Valmont Industries, Inc. v. Yuma Manufacturing Company

• Decision Date: 06 March 1969
• Docket Number: 67-C-331.,Civ. A. No. 67-C-136
• Parties: VALMONT INDUSTRIES, INC., et al, Plaintiffs, v. YUMA MANUFACTURING COMPANY, Inc., Defendant. VALMONT INDUSTRIES, INC., et al., Plaintiffs, v. ENRESCO, INC., Defendant.
• Court: U.S. District Court — District of Colorado

296 F. Supp. 1291

VALMONT INDUSTRIES, INC., et al, Plaintiffs, v. YUMA MANUFACTURING COMPANY, Inc., Defendant.

VALMONT INDUSTRIES, INC., et al., Plaintiffs, v. ENRESCO, INC., Defendant.

Civ. A. Nos. 67-C-136, 67-C-331.

United States District Court D. Colorado.

March 6, 1969.

Dawson, Nagel, Sherman & Howard, by Michael A. Williams, Denver, Colo., McGrath, North, Nelson & Shkolnick, by John E. North, Omaha, Neb., and Henderson & Strom, by H. Robert Henderson, Omaha, Neb., for plaintiffs.

Naylor & Neal, by James M. Naylor, San Francisco, Cal., Spurgeon, Aman & Hanes, by Richard W. Hanes, Colorado Springs, Colo., and Benedetti & Fennie, by Kent J. Fennie, Yuma, Colo., for defendants.

MEMORANDUM OPINION AND ORDER

WILLIAM E. DOYLE, District Judge.

This is a patent infringement action, wherein the plaintiffs seek a declaratory judgment that U. S. Patent No. 2,604,359 is valid and infringed by the defendants, an injunction against further infringement and an accounting.¹ In the original complaint and subsequent amendments, the plaintiffs have charged both defendants with infringement of claims 8, 9, 10 and 13 of U. S. Patent No. 2,604,359; defendant Enresco with actively inducing infringement of U. S. Patent No. 2,604,359 by licensing to Yuma the right to manufacture and sell the Enresco irrigation system which infringes claims 8, 9, 10 and 13 of that patent; and defendant Enresco with unfair competition relative to the unauthorized use of a photograph used extensively by plaintiffs and which has acquired secondary meaning. The defendants deny that the irrigation system which they make and sell infringe claims 8, 9, 10 and 13 of U. S. Patent No. 2,604,359, and they have affirmatively asserted defenses of patent invalidity, non-infringement, file wrapper estoppel, and patent misuse by the plaintiffs Zybach and Trowbridge.

This cause was tried to the Court, and the Court entered judgment that claims 8, 9, 10 and 13 of United States Patent No. 2,604,359 are valid and infringed by the defendants' self-propelled sprinkling irrigation system, that the doctrine of file wrapper estoppel is inapplicable to claims 8, 9, 10 and 13 which claims are entitled to a broad range of construction and equivalents, and that the defendant Enresco, Inc., has induced defendant Yuma Manufacturing Company, Inc., to infringe United States Patent No. 2,604,359. At the close of the trial it was determined that there was a technical patent misuse by reason of a stipulation in the license agreement providing for the payment of royalties on parts and portions. However, there was a reservation of this issue, and inasmuch as there was a renunciation of the stipulation as of July 1, 1968, it becomes necessary to finally determine this question of patent misuse so as to decide whether damages predate the purge date.

We are here concerned with a self-propelled sprinkling irrigation apparatus for irrigating large sections of land. Such an apparatus or system may be used where the natural rainfall is not sufficient to cause a maximum growth of crops, or when the operator wishes to avoid the labor and time involved in either running water along ditches or shifting stationary pipes provided with sprinkler heads from one position to another until the desired area is covered, or where the land is not sufficiently level for ditch irrigation. It has been found that this apparatus has great practical value and that United States Patent No. 2,604,359 constitutes a pioneer contribution to the art. Both the system described in U. S. Patent No. 2,604,359 and the system of the defendants are designed to extend up to approximately one-quarter mile in length to maintain an elongated water distributing pipe substantially straight as it rotates about its inner end, and to operate unattended for several days or weeks.

On July 22, 1952, U. S. Patent No. 2,604,359 was duly and legally issued to plaintiff Zybach for an invention entitled "Self-Propelled Sprinkling Irrigating Apparatus." By an agreement executed in August 1952, plaintiff Trowbridge purchased a 49 percent interest in the Zybach invention of 2,604,359, which arrangement has not changed to date. Plaintiffs Zybach and Trowbridge are the joint owners of the entire right, title and interest in Patent No. 2,604,359.

On July 28, 1954, plaintiffs Zybach and Trowbridge granted an exclusive license to plaintiff Valmont, then Valley Manufacturing Company, to manufacture, use and sell the apparatus covered by Patent No. 2,604,359. Paragraph four of the license agreement provided that Valmont pay Zybach and Trowbridge "a royalty of 5 per cent on the gross price received from the sale of all self-propelled sprinkling irrigations systems, parts or portions thereof * * *."

The contention of patent misuse is that the described royalty provision is a patent misuse per se because it requires Valmont to pay royalties on unpatented parts and portions of the patented irrigation system. Valmont has, in fact, paid Zybach and Trowbridge a 5 percent royalty on all parts and portions of the patented irrigation system sold by it as spare and replacement parts. However, the amount of royalty paid on the parts and portions is quite small compared to the royalties paid on the patented system as a unit.²

On July 1, 1968, during the pendency of this suit, plaintiffs voluntarily amended the license agreement of July 28, 1954, by specifically providing that the words "self-propelled irrigations system, parts or portions thereof" which appear in that agreement are amended to read "self-propelled irrigations systems and portions thereof coming within the scope of one or more of U. S. Letters Patent 2,604,359, 2,941,757 and 3,001,721." Since July 1, 1968, Valmont has not paid Zybach and Trowbridge any royalties on parts or portions of the patented irrigation system. We have heretofore held that any patent misuse which occurred prior to July 1, 1968, if any did in fact exist, has been effectively dissipated and purged by the July 1, 1968, amendment and the conduct of the plaintiffs thereafter. Therefore, the issue of patent misuse is limited to the period prior to July 1, 1968, when the clause requiring payment of royalties on parts and portions of the patented system was fully effective.

A patent is a grant of the right to exclude others from making, using or selling one's invention, and includes the right to license others to make, use or sell it. It is a legitimate monopoly having as its primary purpose the advancement of the arts and sciences rather than reward to the individual. It is not a certificate of merit, but an incentive to disclosure. Sinclair & Carroll Co. v. Interchemical Corp., 325 U.S. 327, 65 S.Ct. 1143, 89 L.Ed. 1644 (1945).

The history of the administration of patents has been one of reconciling the inventor's private rewards with the public interest in promoting progress. Kendall v. Winsor, 21 How. 322, 327-329, 16 L.Ed. 165 (1859). To protect the interest of the public, the courts have resisted attempts to enlarge the monopoly granted by the patent by the formulation of the judicial doctrine of patent misuse.

It has been held in a long line of patent cases that a patentee who utilizes his patent monopoly to secure a limited monopoly on unpatented articles or material will be denied all relief against infringement of his patent.³ The basic rationale for the patent misuse doctrine is the policy of protecting the public's interest in free competition by refusing to enforce contracts which suppress free competition or restrain trade.⁴ Therefore, it is irrelevant whether the party invoking the patent misuse doctrine has suffered from the patentee's misuse of his patent for it is the adverse effect upon the public interest which is the primary concern. Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 494, 62 S.Ct. 402, 86 L.Ed. 363 (1942).

The patentee enjoys a monopoly as to his invention, but under the patent misuse doctrine he may not use his patent or patents to control the manufacture, use or sale of unpatented articles or materials.⁵ To establish the defense of patent misuse, it is not necessary to show a violation of the Clayton Act or the existence of an actual monopoly. Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363 (1942); Berlenbach v. Anderson & Thompson Ski Co., 329 F.2d 782 (9th Cir. 1964). It is sufficient to show the existence of restrictive agreements which tend to suppress competition in nonpatented articles or materials.

Defendants' contention of patent misuse is directed solely to the requirement in the royalty clause of the license agreement that the licensee, Valmont, pay a 5 percent royalty to Zybach and Trowbridge on unpatented parts or portions of the patented sprinkler irrigation system which are sold by Valmont separately as spare or replacement parts for the patented system.

There are three types of licensing arrangements which the courts have treated as patent misuse: (1) tying arrangements —schemes requiring the purchase of unpatented goods for use with the patented apparatus;⁶ (2) license agreements requiring the licensee not to deal in competitive articles;⁷ and (3) coercive package licensing—conditioning the granting of a license under one patent upon the acceptance of another and different license.⁸ Economic coercion and restraint on free competition in unpatented articles are necessary corollaries to each of these arrangements, and thus the courts have had little difficulty in finding that the patentee has misused his patent when any one of these arrangements is present in a licensing agreement.⁹

It is obvious that this type of arrangement is not present in the instant situation. There is present here no requirement, either express or implied, for the purchase of any unpatented goods. Valmont is not required to purchase the unpatented parts or portions of the patented irrigation system from the licensors, Zybach and Trowbridge, in...