Petition — Shatterproof Glass Corp. v. Libbey-Owens-Ford Co.

Supreme Court of the United States

October Term, 1976

— 76591764

SHATTERPROOF GLASS CORPORATION,

Petitioner,

vs.

LIBBEY-OWENS-FORD COMPANY,

Respondent.

—

—

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals

For the Sixth Circuit

WILLIAM C. McCoy, JR.

BOSWORTH, SESSIONS & McCoy

625 National City Bank Building

Cleveland, Ohio 44114

Counsel for Petitioner

THE GATES LEGAL PUBLISHING O. CLEVELAND, OHIO—TEL. (216) 621-5647

TABLE OF CONTENTS

Opinions Below

s

Questions Presentdt

Statutes Involved

Statement of the Case

r ae 1

r x ee eN

Reasons Why the Writ Should Be amie ä *

.

Appendix:

Order of the Court of Appeals (March 3, 1977)

Order of the Court of Appeals Denying Petition for

Rehearing (April 14, 1977)

Findings of Fact and Conclusions of Law of the Dis-

trict Court (November 7, 19755

TABLE OF AUTHORITIES

Consolidated Gas, Elec. Light & Power Co. v. United

Rys. & Elec. Co., 76 F.2d 535 (4th Cir. 1985) -......

Paul M. Harrod Company v. A. B. Dick Company, 194

F. Supp. 502 (D.C.N.D. Ohio, 1961)

Kaiser Aluminum & Chemical Corp. v. United States,

287 F.2d 890 (Ct. Cl. 1961)

Permian Basin Area Rate Cases, 390 U.S. 747 (1968)

Reynolds Metals Co. v. United States, 488 F.2d 983, 987

(Ct. Cl. 1971)

St. Joseph Iron Works v. Farmers Mfg. Co., 106 F.2d

PO e665

Texas Gas Transmission Corp. v. Shell Oil Co. 368 US.

. ati t ee denen

a oo fo W

13

14

Supreme Court of the United States

SHATTERPROOF GLASS CORPORATION,

Petitioner,

VB.

LIBBEY-OWENS-FORD COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals

For the Sixth Circuit

Your petitioner, Shatterproof Glass Corporation (plain-

tiff below) hereby petitions that a writ of certiorari issue

to review the Order of the United States Court of Appeals

for the Sixth Circuit in the above action dated March

8, 1977, rehearing denied April 14, 1977, affirming the judg-

ment of the United States District Court for the Northern

District of Ohio, Western Division.

OPINIONS BELOW

The first decision of the District Court is reported at

350 F. Supp. 60 (N.D. Ohio, 1972). On appeal, the Sixth

Circuit Court of Appeals reversed and remanded. That

decision is reported at 482 F.2d 317 (6th Cir. 1978). Cer-

tiorari was denied February 19, 1974, 415 U.S. 918.

The second decision of the District Court was entered

on November 10, 1975, is not reported but is reproduced in

was an appeal. The Sixth Circuit affirmed the District

Court in an Order filed March 8, 1977 which is reproduced

in the appendix to this petition (App. 11-12). Shatterproof

petitioned for reconsideration and that petition was denied

on April 14, 1977 (App. 13).

JURISDICTION

The jurisdiction of this Court is invoked under 28 U.S.C.

§1254(1) and Supreme Court Rule 19(1) (b).

The federal jurisdiction of the District Court was based

on 28 U.S.C. §1882(a).

QUESTIONS PRESENTED

(1) When a license agreement requires the licensor

to notify the licensee of other relevant license agreements

so that the licensee can determine whether or not such other

license agreements have better terms, is the breach of that

notification requirement not a material breach which en-

titles the licensee to a refund of the royalties paid to the

licensor?

(2) When agreements are compared to determine

whether the terms of one are more favorable than those

of another, must the comparison not be made from the view-

point of the protected party?

*The reference is to the appendix to this petition.

STATUTES INVOLVED

This is a matter of contract law. There are no par-

ticular statutes which this case involves.

STATEMENT OF THE CASE

Shatterproof Glass Corporation (Shatterproof) of De-

troit, Michigan is an independent manufacturer of automobile

windshields. In 1955 it entered into a patent license agree-

ment with Libbey-Owens-Ford Company (LOF) of Toledo,

Ohio and obtained a license under certain patents pertaining

to the manufacture of laminated automobile windshields.

Through 1960, it paid royalties to LOF under one of those

patents, Pearse Patent No. 2,450,297, in the amount of $325,-

078.36.

The LOF-Shatterproof license agreement had the follow-

ing favored nations or equal treatment clause:

“11. LIBBEY-OWENS-FORD agrees that if any

license heretofore or hereafter granted by it under any

one or more claims of the licensed patents contains any

more favorable terms or rates of royalty than granted

to LICENSEE hereunder, then LICENSEE shall there-

upon have the benefit of such more favorable terms

or rates for the same claim or claims, but under no

other claims of any of the licensed patents. LIBBEY-

OWENS-FORD shall promptly notify LICENSEE of

each license granted by it to others that includes

any patent or patent claim licensed under this agree-

ment and shall upon request, make available to counsel

for LICENSEE a complete copy of such agreement for

inspection.” (emphasis =upplied )

Shatterproof sued LOF in the District Court in Toledo

for a refund of the $825,078.36 royalties paid under the

Pearse patent on the grounds that in a 1931 license agreement

between LOF and Ford Motor Company, LOF had licensed

the Pearse patent royalty-free to Ford, had not notified Shat-

terproof of that license and was therefore entitled to a refund

of its royalties.

LOF failed to notify Shatterproof of the 1931 LOF-

Ford license agreement as required by the quoted provisions

of the LOF-Shatterproof license. Both the District Court

and the Court of Appeals found that LOF’s failure to notify

Shatterproof was a breach of the agreement.

LOF admitted that Ford had not paid any royalties

for its use of the Pearse patent but claimed that an additional

consideration for the 1931 LOF-Ford license was “Ford’s

consent” to the transfer of certain patents of Triplex Corpora-

tion to LOF, which consent was given in 1931, permitted

LOF to expand its laminated glass operation, and was of

immense value to LOF.

In its second decision, the District Court found that

Ford’s consent was worth all of the profits of LOF from

its laminating glass operations through 1954, which profits

far exceeded the royalties paid bo Shatterproof. The Court

of Appeals affirmed the second decision of the District Court.

Triplex was a corporation which owned a number of

patents pertaining to the manufacture of laminated automo-

bile windshields. In 1928 it had entered into a cross-license

with Ford whereby Ford undertook to develop a continuous

process for the manufacture of laminated automobile wind-

shields in return for which Triplex gave Ford a royalty-

free license under its patents. Additionally, Ford agreed

to buy laminated glass windshields from Triplex.

Triplex was insolvent in 1931 and could not supply Ford

with windshields because it could not produce them inexpen-

sively enough and did not have a source of raw glass to

make into laminated glass. LOF and PPG had refused to

supply Triplex with raw glass.

LOF argued that it had to have the consent of Ford

in order to acquire the Triplex patents because Ford’s obliga-

tion to purchase laminated glass from Triplex was a personal

obligation. Ford’s obligation to purchase glass from Triplex

terminated on April 30, 19382.

In addition to Triplex, the 1931 transactions involved

LOF, Ford, General Motors, and Pittsburgh Plate Glass Com-

pany and a number of other related agreements. The District

Court summarized the deals made in 1981 in its Finding

29 (App. 24). The relationships then established stand

today. LOF supplies General Motors with windshields and

PPG supplies Ford with windshields.

The 1931 LOF-Ford agreement included three other pat-

ents of LOF which were licensed to Ford and also were

licensed to Shatterproof.

On its books, LOF valued all of the patents acquired

from Triplex at $114,560.

Ford used many of the same patents as Shatterproof.

LOF negotiated with Ford for many years in a dilatory

way but did not settle with Ford for its infringement until

1962, all the while taking the royalty payments of Shatter-

proof.

In its first decision, the Court of Appeals held that

another patent, Jendrisak Patent No. 2,551,607, was included

in the 1962 license agreement between LOF and Ford and

directed the District Court to determine if it had been licensed

at more favorable rates. On remand, the District Court

recognized that Ford had paid royalties for its use of the

Jendrisak patent at about half the rate paid by Shatterproof

but refused to award a refund of royalties to Shatterproof

because Shatterproof and Ford had not used the patent over

the same time period and there was, therefore, no direct

competitive injury.

LOF licensed Shatterproof in the first place because

it was required to do so by the terms of a 1948 antitrust

consent decree (the so-called “flat glass” or Toledo decree).

The consent decree required LOF to license any applicant

at reasonable nondiscriminatory royalty rates. In an anti-

trust treble damage count filed with this action, Shatterproof

claimed that LOF had violated the terms of the consent

decree and discriminated against it, but that count was dis-

missed in the District Court on the authority of Paul M.

Harrod Company v. A. B. Dick Company, 194 F. Supp. 502

(D.C.N.D. Ohio, 1961).

Many commercial agreements have favored nations

clauses in them; for instance, supply agreements between

natural gas producers and distributors. See Texas Gas Trans-

mission Corp. v. Shell Oil Co., 363 U.S. 263 (1960); Permian

Basin Area Rate Cases, 390 U.S. 747 (1968); Reynolds Metals

Co. v. United States, 438 F.2d 988, 987 (Ct. Cl. 1971);

Kaiser Aluminum & Chemical Corp. v. United States, 287

F.2d 890 (Ct. Cl. 1961); Consolidated Gas, Elec. Light &

Power Co. v. United Rys. & Elec. Co., 76 F.2d 535 (4th

Cir. 1985).

FIRST QUESTION

There is a conflict between the Sixth and Fourth Cir-

cuits on this question.

The District Court and the Sixth Circuit Court of Ap-

peals ignored the fact that LOF breached the notice provisions

of its license agreement with Shatterproof. LOF let Shatter-

proof pay royalties while its competitor Ford had a royalty-

free license and then was allowed to defend this discrimina-

tory treatment on the very agreement which it had kept

secret from Shatterproof.

In St. Joseph Iron Works v. Farmers Mfg. Co., 106

F.2d 294 (4th Cir. 1989), however, the Fourth Circuit Court

of Appeals held that the breach of the notice provisions

of a favored nations clause was a “vital matter” and that

the licensee should be refunded the royalties which it had

paid “in ignorance of its rights”.

In substance, the Fourth Circuit recognized the clear

injustice of permitting a licensor to withhold material in-

formation from a licensee and still collect royalties from

the licensee while the Sixth Circuit did not.

The conflict should be resolved and the law on this

question should be settled.

SECOND QUESTION

This question is directed to the construction of favored

nations clauses generally and has application far beyond the

particular circumstances of this case. As indicated, all sorts

of agreements have favored nations clauses in them.

Favored nations clauses should be interpreted to give

effect to their purpose—which is to make sure that different

parties dealing with a common third party get fair and

equal treatment.

Ford was a licensee and Shatterproof was a licensee

and they were, therefore, the protected parties of the favored

nations clause from whose viewpoint the considerations flow-

ing back and forth should have been evaluated. The only

logical way to evaluate Ford’s consent was from Ford’s view-

point, that is, what it cost Ford or what the benefits to

Ford were.

The conclusion of the District Court that Ford’s

consent was worth $52,909,263 to LOF and therefore more

than offset the royalties paid by Shatterproof, is ridiculous.

The benefits to LOF, grossly inflated or not, were not relevant

and should not have been the basis for the evaluation of

Ford’s consent.

The Court of Appeals declined to address itself to the

issue presented to it. It indicated that the District Court

was in error in its reasoning but affirmed the judgment.

The District Court and the Sixth Circuit have made a

fundamental error in law, which should be set right.

This is an important question which should be settled.

This Court will never again find itself presented with cir-

cumstances which are as clear-cut as these.

REASONS WHY THE WRIT SHOULD BE GRANTED

The writ should be granted because there is a conflict

between the Sixth Circuit and the Fourth Circuit and because

there is an important unsettled question of contractual law.

Moreover, such a manifest injustice has been done to Shatter-

proof as to call for an exercise of this Court’s power of

supervision.

CONCLUSION

WHEREFORE YOUR PETITIONER PRAYS that a

writ of certiorari issue to the Court of Appeals for the

Sixth Circuit so that this cause may be reviewed and de-

termined by this Court, the judgment of the Sixth Circuit

reversed, and your petitioner refunded the royalties paid

under Patent No. 2,450,297, together with interest.

Respectfully submitted,

WILLIAM C. McCoy, In.

BOSWORTH, SESSIONS & McCoy

625 National City Bank Building

Cleveland, Ohio 44114

Counsel for Petitioner

11

APPENDIX

ORDER OF THE COURT OF APPEALS

(Filed March 3, 1977)

No. 76-1141

UNITED STATES COURT OF APPEALS

For THE SIXTH CIRCUIT

SHATTERPROOF GLASS CORPORATION,

Plaintiff-Appellant,

V.

LIBBEY-OWENS-FORD COMPANY,

Defendant-A ppellee.

ORDER

Before: PHILLIPS, Chief Circuit Judge, and CELEBREZZE and

ENGEL, Circuit Judges.

Shatterproof Glass Corporation appeals from a judgment

of the District Court entered in favor of Defendant, Libby-

Owens-Ford, in an action to recover royalties allegedly over-

paid under a “favored nations” clause in a patent license

agreement. In 1972, the District Court dismissed the case

upon a determination that there had been no breach of the

agreement. Shatterproof Glass Corp. v. Libbey-Owens-Ford

Co., 350 F. Supp. 60 (N.D. Ohio 1972). On appeal to this

Court we reversed and remanded the cause for an evidentiary

finding of whether Ford Motor Company actually obtained

more favorable terms or rates of royalty than did Appellant

12

for those patents which we found to be covered by the agree-

ment. Shatterproof Glass Corp. v. Libbey-Owens-Ford Co.,

482 F. 2d 317 (6th Cir. 1978). The instant appeal challenges

the legal basis of the District Court’s conclusions on remand.

We have reviewed the record and briefs of counsel and

find that the District Court properly complied with the terms

of our mandate. Since there was sufficient evidence to sup-

port the District Court’s factual finding that consideration

for Ford’s consent to the assignment of the contract was, in

terms of money, equal to or greater than the royalty rate for

Shatterproof’s use of the same patents, we do not go further

to pass upon the precise method of valuation employed by the

District Court.

Therefore, it is the Order of this Court that the judg-

ment of the District Court be, and it hereby is, AFFIRMED.

ENTERED BY ORDER OF THE COURT

/s/ JOHN P. HEHMAN

Clerk

18

ORDER OF THE COURT OF APPEALS DENYING

PETITION FOR REHEARING

(Filed April 14, 1977)

No. 76-1141

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

SHATTERPROOF GLASS CORPORATION,

Plaintiff-Appellant,

v.

LIBBEY-OWENS-FORD COMPANY,

Defendant-Appellee.

ORDER

Before: PHILLIPS, Chief Circuit Judge, and CELEBRZZZE and

ENGEL, Circuit Judges.

The Plaintiff-Appellant filed a petition for rehearing

with a request for rehearing in banc. No Judge of this

Court having moved for a rehearing in banc, the petition to

rehear has been referred to the hearing panel.

Upon consideration, the Court being advised, it is OR-

DERED that the petition for rehearing be DENIED.

ENTERED BY ORDER OF THE COURT

/a/ JOHN P. HEHMAN

Clerk

14

FINDINGS OF FACT AND CONCLUSIONS OF LAW

(Filed November 7, 1975)

No. C 69-71

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF OHIO

WESTERN DIVISION

SHATTERPROOF GLASS CORP.,

Plaintiff,

vs.

LIBBEY-OWENS-FORD GLASS CO.,

Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

WALINSKI, J:

This cause came on for re-trial on December 9, 1974,

of certain issues pursuant to the remand by the Sixth Cir-

cuit Court of Appeals. The Court of Appeals stated:

“On remand, therefore, LOF will have the burden

of proving that Ford was not given a license to use

any of the patents licensed to Shatterproof under more

favorable terms or royalty rates.”

Therefore, the Findings of Fact and Conclusions of Law

will be limited to that issue, the others having been determined

by the appellate decision.

The Court of Appeals further determined that five (5)

patents licensed to Shatterproof were within the 1981 LOF

licensing cross-agreement.

in regard to said patents shows the following:

15

A comparison of royalty rates

1931 Ford 1955 LOF-

-LOF Shatterproof

Patent royalty rate royalty rate

2,392,770 (Ryan) Royalty free 1/2 cent

2,450,297 (Pearse) Royalty free 2 cents

2,593,405 (Beckham) Royalty free 2-1/2 cents

2,593,525 (Beckham) Royalty free 2 cents

2,686,420 (Ryan) Royalty free 1 cent

The rate to be paid on the Pearse patent has been

reduced, effective January 1, 1961, to 1/2 cent per square

foot, pursuant to the 1962 Ford-LOF license.

Of the five patents found to be within that agreement,

Shatterproof actually used and paid royalties on only two

patents, 2,392,770 (Ryan), and 2,450,297 (Pearse). Since

no royalties were paid on the other three patents, the fact

Ford had a license at more favorable rates did not result

in any damages to Shatterproof.

In defining “royalty”, the Court of Appeals determined

the meaning to include “payment proportionate to the use”

and the “compensation” paid by the licensee:

“In determining, then, whether Shatterproof is en-

titled to any more favorable ‘terms or rates of royalty,’

the full consideration paid by each licensee must be

considered. Shatterproof’s consideration was a specified

rate of royalty. Ford’s consideration was the granting

of a royalty-free license to use certain patents it owned.

In addition, a portion of the $400,000 paid for the release

16

must be considered as compensation for the license.

Thus, the consideration in each case was certainly dif-

ferent. But the question to be determined is whether

one was more favorable than the other. Only by a

comparison of the value of the consideration given in

each instance can it be determined whether Shatterproof

is entitled to more favorable rates.”

FINDINGS OF FACT

(1) On May 19, 1955, Defendant Libbey-Owens-Ford

Company (hereinafter referred to as LOF“) entered into

a license agreement with plaintiff, Shatterproof Glass Cor-

poration (hereinafter referred to as “Shatterproof”). Pur-

suant to said agreement, LOF granted a license under a

number of its patents at stipulated royalty rates.

(2) Pursuant to said agreement, Shatterproof paid the

following royalties under three patents, among others:

Pearse and Bamford Patent No. 2,450,297—$325,078.36

Ryan Patent No. 2,392,770 — 28,316.52

Jendrisak Patent No. 2,551,607 — 11,147.08

(3) In the Shatterproof license, there is both a prospec-

tive license and an accounting and release for past infringe-

ment.

(4) Shatterproof has claimed a refund of all alt

paid under the Ryan and Pearse and Bamford psacents pu

suant to Article 11 of the license agreement, which provides

that LOF shall give Shatterproof the benefit of any more

favorable terms and rates of royalty granted to another

licensee. Shatterproof claims that LOF granted Ford Motor

Company (hereinafter referred to as “Ford”) more favorable

17

terms and rates of royalty under a license agreement entered

into on December 4, 1931. Shatterproof has also requested

a refund of $5,517.80, pursuant to Article 11, representing

49.5% of royalties paid by Shatterproof under the Jendrisak

patent, on the ground that LOF granted Ford more favor-

able terms and rates of royalty under two agreements en-

tered into between LOF and Ford on April 13, 1962. The

following findings are made with respect to each claim sepa-

rately.

(5) Laminated glass is made by inserting a plastic

interlayer between two sheets of glass and provides an im-

portant safety factor in automobiles since ordinary plate

or sheet glass shatters on impact when used for automotive

glazing, whereas laminated glass is resistant to shattering,

and the edges of any glass that does shatter are not so

sharp.

(6) The originator of the process was a British com-

pany, Triplex Safety Glass Company Limited, which acquired

the inventions on a process for manufacture of laminated

glass developed by a French inventor, Edouard Benedictus.

Triplex Safety Glass Company Limited transferred the rights

to the laminated glass process on January 30, 1926, to Amory

Haskell and Neilson Edwards, who in turn organized Triplex

Safety Glass Company of North America (hereinafter re-

ferred to as “Triplex”), and Triplex commenced the manu-

facture and sale of laminated glass under this process.

(7) On October 17, 1927, Ford and Triplex entered

into an agreement under which Triplex granted Ford a free

license under the Triplex patents and agreed to disclose the

process of making laminated glass to Ford, and Ford agreed

to attempt to develop a continuous process for manufacturing

laminated glass.

18

(8) Under the contract, Ford also agreed to give Tri-

plex information on a continuing basis with respect to Ford’s

developments in the laminated glass area, and Triplex agreed

to a reciprocal obligation. Ford also acquired the right

to call upon Triplex to furnish up to one-half of Ford’s

requirements of laminated-glass until June 30, 1932, at a

price equal to 20 cents per square foot in excess of the

cost of manufacture by Triplex or the cost of manufacture

by Ford, whichever was lower.

(9) Triplex was a fabricator buying all components

of the laminated product from others and was handicapped

in that it did not have a dependable source of supply for

the thin glass used in the laminating process and had only

limited capital with which to develop an efficient manufactur-

ing process. The persons who were active in Triplex

did not have a substantial manufacturing background.

(10) Triplex incurred production costs for laminated

windshields made from sheet glass from 1928 through Janu-

ary, 1932, of $7,572,035.53, and had total billings of only

$7,178,053.52. Total production costs of laminated plate glass

windshields made by Triplex for the same period were $2,-

925,121.20, as compared to billings of $2,977,451.91. Ford's

production costs were lower than the production costs of

Triplex.

(11) Triplex incurred substantial losses from its manu-

facturing operations. As of June 30, 1931, the accumulated

deficit of Triplex was $614,756.67.

(12) Triplex owned a number of patents which related

to the process developed by Triplex for the manufacture

of laminated glass. Triplex filed an infringement action

against Duplate Corporation, a company in which Pittsburgh

Plate Glass Corporation (hereinafter referred to as PPG“)

19

owned 50% of the stock, and recovered a judgment on Novem-

ber 16, 1929, holding that its Benedictus Patent No. 1,182.739

was valid and infringed. Triplex Safety Glass Co. of North

America v. Duplate Corp., 42 F.2d 737 (W.D. Pa. 1929).

This patent covered very broadly any type of laminated glass

containing gelatin substantially free of moisture. This ruling

was affirmed by the Court of Appeals on July 16, 1930.

42 F.2d 739 (3rd Cir. 1930). Triplex continued its suit

against Duplate and PPG for infringement and eventually

collected $1,523,126.20 as damages for infringement. 110

F.2d 326 (3rd Cir. 1940).

(18) As a result of the favorable outcome of the suit

against Duplaie, Triplex assumed a commanding position

in the laminated glass industry.

(14) In a letter dated January 4, 1930, Mr. Neilson

Edwards of Triplex wrote to Mr. R. A. Graham, a director

of LOF, stating that Triplex owned two patents, one of

which was held valid and infringed by Pittsburgh Safety

Glass Company and the other completely covered the process

which LOF was using and that these two patents gave Tri-

plex a very strong position from a patent point of view.

(15) The process for the manufacture of laminated

glass which was used by LOF in 1931 infringed the follow-

ing four patents owned by Triplex:

Benedictus Patent No. 1,182,739—expired 5/9/33

Mascart Patent No. 1,342,267—expired 6/1/37

Marckworth Patent No. 1,421,974—expired 7/4/39

Bell Patent No. 1,823,525—expired 9/15/48

(16) In view of the strong patent position of Triplex,

LOF was unwilling to undertake to furnish General Motors

with its requirements of laminated glass unless it acquired

rights under the Triplex patents, since LOF was concerned

that if it went ahead without such rights, Triplex might

be able to secure an injunction against further use and an

accounting of all profits. LOF therefore entered into negotia-

tions with Triplex during 1930 and 1931 in order to secure

rights under the Triplex patents.

(17) Thereafter, as reflected by minutes of the meet-

ings of the LOF Board of Directors held on December 17,

1930, January 27, 1931, and April 28, 1931, negotiations

were carried on with Triplex seeking some agreement.

(18) Sometime in 1930, Triplex decided that it wished

to sell all of its assets, including its patents, rather than

granting a license under the patents. Triplex reached this

conclusion because of its increasing losses under the Ford

contract, its accumulated deficit from operations, its lack

of experience in manufacturing, and its inability to obtain

a reliable source of glass used in the laminating process.

(19) Sir Graham Cunningham, formerly executive head

of Triplex Safety Glass Company Limited, by letter dated

May 14, 1974, confirmed that Triplex insisted upon a sale

of its assets rather than granting a license because LOF

and PPG had indicated that they would not supply Triplex

with glass either at all or at an economic figure which

would enable them to be competitive.

(20) After further lengthy negotiations, LOF and Tri-

plex reached an agreement on December 4, 1931, under which

LOF agreed to purchase the patents, physical properties and

other assets of Triplex in consideration of the transfer of

29,490 LOF shares to Triplex, the purchase of glass inven-

tories on hand on the basis of a formula specified in the

agreement, and payment of $25,000 to cover the legal costs

21

of Triplex in carrying out the transaction. By agreement

executed on the previous day, LOF and PPG agreed to share

in the cost of acquiring the patents and other assets owned

by Triplex, and LOF agreed to grant PPG a license under

the Triplex patents.

(21) The contract between Ford and Triplex, dated

October 17, 1927, contained no expressed provisions relating

to the rights of either party to assign the contract, but

Triplex could not assign the contract without the consent

of Ford, since the contract was one for personal services

extending over a period of time and involved a relationship

of personal confidence. The provisions relating to disclosure

of improvements to Ford on a continuing basis and the

sale of laminated glass by Triplex to Ford show that Ford

relied upon the skill and experience of Triplex in the develop-

ment and manufacture of laminated glass, and that Ford

did not intend to permit Triplex to assign the contract to

some unqualified and unapproved person. Triplex advised

LOF that one of the conditions that had to be fulfilled

before entering into the agreement for the sale of its assets

was to secure the consent of Ford.

(22) The Court finds that the Triplex-Ford reciprocal

agreements called for future exchange of safety plate glass

manufacturing know-how and patents that might be devel-

oped. This was the seed that grew into the burgeoning

and now massive safety glass manufacturing industry. The

Court of Appeals stated:

“* * * the value of technical assistance given

should be included in determining whether a * * *

licensee had been given more favorable rates * *.“

(23) Although not expressly required, by agreement

between Ford and Triplex, dated December 4, 1931, Ford

gave its consent to the assignment of the contract to LOF.

Ford required that LOF assume the obligations of Triplex

to grant a free license to Ford under all patents subsequently

acquired by LOF relating to the manufacture of laminated

glass. The agreement recites that Triplex has in negotiation

a prospective agreement with LOF for the assignment of

the Ford-Triplex agreement, that Triplex has asked Ford

for its consent to such an assignment, and that the agreement

between Ford and Triplex shall not become effective until

the agreement between LOF and Triplex becomes effective.

Ford entered into an agreement with LOF on December

4, 1931, for an exchange of royalty-free licenses, which is

the contract under consideration in this proceeding, and en-

tered into an indentical agreement with PPG at the same

time. These two agreements for the exchange of licenses

on a royalty-free basis were part of the transaction relating

to the acquisition of the Triplex patents and other assets

and were designed to carry out the obligation of LOF and

PPG to assume all the obligations of Triplex. A very impor-

tant part of the consideration which LOF received in exchange

for a royalty-free license under its patents was the consent

by Ford to the assignment of the Triplex contract.

(24) On January 30, 1932, the closing took place under

which the transactions described in the December 3rd and

December 4th, 1931 agreements were carried out. PPG estab-

lished a wholly-owned subsidiary which operated the physical

facilities of Triplex until the existing contracts expired, at

which time the physical facilities were sold. LOF and PPG

continued in the manufacture of laminated glass without

any fear that Triplex would bring their operations to a

halt by reason of an injunction against infringement or de-

mand an accounting of all profits made.

(25) As part of the overall transaction, Triplex granted

LOF an exclusive license under the Benedictus patent; Triplex

assigned the Ford contract to PPG; and LOF granted PPG

a license under the Triplex patents.

(26) In June, 1931, LOF entered into an agreement

with General Motors Corporation and its subsidiary, National

Plate Glass Company, under which LOF agreed to purchase

the plate glass plant operated by National Plate at Ottawa,

Illinois, in consideration of $9,500,000, and General Motors

entered into a long-term requirements contract with LOF

on June 30, 1931, for the supply of all its requirements

of glass. This contract specifically excluded laminated glass

and included only the thin plate glass blanks that were to

be used in the production of laminated glass. In view of

the commanding position of Triplex as the owner of the

Benedictus patent and other patents, LOF was not at that

time in a position to enter into an agreement with General

Motors for the supply of laminated glass.

(27) As soon as LOF entered into the agreement with

Triplex, LOF was in a position to supply General Motors

with its requirements of laminated glass. LOF proceeded

to expand its production of laminated glass in order to serve

the requirements of General Motors and General Motors shut

down its laminating glass plant. The requirements contract

between General Motors and LOF was amended on September

21, 1936, in order to include all the requirements of General

Motors for laminated glass.

(28) By granting its consent to the assignment of the

contract with Triplex and the Triplex patents, Ford made

a very substantial concession in that it gave up its position

as the sole manufacturer of automobiles with an assured

source of supply of laminated glass. If Ford had refused

24

such consent, it could have continued to manufacture lami-

nated glass under its license from Triplex, and if Triplex

went out of business because of its losses, no other manufac-

turer would be in a position to supply laminated glass in

view of the Triplex patents. By giving its consent, Ford

made it possible for LOF to undertake to supply laminated

glass to General Motors on a large scale and Ford was

deprived of a valuable sales advantage in being the only

automobile manufacturer with a reliable source of supply

of laminated glass. As consideration for granting its consent,

Ford required that LOF grant a license without payment

of any monetary royalty under laminating patents then owned

by LOF or which might be subsequently acquired by LOF.

Ford also granted a reciprocal license to LOF under all

laminating patents then or subsequently owned by Ford,

which also represented consideration for the license from

LOF to Ford.

(29) The results of the various transactions which are

outlined above were:

a. Triplex was put in liquidation and the October

17, 1927 agreement between Triplex and Ford was termi-

nated.

b. LOF acquired title to the Triplex patents and

PPG acquired its assets.

e. Ford continued to manufacture laminated safety

glass and PPG became its supplemental source of supply,

instead of Triplex.

d. General Motors went out of the glass business

and LOF became the source of supply for General Mo-

tors for all kinds of automotive glass.

e. The Triplex patents were licensed royalty-free

to Ford, LOF and PPG.

f. LOF and Ford exchanged royalty-free licenses

under present and future laminating glass patents which

might be developed by the other.

g. PPG and Ford exchanged royalty-free licenses

under present and future laminating glass patents which

might be developed by the other.

(30) LOF and Ford terminated the further exchange

of licenses effective May 26, 1950, reserving all rights under

patents which had previously issued or which issued subse-

quently on applications filed on inventions made prior to

that date. The 1955 LOF license to Shatterproof covered

only certain specified patents which were then in existence,

and as to which a reasonable royalty could be determined

by reference to the nature and value of the invention. In

contrast, the 1931 exchange of license rights between LOF

and Ford covered patents which might be acquired in the

future, and as to which it was impossible then to determine

what royalty might be regarded as reasonable compensation

for their use. By 1955, when LOF entered into negotiations

with Shatterproof, LOF owned a number of valuable patents

in the laminating field which were licensed to Ford, and

Ford owned no laminating patents, and the value of the

license by LOF to Ford could be reasonably estimated.

(31) Ford used the following six patents owned by

LOF during the periods indicated and a reasonable royalty

per square foot for the use of such patents is shown:

26

Use made and Amount of

Periods used Royalty per

Inventor Patent No. Description by Ford Square foot

Ryan 2,042,485 Cellulose Covers all 1 cent

acetate laminated glass

process from June 2,

1986-1940

Case 1,989,268 Coating Covers all 1/4 cent

machine laminated glass

from Jan. 29,

1985-1940

Watkins 2,022,484 Coating Covers all 1/4 cent

machine laminated glass

from Nov. 26,

1935-1940

Boicey 2,628,177 Pre-pressing Covers all 1 cent

laminated windshields

from Feb. 10, 1953-

Feb. 9, 1970

Beckham 2,593,525 Shaded Covers all 1/2 cent

windshield shaded windshields

with horizontal

fade-off line from

1968-Apr. 22, 1969

Pearse and 2,450,297 Shielding Covers all windshields 2 cents

Bamford

from 1955-Sept. 28, 1965

(32) The total royalties that Ford would have paid

for the use of the patents listed above as shown by the

schedule of royalties offered in evidence, and supporting

data set forth, was $10,797,219, and the discounted value

of such royalties as of January 1, 1932, computed at a discount

rate of 6%, was $2,694,513.

(38) Defendant’s Exhibit 77 and supporting schedule,

Defendant’s Exhibit 79, were prepared on the basis of a

royalty of 1/2 cent per square foot for each of the Ryan,

Case and Watkins patents, whereas Doctor Ryan stated that

in his opinion a reasonable royalty was 1 cent per square

foot for the Ryan patent, 1/4 cent for the Case patent,

and 1/4 cent for the Watkins patent. The reasonable royalty

for the use of all three patents was 1-1/2 cents per square

foot as stated by Doctor Ryan and reflected in Defendant’s

Exhibit 79, but the royalty for the use of the three patents

as shown in Defendant’s Exhibit 79 should be adjusted be-

cause the three patents were not all in force at the same

time.

(34) The total royalties for the years 1987 through

1940 is correctly stated in Defendant’s Exhibit 79, since

in those years all three patents were in force and the total

royalty for the use of all three patents was 1-1/2 cents

per square foot. The Ryan patent issued on June 2, 1936,

the Case patent issued on January 29, 1935, and the Wat-

kins patent issued on November 26, 1935. For the year

1935, the royalties for the use of the Case and Watkins

patents during the period when they were in force at the

rate of 1/4 cent per square foot for each patent 1s $50,215,

as compared to a royalty of $100,431 for the year 1935

as shown on Defendant’s Exhibit 79, a reduction of $50,216.

For the year 1936, the royalty for the use of the Case

and Watkins patents for the entire year and for the Ryan

patent during the period when it was in force was $217,600,

as compared to a total of $259,447, as shown on Defendant’s

Exhibit 79, a reduction of $41,847. The total reduction for

the two years should be $92,068. The total royalty as shown

on Defendant’s Exhibit 79, or a corrected total of $10,705,156.

The discounted value of the royalties for 1935 and 1936, as

of January 1, 1932, is $214,521, as compared to $289,830, as

shown in Defendant’s Exhibit 79, a difference of $75,309.

The discounted value as of January 1, 1932, for all anticipated

royalties payable by Ford should be reduced from $2,694,513,

as shown on Defendant’s Exhibit 79, to $2,619,204.

(35) The reasonable royalty for the Ryan, Case and

Watkins patents was determined by Doctor Ryan on the

basis of his experience in the laminated glass field. The

royalty rate for the Boicey, Beckham and Pearse and Bam-

ford patents was also determined by Doctor Ryan, and was

set at the same rate which was established in the license

by LOF to Shatterproof in the case of the Boicey and Pearse

and Bamford patents and at the same rate which was estab-

lished in the license by LOF to PPG in the case of the

Beckham patent.

(36) The consideration of $353,394.88, received by LOF

from Shatterproof as royalties under the Ryan and Pearse

patents should be compared with the consideration LOF re-

ceived from Ford to determine if Ford received more favor-

able terms or rates of royalty. The consideration received

from Ford was not represented by the payment of a mone-

tary royalty by Ford to LOF, but rather took the form

of the consent by Ford to assignment of the Triplex contract

and the grant of a license by Ford to LOF under any inven-

tions Ford might develop. Ford in 1981 surrenderd its

position as the sole automobile manufacturer with an assured

source of supply of laminated glass by granting its consent

to the assignment of the Triplex contract, and by this action

made it possible for LOF to furnish the laminated glass

requirements of General Motors. Although such action by

Ford did not involve the payment of money by Ford to

LOF, such action was the indispensable key which permitted

LOF to gain access to the laminated glass market.

(37) LOF realized net profits from the laminated glass

business for the years 1932 through 1967 in the aggregate

amount of $436,889,313, with a discounted value as of January

1, 1932 at 6% interest of $110,246,422, as shown by the fol-

lowing breakdown for four separate time periods:

Discounted value

Net Profits to 1/1/32

1932-1941 $ 20,980,978 $ 14,861,997

1942-1945 516,941 291,725

1846-1454 111,870,361 37,755,541

1955-1967 303,521,033 57,337,159

Total $436,889,313 $110,246,422

(38) The value to LOF of the consent by Ford to

the assignment of the Triplex contract cannot be compared

directly with the value to LOF of the royalties received

from Shatterproof, in view of the much larger scope of

Ford’s activities. The value to LOF of Ford’s consent should

be compared with the value to LOF of the royalties that

LOF would have received if LOF had granted a license

to Ford on the same royalty basis as the license to Shatter-

proof. The foregoing figures show that the value to LOF

of Ford’s consent was at least equal to the profits earned

by LOF on the sale of laminated glass through 1954, or

$52,909,263, as compared to $2,619,204, which is the maximum

value of the royalties that Ford would have paid if licensed

on the same basis as Shatterproof, in both cases computing

the value of the payments as of January 1, 1982. This

comparison shows that LOF received consideration from Ford

as a result of the 1931 license with a substantially larger

value than the value of the consideration LOF would have

received from Ford if LOF had granted Ford a license on

the same basis as the license which LOF granted to Shatter-

proof.

(39) The license from LOF to Ford in 1981 was not

on “more favorable terms or rates of royalty” than the

license from LOF to Shatterproof in 1955, and Shatterproof

is not entitled to a refund of any part of $358,394.88 paid

in royalties under the Ryan and Pearse and Bamford patents.

(40) As to Jendrisak patent 2,551,607, Ford used the

invention covered by Jendrisak patent in 1959 and 1960.

This patent related to a mold for holding a sheet of lam-

inated glass during the bending process, and was licensed

to Shatterproof at a royalty of 1 cent per square foot. Ford

also used Bamford patent 2,646,647 during this same period.

This patent related to an apparatus for tempering of glass,

and was licensed to Shatterproof at 2 cents per square foot.

The total liability which Ford would have incurred for the

years 1959 and 1960 for the use of the Jendrisak and Bamford

patents under the royalty rates established in the Shatterproof

license was $930,000.

(41) On April 18, 1962, Ford and LOF entered into

a number of agreements granting a license under a number

of LOF patents and settling a series of controversies between

them. Under one of these agreements, LOF released Ford

from all claims of infringement prior to January 1, 1961,

under a number of patents, including the Jendrisak patent

(except Claim 8) and the Bamford patent in consideration

— — —

31

of $400,000. Under another agreement, LOF granted a re-

lease of claims of infringement prior to January 1, 1961,

with respect to Claim 8 of the Jendrisak patent in considera-

tion of $60,000, LOF also granted Ford a license effective

January 1, 1961, under the Pearse and Bamford, Bamford

and Jendrisak patents at stipulated royalty rates.

(42) Said releases constituted the grant of a license

by LOF to Ford for the period prior to January 1, 1961,

within the meaning of Article 11 of the LOF license to

Shatterproof, and the amount paid for the releases, totaling

$460,000, discharged a liability of $930,000 that Ford would

have incurred if Ford had been licensed under the same

patents at the same royalty rate charged by LOF to Shatter-

proof, so that the amount paid by Ford represented 49.5%

of the total liability.

(48) The license which LOF granted to Ford by virtue

of the releases covered only the period when Ford was using

the two patents, which use commenced in 1959, and extended

through 1960. Shatterproof paid royalties under the Jendri-

sak patent totaling $11,147.08 during that period from Janu-

ary 1, 1954, through the first fiscal quarter of 1957, ending

on April 30, 1957, and did not use the patent or pay any

royalties under the 1 ‘ent after that date. Shatterproof

claims a refund of 49.5% of the amount which it paid, or

$5,517.80.

(44) Article 11 was intended to prevent Shatterproof

from being placed at a competitive disadvantage because

another party received more favorable terms or rates of

royalty than Shatterproof, and should therefore be construed

as applicable only to a license which LOF granted to another

party covering the same period of time as the license under

which Shatterproof was licensed and paid royalties.

(45) Since the license that LOF granted to Ford under

the Jendrisak patent did not become effective until 1959,

said license was not on “more favorable terms or rates of

royalty” than the license in effect to Shatterproof from 1954

to April 30, 1957, within the meaning of Article 11 of the

LOF license to Shatterproof, and Shatterproof is not entitled

to a refund of any part of the royaities paid under the

Jendrisak patent.

CONCLUSIONS OF LAW

(1) Defendant LOF had the burden of proceeding with

the proof of the value to LOF of the 1931 agreements,

and the 1962 agreement on re-trial, with which burden of

proof LOF complied.

(2) “A royalty is a payment proportionate to the use

of a patented device. Western Union Telegraph Co. v. Amer-

ican Bell Telephone Co., [1 Cir.] 125 F. 342, 348.” Tesra

Co. v. Holland Furnace Co., 73 F.2d 558, 554 (6th Cir.

1934).

(3) Royalty' when used in connection with a license

under a patent, means the compensation paid by the licensee

to the licensor for the use of the licensor’s patented inven-

tion.” Hazeltine Corp. v. Zenith Radio Corp., 100 F.2d 10,

16 (7th Cir. 1938).

(4) The entire value of any consideration, cost, compen-

sation, or price paid or incurred for a license should be

considered. Prestole Corp. v. Tinnerman Products, Inc., 271

F.2d 146, 152 (6th Cir. 1959).

(5) The contract or license between Ford and Triplex

was one for personal services between skilled and expert

glass manufacturers, requiring future exchange of technical

ee

—

—— —

know-how and inventions, and could not be assigned without

consent. See 5 Ohio Jur. 2d 159.

(6) The consent by Ford to the assignment by Triplex

to LOF was consideration for any license from LOF to Ford.

(7) The ultimate burden of proof was upon Plaintiff

Shatterproof to prove by a preponderance of the evidence

that the licenses which LOF granted to Ford under the

1931 and 1962 agreements contained any more favorable

terms or rates of royalty than LOF granted to Shatterproof

under its 1955 agreement. Shatterproof has failed to sustain

this burden.

(8) The complaint should be dismissed with prejudice

at plaintiff’s costs.

IT IS SO ORDERED.

/s/ NICHOLAS J. WALINSKI

United States District Judge

Toledo, Ohio.

November 7, 1975.