Opinion ID: 1542913
Heading Depth: 1
Heading Rank: 1

Heading: The Rate of Reasonable Royalty

Text: The infringement of the patent is not questioned. The number of cars on which the devices were used by General Motors Corporation as original equipment was 486,093. 55,265 infringing curtain rods were used by General Motors Corporation for service during the same period. The trial court determined that in view of the wide range of royalties paid for the device, and taking into consideration the element of quantity of production, the reasonable royalty was 15 cents per car, and 3¾ cents per rod for the structures used in service. Appellant contends that this rate is too high because of its great quantity production and because a lower license rate than 15 cents was given to certain licensees. Appellee, while not assigning error to the rate of royalty, contends that the reasonable rate of royalty for the device, in the absence of disturbing price factors such as the general infringement alleged to have existed, was 25 cents per car. No established royalty is shown. In their original written contract Collins and Blackmore agreed to demand not less than 20 cents per car for license to manufacture. Blackmore manufactured the rods and sold them direct to automobile manufacturers. Collins was to introduce the rods and put them on the market. It soon developed that Blackmore could not manufacture rods in a sufficient quantity to meet the demand, and Collins arranged with Diamond Manufacturing Company, the predecessor of Motor Products Corporation, to supply the rods. Collins made an alternative proposition to automobile manufacturers, offering them either a license at the rate of 25 cents per car, or that they buy the rods from Motor Products Corporation. This company manufactured the rods, sold and delivered them, and from the prices which it received it paid Collins 25 cents per roadster and 30 cents per touring car. Collins then remitted one-half of this amount to Blackmore. During the years 1915 to 1923 inclusive, Motor Products Corporation sold the device to more than 50 automobile manufacturers, and to 63 automobile top, body and trim companies. The rates of 25 cents and 30 cents were paid by Motor Products Corporation to Collins on all sets until November, 1919, after which time it lowered its rate to 20 cents per car, or five cents per rod. Infringement was then beginning to be general. [2] These rates were paid to Collins irrespective of the prices charged by Motor Products Corporation. On the former appeal [53 F.(2d) 725, 730] it was declared that these sales were made by Collins and not by Motor Products Corporation, and that the amounts of 25 cents and 30 cents respectively were not royalties, but profits. The court stated that evidence of profits made upon sales of the patented device was not admissible in absence of further evidence as to the portion of such profits reasonably to be attributed to the patent and the portion fairly to be ascribed to the production of the rods as a separate manufacturing enterprise. Appellee contends that in the retrial additional evidence was introduced which supports a finding that the payments by Motor Products Corporation were reasonably attributable to the Pearson patent, and constituted royalty. We think this record supports appellee's contention. The new testimony introduced herein shows that the sales were made not by Collins, but by Motor Products Corporation. There was no partnership between Collins, Blackmore and Motor Products Corporation, and no agency relationship existed between the corporation and Blackmore. The entire operation of manufacture and sale was carried on by Motor Products Corporation. Collins' arrangement was merely to introduce the rods to the trade, not to make the sale. He never made a second call on the automobile manufacturer unless some engineering difficulty arose. Motor Products Corporation determined whether credit should be extended, made and delivered the rods, sent out the invoices, and then accounted for royalties to Collins, who divided the sums received with Blackmore upon an equal basis, the total amount received being $148,767.06. Tags provided by Collins were applied to the rods to indicate the patent number. [3] Also Motor Products Corporation was licensed to perform this operation. On inquiry from Diamond Manufacturing Company, the predecessor of Motor Products Corporation, which had received an order for rods from the Hupp Motor Car Corporation, and knew the rods were patented, written authority was given by Blackmore to manufacture the curtain carriers on any and all orders turned over by Collins. At about the same time Collins and the manager of Diamond Manufacturing Company agreed verbally that the company should make the rods for Collins and sell them at a price including a royalty of 25 cents on a roadster and 30 cents on a touring car. Not only were rods sold on orders from Collins, but over the period of several years, with the acquiescence of Collins and Blackmore, rods were manufactured and sold by Motor Products Corporation on repeat orders which did not come from Collins. Thus Motor Products Corporation was a licensee of Blackmore. [4] As to the nature of the payments it is significant that substantially the same amount as the license royalty demanded was regularly turned over to Collins by Motor Products Corporation. It is a fair inference that the manufacturers who bought the rods from Motor Products Corporation, after having been presented the alternative proposition of a license at 25 cents royalty or of purchase from a company licensed to manufacture, knew that a sum similar to the royalty rate was included in the price which they paid such company. Motor Products Corporation paid these amounts for the right to make and sell the patented article, and hence the payment has the essential characteristic of royalty. Apart from the regular payments made by Motor Products Corporation to Collins, the record supports the finding of the District Court that 15 cents is a reasonable rate per car. Licenses unquestionably issued at less than 15 cents royalty. Blackmore gave a sliding-scale license to Studebaker which, because of the quantity of its production, resulted in a payment of 12½ cents per car. This license was given without Collins' knowledge, but he himself did suggest a 15-cent license to Studebaker. The Dodge Company made an advance payment of $17,500 cash in part settlement for infringement and for royalties. As Dodge used the device on over 480,000 cars, this rate turned out to be very low per car. Since it was an advance payment, however, in which both parties speculated on the possible number which would be used, this rate is not conclusive. Collins himself gave the license to Willys-Overland at 10 cents per car, and corresponded with General Motors Corporation as to a royalty of 5 cents to 10 cents per car, depending upon production. This negotiation did not result in a contract because General Motors refused to guarantee a minimum production. Later General Motors claimed the patent was invalid. After the period of infringement, which began in 1917, Collins and Blackmore authorized Dailey, the trustee, to settle infringement claims at a minimum rate of 10 cents per car. However, this is not the whole picture. Cadillac took a license in September, 1914, at 25 cents per car and retained it until September, 1919. Three other divisions of General Motors for several years paid Motor Products Corporation sums for rods which included 30 cents per car (Buick and Oldsmobile) and 20 cents per car (Oakland). In an accounting suit brought by Collins against Blackmore, it was disclosed that Blackmore had sold rods to numerous companies without the knowledge of Collins, and under judicial decree he accounted to Collins for royalties of 25 cents per car paid by 14 companies, 20 cents per car paid by seven companies, 15 cents per car paid by one company, and five cents per car paid by two companies. This account covered the period of September, 1919, to November, 1921. Bearing in mind the previous holding of this court that the diminished royalty rate to which the patentee may have been driven in individual cases by the disrepute of his patent and the open defiance of his rights should not be taken as the true measure of reasonable royalty where no established royalty is shown, and the fact clearly proved that a number of companies infringed from 1917 on, including several divisions of General Motors Corporation, we think that the determination of the District Court complied with the rule [53 F.(2d) 725] that reasonable royalty must be determined from proofs of acceptance, utility, value, and demand, and upon the hypothesis that the patent was valid and would be respected. The patent was accepted generally by leading automobile manufacturers. Its utility was judicially determined in Collins v. Hupp Motor Car Corporation, supra. [5] Its value was shown by its wide use and the demand for it which existed. To draw the proper conclusion from these conflicting facts called for the exercise of judicial discretion by the District Court, and we cannot say that such discretion was not properly exercised. Upon the question of royalty rate the decree must be affirmed.