Western Electric Co. v. Hammond

• Decision Date: 27 April 1943
• Docket Number: No. 3822.,3822.
• Citation: 135 F.2d 283
• Parties: WESTERN ELECTRIC CO., Inc., v. HAMMOND.
• Court: U.S. Court of Appeals — First Circuit

135 F.2d 283 (1943)

WESTERN ELECTRIC CO., Inc., v. HAMMOND.

No. 3822.

Circuit Court of Appeals, First Circuit.

April 27, 1943.

Harrison F. Lyman, Edgar H. Kent and William R. Woodward, all of Boston, Mass., for appellant.

Richard Wait, of Boston, Mass. (N. L. Leek, of New York City, of counsel), for appellee.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAGRUDER, Circuit Judge.

The Western Electric Company, Inc. appeals from a judgment dismissing its complaint against John Hays Hammond, Jr. asking for a declaratory judgment. This action was taken upon Hammond's motion to dismiss, which was based upon an assertion that the complaint failed to disclose the existence of any "actual controversy" between the plaintiff and defendant within the meaning of § 274d of the Judicial Code, 48 Stat. 955, 28 U.S.C.A. § 400, and that even if the court had jurisdiction, it should as a matter of discretion refuse to issue a declaratory judgment. The court ruled that it had jurisdiction, but, after a detailed discussion of the competing considerations, came to the conclusion that as a matter of discretion the complaint ought to be dismissed.

It is alleged in the complaint that Hammond is the holder of numerous patents pertaining to the transmission and reception of radiant energy, wire telephony and wire telegraphy; that on March 14, 1923 Hammond entered into a license agreement with Radio Corporation of America, granting to the latter exclusive, assignable and divisible licenses to make, use, sell and lease, and to grant to others the right to make, use, sell and lease, the inventions covered by the said patents; that by virtue of certain mesne contracts the plaintiff became licensed under these patents to make apparatus for and to sell the same to the United States Government; that the plaintiff did manufacture and sell to the United States certain radio apparatus which, for the purposes of this proceeding only, may be assumed to fall within the scope of Hammond's patents; that as to some of the apparatus sold to the Government the sales contracts included a provision binding the plaintiff to indemnify the United States on account of liability for patent infringement; that notwithstanding the plaintiff's sub-licenses as aforesaid, the defendant Hammond has asserted and continues to assert to the plaintiff and to the United States Government that by virtue of certain reservations by Hammond in paragraph 15 of the said agreement of March 14, 1923, plaintiff's sub-licenses did not include a right to manufacture for and sell to the Government any apparatus embodying the said inventions; that Hammond has served notice on the Government that its use for governmental purposes of certain apparatus manufactured by the plaintiff and sold to the Government infringes said patents or some of them; "and by reason of such assertions and claims defendant has interfered with and is now interfering with business which plaintiff has sought to do and seeks to do in the sale of apparatus and equipment to the United States Government, all to the great damage of the plaintiff."

Further, the complaint alleges that Hammond in January, 1941, filed in the Court of Claims two petitions against the United States for damages, asserting that the Government has infringed certain of the patents mentioned in the license agreement of March 14, 1923, by using for communication purposes radio equipment manufactured by and sold to the Government by the plaintiff and by various other parties; that said petitions filed by Hammond in the Court of Claims charge infringement of sixteen different patents, having to do with intricate radio equipment, and the apparatus charged to infringe said patents is of a highly complex nature; that plaintiff is only one of more than twenty-five manufacturers, the use of whose apparatus, purchased by the Government, is charged to constitute infringement of the said patents; that "Plaintiff is informed and believes and, therefore, avers that a final decision cannot be expected in said Court of Claims petitions in less than three or four years at the minimum."

The complaint prays for a declaration that by virtue of the license agreement of March 14, 1923, the plaintiff has a valid sub-license to make and sell to the United States apparatus and equipment falling within the scope of the said patents, and prays for an injunction to restrain Hammond from further interference with plaintiff's business of the type mentioned in the complaint.

As bearing both on the question of jurisdiction and on the propriety of its exercise in the situation here disclosed, the Act of July 1, 1918, 35 U.S.C.A. § 68,¹ needs to be considered. This act disables Hammond from suing Western Electric either for monetary damages or for an injunction on account of the alleged infringement. Broome v. Hardie-Tynes Mfg. Co., 5 Cir., 1937, 92 F.2d 886. Its purpose and legislative history are set forth in Richmond Screw Anchor Co. v. United States, 1928, 275 U.S. 331, 48 S.Ct. 194, 72 L.Ed. 303. In order that the United States may not be delayed in obtaining needed materials and equipment through the reluctance of manufacturers to take government contracts which might involve them in expensive litigation with patentees, the Act, in such cases, confers immunity upon the manufacturer and gives the patentee an exclusive remedy in the Court of Claims against the United States, whereby the patentee may recover full compensation for any proven patent infringement.

Hammond argues that in view of this Act of 1918 there is no "actual controversy" between him and Western Electric upon which a declaratory judgment could be given. Hammond cannot sue Western Electric for damages or for an injunction. Western Electric has no cause of action in tort against Hammond on account of Hammond's interference with its business relations with the United States, because such interference, in pursuance of a bona fide claim of right, is not tortious. Am.L.Inst. Restatement of Torts, § 773. Apart from the Declaratory Judgment Act neither Hammond nor Western Electric has a cause of action against the other. The argument is that the Declaratory Judgment Act, 28 U.S.C.A. § 400, is procedural merely and does not have the substantive effect of creating a cause of action where none existed before.

The fallacy in this line of argument, we think, lies in its confusion of the traditional "cause of action" with the existence of a case or controversy in the constitutional sense, or of a case of "actual controversy" in the sense of the Declaratory Judgment Act. A controversy "appropriate for judicial determination," and thus within the judicial power of the United States, may exist though no remedy is afforded by which either of the parties may bring such controversy before the courts for determination. But Congress, as it did in the Declaratory Judgment Act, may create a new remedy "consonant with the exercise of the judicial function in the determination of controversies to which under the Constitution the judicial power extends." Aetna Life Insurance Co. v. Haworth, 1937, 300 U.S. 227, 240, 57 S.Ct. 461, 464, 81 L.Ed. 617, 108 A.L.R. 1000. See, also, Alfred Hofmann, Inc., v. Knitting Machines Corp., 3 Cir., 1941, 123 F.2d 458, 460, where apart from the remedy afforded by the Declaratory Judgment Act, neither of the parties to the controversy had a cause of action against the other. In the case at bar there exists a concrete and substantial controversy touching the legal relations of parties having adverse legal interests. The controversy involves the interpretation of a contract, the license agreement of March 14, 1923, under which Western Electric claims to be in the relation to Hammond of a sub-licensee, with the right to manufacture and sell to the United States apparatus and equipment covered by the patents and by such sales to convey to the United States the right to use the same. This claim Hammond challenges; and by way of emphasizing that the dispute has gone beyond the stage of a mere hypothetical or abstract difference of opinion, Hammond has brought suit in the Court of Claims against Western Electric's customer, the United States. Western Electric has a legal interest in the judicial determination of this controversy, because it will not only affect Western Electric's possible liability to the United States on its contracts of indemnity but also its right to enter into similar transactions with the United States in the future, which, according to the complaint, it seeks to do.

The controversy admits of "specific relief through a decree of a conclusive character." Ætna Life Insurance Co. v. Haworth, supra, 300 U.S. at page 241, 57 S.Ct. at page 464, 81 L.Ed. 617, 108 A.L.R. 1000. A declaratory judgment in the present action in favor of Western Electric, to the effect that it has a sublicense from the patentee permitting sales to the United States, would be res judicata not only as between Hammond and Western Electric but also as between Hammond and the United States, and thus would conclude the whole controversy. General Chemical Co. v. Standard Wholesale Phosphate & Acid Works, Inc., 4 Cir. 1939, 101 F.2d 178, certiorari denied, 1935, 296 U.S. 606, 56 S.Ct. 122, 80 L.Ed. 430; Norton v. San Jose Fruit-Packing Co., 9 Cir., 1897, 83 F. 512. See Am.L.Inst. Restatement of Judgments, § 96. It is true that a declaratory judgment in favor of Hammond, on the other hand, would not be res judicata as against the United States in the suit now pending against it in the Court of Claims, because the United States is not a party to the present declaratory judgment suit and could not have been made a party without its consent, and the United States would not be bound by such declaratory judgment as a "privy" to Western Electric in respect to apparatus or equipment which the United States had purchased from Western Electric prior to the institution of the present declaratory judgment...