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Chicago Pneumatic Tool Co. v. Ziegler.

decided: August 20, 1945.


Author: Biggs

Before BIGGS, GOODRICH, and McLAUGHLIN, Circuit Judges.

BIGGS, Circuit Judge.

Charles H. Haeseler, an inventor, for some years prior to 1919 had been an employee of the petitioner, Chicago Pneumatic Tool Company. On January 27, 1919 Haeseler entered into an agreement with the Tool Company cancelling certain prior patent-licensing contracts entered into by him with his employer. The new contract listed certain patents and a number of pending patent applications owned by Haeseler. Included in these was an application, No. 6,269, for Letters Patent of Belgium. By the terms of the agreement Haeseler granted to the Tool Company the exclusive right to make and sell the tools, machines and devices disclosed in the partents and applications "* * * to the full end of the terms for which said Letters Patent are or may be granted * * *." The right to use the machines and devices was not included in the license to the Tool Company. The Tool Company, as licensee, agreed to pay Haeseler in monthly installments on the first day of each calendar month a minimum royalty of $10,000 "* * * for each and every year during the term of this contract * * *." Another paragraph of the agreement stipulated that "during the term of the continuance of this contract" Haeseler should not engage in any competitive business, that the licensee should have the exclusive right to make and sell any and all improvements to "the tools, machines and devices manufactured and sold by virtue of this agreement" and that the licensee "upon the indication of its desire to use * * * [the] inventions and improvements" should pay all expenses incurred by Haeseler in connection with such improvement patents. The contract stipulated also that the licensee should pay "any and all taxes and expenses of any kind whatever incident to the prosecution of patent applications and of keeping alive all Letters Patent" of the foreign countries named in the agreement. The contract also set up a schedule for the payment of royalties by the Tool Company to Haeseler for sales made of machines and devices embodying the inventions described in the patents and applications.

The Tool Company expressed dissatisfaction with this contract and on January 27, 1921, Haeseler and the petitioner executed another agreement. This, by its terms was "to be supplemental to and form a part of" the 1919 contract. In consideration of the payment to him of $2,000 "and of other valuable considerations moving between the parties" Haeseler granted the petitioner the exclusive right to make, use and sell the several tools and devices described in two pending applications for patents "* * * to the full end of the terms for which said Letters Patent may be granted * * * subject to the terms and conditions * * *" of the 1919 contract. The agreement also gave to the petitioner the exclusive right to make, use and sell any machines, tools and devices that might be invented by the licensor during the continuance of the 1919 agreement and subject to its terms, "* * * whether or not such tools, machines and devices be of the same class as * * * [those] referred to in * * * [the 1919 agreement], or be improvements thereon."

The minimum royalty, prescribed by the first agreement, with the possible exception of one instalment, was paid to Haeseler by the Tool Company, and after his death, to his widow, the original respondent herein, until April 30, 1936.*fn1 The Tool Company then stopped making the payments. Mrs. Haeseler demanded that they be continued for reasons which will appear hereinafter. The petitioner refused the demand and brought suit seeking a declaration by the court below that its obligations under the contracts had terminated with the payment made by it on April 30, 1936. Mrs. Haeseler died. Her daughter Mrs. Ziegler, the substituted respondent, filed an amended answer and counterclaim, asserting that certain of the patents covered by the agreements expired subsequent to April 30, 1936 and that the life of the contracts, and hence the Tool Company's obligation to pay the royalty, endured until the last monopoly granted by these patents had expired. The court below found that the petitioner's obligation to pay the royalty continued until January 29, 1941 and purportedly*fn2 gave judgment for the respondent for $833.33 a month with interest up to and including the date last stated.*fn3 Both parties have appealed, Mrs. Ziegler in part because the court below imposed on her the cost of proving the expiration date of a Belgian patent covered by the 1919 agreement.

That there is a justiciable controversy within the purview of the Declaratory Judgments Act, Section 274d of the Judicial Code, 28 U.S.C.A. ยง 400, may not be doubted. The existence of such a controversy is to be determined by the decisions of the federal courts. Dewey & Almy Chemical Co. v. American Anode, Inc., 3 Cir., 137 F.2d 68, and the authorities therein cited. It is clear also that the provisions of the Act are procedural and create no new substantive rights. Sinclair Refining Co. v. Burroughs, 10 Cir., 133 F.2d 536; McCarty v. Hollis, 10 Cir., 120 F.2d 540. The jurisdiction of the district courts of the United States was not enlarged by the Act. Putnam v. Ickes, 64 App.D.C. 339, 78 F.2d 223; Doehler Metal Furniture Co. v. Warren, 76 U.S.App.D.C. 60, 129 F.2d 43, 45-46, certiorari denied 317 U.S. 663, 63 S. Ct. 64, 87 L. Ed. 533; Borchard, Declaratory Judgments, 2nd Ed. p. 233. The petition in the case at bar alleges diversity of citizenship and jurisdictional amount. The respondent's counterclaim contains similar allegations. Suit was brought in the District Court of the United States for the Eastern District of Pennsylvania. In diversity cases the district courts must apply the conflict-of-laws rule of the State in which they sit. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477. It is necessary therefore to apply the conflict-of-laws rule of Pennsylvania. Under the Pennsylvania conflict-of-laws rule the interpretation of a contract is determined by the law of the place of contracting. Benners v. Clemens, 58 Pa. 24. By the law of Pennsylvania a contract is made when and where the last act necessary for its formation is done. W.G. Ward Lumber Co. v. American Lumber & Mfg. Co., 247 Pa. 267, 93 A. 470, Ann.Cas.1918A, 451. See Newspaper Readers Service, Inc. v. Canonsburg Pottery Co., 3 Cir., 146 F.2d 963, 965. Our difficulty in the case at bar lies in determining when and where the last acts necessary for the formation of the contracts sub judice were performed. No evidence was offered as to where the contracts were executed or delivered and this question was not dealt with on the briefs of the parties or in the opinions of the court below.*fn4 In the absence of proof as to the place of occurrence of the operative facts we will presume that they occurred in Pennsylvania. See American Type Founders, Inc. v. Lanston Monotype Mach. Co., 3 Cir., 137 F.2d 728, 729; Black & Yates v. Mahogany Ass'n, 3 Cir., 129 F.2d 227, 233, 148 A.L.R. 841, certiorari denied 317 U.S. 672, 63 S. Ct. 76, 87 L. Ed. 539. We, therefore, will apply the law of Pennsylvania in interpreting the contracts.


If the life of the monopoly of any patent named or granted under an application named in the 1919 contract extends beyond the lives of all of the respective monopolies of the patents named or granted under an application named in the 1921 agreement, Mrs. Ziegler's rights in the suit at bar rest in the 1919 agreement and it is unnecessary to discuss specific provisions of the 1921 agreement other than to state that Haeseler and the Tool Company agreed that the 1921 agreement should be supplemental to and form a part of the 1919 agreement.For the reasons hereinafter set out we conclude that the life of the monopoly of the Belgian Patent No. 247,347 granted on Application No. 6,269 must be treated as having extended beyond the monopoly of any patent named or granted under an application named in the 1921 contract.

Application No. 6,269 was filed with The Minister of Industry, Labor and Supplies of the Kingdom of Belgium on November 6, 1914 at Havre, France, the temporary seat of the Belgian Government during the First World War. The application was filed pursuant to the Belgian Act of May 24, 1854 but issued, according to the statement appearing upon its face, pursuant to the Belgian Act of October 11, 1919. Despite the limitation in the license of the 1919 contract authorizing the Tool Company only to make and sell the device, and perhaps because of the provision of the 1921 agreement hereinbefore specifically referred to, the Belgian patent issued in the name of the Tool Company. Under the Belgian law the monopoly of a patent ordinarily endures for twenty years from the date of the filing of the application. If other conditions and circumstances, to be discussed hereinafter, had not intervened, the monopoly of the Belgian Patent No. 274,347 would have expired on November 6, 1934, a non-critical date in the determination of the case at bar. The circumstances and conditions referred to are as follows.

Article 13 of the Belgian Act of October 11, 1919,*fn5 provides in pertinent part: "In computing the duration of patents which had not expired before the 1st of August, 1914, no account shall be taken of the time between this date and the falling due of the first annuity which shall follow the date to be fixed by the Government in execution of paragraph 2 of Article 11." Paragraph 2 of Article 11 provides: "The payment of the first annuity in abeyance shall become due on the day on which it is annually due next after a date to be fixed by Royal Decree. No period of delay shall be allowed for this payment.The subsequent annuities shall be payable each year, on the anniversary of the day on which the application for the patent was lodged." The date fixed by Royal Decree as to Belgian nationals does not appear from the record, but we entertain no doubt that it was after January 10, 1921 (January 10, 1921 being the first anniversary date of the effective date of the Treaty of Versailles, January 10, 1920), and prior to November 6, 1921, the due date of the 7th annuity on the Belgian patent.*fn6 Article 3 of the Belgian Act of 1854 provides for an annual and progressive tax or annuity to be paid to the Belgian Government on each anniversary date of the filing of the application.

Article 22 of the 1854 Act, as amended, provides that when the tax fixed by Article 3 shall not have been paid within a month of coming due, the owner of the patent, "* * * after previous notice, shall, under penalty of being deprived of the rights which his title confers upon him, pay, before the expiration of six months from the date at which the tax was due, the sum of 10 francs, in addition to the annuity payable. Forfeiture of Patents shall be published in the 'Moniteur.'"*fn7 Article 23 of the 1854 Act provides that the owner of a patent must work the article in Belgium within one year of the commencement of working abroad; that the Government may by Royal Decree inserted in the "Moniteur", grant a prolongation of one year at most for the working; but if the patent is not worked by the expiration of the first year, or of the extension if granted, the patent shall be annulled by Royal Decree.

If it was not for the contents of certain letters which passed between Haeseler and the Tool Company it would be clear that the Tool Company, obligated by the terms of the 1919 contract to preserve the patent in Belgium, was obligated to pay the taxes and to cause the patent to be worked in Belgium.It should be stated in this connection that the Tool Company paid the first year's tax due on the Belgian application when it was filed and paid the taxes for the four successive years coming due respectively on the 6th day of November of 1915, 1916, 1917 and 1918. It seems probable also that the Tool Company paid the sixth annuity due on November 6, 1919.*fn8 We will treat the case as if that annuity was paid.

The letters which the petitioner insists relieved it of the obligations referred to are as follows. On September 1, 1920, Price, a vice-president and treasurer of the Tool Company wrote to Haeseler and stated that he had received advice from the Tool Company's patent lawyers "* * * that the seventh years tax on * * * Belgian application No. 6269 will fall due on November 2nd, next. They also state that a working of the Belgian application should be effected on or before that date. I apprehend that if this working is not consummated before November 2nd, that it will invalidate the patent in Belgium, which as you probably know applies to the Haeseler-Sherwood Rock Drill. It does not seem to be practicable to arrange for working. Can you think of any real objection to allowing the patent to lapse." He went on to state, "Some time ago I made an investigation of this subject, and learned that it was the custom of some of the larger American corporations to obtain patents in the Continental European countries and then permit them to lapse upon the theory that there is little likelihood of any serious competition arising from a product manufactured in those countries, and the fact that a patent had been obtained would prevent any resident of the countries * * * obtaining a patent wrongfully, and then holding up the real owner of the invention for royalty before they would be permitted to continue the sale in that particular country * * * While these fees are small individually, the aggregate is considerable especially if we can obtain the desired degree of protection without incurring this expense." It will be observed that the patent had already issued when this letter was written though Price apparently regarded the application as still pending. On September 20, 1920 Haeseler replied to Price and stated that he was "willing" that the Belgian patent should be allowed to lapse.Actually the patent had issued as of November 17, 1919. No taxes were paid in Belgium on Patent No. 274,347 after the sixth annuity which came due on November 6, 1919. On July 8, 1922 Haeseler reiterated his approval of the course proposed to be taken in respect to the Belgian patent by writing to Price: "As far as I am concerned, it is agreeable to me in connection with my foreign patents under License Agreement with the C.P.T. Co. to abide by whatever action you may deem to be to the best interests of the Chicago Pneumatic Tool Company."

It is the contention of the petitioner that the Belgian patent lapsed and its monopoly expired for non-payment of taxes and for non-working within the period prescribed by the Belgian Act of 1854 following November 6, 1920; or at least that Haeseler if he were alive would be stopped to deny that the monopoly of the patent had not ceased within six months after November 6, 1920, the end of the grace period prescribed by Article 22 of the Belgian Act of 1854 as amended; that ...

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