Appeal from the District Court of the United States for the District of New Jersey; Phillip Forman, Judge.
Before BIGGS, JONES, and GOODRICH, Circuit Judges.
Barber Asphalt Corporation, formally joined as a plaintiff, successor to Barber Asphalt Company and the owner of Hayden United States Patent No. 1,684,671, and the real party in interest, the plaintiff Johnson-March Corporation, as exclusive licensee under the Hayden patent, brought suit against the defendant La Fera Grecco Contracting Company alleging direct infringement of claim 4 of the patent. Stulz-Sickles Company intervened in the suit and alleged in a counterclaim that the plaintiffs were violating the anti-trust laws of the United States in that the plaintiffs were attempting illegally to extend the monopoly of the patent. Stulz-Sickles Company was required to intervene by its contract with La Fera Grecco, which compelled it to defend the latter company and save it harmless in any infringement suit. The defendant Thompson Materials Corporation was brought into the proceedings by Stulz-Sickles as a defendant to the counterclaim. We shall deal with the relations of these companies to one another in more detail at a later point in this opinion.
The Hayden patent, issued September 18, 1928 upon an application filed October 12, 1925, is for a method of preventing evaporation from concrete during curing. As is generally known concrete is composed of a mixture of cement, sand, crushed rock and water. To sucure proper hydration of the cement in the mixture it is necessary that evaporation of the water be prevented until the chemical combination of the water and the cement is completed. this process of hydration is known as curing, and takes approximately thirty days. If the water be lost before the chemical reaction is completed, the concrete will crumble and deteriorate. The Hayden patent discloses a method to prevent the water from leaving the mixture before hydration is completed.
In the specifications Hayden refers to various known methods of protecting concrete from water evaporation during the curing period especially applicable to roads or similar constructions where the concrete is largely exposed to air. He speaks of the application of wet burlap to the exposed surface of the concrete "immediately after finishing" replaced with wet earth or straw, of the spreading of tar on the surface of the concrete " * * * after the concrete has set, or attained a rigidity such as to enable workmen to walk on it without marring the surface." He refers also to dikes built about the surface of the concrete to maintain water upon its surface until hydration is completed. He goes on to say that these methods are open to numerous objections in that they involve substantial expense " * * * and are ineffective in preventing the evaporation of water from the concrete during the critical period of the concrete is not attempted until substantially after the critical period has passed, as is evidenced, for example, by the occurrence of hair cracking * * * ." Hayden then sets forth the gist of his disclosure as follows: "I have discovered that if cement or cement concrete be treated, after it is finished, i.e., smoothed off, or broomed if so finished, and before it has set, i.e., before it will support a substantial weight, such as that of a man walking on it, without marring, by the formation on the exposed surface thereof a water impervious film, which preferably will adhere to the concrete, and the concrete be then permitted to set and cure without disturbance, the concrete will cure without hair cracking and when cured will be found to have greatly increased strength, durability and resistance to weathering as compared to concrete treated by the methods heretofore known." Hayden states that he applies his water impervious film to the exposed surface of the cement or cement concrete to be cured before it has set. He defines "set" as " * * * a condition of firmness or rigidity such that it will support a substantial weight without marring of the surface, as for example, the weight of a man walking on it." The patent specifications reiterate the preferred time for applying the film, as follows, " * * * the film is applied as soon as practical after the cement or concrete is laid and finished; however, it must be applied before the concrete has set, as indicated above, if the benefits of my invention are to be obtained."
Hayden describes as materials suitable to form the impervious film ordinary liquid asphalt paint, native asphalt when dissolved in a volatile petroleum solvent, and ordinary linseed oil paint. He also states that he sprays the emulsion or bituminous matter or paint upon the "wet unset" concrete.
Only the fourth claim of the patent is in litigation in the suit at bar. It claims: "The method of preventing evaporation of water from the surface of a freshly laid concrete roadway which includes spraying upon such surface, before the concrete has set, a bituminous emulsion for the formation of an adherent water imprevious bituminous film thereon."
An examination of Hayden's original patent application fails to disclose the conception now so heavily emphasized by the plaintiffs to sustain the patent's validity, namely the application of the water-resistant film or bituminous emulsion before the concrete has set, or has attained a rigidity sufficient to support the weight of a man without marring its surface. That this is the case is glaringly apparent when one examines the amendments made to Hayden's application in 1928.*fn1 Indeed, there is no reference whatsoever to the application of the water impervious film or bituminous emulsion prior to set except in the 1928 amendments. This is the very crux of the patent phase of the case at bar and presents the only valid distinction which might serve to distinguish Hayden's disclosure over the prior art as represented by Lechler's German Patent No. 337,134 of May, 1921. But an examination of the article on the prevention of shrinkage cracks in concrete roads by Dr. Kleinlogel, published in "Die Betonstrasse" of November 1, 1927, makes it very clear that the art had been enlightened, if that enlightenment was needed as to the necessity of painting the emulsion upon the concrete immediately after the completion of the laying of the concrete if hair cracking in the surface was to be avoided, prior to the time when the Hayden amendments were received in the Patent Office. It follows therefore that Hayden and his assignees are caught on the horns of a dilemma, for if the 1928 amendments be material the application and hence the patent are void. Chicago & N. W. Railway Company v. Sayles, 97 U.S. 554, 563, 24 L. Ed. 1054; Steward v. American Lava Company, 215 U.S. 161, 168, 30 S. Ct. 46, 54 L. Ed. 139; Schriber-Schroth Co. v. Cleveland Trust Co., 305 U.S. 47, 59 S. Ct. 8, 83 L. Ed. 34; Insulite Co. v. Reserve Supply Co., 8 Cir., 60 F.2d 433, 435. If upon the other hand these amendments made in 1928 are not material Hayden's disclosures are anticipated completely by Lechler's patent.
Lechler states that it is well known that cement concrete attains strength more quickly if it is kept moist and that this result could be obtained " * * * by toilsome sprinkling, by covering with moist bags," etc. Lechler goes on to say that his process consists of enclosing " * * * the still-fresh concrete on all sides by water-resistant coating materials" such as asphalt and tar lacquers consisting of bituminous substances, and that this will prevent "the evaporation of the mixing water of the concrete." In this way, he says, the water necessary for attaining great strength remains in the concrete and need not be replaced by artificial moistening. In respect to concrete structures, such as retaining walls and foundations, Lechler states that the tamped or dressed structures are to be coated "while they are yet fresh, as well as the formed surfaces [which] are to be coated forthwith after removal of the forms." Lechler's patent contains one claim. It is for a "Process for the accelerated attaining of final strength of concrete and for avoiding the formation of strinkage cracks, characterized by the enclosure, on all sides, of the fresh concrete in rapidly drying coating materials which hinder, during the hardening period, the evaporation of the mixing water of the concrete and, by keeping the concrete moist, accelerate its uniform hardening."
Wetted burlap or wetted straw was the method ordinarily employed throughout the art prior to the use of water-resistant coating to prevent dehydration. When the operation and effect of the chemical combination between water and cement was understood, ordinary common sense and ordinary mechanical ingenuity would dictate the application of the means employed to prevent dehydration, whether wet burlap or water-resistant emulsion, as soon as possible.*fn2 For this reason as well as those already stated, we can perceive no invention in the Hayden patent. In the contributory infringement suit of Barber Asphalt Company v. Stulz-Sickles Company, 3 Cir., 89 F.2d 960, reversing an earlier decision of the District Court of the United States for the District of New Jersey, reported in 14 F.Supp. 212, this court held the Hayden patent valid. Being convinced that this decision was erroneous, we now expressly overrule it. The decision of the District Court appealed from in the case at bar, reported in 30 F.Supp. 497, which we now reverse, was based by the learned District Judge squarely upon our earlier erroneous decision and the principle of Lektophone Corporation v. Miller Bros. Co., D.C., 37 F.2d 580.*fn3
In respect to the question raised by the counterclaim, viz., whether the plaintiffs have illegally extended the monopoly of the Hayden patent, we state as follows. This court in its earlier decision held the principle enunciated by the Supreme Court in Carbice Corporation v. American Patents Development Corporation, 283 U.S. 27, 51 S. Ct. 334, 75 L. Ed. 819, to be inapplicable. Leitch Manufacturing Company, one of the defendants in that suit, petitioned for certiorari, contending that Barber Company's suit could not be maintained, even if the patent were valid, because it would serve to create a limited monopoly in respect to an unpatented staple article of commerce bituminous emulsion which had been upon the market for many years. They Supreme Court granted certiorari and in Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, 58 S. Ct. 288, 82 L. Ed. 371, reversed the decree of this court, holding that the principle of the Carbice Corporation case was precisely applicable. Prior to this decision Barber Asphalt Company, which, as we have already indicated was the predecessor to the plaintiff Barber Asphalt Corporation, was the owner of the Hayden patent and issued licenses thereunder. After the decision of the Supreme Court, the successor corporation, the plaintiff Barber Asphalt Corporation, adopted the following method of doing business. It gave an exclusive license to the plaintiff Johnson-March Corporation to practive the method of the patent and to issue sub-licenses to others upon payment " * * * of a monetary license fee or royalty to it [Johnson-March] on account of the use of said invention." Barber Asphalt Corporation by this exclusive license divested itself of all rights in the Hayden patent except bare legal title. Johnson-March agreed to pay Barber Asphalt Corporation a royalty of 2 cents per gallon for all bituminous emulsion bought by it from Barber and used pursuant to the patented process. Johnson-March Corporation then entered into a contract of agency with Thompson Materials Corporation. By this agreement Johnson-March granted to Thompson the exclusive right to sell "'Hunt Process'", "'Curcrete'" and "'Ritecure'", all bituminous emulsions, to be used on highways, pavements and structures according to the method of the Hayden patent to licensees of Johnson-March within specified territory.*fn4 This license by its terms remained in full force until December 31, 1938 with renewal at the option of Thompson for one year provided Thompson demonstrated that it had sold fifty percentum of all available curing contracts let by the state highway departments of the respective states in the preceding year. Thompson in turn entered into sales agreements with contractors whereby it agreed to furnish and the contractors agreed to accept and pay for Hunt Process and Ritecure in sufficient quantities to cure specified yardages at a stated price per gallon, the sales agreements specifically stating, however, that the price per gallon fixed included all royalties due on account of the curing of concrete under the license of the Hayden patent. Thompson agreeing to remit the royalties to Johnson-March Corporation and to save the contractors harmless on account of any claim of infringement. The sales agreements recite that the contractors are licensed by the Johson-March Corporation under the Hayden patent in consideration of the payment to Johnson-March of a royalty of 1 cent per square yard of concrete covered.*fn5
The record shows that Johnson-March Corporation bought all of its bituminous emulsions from Barber Asphalt Corporation and that Thompson bought all of its emulsions from Johnson-March. The middleman channel through which Barder Asphalt Corporation's emulsions went from Barber Asphalt Corporation to contractors in the specified territory is clear. Barber Asphalt, Johnson-March and Thompson are competitors with Stulz-Sickles in the sale of bituminous emulsion. None of them engage in road building. The situation presented by the facts as just stated are very similar to those which were before the Supreme Court in the case of Leitch Mfg. Co. v. Barber Company, but, the plaintiffs point out that there is an alternative license made available by Johnson-March by another and a different type of contract than desires to use the Hayden process without purchasing Barber Asphalt Corporation's emulsions; that Johnson-March grants nonexclusive licenses to use the Hayden process for a royalty or license fee at the rate of 1 cent per square yard of concrete cured, and that at least four such licenses, bringing Johnson-March substantial sums of money between October 5, 1938 and February 9, 1939, were issued. Pointing to the opportunity to receive licenses to employ the Hayden process without reference to the source of the bituminous material, the plaintiffs strongly urge that by this they have cured the vice prohibited by the ruling of the Supreme Court in the Leitch Manufacturing Company case. The defendants contend to the contrary.
An examination of the record will disclose immediately that the amount of bituminous emulsions used for curing varies widely with certain indefinite factors, such as the skill of the operator, the intent to spread the emulsion thickly or thinly, the temperature and the humidity. The record abundantly demonstrates that while some estimates provide for the spread of emulsion at the rate of one gallon for every five to eight yards, the spread may be from eight to ten yards and upon occasion may reach twenty yards per gallon. If a contractor has purchased Barber Corporation emulsions vended through the channel of Johnson-March and Thompson, any royalty that he pays for the use of the Hayden process is included in the price per gallon. If, upon the other hand, he purchases emulsions elsewhere and uses the Hayden process the royalty which he must pay is based upon the number of square yards covered in the process and the contractor is faced with anelusive and indefinite factor in estimating his costs when he bids upon a job. An example will illustriate the difficulty which the contractor faces. We will assume that the intervenor. Stulz-Sickles Company, sells bituminous emulsions to a contractor who causes a gallon of it to be sprayed over five square yards of concrete. The record shows that Stulz-Sickles sold such emulsions at a price of 15 cents per gallon. It follows that the cost to the contractor to buy the gallon of emulsion and to spray it on the concrete is 20 cents. If the gallon of emulsion is sprayed over fifteen yards of concrete, the cost to the contractor would be 30 cents. If that contractor buys Barber Asphalt Corporation's emulsions sold through the Johnson-March Thompson channel for the price of 24 cents a gallon with license included, he may spread the emulsion as widely as he can without additional cost; in fact, the less emulsion he uses, the lower the cost to him. On the other hand, if the contractor did not buy Johnson-March ...