Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; John P. Barnes, Judge.
Before SPARKS, Circuit Judge, and LINDLEY and BRIGGLE, District Judges.
Upon reconsideration, the former opinions are withdrawn and this opinion is adopted as the final expression of the court.
This is an appeal from a decree awarding a preliminary injunction against appellant in a suit upon five patents to Cohen, Nos, 1,710,348, 1,710,531, 1,944,923, 1,944,922, 1,944,424, and one to Copeland, No. 1,919,159. Appellant relies upon a license agreement, entered into on February 17, 1934, whereby appellee licensed appellant under the foregoing patents to make cigar lighters to be sold as "attachments, replacements, or accessories" to automobiles. Appellee reserved exclusive right to sell lighters made under the patents to be sold as "standard equipment" on automobiles. Appellant admitted "the validity of said letters patent" and contracted, "for the purpose of the agreement," that it would "take no steps or proceedings for the purpose of contesting the validity of said patents."
Cigar lighters sold as accessories are clamped on dashboards, and are known ordinarily as the "surface type." Those sold for standard equipment usually pass through a hole in the dashboard and are known as the "well type." Some of the latter, however, are sold for replacement and, in such case, are covered by the license. In so far as the inventions of patents are concerned, the "accessory" devices and those intended for "standard" equipment are precisely the same mechanism.
The trial court found, first, that appellant had sold standard equipment lighters infringing the patents; second, that appellant had manufactured and sold infringing accessory lighters, which appellant contends are not within the patents; and that appellant should maintain prices thereon as provided in the agreement; and, third, that appellant should apply the patent numbers to certain surface type lighters sold as accessories, which appellant contends do not infringe and are not within the license agreement.
Appellant complains that the trial court erroneously concluded that it had no right to consider the prior art for any purpose; that it should have examined the same to determine the scope of the patents relied upon; that as to certain devices it should have considered the prior art for the purpose of determining validity; and that the evidence did not justify a preliminary injunction.
Generally speaking, a licensee under a limited license may deny validity when he is charged with infringing by exceeding his license, for the license raises no estoppel against the licensee in respect to the noninclusive type of his product. It exempts the licensee from suit for infringement so long as he makes the licensed device. It does not estop him in any way from making devices which are not within the class licensed, for as to such products the licensee takes nothing by the license, no immunity from suit and assumes no obligation respecting same. In Indiana Mfg. Co. v. Nichols & Shepard Co. (C.C.) 190 F. 579, 584, the court said:
"The estoppel must be mutual. The licensee may not deny the patentee's title to the monopoly; the patentee may not deny the licensee's right to act under that monopoly. It is difficult to see how, when the act involved is the manufacture of a certain machine, at a specified place or in a specified way, and both complainant and defendant agree that there is no contract in existence permitting the act in controversy, either party can be estopped by a contract relating to something else. * * * It seems * * * quite clear that the complaining patentee cannot, at the same time, maintain the position that the act of the defendant licensee, manufacturing what is said to be the patented article, is outside the conditions of the license, and, therefore, not authorized by the license, and also the position that his title to the monopoly is conceded by the license and, therefore, cannot be disputed."
See, also, Tate v. B. & O.R.R. Co. (C.C.A.) 229 F. 141; Symington Co. v. National Malleable Castings Co. (D.C.) 257 F. 564; Underwood Typewriter Co. v. E. C. Stearn & Co. (C.C.A.) 227 F. 74; Auto Spring Repair Co. v. Grinberg (C.C.) 196 F. 52; International Burr Corp. v. Wood Grinding Service (C.C.A.) 34 F.2d 905.
But we doubt the applicability of this doctrine to the present case. Paragraph 20 of the bill of complaint, admitted by appellant's answer, charges that appellant has the right to use all of the claims and inventions of the patents to make devices so long as it sells them to a certain type of trade only, namely, the accessory trade; but that it may enjoy none of the inventions in selling devices to the prohibited trade. Furthermore, under paragraph 1 of the contract, appellant was granted, "under the conditions herein referred to, the right and license to manufacture and sell * * * devices embodying, * * * the inventions * * * claimed in the aforesaid Letters Patent, * * * to the full end of the term * * * unless this agreement is sooner terminated." In paragraph 4 of the contract, appellant agreed to pay royalties of 5 per cent. on devices "embodying the inventions of said above-enumerated Letters Patent." Thus we see that the grant involved all of the inventions and claims.
By paragraph 9 appellees reserved the exclusive right to sell lighters to manufacturers for standard equipment on automobiles manufactured by the respective companies, and for no other purpose. This limitation is not a reservation of any part of any one or more inventions; it is a limitation only of the trade to which appellant may sell what it manufactures under all the patents. The equipment in each field is the same, the only difference being that the one is installed by the manufacturer and the other by the service man or dealer.
"For the purpose of the agreement," appellant agreed that it would take no steps or proceedings contesting the validity of the patents. Inasmuch as the purpose was to grant all of the inventions to appellant for the accessory trade and to restrain it from entering the standard equipment trade with the same mechanism, it must have been the ...