Transitron Electronic Corp. v. Hughes Aircraft Co.

• Decision Date: 22 February 1980
• Docket Number: Civ. A. No. 70-484-MA.
• Citation: 487 F. Supp. 885
• Parties: TRANSITRON ELECTRONIC CORPORATION, Plaintiff, v. HUGHES AIRCRAFT COMPANY, Defendant.
• Court: U.S. District Court — District of Massachusetts

487 F. Supp. 885

TRANSITRON ELECTRONIC CORPORATION, Plaintiff, v. HUGHES AIRCRAFT COMPANY, Defendant.

Civ. A. No. 70-484-MA.

United States District Court, D. Massachusetts.

February 22, 1980.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Louis Orenbuch, Wolf, Greenfield & Sacks, Boston, Mass., for plaintiff.

John Hally, Nutter, McClennon & Fish, Boston, Mass., for defendant.

OPINION

MAZZONE, District Judge.

Statement of the Case

The plaintiff is Transitron Electronic Corporation (Transitron), a Delaware corporation, with its principal place of business in Wakefield, Massachusetts. The defendant is Hughes Aircraft Company (Hughes), a Delaware corporation, with principal offices in California, and with a regular and established place of business in Massachusetts.

The springboard for this case is the decision in General Instrument Corp. v. Hughes Aircraft Co., 399 F.2d 373 (1st Cir. 1968). That decision held that the essential claim of the subject Hughes diode patent was invalid because the claim introduced new matter not supported by the original disclosure. Following that decision Transitron demanded the return of royalties paid under the licensing agreement. Failing in that effort, Transitron commenced this suit.

Transitron charges in Count I a violation of federal antitrust laws. This count is based on allegations that Hughes fraudulently obtained a patent for a glass sealed diode from the United States Patent Office. Transitron claims Hughes used this patent, allegedly invalid because of the fraud, and also because of Hughes' failure to comply with the Invention Secrecy Act, 35 U.S.C. §§ 181-188, to coerce Transitron (and other diode manufacturers) to enter a licensing agreement. It is alleged this action by Hughes was, first, an attempt to restrain trade in the diode market in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 and, second, an attempt to monopolize the diode market in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. Count II and Count III are based on the same factual allegations and sound in tort and contract respectively. Transitron seeks to recover treble damages for the antitrust violations and seeks return of the royalties paid under the invalid patent on either a patent misuse tort claim or breach of contract claim.

Hughes denies the allegations of any fraudulent conduct, denies violating the Invention Secrecy Act, and relies on applicable statutes of limitations. Further, Hughes counterclaims, alleging that Transitron fraudulently concealed its manufacture of diodes covered by the licensing agreement. As a result of this fraudulent misrepresentation, Hughes claims it is entitled to additional royalties.

Background of the Case

Most of the factual background of the case pertaining to Hughes' prosecution of the diode patent in the United States Patent Office and in Great Britain and to the communications between the parties is undisputed and is contained in the extensive documentary record. In order to understand and analyze more fully the legal theories advanced by the parties, we make our preliminary findings as to the factual background of this controversy at the outset.

The original patent application for a "Glass-Sealed Semi-Conductor Crystal Device" was filed on March 31, 1950, by Harper Q. North and Justice N. Carman, Jr. North and Carman assigned their interest in the patent application, Serial No. 153102, to Hughes Aircraft Company. The application was filed by Nicholas T. Volsk, Patent Counsel of Hughes. As filed, there were thirty-four claims. The invention related to germanium crystal conductive elements mounted in glass-sealed envelopes. It purported to disclose novel crystal device assemblies. Generally, the purpose of the invention was to produce semi-conductor crystal devices mounted in glass envelopes which would expand negligibly in response to temperature changes, thereby producing devices with stronger, more stable and superior electrical characteristics. The novel method of assembling such devices included the use of protective coatings to establish glass to glass seals, thus avoiding the use of high temperatures. This had not been possible under the prior art because the process for sealing the glass envelope necessarily required a high temperature which would damage the crystal.

There followed a vigorous and extended patent prosecution, in which a number of attorneys of the Hughes Patent Department took part. The personnel as well as the leadership of the Department changed during that period of time. Three additional claims were filed on September 20, 1950 making a total of thirty-seven claims. Claims 38-72 were filed on March 20, 1951; claims 73-81 were filed on May 19, 1951. Further amendments were filed periodically through July 12, 1954.

On March 10, 1952, while the application was pending, Hughes' Patent Department received a Description of Invention from Harper Q. North. This invention related to improving the diodes and the method for making them. Essentially, the new method involved fusing one end of the glass envelope before inserting the germanium crystal and then mounting the crystal through the use of a thermosetting compound and the application of relatively low temperatures. Inquiry was made as to the preferred composition of the thermosetting compound. Hughes contemplated the use of a gold thermosetting compound manufactured by DuPont, but investigated the possibilities of others on which it might have been able to obtain patent coverage. Hughes had put this new method into production sometime in early 1952.

On March 8, 1954, Hughes submitted claims 100-104 as an amendment to its application, purporting to recite the invention and process previously claimed in greater detail. These claims were disallowed. On July 27, 1954, Hughes submitted another proposed amendment which rewrote the previously disallowed claim 102 as claim 105 and claim 106. These last two claims were allowed on September 2, 1954 and renumbered claims 60 and 61. These claims deal explicitly with the structural and dimensional features of the diode and make no reference to the use of a thermosetting compound. On November 9, 1954, the patent was issued, U.S. Patent No. 2,694,168.

During the course of the patent prosecution, Hughes submitted a total of 106 claims. Those claims reflected continuing developments in the manufacture of semiconductor diodes that occurred after the initial filing of the application. The developments related not only to the manner in which the glass enclosure was hermetically sealed, but to the structural support for elements within the enclosure. Claims 105 and 106 specifically called for the length of the seal between each of the lead wires and the respective end sections to be at least 1½ times the maximum cross sectional dimension of the wire, and the outside dimension of each of the end sections to be at least five times the cross sectional dimension of the lead wires. This disclosure explicitly recited the measurements which the drawings submitted in connection with the original application had reflected. While the drawings are not necessarily made to scale, they are an integral part of the application and are considered by the examiner in his review of the application.

In Great Britain, a patent application for the invention was filed on March 20, 1951 and issued on November 24, 1954, No. 721,201. The material disclosed in claims 60 and 61 of the final United States patent was not filed in Great Britain as a claim under the parent patent, but instead was treated as a separate improvement in an application for a British Patent of Addition (the BPA) filed on November 8, 1954. Because the time for filing these claims under the parent patent had expired, it was necessary to file a patent of addition to the Patent # 721,201. The responsibility for this prosecution was assigned to Seymour Scholnick. Scholnick had not been involved with the patent prosecution in the United States. Under the guidance of British patent counsel, Carpmaels and Ransford, the claims, drawings, and prescribed preamble were filed. Carpmaels and Ransford had also filed the parent patent application.

In April, 1957, Hughes began an active industry-wide licensing program. Hughes had initially contacted Transitron about possible infringement in 1954, but Transitron refused to take a license in 1955 and Hughes did not pursue the matter. After some investigation over the next several years, Hughes determined that a number of manufacturers were infringing its patent. It sent notices to many of them, including Transitron charging infringement of claims 60 and 61. Hughes offered Transitron and others a non-exclusive license at a royalty rate of 1%.

On June 1, 1962, Transitron and Hughes executed a five year license agreement granting Transitron a non-exclusive right to manufacture diodes covered by claims 60 and 61 of the patent in exchange for a 1% royalty fee and for licenses under patents held by Transitron. The agreement contained a provision that a certified public accountant designated by Hughes could audit Transitron's records. Transitron manufactured under this license until October 1, 1962 when it switched to an "etched lead" diode construction and manufacturing process. Transitron notified Hughes that it was no longer manufacturing diodes within the Hughes patent and terminated royalty payments. As required by the 1962 agreement, Transitron periodically verified to Hughes between 1963 and 1966 that it was not manufacturing diodes covered by Hughes' patent.

In 1966, Hughes discovered that Transitron had abandoned its "etched lead" diode and was again manufacturing diodes covered by the license. Hughes demanded back royalties. After extensive negotiations, Hughes and Transitron agreed that Transitron would pay a lump sum of $150,000 for the infringing diodes it had manufactured between 1963 and 1966 and would renew its license...