Stanfield v. Osborne Industries, Inc., 52877

• Decision Date: 03 December 1982
• Docket Number: No. 52877,52877
• Parties: , 217 U.S.P.Q. 853 Phillip W. STANFIELD, Appellee, Cross-Appellant, v. OSBORNE INDUSTRIES, INC., Appellant.
• Court: Kansas Supreme Court

Page 917

654 P.2d 917

232 Kan. 197, 217 U.S.P.Q. 853

Phillip W. STANFIELD, Appellee, Cross-Appellant, v. OSBORNE INDUSTRIES, INC., Appellant.

No. 52877.

Supreme Court of Kansas.

Dec. 3, 1982.

Syllabus by the Court

1. Regardless of the construction of a written instrument made by the trial court, on appeal the instrument may be construed and its legal effect determined by the appellate court.

2. Where the provisions of a written contract are clear and unambiguous, there is no occasion for applying rules of construction. In such cases, the contract must be enforced according to its terms so as to give effect to the intention of the parties, and this must be determined from the four corners of the instrument itself.

3. In determining the intention of the parties, reasonable rather than unreasonable meanings are favored. A court should avoid unreasonable interpretations where a contract provision is reduced to an absurdity and the parties' intent vitiated.

4. A patent is conferred upon an inventor by the federal government, pursuant to Article I, § 8, of the United States Constitution, 35 U.S.C. § 154 (Supp.IV 1980), to provide the holder with an exclusive right to make, use and sell the invention in the market place for seventeen years.

5. A patent licensing agreement is interpreted and held, in the absence of an express provision to the contrary, not to authorize payment of royalties on sales occurring after the patent application was ultimately rejected by federal authorities.

Don W. Noah, of Noah & Harrison, P.A., Beloit, and Dorsey L. Baker, of Haight, Hofeldt, Davis & Jambor, Chicago, Ill., argued the cause and were on the briefs for appellee, cross-appellant.

James D. Oliver, of Foulston, Siefkin, Powers & Eberhardt, Wichita, argued the cause, and Jerry G. Elliott, Wichita, of the same firm, Malcolm Litman, of Litman, Fishburn & Gold, of Kansas City, Mo., and Richard E. Dietz, Osborne, were with him on the briefs for appellant.

McFARLAND, Justice:

This is an action by plaintiff, Phillip W. Stanfield, to recover royalties from defendant, Osborne Industries, Inc., under a patent licensing agreement. Stanfield and Osborne have each appealed the judgment of the trial court. The Court of Appeals essentially affirmed the trial court, but extended the maximum period of time that royalties could be recovered. The case is before this court upon petitions for review from each appealing party.

Numerous issues have been raised in the appeal and cross-appeal herein. We are satisfied the Court of Appeals opinion herein, Stanfield v. Osborne Industries, Inc., 7 Kan.App.2d 416, 643 P.2d 1115 (1982), adequately disposed of all issues raised in the appeal and cross-appeal except the issue relative to whether the licensing agreement requires Osborne Industries to pay royalties on sales occurring after the date Stanfield's patent application was ultimately rejected by the United States Patent Office. We approve the Court of Appeals opinion as to such other issues and shall confine this opinion to said royalty issue.

Under such circumstances, the factual statement will be highly summarized. Stanfield, an Osborne County resident of limited formal education, was handy at making and repairing items in his backyard shop. Stanfield was aware of a long-standing problem of hog raisers--newly farrowed pigs being lain on and killed by the sow as they sought out her body heat. He designed a rigid heating pad that would provide adequate artificial heat for the baby pigs, but have the ability to withstand the severe environmental stresses inherent in such usage. He called this idea a "pork pad."

Stanfield presented this idea to some local Osborne businessmen and Osborne Industries was created. A licensing agreement was prepared by attorneys for both sides. The agreement gave Osborne exclusive right to manufacture certain items of animal heating equipment including the pork pad. After Stanfield came to work for Osborne, no new products were developed. Of the listed ideas, specifically referred to in the agreement, only the pork pad proved to be commercially acceptable.

By virtue of having affirmed the Court of Appeals on the other issues, the pork pad manufactured by Osborne will be considered for all purposes to be the original pork pad referred to in the licensing agreement. The matter of royalties on the pork pad is the sole issue before us.

Any right Stanfield has to receive royalties is wholly dependent upon the patent licensing agreement, an instrument the parties have stipulated is unambiguous. Regardless of the construction of a written instrument made by the trial court, on appeal the instrument may be construed and its legal effect determined by the appellate court. State Bank of Parsons v. First National Bank in Wichita, 210 Kan. 647, 504 P.2d 156 (1972).

Where the provisions of a written contract are clear and unambiguous, there is no occasion for applying rules of construction. In such cases, the contract must be enforced according to its terms so as to give effect to the intention of the parties, and this must be determined from the four corners of the instrument itself. Steel v. Eagle, 207 Kan. 146, 483 P.2d 1063 (1971).

Although lengthy, the entire licensing agreement must be reproduced herein. When reading the agreement it is helpful to bear in mind the three constructions heretofore given the agreement relative to payment of royalties on the pork pads:

(1) Right to royalty was conditioned upon securing a patent. When the patent application was ultimately and finally denied on March 31, 1978, all right to future royalty payments ended (Osborne);

(2) Right to royalty payments would continue a maximum of 17 years from March 31, 1978, date of the denial of the patent (trial court); and

(3) Right to royalty is to continue however long Osborne manufactures pork pads (Stanfield and Court of Appeals).

The licensing agreement is as follows:

"LICENSE AGREEMENT

"THIS AGREEMENT, made and entered into as of this 3rd day of October, 1973, by and between Phillip W. Stanfield, of Alton, Kansas, hereinafter referred to as Stanfield, and Osborne Industries, Inc., hereinafter referred to as Industries:

"WITNESSETH THAT:

"WHEREAS, Stanfield is the inventor of certain new products, hereinafter described as follows:

"NOTE: All items listed below are intended to be constructed of fiber glass of PVC (poly-vinyl-chlorida), high impact plastic that is corrosion and acid resistant. This plastic is important because of its ability to stay germ resistant.

"A. PORK PADS

"1. Stanfield Heat Pad for Farrowing Pigs--Designed to fit the various standard type 'A' house and Corner Pads triangle shaped to fit in corners of 'A' houses and farrowing pens.

"2. Half Pad--Made to heat an odd number of crates or make-shift pens.

"3. Five-foot Pad--This pad is for nurseries.

"B. PET EQUIPMENT

"1. Heat Pad for Pets Inside and Outside, which may be covered with cloth,--These will vary in size for the different uses intended.

"2. Heat Pad for Lap Dogs--made in an attractive shape and size for indoor use which may be covered with cloth. Pads for cats and cat baskets will be constructed in the same manner.

"3. Heated Dog Dish.

"4. Heated Dog House or Floor for Existing Dog House.

"WHEREAS, Stanfield is ready, willing and able to grant unto Industries an exclusive license to manufacture, use and sell said above described products, at either wholesale or retail, under the terms and conditions hereinafter set forth:

"NOW THEREFORE, it is agreed by and between the parties hereto as follows:

"1. Stanfield agrees to file one or more applications for U.S. Letters of Patent covering the above described products, to prosecute said applications before the United States Patent Office, and to cause issuance of Letters of Patent thereon upon allowance at his sole cost and expense, and furnish to Industries copies of each application and Letters [of] Patent issuing thereon, however, should Stanfield become financially unable to pay the cost and expense to prosecute said application before the United States Patent Office, Industries, at its discretion, may pay said patent or copyright expense and it shall be the duty of Stanfield to reimburse Industries for the reasonable cost and expense of the same and that Industries may deduct from royalty money due and owing to Stanfield, the cost of said expenses at the rate of Ten (10) percent of all royalty money payments due and owing according to this agreement as hereinafter described.

"2. Upon the execution of this Agreement by the parties hereto, Industries shall proceed with the necessary arrangements for the manufacture of the products under this agreement, including the production or acquisition of all required tools, dies, jigs, fixtures and other equipment at its own cost and expense. All present and future tools, dies, jigs, fixtures and other equipment purchased or developed by Industries shall remain the sole property of Industries.

"3. Any improvements made upon the items herein licensed to be manufactured which may be made for the purpose of extending or renewing a patent of Stanfield's, shall remain the sole property of Stanfield. All improvements in the methods of manufacture shall be the properties of Industries, whether made to reduce production costs, improve performance, increase service life, broaden applicability,...