Court Opinion

ID: 9287448
Source: CourtListenerOpinion
Date Created: 2022-11-29 16:44:42.271364+00
Date Added: 2024-06-11T17:12:24.478883
License: Public Domain

Niemeyer, J., dissents. A statement of certain uncontested facts is necessary to an understanding of the issues presented on the appeal. Defendant, a chemist, with degrees from the University of Chicago and the University of Leipzig, returned to Chicago in 1924; before his connection with plaintiff he was employed by the International Filter Company as a research chemist, by the Transo Envelope Company (hereafter called Transo), organizing and equipping a laboratory, and by the Pure Oil Company as a research chemist; with each of these companies he signed a patent assignment agreement. In November 1930, after leaving the Pure Oil Company, he filed two applications for patents relating to polymers, a waste product derived from the refining of petroleum; needing capital for the commercial development of his ideas, he interested Joseph Begenstein, his cousin and the principal stockholder and executive officer of the Arvey Corporation (hereafter called Arvey) and of Transo; after Begenstein had obtained a report on defendant’s product from the chief consulting chemist of Transo, he, defendant and F. P. Schneider, the second largest stockholder in Transo, had a meeting, and as a result plaintiff corporation was organized in January 1931 as the Varnoil Corporation (changed to Velsicol Corporation in 1932), with a capital stock of $20,000, consisting of 200 shares of $100 each. Arvey and Transo each took 40 per cent of the stock, paying for their respective shares $8,000. Defendant acquired 20 per cent in consideration of the assignment of his patent applications at a valuation of $4,000. Begenstein became president, defendant vice-president, and Schneider secretary and treasurer. They retained their respective positions throughout all the transactions involved herein. Defendant was the operating head, managing the day to day operations of the business, supervising and directing the research and experimental work and the commercial development of the various products and patents of the company until his resignation in September 1946. He received therefor a salary, increased from $40 a week to $600 a week. Begenstein was the financial head and continually conferred with defendant as to the business of the company. Pending the organization of plaintiff, defendant hired two chemists, Forbis and Harter, and an assistant chemist, Mayer, a first cousin of Begenstein and defendant, who worked under defendant’s direction in a laboratory located at the rear of the Arvey plant and later taken over by plaintiff. On January 30, 1931, after the organization of plaintiff, these three employees signed agreements (hereafter referred to as patent assignment agreements) requiring them to assign to plaintiff any new inventions they might discover, either in the product itself or anything relating thereto, or the process for using it, and also to keep secret any knowledge they might obtain while wording for the corporation. These agreements were prepared by Mr. Schupp, the attorney for the company and for Arvey and Transo. It was customary to put men who went into a laboratory under such agreements. Throughout his connection with plaintiff, defendant insisted that all persons working in the laboratory and the manufacturing plant of plaintiff at Marshall, Illinois, including Colonel Behrman, who came with the company as vice president and director of research, should sign a patent assignment agreement. Forbis, Harter and Mayer were also doing some work for Transo under the direction of defendant. They signed a patent assignment agreement with Transo. On January 31, 1931, defendant signed a like agreement with Transo. Whether defendant at the same time signed an agreement with plaintiff is the important question of fact presented on appeal. The various patent assignment agreements were placed in envelopes, marked “Transo” and “Varnoil” and kept in the safe of Transo until 1938 or 1939, when the envelope containing the agreements with plaintiff were turned over to Regenstein, who placed them in a cabinet in the anteroom of his office where Griffin, employed by Regenstein in 1935, had custody of them until he went into the army in 1942. After that Miss Sims, who became defendant’s wife June 17,1944, had custody of the agreements. The office and laboratory of plaintiff were moved to East Pearson street in 1942. At that time the patent assignment agreements were transferred to the new office and were under the general control and direction of defendant. Through the year 1939, with the exception of 1935, plaintiff operated at a loss each year. This loss and the costs of the plant erected at Marshall, Illinois, were met by Transo and Arvey in equal parts. At the end of 1939, plaintiff was indebted to them in the sum of $528,000. This amount was still owing when this suit was instituted. The moneys received by plaintiff were expended under the direction of defendant. Up to and including July 10, 1943, a period of more than 12 years, 38 applications for patents were filed by plaintiff. In 37 of these applications defendant appears as the inventor. All were assigned to plaintiff before being filed in the patent office. They were assigned as a matter of routine and without discussion with any person connected with plaintiff. Five of them covered insecticides. October 16, 1943, an application for a patent was filed in which defendant and Peters, another employee of plaintiff, were named as the inventors. In September or October, before the filing of the application, at a party at Eegenstein’s home, defendant in a discussion with Eegenstein made his first objection to assigning patents. They do not fully agree as to what was said. Eegenstein insisted that the application should be assigned. It was assigned by defendant and Peters. In 1944, applications were made for two patents covering insecticides which defendant as inventor assigned to plaintiff. In March 1945, and January, May and July 1946, four applications for patents covering composition of matter and production of resinous compositions were filed on applications assigned to plaintiff. In these applications employees other than defendant appear as the inventors. In July 1945, and January and February 1946, defendant filed four applications for patents covering insecticides. These are the patents involved in this litigation. The discoveries and inventions described in these applications are related to and based in part on the application made in March 1945, and were worked out and developed in the laboratory of plaintiff by its employees working under the direction of the defendant. Approximately $150,000 of plaintiff’s funds were expended under the defendant’s direction in the development and promotion of these applications. Defendant refused to assign them to plaintiff. The parties agree that they are worth five million dollars. Defendant resigned as vice president in September 1946, and as director in the month following. The complaint, filed October 15, 1946, alleges that at the direction of defendant every employee of plaintiff, from its organization down to the filing of the complaint, was required to sign and did sign a patent assignment agreement in the form set out verbatim in the complaint, or a form of substantially similar tenor used from time to time by plaintiff; that it became and was the duty of defendant to sign such an agreement; that all such agreements were at all times in the possession, control and custody of the defendant as the chief executive officer of plaintiff, and that plaintiff is informed and believes, and therefore charges the fact to be, that defendant did sign an agreement in the form set out in the complaint or in substantially similar form and is bound by all the terms thereof; that whether or not defendant actually signed such an agreement, he was, nevertheless, bound by virtue of his employment, etc. No objection to the form or substance of this allegation is made. Defendant answered, denying that he ever signed a patent assignment agreement and denied that he was bound by an implied agreement. No objection was made to the testimony offered by plaintiff tending to establish its allegations. The complaint therefore must be held sufficient to inform the defendant that the agreement claimed to have been signed by him was not in the possession of plaintiff but had at all times been in the possession, control and custody of defendant. The evidence conclusively shows that since the removal of the office of plaintiff to East Pearson street in 1942, defendant had the possession, custody and control of all patent assignment agreements. The master found that defendant signed a patent assignment agreement with plaintiff January 31, 1931. The court approved the finding. This court sets the finding aside as against the manifest weight of the evidence. The finding of the trial court is based on the testimony of Regenstein and Schneider. In substance the testimony of these witnesses is that in the middle of February 1931, Schneider received two sets of patent assignment agreements signed by Forbis, Harter, Mayer and defendant, the men first connected with plaintiff’s laboratory; one set of agreements was with plaintiff and the other with Transo; the agreements in each set were identical, hnt the two sets of agreements differed slightly; each set of agreements was placed in a separate expanding envelope and filed in the safe in the office of Transo; as new employees were added their agreements were placed in the proper envelope; in 1938 and 1939, the agreements with plaintiff, including the agreement signed by defendant, were transferred to a cabinet in the anteroom in Eegenstein’s office, where they remained until transferred to the office of plaintiff on Bast Pearson street where they were under the supervision and control of defendant; that a search was made for the agreement of defendant with plaintiff but that it could not be found. In opposition to this testimony defendant testified that he told Eegenstein and the attorney, Schupp, who was dead at the time of the hearing, that he would not be bound to assign patents to the company, but that they went ahead; that he refused to sign a patent assignment agreement presented to him by Schupp; that he never signed a contract or agreed orally to make any assignment; he denied signing a patent agreement with Transo January 31, 1931, until the contract was produced ; he then admitted that he signed it but claimed to have no recollection of the circumstances under which he did so. Degginger testified that at a meeting relating to the organization of plaintiff in Schupp’s office in December 1930 or January 1931, defendant refused to sign a patent assignment agreement. Defendant’s wife testified that when she took charge of these agreements in 1942, there was no contract signed by defendant among those delivered to her. The interest of Eegenstein and defendant and his wife is obvious. In addition to what has been heretofore stated, Schneider, at the time he testified, was president of plaintiff at a salary of $25,000, but had no stock or other financial interest in the company. He sold his interest in Transo in 1946. When Degginger testified, he was a substantial stockholder in a new corporation defendant had formed after leaving plaintiff, and three of his sons were employed by the company. He had instituted a suit, making serious charges against Eegenstein in the management of Arvey. This suit was compromised in 1942 by the sale of Degginger’s stock in Arvey to the company. In addition to his interest, Degginger was probably prejudiced. In depreciating the testimony of Eegenstein and Schneider the majority of the court stresses the fact that they did not see the defendant sign the agreement in controversy. The competency of these witnesses to recognize the defendant’s signature was not questioned before the master by objection to their testimony or by cross-examination. Defendant concedes that Eegenstein and Schneider were correct in their testimony as to the contract with Transo, signed by defendant on January 31,1931, but before the contract was produced he denied signing it, as he still denies signing the missing contract. Bach of the contracts in the two sets of agreements received by Schneider in February 1931 was witnessed by two persons. The evidence does not disclose who witnessed the missing contract signed by defendant. If it be presumed that it was witnessed by the same persons who witnessed defendant’s contract with Transo, it was witnessed by Harter and Mayer. The majority of the court says that the failure of plaintiff to present these witnesses raises a presumption against it. The evidence shows that Harter died in 1931. Defendant testified that Mayer is in Chicago. As he is a first cousin of defendant, as well as Eegenstein, and no longer has any connection with plaintiff, he is, apparently, equally available to both parties. It is extremely unlikely that a person whose only interest in a contract was to sign as a witness, would have any independent recollection of the fact after 16 years, and his testimony would be practically worthless unless refreshed by the production of the instrument with his signature, or by some peculiar incident or occurrence to give special significance to the act of witnessing the contract. The well established rule announced in Tepper v. Campo, 398 Ill. 496, has never been extended to a factual situation similar to that presented here. Turning to the question of the probability or improbability of the testimony, the facts and circumstances conclusively established support the testimony of plaintiff’s witnesses. At the time plaintiff was organized defendant admits that he had very limited capital and needed capital association to make his ideas of any value. Regenstein and Schneider were experienced business men, and they, as well as their attorney Schupp, realized the importance of having persons connected with a research and experimental laboratory bound by patent assignment agreements in accordance with the custom testified to by defendant. It is unreasonable to believe that they would secure such agreements from minor employees and leave the man who had access to all information and directed and controlled the research and experimental work of all employees free to appropriate to himself the result of work and experiments financed by them. It is extremely unlikely that they would have advanced money in excess of $500,000 over a period of years for defendant’s experiments if he had refused to sign a patent assignment agreement. At that time defendant’s project was wholly speculative and Regenstein and Schneider would not have embarked on it without the protection they felt they needed from all persons connected with the laboratory. This is indicated by defendant’s testimony that in September or October 1943, when defendant told Regenstein that he would not assign any more patents, Regenstein replied, “Well if that is the way you feel about it we may as well call the whole business quits right now. ’ ’ Regenstein and Schneider were in the dominant position and as a practical matter defendant’s necessity would have obliged him to accept what was offered rather than refuse a reasonable request, based on custom, that he sign a patent assignment agreement. Defendant’s subsequent conduct contradicts his denial of the signing of a patent assignment agreement. For more than 12 years, until the conversation in 1943 referred to "above, defendant went along assigning applications for patents without discussing the question of patent assignments with anyone connected with plaintiff. In Magnetic Mfg. Co. v. Dings Magnetic Separator Co., 16 F. (2d) 739, decided by the Court of Appeals for the Seventh Circuit, Bethke, an employee, made two improvements on a magnetic separator in the course of his employment and assigned them to his employer; he assigned a third invention to a competitor. In litigation relating to the last invention the court said: “This action on the part of Bethke speaks louder than the testimony of any witness in the case. It is inconceivable that he would have thus transferred his applications for the patents, if he had not construed his contract of employment to be as appellee’s president testified. Such a contemporaneous construction of the contract by Bethke’s own action, at a time when there was no occasion to dissimulate, is most persuasive.” The majority of the court condemns the double finding of the master and the trial court of a written contract and an implied contract as a violation of the long-established and well recognized rule that the law will not permit an action on an implied contract where the parties have entered into an express contract. In People v. Dummer, 274 Ill. 637, 641, the court said: ‘ ‘ The only difference between an express contract and an implied contract in the proper sense is, that in the former the parties arrive at an agreement by words, either verbal or written, while in the latter the agreement is arrived at by a consideration of their acts and conduct.” It is not unusual for parties to expressly contract for the rights and obligations which the law would imply from the acts and relations of the parties. In such cases there is no conflict between the terms of the express and the implied contract. If there is a failure to prove the express contract, recovery may be had on an implied contract. Moreen v. Estate of Carlson, 365 Ill. 482; Anderson v. Biesman & Carrick Co., 287 Ill. App. 507. As said in Paley v. Du Pont Rayon Co., 71 F. (2d) 856: “It is immaterial in the case before us whether appellant’s right to the assignment of the patent is traceable to a contract or to the nature of appellant’s employment. Approached from either starting point, we arrive at the same conclusion. ’ ’ In the instant case the plaintiff, faced with the difficulty of proving a written contract which it could not produce, added an allegation that defendant was, nevertheless, bound by an implied contract. There being a conflict in the evidence as to the execution of a written contract, it was advisable, if not the duty of the master, to report on both theories of the complaint. It was sound practice for the trial court to make a finding as to the written and implied contracts, particularly where, as in Paley v. Du Pont Rayon Co., supra, “Approached from either starting point, we arrive at the same conclusion.” Where, as here the same rights and obligations resulted from the written contract as from the implied contract, defendant cannot be injured by the double finding. The decree, if correct as to the relief granted, must be sustained, even though one of the findings as to the written or the implied contract may be unwarranted. The four applications for patents involved herein related to insecticides, and the majority opinion holds in effect that insecticides were not in the contemplation of the parties when the plaintiff was organized and defendant transferred to it his two patent applications relating to polymers and was employed by plaintiff, and that no implied agreement existed as to insecticides. Plaintiff was organized with broad powers to invent chemicals of all kinds, to invent personal property of every class and description and to apply for, purchase or otherwise acquire any letters patent or patent applications, etc. Defendant, as operating head of the company and the only stockholder or executive head having any knowledge of chemistry, directed the research and experimental work of the company. He also handled all patent applications. Of the 46 applications made and assigned to plaintiff during defendant’s connection with plaintiff, all but six were made in defendant’s name as inventor. One, the subject of the first controversy in regard to assignment of applications in October 1943, designated defendant and Peters, another employee, as the inventors. Defendant’s relation with plaintiff, therefore, was entirely different from the relation of a workman in a factory or an employee engaged for a specific purpose or in a limited field. His position was one of trust and' confidence in which he owed the corporation the strictest fidelity and the utmost good faith. Being charged with and having assumed the duty of procuring patents in the name of plaintiff on patentable inventions and discoveries of commercial value made or developed through the research and experiment of plaintiff’s employees, including himself, he cannot claim for himself any of such inventions' and discoveries. In Houghton v. United States, 23 F. (2d) 386, the court said: “The right of the employer to the invention or discovery of the employee depends, not upon the terms of the original contract of hiring, but upon the nature of the service in which the employee is engaged at the time he makes the discovery or invention, and arises, not out of the terms of the contract of hiring, but out of the duty which the employee owes to his employer with respect to the service in which he is engaged.” Also see Standard Parts Co. v. Peck, 264 U. S. 52, Wireless Specialty Apparatus Co. v. Mica Condenser Co., 239 Mass. 158, and Parker Rust-Proof Co. v. Allen, 231 Mich. 69. In the years 1933, 1935, 1940, 1942 and 1943, before the first controversy arose relating to the assignment of patents, the defendant assigned patents covering insecticides. The defendant thereby gave a practical construction to and recognition of his obligation under his employment. The majority of the court quotes extensively from Joliet Mfg. Co. v. Dice, 105 Ill. 649, decided in 1883, in support of its position that defendant’s application did not extend to insecticides. In that case the plaintiff’s work in the development of the improvement in check rowers was alleged to have been done under the written agreement set out in the complaint. The Supreme Court decided the case upon its construction of the written contract and held that it was limited to improvements in shellers and powers and did not cover check rowers. The opinion was rendered before the development of research and experimental laboratories, and, as heretofore pointed out, defendant’s relation to plaintiff is wholly different from an employee like Dice to his employer. The testimony clearly and satisfactorily established the signing of the patent assignment agreement by defendant. It also clearly and satisfactorily established, independent of a written agreement, an implied obligation upon defendant to assign the patent applications involved herein to plaintiff. The decree should be affirmed.