TRW, INC. v. Ellipse Corporation

Decision Date22 April 1974
Docket NumberNo. 73-1348.,73-1348.
Citation495 F.2d 314
PartiesTRW, INC., Plaintiff-Appellant, v. ELLIPSE CORPORATION and Ford Motor Company, corporations, Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

COPYRIGHT MATERIAL OMITTED

Lee N. Abrams, George N. Hibben, Chicago, Ill., Robert W. Poore, Cleveland, Ohio, for plaintiff-appellant.

Norman Lettvin, Chicago, Ill., for defendants-appellees.

Before CASTLE, Senior Circuit Judge, and PELL and SPRECHER, Circuit Judges.

CASTLE, Senior Circuit Judge.

Plaintiff TRW, Inc. appeals from an order dismissing its complaint against defendants Ellipse Corp. and Ford Motor Co. in an action seeking a declaratory judgment that claim 3 of Rhine patent No. 2,628,5681 is invalid. TRW asserts on appeal that the lower court erred in dismissing the complaint for lack of jurisdiction and in the exercise of its discretion. Specifically, TRW contends that it is not bound under principles of res judicata by the finding in Ellipse Corp. v. Ford Motor Co.2 respecting the validity of claim 3 of the Rhine patent. TRW asserts that the jurisdictional elements of a declaratory judgment action are present, because a justiciable case or controversy, reflected in a viable, outstanding charge of patent infringement exists, and because effective relief to effectuate the judgment could be granted. Moreover, TRW maintains that it is an abuse of discretion to dismiss the action, since the issues have not been resolved as against TRW and since the entertaining of this suit would not result in "piecemeal" litigation of the claim's validity. In the alternative, TRW argues that if this suit's objective is deemed designed to seek modification of the court's mandate in Ellipse Corp. v. Ford Motor Co., this court should grant leave to the district court to evaluate the validity of the patent claim in light of the new evidence tendered by TRW and to reopen the merits of that case to effect relief, because the court was misled into sustaining the patent claim on an erroneous inventive feature. We have considered these issues, and we affirm the dismissal of the action.

This suit grew out of an earlier action, Ellipse Corp. v. Ford Motor Co., supra, in which Ellipse charged that power steering pumps manufactured or sold by Ford infringed the Rhine patent. The lower court sustained the validity and infringement of claims 1 and 3 of the patent,3 and this court affirmed the findings respecting claim 3. The Supreme Court denied certiorari, and the action is now pending in the district court on an accounting to determine damages.

TRW was not a named party in the prior suit, and its participation was limited to observing the district court proceedings and to filing amicus curiae briefs at the appellate level. However, TRW manufactured and sold to Ford approximately 35% of the power steering pumps held to infringe claim 3 of the Rhine patent. These pumps were sold pursuant to a contract in which TRW agreed to indemnify Ford for the costs of defending any accounting proceeding and for any judgment based on patent infringement by the pumps purchased from TRW.

TRW asserts that as it was not a named party in the suit of Ellipse Corp. v. Ford Motor Co., it was not bound by the findings of this court in that case respecting the validity of claim 3 of the Rhine patent, Philips Electronics and Pharmaceutical Industries Corp. v. Thermal and Electronics Industries, Inc., 450 F.2d 1164, 1170 (3rd Cir. 1971), and it is not barred from relitigating the validity of the claim. American Photocopy Equipment Co. v. Rovico, Inc., 384 F.2d 813 (7th Cir. 1967), cert. den., 390 U.S. 945, 88 S.Ct. 1030, 19 L. Ed.2d 1133 (1968). Ellipse does not contend that TRW was a party to the previous litigation; rather, it argues that TRW was in privity with Ford and is thereby barred from bringing this suit. "Where the issues in separate suits are the same, the fact that the parties are not precisely identical is not necessarily fatal. . . . A judgment is res judicata in a second action upon the same claim between the same parties or those in privity with them." Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 402, 60 S.Ct. 907, 917, 84 L.Ed. 1263 (1939); Cromwell v. County of Sac, 94 U.S. 351, 24 L.Ed. 195 (1876).

In most situations where privity has been found to exist, one or more of the following relationships are present between the privies: concurrent relationship to the same right of property, successive relationship to the same right of property, or representation of the interests of the same person. 1B J. Moore, Federal Practice, ¶ 0.4111 (2d ed. 1948). These relationships are illustrated by the cases cited by Ellipse. Thus, in Hart Steel Co. v. Railroad Supply Co., 244 U.S. 294, 37 S.Ct. 506, 61 L.Ed. 1148 (1917), the Supreme Court found that a company wholly-owned by another company was its privy, because the companies "represented precisely the same, single interest." Id. at 298, 37 S.Ct. at 507. The same principle was applied by the Court in Sunshine Anthracite Coal Co. v. Adkins, supra, where the Court found privity between officers of the same government "so that a judgment in a suit between a party and a representative of the United States is res judicata in relitigation between that party and another officer of the government." That holding was followed in Ma Chuck Moon v. Dulles, 237 F.2d 241 (9th Cir. 1956), cert. den., 352 U.S. 1002, 77 S.Ct. 559, 1 L.Ed.2d 547 (1957), where the court also held that privity existed between a father who brought a prior action on behalf of his sons and the sons themselves in a later action. In J. R. Clark Co. v. Jones & Laughlin Steel Corp., 288 F.2d 279 (7th Cir. 1961), and in Brunswick Corp. v. Chrysler Corp., 408 F.2d 335 (7th Cir. 1969), the second defendant had purchased the business assets of the unsuccessful party during or subsequent to the determination in the previous litigation to which he was held bound. Similarly, in Schnitger v. Canoga Electronics Corp., 462 F.2d 628 (9th Cir. 1972), the court found res judicata applicable where the declaratory judgment plaintiff was a prospective buyer of infringing products which the manufacturer had been enjoined from making available, thus presenting only a derivative, successive interest to the same property right. None of these relationships is applicable to the case at bar; certainly there is no question of representation of the interests of the same party, and furthermore, there is no relationship (either concurrent or successive) arising from the general doctrine of privity of estate.

Two other cases cited by Ellipse, Switzer Bros., Inc. v. Chicago Cardboard Co., 252 F.2d 407, 411 (7th Cir. 1958), and Jones v. Craig, 212 F.2d 187, 188 (6th Cir. 1954), illustrate the res judicata effect of participation in litigation by a nonparty whose interest is sufficiently closely related to the suit. In the former case, an indemnitor who retained the indemnitee-defendant's counsel and controlled the litigation was held entitled to the benefit of the judgment for the indemnitee. In the latter case, a warrantor received the benefit of an earlier judgment in a case in which he jointly prepared the defense and shared its cost. It is well-established that one interest sufficient to bring a participating nonparty within the conclusionary rule is a legal duty, right or interest dependent wholly or in part on a cause of action before the court for adjudication. 1B J. Moore, supra, at ¶ 0.4116. Professor Moore explicitly suggests that a manufacturer-indemnitor who participates in the defense of a patent infringement suit against a dealer in the manufactured product would have sufficient interest under this principle to be bound by the resulting decree. Id. at n. 20. But the crucial distinction between this example and the cited cases and the case at bar is the extent of participation, for privity in the law of judicial finality usually connotes representation. TRW limited its role in the prior suit to observing the proceedings and to filing amicus curiae briefs. These are insufficient modes of participation to render applicable the doctrine of res judicata, Brown-Crummer Investment Co. v. Paulter, 70 F.2d 184 (10th Cir. 1934); 1B J. Moore, supra, and therefore TRW is not bound by the adjudication of the validity of the claim in Ellipse Corp. v. Ford Motor Co.

TRW contends that the jurisdictional requisites for a declaratory judgment exist in part because a justiciable controversy is created between a patent owner and the manufacturer of a product when the patent owner alleges infringement against one who has purchased the product from the manufacturer, even when no direct charge has been made against the manufacturer. The implication of the argument is that a real controversy was created between Ellipse and TRW as a consequence of Ellipse's allegation of infringement against Ford respecting certain power steering pumps, some of which were manufactured by TRW. It is true, as this court stated in Sticker Industrial Supply Corp. v. Blaw-Knox Co., 367 F.2d 744, 747 (7th Cir. 1966), that under the Declaratory Judgment Act, justiciability exists if the alleged infringer or his customers or dealers have been notified of the patent owner's claim. Accord, E. Borchard, Declaratory Judgments 807 (2d ed. 1941). But that contention begs a fundamental question of this appeal: When is the underlying charge of patent infringement adjudicated with sufficient finality to extinguish the justiciable controversy?

This case markedly resembles Walker Process Equipment Co. v. FMC Corp., 356 F.2d 449 (7th Cir. 1966), in which a manufacturer of sewage equipment sought a declaratory judgment of the invalidity of a patent. The patent owner, FMC, had previously sued one of Walker's customers, alleging infringement through the use of Walker equipment. The Fourth Circuit held that the patent was valid and not infringed. In the...

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