COMPUTING SCALE CO. v. TOLEDO COMPUTING SCALE CO.; TOLEDO COMPUTING SCALE CO. v. COMPUTING SCALE CO., 279 F. 648

BAKER, Circuit Judge (after stating the facts as above). From this and many other cases we get the impression that patent lawyers are quite generally possessed of the belief that a patent infringement bill in equity, to stop future trespasses and to make the defendant pay for past trespasses, is sui generis. As this is counter to the conception of equity jurisprudence which we entertain, and which lies at the root of many reasons given in the present decision, we proceed first to state briefly that conception. Property may be classified as real or personal or mixed, and as tangible or intangible.

But the right in property of all classes is one, and consists ultimately of this, and only this — the right to exclude others. When a new element in the material world was discovered, radium, for instance, the possessing owner became entitled to the same rights and remedies that belonged to owners of previously known property. When the government created a new right in land in homesteaders, no statutory command was needed to open the door of equity to receive the homesteader’s bill to stop future trespasses, and to make the defendant pay for past trespasses.

It would have taken a statutory prohibition to warrant the court in keeping him out. When the government, fulfilling the intent of the founders, granted to inventors a new right of property in their inventions, no statutory command was needed to open the door of equity to receive the patentee’s bill to stop future trespasses, and to make the defendant pay for past trespasses.

It would have taken a statutory prohibition to keep him out; and a statute, stating that he may ask for an injunction and an accounting of profits and damages, should be construed simply as an affirmation of the pre-existing principles of equity. So all bills for injunction are to vindicate the one fundamental concept of property, the -right to exclude others.

When the chancellor has found that the complainant has title, that he is possessed of the right to exclude the defendant, that the defendant has committed repeated trespasses, and that the defendant, unless enjoined, will continue (the defendant’s state of mind can be proven only by the circumstances of his past trespasses unless he has admitted his intent), the decree of permanent injunction is the only adequate remedy, it exhausts all the equities of the bill, and it is final in its essence. It would also be final in time, were it not that usually there is a legal appendage to the bill.

Complainant’s demand that he be made whole on account of past trespasses, if it stood alone, would have to be followed at law. But equity, having properly taken jurisdiction, draws to itself all other controversies arising from the same transactions, even if legal in their nature, and will not send the complainant to the law side to get his money ; udgment. for past trespasses. And in rendering the equitable decree on the me'rits the chancellor has heard all the evidence and found all the facts that are necessary for the money decree except the amount.

In making the defendant pay, an accounting of the defendant’s profits is not peculiar to the patent infringement suit. If the home- £ teader sues his neighbor to stop the cutting down and carrying away of 1 rees, he is entitled, after obtaining his permanent injunction, to show rhat the defendant sold a tree for $100, that his expenses were $25, and that his net profit was therefore $75. As against the trespasser, who is a trustee ex maleficio, $75 is the true value of the appropriated property, although tire owner might not have been able to get more than 050 from any one else.

If $50 is the true valuation, and if the defendant has realized only $25 net profit, then the defendant must turn over Iris profit, and also pay an additional $25. And if what is left of the domain has been damaged by the removal of the trees, the complainant, on proper proofs, is entitled to additional compensation. All these are means for measuring the total damage. The problem is always the same — to state in terms of money the results of the trespasses. While the principles in the injunctional branch of equity are uniform, > he practice in the patent infringement suit has been disparate.

Under the old rules, the court in reaching the permanent injunction was helpless to control the proofs. Depositions were loaded with hearsay, with immeasurable masses of irrelevant matter, with controversies of counsel, with counsel’s directions to witnesses not to answer, with experts’ analyses of hundreds of prior patents, when six would have been more than enough, with experts’ interlarding of their opinions of facts with their opinions of the law of the case, etc. We conjecture ■ hat in our clerk’s vaults there are tons of paper which were puré waste.

We leave it at conjecture, because we have np computing scales on which to weigh the more important matters, the clients’ exhaustion of patience and resources, the lawyers’ mutual infliction of unnecessary iabors, and the efforts of the courts to find the three grains of wheat : n the bushel of chaff. But those evils are gone.

Under the new rules, when the chancellor hears a patent suit, as he does other injunction suits in open court, he can and does control tire proofs, exclude hearsay and irrelevancies, restrain counsel, compel witnesses to answer proper questions, limit the number of prior patents, and bridle the experts. Records on appeals now show the gratifying, difference. But when it comes to rendering the money decree on a master’s report, with attached evidence, counsel seem to be yet at large.

Frequently they toy with the master pretty much as they did with the notaries before whom they took the depositions for use at the hearing of the merits of the bill.

In the present case our finding on the merits of the patent and the fact of infringement was made in. 1913, and the District Court’s finding of complainant’s title to the patent, the only question concerning the merits of the bill left open on remandment, was made in 1914; but the money decree was not entered till 1919, and the review here was not ready for presentation until the current year, imagine a law court, with the single issue before it of damages for established or conceded trespasses, or the value of property wrongfully appropriated, or the value of property about to be lawfully appropriated (a condemnation case), permitting the parties to engage the attention of a jury for five years.

We are not noting this case as being exceptionally Jarndyce; we are merely taking it as a text in speaking of a general situation. In our judgment the Westinghouse Case, 225 U. S. 604, 32 Sup. Ct. 691, 56 L. Ed. 1222, 41 L. R. A. (N. S.) 653, should forever extinguish in the minds of infringers, caught and held by a decree on the merits, the hope, long entertained and theretofore frequently availed of with success, of escaping all but nominal damages by commingling the appropriated property with other property, by hiding, or by drawing herrings across the trail.

Equity will pursue an infringer of a patent as vigilantly as it will any other trespasser.

And the first fruits of the Westinghouse decision should be this: If a manufacturer, knowing of a patent, decides to chance an unlicensed use, he should realize that he may be caught by a final decree on the merits and be ordered to respond accordingly; and, so realizing, he should be held to the duty of keeping separate and accurate records of all his infringing acts; and, on his failure to keep such records, the court, in measuring the damages on account of his trespasses, should resolve all doubts against him. blew equity rule 63, we have no doubt, was intended to end Ihe evils in reaching the money decree as completely as other new rules have ended the evils in reaching the merits decree.

But if evils persist which cannot be remedied by the rigid enforcement of rule 63, then, pending possible supplements to that rule, we believe that the chancellor, either in open court or through explicit directions to the master in order to simplify and expedite the hearing, has power to employ methods 'not inconsistent with promulgated rules.

If a defendant, his struggles over the merits being at an end, states his profits from the records contemplated in the preceding paragraph, the complainant (omitting for the moment any question of apportioning the profits between patented and unpatented parts) should be compelled to accept the statement as the measure of the money decree, unless he is prepared forthwith to allege and prove either (l)'tliat the account was falsely stated or (2) that the profits, if truly stated, are not an adequate measure of the complainant’s damages.

If the first ground is sustained, ■ the chancellor, either directly or through the master, might well appoint and qualify a competent and disinterested accountant to' cure the defendant’s default, and the report of the accountant should stand unless promptly impeached for fraud or gross inaccuracy. If the complainant should take the second ground, he might well be required to prove the value of the appropriated property as other such issues are tried by the opinion testimony of experts qualified to speak of the value of the invention.

And neither “established royalty” nor “reasonable royalty,” as evidence of the value of the invention, would be necessarily the limit óf value, for an infringer should not be allowed the profit which a licensee justly expects. If a defendant satisfactorily 'states his profits from the infringing device, but contends that only a part thereof is attributable to the invention, he might well be required to allege in his account, taken as a verified pleading, the grounds on which he claims apportionment of profits, and his proofs should be limited to the averments.

Against this general background we proceed to view the assignments of error. I. Defendant’s contention that alb the decrees should be reversed, aid the bill dismissed, on account of complainant’s alleged failure to prove title to the patent, is overruled. A. Proof and finding of title constituted the base of the merits decree of 1914. No appeal was ever taken, unless the merits decree was carried along by the present appeal from the money decree. In our judgment the merits decree was final in its essence. National Brake & Electric Co. v. Christensen, 258 Fed. 880, 169 C. C. A. 600; same case, 254 U.

S. 425, 41 Sup. Ct. 154, 65 L. Ed. 341; same case (decided herewith) 278 Fed. 490. But, assuming that defendant’s position is correct, that the seven years old merits decree is now open to assault in this court because it was not the last step in the suit, we find: B. In 1895 the franchise was granted. It expired in 1912. During defendant’s infringement, complainant was in open, notorious, adverse, exclusive, and continuous possession of the franchise. Before 1912 and ever since complainant has been in like possession of the present cause of action.

As the patent expired in 1912, no one now can interfere with defendant’s manufacture of cylinder scales. As infringement ended in 1912, the statute of limitation protects defendant from being called on to pay damages to third parties. For its established trespasses we think defendant ought to pay some one; and no one is at hand but complainant. C.

We remanded the case in 1913 for proof of title because tbe execution of assignments from the Smith Company to the Boston Company and from the Boston Company to complainant had not been proven, and defective acknowledgments prevented certified copies of the Patent Office records from being taken in lieu. Proofs of the execution of the Boston Companies assignment seem abundant and regular. As to the Smith Company’s assignment, the proofs show that all the stock was then owned by Bell and Fuce, and they executed the as- £ ignment in the name and on behalf of the Smith Company.

Whether •there was a duly elected and acting board of directors, and proper officers, and due authorization by the directors for the officers to execute the instrument, are immaterial questions so far as defendant is concerned. An assignment in the name and on behalf of a corporation by all of its stockholders would convey at least a full equitable title. II.

Respecting the insistence that, on the proofs offered to the master and embodied in the record concerning Phinney’s commercial practice as an anticipation, we should reverse our denial of defendant’s 1913 petition to reopen the case on the merits, should reverse our precedent decree upholding the válidity of the patent and should reverse the District Court’s decrees of 1914 and 1919 with the direction to dismiss the bill, we say: A.

If it he regarded as a demand to interpose a defense of invalidity as a matter of right because validity has not yet been adjudicated, our conception of the nature of the merits decree leads us to reject the demand. B. If it be regarded as a petition in the nature of a bill of review, appealing to equitable discretion, then defendant’s delay of eight years in presenting to us its bill of review to open our 1913 dismissal of its former bill of review on the same grounds inclines us to stay our hands. III.

Defendant says that the master’s report of $400,000 profits from cylinder scales is an inescapable and self-evident blunder, because defendant’s profits on its entire business during the infringing period from October, 1906, to September, 1912, were only one-fourth of that amount. A. There is no reliable basis in the record for finding that defendant’s entire net profits were only one-fourth of the master’s award.

In fact, as will more fully appear hereinafter, defendant never performed its duty, which arose at the end of its struggles on validity and infringement, of accepting the merits decree and making a full, frank, and accurate report of its infringement doings. But-— B. Defendant’s claim of error involves this fallacy: In a business comprising several branches, it is invariably true that each branch makes a profit; or, if it be deemed possible that a noninfringing branch should suffer a loss, then the profits from the infringing branch should first be applied to covering that loss. IV.

Under an order to file a full, frank, and accurate account in compliance with equity rule 63, defendant, by its auditor, Zolg, limited itself to the period from March 8, 1911, to August 31, 1912. This ac^ count was false in that it included only the cash part of sales in which secondhands.were taken as part payment. But the master rejected the account, principally because he would not accept the contention, now repeated here, that defendant was free to use cylinder scales in which the spiders of the cylinders were made of steel.

March 8, 1911, was the date on which defendant claimed that it'began to make aluminum spiders for cylinders. A. Claim 5 covered a cylinder frame “of light material”; claim 6, “of aluminum.” Both claims were alleged in the bill, and found in the merits decree, f o be infringed. Aluminum frames infringed claim 6. Infringement of claim 5, unless we were in error in not finding that claim to be a mere duplicate of claim 6, could only arise from the use of material other than aluminum.

Whether such material, as used, was sufficiently light to secure the benefits of the invention, was a question to be threshed out and settled a1 the final hearing on the merits. B. If the question is open, we go back eight years to the original record, and find that defendant’s contention is a play upon the disparity of specific gravities. In view of Smith’s disclosure in 1895, it was not difficult for defendant in 1906 to use steel so thin that the cylinders were of such “lightness” as to fill perfectly the function of tlie cylinder in the complete weighing machine.

In the hair spring of a watch the specific gravity of steel is immaterial. At the hearing of the merits appeal the exhibit before us had a cylinder with a steel frame. If defendant is right in its present insistence, then Auditor Zolg did wrong in including, after March 8, 1911, steel frame cylinders as-indiscriminable equivalents of aluminum frame cylinders. V. Defendant’s principal assault upon the master’s finding of profits on cylinder scales is directed to his aceptance of Zolg’s figures on manufacturing cost.

Defendant, after taking more than five months to prepare, filed Zolg’s verified statement of manufacturing cost of cylinder scales from March,1911, to September, 1912; and the master found that “the cost of labor and material did not vary materially during tSie accounting period, and it is therefore safe to apply Zolg’s costs for 1911 and 1912 to the remainder of the period.” A. Defendant never complied with equity rule 63.

For this inequitable attitude, defendant might well be held in default, and, as other defaulters, to have forfeited the right to be heard until the default was set aside and a meritorious answer submitted. Ai#d the fact that the master and complainant took it upon themselves to state the account did not legally cancel the default. B.

Complainant accepted and acted on Zolg’s figures of labor and material costs, and thereupon employed Marwick-Mitchell, chartered accountants, to examine defendant’s books and records, and therefrom to report all the other elements necessary to a just accountiig, such as manufacturing overhead, office overhead, selling expense, number of scales sold, gross and net sales, etc. After complainant’s accountants had filed Exhibit 40, defendant employed Price-Water-house, chartered accountants. They did not examine the books and records for the accounting period, as they might have done.

They confined their examination to 1911, and reported a theory by which Auditor Zolg’s figures on labor and material from March, .1911, to September, 1912, would be erroneous. They did not cover even the whole of Zolg’s period.

In preparing to discredit Zolg, they “attempted to leform the books of the Toledo Company as to the year 1911, and the c alculations made by them and the results given are not based on the figures as they were entered on the books of the Toledo Company, but 1 rom figures that in their opinion should have been entered.” Having thus shown that Zolg’s figures of labor and material cost were wrong, they were ready to prove that Marwick-Mitchell were necessarily wrong. Defendant’s default was not cured by such procedure.

On the other hand, Marwiclc-Mitchell’s account was a complete supplement to Zolg’s account, and the two together covered the whole situation. C. The master looked into the eyes and heard the voices of Zolg, Marwick-Mitchell, and Price-Waterhouse. Intelligence and credibility of witnesses were involved. D.

Evidently from what occurred before him at the hearing ihe master found that the Price-Waterhouse calculations “were practically all abandoned on the hearing before the master, and the figures disclosed in Exhibit 40, as changed and corrected on the hearing, were in the main acquiesced in by the Toledo Company.” Employment of new or additional counsel cannot reinstate a matter that has been waived in open court. VI.

On the master’s finding and on the state of the evidence, rejection of defendant’s claimed allowances for expenses of litigation and of maintaining an experimental department and taking out patents, was right. The master was not compelled to substitute guesswork for defendant’s failure of proof. VII. Confirming, as we do, the District Court’s confirmation of the master’s report of profits on cylinder scales, there remains the alleged error in awarding all the profits to complainant.

Claims S and 6 covered Smith’s invention of an indicating cylinder for use in association with (and in that sense, in combination with) any weighing mechanism, so that the whole should constitute an automatic computing scale. It is immaterial that the claims are not combination claims, as “combination” is used in patent law vernacular. If they were, the question would be the same: Of what did Smith’s invention consist, and what did it contribute to the weighing art?

In deciding the merits in 1913, we held that Smith’s invention resulted in “the first usable automatic computing scale.” In the Westinghouse Case it was held: “(

a) AVhere the infringer has sold or used a patented article, the plaintiff is entitled to recover all of the profits. * * * “(

d) But there are many cases in which the plaintiff’s patent is only a part of the machine and creates only a part of the profits. * - * In such <ase * * * he must show, by equally reliable and satisfactory evidence, that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature.” A. From our finding that Smith produced the first usable automatic computing scale, the master may be right in holding that this case comes within division (

a) of the Westinghouse Case, in spite of defendant’s assertion of the absurdity of it, based on the illustration of allowing all 1he profit on a steam-engine to the inventor of the governor.

If theretofore the steam engine had raced and racked itself to pieces, so that commercially it was not a successful producer of power, then the inventor of the governor might he held to have created the first commercially successful steam engine, though there were in existence at the time other commercially successful producers of power; and though prior to Smith’s time there were many classes of commercially successful scales, Smith originated a new class, the first usable automatic computing scale. B. But it is not necessary to let the case rest on division (a).

From the master’s elaborate account, showing equal cost of fan scales and cylinder scales, diminishing prices for fan scales, increasing prices for cylinder scales (indicating a stronger demand and readier sales,), one can figure that the average difference in selling prices of the two types would account for all the profits on the cylinder scales, and thus ■demonstrate that the features common to the two types, such as electric lights to illuminate the readings of weight and price, created no pait of the profits on the cylinder scales, but that all were due to the disanguishing element,, the cylinder.

So division (

d) of the Westinghouse decision likewise supports this case. 0. Defendant seeks to use its hereinbefore mentioned evidence of Phinney’s commercial practice as a standard of comparison for apportioning the profits on the cylinder scales between the cylinder and the other parts. In its own factory defendant furnished a most excellent standard of comparison, in fact the best we have ever found in acc.ountmg cases. Its fan automatic computing scale was a later produ:tion than complainant’s. The two types were virtually duplicates except fan and cylinder.

They were made by the same machinery, the same labor, from a common stock of materials, and handled by the same supervising and selling staffs. In paragraph B of this

section we have already made the comparison. ' D. Defendant’s failure to maintain any sort of cost accounting system, its commingling of the two businesses, its sales of fan scales and cylinder scales as intergers, without assigning any cost or any profit to any part of either, have made it impossible for us to reach any conclusion other than that adopted by the master as to the profits of defendant’s business in cylinder scales and the award thereof to complainant. In regard to complainant’s assignments of error we find: I.

Interest on investment is really the value of the use of defendant’s manufacturing plant and selling facilities in making and selling cylinder scales. This credit item was apportioned by the master according to the relative volumes of fan and cylinder business. We fird no substantial basis for recasting the master’s figures. That such an allowance is a just credit against gross profits, see Western Glass Co. v. Schmertz Wire Glass Co., 226 Fed. 730, 141 C. C. A. 486 (7th C. C. A.), and Oehring v. Fox Typewriter Co., 251 Fed. 587, 163 C. C. A. 578 (2d C. C. A.). II.

Defendant made profits on sales of cylinder scales’in Can-ac a. But no completed cylinder scale nor completed cylinder was ever shipped to Canada. . Some parts were manufactured in Canada, and seme were made here and shipped there; but the parts were there assembled into completed scales and there delivered to Canadian users. Because some of the parts were made in this country, complainant insists that defendant is to be held here as a contributory infringing maker.

But contributory infringement can only arise in this country when somewhere and somehow in this country there is a completed infringement to which a contribution can be made. Bullock Electric Co. v, Westinghouse Co., 129 Fed. 105, 63 C. C. A. 607. An additional urge is that defendant is liable as an infringing seller in this country because Canadian salesmen sent the orders of p-ospective Canadian users of the Canadian' scales to defendant’s ©:fice in Toledo for approval, and such orders were not filled from the Canadian plant until so approved.

Complainant is doubtlessly right in saying that the contract was executed (but not in the sense of per- ■ formed) in this country. It seems to us that complainant is confusing a sale with an executory contract for a sale. If complainant’s position is correct, then a Canadian manufacturer, who made his goods only in Canada, and parted with them only to Canadian users, would infringe a United States patent, if he should meet here a prospective Canadian user, and should enter into an executory contract to be performed in Canada. HI.

Respecting the master’s disposition of secondhand scales, we reject complainant’s proposition that, “when defendant sold an infringing scale at a fixed price in money, it must account for that price in money.” If the “fixed price” was $150, and if defendant accepted in full payment $100 in money and a secondhand scale, then, although defendant in fact only realized $25 net from selling the secondhand, in an accounting of realized profits must defendant account for an additional $25 of profits that it did not realize? IV. At the end of the accounting period defendant had on hand 1,839 infringing scales.

Undoubtedly this was an advantage to defendant and a damage to complainant as competitive makers and sellers of automatic computing scales. But the prpofs before the master proceeded on the basis that all of complainant’s damages would be satisfied by an award of defendant’s profits from the infringement. Complainant did not prove, as it might well have done, the market conditions after the close of the infringing period or what* defendant did with the 1,839 scales. We agree with the master that he was not required, on the state of the proofs, to speculate concerning potential or prospective profits.

Robinson on Patents, § 1139 (note 2). V. At the end of the accounting period defendant possessed a going business in cylinder scales, and the making of cylinder scales was then free for all. But no manufacturer who had respected the patent would be in such an advantageous position. Complainant, as a manufacturer of its originally patented scale, would have a good start, and could probably maintain an easy lead over the law abiders.

Defendant’s advantages by means of its infringement, its organized plant, its trained mechanics and salesmen, its scales in process of manufacture, its’ stock of materials, and its accumulated impetus from past advertising, are obvious. Equally obvious is the damage to complainant (as a manufacturer, not as a patentee, who is entitled to exercise his right to exclude irrespective of his making the patented article) by having such a competitor unlawfully created.

But, although infringement ended in 1912 and the matter of the money decree was not on until 1914, complainant came before the District Court and the master, not as a manufacturer that had been damaged as aforesaid, but solely as the owner of a franchise to exclude others from practicing the invention. And tli ere was no evidence on which to make an assessment of sucli damages.

Assuming that complainant might be able on remandment to prove substantial damages under heading IV or V, or both, does equity require that this case, based on a patent issued in 1895, be now opened in order to permit complainant to better its hold?

Though defendant has been in default since 1914, we conceive that, if the case is to be opened at all, it should be opened for both parties; and the final result might be the present result, by defendant’s being able to make a true showing of profits, which would be as much less than the master’s present award as the amount of damages complainant might be able tc prove for leftover scales and good will. On the whole, we believe t! at the master has worked out substantial justice on the present record, and that the time has now come for ending the litigation. The decree is affirmed.