Yarn Processing Patent Validity Litigation, In re

Decision Date05 November 1976
Docket NumberNos. 74-3589,74-3695,s. 74-3589
Citation541 F.2d 1127,192 USPQ 241
Parties, 194 U.S.P.Q. 121, 1976-2 Trade Cases 61,147 In re YARN PROCESSING PATENT VALIDITY LITIGATION. SAUQUOIT FIBERS COMPANY, Plaintiff-Appellee, v. LEESONA CORPORATION et al., Defendants-Appellants. LEX TEX LTD., INC., Plaintiff-Appellant, v. HIALEAH KNITTING MILLS, INC., et al., Defendants-Appellees. LEX TEX LTD., INC., Plaintiff-Appellant, v. UNIVERSAL TEXTURED YARNS, INC., and G. Allen Mebane, Individually, Defendants-Appellees. LEX TEX LTD., INC., Plaintiff-Appellant, v. CONCORDIA MANUFACTURING CO., INC., and Paul O. Boghossian, Jr., Individually, Defendants-Appellees. LEX TEX LTD., INC., Plaintiff-Appellant, v. BURLINGTON INDUSTRIES, INC., Defendant-Appellee. LEX TEX LTD., INC., Plaintiff-Appellant, v. GOLD MILLS, INC., Defendant-Appellee. to 74-3699.
CourtU.S. Court of Appeals — Fifth Circuit

Miles Kirkpatrick, Washington, D. C., for Lex Tex Ltd., Inc. and the Permatwist Co., appellants.

John J. McAleese, Jr., Plymouth Meeting, Pa., James L. Armstrong, III, and James W. Crabtree, Miami, Fla., for Lex Tex Ltd., Inc., appellant.

Frederick Rowe, Washington, D. C., Willis H. Flick and James E. Tribble, Miami, Fla., for Leesona Corp., appellant.

Richard G. Schneider, Philadelphia, Pa., William W. Beckett, Washington, D. C., for Sauquoit Fibers Co., appellee.

Gerald Kurland, Cleveland, Ohio, for Hialeah Knitting Yarns, Inc. and Bobbie Brooks, Inc., appellees.

Henry Burnett, Miami, Fla., for Serbin Fashions, Inc. and others, G. Allen Mebane, Gold Mills, Inc. and Burlington Industries, Inc., appellees.

David Klingsberg, New York City, N.Y., for Universal Textured Yarns, Inc., appellee.

David Rabin, Greensboro, N. C., for Universal Textured Yarns, Inc., Concordia Mfg. Co., Inc. and Paul O. Boghassian, Jr., appellees.

John W. Malley and William K. West, Jr., Hugh Latimer, Washington, D. C., for Burlington Industries, Inc.

Appeals from the United States District Court for the Southern District of Florida.

Before GOLDBERG and AINSWORTH, Circuit Judges, and NICHOLS, * Associate Judge.

NICHOLS, Associate Judge:

The caption indicates the styles and docket numbers of the appeals dealt with in this opinion. They were all consolidated for argument; they are appeals taken from summary judgments entered in various patent and antitrust lawsuits which previously had been consolidated in the Southern District of Florida for the purpose of pre-trial proceedings. In Re Yarn Processing Patent Validity Litigation, 341 F.Supp. 376 (Jud.Pan.Mult.Lit.1972). Many of these cases have already come before us on the issue of patent validity. See, In Re Yarn Processing Patent Validity Litigation, 498 F.2d 271 (5th Cir.), cert. denied, 419 U.S. 1057, 95 S.Ct. 640, 42 L.Ed.2d 654 (1974). Approximately fifty lawsuits were originally filed. Some have been settled, some stayed pending the outcome of this appeal, and some are now before us. We dealt separately in Appeal No. 74-3703, 530 F.2d 83 (1976), as to the right of one of the counsel to participate in the cases. Treble damage claims by Leesona Corporation in Appeal No. 74-2835 was slated for separate decision but has now been settled.

After a general statement, applicable to all the cases in this group, we take up separate appeals or groups of appeals that involve common issues. No attempt will be made to bring together here all of the controlling facts involved in the cases. Further necessary facts have been set forth in conjunction with the individual appeals. The discussion in the latter parts of the opinion incorporate by reference many of the facts and issues which are discussed in previous parts, and the discussion of the several appeals should be read seriatim to make sense. The following facts are set forth simply to identify the parties and place the controlling facts discussed with the individual appeals in their proper context. The major theme which the appeals dealt with in this opinion have in common is the patent abuse doctrine under which a patentee loses the power to enforce a patent if he uses it in violation of the antitrust laws. Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363 (1942); Carter-Wallace, Inc. v. United States, 449 F.2d 1374, 196 Ct.Cl. 35 (1971).

The basic false twist process is a method for producing a synthetic yarn which is suitable for weaving cloth. It uses continuous filament fibers which have too little bulk to be woven. The false twist process causes the individual filaments to twist up upon themselves, thus creating yarn that has characteristics of softness and stretchability that are useful for many fabrics. There are different processes but they all involve the application of heat to the fibers as they are twisted over spools. The basic processes which cause the fibers to twist up to the maximum degree use one heater and they are also sometimes referred to as single heater patents. Double heater processes are methods by which the degree of twist imparted to the fibers is controlled by a second heater. The processed yarn is sometimes referred to as textured or crimped yarn. The companies which produce the textured yarn are called throwsters, a term previously used in the silk industry.

Two basement inventors, Nicholas J. Stoddard and Warren A. Seem, invented the false twist process. They had extensive experience in the fiber industry and conducted joint experiments in the mid-1930's. In 1944, a partnership known as Permatwist Company (Permatwist) was formed between the inventors and two financiers, Fred Tecce and Harold Berger. After further The single heater patent applications were sold later in 1954 to a machinery manufacturer then known as the Universal Winding Company. This Company later changed its name to Leesona Corporation (Leesona), and we will refer to it as such. Under the 1954 agreement, Permatwist assigned what were to become single heater patents to Leesona. The agreement fixed a base cost per spindle for the machinery manufactured by Leesona, at this time the Model 550 machine; the sales price per spindle was also fixed. Permatwist would receive as consideration for the assignment a spindle royalty of 1/2 the margin over base cost calculated on the basis of the number of spindles capable of operation on machinery sold by Leesona. Leesona was obligated under the terms of the agreement to license other machinery manufacturers under the single heater patents. Furthermore, Leesona also agreed to sell only to licensed throwsters who agreed to pay a use royalty which would be split with Permatwist.

experimentation and development, patent applications on the basic false twist process were filed January 4, 1954. The application resulted in United States patents 2,803,105; 2,803,108; and 2,803,109. These single heater patents expired in 1974.

Leesona had developed technology for improved spindles on its machinery at the time the 1954 agreement was executed. Over the next several years, patent applications were filed by Leesona. The principle United States patents issued for the spindles are the 2,791,086 issued in June 1957; and patents for two high speed spindles, the 3,044,247 issued July 17, 1962, and the 3,134,218 issued May 26, 1964. The details of the licensing program have been changed many times in subsequent modifications of the initial Leesona-Permatwist agreement, in 1958, 1960, 1965 and 1967.

The 1958 agreement was made by the same parties to reflect the installation of the Leesona high speed spindles on most of the models. These models and the fixed price per spindle for each model are more clearly identified in the 1958 agreement. Modifications were made in the split between Permatwist and Leesona of the margin over cost. The 1960 agreement was a further modification to reflect the installation of an even more efficient high speed spindle on the Leesona Model 553 machine. The price per spindle was set for this model as well as Permatwist's share of the margin over cost. The 1960 agreement did not effect the similar terms for models manufactured under the 1958 agreement.

Each of the agreements provided a measure of price flexibility for Leesona. For example, the 1954 agreement allowed a price reduction up to 10% of the prices fixed by the agreement. Further reductions required the written consent of Permatwist. Under all the agreements, 1954, 1958 and 1960, Permatwist sold its single heater patents in exchange for both an agreed share of royalty income to be received from licensed throwsters as well as a share of the profits from the sale of machines to be sold at the fixed price.

Beginning in 1964, Leesona began to complain that it could not pay the machine royalties to Permatwist and remain competitive. Specifically, Leesona represented that it would be required by market conditions to introduce a more sophisticated Model 554 machine at the same price as the 553 machine, even though the production cost would be higher for the 554. By letter agreement dated January 21, 1964, Permatwist agreed to suspend the spindle royalty for a minimum two year period only on machines sold for use in the United States and Canada. It continued to receive a set spindle royalty on the 554 for machines sold elsewhere. No mention was made in this agreement of any price fixing terms.

A further agreement, dated December 15, 1965, extended the suspension of spindle royalties to all models developed by Lessona. However, Permatwist was to receive a 5% royalty for machines sold outside the United States, Canada, and the United Kingdom in lieu of the production royalty. The agreement recited Lessona's competitive arguments as the circumstances leading to the modifications. On June 5, 1967 Throughout this period, Stoddard and Seem continued their work, and they developed double heater processes. Under the terms of the 1954 agreement, Leesona...

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