54 F. Supp. 109 | M.D.N.C. | 1943
This is a suit to recover royalties under a license agreement relating to patent agreement No. 1,738,796 dated December 10, 1929, and patent No. 2,238,659 granted April 15, 1941, to W. G. Reynolds, who assigned one-half of the first patent to E. A. Ter.rell and one-half of the second patent to Terrell Machine Company. The first patent covered process and mechanism for the manufacture of roving or yarn, while the second patent was for improvement in fiber drawing mechanism and process. Reynolds is a practical and experienced mill man who has devoted his entire life in textile plants. Defendant is one of the three largest textile machinery manufacturers in the United States with a long and enviable record in its field.
Reynolds had spent many years in an effort to improve the conventional method of drafting in the roving department. These words were very confusing to the court at first, but the exhibition of the raw material and the process and mechanism employed in the conversion of the raw material into a final stage of twisting into yarn gave the court some familiarity with the subject. When the raw material comes to the conventional roving machine it is a strand approximately two inches wide and approximately one-half inch thick, but it is very loose and very easily pulled apart. The purpose of drafting this strand which is called a sliver is to stretch it in an effort to get the fibers of the cotton lengthened in .parallel shape. At the time of Reynolds’ invention only the drafting or stretching could be performed on a single machine. The first draft was timed to stretch the tender sliver to the limit of its endurance without pulling it in two. It then became
The application for the second patent was made on January 23, 1934, while Reynolds was still working at the plant of the defendant and defendant’s counsel collaborated with Reynolds’ counsel in the preparation of the application. The situation of the parties at that time contemplated faithful co-operation in the development of the Reynolds process and mechanism and in coverage by the second patent.
The conditions prevailing in the textile industry prior to October, 1934, the unsuccessful tests which had been made, and the part which Reynolds played in solving the problem are set forth at length in the defendant’s Bulletin for October, 1934, from which we quote some excerpts.
“New Saco-Lowell Controlled Draft Roving”
“It is a matter of common knowledge among mill men that the roving department, involving a multiplicity of operations and excessive handling of the roving has not kept pace with the improvements in other branches of cotton manufacture.”
“For years we have recognized the need of specific improvements for this department and have been actively searching fór methods and equipment which would accomplish these ends. It is apparent that multiple roving operations naturally result in many piecings; stretching of the roving as it passes from the creel, through the flier and around the passer arm; and introduce the possibility of singles, and of faulty splicing.
“Therefore it seems obvious that these irregularities were a natural consequence of the repeated handling of the roving in each drafting and winding operation, and actually were introduced to a great extent by the roving frames themselves.”
“It was obvious that these irregularities and consequent doublings could be reduced if we' could sufficiently reduce the number of times the roving is handled and creeled, and could even be practically eliminated by limiting the roving operations to the irreducible minimum of a single process. This we set as our goal, but it called for a machine capable of drafts far beyond the limits of the conventional frame, and, for medium and fine yarns, roving drafts higher than anything ever accomplished on a production machine.”
“We found at that time, and still believe, that any belt system of long draft yet developed, or worked out on a practical basis, is not suitable for roving equipment, because of the heavy, loose mass of cotton necessarily handled in roving frames. While these systems worked admirably on spinning, the great amount of fly produced in the roving operation caused frequent ‘Bungups’ which interfered with the proper functioning of the drafting elements and could damage the aprons and rolls.”
“Continuing our research, we extended our investigations to other methods of performing the roving operations in one process. These studies covered a number of arrangements, based on such ideas as adding a moch twist, the use of multiple drafting rolls, and the application of various forms 'of slip rolls. * * * While in some instances these machines have given satisfactory performance. * * * We
“As a result of this preliminary work we were convinced that any new roving frame worthy of general acceptance by our customers would have to meet a number of definite requirements and we accordingly set up the following specifications as a definite goal:
“(1) It must produce roving equal in every respect to that produced by a conventional system.
“(2) It should be of simple and rugged construction.
“(3) It should be easily operated anr should not require any more care or cleaning than a regular frame.
“(4) It should effect a substantial reduction in card-room costs.
“(5) It should be adaptable to conventional roving frames.
“(6) It should be capable of drafts which will permit the production of the more usual yarn numbers with one process roving and use double roving in the spinning creel.
“The attempts made by ourselves and others to develop a new system of roving * * * have included several ideas which have been carried along to various degrees of practical application * * * but in every instance they failed to measure up to the standards mentioned above.”
“Naturally these indications prompted us to redouble our efforts in finding and devising the kind of equipment which would mike single process roving completely practical.”
“In the course of our quest, we investigated a unique and decidedly original idea developed by Mr. W. G. Reynolds, well known to Southern Mill executives. Careful observations of the system convinced our engineers that it held real possibilities as a basis for an entirely new system o^ drafting for roving. We subsequently arranged to take over his invention and had him join our engineering organization to work with us in perfecting the application of his idea to roving equipment.
“With the background of Mr. Reynolds’ experience with the device and our research in the general field of long draft as applied to roving, this development cama along rapidly, and during the past year several frames have been in operation in mills in the vicinity of our shops for the purpose of making minor adjustments and working out the best methods of operation.”
“From the first we had .realized that this new drafting mechanism is a radical departure from conventional ideas of roving machinery and in the matter of doublings it is a wide-open break with tradition. * * * The facts as developed in actual mill use, regarding the performance, economy and simplicity of the machine square in every respect with the specifications we had set up as our practical ideal. It provides a unique, simple and effective method of eliminating unnecessary roving operations, and for most organizations makes possible the production of roving for the spinning frames of the required quality and size by a continuous controlled draft, in a single operation.”
“This development of the Controlled Draft Roving is characteristic of the SacoLowell policy of continually searching for means of simplifying and improving cotton, mill operations. The system we believe will revolutionize card-room practice and prove to be one of the most important developments of recent years in textile machinery.”
The patented device and process revolutionized roving in textile plants and became a pronounced commercial success. Six men with this patented device could do the work generally requiring eighteen; one machine did the work of two, sometimes three.
The license agreement covered both patents and all of the claims not finally rejected under the second patent. The defendant was to pay royalties of fifteen per cent, but plaintiff later agreed to reduce the royalties to ten per cent to help defendani meet competition. Under this arrangement defendant paid plaintiffs in excess of $100,-000 royalties up to and including 1937, but since that time has ceased to pay any substantial sum.
The Reynolds machine was known as defendant’s Model D. In 1937 the defendant came out with another model which was called defendant’s model J — 1, J-2 and later
Both of the Reynolds patents contemplated the employment of a tongue and groove roll in connection with the second drafting operation in the single process system, although the second patent disclosed that the forming device could be a stationary member as distinguished from a rotating tongued and grooved rolls. A pair of rolls received the sliver or strand of cotton and fed it to a second pair of rolls. The second pair of rolls revolved faster than the first pair with the result that the sliver was drafted (stretched). Instead of dropping the product into a can and refolding it and feeding it again into another machine, Reynolds had a third pair of rolls which operated to receive the sliver into tongued and grooved parts of the rolls in such way as to fold the narrow strand into a rectangular shape bringing the outer edges (selvages) inward toward the center, so that the sliver could be condensed and held within these folded between the third pair of rolls and fed into a fourth pair of rolls which rotated at a faster speed so as to give the sliver a second draft and have it ready then to be spun into yarn. In this process arrangements were made to keep the sliver under control against transverse and vertical expansion, to keep this sliver uniform in its thickness and distribution and to produce the desired product without waste, in one continuous process.
As early as May, 1934, Reynolds made . a stationary device (sometimes called a block, sometimes a trumpet) and he showed it to the defendant’s employees. Strange as is may seem defendant’s employees all seem to have lost sight of this but there can be no doubt about the fact for Burn-ham, defendant’s draftsman, made a blueprint of it and it bears the date of May 11, 1934. Reynolds wrote his lawyers about it at that time and also Mr. Terrell, and both the letters and the blueprints were produced at the trial. Tests were made on the stationary device 'and a better result was obtained than on the rotating tongued and grooved roll. Defendant’s employees at that time told Reynolds not to let any information of that get out of the shop and Reynolds wrote his attorney about it at that time. Jones, defendant’s engineer, and who later obtained a patent on it and assigned it to defendant, and from whom the J Model takes its name, made tests on it and a written report to his superior officers in May, 1934. Under date of May 5, 1934, Jones reported “Mr. Reynolds also proposed using a grooved bar as a folding and doubling element in place of the folding roll,” and on May 12th reported “made tests with both revolving and stationary folding rolls, using pepperel cotton, stationary type made slightly stronger yam.” Reynolds left the block in possession of the defendant, but defendant’s agents all seem to have lost sight of it entirely until it was called for in this trial. However during 1936 the defendant’s employees were still working on it and on February 23, 1937, Jones filed an application for a patent on J-l while the application for the second Reynolds patent was pending.' The only substantial difference as I see it between the J Models and the D Models is the fact that a stationary folding block is used between the second and third pairs of rolls to take the place of the function performed by the tongued and grooved rolls in the third pair of rolls in the Reynolds Process. The result produced on the roving is almost, if not entirely, identical.
Quoting further from that opinion. “Furthermore, the provision for the cessation of payments on final adverse action must be applied to such claims as were rejected for want of novelty; and, after such rejection, Farrow can make the defendant account only for the use of devices embodying what remained of his claims. Obviously, also, the fact that, subject to the foregoing qualifications, the defendant took the risk of the value of Farrow’s alleged invention, even when coupled with its covenant to use due business diligence in pushing their sale, did not preclude it from using any later invention, if one were made which superseded Farrow’s and did not embody it.”
The above case covers this case in the view that I take of it.
The so-called Jones patent did not super-cede the Reynolds invention. They are embodied in the patents issued to Reynolds. The Reynolds patents not only covered the mechanism there described and that which should be adequate to the purposes taught by the patent, but the patents also covered the process and method of controlling the strand during the drafts in a continuous and single process. The contentions of the defendant in regard to the additional claims under the second Reynolds patent seem to be answered adequately by the court in Proctor & Gamble Manufacturing Company v. Refining, Inc., 4 Cir., in 135 F.2d page 900, decided May 21, 1943. The position of the defense based on prior patents and the prior art is likewise fully met by the Proctor and Gamble case, cited above. It is not necessary to re-state what the defendant itself thought of the Reynolds system as expressed in its October Bulletin 1934. It was the Reynolds’ controlled draft system which revolutionized the industry.
The court is not impressed with the contention of the defendant that it was compelled to abandon the Reynolds device on account of excessive cost of maintenance. The proof in this regard was not satisfactory. While there were generalizations concerning expense in maintenance,, the proof was not specific nor satisfactory. If the defendant is permitted to escape royalties on the J model frames, it will save a sum now in excess of $200,000. This sum undoubtedly has already exceeded by far the so-called maintenance expense. Here we have an unusual situation. The defendant not only obtained a license to make and sell all machinery embodying the inventions of the first and.
The courts cannot make a contract between the parties but must deal only with the contract which the parties themselves have made. While I am of the opinion that the J models are clearly covered under the claims of the second patent and that the defendant is liable for the royalties thereon which disposes of the case, still I am of the opinion further that under the circumstances of the case the Jones patent was obtained in breach of faith and that the defendant should be declared a trustee for the benefit of the plaintiffs and required to pay a royalty. The defendant neglected to do its part in helping to obtain the second patent embodying the results of the improvements discovered by the joint efforts of themselves and the plaintiff. In fact it did all it could to prevent the allowance of the plaintiff’s claims. While it may appear a hardship on the defendant to pay the royalties on the J models, I am convinced that they are but the fruits of the Reynolds invention and that equity and good conscience require it to pay the 10% royalty. It should be contented with its 90% of the sales.
Numerous authorities have been cited in the excellent briefs submitted in behalf of the parties and the court has given due consideration to them, but on account of the length of this opinion no further reference to the authorities is necessary.