Stanfield v. Osborne Industries, Inc.

• Citation: 643 P.2d 1115,7 Kan.App.2d 416
• Decision Date: 15 April 1982
• Docket Number: No. 52877,52877
• Parties: Phillip W. STANFIELD, Appellee/Cross-Appellant, v. OSBORNE INDUSTRIES, INC., Stanley M. Thibault, and Ronald M. Thibault, Appellants/Cross-Appellees.
• Court: Court of Appeals of Kansas

Page 1115

643 P.2d 1115

7 Kan.App.2d 416

Phillip W. STANFIELD, Appellee/Cross-Appellant, v. OSBORNE INDUSTRIES, INC., Stanley M. Thibault, and Ronald M.

Thibault, Appellants/Cross-Appellees.

No. 52877.

Court of Appeals of Kansas.

April 15, 1982.

Review Granted June 17, 1982.

Syllabus by the Court

1. Where it is stipulated by the contracting parties that a contract is unambiguous, this court on appeal is free to examine the agreement and make its own determination as to the agreement's proper meaning.

2. The intent and purpose of a contract is not to be determined by considering one isolated sentence or provision thereof, but by considering and construing the instrument in its entirety.

3. The purposes of the federal patent system are (1) to foster and reward invention; (2) to promote disclosure of inventions, stimulate further innovation, and permit the public to practice the invention once the patent expires; and (3) to assure that ideas in the public domain remain there for the free use of the public. (Following Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S.Ct. 1096, 59 L.Ed.2d 296, (1979).)

4. Under the facts of this particular case, where the parties entered into a patent license agreement which provided for the payment of royalties on the sale of heating pads for farrowing baby pigs, regardless of whether a required patent application was successful, it is held : The enforcement of this license agreement is not inconsistent with the purposes of the federal patent system and therefore federal patent law does not preempt Kansas contract law.

5. A pretrial order, entered by the trial court pursuant to K.S.A. 60-216, controls the subsequent course of an action unless such order is modified at the trial to prevent injustice. This proviso reposes in the trial court large discretionary powers.

6. A trial court is vested with considerable discretion in determining the scope of cross-examination, and its rulings on objections to questions asked of a witness on cross-examination will not be disturbed on appeal, absent a showing of an abuse of discretion.

7. As a general rule, an appellate court, in examining the validity of a motion for summary judgment, should read the record in the light most favorable to the party who defended against the motion. It should accept such party's allegations as true, and it should give him the benefit of the doubt when his assertions conflict with those of the movant. However, a question of fact created by allegations, standing alone, is not sufficient to control the application for summary judgment. Flimsy or transparent allegations are insufficient to sustain a justiciable controversy requiring the submission thereof to the trier of facts.

8. A court should be cautious in granting a motion for summary judgment when resolution of the dispositive issue necessitates a determination of the state of mind of one or both of the parties. Whether a party acts in good faith depends not only on the facts and circumstances, but also on his state of mind.

9. As a general rule, the officers and agents of a corporation, when acting for and on behalf of their corporation, will not be liable for inducing action by the corporation which it could lawfully undertake under a contract. Under such circumstances, the conduct of the officers and agents of the corporation is privileged.

10. Under the facts of this particular case, where plaintiff alleged that the individual defendants, as corporate officers of the defendant corporation, induced said corporation to breach a patent license agreement with plaintiff in bad faith and to enhance the individual defendants' personal financial positions, the record is carefully reviewed, and it is held : The trial court properly sustained the individual defendants' motion for summary judgment, since the acts of the individual defendants complained of by the plaintiff were so completely and utterly related to their official corporate responsibilities that the admitted fact of personal financial benefits as stockholders, resulting from the termination of the corporate duty to pay royalties to plaintiff, is totally insufficient as to leave a question of fact unresolved.

11. Where, as in this case, a contract clearly and unambiguously provides for a method of computing royalty payments, the contract will control and a trial court may not order a method of computing royalties which would be inconsistent with the express language of the parties' contract.

12. Where the parties to a patent license agreement provide for the payment of royalties on the manufacture and sale of licensed products to continue until the licensee ceases to manufacture and sell said products, it is held: The trial court erred in ordering said royalties to terminate seventeen years from the date on which the patent for the licensed product was denied.

James D. Oliver, of Foulston, Siefkin, Powers & Eberhardt, Wichita, for appellants/cross-appellees.

Don W. Noah of Noah & Harrison, P.A., Beloit, for appellee/cross-appellant.

Before ABBOTT, P.J., and SWINEHART and MEYER, JJ.

SWINEHART, Judge:

This is an appeal arising out of a breach of contract action filed by plaintiff Phillip W. Stanfield to recover royalties from defendant Osborne Industries, Inc., under a patent license agreement. Both Stanfield and Industries appeal from rulings on matters of law by the trial court and the jury verdict which established the breach of contract.

Defendant Osborne Industries raises the following issues: (1) Whether the trial court erred in finding that a license agreement, which required plaintiff to apply for a patent on a licensed product, required payment of royalties by Industries even though the product was not patented; (2) whether the trial court erred in finding that it was irrelevant whether plaintiff had a trade secret embodied in the product, and that plaintiff could recover royalties from Industries when he had neither a trade secret nor patent rights in the licensed product; (3) whether the trial court erred in refusing to admit evidence which would show the state of the prior art or otherwise show whether plaintiff's alleged invention embodied a trade secret, and, if so, precisely what aspect of the invention constituted the secret; (4) whether the trial court erred in refusing to allow Industries' expert witness to testify at trial; (5) whether the trial court erred in permitting improper cross-examination of Industries' witness, Ron Thibault, thereby eliciting inadmissible and prejudicial evidence; and (6) whether the trial court erred in sustaining a verdict contrary to the evidence and without substantial support in the evidence.

Plaintiff Stanfield raises the following issues: (1) Whether managing and controlling shareholders of a corporation are privileged to willfully and maliciously make false representations concerning the use of licensed inventions for the purposes of inducing a breach of confidential and contractual relations for their own personal gain; (2) whether the royalties paid should be based upon "net wholesale price" or on an amount determined by multiplying the units sold times the "distributor's price"; and (3) whether Industries' obligation to pay royalties should terminate according to the royalty agreement or after seventeen years from March 31, 1978, as ordered by the trial court.

In the early 1970's plaintiff Stanfield was living in the Osborne area. Although he had only a grade school education, Stanfield was known as something of a jack-of-all-trades. Stanfield was also an inventor and had built several things in a backyard shop, including a heating pad for farrowing baby pigs (hereinafter referred to as a "pork pad"). Stanfield presented his inventions to some leading citizens of Osborne, who subsequently called a meeting in February of 1973 under the auspices of the Chamber of Commerce to seek investors for a company to manufacture Stanfield's products in Osborne. The citizens were concerned about the area's declining population and lack of job opportunities. Willing investors were found and steps were taken to organize Osborne Industries, Inc., as a Kansas corporation.

Later in the spring of 1973, Stan Thibault was contacted about becoming involved in the corporation. He was a native of Osborne and was living in Kansas City at the time. He had a college business degree and sales experience with the Mobil Oil Corporation, but had no manufacturing experience. Stan Thibault moved back to Osborne in September of 1973 to become president of Industries. One of his first acts as president of the new company was to sign the October 3, 1973 license agreement that had been previously prepared by attorneys for Stanfield and Industries and which is the primary subject of this case. This contract provided that Stanfield was the inventor of certain listed products and would make application for patents on those products. Stanfield granted Industries an exclusive license to manufacture the products if it so desired. In consideration for the license, Industries agreed to pay a royalty on its sales to Stanfield. It was also contemplated that Stanfield would come to work for Industries as its plant foreman, which he did, and it was hoped that he would develop other valuable products, which he did not.

Of the products listed in the license agreement, only the pork pad proved to be commercially acceptable and only royalties on the pork pads are in issue on appeal.

Stanfield built his first pork pad in November of 1972. Industries manufactured pork pads and paid royalties to Stanfield totaling $45,671.07 for the period of 1974 through November of 1976. This constituted full payment of royalties on the original gray-colored pork pad. Phillip Stanfield left the employ of Osborne Industries in 1975, and later left the state of Kansas altogether.

In 1976, an orange-colored pork pad, which allegedly was developed by Ron Thibault (Stanley Thibault's...