Swan Carburetor Co. v. General Motors Corporation

• Decision Date: 28 September 1927
• Docket Number: No. 14169.,14169.
• Citation: 42 F.2d 452
• Parties: SWAN CARBURETOR CO. v. GENERAL MOTORS CORPORATION.
• Court: U.S. District Court — Northern District of Ohio

42 F.2d 452

SWAN CARBURETOR CO. v. GENERAL MOTORS CORPORATION.

No. 14169.

District Court, N. D. Ohio, E. D.

September 28, 1927.

F. O. Richey, of Cleveland, Ohio, Joseph H. Milans, of Washington, D. C., and Henderson, Quail, Siddall & Morgan, of Cleveland, Ohio, for plaintiff.

Frederick P. Fish and J. L. Stackpole, both of Boston, Mass., and White, Cannon & Spieth, of Cleveland, Ohio, for defendant.

WESTENHAVER, District Judge.

This action is brought to recover royalties alleged to be due under a license agreement. A jury trial was waived in writing, and the case tried to the court. The testimony, oral and documentary, is voluminous. The considerations urged in argument are too numerous to be discussed in detail, but I believe that none has been overlooked. In this memorandum, however, I shall deal briefly with such points only as I deem controlling.

The article involved is a manifold for internal combustion engines. The main controversy turns on whether defendant's manifold is within the terms of the license. The agreement is dated June 6, 1923. At that time, John W. Swan, assignor of plaintiff, had an application pending in the Patent Office on his alleged invention, filed September 17, 1921. No patent was ever issued upon this application. A continuation application was filed November 5, 1924, to meet certain difficulties found in the Patent Office, and patent 1,536,044 was issued thereon April 28, 1925. It recites that it is a continuation of the original application. The controlling questions, as I see them are: (1) Whether upon a proper construction of the license agreement defendant bound itself, as it now contends, to pay royalties only upon the specific, or, as plaintiff contends, the preferred, construction disclosed in the original application, or is bound to pay upon the manifold construction as covered by any claims, properly construed and limited, of the patent later issued; (2) if the foregoing question is answered adversely to the defendant, whether its present manifold is within said claims so construed and limited; (3) if defendant's manifold is within those claims, whether plaintiff may recover royalties on manifolds made and sold in an interval of eighteen months ensuing after the license agreement was made and before the patent was issued, it being asserted by defendant that this agreement exempts it wholly during that period, and by plaintiff that payment only is suspended until the patent issues. These several propositions will be briefly considered in the order stated.

1. In my opinion, defendant's contention is not sound that it bound itself to pay royalties only on the specific construction disclosed in Swan's application pending when the license agreement was made. Defendant's argument is rested primarily on the words "specifically disclosed" found in the first "whereas" recital. These words are not controlling in determining the intent of the contracting parties. The agreement, I think, is intended to cover and include Swan's true invention, whatever it was. The words "specifically disclosed" are intended, I think, to refer to that application as the place wherein description of his invention might be found rather than to limit the agreement to pay on the specific form thereby disclosed.

This conclusion is made evident by an examination of all the provisions of the agreement. The granting or license clause is general and all-inclusive in its scope. It grants a license to make, use, and sell Swan's improvements in manifolds throughout the United States and territories and in all foreign countries in which letters patent therefor may be granted, concluding: "Under or corresponding to the aforesaid application of John W. Swan for United States Letters Patent and any and all Letters Patent that may issue on said application or any division or continuation thereof." This plainly looks to the future, and included the right to make, use, and sell, not merely the form specifically disclosed, but any form covered by any patent that might be issued on the original or any divisional or continuation application. Furthermore, in paragraph 4, the licensee agrees that it will not contest or question "the invention forming the subject matter of John W. Swan's aforesaid application for United States Letters Patent on manifold, or contest or question the validity of any patent or patents which issue thereon or correspond thereto." In paragraph 6 the license stipulates for exemption from payment of royalty in certain contingencies "until such time as Letters Patent of the United States shall issue covering such products." The licensee is also permitted to cancel "without prejudice with respect to the nature or scope of any patent rights on the part of the licensor." The licensee is also further exempt from its obligation to pay royalties if any other manufacturer makes manifolds substantially corresponding to these on which royalty is being paid, unless the licensor, upon notice, shall prosecute promptly and vigorously infringement suits. In paragraph 10 it is agreed that, if any patent referred to therein shall be held invalid or substantially limited, the license may be canceled by the licensee. In paragraph 11 the licensor agrees to communicate all improvements on manifolds of which it may become possessed, and that the licensee may use the same without the payment of further royalty. Taken as a whole, these provisions do not admit of any other construction than the one announced.

The parties, in making this contract, were undoubtedly represented by experienced counsel. Whether a patent would issue, and, if so, what would be the form and scope of its claims, was not then definitely known. They know, as everybody knows, that the issued patent might contain some claims limited to the specific form of manifold, and that it might contain other claims covering any new element invented by Swan and usable in combination with various old elements. It was recognized that a pending application might have to be divided to meet the requirements of the Patent Office, or that it might be expedient, to avoid difficulties in prosecuting the original application, to file another as a continuation. As the event proved, Swan experienced such difficulty in procuring a patent upon his application pending when the contract was made, but no difficulty in procuring a patent upon another application filed as a continuation, but quite as broad, if not broader, in its scope and claims as those sought in the original. The contracting parties contemplated these contingencies and used apt language to confer on the licensee rights to make, use and vend as broad as might be obtained.

What the license agreement covers is Swan's invention as disclosed in his pending application. It was not limited to his preferred embodiment of his invention or to any specific form. The preferred or specific form as disclosed may be what induced defendant to take a license, but defendant contracted for a right to make, use, and sell any and all forms of Swan's invention, no matter whether obtained on the pending application or on any division or continuation of it. It also asked and obtained the right to make, use, and vend any improvements in manifolds made or possessed by Swan without the payment of any additional royalty. Having obtained these comprehensive rights, it is obliged to pay the agreed royalty. It is quite plain that defendant, so long as the license agreement remains uncanceled, is therefore bound to pay upon all manifolds which are covered by any of the claims, properly construed and limited, of the Swan patent eventually issued, and not merely upon some specific or preferred form disclosed in the original application.

2. Defendant is not estopped to show the actual invention disclosed by Swan's original application or by the patent actually issued. It reserved the right to cancel, but it has expressly and intentionally refrained from cancelling. Defendant, after making and using Swan's preferred form of manifold, later developed another form which it now claims is outside of Swan's patent, and then gave notice to the plaintiff that it would not pay royalties upon this form, but in said notice expressly declared that the license agreement was not thereby to be regarded as canceled. Defendant also agreed that it would not question the invention forming the subject-matter of Swan's original application or contest or question the validity of any patent or patents which might issue thereon or correspond thereto, and this stipulation applies equally to any patent or patents which in fact issued on any divisional or continuation application. Defendant was free to cancel or renounce and contest validity, but, not having done so, defendant may now introduce and rely on the prior art only for the purpose of disclosing the true nature of Swan's invention and the proper construction and limitations, if any, to be placed upon the claims of the issued patent. If defendant may not show invalidity to escape payment of royalties, a practical difficulty exists when one comes to apply the rule permitting the claims to be limited to avoid the prior art. If that art shows the claims to be invalid, the licensee is estopped from denying validity and must pay royalties. If that art only shows that the claims may be still upheld as valid if narrowly limited, then the licensee is not so estopped, and does not have to pay. However, the rule of law as stated seems to be well established. As was said by Chief Justice Taft, in Westinghouse Co. v. Formica Co., 266 U. S. 342, 351, 45 S. Ct. 117, 120, 69 L. Ed. 316, "The distinction may be a nice one but seems to be workable."

In this case counsel agree on the law. Defendant admits that it is estopped to show invalidity. Plaintiff concedes that it may exhibit the prior art for the purpose of showing what Swan's invention actually was and in order that the claims may be properly construed and...