Opinion ID: 1483004
Heading Depth: 1
Heading Rank: 3

Heading: The Harrisburg Liquefiers.

Text: The situation as to these liquefiers is as follows. On April 5, 1934 (about one year after the supplemental contract of license and the assignment of the license to Dispensing  both on April 29, 1933), Pure acquired the assets of American Dry Ice Corporation. Included therein were about one thousand liquefiers of which approximately five hundred were Carbo-Frost and the balance were liquefiers made by the Harrisburg Steel Corporation under a patent to Bowers #2,016,223, and were called Harrisburg liquefiers. For the most part these Harrisburg liquefiers were then in use by customers of American Dry Ice Corporation. Since the purchase by Pure, the Harrisburg liquefiers have been used only by customers (customer operation). After the purchase and until March 31, 1936, royalties were paid upon customer operation of Harrisburg liquefiers the same as upon Carbo-Frost liquefiers so used. This action had been filed March 16, 1936. The change in position came July 7, 1936, when Pure wrote Carbo-Frost that quarterly payment of royalties on use of Harrisburg liquefiers would be discontinued as of March 31, 1936. The reason stated in the letter was that the Harrisburg apparatus appears to be foreign to the patents which you hold. The letter stated: If it is your opinion that the Harrisburg equipment does infringe your patents we would be pleased to participate with you in a suit against a user of such equipment according to the terms of our contract with you. Should you decide that it is advisable to take such action, we suggest that the suit be filed in Brooklyn where reasonably prompt trial can apparently be obtained and where Harrisburg equipment is in present day use. Will you kindly advise us promptly concerning your decision in this regard. Receiving no answer, Pure again wrote (on July 21, 1936) as follows: We wrote you on July 7, 1936, concerning liquefiers manufactured by the Harrisburg Steel Corporation, requesting that you let us have an immediate reply to our suggestion that suit be brought against the user of this equipment with your help and consent. As you know, we have been corresponding and discussing with you over a long period of time the question of bringing suit in connection with these patents, but due to lack of cooperation on the part of your organization it will be impossible to take any action. Will you please let us have a prompt reply to our letter of the above date. On August 10, 1936, Carbo-Frost answered as follows: Your letters of July 7 and July 21, 1936, were not answered earlier because of the fact that I, the writer, Treasurer of Carbo-Frost, Inc., have been in Alaska for a month and our Company's only office is my office at the above address. In your July 7 letter you advise that you are discontinuing as of March 31, 1936, payments to us of all royalties under the existing license agreements where either you or others use liquefiers manufactured by Harrisburg Steel Corporation. This action, you say, is based on the opinion of your attorneys that the Harrisburg devices do not infringe any of the Rudd patents. At the same time you invite us to join you in an infringement suit against some user of such equipment. While up to now we have never had the benefit of an examination of your books and records, it is our understanding that when your Company took over Dryice Corporation of America, (or its successor) you acquired a number of the Harrisburg devices and that you have for several years been paying to us your conception of a royalty on these very devices which your attorneys and your Company now say do not infringe. If we are correct in this assumption, then we should be glad to know from you the reason for your sudden change of view. Please be advised also that if you carry out your threat and discontinue the payment of royalties as outlined in your communications you will be held to full accountability for such action. The Harrisburg devices embrace and embody the same principles as the inventions covered by the license agreements. Moreover, your Companies have expressly so admitted. Our attorneys advise us that your Company cannot escape the payment of royalties by the expedient of the claims embraced in your letters about the Harrisburg devices and that the matter can be brought to the attention of, and tried out in, the Court before which the present suit is pending. It would hardly seem justifiable, therefore, from our point of view that we should join you in an infringement suit against others on account of your use of the Harrisburg devices, if you and your Companies in the pending suit are going to take the position that you are not obliged to pay royalties on such devices because they do not infringe. For you would have to be affirming in the proposed suits that which, of necessity, you must deny in the pending litigation. If we are successful and you are unsuccessful in our respective contentions in the pending suit concerning the Harrisburg devices, then we can discuss together the advisability of suing others as infringers. We feel also that your Company ever since it began its so-called plant operations in volume under the license agreement has wholly failed to live up to your contracts with regard to the payment of royalties and that we should await the outcome of our present suit against you to have established our right to the royalties rightfully due us before undertaking suits against others. Already we have obligated ourselves to pay out as attorneys' fees in the infringement suits already brought (in which infringement was established and conceded) sums of money which have made the net royalties collected by us to date not much greater than the expenses of such litigation. The undertaking of additional litigation expense under the meagre royalties we are now receiving would in all probability reduce our net royalties to a point where the net would be little or nothing for some time to come. After the litigation between us has been settled, we shall be glad to take up with you any suggestions that you may then have about the bringing of infringement suits, but we are not disposed to join with you in any such action at this time. November 13, 1936, plaintiff filed its Second Amended and Supplemental Bill. The Supplemental Bill brought the Harrisburg liquefier royalty obligation after March 31, 1936, into the accounting. The Second Amended and Supplemental Bill with the separate answers of the defendants and the answer to the counter-claim pleaded by Dispensing raised the following issues as to the Harrisburg liquefiers: (a) the right of plaintiff to recover royalties where Harrisburgs were used; and (b) the right of Dispensing to recover royalties paid where Harrisburgs were used. The court determined these issues in favor of plaintiff. These two issues as to the Harrisburg liquefiers may be examined together. While the broad issues as to the liability for royalties for use of the Harrisburgs are as above stated, yet the decision of those broad issues depends upon the determination of other issues which constitute reasons why that liability should or should not be. Those issues are as follows. (1) Is liability imposed by a so-called exploitation clause in the license agreement? (2) Does the course of conduct of defendants in paying royalties on the use of Harrisburgs and in publishing (on the Harrisburg liquefiers used by customers) that they are covered by the licensed patents estop denial of liability for royalties? (3) Is the similarity of the Harrisburgs to the patented liquefiers such as to require payment of royalties? (1) Exploitation Clause. The license agreement of March 3, 1932, granted an exclusive license to manufacture and use the methods embodied in the patent and the patent applications named, during the lives thereof, and covering the United States, Canada, Mexico and Cuba. The license covered, also, all improvements made or acquired either by Rudd Patents Corporation or by Carbo-Frost. Both Rudd Patents Corporation and Carbo-Frost were bound not to manufacture, use or sell within this territory. The compensation for these license rights was solely the royalties provided in the agreement. Paragraphs Tenth, Thirteenth, Fourteenth and Fifteenth were as follows: Tenth: Pure hereby covenants and agrees to bear the expense, not exceeding Twenty-five Thousand Dollars ($25,000) of conducting an action for infringement of said letters patent No. 1,785,326 and/or the letters patent to be granted on application Serial No. 341,712 to be filed by Rudd and Carbo-Frost against an infringer of said letters patent within said territory, such expense to be paid by Pure when, as and if bills for services and/or disbursements are rendered by the attorneys conducting such action. The attorneys to be retained by Rudd and Carbo-Frost for the purpose of conducting such action for infringement are hereby named as follows: Pennie, Davis, Marvin & Edmonds, of 165 Broadway, New York City, New York. All sums paid by Pure under the terms of this paragraph Tenth shall be credited to Pure on the books of Carbo-Frost as advances against royalties to be paid by Pure to Carbo-Frost, as provided in paragraph Sixth, and Pure shall be entitled to deduct quarter annually from royalties hereafter to become due, a sum equivalent to two and one-fourth per cent (2¼%) of the amount standing to the credit of Pure on the books of Carbo-Frost at the time of payment of such royalties.