US Industries, Inc. v. Camco, Incorporated, 17671.

• Decision Date: 21 May 1960
• Docket Number: No. 17671.,17671.
• Citation: 277 F.2d 292
• Parties: U. S. INDUSTRIES, INC., Appellant, v. CAMCO, INCORPORATED, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

277 F.2d 292 (1960)

U. S. INDUSTRIES, INC., Appellant, v. CAMCO, INCORPORATED, Appellee.

No. 17671.

United States Court of Appeals Fifth Circuit.

April 8, 1960.

Rehearing Denied May 21, 1960.

James T. Wright, James B. Simms, Houston, Tex., Thomas E. Scofield, Kansas City, Mo., W. E. Dyche, Jr., Browning, Simms, Hyer & Eickenroht, Dyche, Wheat & Thornton, Houston, Tex., for appellant.

W. Brown Morton, Jr., New York City, Tom Arnold, Houston, Tex., Robert McKay, New York City, for appellee, Dean S. Edmonds, Pennie, Edmonds, Morton, Barrows & Taylor, New York City, of counsel.

Before CAMERON, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

We deal once again with the gas lift art whose importance in the field of oil operations is reflected by the volume of recent patent litigation.¹ As before, we run into familiar names of common adversaries and here treat for at least the third time with the very King patent 487,² whose validity³ was upheld in Bryan v. Garrett Oil Tools, Inc., 5 Cir., 1957, 245 F.2d 365, and U. S. Industries, Inc. v. Otis Engineering Corp., 5 Cir., 1958, 254 F.2d 198. While the case with this beginning still has many of the earmarks of the full blown patent validity-infringement trial into which it expanded, it is now really something quite different. Despite the obviously thorough pretrial preparation, an extended record comprehending countless exhibits prepared with care and much expense effectively to demonstrate what skilled experts discussed in terms close to the ultimate decision facing the Judge, this is not now a patent case. It is but another diversity case construing a Texas contract (license) made in Texas and generally performed (or breached) there.

Following the format of Luckett v. Del Park, Inc., 1926, 270 U.S. 496, 46 S.Ct. 397, 70 L.Ed. 703, U. S. Industries, Inc., owner of the King patent 487, brought this suit against Camco, the licensee, for patent infringement for acts outside the scope of the license⁴ granted. Camco denied any of its acts were outside the license (and hence it had not infringed the King patent) and alleged the affirmative defenses of laches and equitable estoppel. In addition, it asserted two counterclaims. In the First Counterclaim, based on diversity jurisdiction, 28 U.S.C.A. § 1332(a), Camco sought a declaratory judgment that under the applicable (Texas) law, its actions were within the license. In the Second, jurisdiction being based on the patent laws, Camco sought a declaratory judgment that the King patent was invalid and not infringed. After a lengthy trial, the Court held that Camco's action was within the license contract. This resulted in a judgment which (a) dismissed USI's complaint for infringement, (b) sustained Camco's First Counterclaim declaring its conduct within the scope of the license and (c) dismissed Camco's Second Counterclaim challenging validity of the King patent.⁵

While the problem is one of construction of a contract — a patent license, for which the usual principles of contract law control, Storm v. United States, 5 Cir., 1957, 243 F.2d 708, 710, 711; 69 C.J.S. Patents § 249 — the patent is of interest. For the patent and the 1947 controversy over it was the precipitating subject of the contract. Lest some small kernel be picked up and then by the tender, imaginative nurture of counsel be germinated into a full flower of truth as an authoritative construction and interpretation by us of King 487, we emphasize that our description of the patent, the novelty of its solutions, the meaning or limitation of its several claims has no such purpose. Our capsulated summary, with all of the attending inaccuracies, is merely to give some understanding to the text and context of this contract and the nature of the present controversy of whether particular devices are within the scope of the license grant.

The King 487 patent covers essentially two things in the gas lift field. First, it is a system by which there is installed in an oil well a series of control valves set to open at successively lower pressures from top to bottom and gas is introduced into the annulus between tubing and casing in predetermined volumes (amounts) and pressures.⁶ This permits automatic gas lift operations with increased efficiency. This result is without regard to whether the control valves are spring, pneumatic, hydraulic or weight loaded. Second, it relates to valves, as such.⁷ The distinctive novelty in this crowded old area was that the valves had a bellows charged and sealed with gas (or elastic pressure fluid). As to be expected, the two broad categories are further refined. Concerning the system, one group of claims (10, 11, 13) prescribe (a) the kind of valve, i. e., bellows charged and sealed, and (b) that the declining difference in pressure settings, top to bottom, be accomplished by differences in the sealed pressure-charge of the bellows.⁸ The other system claims involved here⁹ do not prescribe the type of valve or the manner by which pressure differences are to be achieved.¹⁰

As to the valves, the claims are subdivided into two groups. The first, and undoubtedly the most important for us even though they are admittedly excluded from the license and not charged to be infringed, comprises claims 3 and 12. These claims define a valve structure in which means are provided to furnish a seal protecting the bellows from pressure after the bellows has moved a certain predetermined distance.¹¹ The second group of valves, claims 4, 8, 9, called for a dampener baffle as a means of preventing a too violent opening the moment the valve comes off its seat as the gas pressure introduced into the annulus overcomes the sealed pressure of the bellows valve.¹²

In like fashion to give understanding to the present controversy, it is helpful briefly to consider the assertions of USI. The contention of USI is twofold. First, the license to Camco did not cover valves, as such, at all. Second, the grant was limited to the King system and then only to the extent of the particular specified valves identified as "Exhibit B" in the contract. It then translates this into the specific charges that (1) as to valves, some Camco valves have dampeners constituting infringement on claims 4, 8 and 9; (2) as to the King system: (a) pressure differences, top to bottom, in the series valves are accomplished by differences in the sealed pressure charge in the bellows as specified in claims 10, 11 and 13; and as to some system applications, the valves sold are not similar to "Exhibit B" valves because (b) some Camco valves operate solely on the basis of a sealed pressure charged bellows and not in conjunction with a spring; and (c) some Camco valves are adapted for wire-line installation and retrieval in side pocket or other mandrels.¹³ On ample evidence not challenged here, the District Court found that Camco did all of these things, but that each was within the grant of the license and hence did not constitute vicarious infringement.

The license agreement was itself the offspring of a serious and substantial controversy commencing in 1946. USI's predecessors (Olsco and Garrett) were contending at that time that their former sales representatives (Mills and Carlisle), the principal organizers of Camco, Inc., were infringing King 487. This followed the traditional pattern of threatened infringement suits and extended discussions looking toward a satisfactory disposition. All such negotiations were carried on by counsel between themselves. Out of that came a proposal for a license contract which, after passing through several drafts in the period from March to May 1947, resulted in the contract of June 4, 1947, with which we deal.¹⁴

The contract, in the whereas clause, described the controversy. It recited the charge that Camco was infringing 487 by "the manufacture and sale by Camco * * * of a valve illustrated in the print marked Exhibit `A'." It also charged infringement because of the activities of Camco * * * in * * * causing to be set up and operated a certain system in wells employing said valves and also a similar system in wells employing valves of the type shown in the print marked Exhibit `B'." It expressed their mutual desire "to settle and compromise their differences." Then followed its four principal undertakings. In Article I Camco, for the life of the license agreement, admitted the validity of 487 and that "the manufacture and sale of valves of the type shown in * * * Exhibit `A'" was an infringement. Article III was a release of Camco from all claims "because of past infringements by Camco * * * of the said King patent" 487. Article IV made the contract binding on the successors and assigns of each. As our dispute centers around Article II, the main clause, we set it out in full but with numbers in brackets inserted for ease of discussion:

"Olsco and Garrett hereby grant unto Camco, * * *, a fully paid up, non-exclusive, non-assignable right and license to 1 manufacture and 2 sell and 3 to use 4 in accordance with any system claim of the * * * King Patent 5 the valves shown in * * * Exhibit `B\' * * and 6 any other similar valve 7 operated by pressure exerted on a bellows in which no seal is effected upon a predetermined distortion of the bellows from pressure acting upon the surface thereof for protecting the bellows against excessive distortion due to increases in pressure of the operating fluid beyond the pressure necessary to actuate the valve; 8 it being specifically understood and agreed that no license is granted for the manufacture, use or sale of valves of the type shown in Exhibit `A\' * * * nor 9 of any bellows actuated valve in which a seal is effected upon a predetermined distortion of the bellows whereby the bellows is protected against excessive pressure acting upon the surface thereof due to increases in pressure of the valve operating fluid beyond the pressure necessary to actuate the valve, 10 and it being further

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