The opinion of the court was delivered by: Platt, Chief Judge.
Time-O-Matic, Inc. hereinafter referred to as TOM filed suit in
the Northern District of Illinois to declare patent No.
2,673,976, owned by defendant, American Sign & Indicator
Corporation, hereinafter referred to as ASI, invalid, not
infringed, to obtain an injunction
restraining unfair competition by ASI, and to recover damages.
This action was transferred to the Eastern District of Illinois
and consolidated for trial with a suit by ASI against Edward J.
Schulenburg, Edward J. Schulenburg, Jr., Helen E. Schulenburg,
and Marie V. Pottebaum, operating as a partnership under the name
of Time-O-Matic Company, hereinafter referred to as TOM Co., and
Time-O-Matic, Inc., an Illinois Corporation, organized July 11,
1956. ASI seeks damages for breach of oral contract and/or breach
of a confidential relationship, injunctive relief and damages for
infringement. On December 19, 1952 the application for patent was
filed by Charles and Luke Williams as inventors, and the patent
issued March 9, 1954. Prior thereto the Williams Brothers Neon
Products had operated as a partnership in Spokane, Washington, in
the business of painting, selling and installing neon signs which
they bought from others. In 1949 Charles and Luke Williams
organized Williams Brothers, Inc., which continued in existence
even after the subsequent organization of ASI in 1952. ASI was
incorporated for the purpose of selling, throughout the United
States, a sign displaying time and temperature on a single bank
of lights, and to this corporation the Williams brothers assigned
all their rights under the patent.
The following issues are presented:
(1) Was there an oral contract between Williams Bros. Inc. and
TOM Co. whereby the latter was to manufacture and sell
exclusively to Williams Bros., Inc. equipment for displaying time
and temperature on a single panel of lights, and whereby Williams
Bros., Inc. was to purchase all equipment for these signs from
(2) Was there a confidential relationship between TOM Co. and
ASI or Williams Bros., Inc.?
(a) Are TOM Co. and TOM estopped to deny the validity?
(4) If the patent is valid was it infringed?
(5) If ASI has failed to establish the oral contract or the
confidential relationship, and the patent is invalid, is TOM
entitled on the basis of unfair competition, to damages and to
restrain ASI from interferring with the sale of its equipment for
displaying time and temperature on a single bank of lamps?
In March, 1951, Williams Bros., Inc. attempted to interest the
Spokane and Eastern Branch of the Seattle First National Bank in
a sign with the tape or vertical tube type thermometer, with a
clock at the bottom. This idea was abandoned. About July 1, 1951,
Williams Bros., Inc. contacted the bank to sell a sign displaying
time and temperature on the same panel. Williams Bros., Inc.
applied for copyright on this design on July 3, 1951 and it was
registered in the United States Copyright Office July 31, 1951.
TOM Co. had been in the business of selling control equipment
for several years. They had furnished this equipment for various
types of signs displaying separately time and temperature. The
Williams brothers knew of TOM Co.'s equipment, and on May 23,
1951, Charles Williams telephoned J.W. Sutphin, Sales Manager for
TOM Co. in Danville, Illinois. He testified that he told Sutphin
he had a prospect for a sign; that he wanted to have the time and
temperature alternatingly displayed on a single bank of lights;
that he wanted to know if TOM Co. could build this equipment and
at what price. He further testified he mentioned to Sutphin that
TOM Co.'s equipment could be adapted for this purpose in several
ways including double filament lamps, relays, brush bar, or the
like for lifting the contacts. Sutphin testified that Charles
Williams made no suggestions for accomplishing the result; that
he said TOM Co. could supply the equipment but they would have to
figure out the price and the means of accomplishing the end. W.E.
Bachman, Specifications Engineer
at TOM Co., heard what Sutphin said and corroborates him. After
this conversation Sutphin and Bachman discussed the proposition
and also conferred with Mr. Banks, in the engineering department
at TOM Co. Sutphin suggested using a flasher having cam operated
contacts to accomplish the alternating display.
Bachman wrote Charles Williams, May 25, 1951, and enclosed a
sketch of a composite lamp bank and quoted the suggested list
price for one numeral clock mechanism at $880, one numeral
temperature control at $1,980, and one relay panel for switching
the lamp bank from the clock mechanism to the thermometer control
at $600. He also enclosed photographs of the equipment. Sutphin
testified that these were standard prices for the mechanisms, and
that the charges for the relay unit used for switching purposes
represented the estimated cost; that no charge for engineering
was included. Later Ed. Schulenburg returned to the factory and
suggested the use of a lifter bar instead of the relay panel.
Subsequently the Williams brothers on several occasions met with
the bank officials to sell this sign, which was characterized as
the "Double T". To induce the sale by assurance that the sign was
new, the Williams brothers, without revealing the name of the
bank requested and received a letter from Sutphin dated August
31, 1951, stating that the idea of a "Double T" was new and that
TOM Co. had "never furnished equipment for a combination time and
In September, 1951, the Williams brothers approached Greek
Wells, their attorney, and requested that he take steps to file
application for a patent. They obtained a letter from him stating
that they had consulted him concerning a patent on a "Double T"
Williams Bros., Inc. had submitted a written proposal to the
Spokane and Eastern Bank, dated July 10, 1951, in which it said:
"To our knowledge and Time-O-Matic Company of
Danville, Ohio, (sic) who build the control
mechanisms, this will be the only unit displaying the
correct time and temperature alternately from the
same reader panel."
Armed with the letter from Sutphin dated August 31, 1951, and the
letter from Greek Wells dated September 13, 1951, the Williams
brothers had a conference with the Bank at Seattle to sell it the
sign, with exclusive rights in that part of the State.
TOM Co. had a distributor of their products for the Pacific
Northwest known as Northwestern Agencies, Inc. in Seattle,
Washington, and a jobber for their products known as Coastal
Sales Company at Spokane, Washington. Both sold electrical
equipment for other manufacturers.
A meeting was held September 21, 1951, in the Camlin Hotel in
Seattle. Present were Charles Williams, Luke B. Williams, E.J.
Schulenburg, and Norman Emden, an employee of Northwestern
Agencies, Inc. Schulenburg was in the Northwest part of the
country and had been notified to contact Williams Brothers, Inc.
Charles Williams testified that at this meeting he told
Schulenburg about the bank prospect; that it looked like they
might have something big; that they were applying for a patent
and had given the Bank an exclusive on the sign; that they would
buy from TOM Co. all the equipment if TOM Co. would not sell to
anybody else; and that Schulenburg consented. Luke corroborates
Charles except that he stated Mr. Schulenburg said that any
inquiries on the sign would be referred to them. Schulenburg
testified that he did not recall any mention of the patent or
exclusive arrangement with the Bank, nor any statement that TOM
Co. was to sell exclusively to Williams Bros., Inc., and that he
explained how the lamps could be placed on the sign, the location
of the control thermometer, and the operation of the equipment
which TOM Co. could furnish.
The sale was made to the Bank by Williams Bros., Inc. on
October 16, 1951.
An order was given Coastal Sales on October 19, 1951. The
equipment incorporating the lifter bar instead of a relay arrived
in Spokane about December 15, 1951, in three units, the
temperature control, the time control and flasher. Williams
Bros., Inc. built a control cabinet and wired the sign according
to diagrams furnished by TOM Co. The sign was test run on
December 24, 1951 and went into continuous operation on December
Williams Bros., Inc. received a letter dated December 11, 1951
from Sutphin stating that any inquiries received on the equipment
for alternating time and temperature would be referred to it. In
1952 inquiries started to ...