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Lucius v. Chemical Foundation Inc.

March 4, 1930

FARBWERKE VORMALS MEISTER LUCIUS & BRUNING ET AL.
v.
CHEMICAL FOUNDATION, INC., ET AL., AND SEVEN OTHER CASES



Appeal from the District Court of the United States for the District of Delaware; Hugh M. Morris, Judge.

Author: Woolley

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

WOOLLEY, Circuit Judge.

The Trading with the Enemy Act (approved October 6, 1917, 40 Stat. 411, c. 106 [50 USCA Appendix]), provided by section 10 (50 USCA Appendix, § 10) that the President be authorized to grant licenses under enemy owned patents to citizens of the United States desiring to practice their inventions when in his opinion such grants would be for the public welfare and tend to the successful prosecution of the war, being authorized within limitations to prescribe the fees, compensation or royalties for the privilege. Although by the provision of the Act for the recovery of royalties, to which we shall presently advert and on which these suits are founded, the Congress may at first have had in mind a remedy mainly to enemy owners of patents, particularly in view of the situation at the beginning when the Custodian was "a mere conservator" of seized enemy property without right to sell it except to prevent waste, United States v. Chemical Foundation, Inc., 272 U.S. 1, 10, 47 S. Ct. 1, 71 L. Ed. 131, 141, and when the beneficial interest remained in the enemy owner, yet the Congress by amendments made to the Act from time to time as the war progressed, so enlarged the general scope of the Act that it materially changed its character, Hicks v. Anchor Packing Co. (C.C.A.) 16 F.2d 723; United States v. Chemical Foundation, Inc., supra, and at the same time changed, or made certain, the character of the provision in question without changing its wording or, until 1928, without adding any words to it. We shall therefore look upon the provision as it grew through the war and stood in 1922 when these suits were brought. Not knowing what changes in the title to enemy owned patents on which licenses should be granted might occur during the war, yet realizing that some such patents would retain undistrubed the same status of ownership throughout the war, that other enemy owned patents with outstanding licenses might descend through testacy or intestacy from the original owner, or be sold by him, during the war, and that, perhaps, still others might be seized by the Alien Property Custodian, and, as afterward happened, be by him either held or sold during the war, the Congress, looking to the future, provided by subsection (f) of section 10 (50 USCA Appendix § 10(f) what the owner of such a patent might do after the end of the war and provided broadly enough to meet these and perhaps other situations as follows:

"The owner of any patent * * * under which a license is granted hereunder may, after the end of the war and until the expiration of one year thereafter, file a bill in equity against the licensee in the district court of the United States * * * (to which suit the Treasurer of the United States shall be made a party), for recovery from the said licensee for all use and enjoyment of the said patented invention."

Pursuant to this provision, Chemical Foundation, Inc., on June 23, 1922 -- within one year after the end of the war -- filed a bill in equity in the District Court against E.I. dePont deNemours & Company (a corporate licensee) and Frank White, Treasurer of the United States, averring that United States Letters Patent Nos. 680,395, 868,294 and 718,340 had been granted the German inventors therein named; that, in January 1918, the Federal Trade Commission, acting for the President under authority of the cited section of the Act, granted a license to E.I. duPont deNemours & Company under these letters patent requiring it to pay the Alien Property Custodian certain royalties reckoned first on profits derived and later on gross amounts received from the sale of products under the license; that subsequently to granting the license the Custodian (on February 3 and March 22, 1919) seized the patents and every right, title and interest with respect to them, which included the right to royalties under the license; that on April 10, 1919 the Custodian sold to the plaintiff, the Chemical Foundation, these letters patent and every right, title and interest he had in them, which included the royalties so acquired; that on September 1, 1920, the license was cancelled and surrendered; that, by reason of the aforegoing, the Chemical Foundation became the "owner" of said letters patent and of the royalties accrued to April 10, 1919, the date on which the Custodian sold it the patents with the accompanying license rights, and also the royalties which accrued thereafter; praying (after it had elected not to exercise its right to recover royalties that had accrued prior to the latter date) that an accounting be taken by the court, after fixing a reasonable royalty, to ascertain the amount due it by the defendant licensee after the date last named and also the amounts which the defendant had paid the Alien Property Custodian on account of the license and which he had deposited with the defendant Frank White, as Treasurer of the United States, and, finally, praying for an order upon the Treasurer of the United States to pay it all or so much of the license money so deposited with him as will cover the royalties, and, if insufficient, that it have judgment or decree against the defendant licensee for the residue.

Almost immediately on filing its bill, the Chemical Foundation, plaintiff in the above stated action, became the active or potential defendant, though not the nominal defendant, in sundry other actions and cross proceedings. Three German corporations, severally owning the three patents named in the first suit at the time the license was issued, filed on June 30, 1922, bills in equity in the same District Court against the duPont Company, the same licensee, and the Treasurer of the United States, relying mainly on section 10 (f) of the Trading with the Enemy Act as amended by section 19 of the "Settlement of War Claims Act of 1928," approved March 10, 1928, which provided by a new paragraph to section 10 (f), 50 USCA Appendix § 10 (f), that:

"In the case of any such patent * * * conveyed, assigned, transferred, or delivered to the Alien Property Custodian or seized by him, any suit brought under this subsection, within the time limited therein, shall be considered as having been brought by the owner within the meaning of this subsection, in so far as such suit relates to royalties for the period prior to the sale by the Alien Property Custodian of such patent, * * * if brought either by the Alien Property Custodian or by the person who was the owner thereof immediately prior to the date such patent, * * * was seized or otherwise acquired by the Alien Property Custodian. * * *"

Each German plaintiff claimed in its bill to be such "owner" and averred, mutatis mutandis, substantially the same facts as the Foundation averred in its bill and prayed for substantially the same relief (limited, however, to royalties that had accrued prior to April 10, 1919, the date the patents were sold by the Custodian to the Foundation), first against the moneys which the defendant licensee had through the Custodian deposited with the Treasurer of the United States and, if insufficient, then a judgment or decree against the defendant licensee for the residue.

In addition to the contesting claims of ownership of the royalties under the license, made by the Chemical Foundation on the one hand and the group of German corporations on the other, the Alien Property Custodian appeared on April 28, 1928 -- six years after suit -- and moved that he be substituted as plaintiff in each of the actions instituted by the German corporations, on the contention that, under section 10 (f) of the Trading with the Enemy Act as amended, he is the "owner" of the royalties on the theory that he lawfully acquired them through seizure (by a predecessor in office) from the original German owners; that, though his predecessor sold them with the patents to the Foundation, he was without power to sell them; that, in consequence, they are still his; that he alone is entitled to recover them from the defendant licensee; and that his recovery should be for the use and enjoyment of the patented inventions for the entire time that company used them under the license of the Federal Trade Commission.

And, finally, the Treasurer of the United States moved to dismiss all four bills on the ground that they set forth no cause of action. Abandoning his motion to dismiss the bills filed by the three German corporations, he, however, held to his motion to dismiss the bill filed by the Foundation.

The duPont Company, the defendant licensee, filed an answer in each suit and made a motion to dismiss in each of the three suits of the German corporations.

The cases were consolidated and tried upon stipulated facts. The defendant licensee did not dispute the right of the Foundation to recover from it a reasonable royalty but as to all else availed itself of the defense which section 10 (c) of the Act (50 USCA Appendix § 10 (c) afforded such a licensee. Of this we shall speak later.

The learned trial court by several appropriate decrees denied the motion of the Treasurer of the United States to dismiss, denied also the motion of the Alien Property Custodian to be substituted as plaintiff in the suits by the German corporations, held that the German plaintiffs are not "owners" of the accrued royalties and therefore not entitled to recover them, and, finally, that the Chemical Foundation is the owner of the royalties, accrued and accruing, and, having elected not to press its claim for royalties accrued, is entitled to an accounting by the defendant licensee for reasonable compensation or royalties for the use and enjoyment of the inventions under the letters patent for the period after April 10, 1919, which, when so determined, shall be paid the Foundation by the Treasurer of the United States from the fund made up of payments by the defendant licensee, pursuant to ...


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