De Stubner v. United Carbon Co.

• Decision Date: 25 September 1947
• Docket Number: No. 5611.,5611.
• Citation: 163 F.2d 735
• Parties: DE STUBNER v. UNITED CARBON CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

163 F.2d 735 (1947)

DE STUBNER v. UNITED CARBON CO. et al.

No. 5611.

Circuit Court of Appeals, Fourth Circuit.

September 25, 1947.

Staige Davis and Sam L. MacCorkle, both of Charleston, W. Va. (Ben O. Shepherd, of Detroit, Mich., and Davis & Painter, of Charleston, W. Va., on the brief), for appellant.

A. G. Stone, of Charleston, W. Va. (Donald O. Blagg and Rummel, Blagg & Stone, all of Charleston, W. Va., on the brief), for appellees.

Before PARKER and SOPER, Circuit Judges, and CHESNUT, District Judge.

SOPER, Circuit Judge.

This is a suit in equity wherein Emile C. deStubner seeks an accounting and a judgment against the defendants in the approximate sum of $2,025,000 for royalties alleged to be due him for the use of certain patents, inventions and discoveries relating both to processes for the manufacture of so-called dustless carbon black and also to the art and science of pigment dispersion. The suit involves also the claim that certain patents for processes for the manufacture of dustless carbon black, issued to employees of the defendants and assigned to one of the defendants, are his intellectual property and should be assigned to him under his prayer for general relief.

United Carbon Company, hereinafter called United, is a Delaware corporation engaged in the production, transportation and sale of natural gas and oil. It also holds large amounts of stock in various corporations. One of these is United Carbon Company, Inc. (Maryland), hereinafter called United, Inc., which is a Maryland corporation and a wholly-owned subsidiary of United. United, Inc., was established in April of 1935 and at that time United transferred to it all its carbon black interests. These interests include the production of dustless carbon black as well as the production of carbon black pigment dispersions. While the plaintiff's relationship with the defendants was originally initiated by an agreement between him and United in 1934, United, Inc. was substituted for United in 1935, and thereafter the plaintiff has dealt with United, Inc., rather than with United. The plaintiff seeks to impose liability on both United and United, Inc., on the theory that they jointly conspired to defraud him and that the distinct corporate entities should, as a consequence, be disregarded. United denies liability to the plaintiff in toto. United, Inc., denies that it is liable to the plaintiff for royalties in connection with any processes employed by it for the production of dustless carbon black, or that any of the patents therein of which it is the assignee are the plaintiff's intellectual property, or that it is liable to the plaintiff for monthly salary or so-called minimum royalties hereinafter mentioned. United, Inc., admits that it owes the plaintiff royalties for the use of his patents, inventions and processes relating to the art of pigment dispersion, but asserts that this liability is more than offset by certain expenditures properly made by it under the contracts between the parties.

The District Court found that the plaintiff had not disclosed to the defendants any inventions or discoveries which enabled the defendants to develop the processes used by them in the production of dustless carbon black, and hence the plaintiff was not entitled to an assignment of the patents relating to the production of carbon black which were controlled by the defendants, and that the defendants were not liable to the plaintiff for royalties in connection therewith. The court also found that the defendants were not liable to the plaintiff for monthly salary or minimum royalties. The court, however, appointed a master to determine the liability, if any, of United Inc., to the plaintiff for royalties on the patents and inventions relating to the art of pigment dispersion, but subsequently rescinded the order of reference when it became clear that the plaintiff was unable to give security for the costs of the reference. The plaintiff appealed from the final decree of the court in forma pauperis.

The plaintiff has been in this country since 1915 and has practiced his profession as a consultant in New York and has been associated with several corporations in a scientific capacity. In January, 1934, as the result of certain negotiations, he went to Charleston, West Virginia, and met Oscar Nelson, the president, and other officers and employees of United. In May, 1934, he entered into an option agreement with United for the period of one year, which recited that he was the inventor, patentee and sole owner of a number of patents and applications for patents relating to apparatus, processes and products pertaining to the art of pigment dispersion, and that United was desirous of obtaining an option to secure an exclusive license to exploit such inventions. The agreement further provided that, in the event United determined to exercise its option, a separate corporation would be established under the laws of West Virginia to act as a holding company for the patents and applications covered by the option. The plaintiff agreed to demonstrate to United his inventions, and United agreed to provide the facilities for such demonstrations, and to pay the plaintiff $150 per week during the period of such demonstrations. Pursuant to this agreement, United provided the plaintiff with a laboratory in Charleston in the summer of 1934, and the plaintiff continued his research work and, on occasion, demonstrated his processes to officers and employees of United.

In April, 1935, United, Inc., was incorporated and with the plaintiff's consent was substituted for United as a party to the option agreement. This agreement was extended several times and finally, as contemplated therein, Microid Process, Inc., hereinafter called Microid, was established under the laws of West Virginia. On August 18, 1936, three contracts were executed, all bearing the date of July 31, 1936, to wit: (a) an agreement between the plaintiff and United, Inc.; (b) an agreement between the plaintiff and Microid, and (c) an agreement between Microid and United, Inc. They may be summarized as follows:

(a) The agreement between the plaintiff and United, Inc. This contract opened with a recital that United, Inc., had decided to exercise its option, and that pursuant thereto the plaintiff and United, Inc., had caused the incorporation of Microid, with 9000 shares of no-par value common stock, divided into 3000 shares of class "A" common stock, and 6000 shares of class "B" common stock. The class "A" stock was issued in its entirety to the plaintiff, and all the class "B" stock was issued to United, Inc. The class "A" stock was to be preferred over the class "B" stock in that no dividends could be declared on the class "B" stock during any fiscal year unless during the same year dividends amounting to $12,000 had been declared or paid to holders of class "A" stock, except that during the first year of the agreement (August 1, 1936 to July 31, 1937) the class "A" stock was to be preferred over the class "B" stock only to the extent of $7,500. United, Inc., was to assign to Microid its 70 per cent. stock interest in a Delaware corporation, the Colloidal Pigment Company, and contemporaneously therewith Microid was to execute a license granting the said company a non-exclusive right to manufacture, use and sell aqueous dispersions of carbon black for use in coloring concrete, mortar and paper. The agreement also contained the following clause which is of some importance in connection with the plaintiff's claim for so-called minimum royalties: "Should Microid not have funds available for the purpose, United, so long as it retains the right to use a license, bearing even date herewith granted by Microid to United, shall advance the funds necessary to pay taxes, * * * and such expenses as Microid shall have incurred by order of its board of directors."

(b) The agreement between the plaintiff and Microid. Under this contract the plaintiff granted to Microid the exclusive and non-assignable license to use together with the sole right to sub-license the use of, the following: (1) The inventions, improvements or discoveries disclosed in the patents and patent applications set forth in a schedule attached to the agreement; (2) all patents and patent applications of the plaintiff in any foreign country; and (3) "all inventions, discoveries or improvements relating to any idea, machine, apparatus, formula, fact or process pertinent or valuable to the science and art of pigment dispersions of whatever kind and nature heretofore or hereafter made, discovered, compiled or developed by deStubner or with respect to which he has a right to grant a license." (emphasis supplied.) The plaintiff also agreed to serve as director of technical research of Microid for a period of five years without compensation. Microid, in turn, issued to the plaintiff its 3000 shares of class "A" common stock. The contract further provided that the plaintiff could cancel the contract if (1) Microid was adjudged insolvent, or (2) if the dividends declared on class "A" stock during any fiscal year did not amount to $12,000, unless some third party, presumably United, Inc., paid to the holders of class "A" stock the difference between the dividends actually received and $12,000 (except that during the first year the license could only be cancelled if the dividends on class "A" stock were below $7,500). It was expressly provided, however, that should the plaintiff cancel the license agreement between him and Microid, all sub-licenses granted by Microid would remain valid and that the plaintiff would merely be substituted for Microid as a sublicensor and would be entitled to the payment of royalties under the sub-licenses.

Attached to this agreement was a schedule of the plaintiff's patents, applications and inventions. This schedule was divided into three headings: (a) Issued United States Letters Patent; (b) pending United States...