1934, while Reynolds was still working on the machine of his invention with the draftsmen and engineers of defendant, he conceived the idea that the folding device of the machine might be made stationary and communicated this idea to the employees of defendant with whom he was working and caused it to be inserted...