St. Louis & O'Fallon Coal Co. v. Dinwiddie (53 F.2d 655, 1931)

WILLIAM C. COLEMAN, District Judge.

This is a suit in equity brought to determine the plaintiff’s right to certain inventions, made by certain of the defendants while employed by the plaintiff to conduct tests for the purpose of determining the commercial possibilities arising from the production of insulating brick, semi-coke smokeless fuel, and a variety of crude by-products, through the method of low-temperature distillation of coal.

The bill of complaint asks for relief by injunctions, preliminary and permanent, restraining defendants from using, selling, assigning, or otherwise disposing of, and from disclosing except to the plaintiff or its representatives, those inventions, embodied in four applications for United States letters patent filed by the three individual defendants and now held, by virtue of assignment, by the fourth, or corporate defendant, the Bashioum Producer Retort Company, a holding company formed and owned by the other defendants; and also that the court decree that plaintiff alone has full and complete equitable title to all of these inventions. The suit was brought originally against defendant Dinwiddie alone, but later the other three‘defendants were, by agreement, made parties to the proceeding, and similar suits, which the same plaintiff had instituted against certain of the defendants in other jurisdictions, have not been pressed, pending a decision in the present proceeding.

The defense of the two principal defendants, Cuno and Bashioum, is twofold: First, that they were never employed to'make the inventions which are involved in the present controversy, but that these were conceived outside and independently of their employment by the plaintiff; second, that defendant Dinwiddie, while acting as agent for the plaintiff, made representations as to the terms and conditions upon which defendants Cuno and Bashioum would be protected in their inventions, upon which these two defendants acted, and which are binding upon the plaintiff, because such representations were within the scope of defendant Dinwiddie’s apparent, if not actual, authority.

Defendants consented to the issuance of a preliminary injunction. The ease was thereupon heard upon the bill and answer. A large amount of oral and documentary testimony was presented, lengthy arguments had, and briefs filed.

Prefatory to a summary of the history of the employment of the three individual defendants by the plaintiff company, out of which the present controversy arises, it is necessary to understand the so-called' Kern processes, and the reason for the plaintiff becoming interested therein, and later employing these three defendants in connection therewith. For a number of years prior to 1928, the low-temperature distillation of cheap coals had been developed in Great Britain and Germany to the extent of proving its great commercial value. One Ludwig Kem, a German chemist, assisted by his two sons, had invented a number of processes for the production of insulating brick by low-temperature distillation of coal. These proc•esses he had patented in Germany and other foreign countries, and they were also covered by numerous letters patent and applications for letters patent in the United States. And so it was that in the spring of 1928 the Messrs. Kem came to the representatives of the Adolphus Busch Estate of St. Louis, of which the plaintiff company is a subsidiary, claiming- they had developed various novel and economical processes, by low-temperature distillation of bituminous coal, for the production of insulating brick and its various byproducts, including tar, benzol, ammonium sulphate, and many others, and also of a smokele'ss fuel known as semicoke, and sought financial support necessary for the development of these processes, and for the production and marketing of the products of these processes. Their representations so appealed to the trustees of the Busch Estate, who were seeking the most profitable ways to utilize the extensive coal properties that belonged to the plaintiff company, that through the plaintiff company they entered into two formal written agreements with the Kerns, the first relating to the Kem processes for the production of insulating brick and other insulating materials and their by-products, by low-temperature distillation of coal; and, the second, a supplementary contract, extending the terms of the original agreement, in a manner very important to the present controversy, as hereinafter explained. This second agreement was made some four months later, after the defendants’ employment by the plaintiff had advanced to a point where defendants realized there was perhaps even greater commercial potentiality in the manufacture of smokeless fuel than of insulating brick, under the Kem processes.

The vital parts of the two agreements, considered as an entity, are as follows: First, should examination of the Kerns’ title to the patented and other inventions in question prove satisfactory, provision was made' for a preliminary test period consisting of two parts: (1) A laboratory test to determine whether the products and by-products of these inventions were capable of being profitably manufactured for commercial purposes; (2) an investigation of whether, “under the state of the art, the inventions used in such laboratory manufacture have been or can be covered by letters patent of the United States issued or to. be issued to the chemists [the Kerns] or their assigns, sufficient in scope and protection to obtain a patent monopoly that will control the manufacture on a commercial scale of the said products and byproducts.” During this preliminary test period, specified weekly payments to the Kerns were provided for. Second, if the results of these two investigations proved satisfactory, plaintiff agreed to construct a manufacturing test unit of specified capacity, and with it to conduct an experimental test for the purpose of both “demonstrating the manufacturing possibilities to be developed through the said inventions and services of the chemists” (the Kerns) and also “of testing the market possibilities” of the experimental output, “and the net profits to be expected from such manufacture on a larger scale.” Third, if the results of both the preliminary test and the manufacturing test proved satisfactory, the plaintiff agreed to elect, within a specified period of time, whether or not it would exercise the exclusive option given it to acquire the patented and other inventions of the Kerns. Fourth, if it elected to exercise such option, then various enumerated patents and applications for patents were to be transferred to a corporation to bo formed by the plaintiff for the development, manufacture, and marketing of the products and byproducts of these inventions.

It was also further agreed that to’plaintiff or its assigns, or to this new corporation, if formed, the Kems should assign “complete title to any and all inventions of processes and (or) devices or articles, which they now ha\ e or which they may hereafter during the term of said agreement originate or invent or otherwise acquire, relating either directly or indirectly to the distillation or carbonization or other production of any material, or combinations of materials, carbonaceous or mineral, and (or) relating to a,ny and all byproducts resulting' therefrom.” Also, the defendants agreed “immediately upon making any new discovery or invention relating to the subject matter of said agreement as amended hereby, to give full written information and description thereof to the second party [plaintiff], its assigns, or to the said corporation to be formed by second party, and to cooperate with second party whenever thereto requested, in applying for and obtaining letters patent on all inventions covered by said agreement as amended hereby and in causing title to such letters patent to be vested in second party, its assigns or said new corporation.”

The character and amount of the stock of the new corporation was to he left to plaintiff’s determination; the Korns were to receive 40 per cent, of the voting stock; they obligated themselves to contract with the corporation to give it their exclusive services as chief research, laboratory, and factory chemists over a ten-year period, and to assign to it all their future inventions of a like or related nature. It was further provided that at least one of the Korns should be an officer and a member of the board of directors of the corporation.

For some time prior to this contractual relationship which was entered into between the plaintiff and the Kems, defendant Dinwiddie had been employed by the Bnseh Estate in the capacity of what was termed manager of public relations, or, in other words, a general factotum, being engaged in work largely of a political or quasi political character. lie was a newspaper man by training and not a scientist. It was his investigation of the Kerns’ claims, made at the request of the Busch Estate, which led to the making of the contracts just referred to, because, as Mr. Dinwiddie states in his first report to the Busch Estate, under date of November 26, 1929, “A preliminary cheek up of the Kems’ claims, their past history, their integrity and reliability, seem to warrant us in entering into a modest contract with them so that our interests might be protected while the Kerns prove they could manufacture the commodities named above.” The original contract with the Kems contemplated, as we have seen and as Mr. Dinwiddie explained in his last report of April 11, 1930; to the committee in charge, “the production only of insulating brick and other insulating materials to be made from raw materials in our mines.” But, as the report continues, “developments in the laboratory show, among other things, that we have the materials from which can be made a very superior smokeless fuel in the nature of coal, for both domestic and industrial use. Later, the Kerns’ contract was amended and supplemented by a further agreement to include whatever rights they then, or might thereafter, have with respect to the eoko and the related and unrelated products, processes and invention.” At this time Mr. Dinwiddie was being paid for his services, pursuant to contract, at a fixed salary of $125 per week, with a bonus of $10,000, conditioned upon his activities being successful. On April 11, 1929, this entire bonus had been fully paid him.

The entrance of the other defendants, Drs. Cuno and Bashioum, into the picture and the reasons therefor, are also best explained by Mr. Dinwiddle’s own statement contained in his report of April 11,1930. “It soon became evident that the Kems,” states Mr. Dinwiddie, “while possessing ability as chemists of a high order, do not possess that mechanical and manipulative knowledge and skill which is so essentia] in demonstrating practical theories which they set forth in patent applications and in laboratory demonstrations. It was to provide this manipulative and engineering service that I was assigned to the work by the trustees of Adolphus Busch’s Estate, and to the same end that I was authorized to associate with me in the work Dr. Cuno of St. Louis and later, for more special services, Dr. Bashioum of Pittsburgh. With the assistance o¿ Dr. Cuno and with the use of inexpensive equipment in St. Louis wo designed and constructed, entirely by ourselves, a small commercial plant embodying certain fundamental practices well known. * * “ The Kei ns frankly acknowledged they lacked the engineering and manipulative skill necessary to give practical effect to the theories they had evolved in the laboratory, so the plant has been continuously operated by Dr. Cuno and myself while the Kerns did their work in a well equipped laboratory. * * * ” Mr. Dinwiddie stated in his oral testimony that he retained Cuno because of his own limited chemical knowledge. Dr. Cuno was an engineer of the Industrial Bureau of St. Louis, and had been, for seven years professor of industrial chemistry and metallurgy at the Washington University, St. Louis, and a consulting mechanical and mining engineer. “Though his position with us has been as a consultant,” stated Mr. Dinwiddie in his report of November 26, 1929, “he has devoted much of his time to us in prolonged experimentation and practical development of the Kern processes.”

On the recommendation of Cuno that he .needed the advice and assistance of a consultant with better laboratory facilities than he had heretofore experienced in dealing with a Dr. Wallace, who had first been retained in Pittsburgh, he was authorized to employ Dr. Bashioum, in a consultant capacity, and he did so in January, 1929. Dr. Bashioum was another chemical engineer of extended experience, and head of the Chemical Engineering Department of the University of Pittsburgh. Unfortunately, no written agreements were ever entered into between the plaintiff, Dinwiddie, Cuno, or Bashioum respecting their services, and it is the absence of any definitive understanding which led to the present litigation. The plaintiff paid all of the expenses involved in the project, including the establishment and maintenance of the laboratory in St. Louis. Dinwiddie was paid $125 a week and expenses, which totaled, during the period here in controversy, more than $17,000. Dr. Cuno was first paid on a per diem basis, $50 a day; later, $300 a month in addition to his expenses, and he received 'in all over $7,000. Dr. Bashioum was paid entirely on a fee basis, which aggregated, in addition to his expenses, more than $5,000. Total expenditures, including these items, incurred by the plaintiff, were approximately $85,000 up to the time that defendants severed their connection with plaintiff.

We have seen that defendants’ contention is twofold. A summary of their first defense, which underwent amendment after institution of the suit, is that, conceding that, defendant Dinwiddie has no direct claim upon the inventions or discoveries because he invented nothing, and was therefore erroneously joined as a coinventor before the Patent Office through an innocent mistake as to his connection with the inventions an error which his counsel have sought to cure by the filing of formal disclaimers — nevertheless, the other individual defendants, Drs. Cuno and Bashioum, do have such direct claim, in that the discoveries which they are now claiming as their own property were not made in the course