Schlegel Mfg. Co. v. USM Corp.

• Decision Date: 05 April 1976
• Docket Number: No. 74--2256,74--2256
• Citation: 525 F.2d 775,187 USPQ 417
• Parties: The SCHLEGEL MANUFACTURING COMPANY, Plaintiff-Appellee, v. USM CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 775

525 F.2d 775

187 U.S.P.Q. 417

The SCHLEGEL MANUFACTURING COMPANY, Plaintiff-Appellee, v. USM CORPORATION, Defendant-Appellant.

No. 74--2256.

United States Court of Appeals Sixth Circuit.

Argued April 7, 1975.

Decided Sept. 25, 1975.

Certiorari Denied April 5, 1976.

See 96 S.Ct. 1509.

Lawrence B. Beibel, Beibel, French & Bugg, Dayton, Ohio, George N. Hibben, Hibben, Noyes & Bicknell, Chicago, Ill., for defendant-appellant.

Richard H. Evans, Wood, Herron & Evans, Cincinnati, Ohio, George W. Shaw, Cumpston, Shaw & Stephens, Rochester, N.Y., James M. Wetzel, Robert M. Ward, Chicago, Ill., for plaintiff-appellee.

Before PHILLIPS, Chief Judge, WEICK, Circuit Judge, and ALLEN, District Judge. ^*

PER CURIAM.

This case involves an adjudication of contempt for the violation of the terms of a consent decree in a patent infringement action. The consent decree expressly stated that the patent was valid, and that defendants were guilty of infringement. Further infringement was enjoined. On motion for adjudication of contempt the District Court held that the validity of the infringed patent could not be raised in the contempt proceeding and that the contemnor's patent, asserted as a defense, was invalid. We agree that the consent decree is res judicata on the issue of validity, and that the contemnor's patent is invalid. We affirm the judgment of the District Court.

The consent decree grew out of an action filed on June 23, 1969, by Schlegel Manufacturing Company (hereinafter Schlegel) against King Aluminum Company for infringement of U.S. Patent No. 3,175,256 to Horton (hereinafter Horton patent). Discovery proceedings revealed that USM, which manufactured the accused weatherstripping through its Bailey Division, was an indemnitor to King Aluminum for patent infringement.

After the infringement action was filed, settlement negotiations were instituted and the parties ultimately agreed among themselves to compromise. These private negotiations were brought to the attention of the court on February 22, 1972, when USM moved to join as a party defendant and entered into an agreed stipulation settling the litigation. On that same date the District Court granted joinder and entered final judgment. The court's decree provided that:

3. Said Letters Patent 1/23,175,256 is good and valid in law.

4. Each of the Defendants, KING ALUMINUM CORPORATION and USM CORPORATION, by its Bailey Division, individually has infringed said Letters Patent by making and/or selling pile weatherstripping having a flexible impervious barrier in the pile as represented by USM's series 892 and 893 and embodying the inventions disclosed and claimed therein.

5. Each of the Defendants, its agents, servants, employees, privies, successors and assigns, are hereby permanently enjoined and restrained:

From the unauthorized making or using or selling or inducing others to use pile weatherstripping having a flexible, impervious barrier in the pile as represented by USM's series 892 and 893.

In early February 1972 USM engineers recommended that a patent application be filed on a new embodiment of weatherstripping and that the company follow through on commercial development of this product. The application was filed on May 26, 1972, and issued as U.S. Patent No. 3,745,053 to Johnson et al. (hereinafter Johnson patent) on July 10, 1973. Weatherstripping which conformed to the Johnson patent was produced and sold by USM during the pendency of the application and after its allowance.

Schlegel became aware of the Johnson embodiment and notified USM that the new form infringed the Horton patent and that the infringement was a violation of the injunction entered pursuant to the consent decree. USM responded by filing a declaratory judgment action for invalidity of the Horton patent in the District Court for South Carolina.

On May 11, 1973 Schlegel filed a motion for contempt with the District Court for the Southern District of Ohio, the court which had entered the prior consent decree. In a published opinion the Ohio District Court refused to stay the contempt proceedings in deference to the South Carolina declaratory judgment action. Schlegel Mfg. Co. v. King Aluminum Co., 369 F.Supp. 650 (S.D.Ohio 1973). On January 16, 1974 the South Carolina District Court ordered that the action pending before that court be stayed pending the outcome of the contempt proceedings.

After a full hearing on the contempt motion the District Court held that the manufacture of USM's new embodiment violated the terms of the decree. USM was held in willful contempt, an accounting was ordered, and the Johnson patent was held invalid. The District Court's findings are reported at 381 F.Supp. 649 (S.D.Ohio 1974). The present appeal is from that decision.

I. The Invention

The Horton patent discloses a flexible weatherstrip which is used to seal joints between doors or windows and their surrounding frames. Flexible upstanding pile fibers are secured to a textile base strip, and an impervious barrier is secured along the center of the pile to the base strip. This barrier is described in claim 1 of the Horton patent as follows:

a barrier strip of impervious, flexible sheet material fixed at one edge to said base strip in said pile gap, to project laterally from and extend longitudinally of said base strip to seal and support said fiber bodies.

The accused device is described in the Johnson patent as a similar type of weatherstrip with an impervious barrier. However, the Johnson barrier is not attached to the base strip. It is attached adhesively to the fibers themselves and the bottom edge of the barrier is spaced a short distance from the base strip.

II. Res Judicata

In the action for contempt USM sought to introduce evidence which would show that the Horton patent was invalid. The District Court held that the prior consent decree was res judicata of that issue and that the issue was foreclosed in the contempt proceeding. 369 F.Supp. at 652. On this appeal USM contends that the public policy interests discussed in Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), renders a finding of invalidity more important than the policies of finality served by the doctrine of res judicata. ¹

The present action fits squarely within the rules defining the bounds of res judicata. As stated by the District Court 'indeed this is in reality a part of' the first litigation. 369 F.Supp. at 652. The consent decree represents more than a mere agreement between the parties, or a stipulated dismissal. The District Court received the agreement, signed it and ordered it entered as a final judgment. We, therefore, are not faced with the difficulties in characterizing the decree as a dismissal without prejudice or a final consent decree, see Brunswick v. Chrysler Corp., 408 F.2d 335 (7th Cir. 1969), and an adjudication of infringement and validity need not be inferred, see Kraly v. National Distillers & Chem. Corp., 502 F.2d 1366 (7th Cir. 1974). This is a consent decree that clearly states that the Horton patent is valid and infringed. See Warner v. Tennessee Prod. Corp., 57 F.2d 642 (6th Cir.), cert. denied, 287 U.S. 632, 53 S.Ct. 83, 77 L.Ed. 548 (1932).

The principal issue then is not whether res judicata applies in the traditional sense, considering the facts of the case and the requirements of that doctrine, but rather whether the entire policy of res judicata is overridden by the public interest in purging an invalid patent of its status as a government-created monopoly. We recognize that res judicata is not a wholly inflexible doctrine, and that in rare instances public policy may mandate the rejection of that principle. 1B J. Moore, Federal Practice $0.405(11) (2d ed. 1974); see Addressograph-Multigraph Corp. v. Cooper, 156 F.2d 483, 485 (2d Cir. 1946).

Public policy considerations in patent litigation have long been recognized by the Supreme Court. In Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661, 670-71, 64 S.Ct. 268, 88 L.Ed. 376 (1944), the Court considered the question of res judicata with respect to certain defenses that might have been, but were not, advanced by parties privy to a first suit. In the earlier suit the patent was held to be valid. The Court determined that this finding was not res judicata of a patent misuse counterclaim for damages that could have been, but was not, litigated in the first action. The Court stated:

'Courts of equity may, and frequently do, go much farther both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.' Virginian Ry. Co. v. System Federation No. 40, 300 U.S. 515, 552, (57 S.Ct. 592, 81 L.Ed. 789). 'Where an important public interest would be prejudiced,' the reasons for denying injunctive relief 'may be compelling.' Harrisonville v. W. S. Dickey Clay Mfg. Co., 289 U.S. 334, 338 (53 S.Ct. 602, 77 L.Ed. 1208). 320 U.S. at 670, 64 S.Ct. at 273.

It was concluded that:

The case is then governed by the principle that where the second cause of action between the parties is upon a different claim the prior judgment is res judicata not as to issues which might have been tendered but 'only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered.' Cromwell v. County of Sac, 94 U.S. 351, 353 (24 L.Ed. 195). And see Russell v. Place, 94 U.S. 606 (24 L.Ed. 214). 320 U.S. at 671, 64 S.Ct. at 274.

The public interest in patents was also involved in Sinclair & Carroll Co. v. Interchemical Corp., 325 U.S. 327, 330, 65 S.Ct. 1143, 89 L.Ed. 1644 (1945), where the Court encouraged a full inquiry into patent validity, admonishing that:

There has been a tendency among the lower federal courts in infringement suits to dispose of them where possible on the ground of non-infringement without going into the question of validity of the patent. Irvin v. Buick Motor Co., 8 Cir.,...