Petition — Sears, Roebuck & Co. v. Roberts

Supreme Court brief1978

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Jur 3 1378

IN THE MICHAEL RODAK, IR, CLERK

Supreme Court of the Anited States 9

OCTOBER TERM 1978

No. 78-26

PETER M. ROBERTS,

Respondent,

vs.

SEARS, ROEBUCK AND CO.,

Petitioner.

PETITION OF SEARS, ROEBUCK AND CO. FOR WRIT

OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE SEVENTH CIRCUIT.

BURTON Y. WEITZENFELD,

ARTHUR L. KLEIN,

PETER D. KASDIN,

75ih Floor—Sears Tower,

Chicago, Illinois 60606,

876-7100,

Counsel for Petitioner.

ARNSTEIN, GLUCK, WEITZENFELD,

& MINOW,

75th Floor—Sears Tower,

Chicago, Illinois 60606,

876-7100,

Of Counsel.

Gunthorp-Warren Printing Company, Chicago e Financial 6-6565

TABLE OF CONTENTS.

PAGE

Table of Cases, Statutes and Other Authorities ........ i

CEE aks 5 Opks 69 506 bes 60s 000066 0000.0 1

re ee keke shee sae 0.e ees O08 1

EE on oa ce dee ue b.0bwdeanceneses 4

Questions Presented for Review.................0... 4

SE I cc cnccensecdbarcecesvecesnacene -

EE ee ee 8

I. The Decision Below Conflicts with Federal Law

and Contravenes Federal Policy Under the United

RI ee ee 8

II. Plaintiffs Patent Is Invalid as a Matter of Law.. 18

III. The Decision of the Court of Appeals Below

Contravenes the Law of Illinois............. 23

IV. Defendant Was Denied a Fair Trial.......... 24

ES OE ga i en EE a 25

TABLE OF CASES, STATUTES AND OTHER AUTHORITIES.

Cases.

All Steel Engines, Inc. v. Taylor Engines, Inc., 88 F. Supp.

745 (N. D. Cal. 1950), affd., 192 F. 2d 171 (9 Cir.

RES er re ee ee 15

Amphenol Corp. v. General Time Corp., 397 F. 2d 431

8 Ee rn 19

AR, Inc. v. Electro-Voice, Inc., 311 F. 2d 508 (7 Cir.

ee ait awe ane a eeaheoeseses ee 22

Beckman Instruments, Inc. v. Technical Development

Corp., 433 F. 2d 55 (7 Cir. 1970), cert. denied, 401

| eS eee ae ee 14, 15, 16

Blonder-Tongue Labs, Inc. v. University of Illinois Foun-

dation, 402 U. S. 313, 28 L. Ed. 2d 788 (1971)..... 10, 11

Catalano v. Kawneer Co., Inc., 185 USPQ 456 (N. D.

DD SE 5 an 06 hen a nnts ai on wae es O0ee at 20

Chicago Rawhide Mfg. Co. v. Crane Packing Co., 523

F. 2d 452 (7 Cir. 1975), cert. denied, 423 U. S. 1091

( jer errr rere rere errr tere 23

Connelly v. Bartlett, 286 Mass. 311, 190 N. E. 799 (1934) 24

Deep Welding, Inc. v. Sciaky Bros., Inc., 417 F. 2d 1227

(7 Cir. 1969), cert. denied, 397 U. S. 1037 (1970). .20, 23

D. M. Sechler Carriage Co. v. Deere & Mansur Co., 113

F. 285 (7. Cle. 1902)... ccccccccvccscvccccccccces 15

Dynatech Corp. v. Frigitronics, Inc., 318 F. Supp. 851

(D. Comm. 1970)... .cccccccccevcccccccvcsccces 15

E. T. Industries, Inc. v. Whitlaker Corp., 183 USPQ 690

(N. D. Ill. 1974), rev’d on other grounds, 523 F. 2d

— eee Se) eee eer rr rere ree ee eee 20

Finn v. Monk, 403 Ili. 167, 85 N. E. 2d 701 (1949).... 23

Gettelman Mfg. Inc. v. Lawn ’N’ Sport Power Mower Sales

& Service, Inc., 517 F. 2d 1194 (7 Cir. 1975)........ 21

Good Brothers, Inc. v. Banowitz, 269 F. 2d 197 (7 Cir.

PI aids KA4b 64.05.4355 UO aes e 005k Verse eeaee 24

Graham v. John Deere Co., 383 U. S. 1, 15 L. Ed. 2d

DO EE ai bdo « o'vod soadoneuenegsasbecewsees 22

Great A & P Tea Co. v. Supermarket Equipment Co., 340

Oe, BL Serer ak Bes Be COs c eK eccdcncccvcees 22

Green v. LeClair, 24 F. 2d 74 (7 Cir. 1928).......... 15

Hartford National Bank & Trust Co. v. Henry L. Crowley

& Co, 219 F, 24 S68 (3 Cit, 1955) o.0.. vcccccsecce 15

iii

Henry Mfg. Co., Inc. v. Commercial Filters Corp., 489

F, 2d 1008 (7 Cir. 1972) ........ Wesoreedsvoces 23

Heywood-Wakefield Co. v. Small, 96 F. 2d 496 (1 Cir.

i Te eT TL UTLTET ELE ET TTT Pee ee 15

Hobbs v. Wisconsin Power & Light Co., 250 F. 2d 100

(7 Cir. 1957), cert. denied; 356 U. S. 932 (1958)... 23

Hook v. Hook & Ackerman, Inc., 187 F. 2d 52 (3 Cir.

| POET PTTL Lee ee PTT Ee SEE CL TE CTT 15

Hoover Co. v. Mitchell Mfg. Co., 269 F. 2d 795 (7 Cir.

ROME 8-NiSKS CUE CREE SE Sw0e PEPER EU NER bs cbénes ok 9

Jones v. Foster, 175 Ill. 459, 51 N. BE. 862 (1898)..... 24

Kenyon v. Automatic Instrument Co., 160 F, 2d 878 (6

Cy RIFE CUS Woh bebe hoc ccceeutbeeebaceecesces 15

Kewanee Oil Corp. v. Bicron Corp., 416 U. S. 470 (1974) 17

Lear, Inc. v. Adkins, 395 U. S. 653, 23 L. Ed. 2d 610

COPS. tated bas ee iaek 7, 8,9, 11, 12, 14, 15, 16, 17

Maclaren v.. B-I-W Group, Inc., 535 F. 2d 1367 (2 Cir.

1976), cert. denied, 429 U.S. 1001 (1977)......... 22

Marasco v. Compro Shoe Machinery Corp., 325 F. 2d

695 (1 Cir. 1963), cert. denied, 377 U. S. 924 (1964) 20

Meenehan v. Rosenfield, 236 Ill. App. 4 (1925)........ 24

Monroe Auto Equipment Co. v. Heckethorn Mfg. & Supply

Co., 332 F. 2d 406 (6 Cir. 1964), cert. denied, 379

SR Oe We RS 5556.0 dba ctedbases cbdeee sees 20

NCR Corp. v. Eastman Kodak Co., 191 USPQ 194 (N. D.

eS MPL LE CEPT ERLE EERE TTP Tte 21, 23

Panduit Corp. v. Burndy Corp., 517 F. 2d 535 (7 Cir.

1975), cert. denied, 423 U. S. 987 (1975)......... 21

Pederson v. Stewart-Warner Corp., 536 F. 2d 1179 (7

Cir. 1976), cert. denied, 429 U. S. 985 (1976)..... 21

Popeil Brothers, Inc. v. Schick Electric, Inc., 494 F, 2d

162 (7 Cir. 1974)... ccocccccccccescvecsecvcceses 9, 21

Ropat Corp. v. West Bend Co., 382 F. Supp. 1030 (N. D.

Oe BD noc ccndeqdekaeesenqnenensagantaaee 20

Sakraida v. Ag Pro, Inc., 425 U. S. 273, 47 L. Ed. 2d

TED CISTS) ocvavecccicccsdevenssecsosisaucses 21

Scott Paper Co. v. Marcalus Mfg. Co., Inc., 326 U. S.

249, 90 L. BG. 47 (IDES)... nccsccccneceseccccess 12

Senco Products, Inc. v. Fastener Corp., 269 F, 2d 33 (7

Cir. 1959), cert. denied, 361 U. S. 932 (1960)...... 23

Shelco, Inc. v. Dow Chemieal Co., 466 F. 2d 613 (7 Cir.

1972), cert. denied, 409 U. S. 876 (1972).......... 20

Sinclair Refining Co. v. Jenkins Petroleum Process Co., 99

F. 2d 9 (1 Cir. 1938), cert. denied, 305 U. S. 659

CODED oc ccccvsccccvcesececescesthecssoenend 12, 21

BOGE) a cccvcccccccccccccscocceseccetessetsees 22

Skil Corp. v. Lucerne Products, Inc., 503 F. 2d 745 (7

Cir. 1974), cert. denied, 420 U. S. 974 (1975)...... 21

Struve v. Tatge, 285 Ill. 103, 120 N. E. 549 (1918)... 24

Waterman v. Mackenzie, 138 U. S. 252, 34 L. Ed. 923

CRED vc cniccvessgenesenaedsewansncdatune ee 15

Yates v. Cummings, 4 Il]. App. 3d 899, 282 N. E. 2d 281

1 ER ea te mere 23

Statutes.

oe ee ere er orn ee 8

SS UB GB, B.0S) ann 00cees dieses canbe eee 21

Se UW. Oe G, BPR 60 civ Sale cewebuews OCLs ees 8

Other Authorities.

2 Walker on Patents, § 105 (Deller’s 2d Ed. 1964)..... 22

IN THE

Supreme Court of the United States

OCTOBER TERM, 1978

PETER M. ROBERTS,

Respondent,

vs.

SEARS, ROEBUCK AND CO.,

Petitioner.

PETITION OF SEARS, ROEBUCK AND CO. FOR WRIT

OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE SEVENTH CIRCUIT.

OPINION BELOW.

The opinion of the United States Court of Appeals for the

Seventh Circuit is not yet officially reported. It is reprinted in

the Appendix to this Petition, commencing at page Al.

STATUTES INVOLVED.

Consideration of three United States statutes is required:

35 U. S. C. §§ 102, 103, and 271. These statutes are set out

verbatim immediately below: |

§ 102. CONDITIONS FOR PATENTABILITY; NOVELTY AND

Loss OF RIGHT TO PATENT. |

A person shall be entitled to a patent unless—

(a) the invention was known or used by others in

this country, or patented or described in a printed

publication in this or a foreign country, before the

invention thereof by the applicant for patent, or

(b) the invention was patented or described in a

printed publication in this or a foreign country or in

public use or on sale in this country, more than one

year prior to the date of the application for patent in

the United States, or

(d) the invention was first patented or caused to

be patented, or was the subject of an inventor’s certi-

ficate, by the applicant or his legal representatives or

assigns in a foreign country prior to the date of the

application for patent in this country on an applica-

tion for patent or inventor’s certificate filed more than

twelve months before the filing of the application in

the United States, or

(e) the invention was described in a patent granted

on an application for patent by another filed in the

United States before the invention thereof by the

applicant for patent, or on an international applica-

tion by another who has fulfilled the requirements

of paragraphs (1), (2), and (4) of section 371(c)

of this title before the invention thereof by the

applicant for patent, or

(f) he did not himself invent the subject matter

sought to be patented, or

(g) before the applicant’s invention thereof the in-

vention was made in this country by another who had

not abandoned, suppressed, or concealed it. In deter-

mining priority of invention there shall be considered

not only the respective dates of conception and reduc-

tion to practice of the invention, but also the reason-

able diligence of one who was first to conceive and

last to reduce to practice, from a time prior to con-

ception by the other. July 19, 1952, c. 950, § 1, 66

Stat. 797.

§ 103. CONDITIONS FOUR PATENTABILITY; NON-OBvVIOUS

SuBJECT MATTER.

A patent may not be obtained though the inven-

tion is not identically disclosed or described as set

forth in section 102 of this title, if the differences

between the subject matter sought to be patented

and prior art are such that the subject matter as a

whole would have been obvious at the time the inven-

tion was made to a person having ordinary skill in the

art to which said subject matter pertains. Patentability

shall not be negatived by the manner in which the

invention was made. July 19, 1952, c. 950, § 1, 66

Stat. 798.

§ 271. INFRINGEMENT OF PA1ENT.

(a) Except as otherwise provided in this title,

whoever without authority makes, uses or sells any

patented invention, within the United States during

the term of the patent therefor, infringes the patent.

(b) Whoever actively induces infringement of a

patent shall be liable as an infringer.

machine, manufacture, combination or composition,

or a material or apparatus for use in practicing a

patented process, constituting a material part of the

invention, knowing the same to be especially made

or especially adapted for use in an infringement of

such patent, and not a staple article or commodity

of commerce suitable for substantial noninfringing

use, shall be liable as a contributory infringer.

(d) No patent owner otherwise entitled to relief

for infringement or contributory infringement of a

patent shall be denied relief or deemed guilty of

misuse or illegal extension of the patent right by

reason of his having done one or more of the

following: (1) derived revenue from acts which if

performed by another without his consent would con-

stitute contributory infringement of the patent;

(2) licensed or authorized another to perform acts

which if performed without his consent would con-

stitute contributory infringement of the patent;

(3) sought to enforce his patent rights against in-

fringement or contributory infringement. July 19,

1952, c. 950, § 1, 66 Stat. 811.

JURISDICTIONAL Si ATEMENT.

Judgment was entered by the United States Court of Appeals

for the Seventh Circuit in this matter on April 3, 1978 (Ap-

pendix, p. Al7). This Court has jurisdiction to review that

judgment pursuant to 28 U. S. C. § 1254(1).

QUESTIONS PRESENTED FOR REVIEW.

1. May the holder of an invalid patent who sells the patent

and receives the agreed purchase price from the purchaser

thereafter recover $1,000,000 upon a claim that the purchaser

fraudulently acquired the invalid patent?’

2. Is a defendant who has been sued for damages and

charged with defrauding another of a patent denied a fair trial

where it is prevented from proving the invalidity and lack of

value of the patent, even though the plaintiff is permitted to

introduce evidence which purports to show the validity and

value thereof?

NATURE OF THE CASE.

This diversity action involves a $1,000,000 judgment ren-

dered as compensation for use of an invalid patent and a circuit

court decision which is in conflict with and, if permitted to

1. Plaintiff also charged defendant with breach of a confidential

relationship and negligence. The argument here presented is equally

applicable to these theories of recovery.

_— weer eee ——

EE a

stand, would overrule several decisions of this and other cir-

cuit courts.

In September, 1965, plaintiff obtained a patent for a “quick

release” for a socket wren. (PX 60, DX 27). Two earlier

patents had been issued on the same concept but were not cited

by the Patent Office when it issued plaintiff's patent (PX 60,

DX 27).* Defendant acquired the patent from plaintiff for

$10,000 pursuant to a written agreement.

Before he applied for the patent and commenced negotiations

with defendant, plaintiff retained an attorney (T 208-209, 455-

456). After plaintiff approached defendant, defendant’s counsel

conducted a patent search which disclosed 39 relevant prior art

patents (DX 9). Although defendant’s counsel, like the Patent

Office, did not locate the crucial prior art Carpenter patent,

defendant and its counsel nevertheless questioned the validity

and scope of any patent which might ultimately issue to plain-

tiff (DX 8, 9, T 2146-2157)* and, in a letter to plaintiffs

counsel that referred to and relied on this patent search and

the opinion of its counsel, defendant offered plaintiff $10,000

to acquire the patent (PX 34).°

2. The patent provides for the release of a socket from a ratchet

handle by means of a push button. The symbol “PX” refers to

plaintiff's exhibits at trial, “DX” to defendant’s exhibits, “T” to the

trial transcript, “R” to the record on appeal, “PB” to plaintiff's brief

on appeal, “PAB” to plaintiff's answering brief on appeal, and “C”

to plaintiff’s Second Amended Complaint.

3. One of these earlier patents issued to Eugene R. Carpenter in

1928 and entered the public domain when it expired in 1945 (DX

29). The other patent issued to Victor E. Gonzalez in March, 1965

(DX 28). The Patent Office obviously missed these prior patents

when it issued a patent to plaintiff.

4. Defendant principally relies upon the Carpenter patent here.

Moreover, defendant: did not then have and the patent opinion was

rendered without the benefit of plaintiff's patent application

(T 2147, 2156-2157).

5. Defendant’s concern was real, for in 1968 it was threatened

with a patent infringement lawsuit by Victor E. Gonzalez and it was

required to purchase the Gonzalez quick release feature for hand

wrenches (DX 16-18, T 2266-2273).

Plaintiff's lawyer submitted several counter proposals (PX

28, DX 1, 14, T 472, 481-482, 519-520, 697-704, 2227,

2237). Some of these proposals were accepted by defendant

and incorporated in the agreement as ultimately executed (DX

14, T 2227). This attorney also recommended to plaintiff that

plaintiff accept defendant's offer if he could not obtain a better

price elsewhere (PX 27, T 322-323, 472-473). Plaintiff in-

quired elsewhere but could not obtain a better price (T 660,

685-686, 739).

On June 15, 1965, after further consultation with his lawyer

and his father (T 521-526), plaintiff executed a formal written

agreement under which he agreed to assign his patent to defend-

ant after payment of a $10,000 royalty. Only after the patent

subsequently issued to plaintiff and became public information

did defendant begin to market the feature (PX 60, DX 27,

T 1758). It thereafter discharged its royalty obligation to plain-

tiff under the agreement (PX 103, 110, 114, T 381-383).°

More than four years later plaintiff filed this lawsuit, charging

that defendant had acquired the patent by means of fraud, breach

of a confidential relationship and negligent misrepresentation.

Defendant denied all material allegations of the complaint,

denied that its conduct was wrongful or that plaintiff was

damaged and pleaded as an affirmative defense that plaintiff's

patent was invalid on the basis of prior art.

During the pretrial stage of the lawsuit, the District Court

uniformly ruled on various occasions that the issue of patent

invalidity was a basic one and that it would be tried first (R.

40, 56, 82).’ indeed, on one occasion the District Court specifi-

6. Sales of defendant’s ratchet wrenches increased during the

riod 1965-1976. However, sales of defendant’s unrelated hardware

items increased also, and this sales was attributed by defend-

ant to the growth of the amateur “do-it-yourself” homeowner market

(T 1784-1798).

7. These rulings were rendered by the two District Court Judges

bat a = case was initially assigned for extended periods of time

ore

cally and correctly held that, if the patent was invalid, defend-

ant was entitled to judgment in its favor as a matter of law under

this Court’s decision in Lear, Inc. v. Adkins, 395 U. S. 653, 23

L. Ed. 2d 610 (1969) (R. 40).

However, the case was reassigned to a new District Judge

shortly before the trial. When the trial began, this Judge ignored

these earlier rulings and, while receiving evidence from plaintiff

regarding prior art and the value of the patent (T 195-198,

302-303, 378-380, 736-738, 1441-1443, 1448, 1463, 1513-

1516, 1517-1518, 1521, 1529, 2302), erroneously refused to

receive defendant’s evidence of relevant prior art and patent

invalidity (T 2409-2413, 2416, 2425-2429, 2460-2470, 2594,

2600-2606, 2615, 2747-2749). Thus, the trial court errone-

ously excluded from evidence not only the crucial prior art

Carpenter patent (DX 29, 37, T 2409-2413, 2416, 2425-2429,

2594, 2600) but also 7 other prior art patents that defendant

knew of and relied upon when it negotiated its agreement with

plaintiff (PX 20, 28, DX 8, 9, T 2600-2606, 2747-2749). The

trial judge also refused to rule on the issue of patent invalidity

(T 2567-2569, 2976) but nevertheless permitted plaintiff to

argue to the jury that his patent was valid (T 3300, 3312-

3314, 3316, 3322, 3330, 3331, 3337-3341).

Cross appeals were taken before the United States Court of

Appeals for the Seventh Circuit. The Court of Appeals affirmed

the $1,000,000 judgment for plaintiff, inexplicably and incor-

rectly rejecting this Court’s decision in Lear, Inc. v. Adkins,

395 U. S. 653, 23 L. Ed. 2d 610 (1969) and its progeny, and

refusing to decide the fundamental issue of patent invalidity. It

also remanded the matter for a determination of whether plain-

tiff may reacquire the patent by rescission of the agreement.®

Because of the substantial changes in federal law and policy

necessarily wrought by this decision, including the rejection of

8. It is clear that, — rescission of the agreement and return

of the ‘soar plaintiff assert the invalid patent against defendant

and others (R. 33, 152, PB 18, 19).

this Court’s Lear docirine, defendant earnestly and respectfully

petitions for a writ of certiorari.

ARGUMENT.

I. The Decision Below Conflicts with Federal Law and

Contravenes Federal Policy Under the United States Patent

Laws.

As this Court observed in Lear, Inc. v. Adkins, 395 U. S.

653, 23 L. Ed. 2d 610 (1969), it is basic that one who obtains

an invalid patent may not recover damages or royalties from

one who uses such a patent. If a patent is invalidated by an

expired prior patent, it is valueless because anyone may use

the structure without a patent under the express provisions of

the Patent Act. 35 U. S. C. § 102. Likewise, if a patent is in-

validated by an unexpired prior patent, it is equally valueless

because, under the Patent Act, no one other than the prior

patentee, hisyassigns or licensees may legally commercialize or

use the structure. 35 U. S. C. § 271. Therefore, if plaintiff's

patent is invalid, and it is, defendant paid him $10,000 for

something of no legal worth, plaintiff could not have been

damaged as a matter of law and the award to him of $1,000,000

for use of the invalid patent contravenes established law.

The purpose of the patent statutes is to award the inventor of

a patentable invention with a monopoly that excludes all com-

petitors for a limited period of time. An equally important

purpose of the patent laws is to assure that one cannot use an

invalid patent to suppress the use of an idea on which he has no

legal monopoly. But the Seventh Circuit has rendered a de-

cision here that contravenes these well settled maxims, which

are expressed in its own decisions, the decisions of other Circuits

and, of even more importance, the decisions of this Court.

Here, the parties entered into an agreement under which

defendant agreed to purchase and plaintiff agreed to sell his

patent. Both parties fully performed. Plaintiff assigned the

patent to defendant and defendant paid plaintiff the agreed

royalties, Yet, when plaintiff sued defendant for damages claim-

ing fraud and that the patent was worth more than the royalties

paid, defendant was denied the right to prove that the patent

it purchased was invalid, legally worthless, and not even worth

the $10,000 that defendant paid for it.

However, if instead of entering into and fulfilling its obliga-

tions under the agreement, defendant had merely copied plain-

tiff's patent, plaintiff's only cause of action would have been one

for infringement of the patent. Under those circumstances, de-

fendant obviously could have raised the defense of patent in-

validity and, since the patent is invalid, as will hereafter be

shown, plaintiff could not have recovered damages from de-

fendant. Popeil Brothers, Inc. v. Schick Electric, Inc., 494

F, 2d 162 (7 Cir. 1974); Hoover Co, v. Mitchell Mfg. Co.,

269 F. 2d 795 (7 Cir. 1959).

So, too, defendant could have consummated the royalty

agreement with plaintiff but, instead of paying the roy-

alty, as it did, refused to honor the agreement. Under this alter-

native, too, defendant could have successfully defended any suit

by plaintiff on the ground that the patent is invalid and again

plaintiff would not have been entitled to damages. It plainly

follows that, in the case at bar, plaintiff cannot recover damages

either.

The foregoing propositions have long been recognized by

this Court. Thus, in Lear, Inc. v. Adkins, 395 U. S. 653,

23 L. Ed. 2d 610 (1969), plaintiff patentee disclosed his

idea to defendant before his patent issued, and under an express

license agreement defendant contracted to pay him a royalty.

Defendant marketed the idea but breached its agreement and

refused to pay the agreed royalty on the basis that the patent

was invalid, even though the agreement specifically required

royalty payments until the patent was declared invalid, This

Court nonetheless ruled that the agreement was of no moment

and that defendant could avoid the payment of all royalties,

including those which had accrued before the declaration of

invalidity, if the patent was invalid:

it is as important to the public that competition should not

be repressed by worthless patents, as that the patentee of a

really valuable invention should be protected in his monop-

oly. 395 U.S. 653, 663-664, 23 L.Ed.2d 610, 619 (cita-

tions omitted).

Surely the equities of the licensor do not weigh very

heavily when they are balanced against the important

public interest in permitting full and free competition in the

use of ideas which are in reality a part of the public domain.

Nor can we accept a second argument which may be

advanced to support [plaintiff's] claim to at least a portion

of his post-patent royalties, regardless of the validity of the

Patent Office grant. . . . Thus, it may be suggested that

although [defendant] must be allowed to raise the question

of patent validity in the present lawsuit, it must also be

required to comply with its contract and continue to pay

royalties until its claim is finally vindicated in the courts.

& * * * °

[We] hold that [defendant] must be permitted to avoid the

payment of all royalties accruing after [plaintiff's] 1960

patent issued if [defendant] can prove patent invalidity.

395 U. S. 653, 670-674, 23 L. Ed. 2d 610, 623-625 (em-

phasis added).

The Lear rationale was reiterated by this Court on several

occasions, including Blonder-Tongue Labs, Inc. v. University of

Illinois Foundation, 402 U. S. 313, 28 L. Ed. 2d 788 (1971)

as follows:

Although recognizing the patent system’s desirable stimulus

to invention, we have also viewed the patent as a monopoly

which, although sanctioned by law, has the economic con-

sequences attending other monopolies. A patent yielding

returns for a device that fails to meet the congres.ionally

imposed criteria of patentability is anomalous. 402 U. S.

at 343, 28 L. Ed. 2d at 807 (emphasis added, footnote

omitted).

If the Lear and Blonder-Tongue cases have any meaning or

application, they must apply to the case at bar. As the defendant

in Lear, this defendant executed an agreement and agreed to pay

a royalty for a patent which it later determined was invalid. In

Lear, the defendant was permitted to avoid its contractual obli-

gations for the basic policy reason that this Court simply would

not permit a patentee to extort any tribute whatsoever for an

invalid patent. But unlike the defendant in Lear, this defendant

did not avoid its contractual obligation. It honored the agree-

ment and paid the full royalty, How can it be said that this

defendant is in a less favorable position than the Lear defendant

who breached its agreement? The bare statement of the propo-

sition is its own refutation.

Nevertheless, the Court below erroneously concluded that

Lear and Blonder-Tongue do not apply to this case because the

equities here are not as “evenly balanced” as in Lear and because

defendant is a patent owner, rather than a licensee.* What the

Seventh Circuit has done is to create novel exceptions to Lear

that simply do not exist.

Even if, contrary to the fact, it could be said that the equities

are not as evenly balanced here as they were in Lear, where the

defendant flagrantly breached its contract, the Seventh Circuit's

limitation of Lear to a situation where equitable balance exists

is directly contrary to both the holding and the express language

of the Lear opinion. This Court clearly ruled in Lear that the

relative equities of the parties were irrelevant in light of the over-

riding federal policy in favor of free competition as follows:

Surely the equities of the licensor do not weigh very

heavily when they are balanced against the important

public interest in permitting full and free competition in the

use of ideas which are in reality a part of the public domain.

395 U. S. 653, 670, 23 L. Ed. 2d 610, 623.

9. Defendant refers to the Court of Appeals Opinion, at page

A9 of the Appendix.

12 ;

So, too, in Scott Paper Co. v. Marcalus Mfg. Co., Inc., 326

U. S. 249, 90 L. Ed. 47 (1945), this Court ruled that Federal

policy must always prevail, regardless of so-called equitable

balance:

The interest in private good faith is not a universal

touchstone which can be made the means of sacrificing a

public interest secured by an appropriate exercise of the

legislative power. 326 U. S, 249, 257, 90 L. Ed. 47, 52.

Similarly, numerous other federal decisions, both prior and

subsequent to Lear, including those of the Seventh Circuit,

clearly confirm that the distinctions relied upon by the opinion

below do not exist. Inexplicably, these decisions, although cited

by defendant in its briefs below, are not even mentioned in the

Seventh Circuit's opinion.

Significantly, for example, the broad federal policy expressed

in Lear that there can be no recovery based upon an invalid

patent was confirmed as early as Sinclair Refining Co. v.

Jenkins Petroleum Process Co., 99 F, 24 9 (1 Cir. 1938), cert.

denied, 305 U. S. 659 (1939), where the Court of Appeals

applied this doctrine in favor of a patent owner and irrespective

of equitable balance.

In that case, strikingly similar to the one at bar, defendant

entered into a contract with plaintiff whereunder plaintiff

licensed defendant to use his patent, and defendant agreed to

assign any improvement patent to plaintiff. Defendant obtained

an improvement patent but inequitably refused to honor its

agreement to assign its patent to plaintiff. Plaintiff sued defend-

ant for breach of contract and defendant, owner of the patent,

interposed, as an affirmative defense, the invalidity of its patent.

Like the trial court here, the trial court there excluded defend-

ant’s evidence of prior art and refused to rule on the invalidity

of defendant’s own patent. A jury returned a $2,000,000 verdict

in favor of plaintiff. But the Court of Appeals reversed the judg-

ment and rejected the trial court ruling that defendant could

not interpose the invalidity of its patent as a defense. Instead,

the Court of Appeals ruled that prior art invalidating defend-

ant’s own patent was improperly excluded from evidence, that

defendant's patent was invalid as a matter of law, that the in-

validity of the patent rendered it valueless, and that, because the

patent was invalid, plaintiff was not and could not have been

damaged:

... The two features in the .. . patent .. . were both old

and left nothing of value in the , .. patent to be assigned to

the plaintiff under the letter-contract in suit hereinafter re-

ferred to. Therefore, even if the improvements claimed by

the plaintiff had been assigned in accordance with the letter-

contract, they could have added nothing of value to the

[plaintiff's] patent, and the failure to assign them deprived

the plaintiff of nothing of value... . Hence, the actual

damage suffered by the plaintiff through the failure to

assign to it the [patent| in accordance with the letter-

contract ... could not have been more than nominal, even

assuming the so-called improvements claimed by the plain-

tiff were the result of the [patentee’s] engineers and experts

familiarizing themselves with the [plaintiff's] still under the

contract... Jd. at 12.

Unless the plaintiff has some effective reply, which we

do not find in the record, to the defendant’s contention that

the vse of [the patent] had long been anticipated by the

[prior art] and was in the public domain, the . . . patent

must be held invalid.

While some evidence of the prior art was admitted for

the purpose of showing the state of the art in 1916, if all

the evidence of the prior art offered by the defendant had

been admitted showing anticipation ... of the. . . patent,

and to show the scope of the . . . patent, the prima facie

evidence of validity of the . . . patent would have been

_ destroyed and the District Court must then have instructed

the jury that the .. . patent issued in 1918 was invalid.

Id, at 13 (emphasis added).

Thus, the First Circuit in Sinclair held both that a defendant

could challenge the validity of its own patent and that it could

do so regardless of equitable balance. The Court also ruled the

patent invalid as a matter of law and vacated plaintiff's damage

award. To say the least, the opinion below is in hopeless con-

flict with this long standing decision.

Moreover, the Seventh Circuit’s assertion that defendant is

estopped to assert the invalidity of the patent, and that Lear does

not apply to this defendant, because it holds an assignment of

the patent is contrary not only to the holding in Sinclair, thus

creating a conflict between the circuits, but is also contrary to

the Seventh Circuit's own decisions. In Beckman Instruments,

Inc. Vv. Technical Development Corp., 433 F. 2d 55 (7 Cir.

1970), cert. denied, 401 U. S. 976 (1971), the Seventh Cir-

cuit itself unequivocally rejected the argument that Lear did not

apply to an exclusive licensee, stating:

We reject the argument. Even if the failure to distin-

guish between exclusive and nonexclusive licenses was an

oversight [in Lear], we are not convinced that the Supreme

Court would rule differently on the facts of this case. Nor

can we say that the distinction which the defendants sug-

gest is so great as to require a limitation on the Lear rule,

especially in light of the “strong federal policy favoring

free competition in ideas which do not merit patent pro-

tection.”

. . . [T]he whole purpose of this suit is to show that

[the inventor] in fact invented nothing and that plaintiff

was paying for the use of unpatentable ideas. Moreover,

substantially similar arguments as the defendants make

were rejected by the Court in Lear. 433 F. 2d at 58

(citations omitted).

It is, of course, well settled that an exclusive license is

usually tantamount to an assignment and an exclusive licensee

is in the same position as an owner of a patent.’° Waterman

v. Mackenzie, 138 U, S. 252, 34 L. Ed. 923 (1891); Heywood-

Wakefield Co. v. Small, 96 F, 2d 496 (1 Cir. 1938); Dynatech

Corp. Vv. Frigitronics, Inc., 318 F. Supp. 851 (D. Conn., 1970);

All Steel Engines, Inc. v. Taylor Engines, Inc., 88 F. Supp. 745

(N. D. Cal., 1950), aff'd. 192 F. 2d 171 (9 Cir. 1951); D. M.

Sechler Carriage Co. v. Deere & Mansur Co., 113 F. 285 (7

Cir. 1902); Green v. LeClair, 24 F. 2d 74 (7 Cir. 1928);

Kenyon Vv, Automatic Instrument Co., 160 F, 2d 878 (6 Cir.

1947); Hook v. Hook & Ackerman, Inc., 187 F. 2d 52 (3 Cir.

1951); Hartford National Bank & Trust Co. v. Henry L.

Crowley & Co., 219 F, 2d 568 (3 Cir. 1955). It is clear from

these decisions that the Lear doctrine applies in favor of this

defendant and that the distinctions imposed by the Seventh

Circuit are contrary to law.

The Court of Appeals apparently recognized the dilemma

created by its decision, for it implicitly concedes that, if plain-

tiffs patent is invalid, defendant did not obtain the monopoly

that plaintiff purported to sell. In an effort to avoid this dilemma,

the Court of Appeals sets forth the most novel proposition that

defendant obtained a monopoly “in fact” when it acquired plain-

tiff's invalid patent (Opinion, p. A7 of the Appendix). But this

unique theory is also contrary to Lear.

Thus, the language quoted by the Seventh Circuit from Lear

that “the existence of an unchallenged patent may deter others

from attempting to compete with the licensee” (Opinion, p. A7)

was merely a hypothetical proposition, which was immediately

followed by this Court’s holding that the proposition, if true, was

simply irrelevant in light of the overriding federal policy that

10. An exclusive license to make, use and sell an invention is an

assignment under the law. The Beckman opinion does not report the

provisions of the exclusive license in that case. However, the nature

of the argument in that case implies that the exclusive license was

an assignment.

there may be no recovery based upon an invalid patent (395

U. S. 670-671). Evidently, the Seventh Circuit misapprehended

the Lear opinion.

Moreover, the Sgyenth Circuit itself previously rejected this

so-called monopoly “in fact’ theory in Beckman Instruments,

Inc. Vv. Technical Development Corp., 433 F. 2d 55 (7 Cir.

1970), cert. denied, 401 U. S. 976 (1971), when it ruled as

follows:

Defendants attempt to distinguish the doctrines of

licensee estoppel and estoppel by marking by suggesting

that the former is based on principles of contract law,

while the latter has its basis in equity. But defendants’

arguments in support of each of these doctrines sound very

similar, namely, that it is unfair for licensees to use the

patent and accept the benefits of the license and then attack

the validity of the patent. However, the Supreme Court in

Lear rejected such arguments when applied to the licensee

estoppel doctrine, and we think the Court’s reasoning

extends to the doctrine of estoppel by marking as well.

Defendants have not suggested any reason why the ‘strong

federal policy’ in favor of encouraging challenges to

invalid patents should not apply when there has been mark-

ing with the patent number. Perhaps it is true that such

marking provides the licensee with additional protection

from competitors, thus making it seem all the more unfair

to allow him to repudiate his obligations. However, it must

be noted that the Supreme Court in Lear conceded that

patent invalidity does not amount to total failure of con-

sideration, but nonetheless held that patent invalidity must

be made a complete defense to the obligation to pay royal-

ties. We cannot say that the additional consideration or

‘benefit’ flowing to the licensee who marks his products

with the patent number is sufficient to make the Lear case

and its policy rationale inapplicable. 433 F. 2d at 59

(emphasis added).

Thus, the Seventh Circuit clearly and expressly recognized that

patent marking could not avoid the clear and unequivocal

import of Lear. As Lear confirms, it is well settled that a

monopoly, if it exists at all, can only exist where there is a

valid patent. Neither marking the patented item with a pateht

number nor any other action can alter this inescapable propo-

sition.”

Even assuming arguendo that a “monopoly in fact” theory

could somehow support recovery, and it cannot, the invalidity of

plaintiff's patent was nevertheless a basic issue in the lawsuit. If,

as is the fact, plaintiff's patent was rendered invalid by an expired

patent improperly excluded from evidence, defendant could not

possibly have monopolized the market in law or “in fact.”

Plaintiff or any competitor of defendant would have been per-

fectly free to market the wrench under the expired and publicly

available patent.'* And even if a “monopoly in fact” somehow

existed, the prior art Carpenter patent and other patents ex-

cluded from evidence were still crucially relevant to the extent

and value of this monopoly.

What the Opinion below accomplishes is to prevent the

prompt resolution of patent invalidity and enforcement of the

strong public policy which prohibits one from capitalizing on

an invalid patent, Instead, the Seventh Circuit requires the

payment of tribute to one who has obtained an invalid patent.

Indeed, it specifically envisions the future litigation concerning

patent validity which Lear expressly sought to avoid. If that

future litigation results in a holding of invalidity, as defendant

contends it must, then plaintiff will have received a $1,000,000

windfall, unless this Court grants review.

11. The Court of Appeals misplaces reliance on Kewance Oil

Co. v. Bicron Corp., 416 U. S. 470, 482 (1974). That decision

merely recognized that a trade secret is protectable and that trade

secret theory may exist coextensively with the patent laws. That

decision is not apposite here for plaintiff concedes he did not have

a trade secret (T 3226-3228).

12. Moreover, even if a “monopoly in fact” theory was never-

theless a viable one, defendant removed the a number from its

wrench in 1971 (R. 59, pp. 2-3, C., Count II, para.’s 23-26), The

jury award of money damages as profits through 1976 was, even

under the Court of Appeals theory, erroneous for this reason as well.

Since the decision below conflicts with the decisions of this

Court and other circuits, defendant asks this Court to issue a

writ of certiorari and reverse the decision below.

Il. Plaintiff's Patent Is Invalid as a Matter of Law.

Defendant offered in evidence three charts reproduced here

for the Court’s convenience. These charts show the single claim

in plaintiff's patent in juxtaposition to the structure shown in

his patent and those of the prior art Carpenter and Gonzalez

patents, respectively (DX 35, 36, 37).’* The structural elements

on the respective charts were colored by defendant’s expert

witness to show corresponding elements in corresponding colors

(T. 2475). A simple comparison of plaintiffs claim with the

structures of the Gonzalez and Carpenter patents reveals that

each and every element of plaintiff's claim is present in these

prior patents. Plaintiff's patent contains a single claim as

follows:

“In a socket wrench

a handle (green)"*

a head thereon (green)

a driving stud in the head (brown)

said stud extending from a side surface of the head

a longitudinal passage in said stud

a longitudinally movable pin in said passage (blue)

an aperture in the stud communicating with the passage

a detent element mounted in the aperture (red)

the edges of the aperture holding the detent to the stud

the detent being normally engaged with a surface of said pin

13. The chart depicting the Carpenter structure and all testimony

thereon were excluded from evidence and defendant submitted an

offer of = thereon (T. 2399-2400, 2409-2413, 2416, 2425-

2429, 2594, 2600).

14. This color and others referred to below refer to the colors

on the charts. ;

eee at

De AR og Ra pel RE ERS lS HERE He EUR er 7 2 tis : - S $3 é re ‘ |

said detent element being held thereby in outwardly located

position in order to engage and hold a socket on the stud

a recess in said pin for selective alignment with said detent

element so that the latter is received therein releasing the

socket (white)

a spring normally urging the pin to a position where it

holds the detent outwardly (black)

said pin extending through the head in a direction opposite

the stud and in position to be engaged manually by the

operator of the wrench holding the handle to be depressed

against the action of the spring to move the pin from detent

element holding position to a position wherein said recess

receives the detent element (blue)”

Simply, the essential elements of plaintiffs claim are a stud

with an opening (brown) carried on a handle (green), a

slidable pin in the stud (blue), the pin having a recess to receive

a ball detent (red), so as to release the socket when the recess is

aligned with the ball, and a spring (black) that holds the ball in

position to secure a socket on the stud. As may be seen from the

charts the combination of each of these elements is found in

Carpenter’® and Gonzalez, the parts being similarly colored on

the charts.

It is well settled that a patent is invalid for anticipation where

there are minor differences between the patent claim and prior

art. A fortiori, a patent is anticipated where, as here, no differ-

ences between the patent claim and prior art exist and each and

every element of the patent claim is disclosed by a prior art

patent. As the Court below ruled in Amphenol Corp. v. General

Time Corp., 397 F. 2d 431 (7 Cir. 1968):

[A] device to be patentable must possess novelty and in-

vention. Novelty does not exist if the device has been

anticipated by a substantially identical prior device where

the elements do substantially the same work in substantially

the same way. 397 F. 2d at 437.

15. Defendant would note that the Carpenter structure adds a

refinement of a leaf spring, the purpose of which is to prevent the

detent from sticking when it enters the recess.

Sept. 28, 1565

it]

rm RoNCAtS 3,208,318 March 9, 1965

QUICK BILCASE fot *ocacr WPRTRCHES

Filed Apr.t 24 1964 Filed Fee. 19, 1903

In a socket wrench

a handle 102

VF GOMTALTZ

PALL SOCKET ATTacinenT For feract Tom,

3,172,675

2 Sheete-Sheet 2

a head thereon lo4

a driving stud in the head 14. 36

said atud extending from a side surface of the head _.——

a longitudinal passage in said stud

—

a longitudinally movable pin in eald passage 56 a i

Qha Ics

104

an aperture in the stud communicating with the pareage

a detent element mounted in the aperture eS a.

the edges of the aperture holding the detent to the atud — VA

the detent being normally engaged with a surface of said pin

naid detent element being held thereby in outwardly located ponition in

order to engage and hold a socket on the stud

a recess in eald pin for selective alignment with aaid detent element

ao that the latter te received therein releaaing the socket

a spring normally urging the pin to a position where it holda the detent outwardly 40a

said pin extending through the head In a direction opporite the etud and In 50a.

position to be engaged manually by the operator of the wrench holding the

+e]

handle to be depressed against the action the epring to move the pin from detent

clement holding poeltion to a position wherein sald recess receives the

DX 36

Sept. 28, 1965 »

In a secket wrench

a handle lO

M HOLENTS

et. acy WPLNCHES

Lapel 24 1966

a head thereon _ 2

3,208,318

eee

a driving stud in the head 14

said atad extending from a side surface of the head

a longitudinal passage in said stud

a longitudinally movable pin in said oe

an aperture in the stud communicating with the passage

a detent element mounted tn the aperture ite)

the edges of the aperture holding the detenttothe stud

the detent being normally engaged with a surface of raid pin

sail detent element heing held thereby in outwardly located position in

order to enpgace and hold a socket on the stud

a recess in aoid pin for selective alignment with etd detent element 26

so thot the latter be received therein celeasing the socket

a spring norniolly urging the pin te a position where it holde the detent outw pee:

sail pin ewterting theongh the head ta a direction ompaatte the ated vad bm

positron te be eopaped onaually by the eperstor af the wrench betelton the

be vre the tee tee ele pres seed wg eterst Chee ae tere thee @ypet beep bee eee the pen foevers che teat

‘

@ lecture eet Leeebeltneg: peeeeht bene fe a prepa tbeeenn heeeen sale eee ene cee etwas Obes

e¢

DA 2

Sept. 28, 1965 P M. ROBERTS 3,208,318

QUICK PELCASC FO. SOCKET eRLwcHEs

Filed Acer. 24 1906

In a socket wrench

a handle ——

JA 27Ff Lif

Feb. 28, 1928, .

f. f. Canernten 1,669,909

erreen

Pile4d Jia 27. yon

a head thereon

a driving stud in the head he

said stud extending from a eide surface of the head an

a longitudinal passage in said stud A

a longitudinally movable pin in said passage 9

an aperture in the stud communicating with the passage

a detent element mounted in the aperture

the edges of the aperture holding the detenttothe etud

the detent being normally engaged with a surface of said pin

said detent element being held thereby in outwardly located position in

order to engage and hold a socket on the stud |

a recess in said pin for selective alignment with said detent element At)

so that the latter is received therein releasing the socket |

a Spring normally urging the pin to a position where it holde the detent cutwardly

said pin extending through the head in a direction opposite the stud and in

position to be engaged manually by the operator of the wrench holding the

handle to be depressed against the “ction the spring to move the pin from detent

element holding position to a position wherein said recess receives the

In Shelco, Inc. vy. Dow Chemical Co., 466 F. 2d 613 (7 Cir.

1972), cert. denied, 409 U. S. 876 (1972), the Seventh Circuit

recognized that anticipation applies even if, unlike the case at

bar, differences do exist between the patent claim and prior art

when it ruled:

[When the only features distinguishing the purported in-

vention from a prior art product are insubstantial, the

earlier may properly be said to anticipate the later product.

. « . [I]t is sufficient for anticipation ‘if the general aspects

are the same and the difference in minor matters is only

such as would suggest itself to one of ordinary skill in the

art.’ 446 F.2d at 614, 615 (citations omitted, emphasis

added).

Similarly, in Deep Welding, Inc. v. Sciaky Bros., Inc., 417

F, 2d 1227 (7 Cir. 1969), cert. denied, 397 U. S. 1037 (1970),

the Court below reversed a trial court judgment and invalidated

a patent because of anticipation, although differences existed

between the challenged patent and prior art. The Court ruled:

[E]ven though the disclosures of the prior art may fall short

of “complete anticipation,” anticipation may be found

where achieving complete anticipation only required that

one of ordinary skill in the art merely exercised that skill

to complete the work. . . . [While it is preferable that ‘all

of the elements of the patented device or their equivalents

* * * be found in a single prior device,’ it is sufficient for

anticipation ‘if the general aspects are the same and the

differences in minor matters is only such as would suggest

itself to one of ordinary skill in the arf... 417 F.2d at

1234 (citations omitted, emphasis added).

See also, E. T, Industries, Inc. v. Whitlaker Corp., 183 USPQ

690 (N. D. Ill. 1974), rev'd on other grounds, 523 F. 2d 636

(7 Cir. 1975); Catalano v. Kawneer Co., Inc., 185 USPQ 456

(N. D. Ill. 1975) ; Ropat Corp. v. West Bend Co., 382 F. Supp.

1030 (N. D. Ill. 1974); Marasco v. Compro Shoe Machinery

Corp., 325 F. 2d 695 (1 Cir. 1963), cert. denied, 377 U. S.

924 (1964); Monroe Auto Equipment Co. v. Heckethorn Mfg.

& Supply Co., 332 F. 2d 406 (6 Cir. 1964), cert. denied, 379

U. S. 888 (1964).

Thus, even if, contrary to the fact, it could be said that there

are minor differences between plaintiff's claim and the disclo-

sures of Carpenter or Gonzales, such differences could not alter

the fact that plaintiff's patent is anticipated and invalidated by

these earlier patents, Each and every element of plaintiff's

claim is found both in Gonzales and Carpenter, thus clearly

rendering plaintiffs patent invalid.

And even if, contrary to the fact, it could somehow be said

that plaintiff's patent represented an improvement over the prior

art, the improvement would be obvious to one ordinarily skilled

in the art. Thus plaintiff's patent would still be invalid under

Section 103 of the Patent Act (35 U. S. C. § 103), Popeéil

Brothers, Inc, v. Schick Electric, Inc., 494 F, 2d 162 (7 Cir.

1974), Pederson V. Stewart-Warner Corp., 536 F, 2d 1179 (7

Cir. 1976), cert. denied, 429 VU. S. 985 (1976), Sakraida

v. Ag Pro Inc., 425 U. S. 273, 47 L. Ed. 2d 784 (1976),

Gettleman Mfg. Inc. v. Lawn ’N’ Sport Power Mower Sales &

Service, Inc., 517 F. 2d 1194 (7 Cir. 1975); Panduit Corp. v.

Burndy Corp., 517 F. 2d 535 (7 Cir. 1975), cert. denied, 423

U. S. 987 (1975); Skil Corp. v. Lucerne Products, Inc., 503 F.

2d 745 (7 Cir. 1974), cert. denied, 420 U. S. 974 (1975).

The trial court and the Seventh Circuit improperly refused to

pass upon the question of patent invalidity. Under those cir-

cumstances, it is well settled that this Court may do so, That is

precisely what the Court of Appeals did in Sinclair Refining Co.

v. Jenkins Petroleum Process Co., 99 F. 24 9 (1 Cir. 1938),

cert. denied, 305 U. S. 659 (1939), cited and discussed at

length at pages 12-14 above. As stated in NCR Corp. v. East-

man Kodak Co., 191 USPQ 194 (N, D. Ill. 1976):

The patent in suit and the prior art relied upon by defend-

ant are not complex and are readily understood. They

involve only rudimentary mechanical principles. Thus, the

patents can “speak for themselves’, and, absent any dis-

pute over the teaching of these patents, this court can make

the necessary findings with respect to the state of the prior

art and differences between that art and the patent in suit

without any further presentation of evidence. 191 USPQ

at 199 (Emphasis added).

Also, in Maclaren v. B-I-W Group, Inc., 535 F, 2d 1367 (2

Cir. 1976), cert. denied, 429 U. S. 1001 (1977), the Court

held:

..» Where the material facts are undisputed or the findings

are based on documentary evidence which we are as com-

petent to appraise as the District Court, we have not hesi-

tated to reject a determination of validity, either because

the significance of the facts had not yet been fully per-

ceived by the District Court or there has been an error in

the application of legal principles. 535 F.2d at 1371 (cita-

tions omitted, emphasis added).

See also, Graham v. John Deere Co., 383 U.S. 1, 15 L. Ed.

2d 545 (1966); Great A & P Tea Co. Vv. Supermarket Equip-

ment Co., 340 U. S. 147, 95 L. Ed. 162 (1950); 2 Walker on

Patents, § 105 (Deller’s 2d Ed. 1964),'® to the effect that patent

invalidity is a question of law which can be decided by this

Court.

Clearly, the trial court and the Court of Appeals should have

but refused to pass upon the issue of patent invalidity, These

courts completely ignored that patent invalidity was a para-

mount issue in the case as a matter of law and fact. Had these

courts ruled on this issue, they could only have concluded that

plaintiff's patent was invalid and could not be the basis for a

verdict against defendant under any theory.’ For this reason,

too, this Court should issue a writ of certiorari.

16. Although defendant perceives no fact issue on the question

of invalidity, when the trial court refused to rule on this issue as a

matter of law, it requested that the issue be submitted to the jury,

but the trial court refused this request also (T. 3101-3104). If any

factual issue exists, this ruling, too, was error.

17. Although plaintiff's patent was presumed valid, this pre-

sumption is rebutted and does not apply where, as here, there is evi-

dence of relevant prior art not cited by the Patent Office. Simmons Co.

v. Hill-Rom Co., 352 F. 2d 886 (7 Cir. 1965); AR, Inc. v. Electro-

(Footnote continued on next page.)

III. The Decision of the Court of Appeals Below Contravenes

the Law of Illinois.

If plaintiff's patent is invalid, his recovery would be barred

by state as well as federal law. Thus, certiorari should be granted

for the further and equally compelling reason that the decision

below conflicts with the law of Illinois. Under the law, an in-

valid patent is valueless. As plaintiff himself conceded below,

a charge of fraud without damage is not actionable in Illinois

(PAB 56). In the absence of a valid patent, that indeed is the

case at bar.

In Finn v. Monk, 403 Ill. 167, 85 N. BE. 2d 701 (1949), the

Supreme Court of Illinois reversed a lower court judgment and

ruled:

The plaintiffs have not shown how they were damaged.

This is an absolute essential for recovery for fraudulent

representations. It is the law of Illinois as well as that of

practically every State. 403 Ill. at 176 (Emphasis added).

Similarly, in Yates vy. Cummings, 4 Ill. App. 3d 899, 282

N. E. 2d 281 (1972), the Appellate Court of Illinois affirmed a

lower court decision that plaintiff had no cause of action for

fraud since he was not damaged:

Proof of actual injury resulting from the representation is

a necessary element of the cause of action. We do not find

that sufficient evidence was introduced to show that ap-

pellants sustained injury. 4 Ill.App.3d at 903 (citations

omitted, emphasis added).

(Footnote continued from preceding page.)

Voice, Inc., 311 F. 2d 508 (7 Cir. 1962); Senco Products, Inc. v.

Fastener Corp., 269 F. 2d 33 (7 Cir. 1959), cert. denied, 361

U. S. 932 (1960); Hobbs v. Wisconsin Power & Light Co., 250

F, 2d 100 (7 Cir. 1957), cert. denied, 356 U. S. 932 (1958);

Chicago Rawhide Mfg. Co. v. Crane Packing Co., 523 F. 2d 452

(7 Cir. 1975), cert. denied, 423 U. S. 1091 (1976 wr, Mfg. Co.,

Inc, v. Commercial Filters Corp., 489 F. 2d 1008 (7 Cir.. 1972);

vee Welding, Inc. v. Sciaky Bros., Inc., 417 F. 2d 1227 (7 Cir.

1969), cert. denied, 397 U. S. 1037 (1970); NCR Corp. v. East-

man Kodak Co., 191 USPQ 194 (ND Ill. 1976).

Also, in Struve v. Tatge, 285 Ill. 103, 120 N. E. 549 (1918),

the Supreme Court rejected a cause of action for fraud on this

basis:

The general rule is that to constitute actionable fraud it

must be shown, among other things, that the person who is

alleging fraud has thereby suffered an injury, and this, as

well as all the other essentials of fraud, must be proved to

a reasonable degree of certainty. 285 Ill. at 109.

The Seventh Circuit agrees. Thus, in Good Brothers, Inc. v.

Banowitz, 269 F, 2d 197 (7 Cir. 1959), plaintiff requested

rescission of an agreement because of fraud. The Court reversed

a lower court judgment when it ruled:

Under Illinois law, in order to be actionable either in law

or a ground for rescission in equity, fraud and injury must

concur, Fraud without damage is not sufficient. Id. at 203

(citations omitted, emphasis added).

See also, Jones V. Foster, 175 Tl. 459, 51 N. E. 862 (1898);

Meenehan Vv. Rosenfield, 236 Tl. App. 4 (1925); Connelly v.

Bartlett, 286 Mass. 311, 190 N. E. 799 (1934). It is clear

from the foregoing decisions that the issue of patent invalidity

is an essential one to this case.

IV. Defendant Was Denied a Fair Trial.

At trial, plaintiff proffered and the trial court received evi-

dence of prior art. The trial court also permitted plaintiff to

argue to the jury that his patent was valid (T 195-198, 302-

303, 378-380, 736-738, 1441-1443, 1448, 1463, 1513-1516,

1517-1518, 1529, 2302, 3300, 3312-3314, 3316, 3322, 3330,

3331, 3337-3341). But defendant was denied the opportunity

to oppose this evidence and argument with the crucial Carpenter

patent and other relevant prior art (T 2409-2413, 2416, 2425-

2429, 2460-2470, 2594, 2600-2606, 2615, 2747-2749). How-

ever, this prior art offered by defendant and rejected by the trial

court did not only go to the issue of the invalidity of plaintiff's

1 AD ee As ce en eeetaNee 5

ne ee a et Oe ECE CET RR CS AP oN ee

_—

patent, as the Court of Appeals erroneously perceived.'® Con-

trary to the belief of the Seventh Circuit, the improperly ex-

cluded evidence of prior art was also offered by defendant on

and relevant to the value of plaintiff's patent (T 2397-2401,

2424-2425, 2600-2606, 2747-2749). A jury award, if any,

must necessarily relate to the value of the idea disclosed by

the patent. Indeed, even the trial court recognized this basic

concept at one point. Thus, before it excluded defendant's

proffered evidence of prior art, the trial court initially ruled

that:

I have no doubt in my mind that notwithstanding the

vehement argument on behalf of the plaintiff to the con-

trary, the defense has a right to show that what it purchased

was something other than what it turned out and that it

had anticipated this possibility and had so indicated to the

plaintiff's representative. I have no doubt about that. (T

778) (Emphasis added).

While the trial court later ignored this basic point, plaintiff

continued to recognize the proposition. Thus, he argued below

that the value of his patent was the very nexus of his lawsuit

(7B 31, 32).”

To exclude evidence proffered by defendant regarding the

value of the patent, as the trial court did, obviously contravenes

the law and denied the defendant a fair trial. This error was

compounded when plaintiff was nevertheless permitted to proffer

his evidence regarding prior art (T 195-198, 302-303, 378-

380, 736-738, 1441-1443, 1448, 1463, 1513-1516, 1517-

1518, 1521, 1529, 2302) and argue to the jury that his patent

was valid (T 3300, 3312-3314, 3316, 3322, 3330, 3331,

3337-3341). For these reasons, too, a writ of certiorari is

required here. |

18. Defendant refers to the Court of Appeals Opinion, at page

A10 of the Appendix.

19. Indced, the trial court instructed the jury that its verdict

should be based upon the value of the patent or idea (T. 3469).

CONCLUSION.

For each of the reasons set forth above, petitioner respectfully

prays that this Court issue a writ of certiorari and thereafter

rule that the judgments of the United States Court of Appeals

for the Seventh Circuit and of the United States District Court

for the Northern District of Illinois must be reversed, and that

judgment be entered for defendant. Alternatively, upon reversal

of these judgments, this matter should be remanded to the

District Court for a new trial.

Respectfully submitted,

BURTON Y. WEITZENFELD,

ARTHUR L. KLEIN,

PETER D. KASDIN,

75th Floor—Sears Tower,

Chicago, Dlinois 60606,

876-7100,

Counsel for Petitioner.

ARNSTEIN, GLUCK, WEITZENFELD,

& MINow,

75th Floor—Sears Tower,

Chicago, Illinois 60606,

876-7100,

Of Counsel.

APPENDIX.

IN THE UNITED STATES CouRT oF APPEALS

for the Seventh Circuit

Nos. 77-1354 and 77-1499

PETER M. ROBERTS,

Plaintiff-A ppellant,

Cross-A ppellee,

vs.

SEARS, ROEBUCK AND COMPANY, a corporation,

Defendant-A ppellee,

Cross-A ppellant.

Appeal and Cross-Appeal from the United States District Court

for the Northern District of [linois, Eastern Division.

No. 69 C 2573—George N. Leighton, Judge.

Argued February 14, 1978—Decided April 3, 1978

Before CASTLE, Senior Circuit Judge, SPRECHER and BAUER,

Circuit Judges.

SPRECHER, Circuit Judge. The major issues in this case are

whether the district court properly declined to decide the

validity of plaintiffs patent in a suit for fraud, breach of a con-

fidential relationship and negligent misrepresentation in defend-

ant’s procurement of an assignment of plaintiff's patent rights

and whether the district court properly concluded that plaintiff

had elected his legal remedies and, therefore, was barred from

seeking his equitable remedies of rescission and restitution.

This case involves the efforts of one of this nation’s largest

retail companies, Sears, Roebuck & Co. (Sears), to acquire

through deceit the monetary benefits of an invention of a new

type of sockct wrench created by one of its sales clerks during

his off-duty hours. That sales clerk, Peter M. Roberts (Plaintiff),

initiated the unfortunate events that led to this appeal in 1963,

when at the age of 18 he began work on a ratchet or socket

wrench that would permit the easy removal of the sockets from

the wrench. He, in fact, designed and constructed a prototype

tool with a quick-release feature in it that succeeded in permit-

ting its user to change sockets with one hand. Based on that

prototype, plaintiff filed an application for a United States

patent. In addition, since he was in the employ of Sears, a

company that sold over a million wrenches per year, and since

he had only a high school education and no business experience,

he decided to show his invention to the manager of the Sears

store in Gardner, Massachusetts where he worked. Plaintiff

was persuaded to submit formally his invention as a suggestion

to Sears. In May 1964, the prototype, along with a completed

suggestion form, was sent to Sears’ main office in Chicago,

Illinois. Plaintiff, thereafter, left Sears’ employ when his parents

moved to Tennessee.

It was from this point on that Sears’ conduct became the

basis for the jury’s determination that Sears appropriated the

value of the plaintiff's invention by fraudulent means. Plaintiff's

evidence proved that Sears took steps to ascertain the utility

of the invention and that based on the information it acquired,

Sears became convinced that the invention was in fact valuable.

Sears had two sets of tests run on plaintiff's wrench by its

ae oe

custom manufacturer of wrenches, Moore Drop Forging Co.

(Moore). The first test was conducted in July 1964, and it

proved that the wrench operated normally and that the quick-

release feature did not substantially weaken the structure of the

wrench. The second test, conducted in May 1965, showed that

actual mechanics liked the quick-release feature. Moore re-

ported the results of these tests to Sears.

Based presumably on these tests, and the expert opinion of

its senior tool buyer, Arthur Griesbaum, Sears in March 1965,

had Moore design a fine-tooth wrench with the quick-release

feature built into it. In addicion, at about the same time, Sears

put in motion plans to incorporate the quick-release feature »

into then-existing wrench models that constituted 74.27 percent

of all the wrenches Sears sold. Thus, by early 1965, it was

clear to Sears that this invention was very useful and probably

would be quite profitable.

Sears also received reports from Moore regarding the manu-

facturing cost of plaintiff's quick-release feature. In the initial

prototype built by Moore, the cost was 44 cents per unit. By

June of 1965, Sears had received a report indicating that the

cost could be reduced to 20 cents per unit. Thus, early in

1965, Sears learned that the feature was relatively inexpensive

to manufacture.

Sears also took pains to ascertain the patentability of the

quick-release feature. In April 1965, it received outside patent

counsel's advice that there was “some basis for limited patenta-

bility” (defendant's Exhibit 9). It had previously learned in

February 1965 from plaintiff's lawyer, Charles Fay, that he

believed the invention was patentable based on a limited search.

In addition, Sears was informed in early May 1965, by plain-

tif's lawyer that a patent had been issued to plaintiff.’

1. We might note here that Mr. Fay contacted Sears before in-

forming plaintiff that a patent had issued. In addition, it was shown

that Sears had contacted Mr. Fay during the period of these negotia-

tions about doing some work for it and that he, in fact, did perform

a couple of routine matters for Sears, thus raising some doubt about

the independence of his advice to plaintiff.

With all of this information either available or soon to be

available, Sears contacted plaintiff in January 1965, and began

negotiations regarding the purchase of rights to use plaintiffs

invention, During these negotiations, conducted with plaintiff's

attorney, Sears’ lawyer, Leonard Schram, made various repre-

sentations to plaintiff that serve as the essential basis for plain-

tiff's complaint. In April 1965, in a letter seeking merely a li-

cense, Schram first told plaintiff that the invention was not new

and that the claims in any patent that would be permitted

would be “quite limited” (plaintiff's Exhibit 34). Second, Schram

told plaintiff that the cost of the quick-release feature would be

40-50 cents. Third, he told plaintiff the feature would sell only

to the extent it would be promoted and thus $10,000 was all

that the feature was worth. Finally, and perhaps most ironi-

cally, Schram wrote to plaintiff that “[oJmce we have paid off

the royalty expense, then we would probably take the amount

previously allocated to said expense and use it for promotional

expenses if we-desire to maintain sales on the item.” (Emphasis

added. )

Based on this letter, plaintiff entered into the agreement on

July 29, 1965, which provided for a two cent royalty per unit

up to a maximum of $10,000 to be paid in return for a com-

plete assignment of all of plaintiff's rights. In fact, for no extra

charge, plaintiff's attorney gave Sears all of plaintiff's foreign

patent rights. A provision was included in the contract regard-

ing what would happen if Sears failed to sell 50,000 wrenches

in a given year, thus reinforcing the impression that the wrenches

might not sell very well. Also, a provision was inserted dealing

with the contingency that a patent might not be issued, notwith-

standing that Sears already knew, and plaintiff did not, that the

patent had been granted.

By July, Sears knew that it planned to sell several hundred

thousand wrenches with a cost per item increase of only 20

cents, that a patent had issued and that this product in all likeli-

hood would have tremendous appeal with mechanics. Nonethe-

less, it entered into this agreement both having failed to disclose

vital information about the product’s appeal and structural

utility and having made representations to plaintiff that were

either false at the time they were made or became false without

disclosure prior to the time of the signing of the contract.

Within days after the signing of the contract, Sears was

manufacturing 44,000 of plaintiff's wrenches per week—all

with plaintiff's patent number prominently stamped on them—

and within three months, Sears was marketing them as a tre-

mendous breakthrough. Within nine months, Sears had sold

over 500,000 wrenches and paid plaintiff his maximum royalty

thereby acquiring all of plaintiff's rights. Between 1965 and

1975, Sears sold in excess of 19 million wrenches, many at a

premium of one to two dollars profit because no competition

was able to market a comparable product for several years, To

say the least, plaintiff's invention has been a commercial success.

Plaintiff, a Tennessee resident, filed suit against Sears, an

Illinois Corporation, in federal district court in December 1969,

based on diversity jurisdiction, seeking alternatively return of

the patent and restitution or damages for fraud, breach of a

confidential relationship and negligent misrepresentation. A

jury trial was held from December 20, 1976, until January 18,

1977. During the trial, plaintiff basically proved the facts as

presented above. Sears argued that it did not misrepresent any

facts to plaintiff, that he had a lawyer and thus there was no

confidential relationship and that the success of the wrenches

was a function of advertising and the unforseeable boom in do-

it-yourself repairs, and thus Sears did not misrepresent the

salability of plaintiff's wrenches. The jury was instructed on

each of the three counts in plaintiff's complaint and told that it

could award plaintiff profits? for Counts I and II and could

2. The court instructed the jury on damages for Counts I and

II, fraud and breach of confidential relationship, as follows:

The award of money damages you make may equal the net

profits which you find the defendant gained as a result of its

(Footnote continued on next page.)

consider a reasonable royalty as a remedy for Count III. The

jury apparently believed the plaintiff's evidence because it

found Sears guilty on all three counts and entered judgment for

one million dollars on each count, but the award was not

cumulative,

Both parties filed post-trial motions. Sears filed for judgment

NOV and plaintiff sought rescission of the contract and restitu-

tion. The district court denied both motions holding as to Sears’

motion that the jury verdict was in accordance with the evidence

and that the damages award was reasonable and holding as to

plaintiff's motion that when he permitted the case to go to the

jury he had elected his legal remedy and could not later also seek

his equitable relief. Plaintiff appealed seeking equitable relief

and Sears cross-appealed the one million dollar judgment against

it. Since Sears’ cross-appeal raises basic issues of liability, we will

deal with it first. We will subsequently consider plaintiff's appeal

on the issues of the appropriate remedy.

II.

Sears’ primary argument in its cross-appeal is that the district

court erred in not determining conclusively the validity of plain-

tiff's patent as a precondition to trying plaintiff's claims for

fraud, breach of a confidential relationship and misrepresenta-

tion. Relying on Lear, Inc. v. Adkins, 395 U. S. 653 (1969),

Sears contends that if the district court had concluded that the

patent was invalid, then plaintiff could not have been injured by

any fraud Sears may have committed since it paid $10,000 for

a “worthless” invention.

(Footnote continued from preceding page. )

merchandising of wrenches incorporating Plaintiff's quick re-

lease invention and idea, minus any expenditures which you find

the defendant has proved it incurred which it would have in-

curred had it not merchandised such wrenches incorporating

plaintiff's quick release invention and idea from the time of the

contract in question to the present.

(Tr. at 3469).

Sears’ analysis, however, misconceives the Supreme Court's

holding in Lear. There the Court held that a patent licensee was

not estopped to contest the validity of the licensor’s patent, and,

in fact, was not required to pay the contractually-provided royal-

ties for the license on the invalid patent during the pendency of

the litigation. Contrary to Sears’ implication, the Lear Court did

not hold that the potentially invalid patent was worthless and

thus the royalties offered in exchange for the right to use that

patent would be unjustified. Instead, the Court explicitly recog-

nized that there was significant economic value in the rights to

an unchallenged patent. 395 U. S. at 669. In this regard the

Court stated that “the existence of an unchallenged patent may

deter others from attempting to compete with the licensee,”

thereby creating a monopoly in fact if not in law. /d.°

Other courts have also acknowledged that significant eco-

nomic value attaches to the rights to an uncontested patent. The

Supreme Court recognized this recently in an opinion by Chief

Justice Burger: “[E]ven though a discovery may not be patent-

able, that does not ‘destroy the value of the discovery... .’”

Kewanee Oil Co. v. Bicron Corp., 416 U. S. 470, 482 (1974).

Similarly, this court has held that “[w]hile there are paradoxical

aspects of allowing recovery to arise from illegal interference

with the sale of something which ultimately was proven to have

no sales value, it cannot be said that there was no such value

during the period of the presumptive validity of the patent.”

Moraine Products v. ICI America, Inc., 538 F. 2d 134, 149

(7th Cir. 1976).*

3. This valuable benefit was available even in the case of a non-

exclusive license because the royalty charged to the licensee “serves

as a barrier to entry.” 395 U. S. 669 n.16.

4. The court subsequently defined more specifically the nature of

the economic value created by the uncontested patent during the

period of its presumptive validity:

While Moraine was the holder of a presumptively valid patent,

it could legally entertain the expectation, unless it had in some

manner deprived itself thereof, of receiving royalties from li-

censing arrangements which in final analysis are agreements in

(Footnote continued on next page.)

The facts of this case, by themselves, make abundantly clear

both that Sears believed that the uncontested patent had signifi-

cant economic value as a deterrent to competitors and that the

patent, in fact, did serve to deter competitors. Sears had the

| patent number stamped on all of its wrenches with plaintiff's

- quick-release feature, which presumably was done for the pur-

pose of scaring off competitors. Also, Sears’ competitors did not

enter this lucrative market for several years after it became clear

that this product had genuine sales appeal, which can only be

explained by the‘ existence of the patent.

It is at least somewhat disingenuous for Sears to argue before

this court that plaintiff's patent was valueless when it made

every effort in its marketing to exploit the economic value of the

uncontested patent, received the benefits of a factual monopoly

for several years because of that uncontested patent and to this

day has refused to return the patent rights to plaintiff in return

for the $10,000 originally paid to acquire these “valueless”

rights. We, therefore, have little difficulty finding that Sears’

deception caused plaintiff to be injured in fact.

The issue remains whether the public interest, recognized in

Lear, in having patent validity challenged is of such significance

that we should extend Lear to cover this case. The Lear Court

held that a licensee should be permitted to contest the validity of

a licensor’s patent because “[l]licensees may often be the only

individuals with enough economic incentive to challenge the

patentability of an inventor’s discovery.” 395 U. S. at 670. Thus,

the Court {cared that if licensees “are muzzled, the public may

continually be required to pay tribute to would-be monopolists

without need or justification.” /d.°

(Footnote continued from preceding page.)

which the licensee is purchasing the right to be free from in-

fringement litigation, which Moraine did have to sell during the

period of validity.

538 F. 2d at 149.

5. The policy against deterring licensees from attacking the

validity of the licensor’s patent also justified not requiring the licensee

(Footnote continued on next page.)

We believe that the reasoning in Lear does not extend to this

case for two reasons. First, we deal here with a complete assign-

ment of plaintiff's patent rights to Sears. See generally Heltra,

Inc. V. Richen-Gemco, Inc., 395 F. Supp. 346, 352 (D. S. C.

1975), rev'd on other grounds, 540 F. 2d 1235 (4th Cir. 1976);

Arnold & Goldstein, Life Under Lear, 48 Texas L. Rev. 1235,

1244 (1970). Thus, the primary evil that the Court in Lear

sought to end—that the public might have to pay tribute to a

“would-be monopolist”—is completely irrelevant to this case.

Plaintiff has no legal basis for exacting any “tribute” until the

patent rights are returned to him. At that point in time, the —

patent’s validity can be tested either in an infringement suit or —

after plaintiff enters into a licensing agreement. The public’s

interest would not be injured by our decision to bar Sears from

contesting this patent at this time.

Second, and perhaps even more fundamentally, the Court’s

analysis in Lear initiated with an assessment of “the spirit of

contract law, which seeks to balance the claims of promisor and

promisee in accord with the requirements of good faith.” 395

U. S. at 670 (emphasis added). Only after the Court satisfied

itself that the equities were balanced on each side did it proceed

to a consideration of the needs of patent law and the public

interest. Sears’ actions in this matter have violated completely

the basic assumption in Lear that there was good faith in the

dealings between the parties. There is no balance of equities

between Sears and plaintiff in their contractual relations. For

(Footnote continued from preceding page.)

to pay royalties under the license agreement during the litigation.

The Court reasoned:

Enforcing this contractual provision would give the licensor

an additional economic incentive to devise every conceivable

dilatory tactic in an effort to postpone the day of final judicial

reckoning. . . [T]he cost of prosecuting slow-moving trial pro-

ceedings and defending an inevitable appeal might well deter

many licensees from attempting to prove patent invalidity in the

courts,

395 U. S. at 673.

Al10

this court to employ the public interest in patent law to sanction

Sears’ conduct is unjustifiable. Certainly nothing in patent law

requires this court to permit fraud to go unremedied. Cf.

Kewanee Oil Co. v. Bicron Corp., 416 U. S. 470, 487 (1974)

(nothing in patent law discourages states from preventing indus-

trial espionage). We, therefore, hold that the district court

properly concluded that Lear, Inc. v. Adkins, is no bar to plain-

tiff’s recovery.

IIL.

Having determined that the district court properly declined to

decide the validity of the plaintiff's patent, we can readily dispose

of Sears’ second contention in its cross-appeal. Sears argues that

the district court erred in not permitting the introduction of

certain evidence dealing with the prior art surrounding plaintiff's

invention. Sears, however, attempted to introduce all of the

prior art evidence at issue (defendant's Exhibits 25, 26, 29, 33,

34, 39, 40, 41, 42 and 43) for the purpose of proving that the

patent was invalid. Since that contention was irrelevant to the

case, it seems, a fortiori, that the materials introduced to prove

it must also be deemed irrelevant to this case.

Sears, however, argues that the district court recognized that

patent validity was a relevant issue. By citing materials out of

context, Sears has severely mischaracterized the district court’s

analysis. During the trial, the district court properly recognized

that some evidence of prior art was relevant for the issue of

Sears’ intent. Prior art was relevant to the limited extent that if

Sears could prove it knew about the prior art at the time it was

negotiating with plaintiff then the jury might conclude that

Sears had not intentionally deceived plaintiff about the novelty

and value of his invention.

The best example of this reasoning by the district court was

with regard to the Carpenter patent (defendant’s Exhibit 29).

In considering its relevance the court asked when Sears had

become aware of the patent. Counsel for Sears stated that the

All

Carpenter patent was not discovered until 1971, after the law

suit was initiated (Tr. at 2409). Since it was clear that the

Carpenter patent had not entered into Sears’ assessment of the

value of plaintiffs invention when it made its representations to

plaintiff, the district court properly concluded the patent was

irrelevant and refused to admit it into evidence (Tr. at 2425).

We have examined the record concerning the other prior art

evidence that was not admitted and about which Sears com-

plains, and we conclude that the district court properly applied

its rule of Jimited relevance and thereby correctly excluded all

of it.

IV.

Sears’ final argument in its cross-appeal is that plaintiff failed

to prove the existence of a confidential relationship between

himself and Sears. In assessing that argument, we recognize at

the outset that there are no hard and fast rules for determining

whether a confidential relationship exists. See G. BOGERT, THE

LAW OF TRUSTS AND TRUSTEES § 482 (2d ed. 1960). The

trier of fact must examine all of the circumstances surrounding

the relationship between the parties and determine whether

“one person reposes trust and confidence in another who there-

by gains a resulting influence and superiority over the first.”

Kester v. Crilly, 405 Ill. 425, 91 N. E. 2d 419, 423 (1950).

Various factors have been recognized judicially as being

of particular relevance to that inquiry. Among them are dis-

parity of age, education and business experience between the

parties. Melish v. Vogel, 35 Ill. App. 3d 125, 343 N. E. 2d

17, 26 (1975). Additional factors are the existence of an em-

ployment relationship and the exchange of confidential informa-

tion from one party to the other. See Yamins v. Zeitz, 322

Mass, 268, 76 N. E. 2d 769, 772 (1948). All five of those

factors are present in this case. In addition, one of Sears’ wit-

nesses admitted that the company expected plaintiff to “believe”

and to “rely” on various representations that Sears made to him

(Tr. at 1981). Obviously, this question is best left to the trier

Ai2

of fact, and this court under any circumstances would hesitate

to disturb the jury’s findings. That hesitation is especially strong

here where so many factors suggest that a confidential relation-

ship in fact existed.

Sears argues, however, that there are two factors involved

here that eliminate any possible confidential relationship. They

are that plaintiff never proved that Sears had knowledge of the

confidential relationship upon which plaintiff was relying and

that plaintiff retained counsel to guide him, and therefore, did

not rely on Sears. We find neither factor sufficient to justify

overturning the jury’s verdict on this issue.

Sears cites several cases that emphasize that a confidential

relationship cannot be thrust upon an unknowing party. See

Broomfield v. Kosow, 349 Mass. 749, 212 N. E. 2d 556

(1965); Yamins v. Zeitz, supra; Comstock vy. Livingston, 210

Mass. 581, 97 N. E. 106 (1912). That proposition, however,

does not lead to the conclusion that a plaintiff must demonstrate

by direct evidence that the defendant actually was aware of

the confidential relationship. All that must be proved is that the

parties engaged in activities under circumstances that created a

confidential relationship and that defendant breached that re-

lationship.

In the cases cited by Sears, all of the circumstances surround-

ing the transactions that were being attacked suggested an arms-

length arrangement, and thus the plaintiffs in those cases at-

tempted to thrust a confidential relationship on the unknowing

defendants after the fact. Here, Sears’ knowledge is circum-

stantially proved by all of the facts surrounding its dealings

with plaintiff. In addition, as suggested above, there was direct

testimony to the effect that Sears expected plaintiff to rely on

its representations.°

6. Sears also argues that the district court failed to instruct the

jury on the issue of Sears’ knowledge of the confidential relationship.

In view of our holding that knowledge does not have to be proved

as an clement of the tort, we find no basis for requiring any specific

mention of this factor. In our views the district court’s instructions on

the confidential relationship issue were proper.

Al3

With regard to the existence of counsel representing plain-

tiff, we conclude that that is merely one factor to be considered

along with all of the others. In fact, once plaintiff established

the existence of confidential relationship through proof of the

five factors previously discussed, the burden was on Sears to

prove that plaintiff had competent and independent advice.

See Jones v. Washington, 412 Ill. 436, 107 N. E. 2d 672, 674

(1952). The judge instructed the jury on this issue (Tr. at

3467) and it obviously rejected Sears’ argument. There is no

basis for this court to disturb that determination. Thus, we con-

clude that a jury could reasonably find that a confidential re-

lationship existed between the parties and that Sears breached

its duties created by that relationship.

For all of the above-stated reasons, we find no merit to any

of the issues raised in Sears’ cross-appeal. We, therefore, affirm

the district court’s judgment of liability against Sears on all three

counts of plaintiff's complaint.

Plaintiff, in his appeal, seeks review of the district court's

decision that he elected his legal remedics by taking the case to

the jury, and therefore, is barred from pursuing his equitable

remedies of rescission and restitution. Plaintiff argues that the

district court, as a court of equity, should have accepted the

jury’s liability determination, but should have disregarded its

damages verdict and instead should have granted rescission and

restitution.’

7. Plaintiff asks this court to leave undisturbed his one million

dollar judgment in Count III, mongoet misrepresentations, because

that is an action at law and therefore was properly given to and

decided by the jury.

As to Counts I and II, plaintiff claims that the evidence proves

that Sears’ profits on the sale of quick-release wrenches was in excess

of 40 million dollars. Sears argues that that figure is based on a mis-

interpretation of Sears’ sales techniques. Given our disposition of this

case, we need not resolve this dispute, although we do agree with

the district court that the jury’s damage award was not unreasonable.

Al4

Before considering the substance of the doctrine of election of

remedies, we should determine what law, state or federal, should

control our decision. Sears relies almost exclusively on Illinois

decisions in arguing that after plaintiff takes his case to the jury

in a court of law he cannot thereafter seek rescission of the con-

tract from a court of equity. We, however, conclude that federal

courts are not bound by the Illinois election of remedies

doctrine.

The choice of law issue in diversity cases, where no Federal

Rule of Civil Procedure clearly controls, is governed by the

Rules of Decision Act, 28 U. S. C. § 1652.° See generally

Redish & Phillips, Erie and the Rules of Decision Act: In

Search of the Appropriate Dilemma, 91 Harv. L. REV. 356,

357-58 (1977); Ely, The Irrepressible Myth of Erie, 87 Harv.

L. Rev, 693, 697-700 (1974). In interpreting that Act, at

least one circuit has recognized that where a state procedural

rule is derived from a judicial system that is fundamentally in-

consistent with the federal judicial system, then the state rule

need not be slavishly adhered to by a federal district court.

Atkins v. Schmutz Mfg. Co., 435 F. 2d 527 (4th Cir. 1970),

cert, denied, 402 U. S. 932 (1971). See also Redish & Phillips,

supra at 391 n. 189.

Under the Illinois cases cited by Sears, a plaintiff had to elect

his remedies at the time of filing suit because Illinois had re-

tained separate courts of equity and courts of law. See, e.g.,

Carr v. Arnold, 239 Ill. 37, 87 N. E. 2d 870 (1909). In federal

courts, however, the distinction between law and equity has

long been abolished. FEp. R. Civ. P. 2, It would be anomalous

to follow a state rule created under a judicial system so at odds

with that of the federal system. In fact, it might be argued that

8. The Act provides:

The laws of the several states, except where the Constitution

or treaties of the United States or Acts of Congress otherwise

require or provide, shall be regarded as rules of decision in civil

actions in the Courts of the United States, in cases where they

apply.

28 U.S.C. § 1652.

Al5

such a holding would violate Rule 2, in which case state law,

of course, would be disregarded. See Hanna v. Plumer, 380 U. S.

460, 469-74 (1965). We, therefore, feel no compunction in

declining to follow Illinois law on this issue.®

Having determimed that the district court is not bound by

the rigid requirements of Illinois law on election of remedies,

there remains the question whether plaintiff can still pursue his

equitable remedies under the facts of this case. We conclude

that the district court correctly decided not to disturb the jury’s

monetary award, but that the court erred in not considering

whether rescission of the contract and return of plaintiff's patent

were appropriate.

The general rule as to when an election is necessary is that

“*a certain state of facts relied on as the basis of a certain

remedy is inconsistent with, and repugnant to, another certain

state of facts relied on as the basis of another remedy.’ ”

Prudential Oil Corp. v. Phillips Petroleum Co., 418 F. Supp.

254, 257 (S. D. N. Y. 1975). Here, the jury was instructed that

plaintiff could receive profits for Counts I and II, fraud and

breach of a confidential relationship.’° Apparently dissatisfied

with the size of the jury verdict, plaintiff sought in a post-

trial motion to have the court reconsider the evidence and award

relief based on essentially the same standard the jury used, To

have granted plaintiff's request would have been completely un-

9. This result accords with the approach recently suggested in

Redish & Phillips, supra. The authors in that article suggest that the

best = to Rules of Decision Act cases is to examine the policy

underlying the state rule to determine if it affects primary conduct,

is intended to benefit one class of litigants over another or is merely

the state’s evaluation of the most efficient way to handle its docket.

Id, at 394-96. The Illinois rule separating the courts would appear

to fall within the third category. In such a situation, the authors con-

clude, “The federal diversity court should be permitted to adopt_or

reject such rules since, as noted previously, it retains some interest

in regulating its own internal procedures.” /d. at 395. We agree with

that conclusion.

10 See note 2 supra.

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fair to Sears.’ It might have been better for the court to require

the plaintiff to elect his remedy expressly prior to instructing the

jury, but plaintiff did not object to the court’s procedure, and

therefore, must have been satisfied to let the jury determine

the appropriate award. Having let the case go to the jury with-

out getting the issue clarified, plaintiff should not be heard to

complain about the outcome of that procedure.

With regard to an election between the profits awarded by

the jury and return of the patent based on rescission, however,

we see no basis for invoking the election of remedies doctrine.

Based on the jury instruction, plaintiff will receive one million

dollars as the measure of past profits earned by Sears up to the

time of trial. That award, however, is not inconsistent with re-

turn of the patent so that plaintiff can receive the future bene-

fits of the patent that Sears fraudulently acquired. There will

be neither a double recovery nor a factual inconsistency be-

tween these remedies. See Prudential Oil Corp., supra at 257;

G. BOGERT, THE LAW OF TRUSTS AND TRUSTEES § 946 (2d

ed. 1962). Therefore, we conclude that going to the jury under

a past profits instruction did not bar plaintiff from seeking

rescission and thereby possibly recovering his patent. Whether

rescission is appropriate, however, is an issue that should be

decided in the first instance by the district court.

For the reasons stated above, we affirm the district court’s

judgment against Sears on all three counts in plaintiff's com-

plaint and the court’s decision not to alter plaintiff's monetary

award, but reverse the court’s determination that it lacked the

power to award recission and remand to the district court for a

determination of whether rescission is appropriate under the

facts of this case.

AFFIRMED IN PART; REVERSED IN PART; and REMANDED

11. The district court reasoned that such an approach would

create the type of res judicata problems mentioned in our earlier

decision in Federal Savings & Loan Ins, Corp. v. American Nat'l

Bank & Trust Co., 392 F. 24 906 (7th Cir. 1968). While we do not

perceive any basis for a claim of res judicata or even a double re-

covery problem, we do believe it would have been unfair to disturb

the jury’s award, and, therefore, agree with the district court’s de-

cision not to do so.

ee a

Se ee

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OPINION BY JUDGE SPRECHER

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

April 3, 1978.

Before

Hon. LATHAM CASTLE, Senior Circuit Judge.

Hon. ROBERT A, SPRECHER, Circuit Judge

Hon. WILLIAM J. BAUER, Circuit Judge

PETER M. ROBERTS, 7

Plaintiff-A ppellant,

Cross-A ppellee,

Appeals from _ the

United States Dis-

, trict Court for the

Northern District of

Nos. 77-1354, 77-1499,

VS.

Illinois, Eastern Di-

SEARS, ROEBUCK AND COMPANY, a VISION.

corporation,

Defendant-A ppellee,

Cross-Appellant. )

These causes came on to be heard on the transcript of the

record from the United States District Court for the Northern

District of Illinois, Eastern Division, and were argued by

counsel.

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On consideration whereof, it is ordered and adjudged by

this court that the judgment of the said District Court in these

causes appealed from be, and the same is hereby, AFFIRMED

IN PART; REVERSED IN PART; and REMANDED, in ac-

cordance with the opinion of this court, filed this date. Sears,

Roebuck and Company shall bear two-thirds of the costs on

these cross appeals; Peter M. Roberts the other one-third.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.