American Circular Loom Co. v. Wilson

198 Mass. 182 | Mass. | 1908

Sheldon, J.

It is admitted that the defendant Emma M. Wilson received her assignments without giving any valuable consideration, and that her rights are no greater than those of her husband, the other defendant. The only questions accordingly to be considered are those which arise in determining the rights of the plaintiff against James S. Wilson, who will hereafter be called the defendant. Certain facts have been found by a master to whom the case was referred by the Superior Court, and are set out in his report and supplementary report and in statements made by him in reference to two hundred and fifty suggestions and requests for findings of fact and rulings of law made to the master by the parties; and some additional findings of fact were made by the judge who heard the arguments of counsel upon the exceptions to the master’s report and upon the merits. These findings are stated in the elaborate order for a final decree made by that judge, and were made as inferences upon the facts reported by the master. The right and duty of the judge to make such additional or different findings of fact, without hearing further evidence, by way of inference from the facts reported by the master, cannot be contested. Kennedy v. Welch, 196 Mass. 592. Young v. Winkley, 191 Mass. 570. Crane v. Brooks, 189 Mass. 228. Bacon v. Abbott, 137 Mass. 397, 399. This was done in Moore v. Rawson, 185 Mass. 264. And see the cases collected in 16 Cyc. 458. Nor is it material that the master’s report does not appear to have been formally confirmed, though undoubtedly that would have been the regular procedure. It was accepted and acted upon by the judge with certain additions and corrections, the material for which was found in the report itself. This was a practical confirmation of the report, as varied by the findings and rulings made by the judge, especially when followed by the final refusal to recommit the report to the master. This view is confirmed by the fact that both the interlocutory decree as to the exceptions and the final decree afterwards entered contain a recital that it was made “ upon a master’s report and exceptions of the parties thereto and the master’s supplementary report.” White v. Hampton, 10 Iowa, 238, 242. Johnson v. Meyer, 54 Ark. 437, 439. And the defendant very properly has not contended that this court has not jurisdiction to pass upon the case presented here. It is plain that the contentions made are not by their nature for the exclusive cognizance of the federal courts. Binney v. Annan, 107 Mass. 94. Desper v. Continental Water Meter Co. 137 Mass. 252, 254. Holt v. Silver, 169 Mass. 435, 455. Wade v. Lawder, 165 U. S. 624. We proceed to consider the merits of the case.

1. The plaintiff has not established its right to require an assignment of the tubing machine patent, the letters patent numbered 543,587, and dated July 30,1895, upon a machine for making tubing. This was the invention of the defendant himself, made while he was employed by the plaintiff as the superintendent of its manufacturing department. The machine was designed to turn out the same product, a flexible covering and protection for electric wires, which the plaintiff was already producing under the Herrick patent, so called, for the use of which the plaintiff held an exclusive license; and it was a material improvement upon the previous mode of obtaining that product. One of the defendant’s duties under his employment was to look after the plaintiff’s machinery and to make improvements therein. The expenses of procuring the patent were paid by the plaintiff; Many machines embodying the invention and built under the patent have been constructed under the direction and supervision of the defendant at the expense of the plaintiff, and have been used by it in its business with his knowledge and consent; and the success of its business has largely depended upon its use of these machines. But these circumstances and the other facts which have been found do not show that the plaintiff is entitled to the property right in the invention itself and in the letters patent which secure that right. The invention and the patent thereon belong to the inventor, to whom the patent has been issued, unless he has made either an assignment of his right or a valid and enforceable agreement for such an assignment, even though it was his duty to use his skill and inventive ability to further the interests of his employer by devising improvements generally in the appliances and machinery used in the employer’s business. This was assumed in Burton v. Burton Stock Car Co. 171 Mass. 437, and in Hopedale Machine Co. v. Entwistle, 133 Mass. 443. It is the settled doctrine of the federal courts. Dalzell v. Dueber Manuf. Co. 149 U. S. 315. Hapgood v. Hewitt, 119 U. S. 226. Sendelbach v. Gillette, 22 App. Cas. D. C. 168. Pressed Steel Car Co. v. Hansen, 137 Fed. Rep. 403. Barber v. National Carbon Co. 129 Fed. Rep. 370. Whiting v. Graves, Fed. Cas. 17,577. Barry v. Crane Brothers Manuf. Co. 22 Fed. Rep. 396, 398. It was said by Gray, J., in Dalzell v. Dueber Manuf. Co. 149 U. S. 315: “A manufacturing corporation, which has employed a skilled workman, for a stated compensation, to take charge of its works, and to devote his time and services to devising and making improvements in articles there manufactured, is not entitled to a conveyance of patents obtained for inventions made by him while so employed, in the absence of express agreement to that effect.” And Gray, Circuit Judge, in an elaborate opinion in Pressed Steel Car Co. v. Hansen, 137 Fed. Rep. 403, 415, decided in 1905, after a careful examination of the previous decisions, says: “We have been referred to no case, nor have we been able to discover one in which, apart from express contract or agreement, and upon the mere general relation of employer and employee and of the facts and circumstances attending it, the employer has been vested with the entire property right in the invention and patent monopoly of the employee, or with anything other than a shop right or irrevocable license, to use the patented invention. Such a right in the employer, the employee may be estopped to deny, by the fact of his employment and his conduct in relation to the use of his inventions by his employer, and to that extent and no further have the cases gone.” The same principle has been maintained in other States. Eustis Manuf. Co. v. Eustis, 6 Dick. 565. Fuller & Johnson Manuf. Co. v. Bartlett, 68 Wis. 73. Joliet Manuf. Co. v. Dice, 105 Ill. 649. It has been enforced between partners. Belcher v. Whittemore, 134 Mass. 330. Burr v. De la Vergne, 102 N. Y. 415. Slemmer’s appeal, 58 Penn. St. 155, 164. How far the rule will be held to be applicable where it appears that by the express terms of the hiring the employee was to exercise his inventive faculties with reference to the specific inventions in question for the sole benefit of his employer, we need not now consider, for that question does not arise in this case. See Gill v. United States, 160 U. S. 426, 435; Solomons v. United States, 137 U. S. 342; Hapgood v. Hewitt, 11 Biss. 184; Annin v. Wren, 44 Hun, 352; Connelly Manuf. Co. v. Wattles, 4 Dick. 92. Cases in which there was an express agreement that the invention should become the property of the employer stand of course upon a different footing ; but even such agreements have been construed somewhat strictly against the employer. Hildreth v. Duff, 143 Fed. Rep. 139. Bonsack Machine Co. v. Hulse, 57 Fed. Rep. 519, and 65 Fed. Rep. 864. Wright v. Vocation Organ Co. 148 Fed. Rep. 209. Joliet Manuf. Co. v. Dice, 105 Ill. 649. There was in this case no express agreement for an assignment of the patent, or that the invention should become the property of the plaintiff; and the facts do not authorize the inference that the parties had any understanding to that effect. The defendant was not employed to give partial form to an invention or conception which was the property of his employer, as in Gallagher v. Hastings, 21 App. D. C. 88. Nor was there as to this invention, under the circumstances shown, any breach of confidence on the part of the defendant or any violation of the duty which he owed to the plaintiff such as to enable the latter to hold him as a constructive trustee for its benefit.

It follows from what has been said that the plaintiff’s thirty-third, thirty-fourth, sixty-sixth, seventieth, seventy-first and eightieth exceptions to the master’s report were all properly overruled. So far as they were material to the case, they could not have been sustained. Nor does it sufficiently appear that the master ought to have been required to report the evidence applicable to any of them. The plaintiff’s rights seem to have been fully protected. We cannot find that the evidence referred to in the eightieth and eighty-first exceptions bore at all upon what we deem the vital issues in the case. What was said by this court in Long v. Athol, 196 Mass. 497, 508, as to exceptions to the admission of evidence by a master is peculiarly applicable here. The plaintiff’s eighty-first exception also must be overruled.

But the plaintiff contends also that it is at least entitled to an exclusive and irrevocable license under this patent to use the machine protected by it until the expiration of the patent. This contention rests largely upon the language of Brown, J., in Solomons v. United States, 137 U. S. 342, 346: “ When one is in the employ of another in a certain line of work, and devises an improved method or instrument for doing that work, and uses the property of his employer and the services of other employees to develop and put in practicable form his invention, and explicitly assents to the use by his employer of such invention, a jury, or a court trying the facts, is warranted in finding that he has so far recognized the obligations of service flowing from his employment and the benefits resulting from the use of the property and the assistance of the co-employees, of his employer, as to have given to such employer an irrevocable license to use such invention.” That some kind of license, or at least of a shop right under this and some others of the patents in controversy has in effect been given by the defendant to the plaintiff would seem to be manifest. See, besides the cases already cited, Keyes v. Eureka Mining Co. 158 U. S. 150; Lane & Bodley Co. v. Locke, 150 U. S. 193; McClurg v. Kingsland, 1 How. 202; Boston v. Allen, 91 Fed. Rep. 248, 251; Withington-Cooley Manuf. Co. v. Kinney, 68 Fed. Rep. 500; American Tube Works v. Bridgewater Iron Co. 26 Fed. Rep. 334. It does not however fully appear whether any or all of the rights that have been given by the defendant to the plaintiff were given with or without agreement for compensation therefor, or whether the circumstances would or would not warrant a finding that any compensation was to be paid by the plaintiff to the defendant. Burton v. Burton Stoch Car Co. 171 Mass. 437. Kleb v. Wallach, 6 App. Div. (N. Y.) 583. Deane v. Hodge, 35 Minn. 146. We cannot say that this claim was not to some extent open to the defendant upon his answer. The master has not found the facts bearing upon this question, acting in accordance with what he understood to be the desire and agreement of both parties. There was evidently a misunderstanding between the plaintiff’s counsel and the master as to the questions of implied licenses or shop rights and royalties; but we do not consider that this misunderstanding can in any way have prejudiced the rights of either party upon any other question than the existence and extent of shop rights in the plaintiff and the defendant’s right to have royalties therefor. The rights of both parties will be sufficiently protected if any decree in this suit shall be made without prejudice to either party upon these questions. There is nothing here which need deter us from considering and determining the plaintiff’s claim that it is entitled to a perpetual and exclusive license from the defendant.

This question is not wholly free from difficulty. But it must be observed that most of the cases already cited, in which it was held that the property right to the invention and patent did not become vested in the employer under circumstances like those before us, would lose their real force if they were to be construed as recognizing in the inventor merely a bare legal title, with the exclusive beneficial interest in his employer; and, however nicely an assignment might be distinguished from a license, it would still remain true that a perpetual and exclusive license for the use of a patented machine or process without the payment of any royalty would leave absolutely no beneficial interest in any one but the licensee. Indeed, such a state of facts might be fatal to the rights secured by a valid and valuable patent, since the owner of the patent might have no motive to bring any action against infringers to protect the rights which he would be very likely to grudge to his involuntary licensee, and the mere licensee would have no right to bring such actions. Waterman v. Mackenzie, 138 U. S. 252. If, however, such a license could be treated in law or equity as being equivalent to an assignment, as it would be in fact, we have already seen that the plaintiff is not entitled to it. Except the case of Eustis Manuf. Co. v. Eustis, 6 Dick. 565, which, as to the point of exclusiveness and so far as it goes beyond the agreement of the parties, is not in accordance with the great weight of precedent, we are not aware of any authority for making such an implied license exclusive, even if it could be said that it extended to the general right of using the patented machines and was not limited to the particular machines which were set up in the plaintiff’s shop with the consent of the defendant. Nor ought we, by ordering such a license, to foreclose the defendant’s right to a royalty, which has not been passed upon and which we have not the means of determining. We are of opinion that the plaintiff is not entitled to any perpetual and exclusive license under this patent. As to any less extensive right, the parties must be left in the situation in which they have chosen to place themselves by their conduct; and we need not consider whether or not there is, as contended by the defendant, any distinction between the implied license or shop right given where the mere right to sell a product is protected and where the right to use a machine or method of manufacture is concerned. See Gill v. United States, 160 U. S. 426; Keyes v. Eureka Mining Co. 158 U. S. 150; Lane & Bodley Co. v. Locke, 150 U. S. 193; Barber v. National Carbon Co. 129 Fed. Rep. 370; Boston v. Allen, 91 Fed. Rep. 248; Withington-Cooley Manuf. Co. v. Kinney, 68 Fed. Rep. 500; Wade v. Metcalf, 16 Fed. Rep. 130, 131.

The bill, so far as it relates to the tubing machine patent, must be dismissed.

2. The circular loom patent so called, being letters patent No. 690,355, dated December 31,1901, came to the defendant by assignment from one Brown, its inventor. The defendant was at this time one of the directors of the plaintiff company, as well as the superintendent of its manufacturing department. He occupied a confidential position. Elliott v. Baker, 194 Mass. 518. The duties of his employment gave him the best means of acquiring knowledge in respect to the plaintiff’s machines and of any improvements that might be devised therein. Both as director and as hired servant in a position of trust and confidence, he owed to the plaintiff, in the well chosen language of the judge of the Superior Court, “ the duty to be vigilant in acquiring information as to all experiments made in the plaintiff’s factory relating to machinery, and to communicate to the board of directors or at least to the managing director all material information he might obtain in regard to contemplated improvements, in order to enable his employer to act intelligently and promptly upon the subject of acquiring title to any new inventions or patents relating to its machinery.” He was legally bound not to act in antagonism to the interests of the plaintiff. If there was property which was necessary for the business of the plaintiff, and which he knew that the plaintiff desired to acquire and intended and was able to purchase and pay for, in order to protect and develop its business interests, it would be a violation of his duty for him secretly to purchase that property, either for the purpose of after-wards selling it to the plaintiff at an advanced price and thus taking advantage of its necessities, or of using such property otherwise to the injury of the plaintiff; and the plaintiff could by proper proceedings in equity secure to itself the benefit of his purchase. This principle has been applied and enforced in many instances and in a great variety of cases. Trice v. Comstock, 121 Fed. Rep. 620. Church v. Sterling, 16 Conn. 388. Blake v. Buffalo Creek Railroad, 56 N. Y. 485. Seacoast Railroad v. Wood, 20 Dick. 530. Trenton Banking Co. v. McKelway, 4 Halst. Ch. 84. Galbraith v. Elder, 8 Watts, 81. Davis v. Hamlin, 108 Ill. 39. Gower v. Andrew, 59 Cal. 119. Hardenbergh v. Bacon, 33 Cal. 356. It has been recently affirmed by this court. Old Dominion Copper Mining Co. v. Bigelow, 188 Mass. 315. Parker v. Nickerson, 112 Mass. 195. It was applied to a case involving the ownership of patent rights in Averell v. Barber, 24 App. Div. (N. Y.) 53. Nor can the duty of the defendant to communicate to the plaintiff all the information that he might acquire relative to the protection and development of its interests and business, especially of that part thereof which was under his personal charge, be denied or restricted. Farnam v. Brooks, 9 Pick. 212, 233, 234. Edmondstone v. Hartshorn, 19 N. Y. 9. Clark v. Bank of Wheeling, 17 Penn. St. 322. Norris v. Taylor, 49 Ill. 17. Duff v. Duff, 71 Cal. 513, 532. We are not impressed by the defendant’s argument that, because he was not bound to communicate and turn over to the plaintiff, in the absence of any agreement therefor, all his own inventions, therefore he owes no obligation to the plaintiff with reference to other inventions which might come to his knowledge. We are of opinion that the Superior Court rightly ruled that “ there is a real distinction between the case of the patent obtained by Wilson for his own invention and those patents which he acquired by assignments from others. In the former case there was no breach of confidence. In the latter case he was bound to make full disclosure to his master before acquiring for himself.” Where accordingly there are no other facts found to exist, we cannot doubt that equity will, on the application of the plaintiff, subject the title to such patents as are practically necessary to the prosecution of the plaintiff’s business and were obtained from others by the defendant in violation of his duty to the plaintiff, to a constructive trust in the plaintiff’s favor.

This right of the plaintiff, however, was not an absolute one. The assignments to the defendant were good, except against the plaintiff. The defendant’s title was merely voidable. It was at the option of the plaintiff to take the benefit of his assignments or not, as it might elect. And we are of opinion that what took place between the defendant and Clark, the plaintiff’s managing director, who was acting for the plaintiff in that behalf, was in legal effect an election on the part of the plaintiff to allow the defendant to take and hold the circular loom patent upon the defendant’s repaying the money which Clark in behalf of the plaintiff had advanced to Brown upon this account. The defendant made such repayment, paid also to Brown a large sum of money, amounting to $7,500, for the patent alone, and took an assignment of this patent; and nothing further was done by the plaintiff by way of objection to this conduct of the defendant for more than two and a half years. Upon the facts found by the master and the Superior Court, the plaintiff was charged with full knowledge of the facts; and it cannot now avoid the effect of the election which it then made. Metcalf v. Williams, 144 Mass. 452. Bassett v. Brown, 105 Mass. 551. The plaintiff did not merely make an erroneous choice of a remedy which did not exist, as in Doucette v. Baldwin, 194 Mass. 131, and Snow v. Alley, 156 Mass. 193, 195. It elected to take a return of its money, and allow the defendant to purchase the patent instead of making the purchase itself. This was not a case of loches merely, but also of an election fairly made to waive an existing right within the meaning of the language of the court in Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221, 239. And although the facts are not the same as to the patents for the bobbin holder, No. 694, 128, and the shuttle, No. 702,281, dated respectively February 25 and June 10, 1902, yet, in view of the master’s finding that these were merely ancillary and subsidiary inventions to that of the circular loom, and were designed to he used only in connection with that, and of the fact that we find nothing in the specifications of the patents themselves to lead us to a different conclusion, we are of opinion that they should now go with that patent. The plaintiff’s consent that the defendant might purchase and retain the principal invention should be extended so as to cover also the incidental and subsidiary inventions. This is only a special application of the underlying principle of Orcutt v. McDonald, 27 App. D. C. 228, and Gedge v. Cromwell, 19 App. D. C. 192.

It follows that the rulings of the Superior Court sustaining the plaintiff’s fifth and ninth exceptions to the master’s report, and overruling the third, eighth, fifty-ninth and sixtieth exceptions was correct; and that the bill cannot be maintained as to the patents just mentioned.

3. The Blackler patent, No. 751,777, dated February 9, 1904, upon a flexible tubing or conduit of new and improved design, and the Thibodeau patent, No. 794,433, dated July 11, 1905, upon a machine for making tubing, issued since the bringing of the bill upon one of the applications named therein, need not be particularly considered. For the reasons which have been stated in reference to the circular loom patent, the plaintiff may treat the assignments of these patents obtained by the defendant as really taken in trust for its benefit, and may have them transferred to itself upon reimbursing to the defendant the respective amounts paid by him therefor. The plaintiff’s eleventh exception to the master’s report must be sustained, and its tenth, sixty-first and eighty-sixth exceptions must be overruled. There was no error in the rulings made by the Superior Court as to these matters.

4. The remaining patent, that numbered 686,921, and the applicátion for a patent upon a pipe cleaning machine, differ from the other patents which were acquired by the defendant by purchase and assignment from their inventors only in the fact that the equitable right to these was originally in the Boston Electroduct Company, another corporation, which, though in a sense organized and for a time maintained in the mere interest of the plaintiff and as a subsidiary company to it, had yet an independent existence, and of which the defendant was himself the president. It was found to be the Boston Electroduct Company and not the plaintiff which originally had at its election the right to the remedy here sought to be enforced against the defendant. But under the circumstances here existing we do not regard this fact as material, for two reasons.

In the first place, the record shows that at a comparatively early period of the litigation, while hearings were going on before the master, the Electroduct Company asked leave to join in the suit as a party plaintiff. The defendant opposed this request, and declared that he did not put or rest his defence on the ground that that company had any right or title to the patents or any of them or the applications therefor. Upon this declaration, the request of the Electroduct Company was denied by the judge. In the second place, it also appeared that, the business of the Electroduct Company having been unsuccessful and its resources having been exhausted, the plaintiff, as a kind of unofficial liquidator, in the fall of 1898, took possession of all its assets, paid or compromised its debts, and itself virtually took charge of all that company’s affairs. The corporate existence of that company was continued; but there was no meeting of its stockholders or directors after the plaintiff took possession of its assets, until November 9, 1904. The inventions in question were made by Brown in and after 1899. The plaintiff paid him for his work, charging this however upon its books to the Electroduct Company. At an adjournment of the above-mentioned stockholders’ meeting, on November 15, 1904, it was voted that the company assign all its assets to the plaintiff, and that the officers of the company should execute all necessary papers for that purpose; and on February 1, 1905, a formal assignment of all the property and assets of that company, including “ interests in letters patent, . . . inventions, . . . and choses in action,” was made to the plaintiff. Copies of this vote and of the assignment are annexed to the master’s report. We do not doubt that this claim of the Electroduct Company was assignable, or that it passed by the assignment. Jenkins v. Eliot, 192 Mass. 474. Andrews v. Tuttle-Smith Co. 191 Mass. 461, 465. Currier v. Howard, 14 Gray, 511. Moreover, independently of the defendant’s verbal stipulation and of the facts which we have stated, the plaintiff had at the very time of the making of these inventions an interest in their intended product, and was obtaining a profit from the sale of that product; and it was found by the Superior Court, with manifest correctness, that the plaintiff would have purchased these inventions if the defendant had performed the duty of fidelity which he owed to it both as a director and as a servant.

Accordingly the plaintiff’s exception to the ruling of the master excluding the above-mentioned vote and assignment was properly sustained; and the ruling that the plaintiff was entitled to assignments of this patent and of this application was right.

It is not necessary to consider the defendants’ exceptions in detail after what already has been said. They were all rightly overruled.

It was for the judge, in the exercise of his discretion, to determine whether it would recommit the master’s report as requested, at different times by each party. Henderson v. Foster, 182 Mass. 447. Eddy v. Fogg, 192 Mass. 543. We find no error in the manner in which that discretion was exercised. Accordingly we need not consider a large number of the plaintiff’s exceptions, which are stated in the brief of its counsel to depend upon this motion. There appears to be no error in the rulings of the Superior Court upon the other exceptions.

It was also wholly in the discretion of the judge to determine whether it would issue, continue or dissolve an injunction, and what terms, if any, it would impose upon either party, and whether it would require the plaintiff to give any bond as a condition of issuing an injunction. And, no bond having been ordered or given, the judge correctly ruled, that the defendants were not entitled to an assessment of the damages sustained by them by reason of the injunction restraining them from disposing of the patents which by the final decree they were allowed to retain. In Meyers v. Block, 120 U. S. 206, 211, it was said by Bradley, J.: “ Without a bond no damages can be recovered at all. Without a bond for the payment of damages or other obligation of like effect, a party against whom an injunction wrongfully issues can recover nothing but costs, unless he can make out a case of malicious prosecution. It is only by reason of the bond, and upon the bond, that he can recover anything.” Many other cases to the same effect are collected in 22 Cyc. 1061. The defendant, as to the matters in which the plaintiff fails of final recovery, is in the same condition as one whose property was attached in a suit at law which the plaintiff finally has failed to maintain. Beyond such costs as he may be entitled to recover, his only remedy is by an action for malicious prosecution or malicious abuse of legal process. Zinn v. Rice, 154 Mass. 1. Lindsay v. Learned, 17 Mass. 189. Cases which have been decided as to the remedy where an injunction bond has been given are not applicable here. Russell v. Farley, 105 U. S. 433. Carpenter v.Fisher, 68 N. H. 486. It was not necessarily unjust that the defendants should have been restrained from disposing of any of these patents until a final determination of the rights of the parties could be reached. If there were any special circumstances to be considered, they were doubtless brought to the attention of the Superior Court.

But there are some irregularities in the final decree entered in the Superior Court which ought to be noticed. The decree does not state what amount is to be paid by the plaintiff for the acquirement of one of the patents or of the pending application for a patent, but leaves blanks for these amounts, and provides for a future application to the court to determine them. These questions should not be left open in a final decree. And the defendant should not be required absolutely to make assignments of all the patents for which he is held. As to each of these, the plaintiff has an option whether to take it at the price found by the court or not. The order should be as to each patent that the female defendant assign it to the plaintiff upon payment by the plaintiff of the sum found as to that patent by the court. Hill v. Hall, 191 Mass. 258, 269. Nor should the decree be without prejudice to the rights of the defendants or either of them to recover royalties or license fees under any of the patents. This should be limited to the four patents which the defendants are allowed to retain. And it should also be without prejudice to the right of the plaintiff to claim that it is entitled to a shop right or license under each of these patents. With these modifications, the decree of the Superior Court should be affirmed; and it is

So ordered.

Case Details

Case Name: American Circular Loom Co. v. Wilson

Court Name: Massachusetts Supreme Judicial Court

Date Published: Mar 4, 1908

Citation: 198 Mass. 182

Court Abbreviation: Mass.