INTERNATIONAL SPOTLIGHT CORPORATION v. CASCO PRODUCTS CORPORATION.

No. 166, Docket 21151.United States Court of Appeals, Second Circuit.
March 30, 1949.

Appeal from the United States District Court for the District of Connecticut.

Action by International Spotlight Corporation against Casco Products Corporation for injunctive relief and damages for breach of alleged restrictive agreement contained in license-agreement. From judgment for defendant, the plaintiff appeals.

Affirmed.

On May 15, 1940, plaintiff and defendant entered into a written contract quoted in the footnote,[1] relating to patents issued to

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Sklarek and listed in an exhibit to the contract.[2] In its complaint, plaintiffs alleged, inter alia: “On or about May 1, 1946, as Provided in Paragraph 16 of said contract as amended, the Defendant in writing gave the Plaintiff six months notice by registered mail that it cancelled all of the provisions of the aforesaid contract as amended which it has the right to cancel, to wit, Paragraphs 1st, 2d 5th, 7th, 10th and 17th, and Sections 11th in part, and 15th in part. Since the effective date of the cancellation of the aforesaid paragraphs of said contract as amended, to wit, November 1, 1946, the Defendant has been and is manufacturing and selling and will continue to manufacture and sell dirigibly mounted light devices and/or parts thereof in violation of Paragraph 16 of said contract aforesaid as amended. The defendant, by the continued manufacture and sale of dirigibly mounted light devices and parts thereof, is inflicting irreparable injury upon the Plaintiff.” The complaint prayed:[3] “a permanent injunction against the Defendant restraining it from manufacturing and selling dirigibly mounted light devices and/or parts thereof during the period of the remainder of said contract between the parties dated May 15, 1940, as amended September 24th, 1943.” Defendant’s amended answer reads in part as follows: “As to paragraph 5 of the plaintiff’s complaint, the defendant admits that on or about April 1, 1946, the defendant in writing gave the plaintiff six months’ notice by registered mail that it cancelled and terminated the said agreement as amended, and on May 1, 1946 the defendant called the plaintiff’s attention to its letter of cancellation dated April 1, 1946, and amplified its contents; the remainder of said paragraph is hereby denied. * * * As to paragraph 6 of the plaintiff’s complaint, it is admitted that the defendant has since June 13, 1947, been manufacturing and selling, and will continue to manufacture and sell, dirigible light devices and/or parts thereof not covered by unexpired patents enumerated in the said contract; the remainder of said paragraph is hereby denied.”

Plaintiff and defendant each moved for summary judgment. On oral argument in this court, both parties stated that they had waived any possible contention that there were any triable issues of fact. The district court denied plaintiff’s motion, granted defendant’s, and entered a final judgment for defendant. The judge in his opinion said: “The complaint * * * seeks injunctive relief and damages for breach of an alleged restrictive agreement contained in said license-agreement. As to this claim, the disposition of the motions turns primarily upon the interpretation of the license-agreement. Specifically, when the defendant availed itself of its right under Paragraph Sixteenth of this agreement to cancel certain specified provisions of the agreement and thereby became obligated to `cease the manufacture and sale of dirigible light devices and/or parts there,’ was the defendant precluded by the language quoted only from the manufacture of the patented devices which it had been licensed to manufacture under the agreement or was it, as the plaintiff claims, precluded from the manufacture and sale of every device of that general description including those not covered by the license agreement? Neither party has

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offered affidavits containing material having a bearing on the problem of interpretation. However, the text of the license-agreement contains provisions which constrain me to overrule the plaintiff’s contention and impel me to the interpretation contended for by the defendant.

“This conclusion derives from the following considerations. The restrictive provision quoted above is the final clause of Paragraph Sixteenth which provides for a unilateral, but partial, termination of the license-agreement by the defendant. But by the initial clause of Paragraph Sixteenth the defendant’s right to terminate does not arise until three years after its delivery of the first devices `manufactured under the terms of this agreement.’ It is thus plausible to believe that the devices which defendant upon a partial termination was to `cease the manufacture and sale of’ under the last clause of this paragraph were intended to be those described in its first clause as devices `manufactured under the terms of this agreement’ upon which the defendant’s right to terminate was made to depend. Especially is this so since, if it had been intended that after termination under Paragraph Sixteenth the defendant would be precluded from the manufacture of all such devices, one would have supposed that the defendant would have been similarly precluded during the first three years of the agreement. Yet the restriction, whatever its scope, by express language comes into effect only after three years and indeed elsewhere in the agreement there is nothing to prevent the defendant from manufacturing devices not covered by plaintiff’s license.

“More significant, however, is the language of Paragraph Twelfth of the license agreement. The provisions of this paragraph, it will be noted, were beyond the reach of unilateral cancellation by the defendant under Paragraph Sixteenth: cancellation under Paragraph Sixteenth was expressly restricted to the provisions of specified paragraphs of which Paragraph Twelfth was not one. Thus notwithstanding the partial termination, under the provisions of Paragraph Twelfth the defendant is still bound to license the plaintiff to manufacture and sell such devices under inventions made or acquired by the defendant within the life of the agreement. But by Paragraph Twelfth the cross-license thus flowing to the plaintiff is described as `an unrestricted (but not exclusive) and free license.’ If, as the plaintiff urges, it had been intended that the defendant should not manufacture light devices of any type whatever after the termination of its license under the agreement, the cross-licenses from the defendant to the plaintiff provided for in Paragraph Twelfth would naturally have been exclusive: that such licenses were there specified as `not exclusive’ clearly imports an intent that after partial termination under Paragraph Sixteenth the defendant as well as the plaintiff was to be free to manufacture and sell devices which did not embody the inventions of plaintiff’s patents. For if under Paragraph Twelfth the plaintiff could not call for an exclusive license by the defendant to manufacture under inventions made or acquired by the defendant, the defendant necessarily was left free to license others and it would be fantastic to hold that defendant, if free to license others, might not itself manufacture. I conclude, therefore, that the agreement properly interpreted does not carry the right to relief which the plaintiff claims. It is thus unnecessary to determine whether, as the defendant contends, the agreement as interpreted by the plaintiff would be illegal.”

[1] The contract, omitting the exhibits, reads as follows:

“This agreement, made and entered into, in duplicate, this 15th day of May A.D. 1940, by and between the International Spotlight Corporation, a corporation organized and doing business under and by virtue of the laws of the State of Illinois, hereinafter referred to as the `First Party’, and Casco Products Corporation, a corporation organized and existing under and by virtue of the laws of the State of Connecticut, hereinafter referred to as the `Second Party’,

“Witnesseth:

“Whereas, First Party is the owner of all right, title and interest in and to certain inventions in Dirigible Light Devices and associated devices and in and to the United States and Canadian Letters Patent identified in the list of said patents hereto attached, marked `Exhibit A’ and by reference made a part hereof, said inventions and Letters Patent being hereinafter for convenience referred to collectively as International Patents; First Party’s said right, title and interest being subject, however, to a certain restricted grant to Fyrac Manufacturing Company, as fully set forth in an agreement, a true copy of which is hereto attached marked `Exhibit B’, and by reference made a part hereof, and

“Whereas, Second Party desires to obtain the exclusive right to manufacture and sell said Dirigible Light Devices and parts thereof and First Party desires to grant the same, subject to the `Fyrac’ agreement above referred to as `Exhibit B’, and as hereinafter provided,

“Now, Therefore, in consideration of the premises and the payment of One Dollar ($1.00) by each party to the other, the receipt whereof is hereby mutually acknowledged, and of the covenants and agreements hereinafter mentioned to be faithfully kept and performed by the parties hereto, It Is Mutually Agreed As Follows:

“First: First Party hereby grants to Second Party the exclusive right to manufacture and sell Dirigible Light Devices and parts thereof embodying said inventions, subject to the Fyrac agreement above referred to as `Exhibit B’ attached hereto and made a part hereof.

“Second: Second Party hereby accepts said exclusive right to manufacture and sell said Dirigible Light Devices and parts thereof subject to the Fyrac agreement identified as `Exhibit B’ and made a part hereof, and agrees that it will, within six (6) months from the effective date of this agreement, be manufacturing and selling said Dirigible Light Devices complete, unless it is prevented from so doing by strikes, fires, war and other contingencies beyond its control.

“Third: The term of the grant hereinabove given in section First, unless sooner terminated as hereinafter provided for, shall extend to the end of the life of the last of the patents coming within the provisions of this agreement.

“Fourth: Second Party agrees that it will not, either directly or indirectly, in any proceedings brought against it by First Party either to enforce the provisions of this agreement or in an independent action, contest or question the validity of any patent coming within or hereafter coming within the provisions of this agreement or the prima facie scope of any claim thereof.

“Fifth: Second Party agrees to mark the Dirigible Light Devices manufactured by it and/or sold by it with the appropriate terms `patented’, also list the patent numbers or `Other Patents Pending’, and proper dates as First Party may direct from time to time.

“Sixth: Second Party agrees to pay to First Party and First Party agrees to accept, as royalties on all Dirigible Light Devices which embody any invention or inventions disclosed and claimed in said International patents and other patents which may come within the provisions of this agreement as herein provided, or any of them, made and sold by Second Party during the life of the manufacturing and selling rights hereby granted to it, at the rate of three per cent (3%) of the net amount received by Second Party for said Dirigible Light Devices and associated devices and/or parts of such devices which are sold along with said Dirigible Light Devices, and on all such associated devices and/or parts which are sold by Second Party without said Dirigible Light Devices as repair and replacement parts for such Dirigible Light Devices, said net amount upon which royalties shall be computed shall be the invoice price of the goods less actual salesmen’s commissions paid by Second Party, which deducted commissions shall not be more than ten per cent (10%) of the invoice price of such merchandise, less discounts allowed for cash payments on such invoices, less Federal and/or State excise tax levied against such goods, and less freight, prepaid or allowed, on the shipment of such goods.

“Seventh: Second Party agrees that beginning as of the date when it begins delivery of completed Dirigible Light Devices, but not later than the fifteenth (15th) day of November, A.D. 1940, and so long as it has the rights to manufacture and sell under this agreement, it will pay to First Party royalties at the rate of not less than Five Thousand Dollars and Four Cents ($5,000.04) per year, payable in monthly instalments, either as royalties accrued under Section Sixth of this agreement, or as advanced royalties on goods subsequently to be made and sold. It is expressly understood and agreed, however, that if the accrued royalties for any month amount to less than Four Hundred Sixteen Dollars and Sixty-Seven Cents ($416.67) and the total royalties previously paid have exceeded the minimum royalties provided for by this Section, then Second Party shall be entitled to a credit from such excess royalties, which has not theretofore been similarly credited, as may be necessary or available to apply to the current minimum royalty then due.

“Eighth: It is further agreed that Second Party shall have until the Twenty Fifth (25th) day of each calendar month succeeding each such monthly payment period to determine and pay the amount of money due the First Party as royalty for such Dirigible Light Devices, and/or parts thereof manufactured and sold by it during such preceding month; said royalty payments to First Party for each such complete Dirigible Light Device shall not be less than Twelve and One-Half Cents (12½¢), this amount of Twelve and One-Half Cents (12½¢) to be considered the minimum royalty due and payable to First Party per each complete Dirigible Light Device made and sold by Second Party under this agreement, provided, however, that should a situation arise whereby the net selling price of a complete Dirigible Light Device to manufacturers of motor vehicles and/or boats, or the United States Government, is such that the royalty computed as per the provisions of section Sixth hereof is less than Twelve and One-Half Cents (12½¢) per each complete Dirigible Light Device, then in such event the minimum royalty per each complete Dirigible Light Device due the First Party by the Second Party shall be that amount computed as per the provisions of section Sixth hereof.

“Ninth: Second Party agrees to keep proper books of account accurately reflecting the quantity and invoiced prices of Dirigible Light Devices, associated devices and/or parts thereof manufactured and sold by it under the terms of this agreement; render written reports monthly to First Party not later than the Twenty-Fifth (25th) day of each month showing the quantity and invoice prices of said Dirigible Light Devices, and/or parts sold during the preceding calendar month and the amount in dollars of accrued royalties determined in accordance with the provisions of this agreement and at the time of rendering said reports, make payments to First Party of the amount of royalties then due or advanced. Said books of account shall be available for inspection by First Party or its designee at reasonable intervals during business hours and said reports shall be rendered under oath at the option of First Party. In the event of failure of Second Party to render any report as herein provided for, then First Party at its option, may have such report prepared by and delivered to itself by its authorized representative and at the expense of Second Party.

“Tenth: Second Party agrees to defend at its own expense any suit for patent infringement brought against it and/or any one privy to it arising by reason of the manufacture, sale and/or use of any article or device coming within the provisions of this agreement. In the event of any such suit, threatened or actual, Second Party agrees to immediately notify First Party thereof and to accord First Party the right of consultation in connection therewith and to keep First Party fully advised from time to time of the progress and status of any such suit, threatened or actual. First Party shall have the option of joining with Second Party in the defense and conduct of any such suit and in the event of so joining, the First Party will assume its own expenses in connection therewith.

“Eleventh: First Party hereby gives and grants unto Second Party the right to file or institute suit against any third party for or to prevent infringement of any patent or patents coming within the provisions of this agreement and to institute said suit in the name of First Party and/or Second Party, as Second Party may be advised. First Party may, of its own accord, bring such suit against any third party either in its own name or jointly with Second Party as it may be advised and Second Party hereby accords the right to be so joined with First Party. In the event either party desires to file suit under the provisions of this section, it shall immediately notify the other party in writing thereof and the one so notified shall have the option within thirty (30) days of joining in the bringing of such suit and if the party so notified elects to join such suit, then in that event both parties shall thereupon share and share alike all necessary cost and expenses, including reasonable attorneys’ fees in connection therewith, and exercise joint control in the conduct of such suit, and any recoveries of profits and/or damages or by way of settlement shall be shared and shared alike. In the event the parties do not join in the bringing of any suit under the provisions of this section, the one bringing the suit shall pay all costs and expenses and shall be entitled to retain all profits and/or damages or amount by way of settlement that may be recovered as a result thereof.

“Twelfth: In the event Second Party at any time during the term of this agreement, acquires by assignment, use or otherwise, any license, right, title or interest in and to any invention, application and/or patent for Dirigible Light Devices, associated device and/or part thereof, Second Party shall immediately notify First Party in writing thereof and, simultaneously with such notification, furnish First Party complete information regarding the same. In the event of termination of the manufacturing and selling rights granted Second Party under this agreement for any cause, First Party shall thereupon and thereafter, without any additional consideration than in this agreement expressed, automatically acquire an unrestricted (but not exclusive) and free license to thereafter manufacture and sell and to sub-license others to manufacture and sell all such inventions and improvements in Dirigible Light Devices, associated devices and/or parts thereof which have been so acquired by Second Party in accordance with the provisions of this section. Second Party hereby covenants that the notification and information to First Party as in this section provided for shall irrevocably constitute such license to First Party, to become effective at the time of termination of the manufacturing and selling rights granted Second Party as herein set forth in this agreement.

“Thirteenth: The rights to manufacture and sell herein granted to Second Party are personal to it and the same shall not be assigned, divided or apportioned, in whole or in part, voluntarily or by operation of law, without the written consent first had and obtained from First Party. Provided, however, that the mere change of name or corporate structure of Second Party shall not operate to terminate this agreement, but this agreement shall ipso facto be binding upon and inure to the benefit of Second Party under this new name or corporate identification.

“Fourteenth: It is agreed that if Second Party in any manner violates any of the terms or conditions of this agreement, or in any manner fails to comply with or carry out in every manner and respect any and all of the provisions of this agreement, and continues so to do for thirty (30) days after notice thereof in writing given by First Party to Second Party by registered mail delivered to the last known address of Second Party stating the nature and character of the alleged breach with sufficient definiteness and particularity to permit Second Party to identify and investigate the nature of such alleged breach, then in that event, First Party may at its option or election, and without waiving or in any manner affecting any of its other then existing rights against Second Party, cancel the right of Second Party to manufacture and sell under this agreement by giving Second Party sixty (60) days’ notice by registered mail sent to its last known address, of First Party’s election to cancel such manufacturing and selling rights under this agreement, and all such manufacturing and selling rights herein granted to Second Party shall then terminate at the end of said sixty-day period, provided, however, that if Second Party cures the breach within the thirty (30) days after the first notice herein provided for, First Party shall not thereafter have the option or election of cancelling the manufacturing and selling rights given Second Party under this agreement for said specific breach and, provided further, that the failure of First Party to at any time cancel such manufacturing and selling rights to Second Party under this agreement as herein provided for, shall not prevent or preclude First Party at any future time for any other violations by Second Party, from taking advantage of the provisions of this section of the agreement and, provided further, that if First Party fails for a period of ninety (90) days from the date of its knowledge of any breach of the terms of this agreement by Second Party to take action under the provisions of this section, First Party shall thereafter only be barred from cancelling the manufacturing and selling rights granted to Second Party under this agreement by reason of such particular individual breach.

“Fifteenth: Upon the termination of the rights to manufacture and sell granted to Second Party under this agreement, by lapse of time or otherwise, Second Party shall have the right to manufacture and sell from materials and stock on hand at such time, Dirigible Light Devices therefrom up to Twenty Thousand (20,000) complete devices in number, paying and accounting to First Party, according to the royalty terms of this agreement, for all such Dirigible Light Devices manufactured and sold.

“Sixteenth: It is mutually understood and agreed between the parties hereto that at any time on and after the third year from date of first delivery of complete Dirigible Light Devices manufactured under the terms of this agreement, Second Party may, upon giving First Party six (6) months’ notice by registered mail delivered to the last known address of First Party, cancel and terminate this agreement only as it pertains to sections First, Second, Fifth, Seventh, Tenth and Seventeenth, and also as to section Eleventh, except as to Second Party’s interest in any action or appeal then pending, and in such event Second Party agrees after completing its inventory stock on hand as provided for in section Fifteenth and paying royalties thereon, it will cease the manufacture and sale of Dirigible Light Devies and/or parts thereof.

“Seventeenth: Any additional inventions, applications, and/or patents pertaining to Dirigible Light Devices, associated devices and/or parts thereof hereafter acquired or coming within the control of First Party shall, at the option of Second Party, be included under the provisions of this agreement the same as though specifically identified in Schedule A hereof. First Party agrees to promptly advise Second Party from time to time of any such future acquired invention, application, and/or patent, and Second Party may, within sixty (60) days from the receipt of such notice by Second Party and the information necessary to make the election, elect to have such invention, application and/or patent included under the provisions of this agreement.

“Eighteenth: It is mutually understood and agreed between the parties hereto that in the event of cancellation or termination of manufacturing and selling rights under this agreement as hereinbefore referred to, this agreement shall remain in force as to any claim for royalties which First Party may have against Second Party accruing up to the date of the cancellation of said manufacturing and selling rights and/or accruing up to the fulfillment of the provisions of section Fifteenth hereof; and as against any such accrued claims of First Party, Second Party shall not have the defense of invalidity or question the prima facie scope of any of the claims of any patent coming under this agreement.

“Nineteenth: First Party represents that it has the exclusive rights to the Dirigible Light Inventions of Clifford Sklarek and that under the provisions of section Seventeenth hereof Second Party shall have the option to include any such future inventions, if any, under the provisions of this agreement. If during the life of this agreement, and in the lifetime of Clifford Sklarek, First Party has become divested of the rights to the said future Dirigible Light inventions of Clifford Sklarek with the result that any person other than Second Party, real or corporate, become vested with said rights to the said future Dirigible Light inventions of Clifford Sklarek, then Second Party shall have the right to cancel and terminate this agreement only as it pertains to sections First, Second, Fifth, Seventh, Tenth and Seventeenth, and also as to section Eleventh, except as to Second Party’s interest in any action or appeal then pending.

“Twentieth: It is expressly understood and agreed by and between the parties hereto that in this agreement the term “Dirigible Light Devices” is used always and only to mean “Dirigibly Mounted Light Devices”.

“Twenty-First: This agreement shall inure to the benefit of and be binding upon the heirs, administrators and executors of the First Party.”

[2] Of the patents listed in the exhibits to the contract, the last will expire in 1953.
[3] Plaintiff also alleged non-payment of royalties but later withdrew this allegation.

Boardman, Stoddard McCarthy and Edward J. McCarthy, all of Bridgeport, Conn., for appellant.

Goldstein Peck, Arthur M. March, and Bernard S. Peck, all of Bridgeport, Conn., for appellee.

Before L. HAND, Chief Judge, and SWAN and FRANK, Circuit Judges.

FRANK, Circuit Judge.

We agree with the opinion of the district judge. Attempting to answer his reasoning, plaintiff in this court advanced an argument, apparently not made in the district court, to the effect that the words “for any cause” in the second sentence of Paragraph Twelfth of the contract limit the application of that sentence to a cancellation “for cause,” i.e., by the plaintiff under

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Paragraph Fourteen or by the defendant under Paragraph Nineteen. Considering the contract as a whole, we think such an interpretation unreasonably strained and that those words mean “for any reason pursuant to any provision of the contract.”

Affirmed.

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