Victory Bottle Capping Mach. Co., Inc. v. O. & J. Mach. Co., 1529.

• Decision Date: 17 May 1922
• Docket Number: 1529.
• Parties: VICTORY BOTTLE CAPPING MACH. CO., Inc., v. O. & J. MACH. CO. et al.
• Court: U.S. Court of Appeals — First Circuit

280 F. 753

VICTORY BOTTLE CAPPING MACH. CO., Inc., v. O. & J. MACH. CO. et al.

No. 1529.

United States Court of Appeals, First Circuit.

May 17, 1922

A Parker-Smith, of New York City (Roberts, Roberts & Cushman of Boston, Mass., on the brief), for appellant.

Louis W. Southgate, of Worcester, Mass., for appellees.

Before BINGHAM and JOHNSON, Circuit Judges, and MORRIS, District judge.

MORRIS District Judge.

This is an appeal by the Victory Bottle Capping Machine Company Inc., plaintiff, appellant, from an interlocutory decree of the District Court of Massachusetts dismissing plaintiff's bill in equity, and granting defendant the O & J. Machine Company cancellation under its counterclaim of an agreement between the parties, an injunction for the enforcement of cancellation, and damages for failure of consideration.

The subject-matter of this litigation is the Oliver patent, No. 1,310,960, applicable to bottle-capping machines.

About January 1, 1919, Ernest A. Oliver, of Flushing, N.Y., completed the construction of a bottle-capping machine. A few days later this machine was exhibited to Charles H. Oslund and J. Emanuel Johnson, of Worcester, Mass., the treasurer and president of the defendant O. & J. Machine Company. At the time of this conference no patent had been applied for by Oliver, but it was stated by Mr. Miller and Mr. Wickery, both of whom were interested in the enterprise with Oliver, that they were advised by their patent attorney that they had a 'clear field.' Shortly thereafter the plaintiff corporation was formed under the laws of the state of New York for the purpose of holding the Oliver patent; an assignment by Oliver was made to the corporation and a patent applied for January 24, 1919, which was granted July 22, 1919.

Following the inspection of the machine by Messrs. Oslund and Johnson, and before the patent was granted, negotiations were entered into between the new corporation, the Victory Bottle Capping Machine Company, Inc., and the O. & J. Machine Company, which resulted in a contract-- Plaintiff's Exhibit A-- the material parts of which provided that the plaintiff, called in the contract the 'party of the second part' gave the defendant, called in the contract the 'party of the second part' the 'sole and exclusive right to make, use, and vend the said invention' throughout the United States and territories, during the 'full term of said patent and any extension thereof,' subject to certain terms and conditions, the first of which was that the defendant should proceed without delay to make the necessary preparations for manufacturing machines at once.

The contract also provided that the defendant should spend annually the sum of $1,000 in advertising, in such a manner as would best promote the sale of such machines, and that it would manufacture at least 50 of the machines each year, subject, however, to delays on account of unavoidable casualties.

The third paragraph provided for the payment of a royalty of $300 on each machine manufactured and sold. It also provided terms of payment.

Paragraphs 10 and 12, quoted in full, were as follows:

'Tenth. The party of the first part will, at its own cost and expense, defend and protect the party of the second part in the exclusive making, using, and vending of the machines included in this agreement against all infringers, licensees, or others in the countries where applications for patents are now pending, and where patents have been or may be issued for such machines, and will, at its own expense, take such proceedings in law and in equity as may be necessary and proper to prevent and enjoin such infringement, and to save the party of the second part harmless from the results of such acts; and, in case of the failure of the party of the first part to fulfill any of the obligations in this clause contained the party of the second part shall have the right and privilege of prosecuting and defending any such proceedings at its own expense, and to charge the same against the party of the first part and collect from it, provided, however, that the party of the second part shall first give to the party of the first part 30 days' notice in writing demanding compliance with the terms of the agreement on its part, before proceeding to exercise the rights hereby conferred on the party of the second part.'

'Twelfth. That any improvements or modifications to the said machine, made by the party of the second part, or its successors or assigns, shall belong to the said party of the first part.'

By the terms of paragraph 13 the plaintiff agreed to execute all licenses or other documents necessary to vest in the defendant the right to make, use, and vend said machine.

Paragraph 14 provided that, if letters patent for which application had been made were not granted, then the defendant might terminate the agreement forthwith; and if the plaintiff should fail to comply with the terms of the agreement, or any of them, the defendant might, at its option, terminate the agreement upon giving 90 days' notice thereof in writing. Such termination, however, was not to release the defendant from any liability then due to the plaintiff.

After the agreement was executed the machine built by Oliver was sent to defendant's factory at Worcester, Mass., as a model. The defendant company at once set to work making the necessary equipment for the manufacture of the machines and the fulfillment of its contract. In the course of such preparations, Messrs. Oslund and Johnson invented and developed some important changes in the Oliver machine, and filed an application for a patent therefor October 31, 1919, serial No. 334,683. It is claimed that, while these changes were primarily designed for use on the Oliver machine, they are capable of general use. The defendant manufactured or had in the process of manufacture 40 machines, when on November 11, 1919, it received a letter from attorneys of the Crown Cork & Seal Company, of Baltimore, Md., that the machines it was manufacturing were an infringement on two patents owned by said Crown Cork & Seal Company, viz. the Brewington patent, No. 860,787, dated July 23, 1907, and the La Porte patent, No. 1,080,114, dated December 2, 1913, and threatening immediate suit if the Oliver machines were put on the market.

This letter was immediately called to the attention of the plaintiff and a demand made for the protection which it claimed was contemplated in the terms of the agreement. A conference of the agents of the respective corporations was held in New York, at which the defendant requested the plaintiff to furnish an indemnity bond, but the request was refused. Thereafter the plaintiff's counsel called on counsel for the Crown Cork & Seal Company, the result of the interview being embodied in a letter dated December 18, 1919, which was forwarded to the defendant company by the O. & J. Machine Sales Company, to whom it was addressed. The following excerpt is taken from the letter:

'I told him (counsel for Crown Cork & Seal Company) that we had sold some machines and had some more in the works amounting to about 40 in all, and that while we would fight the suits if we had to, I had advised you to stop making the present machine and either try to sell your patents to the Crown Cork & Seal Company or to confine your activities in this line to some noninfringing form of machine.'

After this letter was received, and after getting the advice of its own counsel, the defendant completed the machines it had in process of manufacture and stopped the further manufacture of them. It claims to have expended a large amount of money in making preparations for the enterprise, and has refused to pay any royalties to the plaintiff for the 40 machines built and sold. The plaintiff brought its bill praying for an accounting for the royalties provided for in the third paragraph of the contract, for a decree under paragraph 12 ordering an assignment by the defendants of all rights claimed under the Johnson and Oslund application for a patent, filed October 31, 1919, and all other improvements claimed by said defendants, and concluding with a prayer for an injunction perpetually enjoining the defendants or any of them from assigning to third parties or otherwise disposing of any inventions embodying improvements or modifications to bottle-capping machines they had made.

Defendants' answer in its final form filed by leave of court admitted the execution of the contract, and set up as a defense thereto a breach of paragraph 10 of the contract and the facts substantially as above set forth, with a counterclaim for damages for expenses incurred in experimental work, drawings, jigs, patterns, and equipment for the manufacture of the machines, which expense they allege is a total loss.

The court below found and ruled that the consideration for the contract was the 'agreement by the plaintiff to give the defendant the exclusive right to make, use, and vend the machines contemplated by the parties to be made and a model of which was in existence and viewed by the parties before the making of the contract.'

It was further found as a fact that the machine could not be manufactured without infringement upon the Brewington and La Porte patents owned by the Crown Cork & Seal Company; that the plaintiff had failed to protect the defendant as provided in paragraph 10; that the plaintiff corporation had no property, except its interest in the Oliver patent and the royalties and improvements in the hands of the defendants; and that the defendants were justified in ceasing to manufacture the Oliver machines.

A decree was entered ordering the cancellation of the contract of January 31, 1919, dismissing plaintiff's bill, and awarding defendant...