Texas Co. v. Borne Scrymser Co.

• Decision Date: 03 October 1933
• Docket Number: No. 3512.,3512.
• Citation: 68 F.2d 104
• Parties: TEXAS CO. et al. v. BORNE SCRYMSER CO.
• Court: U.S. Court of Appeals — Fourth Circuit

68 F.2d 104 (1933)

TEXAS CO. et al. v. BORNE SCRYMSER CO.

No. 3512.

Circuit Court of Appeals, Fourth Circuit.

October 3, 1933.

Brady Cole, of Houston, Tex. (Drury W. Cooper, of New York City, Frank G. Tompkins, of Columbia, S. C., Donald Brooks and Cooper, Kerr & Dunham, all of New York City, Baker, Botts, Andrews & Wharton, of Houston, Tex., and Tompkins & Gary, of Columbia, S. C., on the brief), for appellants.

Oscar W. Jeffery, of New York City (Reginald Hicks, of New York City, and Stephen Nettles, of Greenville, S. C., on the brief), for appellee.

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

SOPER, Circuit Judge.

Suit for infringement of a patent was filed by the complainant in the District Court against two defendants who filed a joint answer denying the validity of the patent or infringement thereof. One of the documents presented in the same pleading a counterclaim against the plaintiff for infringement of another patent, and the complainant filed a motion to dismiss the counterclaim principally on the ground that the defendant-claimant had acquired the cause of action subsequent to the filing of the original bill. The district judge granted the motion and dismissed the counterclaim, from which action this appeal was taken in accordance with the practice approved in General Electric Co. v. Marvel Rare Metals Co., 287 U. S. 430, 53 S. Ct. 202, 77 L. Ed. 408.

The original bill of complaint was filed by Borne Scrymser Company, a New Jersey corporation, as the owner through assignment of United States patent No. 1,550,396 to Robert Bigham Smith for certain improvements in oiling cotton raw stock. The bill charged that Gaffney Manufacturing Company, a South Carolina corporation, had installed in its mill certain apparatus designed to be used to practice the process described and claimed in the patent, and had used the apparatus in violation of the plaintiff's rights; and that the Texas Company, a Delaware corporation, had made the apparatus and procured its installation at the Gaffney mills and in addition similar apparatus in other cotton mills in the western district of South Carolina, thereby aiding and abetting the Gaffney Manufacturing Company and other persons in the infringement of the Smith patent.

The defendants answered challenging the validity of the patent and denying its infringement, and the Texas Company, as cross-complainant, charged Borne Scrymser Company with infringement of United States patent No. 1,401,376 of December 27, 1921, to Albert W. Thompson for improvement in processes and apparatus for conditioning fibers, under which patent the Texas Company claimed to hold, by assignment, the exclusive license for the cotton and rayon industries, with the right to sue in its own name for infringement. Shortly after the answer and cross-claim were filed, the Parks-Cramer Company, a Massachusetts corporation, filed a petition for leave to intervene in the cause as the owner of the legal title to the Thompson patent, and also of the equitable title, except in so far as it had granted the license described to the Texas Company. Borne Scrymser Company, the plaintiff in the original bill, moved the court, in accordance with Equity Rule 33 (28 USCA § 723), to strike the counterclaim from the defendant's answer on the ground that it did not appear that at the time of the filing of the bill of complaint, the Texas Company had any right, title, or interest to the Thompson patent, and that, in any event, the Texas Company was a mere licensee under the Thompson patent, and did not have such title thereto as would be necessary to sustain the counterclaim.

Affidavits and correspondence were filed by the parties showing the circumstances under which the license of the Thompson Company was acquired, and after consideration, the district judge filed a decree whereby the motion to strike out the counterclaim was granted, and the motion for leave to intervene was denied. The judge found as a fact from the pleadings and proof that the Texas Company acquired its exclusive license at a date subsequent to the institution of the present suit, and he held as a conclusion of law that the Texas Company was therefore not entitled to set up the infringement of the Thompson patent by the plaintiff by way of counterclaim, and further that the limited interest of the Texas Company in the Thompson patent was not sufficient to support a suit by that company for infringement thereof. He also concluded that since the Texas Company had no standing in the court upon its counterclaim, the petition of Parks-Cramer Company for leave to intervene must necessarily be denied.

The facts in regard to the acquisition by the Texas Company of the Thompson patent were laid before the court without the production of witnesses, by affidavits and by correspondence taken from the files of the corporations named. The appellant suggests in its brief that it participated in this informal procedure under protest, but no exception was taken to the admission of the proofs by the district judge, no assignment of error was based thereon, and the evidence was incorporated in the record now before this court. Hence it is incumbent upon us to consider it; and we have reached the conclusion that the Texas Company acquired its interest in the Thompson patent not only after the institution of the pending suit, but after the Texas Company had notice that apparatus of its manufacture was charged by the Borne Scrymser Company to be an infringement of the Smith patent, and that thereupon the Texas Company acquired a license under the Thompson patent so that it might launch a counter offensive and make more difficult the prosecution of any charge of its infringement of the Smith patent which Borne Scrymser Company might undertake. It would be improper for us at this time to pass upon the merits of the respective claims of patent infringement, even if we were in possession of facts sufficient to enable us to do so, and we intimate no conclusions whatsoever in this respect; but in weighing the facts pertinent to the question now before us upon this appeal in equity, we find that a preponderance of the evidence justifies the inference we have drawn as to the purposes for which the counterclaim was acquired and filed.

The district judge seems to have reached the same conclusion, for in addition to the finding of fact above mentioned as to the time when the Texas Company acquired its exclusive license, he stated in his formal opinion that the practice of setting up counterclaims was never intended to permit the defendant, after suit was brought, to buy up, for purposes of litigation and defense, doubtful or other claims against the plaintiff, for otherwise the buying up of claims against a plaintiff would be encouraged and sanctioned, and would result in the perversion instead of the promotion of justice.

Equity Rule 30 (28 USCA § 723), provides, in part: "The answer must state in short and simple form any counterclaim arising out of the transaction which is the subject-matter of the suit, and may, without cross-bill, set up any set-off or counterclaim against the plaintiff which might be the subject of an independent suit in equity against him, and such set-off or counterclaim, so set up, shall have the same effect as a cross-suit, so as to enable the court to pronounce a final decree in the same suit on both the original and the cross-claims."

The correct interpretation of this rule, as shown by many decisions, is that when the counterclaim arises out of the same transaction which is the subject-matter of the suit, the counterclaim must be filed by the defendant or be forever barred; whereas, if it does not arise out of the same transaction, defendant has the option to set it up against the plaintiff if it might be made the subject of an independent suit in equity against him. Since the subject-matter of the original bill of complaint relates to the infringement by the defendant of the Smith...