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CHANCE v. LEHIGH NAV. COAL CO.

October 11, 1938

CHANCE et al.
v.
LEHIGH NAV. COAL CO.



The opinion of the court was delivered by: KIRKPATRICK

This is a suit in equity for the infringement of a group of six patents having to do with process or apparatus for washing anthracite coal. They are all for improvements upon what is conceded to be a basic patent involving invention of a high order -- No. 1,224,138 to Chance, which expired in 1934 and is not in suit. The invention of that patent lay in creating in a washing tank an "artificial" fluid mass, consisting of an agitated mixture of sand and water, of such specific gravity that when the mixture of broken coal and slate was dumped into it the heavier pieces of slate sank to the bottom and the lighter coal floated off. Prior systems depended entirely upon upward currents of water and any fluid mass which they may have used consisted merely of small particles of the separated materials.

The defenses are invalidity and non-infringement. A preliminary question raised is whether the defendant is estopped to plead invalidity, by reason of having used the patents under license at some of its collieries.

 The expired patent issued May 1, 1917. Commercial use of it did not begin until 1921. By that time the first patent in suit had been applied for, and, according to the plaintiff, the second and third had been conceived. The plaintiff says that the first plant which used the system embodied the structures of these three as well as that of the basic patent.

 In 1927 the defendant (or its predecessor) took a license for its Alliance colliery. In addition to being a license under the (now) expired patent, it included the right to use, without additional royalties all improvements invented by Chance. At the same time the plaintiff also gave the defendant an option, or agreement to issue to it "other like licenses carrying the same terms and conditions as the aforesaid license of this date, and when requested by you to cover other Sites now owned, controlled or managed by you. * * *" In 1930 the defendant took a second license for its Cranberry colliery.

 In 1935 the defendant determined to remodel its old colliery at Tamaqua and to install the type of washing system covered by the Chance patents. How many features of the improvement patents, as distinguished from the expired patent, were incorporated into it is in dispute. The plant was completed and put into operation in October, 1935. The installation and operation of this plant is the basis of this infringement suit.

 While the Tamaqua plant was in the course of construction there were some negotiations about the terms of a new license for it, but when a license agreement was presented on September 6 it was not acceptable to the defendants. As a matter of fact, it was not a license "carrying the same terms and conditions" as the Alliance license. Provisions as to termination, acknowledgment of validity of patents, etc., were somewhat changed; but it is plain that the defendant would not have accepted the license had its terms been the same in all particulars. What the defendant seriously objected to was paying the same rate of royalty for improvement patents as that which it had been paying for the use of the then expired patent.

 The essential facts in connection with these dealings between the parties (which were the subject of a great deal of testimony and argument) are that the defendant did not exercise its right to take a license under the option, and that it proceeded to operate the plant without any license.

 The plaintiff contends that, inasmuch as the defendant is using a number of the patents in suit under license at Alliance, it is estopped to question their validity in this suit for infringement at Tamaqua.

 I think that the doctrine of estoppel by license does not apply to the present case, for two reasons.

 First: Any reasonably construction of the Alliance license agreement negatives the existence of an intention on the part of the defendant to admit the validity of any patents other than the now expired basic patent.

 Both parties agree that the estoppel here, if there is one, is by deed and not by conduct. Hence, its existence and extent depend entirely upon the construction of the license agreement at Alliance and the option of the same date. Both these contracts were prepared by the plaintiff (the license a printed form) and they are to be construed strictly against the party in whose words they are cast.

 The license is to use patent No. 1,224,138 (the expired patent). It expressly provides, in Paragraph 10, "Said Licensee hereby acknowledges the validity of said Patent and accepts a license thereunder, * * *" This paragraph comes in after another (Paragraph 8) which provides that the licensee shall have the right without paying additional royalties "to make and use any improvement adapted or invented to be used in the process of washing of anthracite coal * * * over which either said Thomas M. Chance or said Licensor shall obtain any right." It is followed by another (Paragraph 15) having to do with the use, after the expiration of Patent No. 1,224,138, of "subsequent patents covering improvements the rights to which are extended to said Licensee by Paragraph 8 hereof" and goes on to say "Patents now in effect and issued are: * * *" followed by a list of patents including the patents now in suit.

 The license certainly does not expressly acknowledge the validity of any patents other than "said Patent" (No. 1,224,138) and the rather noticeable omission to include in the acknowledgement of validity a number of other patents which are part of the subject matter of the contract suggests that the parties intended that the defendant should be at all times free to take any position it wished with regard to them. There would have been no question at all have the parties said, "The Licensee does not acknowledge the validity of any patent mentioned other than No. 1,224,138," but, really, the effect of what they refrained from saying is about the same. There is nothing in the option or letter of August 29, 1929, which affects this question.

 If the defendant were being sued for royalties for the use of the improvement patents at Alliance there might be a question of estoppel by conduct, or perhaps the validity of the improvement patents would be immaterial, since the royalties of the Alliance license are really paid upon the basic patent, and the use of the improvement patents might be construed merely as extending the term of those payments. That question is not here involved. This is a suit for infringement at a plant as to which admittedly no license has been taken, the only estoppel asserted is that which arises under the contract, and the contract plainly excludes the estoppel. The Court will not rewrite the contract to make it speak where it was intentionally silent.

 Secon: Even if the Alliance license could be construed as including an acknowledgement of the validity of the improvement patents which it mentions, that would not work an estoppel if the defendant chooses to test their validity by making use of them at some other colliery.

 The doctrine of estoppel by license has become part of the law, but doubts as to its soundness have caused the grounds for it to be critically examined and to be restricted rather than enlarged. It is definitely settled that an estoppel does not continue beyond the term of the license. As Judge Denison pointed out in Indiana Mfg. Co. v. Nichols & Shepard Co., C.C., 190 F. 579, the estoppel depends upon the existence of a contract relationship between the parties with mutual rights and obligations. At the boundary of the contract relationship the estoppel ends. I see no reason why an act as to which there are no mutual rights or obligations because of a georgraphical limitation is any different from one as to which they are at an end by expiration of time. In Tate v. B. & O.R. Company, 4 Cir., 229 F. 141, the Court refused to apply the doctrine of estoppel after the completion of the number of patented articles for which the license provided, saying [page 142], "There is no longer any contract relation, and there is no ground of estoppel." This was not a time limitation.

 In Cassidy v. Evan L. Reed Mfg. Co., D.C., 293 F. 797, Judge Lindley held that there was a contract relation between the parties which covered the whole country because the License contained a negative covenant quite plainly binding the licensee not to manufacture anywhere other than the place referred to. This case does not hold that where a license is confined to a particular place or plant the estoppel exists as to all other places and plants. There is here no negative covenant not to use the patents at breakers other than Alliance. It cannot be implied from the option which simply gave the defendant the right to decide some time in the future whether it would or would not take a license.

 This does not mean at all that the use of a patent in defiance of the terms of a license is "beyond the term of the license" and therefore not subject to the doctrine of estoppel.

 My conclusion therefore is that the defendant is not estopped to question the validity of any of these patents.

 No. 1,392,399 ("Water on ...


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