Title: Beattie v. Product Design & Engineering, Inc.
Citation: 198 N.W.2d 139
Docket Number: 42565
State: Minnesota
Issuer: Minnesota Supreme Court
Date: April 21, 1972

198 N.W.2d 139 (1972) William S. BEATTIE, Appellant, v. PRODUCT DESIGN &amp; ENGINEERING, INC., et al., Respondents. No. 42565. Supreme Court of Minnesota. April 21, 1972. Rehearing Denied June 16, 1972. Herbert C. Davis, St. Louis Park, for appellant. Dorsey, Marquart, Windhorst, West &amp; Halladay, and James B. Vessey and Robert A. Heiberg, Minneapolis, for respondents. Heard before KNUTSON, C. J., and MURPHY, OTIS, KELLY, and ODDEN, JJ. *140 DONALD C. ODDEN, Justice.[*] Plaintiff, William S. Beattie, appeals from an order of Hennepin County District Court denying his motion for a new trial. The action was commenced against Product Design &amp; Engineering, Inc., and A. J. Porter to recover royalties allegedly due to plaintiff under the provisions of an agreement entered into by the parties on June 12, 1961. Before trial, plaintiff dismissed his action against Porter. In denying relief, the court held, in substance, that the agreement to pay royalties was predicated upon the patentability of the device in question and that obtaining a patent was a condition precedent to such payment. We find this interpretation of the agreement contrary to our established rules of construction and accordingly reverse. In 1960, plaintiff, a salesman for Container Supply Company of Kansas City, Missouri, a wholesaler of plastic packaging products and factory representative for manufacturers of such products, was told by a representative of H. B. Fuller Company that that company was interested in purchasing a self-cleaning plastic closure for its plastic bottles of white glue. Plaintiff developed a series of ideas in an effort to design a plastic closure which would meet the requirements described to him by the H. B. Fuller representative and approached A. J. Porter, president of Product Design &amp; Engineering, Inc. (hereafter P D &amp; E), with his idea for a design for a closure basically consistent with what later became known as the "tip-lock" closure. Plaintiff and Porter worked on this closure cooperatively during the winter and spring of 1961, with Porter supplying professional engineering skills to the idea originated by Beattie, and produced prototype models of the closure which were submitted to the Fuller Company for testing and evaluation. Upon acceptance by the H. B. Fuller Company of the closure design, an agreement was prepared by an officer and legal counsel for P D &amp; E which reduced to writing the understanding between plaintiff, Porter, and P D &amp; E. In that agreement, which the parties executed in the offices of P D &amp; E's legal counsel on June 12, 1961, Porter had himself designated as coinventor of the "tip-lock" closure. The agreement reads as follows: Beattie entered into employment with defendant under the terms of this agreement on or about the date upon which the agreement was executed, and shortly thereafter he and Porter approached the Borden Company to sell the closure to that company for use with its white glue product known as Elmer's Glue. The parties were successful in interesting Borden in the closure and secured substantial orders from it, but Borden insisted that no sales of the closure be made to dispensers of white glue other than *142 Borden and H. B. Fuller Company. Production of the closure was undertaken by P D &amp; E as its first proprietary plastic product, and production quantities were first achieved in September or October of 1961. An application for patent of the closure was filed by P D &amp; E on June 19, 1961, and was rejected by the United States Patent Office on June 7, 1962. In November 1962, an amended application for patent was filed by defendant. This application was rejected on March 12, 1963. An appeal was taken from that decision, and on April 15, 1964, the Board of Appeals sustained the decision of the examiner rejecting the application for mechanical patent. Defendant was notified that further appeals were possible but would be costly, and nothing further was done regarding the application for mechanical patent. Plaintiff did not participate in any of the proceedings relative to the application for mechanical patent, nor was he consulted in any way regarding the decision of defendant to proceed no further with the patent application. Shortly after production quantities were first achieved and before any disposition had been made on the application for a mechanical patent, defendant was notified by Halkey-Roberts Company that the "tip-lock" being produced by P D &amp; E infringed a patent owned by Halkey-Roberts. Patent counsel for defendant advised it that the "tip-lock" did infringe some of the claims of the Halkey-Roberts patent and recommended commencement of a declaratory judgment action. Defendant, apparently out of a desire not to risk losing the large Borden contract, chose not to initiate court action. Instead, defendant and Halkey-Roberts entered into a license agreement whereby defendant obligated itself to pay to Halkey-Roberts a royalty of 4 percent of the gross sales of the closure. In that agreement, defendant admitted the validity of the Halkey-Roberts patent and agreed not to contest the same. The license agreement between defendant and Halkey-Roberts was entered into between them in December 1961, and again plaintiff was not consulted in any way nor did he participate in any of the proceedings between defendant and Halkey-Roberts. On May 22, 1962, defendant filed an application for a design patent for the "tip-lock" closure, and a Design Letters Patent was issued in response to that application on February 5, 1963. Plaintiff executed a second assignment to defendant on May 17, 1962, at the request of A. J. Porter, president of defendant, in which the following recitals were contained: Meanwhile, in the fall of 1962, plaintiff was demoted from his position as national sales manager of defendant's plastic products division, and finally on December 31, 1962, his employment with defendant company was terminated entirely. Plaintiff's termination of employment was not voluntary but was the result of being fired by Porter for reasons not material to this lawsuit. Following termination of his employment, plaintiff, on November 19, 1963, made a demand for royalties pursuant to the initial agreement. P D &amp; E refused, and in 1965 this action was commenced. For various reasons, disposition of the matter was delayed, and in February 1970 the matter was tried to the court without a jury. The trial court found that the consideration for defendant's obligation to pay royalties was the right to exclusive distribution of the "tip-lock" closure, hence, the notice of infringement given by Halkey-Roberts produced a failure of consideration such that the royalty agreement was rendered unenforceable. The court further found that the agreement contemplated only items produced by P D &amp; E pursuant to the claims of the mechanical patent, and that since no patent was issued, P D &amp; E became legally entitled to manufacture the item without payment of royalties. In addition, the court found that the royalty agreement contemplated a mechanical patent, not a design patent, and that in any event the design patent issued was invalid. The court concluded that plaintiff was not entitled to royalties. On appeal, plaintiff raises two issues: (1) Whether the trial court's construction of the agreement of June 12, 1961, was supported by the evidence; and (2) whether the trial court was justified in determining the invalidity of the design patent for the "tip-lock" closure. The agreement of June 12, 1961, entered into between plaintiff, Porter, and defendant purported to incorporate the terms of an understanding between them. It was prepared by defendant's attorney who was at the time of the drafting of the instrument an officer of defendant as well as its attorney. There has been no claim throughout any of the proceedings that the agreement did not express the intention of the parties, or that it was subject to reformation because of fraudulent representations of the plaintiff or upon the grounds of mutual mistake of fact. Thus, according to the established law of Minnesota, since the agreement in question was prepared by the defendant, all doubts or ambiguities must be resolved against the defendant. 4 Dunnell, Dig. (3 ed.) § 1832; Marso v. Mankato Clinic, Ltd., 278 Minn. 104, 153 N.W.2d 281 (1967); Koch v. Han-Shire Investments, Inc. 273 Minn. 155, 140 N.W.2d 55 (1966). Another established rule of construction, as stated in 17 Am.Jur.2d, Contracts, § 246, quoted with approval in Marso v. Mankato Clinic, Ltd. supra, is as follows: It would seem that the purpose of plaintiff, Porter, and defendant was obvious; all wanted to take the idea for the "tip-lock" closure which Beattie and Porter had developed, adapt defendant's plant to production of that closure, and sell the completed product to the Borden Company, the H. B. Fuller Company, and any other person or company which could use it for products other than white glue. The arrangements with Borden and Fuller were concluded long before the patent application was first turned down. By that time, regardless of the outcome on its patent application, defendant had already expanded its production and sales tremendously. Thus, the eventual denial of the patent did not affect the total production and sale of the closure in any way. We agree that profits may have been affected by the alleged infringement of the Halkey-Roberts patent, but the decision not to challenge the infringement claim was made by defendant without consulting plaintiff in any way. We fail to see how a subsequent unilateral decision by defendant can be said to destroy plaintiff's right under an already existing contract. The successful production and sale of the closure, not the obtaining of the patent, was the real purpose behind the agreement between plaintiff, Porter, and defendant. In the agreement plaintiff agreed to assign his rights to the device and patent application and promised to prosecute the patent application with diligence. At no time did he warrant that a patent would be obtained or even that the closure was patentable; similarly defendant, who drew the contract, at no time stated that obtaining a patent was a condition precedent to payment of royalties. The agreement further provided that defendant promised to pay royalties on the sale of the product covered by the claims of the patent application or the claims of the patent. There can be no serious assertion that the closure designed by Beattie and Porter is not the product covered by the claims of the patent application. If, as defendant asserts, the securing of a patent was a condition precedent to the contract, there would have been no need to refer to the product covered by the patent application, as well as the product covered by the patent. Under our established rules of construction set out above, we must construe a contract in a manner designed to achieve the purpose of the contracting parties; if doubt still remains, we must construe the contract against the party who drafted it. We therefore find no basis for holding that obtaining a patent on the closure in question was a condition precedent to the contract and to plaintiff's right to receive royalties. Since we find that the obtaining of a patent was not a condition precedent to the contract and payment of royalties, we need not examine questions relating to the design patent. Reversed and a new trial granted on issue of damages only. TODD, J., not having been a member of this court at the time of the argument and submission, took no part in the consideration or decision of this case. [*] Acting as Justice of the Supreme Court by appointment pursuant to Minn.Const. art. 6, § 2, and Minn.St. 2.724, subd. 2.