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Grip Nut Co. v. Sharp

June 30, 1945


Author: Kerner

Before EVANS, MAJOR, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

This is the third appearance of this case here. Now we are concerned with an appeal from a decree which dismissed defendant's counterclaim for want of equity and which held that plaintiff was vested with a free shop right under patents 1794737, 1795517, 1937253, 1902912, 2007310, 2054393, 1795518, and 1753250; that plaintiff, subject to the payment of $3,750, was the equitable owner of patents 2024069, 2024070, 1976694 and a two-thirds interest in patent 1753250; and that by reason of its rights and interests in the patents plaintiff has not infringed upon any patent rights of defendant. The decree further adjudged that defendant forthwith execute an assignment of the entire right, title, and interest to patents 2024069, 2024070, 1976694 and of a two-thirds interest in patent 1753250 and deliver for record the unrecorded assignment by which William E. Sharp acquired patents 2024069 and 2024070 from John H. Sharp.

The action was brought by plaintiff for a declaratory judgment against John H. Sharp. In its complaint plaintiff alleged that John H. Sharp had charged it with infringing his patents and asserted that its defense was license and equitable title to the patents, and prayed that the rights of the parties be adjudicated. By its amended and supplemental complaint filed March 2, 1942, plaintiff alleged that Minnie E. Sharp, individually and as executrix of the estate of William E. Sharp, deceased, had asserted that certain products sold by plaintiff were covered by United States Patents which were her personal property. In this complaint plaintiff denied that it had infringed any patents belonging to Minnie E. Sharp and prayed for a declaratory judgment confirming plaintiff's right to continue its manufacture free from any claim of infringement by defendant. To this complaint John H. Sharp answered, disclaiming all interest in the patents, and Minnie E. Sharp, in her answer, asserted ownership of the patents, and filed a counterclaim charging plaintiff with infringement.

The controlling facts appearing from the evidence are that on January 16, 1914, William E. Sharp entered into a ten-year employment contract with plaintiff under which he was to receive annually a salary of $10,000, stock in the company, and a certain commission upon all sales in excess of $450,000. By the contract Sharp agreed to assign to plaintiff all inventions relating to bolts or nuts, or means for making bolts or nuts.

On October 1, 1918, the contract of 1914 was superseded by a new contract under which Sharp was to receive a salary of $15,000 per year and 25% of the net profits in excess of $100,000 a year, for which Sharp was to devote his services to plaintiff's business, advance the interests of the company, and assign to plaintiff any patents that he might obtain on inventions relating to bolts or nuts. The contract also provided that if Sharp died during the contract period, plaintiff would purchase all of Sharp's stock at book value to be determined by a specific formula.

During the period between 1914 and 1923 Sharp made certain inventions which he assigned to plaintiff. When the contract of 1918 expired it was not renewed, but Sharp remained in plaintiff's employ as president and general manager. The relationship between Sharp and the majority stockholders, who were officers and directors of plaintiff, was extremely friendly and complete trust and confidence was reposed in Sharp, who at all times showed great interest in promoting the welfare of the company. For the services rendered by Sharp from October 1, 1923 to 1930 inclusive, he received $20,000 per year; for 1931 and 1932, $12,000 per year; and for 1933, $9,600.

Between September 30, 1923, the date of the expiration of the 1918 contract, and his death, June 4, 1934, Sharp was in complete charge of plaintiff's manufacturing, sales and patent policies, and during this period made a number of inventions. These Sharp placed at plaintiff's disposal and continued to act as he had done during the life of the 1918 contract. The most important of these developments were covered by patents 1794737, 1795517, and 1937253, on machinery and methods of making the nut blanks out of which plaintiff's products were subsequently fabricated. Another invention was a nut covered by patent 1902912. Some nuts covered by this patent were manufactured, but the manufacture was abandoned in 1932 or 1933, and the inventions covered by patents 1795518, 2007310, and 2054393 were not put into actual use. Patent 1753250 was issued in Sharp's name conjointly with Sandstrom and Ridlon, both employees of plaintiff. Sharp secured an assignment to himself of Sandstrom's and Ridlon's interest, so that the entire patent issued to him.

On May 16, 1932, plaintiff entered into an employment contract with Harley E. Anderson to design new products. Anderson's contract required him to assign any invention he might make to plaintiff for which, in addition to his salary, he was to receive five per cent on all invoices for the sale of machines on which patents had been issued. Anderson invented a brake beam safety support which plaintiff, under Sharp's direction, manufactured and sold. Anderson assigned his rights to this invention to Sharp on May 3, 1933. August 21, 1934, John H. Sharp, in a letter addressed to plaintiff's patent attorney, stated that the brake beam safety support invention was the property of the Sharp estate. Up to the date that Anderson resigned his position with plaintiff, plaintiff paid him the five per cent royalties provided by his contract and on October 11, 1937, plaintiff, in accepting his resignation, wrote him that he would continue to receive his royalty on the brake beam supports.

The record also discloses that Sharp's son John invented a leak-proof bolt and a process for making it, for which he filed applications on May 4, 1931 and on June 23, 1932, and patents 2024069 and 2024070 were issued on December 10, 1935. Concerning these patents John H. Sharp testified that the original bolt was made without cost in Florida in the shop of a railroad and that he made four or five experiments in the work shop of a friend for which he paid the cost. He also testified that plaintiff made a lot of experiments with the bolt in its plant. The testimony also disclosed that commencing December 31, 1930 and up to December 31, 1931, plaintiff expended $5,088.43 in experimenting with and in developing the bolt; that when William E. Sharp accepted the assignment from John he had full knowledge of plaintiff's intention to manufacture and sell the bolt; and there was evidence that plaintiff, under William E. Sharp's direction, caused the bolt to be manufactured and sold. John H. Sharp assigned these patents to his father on December 20, 1930. The assignment was not recorded. It was placed in William E. Sharp's strong box, and plaintiff had no knowledge of its existence until after the death of Sharp. This assignment was executed by John H. Sharp, without any solicitation by William E. Sharp, in return for the cancellation of John's indebtedness to his father amounting to $3,500, incurred in the period between 1925 and 1928.

There is a sharp conflict in the evidence as to a conversation occurring in the office of Thomas G. Deering in June, 1934.

William E. Sharp died testate and defendant was appointed executrix of his will. There was testimony that prior to filing the will for probate, Deering, as an act of friendship to Sharp, offered to probate the will without cost to defendant; that defendant thereupon stated that she might not be able to accept his offered services because there might be a conflict of interest, saying "there is going to have to be a settlement for my patents"; and that when Deering assured defendant that the purchase of the patents would be taken care of in due time, Deering proceeded with the probate of the will, and an inventory of deceased's assets prepared by Deering was filed in the Probate Court of Cook County, Illinois, which included 1333 1/3 shares of plaintiff's stock and the patents here in controversy.

Deering testified that he had been counsel for plaintiff and a member of its board of directors since 1918; that he did have a conference with defendant at his office relative to probating the will, but at that conference no question was raised as to a possible conflict of interest; that there was no conversation with reference to any obligation of plaintiff to buy Sharp's stock; and that the only conversation relating to the patents was that defendant said that she would like to sell to plaintiff the patents that had been left to her by her husband.

Upon the death of Sharp, John H. Sharp was elected president and acted in that capacity up to December, 1940. John H. Sharp testified that defendant had inquired of him as to plaintiff's plans concerning the purchase of the stock belonging to the Sharp estate; that he had informed her that plaintiff was in bad financial condition and unable to purchase the stock; and that he had advised her against withdrawing the patents belonging to the estate because a withdrawal of the patents would wreck plaintiff. He also testified that he had discussed the possible purchase of the stock upon the terms of the 1918 contract with Hardy and Tripp, ...

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