Appendix — Minnesota Mining & Manufacturing Co. v. Blume

Supreme Court, U.S.

82 -] 2 2 3 FILED

JAN 19

No. 1983

In the Supreme Court of the

October Term, 1982

MINNESOTA MINING AND MANUFACTURING

COMPANY,

Petitioner,

vs.

WALTER S. BLUME and THE ELECTRODYNE

COMPANY, INC.,

Respondents.

APPENDIX TO PETITION FOR CERTIORARI TO

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Tuomas V. KoyKKa

Counsel of Record

ArTeR & HADDEN

1144 Union Commerce Building

Cleveland, Ohio 44115

(216) 696-1144

StanLey G. DeLAHunt

TEeRRYL K. QUALEY

2501 Hudson Road

St. Paul, Minnesota 55101

(612) 733-1508

Attorneys for Petitioner Minnesota

Mining and Manufacturing Com-

pany

January 13, 1983

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

TABLE OF CONTENTS

Opinion of the Court of Appeals for the Sixth Circuit

(July 7, 1982) 644 F.2d 1166, 215 U.S. P. Q. 585 Al

Opinion of District Court Vacating Temporary Re-

straining Order (September 2, 1976) Als

Order oi District Court on Bifurcated Trial (June 1,

1978) A23

Findings and Conclusions of Law of District Court on

Bifurcated Trial (June 1, 1978) 533 F. Supp. 493 .... A24

Order of District Court Holding 675 Patent Ob-

vious” (August 7, 1979) A84

District Court Findings and Conclusions of Law (Aug-

ust 7, 1979) 533 F. Supp. 521 A87

Order of District Court for Judgment (August 22,

1980) A146

Judgment of District Court (August 22, 1980) ............. A147

Judgment Entry of the Court of Appeals for the Sixth

Circuit (Filed July 7, 1982) A148

Order of the Court of Appeals for the Sixth Circuit

Denying Rehearing (October 21, 1982) A150

Al

APPENDIX

OPINION OF THE COURT OF APPEALS

FOR THE SIXTH CIRCUIT

(Filed July 7, 1982)

Nos. 80-3262, 80-3293, 80-3585

UNITED STATES COURT OF APPEALS

For THE Srxtu CMcurr

684 F.2d 1166, 215 U.S. P. Q. 585

MINNESOTA MINING AND MANUFACTURING

3 COMPANY,

Plaintiff-Appellant,

Plaintiff-Cross-Appellee,

V.

WALTER S. BLUME AND THE ELECTRODYNE

COMPANY, INC.,

_ Defendants-Appellees,

Defendants-Cross-Appellants. .

AprRAL from the United States District Court for the

Southern District of Ohio.

Before: Brown** and Jones, Circuit Judge, and

Wuire, District Judge.“

Jones, Circuit Judge. These consolidated appeals in-

volve two patents, in the field of bonded magnets, owned

“The Honorable George W. White, United States District

Court for the Northern District of Ohio, sitting by designation.

„The Honorable Bailey Brown retired from active service

on June 16, 1982, and became a Senior Circuit Judge.

A2

by Minnesota Mining and Manufacturing Company (3M).

Walter S. Blume and the Electrodyne Company (defen-

dants) appeal from judgments holding that Blume infringed

3M’s U.S. Patent No. 2,999,275 (275 patent) and thereby

also breached an agreement not to compete (described by

the district court as the “noncompete agreement”). 3M

appeals from a judgment holding its U.S. Patent No.

3,235,675 (675 patent) invalid for obviousness.’ We affirm

the judgments.

I.

Magnets may be divided into two broad classes, sin-

tered (or cast), on the one hand, and bonded, on the other.

Sintered magnets are formed by firing magnetic materials

(e.g., aluminum, nickel and iron) at high temperatures

into a single coherent body. Sintered magnets have high

magnetic energy but tend to be hard, brittle, and thus

extremely difficult to work or machine. Bonded magnets

were first developed in the 1930’s by mixing small particles

of magnetic material with a binder material such as plastic

or rubber. The resulting magnet could be easily worked

and machined. By 1954 bonded magnets were commer-

cially available, but their magnetic energy was low.

While bonded magnets were being developed, a group

of scientists with the Philips Company were studying the

qualities of a newly-discovered class of hard magnetic ma-

terials composed of an iron oxide sintered with barium,

strontium or lead. In the early 1950’s members of the

Philips group secured a patent (the 778 patent) and pub-

lished an article (the Philips article) describing a process

in which this sintered material (hereinafter “barium fer-

rite”) would be ground to fine particles, many as small as

1. The district court’s opinion is reported at 533 F.Supp. 493.

A3

a single crystal. These particles would be placed in a

mobile condition in a non-magnetic binder and subjected to

a magnetic field which would orient the particles in sub-

stantially the same direction. The particles would be fur-

ther oriented when they were again sintered into a coher-

ent, dense body with exceptionally high magnetic energy.

Blume was aware of both existing bonded magnet

technology and the then-recent research on the qualities of

barium ferrite. During the mid-1950’s he engaged in re-

search which led to the development of a high-energy

bonded magnet. In 1958 Blume filed a patent application

which became the 275 patent when issued in 1961. This

patent covered a process for mixing plate-like particles of

barium ferrite with a non-magnetic binder, and orienting

the magnetic particles by means of mechanical forces ex-

erted on the material by rolling or extruding processes.

Orientation of the plate-like particles produced a magnet

with twice the magnetic energy of earlier bonded magnets.

Although it was well known in the art to orient particles

in a non-magnetic matrix by exposing the material to a

magnetic field, the mechanical orientation taught by the

275 patent process proved to be the first commercially

practicable method of orienting the particles, The high

energy bonded magnet created by the 275 process became a

great commercial success.

In an attempt to secure a patent which covered the

product produced by the 275 process, Blume in 1962 added

claims 8-10 to an existing patent application, which became

the 675 patent when issued in 1966.“ These claims provide

as follows:

8-10 of that patent.

Al

I claim:

8. A permanent magnet material comprising a dis-

persion of particles of a permanent magnet material

in a non-magnetic matrix, a substantial portion of said

particles having two substantially parallel opposed

faces the distance between which is no greater than

the dimension across said faces.

9. A permanent magnet material comprising a dis-

persion of small bodies of a permanent magnet material

in a non-magnetic binder, said particles being in the

form of right cylinders and having a length to width

ratio of no more than about one.

10. A permanent magnet material coinprising a dis-

persion of small discs of permanent magnet material in

a non-magnetic molded binder, said discs having op-

posite faces lying in parallel planes and having a thick-

ness no greater than the width of said faces.

These claims included within their description the plate-

like particles of barium ferrite which, when oriented by the

275 process, produced a high-energy bonded magnet, How-

ever, the 675 patent product is not limited to the use of

barium ferrite material, but rather encompasses any magne-

tic material which could be given the specified shape.

Furthermore, although the advantages of orientation are

discussed in the file wrapper, the 675 product claims are

not limited to oriented particles of the specified shape.

The file wrapper indicates that even unoriented particles

of the specified shape will produce a better bonded magnet

than would particles of random shape. A specific method

for obtaining particles of the requisite shape does not

form part of the claimed invention. Thus the scope of the

675 patent includes, but is broader than, the product of

the 275 patent process.

A5

3M subsequently acquired the rights in the two patents

and entered into the noncompete agreement with Blume,

The agreement provided that Blume would work for 3M

for one year and would refrain from any participation in

the magnet business for a five-year period beginning on

the day Blume was last employed by 3M. Since Blume's

last day of employment with 3M was on September 30,

1968, the noncompete agreement was due to expire on

September 30, 1973.

In May 1971 Blume and 3M provisionally agreed to a

modification of the noncompete agreement which would

have allowed Blume to enter the sintered magnet business

in exchange for an extension of the noncompete agreement

in the bonded magnet business to May 1, 1976.“ Blume,

however decided not to enter the sintered magnet bus. 288,

and therefore the May 1971 modification never took effect.

Blume then sought permission to reenter the bonded

magnet business. After much discussion and correspon-

dence, which the district court’s opinion relates in full

detail,“ 3M sent a letter- amendment dated June 26, 1972.

This letter recited the noncompete agreement, released

Blume to make sintered magnets and test equipment, and

in the crucial clause, provided as follows:

This letter, which is a substitute for the letter of May

3, 1971, shall serve to release you to

* 89 s

B. Establish or acquire facilities for making and/or

selling Matrix-bonded Permanent Magnets, with the

3. The modification also tted Blume to engage

in research in e N eee eee

3M a royalty-free license in ey atom magnet Blume might

feta aap pons Barton adh 1976. Blume was further permitted to

sell test equipment.

4. 533 F.Supp. at 505-11.

A6

express understanding that in making such Matrix-

bonded Permanent Magnets you will not, prior to May

1, 1976 infringe any unexpired patent in your name

which 3M obtained with its purchase of the Magnetic

Division of Leyman Corporation, especially your U.S.

Patent No. 2,999,275.

Blume agreed to the proposed amendment on July 5, 1972.

He subsequently formed the Electrodyne Company and con-

tracted for construction of a manufacturing facility. By

June of 1975 Blume had begun to manufacture high-energy

bonded magnets by a “trade secret process” which Blume

contended did not infringe the 275 patent process. On

February 6, 1976, 3M filed its complaint, which charged

Blume with infringement of both the 275 and 675 patents,

and breach of the amended noncompete agreement.

Blume denied infringement and breach of contract and

alleged affirmative defenses based on contractual and es-

toppel grounds. Blume asserted that the June 1972 letter-

amendment immediately released him to make high-energy

bonded magnets provided only that he not employ the 275

patent process prior to May 1, 1976. After that date,

Blume contended, the letter-amendment granted him a li-

cense to practice the 275 patent.“

On Blume’s motion, the district court bifurcated the

trial and first tried the issues raised by Blume’s affirma-

tive defenses, The district court concluded that 3M was

not estopped from bringing suit and that the amended

noncompete agreement neither immediately released Blume

to make high-energy bonded magnets nor granted Blume

a license to practice the 275 patent after May 1, 1976, and

Blume appealed.

5. The 275 patent had an expiration date of 1

ae r

A7

Following the second portion of the bifurcated trial,

the district court held that Blume's trade secret process

infringed the 275 patent and thereby breached the amended

noncompete agreement. Blume appeals from this holding.

The district court further held that the 675 patent was

invalid as obvious and therefore was not infringed, a hold-

ing which 3M appeals. All three appeals were consolidated

and are now before this Court.

The Contract Issues

The district court held that the noncompete agreement,

as amended by letter of June 26, 1972, neither immediately

released Blume from the 675 patent nor granted Blume a

license to practice 3M patents after May 1, 1976, the date

the noncompete agreement expired. Blume now protests

that the bifurcation of the trial, which Blume requested,

in retrospect served only to obscure the issues. He there-

fore seeks on appeal “to present at one time the whole

story” by means of a sixty-page appellate brief, which

devotes 49 pages to a highly argumentative “Statement of

the Case.”

The arguments which Blume addresses to this Court

evidence a misapprehension of our role. Fact-finding is

entrusted to the district court, and its findings are reversi-

ble only for clear error. Fed.R.Civ.P. 52. This Court is

not to reconsider the whole evidence de novo, and this is

all the more true where, as here, the district court’s find-

ings depend upon assessments of credibility. United States

v. Aluminum Co. of America, 148 F.2d 416, 433 (2d Cir.

1945).

The district court determined, and we agree, that the

disputed contract clauses were ambiguous. The court

A8

therefore allowed both parties to submit an abundance of

parol evidence to aid in the construction of the agreement.

This evidence, which included both testimony by the

parties and written materials, is analyzed in careful de-

tail in the district court’s opinion.“ We have reviewed the

evidence and the arguments of Blume and conclude that

the district court’s ultimate determination regarding the

intent of the parties and the meaning of the noncompete

agreement was not clearly erroneous.

Infringement of the 275 Patent

Blume contends that from June 1975 to September

1976, and from June 1978 to September 1978, he practiced

a trade secret process (TSP) which produced a high-energy

bonded magnet without infringement of the 275 patent

process. Unlike the 275 patent process, which mixes un-

oriented magnetic particles with a binder and then orients

the particles by means of rolling or extrusion, the TSP al-

legedly achieves the necessary orientation of particles dur-

ing the mixing step, through use of a specially modified

Banbury mixer. The district court rejected this allega-

tion, holding that the TSP was the equivalent of the 275

patent process, Graver Tank & Mfg. Co. v. Linde Air Prod-

ucts, 339 U.S. 605, 609 (1950), and therefore infringed

that patent.’

Blume contends that this determination must be va-

cated and the issue remanded because the district court

6. 533 F.Supp. at 511-17.

and

7 valent

shape.” Graver Tank & Mjg. Co., supra at 608.

Ag

failed to review a deposition by Walter Blume given under

protective order and filed by 3M with the district court

in camera immediately before the second trial. Blume

asserts thet had the district court reviewed this deposition

the nature of the modifications to the Banbury mixer would

have been made clear and the district court would have

reached a contrary conclusion on the issue of infringement.

Blume concedes that the deposition he now contends

the district court should have reviewed was never offered

into evidence. Since the deposition was never offered

into evidence, the district court was not required to re-

view it.“ Rommel-McFerran Co. v. Local Union No, 369,

361 F.2d 658, 662 (6th Cir. 1966); see Processteel v. Mosley

Machinery, 421 F.2d 1074, 1076 (6th Cir. 1970). A finding

of equivalence is a determination of fact made after con-

sideration of the patent, the prior art, and the particular

circumstances of the case. Graver Tank & Mfg. Co., supra

at 609. On the evidence properly before it, the district

court’s determination of equivalence was not clearly er-

the deposition into evidence. We further note that after both

ees tive coment ar depesition With the — 1

n camera remark, “

would like for the Court to have them a ~

8

2

=

ILIE

Was

the entire in camera deposition as if it were admitted into evi-

Al0

IV.

Invalidity of the 675 Patent

There are three essential elements of patent validity:

novelty, utility and nonobviousness. 35 U.S.C. §§ 101-103.

35 U.S.C. § 103 provides:

§ 103. Conditions for patentability; nonobvious sub-

ject matter.

A patent may not be obtained though the invention 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 the prior art

are such that the subject matter as a whole would have

been obvious at the time the invention was made to a

person having ordinary skill in the art to which said

subject matter pertains.

The purpose of this section is to distinguish true invention

from a mere change of detail which may produce novelty

but is not reflective of invention. See Frantz Mfg. Co. v.

Phenix Mfg. Co., 457 F.2d 413, 327 (8th Cir. 1972). An

examination of the subject matter sought to be patented re-

quires a consideration of the scope and content of the prior

art, the differences between the prior art and the claims

at issue, and the level of ordinary skill. Sakraida v. Ag

Pro, Inc., 425 U.S. 273, 280 (1976).

The district court held the 675 patent invalid for ob-

viousness in light of the prior art embodied by the 778

patent and the Philips article.’ The 675 patent, the district

court noted, spoke of a dispersion of “particles”, “small

bodies” or small discs“ of a permanent magnet material

in a non-magnetic binder. These particles, furthermore,

9. 533 F.Supp. at 525-39.

All

were of a specified shape, namely “discs” or “right cylin-

ders” having opposite faces lying in parallel planes aud

having a thickness no greater than the width of the faces.

Since a dispersion of magnetic particles in a non-magnetic

binder was well known in the art, the district court deter-

mined that the sole patentable invention, if any, disclosed

by the 675 patent concerned the particular shape of the

magnetic particles. The 778 patent, however, had previ-

ously described a process whereby barium ferrite was

reduced to small particle size, many of the particles being

in the form of single crystals. And the Philips article had

described these particles as plate-like, with preferential

crystal growth along the basal planes so that the large

dimensions of the crystal were in the basal planes and

the small dimensions were normal to them. These dis-

closures, the district court concluded, were virtually ident-

ical to the description of particle shape in the 675 patent.

Since both bonded magnet technology in general and the

shape of these particles were revealed by prior art, the

district court held that the 675 patent would be obvious

to one of ordinary skill in the prior pertinent art.

3M contends that the 778 patent and the Philips article

did not disclose discrete plate-like particles; it insists that

the particles were spherical until fused together into the

final sintered product. However, three expert witnesses,

whom the district court found credible, testified that the

Philips article disclosed individual or discrete particles

which, although they grew larger and became more or-

iented during the final sintering, were plate-like from the

start. Under § 103, the scope and content of the prior art

is a factual matter to be determined by the district court.

Graham v. John Deere Co., 383 U.S. 1, 17 (1966). Where,

as here, the district court chooses to credit the testimony

of three expert witnesses as to what the prior art dis-

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closes, we cannot say the finding of the district court was

clearly erroneous. Fed.R.Civ.P. 52. Accord, Norfin, Inc. v.

IBM Corp., 625 F.2d 357, 364 (10th Cir. 1980).

3M next contends that the 778 patent and the Philips

publication are deficient as prior art because they lack a

disclosure enabling one skilled in the art to make the dis-

crete plate-like magnetic particles, citing Seymour v. Os-

borne, 78 U.S. (11 Wall.) 516, 555 (1870). Assuming, with-

out deciding,“ that the enabling disclosure doctrine is ap-

disclosure is

r

cation of Collins, 462 F.2d 538, 542 (CCPA 1972). This Court

has heretofore oun the enab disclosure doctrine only in

cases involving defense of anticipation under 35 U.S.C. § 102.

E.g., Tee-Pak, Inc. v. St. Regis Paper Co., 491 F.2d 1193 (6th

Cir, 1974). The district court reasoned as $

Where we are testing novelty [anticipation] under 35 U.S.C.

§ 102(b) we look to the prior art for the purpose of showing

the invention was already known. The law requires that

the whole invention be found in a single reference

Minnesota Mining and Mfg. Co. v. Blume, No. C-1-76-51 (S.D.

Ohio wr 25 ago (supplementary order) (emphasis in orig-

(Continued on following page)

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plicable in this context, we find that the prior art contained

an adequate disclosure. The district court heard testimony

from four expert witnesses to the effect that the 778 patent

and the Philips article taught that plate-like particles of

barium ferrite could be produced by sintering barium car-

bonate and iron oxide, then grinding and milling the re-

sulting barium ferrite down to a specified size. Again, the

district court’s decision to credit these expert witnesses and

Footnote continued—

We are inclined to support the district court’s view and find

3M’s criticism to be misplaced. The question is not whether a

strict or liberal standard is to be applied to the sufficiency of a

prior art teaching. The standard is quite simply whether the

prior art, taken as a whole makes obvious the invention under

consideration. Sakaida v. Ag Pro, Inc., supra. The enabling

disclosure concept is a commonsense factor in making a determi-

nation of obviousness, for if neither any item of prior art, nor

the background knowledge of one with ordinary skill in the art,

would enable one to arrive at an 3 that invention would

not be obvious. But to argue, , that the sufficiency

Application of Hoeksema, 399 F.2d 269 (CCPA 1968); Applica-

tion of Brown, 329 F.2d 1006 (CCPA 1964). In the context of

chemical compounds it seems fair to require that a prior art

reference to such a compound be more than a mere concept since

a properly programmed computer could generate numerous

Al4

to find as a matter of fact that the prior art contained a

sufficient enabling disclosure is not clearly erroneous.

3M characterizes the testimony of these expert wit-

nesses as “naked opinion evidence” and contends that it

submitted “scientific fact evidence” to the contrary which

must prevail as a matter of law, citing Lovas v. General

Motors, 212 F.2d 805, 808 (6th Cir. 1954). But Lovas,

which heid that testimonial evidence “positively contra-

dicted by the physical facts” lacks probative value, is in-

applicable here. The “scientific fact evidence” introduced

by 3M was a test performed in 3M facilities by 3M em-

ployees, without notice to Blume, which purported to show

that when one skilled in the art follows the teaching of the

778 patent, most of the resulting particles of barium fer-

rite are not plate-like. In response to 3M’s post-trial motion

under Fed.R.Civ.P. 52(b) for amendment of findings and

judgment, the district court specifically declined to give the

test conclusive weight:

We reject 3M’s contentions that its [test results] testi-

mony requires that the Court amend its findings and

conclusions. In connection with what 3M says about the

failure of its test for trial to produce plate-like particles

by following the teachings of the Philips prior art, it

is noteworthy that in that test at least some of the

particles produced were plate-like. Also, there was no

indication of the amounts of ingredients used in 3M’s

test for trial. . Defendants argue the total amount is

critical for the success of the process and to change the

total amount of ingredients, even though the proper

proportions are maintained, will require an entirely

different process if the same end product is to be ob-

tained.”

11. Minnesota Mining and Mfg. Co. v. Blume, No. C-1-76-51

(S.D. Ohio March 25, 1980) (supplementary order).

Al5

As noted by In Re Michalek, 162 F.2d 229, 232 (CCPA

1947), “it is not a difficult matter to carry out a process in

such fashion that it will not be successful and, therefore,

the failures of experimenters who have no interest in suc-

ceeding, should not be accorded great weight.” An ex-

periment by an interested party which shows that it may be

possible to operate within the disclosure of a prior art

patent without obtaining the disclosed product does not

overcome the presumption that the process, if followed by

one skilled in the art, will produce the product. Appli-

cation of Weber, 405 F.2d 1403, 1407 (CCPA 1969). Thus

the testimony of the four expert witnesses was not, by

means of 3M’s test, “positively contradicted by the physical

facts,” and the district court’s determination to credit the

expert witnesses reflects neither a mistake of law nor a

clearly erroneous view of the facts.

For the reasons stated above, the judgment of the dis-

trict court is AFFIRMED.

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OPINION OF DISTRICT COURT VACATING

TEMPORARY RESTRAINING ORDER

(Dated September 2, 1976)

Civil Action No, C-1-76-51

IN THE UNITED STATES DISTRICT COURT

For THe Souruern District or Omo

Western Division

MINNESOTA MINING AND MANUFACTURING

COMPANY,

Plaintiff,

vs.

WALTER S. BLUME and THE ELECTRODYNE

COMPANY, INC.,

Defendants.

[p. 1] OPINION

Porter, J.:

This case is before the Court on plaintiff's motion for

issuance of an order to show cause and for a contempt

judgment against defendants (doc, 18), and defendants’

motion for relief (doc, 22) from a temporary restraining

order issued by this Court on February 17, 1976 (doc. 8).

Defendants have filed a memorandum contra plaintiff's

motion for a show cause order and contempt judgment

(doc, 22). Plaintiff has filed a response to defendants’

motion seeking dissolution of the temporary restraining

order (doc. 26), to which defendants have replied (doc.

28).

Al?

The suit involves two causes of action, one for patent

infringement and one for unfair competition which encom-

passes charges of patent infringement. According to plain-

tiff (doc, 2), during the 1950s defendant Blume developed

a flexible magnet which had the advantageous property

of being made of a pliable material and yet having greater

holding force than prior flexible magnets. Patents were

issued on the new magnet (Patent No. 675) and on the

process of making it (Patent No, 275) on February 15,

1966, and September 12, 1961, respectively, (doc, 4, ex. Bl

and B2). To commercialize the Blume development, the

Leyman Corporation of Cincinnati, Ohio, established a

magnetic division, with Mr. Blume as general manager.

Subsequently, plaintiff acquired the magnetic division of

Leyman Corporation, including the patents whose infringe-

ment is presently disputed, from Blue [p. 2] and Leyman,

paying Leyman $1,700,000 and Blume $566,800. At the

same time, Blume entered into an employment contract

with plaintiff (attached to doc, 13). In part the present

dispute involves portions of this contract and the extent

to which it restricts Blume from infringing patents 275

and 675.

Plaintiff, in its complaint filed February 6, 1976 (doc.

1), asserts that defendant Blume, doing business as The

Electrodyne Company, makes and sells flexible magnets

which infringe the patents acquired from Blume and Ley-

man Corporation. Plain iff contends that Blume’s actions

both infringe its patents and violate restrictions in Blume’s

employment contract, Simultaneously with the filing of

its complaint, plaintiff filed a motion for a temporary re-

straining order (doc, 2) against Blume, At the time, de-

fendants Blume and Electrodyne responded only with an

affidavit and a few attached documents (doc. 7). Since

Blume was convalescing from major surgery, they were

unable at the time to file an answer.

Al8

Based on the information then before it, this Court

on February 17, 1976, granted plaintiff's motion for tem-

porary restraining order enjoining defendants:

„until further order of the Court from making, using,

selling or offering for sale flexible magnets, exempli-

fied by Electrodyne ‘Plastalloy’ Permanent Magnets

offer for sale to Beach Manufacturing Corporation,

15602 Container Lane, Huntington Beach, California, in

infringement of United States Letters Patent No.

3,235,675 issued to Leyman Corporation on February

15, 1966, upon the application of Walter S. Blume,

said patent having been assigned by Leyman Corpora-

tion to plaintiff Minnesota Mining and Manufacturing

Company by document dated October 2, 1967.”

Plaintiff now asserts that defendants, since February 17,

1976, have continued to sell flexible magnets which in-

fringe the 675 patent and are virtually indistinguishable

from the magnets defendants sold to Beach Manufacturing

prior to [p. 3] issuance of the temporary restraining order.

Plaintiff contends that defendants therefore are in con-

tempt of the order.

Defendants, in their reply, assert several arguments.

In their first argument, as we understand it, they claim

that plaintiff has exhibited little confidence in patent 675,

and should be estopped to claim infringement of a patent

whose validity plaintiff itself has questioned. Second, we

understand defendants to claim that in July, 1975, when

they received some indication of plaintiff's view that they

might be infringing, they sent some samples of their prod-

uct to plaintiff. Plaintiff at that time did not inspect these

samples, and defendants assert that this is evidence sup-

porting some sort of estoppel theory against plaintiff.

Third, we understand defendants to assert as additional

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evidence supporting an estoppel theory against plaintiff

their reliance on statements made by plaintiff's counsel at

the February 13, 1976, hearing on whether or not to issue

the temporary restraining order. At that hearing defen-

dants had mentioned their submission of samples of their

products to plaintiff in July, 1975 as an example of their

good faith (doc. 14, p. 38). Plaintiff responded that its

refusal to inspect the samples was reasonable since the

samples submitted to it were considerably different in

character from the magnets sold to Beach Manufacturing

which plaintiff claimed infringed the patents (doc. 14, p.

39). Defendants now claim that the magnets they have

manufactured and sold since the issuance of the restraining

order were identical to the samples which they sent to

plaintiff in July, 1975 and which plaintiff said at the

February, 1976 hearing were substantially different from

the infringing magnets. Defendants’ further argument is

that, contrary to plaintiff's contentions, the magnets de-

fendants have sold since issuance of the temporary re-

straining order are not “exemplified,” to use the language

of the order by the magnets sold to Beach. [p. 4] It

seems the magnets sold to Beach contained natural rubber,

while the magnets sold subsequent to the restraining order

contained instead a substance called “buna-n.” Defendants

maintained that this difference in composition made the

magnets not interchangeable. As evidence they cite the

fact that the latter type of magnets failed to satisfy specifi-

cations in some customers’ orders which required the

former type.

To violate the restraining order, the magnets in ques-

tion would have to be made, used, sold, or offered “in

infringement of” the 675 patent and “exemplified” by the

magnets sold to Beach Manufacturing. The parties appear

to dispute both whether the magnets defendants manu-

A20

factured and sold subsequent to the restraining order in-

fringed the patent and whether they are exemplified by

the magnets sold to Beach. Even if we were to attempt

te resolve the latter question at this point on the basis

cf affidavits only, the former question goes to the heart

of the merits of the case, i.e., which magnets manufactured

by defendants, if any, infringed the patent. We do not

consider it appropriate to resolve the important infringe-

ment question on the basis of affidavits only. Furthermore,

the defendants’ first three arguments, apparently based on

an estoppel theory, need not be reached unless it is first

determined that the defendants did infringe the patents.

For these reasons, we conclude that it is advisable to re-

serve judgment on the contempt question until the merits

of the case have been tried.

Turning to defendants’ request that the restraining or-

der be lifted, plaintiff submits that defendants have in-

creased their staff from two men to twelve, and that their

sales now total $146,000, as opposed to $10,000 in six months

as defendants portrayed at the hearing on issuance of

the restraining order (doc. 14, p. 15). Plaintiff also gen-

erally reasserts the contentions it asserted in favor of initial

issuance [p. 5] of the restraining order, and it refutes

defendants’ claims that they are not in contempt. De-

fendants contend that plaintiff's probability of success on

the merits of the case is not clear, and that the irreparable

injury to them and their business caused by the restrain-

ing order clearly shows that the equities favor a lifting

of the order.

As stated in Blount v. Societe Anonyme, 53 F. 98

(1892), the granting of preliminary injunctions in patent

infringement suits in this Circuit depends on the proba-

* bility that the party seeking the order presents a valid title

to the patent, that the patent is valid, and that the defen-

A21

dant has infringed. The appropriateness of any prelim-

inary injunction depends on the probability that the party

seeking the injunction will succeed on the merits and that

he will suffer irreparable injury, that the potential harm

to him outweighs the harm to defendant, and that an in-

junction will serve the public interest. Burkett v. Tuslaw

Local School Dist. Bd. of Educ., 380 F.Supp. 812 (N.D.

Ohio 1974). See also, American Federation of Musicians

v. Stein, 213 F.2d 679 (6 Cir.), cert. den. 348 U.S. 873

(1954).

At the time this Court granted the plaintiff’s motion

for a temporary restraining order, it had before it plaintiff's

memorandum and exhibits. As noted above, defendants,

due to Mr. Blume’s illness, had filed only an affidavit. On

the basis of this information there seemed little question

of the validity of the patents in question or of plaintiff's

title to them. The Court took note of the fact that regard-

less of its disposition of plaintiff’s motion, it appeared that

one of the parties would suffer substantial injury. Based

on the information before it, what was most persuasive to

the Court was the apparent strength of plaintiff’s case on

the merits.

Ip. 6] Since the issuance of the temporary restraining

order defendants have filed their answer to plaintiff's al-

legations (doc. 13) and have asserted a counterclaim based

on their alleged right under Blume’s employment contract

with plaintiff to infringe the patents plaintiff had ac-

quired at any time and certainly after May 1, 1976. Like

plaintiff, defendants by now have also filed several memo-

randa and voluminous exhibits. Without expressing any

opinion, of course, as to the merits of plaintiff’s claims or

defendants’ counterclaims, we cannot now say that the case

is a clear one.

A22

“A preliminary injunction will not be granted when

defendant is responsible and a substantial doubt of infringe-

ment exists,” Walker on Patents, § 686, at 415 (Deller 1973).

In Eli Lilly & Co. v. Generix Drug Sales, Inc., 460 F.2d 1096

(5 Cir., 1972), the Court observed that “the burden is ordi-

narily on the party seeking preliminary injunction pro-

tection in an infringement suit to demonstrate beyond

question that the patent he sues on is valid and infringed,

as well as showing that other equitable grounds are pres-

ent,” although the rule is ameliorated when the patent has

long been acquiesced in or has been adjudicated to be valid.

Even if the patents in the instant case are of the type which

trigger amelioration of the ordinary rules, in view of the

development of this case we no longer consider that the

temporary restraining order is clearly appropriate.

Whether to grant relief from a prior judgment is a mat-

ter of discretion with the Court. 11 Wright & Miller, Fed-

eral Practice & Procedure § 2857. After careful considera-

tion we conclude that justice is best served in this case by

granting defendants’ motion for relief from the temporary

restraining order.

A23

ORDER OF DISTRICT COURT ON

BIFURCATED TRIAL

(Dated June 1, 1978)

Civil Action No. C-1-76-51

IN THE UNITED STATES DISTRICT COURT

For THE SOUTHERN DistrRICT OF OnIO

WESTERN DrvISsIONn

MINNESOTA MINING AND MANUFACTURING

COMPANY,

Plaintiff,

VS.

WALTER S. BLUME and THE ELECTRODYNE

COMPANY, INC.,

Defendants,

ORDER

This case, which involves patent infringement in the

field of magnets and magnetism, was tried before the Court

on August 29-September 2, 1977 on the bifurcated affirma-

tive defenses of license and estoppel raised by the De-

fendants. For the reasons stated in an Opinion filed simul-

taneously with this Order, the Court finds in favor of the

Plaintiff on the affirmative defenses and they are there-

fore rejected as being without merit. The matter is con-

tinued for a trial of the main infringement action of the

Plaintiff against the Defendants.

SO ORDERED,

Davi S. Porter

Chief Judge,

United States District Court

A24

FINDINGS AND CONCLUSIONS OF LAW OF

DISTRICT COURT ON BIFURCATED TRIAL

(Dated June 1, 1978)

533 F. Supp. 493

Civil Action No. C-1-76-51

IN THE UNITED STATES DISTRICT COURT

For THE SOUTHERN DIsTRICT yr OHIO

WESTERN DIVISION

MINNESOTA MINING AND MANUFACTURING

COMPANY,

Plaintiff,

vs.

WALTER S. BLUME and THE ELECTRODYNE

COMPANY, INC.,

Defendants,

Ip. 1] FINDINGS OF FACT AND

CONCLUSIONS OF LAW

Porter, C. J.:

This case, which involves patent infringement in the

field of magnets and magnetism, demonstrates two note-

worthy points. The first is the important role played by

magnets and magnetism in our economy. By one estimate

magnets, and magnetism have an economic impact in our

economy equivalent to almost 1-1/2% of the Gross National

Product dx 380; Jacobs, The Role of Magnetism in Tech-

nology 1, 5 (General Electric Research & Development

Center (November 1963)). As Jacobs points out, the basic

principles of magnetism, as applied to the vital areas of elec-

tric power, communications, and information storage, “per-

meate our whole modern society.” Id. The second note-

A25

worthy point which this case demonstrates is one we are

told John Stuart Mill emphasized over a hundred years

ago—the importance of “having the meaning of a word

clearly understood before using it, and the meaning of a

proposition [p. 1A] [clearly understood] before assenting

to it.” Inaugural Address as Rector, University of St.

Andrews (February 1, 1867). This latter aspect of the case

will hopefully become clear to the reader as this opinion

progresses.

The plaintiff in this case, Minnesota Mining and Manu-

facturing Company (3M Co.), charges patent infringement

on the part of the defendants, Walter S. Blume and The

Electrodyne Company, with respect to two patents, U.S.

Patent No. 3,235,675 (hereinafter the “675” patent) and

U.S. Patent No. 2,999,275 (hereinafter the “275” patent).

The 275 and 675 patents are, respectively, the process and

the product patents for a magnet currently produced by

3M under the name “Plastiform.” Both the 275 and 675

patents were originally issued to Blume as patentee, and

subsequently assigned by him to his employer at the time,

Leyman Corporation, subject to a right to receive royal-

ties. By an agreement [p. 2] of September 30, 1967, Ley-

man Corporation sold all its rights and interest in these

patents (subject to Blume’s royalty rights) to 3M, in pres-

ent plaintiff, as part of the sale of the Leyman Magnetics

Division to 3M (jx 1). At approximately the same time, 3M

signed two agreements with defendant Blume (jx II, III).

One of these was an agreement concerning Blume’s roy-

alty rights under his patents which included a commuta-

tion of royalty payments (jx II). The other was an

employment agreement for one year which included a

1. There is another patent involved in this case, U. S. Patent

No. 3,359,152, which is hereinafter referred to as the “152” patent.

This patent, like the 275 and 675 patents, was also originally

to Blume (tr. 60).

A26

five-year noncompete agreement, effective upon termina-

tion of Blume’s employment, restraining Blume from en-

tering the broad field of magnetics (jx III). Blume ceased

employment on October 1, 1968, and thus, by its own terms,

the noncompete agreement would have expired on Octo-

ber 1, 1973, had not the parties executed two letter-amend-

ments to the original agreement on May 3, 1971, and June

26, 1972 (jx IV, VIII). The main dispute between the

parties concerns the meaning and effect of these two

amendments, particularly the latter.

In their answer, the defendants deny infringing the 675

and 275 patents held by the plaintiff and assert the affir-

mative defenses of license and estoppel. The license de-

fense is based primarily on the defendants’ interpretation

of the 1971 and 1972 letter amendments to the 1967 em-

ployment agreement. The estoppel defense is primarily

based upon various actions taken by 3M (or, rather, in-

action on its part) with respect to the possible infringement

of the 275 and 675 Blume patents by Polymag, Inc., a manu-

facturer located in Sag Harbor, New York, producing mag-

nets similar to to that produced under the 275 and 675

patents, under its own patent, the Peccerill patent, U.S.

Patent No. 3,312,763 (hereinafter the “763” patent). On

motion by the defendants, [p. 3] this Court bifurcated

the issues raised by these affirmative defenses for trial

prior to the issue of infringement. The parties then entered

into a joint stipulation of issues for purposes of trial which

is as follows:

A. It is agreed that since the entry of the Court's

order on September 2, 1976, the defendants have con-

tinuously practiced the 275 method in the manufacture of

the product sold by the defendants under the trade name

*

“Plastalloy”.

A27.

B. The issues raised by defendants and controverted

by plaintiff are as follows:

1. The defendants assert that since June 26, 1972 they

have been released to make and sell “Matrix-Bonded per-

manent magnets,” as that term is defined in the 3M letter

to Blume of June 26, 1972, and which at all times since ap-

proximately July or August 1975 have been sold by de-

fendants under the trade name “Plastalloy.”

2. The defendants assert that they have the right to

practice the 275 method and to make, use and sell the

product produced thereby and to practice any other patents

acquired by 3M from Leyman, specifically including the

675 patent, for the following reasons:

(a.) that the letter from 3M to Blume dated June 26,

1972 (amending the October 1, 1967 agreement between 3M

and Blume, as amended by 3M letter to Blume of May 3,

1971) immediately released Blume to make Matrix-

Bonded permanent magnets,” as defined in the letter agree-

ment of June 26, 1972, free from claims of infringement

of the 675 product patent and any other patent which 3M

acquired from Leyman on September 30, 1967 except that

prior to [p. 4] May 1, 1976 Blume could not use the 275

method patent in the production of the said Matrix-

Bonded permanent magnets.”

(b.) that 3M is estopped from asserting any infringe-

ment by the defendants of the patents it acquired from

Leyman on September 30, 1967, and specifically including

the patents in suit, namely 275 and 675, because of the

position of 3M asserted in the letters dated May 3, 1971

and June 26, 1972 (amending the agreement dated October

1, 1967) together with the written and oral representations

which defendant Blume claims were made directly to him

and indirectly to him and others (including but without

A28

limitations, the 3M-Polymag correspondence and the 3M

correspondence with its German associates and the German

Patent Office in connection with the German application

corresponding to the U.S. 275 method) by authorized rep-

resentatives of the plaintiff (including, but without limi-

tations, those of Messrs. Granrud, Blankenbaker and West-

bee) all of which occurred during the period from October

1, 1967 until the filing of the complaint on February 6, 1976

and all of which Blume asserts were relied upon by him

prompting his purchase of property and commencement of

business including the manufacture of “Plastalloy” with the

full and complete knowledge of 3M.

(c.) that the plaintiff is estopped from asserting any

infringement by the defendants of the 275 or 675 patents

because of the release provisions of the letter of June 26,

1972 by 3M to the defendant Blume.

The trial of the bifurcated issues was held on August

29-September 2, 1977, with daily transcript copy, and the

parties have submitted both post-trial briefs and proposed

findings of fact and conclusions of law on the stipulated

issues. Upon consideration of the issues, this Court makes

the following findings of fact and conclusions of law;

Ip. 4A] The plaintiff, 3M Corp., is a Delaware corpora-

tion and has its principal place of business at St. Paul,

Minnesota. The individual defendant, Walter S. Blume,

resides in Hamilton County, Ohio, within this District and

is President of the corporate defendant, The Electrodyne

Company, Inc. The defendant, The Electrodyne Company,

Inc., is a corporation organized and existing under the laws

of the State of Ohio, resides therein, and has a regular and

established place of business in Clermont County, Ohio,

within this District. The jurisdiction of this Court is

invoked under Title 28 United States Code, § 2201, et seq.,

A29

(declaratory judgment action), § 1338(a) (patent infringe-

ment), § 1332(b) (unfair competition), and § 1332(a)

(diversity jurisdiction for the breach of contract claim).

Venue in this District has not been objected to.

On September 30, 1967, 3M Co. acquired the magnetics

division of Leyman Corporation. At the time of the acqui-

sition Walter Blume was an employee of Leyman and Vice-

President in charge of the magnetics divisions (tr. 29).

During his twenty-three years of employment with Ley-

man, Blume had secured a number of patents, including

the 275 and the 675 patents, all of which he assigned to

Leyman and for which he received 2% of gross sales over

$200,000 as royalty payments (tr. 30). Under the agree-

ment between 3M and Leyman, Leyman conveyed all its

right, title and interest in the Blume patents to 3M for

$2,267,000 (jx I), of which Blume eventually [p. 5] re-

ceived $566,800 under a separate 3M-Blume agreement

providing for a commutation of royalty payments over a

five-year period (jx II).

On the day following the Leyman acquisition, 3M Co.

and Blume entered into a one-year employment agreement

2. During trial defendants contended as n

claim that Leyman and Blume were ind to enter into

agreements by 3M’s representations that 3M was highly patent

conscious” vo Been = meso leF :6 gemay 80

ong Leyman

48-50, 55, 475-6, 179-84). In fact, Mr. Blume ap-

ved um

1

A30

(jx III). This agreement included a broad noncompete

agreement excluding Blume from any participation, direct

or indirect, in the “(1) design, (2) development, (3)

manufacture, or (4) sale of magnets or magnetic composi-

tions including. . the process of producing mag»etic com-

positions, the process and formula for incorporation of

nonmagnetic binders with magnetic compositions, and ap-

paratus for producing or testing magnets or magnetic

compositions” (jx III, Article II). By the terms of the

agreement, this noncompete covenant came into effect for

a period of five years starting on the day Mr. Blume was

last employed by 3M. Mr. Blume was employed by 3M

from [p. 6] October 1, 1967, to September 30, 1968, and

thus the noncompete covenant would have expired by its

own terms on September 30, 1973 (tr. 55-56)“ Prior to

this date, however, the parties twice amended this non-

compete restrictive covenant. It is the operation and effect

of these amendments on which the license defense pri-

marily depends and to which we now turn.

Ip. 7] LICENSE ISSUE

Prior to discussing the license issue, it may be helpful

to discuss the background of Mr. Blume and the relations

of the parties during the events at issue in this case. The

record shows that Mr. Blume’s formal education was lim-

ited to completion of eight years of grade school (tr. 41).

Despite that fact, Mr. Blume has extensively educated

himself on the topic of magnets and permanent magnetism.

According to the 1967 3-M-Leyman agreement, eleven

United States patents had been issued to Mr. Blume as

original patentee, three additional United States patents

employment contract to release Blume to

patents or as a license under his patents at the end of the five-year

period (tr. 305).

A31

were pending at that time, and twenty-nine foreign patents

had been issued corresponding to the outstanding United

States patents (jx I). In addition, Mr. Blume testified

at trial that he has attended various national and inter

national conferences on magnetism, corresponded with

other experts in the field of permanent magnetism and,

on prior occasions, had rendered expert written opinions

for the plaintiff 3M on the ferromagnetic qualities of per-

manent magnet materials (tr. 42-43). Clearly, Mr Blum

was an expert in the field of magnets and magnetism

whose technical expertise 3M wanted to harness for their

own benefit (tr. 692; dx 188, 189; cf. dx 317).

It also appears clear from the record that during the

events in question Blume was on friendly terms with

several of the representatives of the plaintiff. In partic-

ular, defendant Blume and F. A. “Jim” Blankenbaker,

head of 3M’s Dielectric Materials and Systems Division,

Ip. 8] appear to have developed a reasonably close, friendly

relationship (tr. 215-17, 691-92). As Mr. Blankenbaker

was apparently the source of the ideas which culminated

in the two amendments to the original restrictive covenant

(tr. 539), the Court feels that the relations between the

parties are highly relevant in interpreting the contract

documents.

Upon completion of his one year of employment, Mr.

Blume declined to continue working for 3M. Apparently

Mr. Blume was not happy working in the corporate struc-

ture of a large organization such as 3M (tr. 691). In any

case, during the first few years following Blume’s employ-

ment by 3M, Blume attempted to find some business

venture in which he could become that which would not

violate his restrictive covenant with 3M. The record re-

flects that during this period Mr. Blume made numerous

unsuccessful attempts to establish some business totally

outside the field of magnetism (tr. 79-81, 221-23; dx 152-

A32

154, 156-66). The record also reflects that during this

period Mr. Blume was on several occasions offered con-

sulting agreements with 3M in an effort to make use of

his technical expertise (tr. 56-57, 62-64; dx 121, 125, 128,

184-85). However, even though Mr. Blume was appar-

ently willing to act as a consultant on an informal basis

(for which he was paid only his out-of-pocket expenses),

he was unwilling to sign any formal contractual agree-

ment for fear of reactivating the noncompete covenant

in his original employment agreement for an additional

five-year period (tr. 64-67; jx III, Article II). By the end

of 1970, the parties had reached a quandry—3M wanted

to be able to “harness” Mr. Blume’s “technical horse-

power” on a permanent basis to the benefit of their venture

into the magnetics field, while Mr. Blume strenuously

resisted their overtures [p. 9] for fear of limiting his

future right to re-enter the broad field of magnetics unless

he were offered “consideration commensurate with the

gamble represented by the postponement” (dx 188, 189).

Having paid over $2 million for the Blume patents and

negotiated the noncompete covenant with Mr. Blume, 3M

was apparently unwilling to do this. Thus, the parties

were at loggerheads with Mr. Blume, an individual of

proven technical expertise in the entire field of permanent

magnetism, “dying on the vine,” in the words of one

witness, as a result of the restrictive covenant (tr. 692).

Due to their friendly relationship, Mr. Blume and Mr.

Blankenbaker would occasionally meet for lunch or dinner

whenever Mr. Blume was in St. Paul, Minnesota, or Mr.

Blankenbaker was in Cincinnati (tr. 691). At one of these

meetings in Cincinnati, on March 9, 1971, Mr. Blanken-

baker informed Mr. Blume that the ceramic magnet plant

of the John Oster Manufacturing Company, of Milwaukee,

Wisconsin (which had produced brittle sintered magnets

for internal use) was for sale (tr. 76-79, 693-94). During

A33

this meeting Mr. Blankenbaker and Mr. Blume also dis-

cussed the effect which Article II, the restrictive covenant

in Blume’s 1967 employment contract with 3M, would have

on Blume’s purchase of the Oster facility unless that con-

tract were modified. Mr. Blume indicated that he was in-

terested in getting into the sintered magnet business, if

that could be arranged through an amendment modifying

his noncompete agreement, Mr. Blankenbaker responded

that it would be all right with 3M if Mr. Blume visited

the Oster facility to see whether it would suit him. Mr.

Blume visited the Oster facility on [p. 10] March 17, 1971,

and subsequently wrote both Mr. Blankenbaker and Mr.

Granrud‘ informing them of the details of the visit and

reiterating his interest in acquiring the facility (tr. 78-79,

88-89, 693-95; dx 192-96).

As a class, the hard and brittle cast or sintered mag-

nets are appreciably different from flexible permanent

magnets, which include the high-energy single product of

the Leyman Company produced under the Blume patents

at the time of the 1967 3M acquisition and now manufac-

tured by 3M under the trade name “Plastiform” (tr. 76-77,

228-232; px 53-54). Prior to the arrangements concerning

Mr. Blume’s visit to Oster, Mr. Blume and Mr, Blanken-

baker had apparently discussed the prospects of Mr.

Blume’s being able to develop a super flexible magnet

which would have an energy level at least two and one-

quarter times the energy level of the sole product of

Leyman produced by 3M under the Blume patents (tr.

693) .“ Such a development would be of tremendous com-

Mr. Granrud was, at the time of the events in question

in the of Kinney, Alexander, Sell,

patents was only

a

and

5. The level of this would be -

mately 2.28 x 10" gauss-oersteds 15 2 n

A34

mercial value to 3M if they could acquire it, sinve such

a super-magnet would be stronger than any other flexible

magnet presently on the market (tr. 692-93). On the

other hand, permitting Mr. Blume to get into the cast or

sintered magnet business would put him in a much better

position to begin making flexible magnets after his restric-

tive covenant expired on September 30, 1973 (tr. 114; jx

IV). By the proper wording of an amendment to Blume’s

1967 restrictive covenant, however, an arrangement could

be worked out which would apparently solve the parties’

prior dilemma—Mr, Blume would be freed to re-enter a

portion of the [p. 11] magnet field (the cast or sintered

magnet area) and to make and sell apparatus for testing

magnets or magnetic compositions in exchange for an

extension of a more narrowly drawn restrictive covenant

and an agreement to freely share any new discoveries

he might make. The May 3, 1971 letter-agreement, the

first of two amendments to Blume’s 1967 noncompete

agreement, was the result of this arrangement, This

docuraent is reproduced in the margin.“

6. Joint Exhibit IV reads as follows:

Dear Mr. Blume:

On September 30, 1967, Minnesota Mining and Manufactur

Company (“3M") purchased from the Leyman Corporation “

— 4 vision which had created and were heading

uding a number of patents in your name, Your o product

t comprising

size of permanent magnet material which had

been mec oriented and which were bonded by

a ma material. Such permanen are

such

umin cobalt now sold as “ " mag-

nets. Since that date, 3M has continued the business of making

and Matrix-bonded Permanent Magnets.

Also on September 30, 1967 te agreement with

3M purchased your equity In the Magnetics Division of the ae

(Continued on following page)

A35

[p. 12] Admittedly the language of this document is

not internally consistent. Also, it is clear that, strictly

speaking, the provisions of this first letter-amendment

never actually came into effect. By its own terms, the

amendments contained in the May 3 letter were to take

effect only “upon the establishing or acquiring” of a

“facility for making and/or selling cast or sintered mag-

nets... at any time prior to September 30, 1973” (tr. 115,

186-87; jx IV). Following his acceptance of the May 3

agreement, Mr, Blume investigated the sintered magnet

business and, after [p. 13] contacting various acquaintances

in that business, determined that the market was seriously

Footnote continued—

Sr or sale of

ony ome of magnet or magnetic composition until Ae 30,

3, five years after your employment terminated

joie Eee Se eee ee sehen

Manuf pee og Ma an: tacilty” for for manufacturing

1 tioned Article II was

primarily intended to prevent you from making and/or selling

trix- Permanent Magnets, but your entry into the man-

e

time would obviously put you into a bet tion to begin

making flexible magnets after September 30, 1973. According

3M is unwilling to modify the provisions of the the aforemen

Article II except on certain conditions.

some

magnets, subject the f conditions which shall take

effect upon esta or acq such a facility at any time

prior to September 30, 1073.

12) I. Prior to May 1, 1076 cr

r os fan : of a third party, of

tein any’ wey, nd antral of any

nei ay nrg sre Staten

patent application having utility for Matrix-bonded

(Continued on following page)

A36

depressed (tr. 127-28). Thus, Mr. Blume decided against

acquiring the Oster facility or engaging in the production

of sintered magnets and the conditions contained in the

May 3 letter never came into effect (tr. 127-28, 711-13).

In light of the parties’ understanding that similar terms

in both the May 3 letter-agreement and the later June 26,

1972, letter-agreement (which did come into effect) had

the same meaning (see tr. 243-45, 301, 556-57), and the

defendants’ contention that their license arises out of the

language of both letter amendments (tr. 301-305), this

Footnote continued—

you shall promptly furnish 3M with a copy and when-

8 Nee

continuation, or continuation- in- any such patent

application, you shall offer to 3M a nonexclusive, 1

for the life of such patent to make, use Ma-

trix-bonded Permanent Magnets, and 3M shall release you to en-

A the development of Matrix-bonded Permanent Magnets

r purpose,

benefit of you or your heirs or any company which you own or

control a 4 1 royalty-free license to make hav-

ing an energy product of at least 2.25 x 10° gauss-oe under

. rate nc ct a

Corpora shall permi company to immedia make,

use and sell such Matrix-bonded Permanent Magnets.

IV. You are released to make and sell apparatus for testing

magnets or magnetic compositions,

Ip. 13] This letter is submitted to you in duplicate. If the

Meere

tully executed copy to us.

=

f

4

g

:

:

By /s/ Robert L. Westbee

R. L. Westbee

Vice President

AGREED TO AND ACCEPTED BY:

/s/ Walter g. Blume

Walter S. Blume

Date: May 14, 1971

A37.

Court finds that interpretation of the May 3 letter-agree-

ment will be highly relevant in determining the parties’

intention with respect to the crucial June 26, 1972 letter

amendment.

As with any issue involving construction and inter-

pretation of contractual provisions, the fundamental and

cardinal rule is that the intention of the parties must

be ascertained and given effect. O’Neill v. German, et al.,

154 Ohio St. [p. 14] 565, 570 (1951); State, ex rel. Maher

v. Baker, 88 Ohio St. 165, 172 (1913). In determining

the intent of the parties, primary resort should be to

the language employed by ‘he parties in the written

instrument. New York Central Railroad Co. v. General

Motors Corp., 182 F. Supp. 273, 284 (N.D. Ohio, 1960);

State ex rel. Maher v. Baker, 88 Ohio St., at 172, and

such language will be given effect if it is not ambiguous.

New York Central Railroad Co. v. General Motors Corp.,

182 F. Supp., at 284-85; Carroll Weir Funcral Home v.

Miller, 2 Ohio St. 2d 189, 192 (1965); Lawler v. Burt,

7 Ohio St. 341, 350 (1857). If the language employed by

the parties is ambiguous, however, parol evidence can

be resorted to to determine the intent of the parties.

Quarry Co. v. Clements, 38 Ohio St. 587, 590 (1882); 12

O. Jur. 2d, Evidence, §§ 663, 664, 669 (1956); 11 O. Jur.

2d, Contracts, § 160, at 408 (1955). In this case all parties

agree, and the Court so finds, that crucial terms used

in both the May 3, 1971, and the June 26, 1972, letter-

agreements are ambiguous and hence parol evidence is

admissible to enable this Court to determine the intent

of the parties.

The Court finds that the May 3, 1971, letter-agreement

was negotiated by the parties to permit Mr. Blume to

acquire the Oster sintered magnet facility without violating

Article II of his 1967 employment agreement with 3M.

A38

In order to put into effect the intent of the parties, the

proposed agreement contained a broad clause releasing

Mr. Blume to acquire “the John Oster facility or some

other facility for making and/or selling cast or sintered

magnets” subject to certain conditions enumerated in

clauses I-IV (jx IV). [p. 15] Clause I, at the heart of

this entire controversy, will be dealt with below, Clauses

II and III (which are in all material respects the same

as clauses I and II in the second letter-amendment of

June 26, 1972, agreed to between the parties) provide

that if Mr. Blume developed or acquired any U.S. patent

having utility for flexible magnets (including those mag-

nets produced by 3M under the Blume patents) he would

offer to 3M a nonexclusive, royalty-free license for the

life of such patents, and that if such a patent involved

a super-magnet (that is, a flexible magnet of an energy

product of at least 2.25 x 10° gauss-oersteds), 3M would

in turn give Mr. Blume a nonexclusive, royalty-free license

under the Blume patents 3M acquired from Leyman to

make, use and sell flexible magnets of that energy level

(tr. 116-18). Clause IV, when read in conjunction with

the broad release clause, provides that if Mr. Blume ac-

quires a sintered magnet facility prior to September 30,

1973, he would be released to make and sell apparatus

for testing magnets or magnetic compositions (such as

the gaussmeter, an instrument which Mr. Blume subse-

quently developed) (tr. 187).

Up to this point, the intent of the parties is relatively

clear and the parties are, we think, in basic agreement

about the effect of the proposed contract terms. The basic

difficulty with this document comes from fitting clause

I reasonably into place. The defendant contends that the

term “Matrix-bonded Permanent Magnet,” as used in this

document, is specifically defined on page 1 to mean the

magnets produced under the Blume patents assigned to

A39

Leyman Ip. 16] and subsequently acquired by 3M.’ De-

fendants then interpret clause I of the May 3 letter agree-

ment by putting a heavy emphasis on the opening clause

— Prior to May 1, 1976.” The meaning, the defendants

argue, is clear—under clause I, Mr. Blume is prohibited

from engaging in the “(1) design, (2) development, (3)

manufacture, or (4) sale” of the magnets produced under

the Blume patents“ only prior to May 1, 1976. Conse-

quently, subsequent to May 1, 1976, Mr. Blume claims

he is free to make, use and sell the magnets produced

under the Blume patents (“Matrix-bonded Permanent

Magnets”). The result is that Mr. Blume by implication

gets a royalty-free license under both the longer-lived 675

and the shorter-lived 275 patents for the remainder of

their respective terms (tr. 766-67).°

[p. 17] The plaintiff, on the other hand, contends

that to read the term “Matrix-bonded Permanent Magnets”

7. LN ties teed cock OF dker OF the ters

agreement as referring to the prior sentence, „permanent

comprising su size par-

ticles of t magnet material which had been

oriented and which were bonded matrix

material.” This, defendants contend, constitutes a definition of

the sole product of Leyman Corporation produced under the Blume

patents (tr. 96-99).

ie Re Te One t ee > memnne a

9. The expiration dates for the patents involved in the case

are as follows:

Expiration Date

No. 2,999,275 ber 12, 1978

No. 3,235,675 senna 15, 1983

No. 3,312,763 April 4, 1984

No. 3,359,152 December 19, 1984

Under the defendants’ Mr. Blume would a

royalty-free license under the 275 patent for a period ap-

A40

as limited solely to the product produced by Leyman, and

subsequently 3M, under the Blume patents is to ignore

the remainder of the third sentence which differentiates

“Matrix-bonded Permanent Magnets” from “cast or sin-

tered magnets such as the aluminumm cobalt alloys

now sold as ‘Alnico’ magnets” (jx IV). By reading the

entire sentence, plaintiff maintains, it is clear that the

term “Matrix-bonded Permanent Magnets” is broader than

the sole product of Leyman produced under the Blume

patents and is interchangeable with the term “flexible

magnets” (tr. 777-778). Using this definition in clause I,

plaintiff asserts, gives it the more natural meaning it was

intended to have as a 5-year extension of the restrictive

noncompete agreement contained in Article II of Mr.

Blume’s 1967 employment agreement with 3M (tr. 777).

[p. 18] The result is that, prior to May 1, 1976, Mr. Blume

is restricted from competing with 3M in the broader field

of flexible magnets (subject, of course, to the exceptions

contained in clauses II and III) and, after that date, Mr.

Blume is free to enter the broader field of flexible mag-

10. ae eee Gnas trok ae ter

chosen. May is approxima years m the May

1971, e (tr. 628). 3M asserts, and

em

3, 1971, letter-agreement and clause B of the June 26, 1972,

letter- agreement in order to avoid the tial application of

the “blue-pencil” rule by the courts. “blue-pencil rule”

(which has now been abandoned by the Ohio courts, e

v. Van Vlerah, 42 Ohio St. 2d 21 (1975)) provides tha

„. . . if unreasonable ee ee

t

provides that if restrictions are unreasonable and indivisible,

the entire contract fails.” “42 Ohio St., ** . v.

A4l

nets, but not to infringe the Blume patents held by 3M

until they expire.”

This Court has found this dispute a difficult one to

resolve. To accept the plaintiff's interpretations, among

other things, puts a strain on the language in the first

paragraph defining the term “Matrix-bonded Permanent

Magnets.” Defendants’ interpretation, on the other hand,

renders sentences in clauses II and III unnecessarily com-

plex and, in some cases, meaningless."* Defendants’ inter-

pretation also places excessive emphasis on the “prior to”

language of clause I in order to create an implied license

in a document that, in one place, explicitly refers to “a

nonexclusive, royalty-free license to make magnets...

under and for the life of any patents 3M acquired from

Leyman Corporation” (jx IV, clause III). For reasons

that will become clear below, we think that the plaintiff's

interpretation was the one intended by the parties.

[p. 19] To begin with, we think that the more reason-

able construction of clause I is that the parties intended

it as an extension (with a narrower scope) of the five-

year restrictive noncompete covenant contained in Article

II of Blume’s 1967 employment agreement, That this

was 3M’s intention is relatively clear from several factors.

First, during the period involved in this case, 3M had

11. See note 9, supra.

12. For „to accept defendant's 2 of the

term Matrix- Permanent * as limited to

magnets made solely the Blume patents would translate

offer to 3M a ve, royalty-free license for the life

of any such t to make, use and sell produced

under the Blume patents already held.

Seay pe See Beet So eras: tender Semicing tam tied

Permanent had a broader meaning that

asserted by defendant

A42

a special subcommittee, the Patent, Trademark and Copy-

right Subcommittee of the Management Committee, whose

function, among other things, was to authorize grants of

licenses under patents held by 3M (px 57, 58; tr. 639).

Mr. William Abbott, a former director and special counsel

to 3M, was chairman of this subcommittee and from time

to time made determinations whether a particular matter

should be brought to the attention of the subcommittee

(tr. 643-44). It was Mr. Abbott's testimony at trial that he

and Mr. Granrud (the drafter of both letter-amendments)

discussed clause I of the May agreement, that the ex-

tension of the restrictive covenant was thought by

them to be in consideration for the release granted Mr.

Blume to go into the sintered magnet business, and that

he, Mr. Abbott, determined that it was not necessary

for the May 3rd letter-amendment to be reviewed by his

particular patent subcommittee (tr. 647-48). His reason

for this decision was because, in his opinion, “there was

no immediate problem with granting a license” since the

agreement did not contain a grant of a patent license ex-

cept on the conditions stated in clause III, “conditions that

might never occur” (tr. 648-49).

Second, the Court finds that the inclusion of a specific

reference to a license in clauses II and III of the May 3,

1971, agreement tends to negate the intention of 3M Ip. 20]

to grant a license by such an oblique reference as the

“prior to” language of clause I of the May agreement.

Third, the testimony of all 3M witnesses involved in the

drafting of this May 3 letter-agreement (admittedly dis-

puted by the defendants) was that it was not 3M’s inten-

tion to grant a license to Blume under clause I (tr. 630-31;

648; 705-06). In spite of their [p. 21] obvious interest

in the outcome of this case, we feel that their testimony

is credible, Fourth, prior to the parties’ execution of

A43

the May 3 letter-agreement, there were several changes

made in earlier drafts which reflected the intentions of

the parties. One of these changes was the substitution

of the term flexible magnets” for the term “Matrix-bonded

Permanent Magnets” at the end of the second sentence

of the third paragraph.” In a letter from Mr. Granrud

to Mr. Blume dated April 19, 1971 (dx 198), Mr. Granrud

explained this substitution. It was necessary to substitute

the term “flexible magnets” for the term “Matrix-bonded

Permanent Magnets,” Granrud explained, because the

Blume patents held by 3M “would prevent [Blume] from

making Matrix-bonded Permanent Magnets and we [3M]

don’t want any implication to the contrary.” (tr. 192-93;

dx 198). (Emphasis added.) We think the clear import

of this language, [p. 22] despite its confusion in terms,

was that, under the earlier wording, interpretation was

possible that Blume would be free to make magnets under

the patents held by 3M at the end of his restrictive non-

compete covenant and that 3M did not want such an

implication read into the 1967 agreement—a factor we

13. The change altered the sentence to read as follows (with

the original in brackets):

“Of course, the aforementioned Article II was primarily

intended to prevent you from making and/or selling Matrix-

bonded Permanent Magnets, but your entry into manu-

facture and sale of cast or sintered magnets at the present

time would obviously put you in a better ition to begin

making flexible magnets iMatrix-bonded Permanent Mag-

nets] after September 30, 1973.”

Defendants, of course, assert that this change in e in-

dicates that plaintiff intended a difference between the terms

“flexible „and “Matrix-bonded Permanent and

A44

find indicative of 3M’s intent both with respect to the

restrictive covenant in the earlier 1967 employment agree-

ment and with respect to the later May 3, 1971, extension

of the restrictive covenant under negotiation between the

parties at that time. Thus, at the time the May 3, 1971

agreement was executed between the parties, we think

it was 3M’s clear intent that clause I of the agreement

would act as a five-year extension of the original restric-

tive covenant agreed to between the parties and nothing

more.

To controvert this point, defendants presented the

testimony of Mr. Richard Evans, Mr. Blume’s attorney

at the time of the 1967 employment agreement and the

subsequent May, 1971 letter-amendment to that agree-

ment (tr. 447, 461). “ It was Mr. Evans’ testimony that,

subsequent to the negotiation of the May 3 letter-amend-

ment between Mr. Blume and 3M, but prior to its execu-

tion, he was asked by Mr. Blume to give him an opinion

as to its meaning (tr. 461, 502; dx 305). Based solely

on the language of the agreement, it was Mr. Evans’

opinion that, under clause I of the May 3 letter-amend-

ment, Mr. Blume was excluded from making magnets

under the patents held by 3M until May 1, 1976, and that

“thereafter he was free to do so” (tr. 465, 502-03). Subse-

quent to the execution of the May 3, 1971, [p. 23] letter-

amendment, Mr. Blume applied for a Small Business

Administration (SBA) loan to partially finance his ven-

ture into the sintered magnet business (dx 303) and,

in connection with this application, requested Mr. Evans

to render an opinion letter to the SBA explaining Mr.

Blume’s rights and responsibilities under the May 3rd

letter-agreement (tr. 460-62). This Mr. Evans did on

14. Mr. Evans last represented Mr. Blume some

time in 1975 (tr. 471).

A45

July 9, 1971, in a letter to Mr. Cotton of the SBA (dx 304).

In this letter, Mr. Evans stated as follows:

“The agreement expressly excludes Mr. Blume from

manufacturing ‘matrix-bonded permanent magnets,’

until May 1, 1976. The excluded type of magnets

are those which are covered by a series of patents

which Mr, Blume assigned to 3M several years ago”

(dx 304, p. 1).

In spite of the fact that this Court believes Mr. Evans’

testimony, several things must be taken into account in

evaluating it. First, it is undisputed that Mr. Evans was

not a party to the negotiations between 3M and Blume

leading to the May 3 letter-agreement and had no direct

contact with 3M concerning the meaning of that agree-

ment (tr. 460-61, 502)..° Thus, Mr. Evans cannot testify

as to the intent of 3M in drafting and executing this

agreement. Fed. R. Evid. 602. Second, Mr. Evans’ testi-

mony as to the meaning of this document is not binding

on us since it is the Court’s function to determine the

meaning of these documents. Third, to the extent that

Mr, Evans’ testimony as a fact witness sheds light on

Mr. Blume’s intent, we must be mindful that our aim

in construing the provisions of [p. 24] this agreement

is to determine the joint intent of the parties. ONeill

v. German, et al., 154 Ohio St. 565, 570 (1951). It is

clear that the unexpressed intention of one party to a

contract cannot bind the parties. New York Central Ry.

Co. v. Mahoney, 252 U.S. 152, 157 (1920); Bach v. Friden

A46

Calculating Mach. Co., 155 F.2d 361, 365 (6 Cir., 1946);

Myers v. Sunlight Laundry Co., 10 Ohio Opp. 275 (Ct.

App. Hamilton Co., 1918); Restatement of the Law, Con-

tracts § 20, Comment a (1932); 11 O. Jur. 2d Contracts

§ 18, at 263 (1955). Given the close relationship of the

parties in this case (Mr. Blume and Mr. Blankenbaker),

we think that Mr. Blume knew or had reason to know

that clause I of the May 3, 1971, agreement was intended

by 3M to be merely an extension of the Article II non-

compete agreement in the 1967 contract, and was not

intended to be an express or implied grant of a license.

It is clear that an offeree who knows what the offeror

intended by an ambiguous offer and also accepts it is

bound according to the intent of the offeror. Lutler v.

Moses, 43 Ohio St. 166, 170-71 (1885); 11 O. Jur. 2d Con-

tracts § 134, at 380 (1955). We think that is the situation

presented here. Mr. Evans took no part in the negotiations

between the parties and his interpretation of the May 3

letter-agreement was based solely on the text of the

document (tr. 461, 502). !“ In light of Mr. Blume’s close

[p. 25] relationship with Mr. Blankenbaker and his rea-

son to know of 3M’s intent, we do not think it can be

said that Mr, Blume reasonably relied on what he now

asserts is his interpretation of the May 3 letter-agreement.

There is no evidence anywhere in this record that Mr.

Blume ever attempted to clarify the nature of his rights

under clause I of the May 3 agreement with 3M—an

16. Mr. Evans admitted that he arrived at his in tion

be’,

A47

omission especially significant, we think, in light of the

parties’ intent and purpose in negotiating the agreement

and the interpretation of that clause Mr. Blume later

received from his lawyer, Mr. Evans, shortly prior to

signing the agreement. Given the importance of the

rights Mr. Blume alleges he received under his highly

technical reading of clause I and the purpose and intent

of the parties in negotiating the agreement, we think it

was incumbent upon Mr. Blume to clarify his under-

standing of his rights with 3M. He cannot now, we think,

take advantage of his failure to do 80.

As we mentioned earlier, Mr. Blume investigated

the sintered magnet market following his acceptance of the

May 3 letter-agreement and eventually decided against

acquiring either the Oster facility or any other facility

for the production of cast or sintered magnets due to

an unanticipated depression in the manufacturer's selling

price of cast or sintered magnets (tr. 127-28, 711-13).

When it became apparent to Blume that he would not

acquire the Oster facility under the May 3 letter-agree-

ment, he went to St. Peul on November 19, 1971, and

met with Blankenbaker, Granrud and others (tr. 128,

269-70, 696-97, 718). The purpose of this visit was so

that Mr. Blume could assist Mr. Granrud, Ip. 26] at

Granrud’s request, in connection with the prosecution

of the German counterpart to the 275 patent, which at

the time had been placed in opposition. During the

course of this November 29th meeting, the subject of

a broader release from the October 1, 1967, restrictive

covenant, as amended by the May 3, 1971, letter-agree-

ment, was discussed. The parties are in disagreement

over the scope of the release requested by Mr. Blume

at this meeting. The plaintiff contends that Mr. Blume

requested a release to make “noninfringing products, non-

infringing [flexible] magnets” which would only be “low

A48

energy flexible magnets“ I and/or a license under his

patents to make a magnet with an energy level in the

range of the magnet being produced by The B. F. Goodrich

Co., a 3M licensee.“ The defendant, on the other hand,

[p. 27] contends that he did not specifically limit his

request for a release to low energy magnets—rather, he

states that he requested a release to make “noncompetitive,

noninfringing magnets” with “energy products . . . higher

than Goodrich, or as good as Goodrich was producing”

(tr. 271, 276). Although the contours of this disagree-

ment are somewhat unclear to us,“ we find that Mr.

Blume requested a release (and/or license) to make both

17. By “low energy flexible yoy” the — refers

to magnets with an energy product in 45 x 10° gauss-oersted

n

18. At the time of its acquisition by 3M, had an

t action against B. F. Goodrich involving

the Blume patents. suit was subsequently settled between

3M and Goodrich, with the result that Goodrich paid 3M $100,000

for infringements on the Blume patents, agreed to

royalties based on a sliding scale, and, in return, recei a

irrer

range of .6 x 10% gauss-oersteds (tr. 632-634; px 16).

One aspect of that license t with 3M which is im-

portant for this suit is its “Most Favored Nations Clause,” which

wus in effect at the time of the 3M-Blume June 26, 1973, letter-

1 Srrne t

ume a

A49

low and high energy magnets with specific reference

to the magnets then being produced by The B. F. Goodrich

Company under the Blume patents (magnets with an

energy of 8 x 10° gauss-oersteds) (tr. 271-76, 544-45,

600-01; px 16). As Mr. Blume testified:

“I asked specifically, asked that if I produce the mate-

rial, noninfringing material with energy products

higher than those people such as I mentioned, Good-

rich, specifically, higher than Goodrich, or as good

as Goodrich was producing, would you turn your

back, what would you do [7] I did not receive an

answer, nothing but smiles” (tr. 271, 276).

The outcome of this November 29, 1971, meeting in St.

Paul war that 3M would take Mr. Blume's requests under

advisement, and they would get back to him with their

decision (tr. 546, 600, 698). We think that the subsequent

evidence of the [p. 28] parties’ intent prior to June 26,

1972, reveals that even if Mr. Blume did request a license to

make products of an energy level equivalent to or higher

than that of Goodrich, it was not 3M’s intent to grant him

such a license by the June 26 letter-agreement, and there

were no facts on which Mr. Blume reasonably could rely

in thinking that he received such a license.

Subsequent to the November 29 meeting, Robert

Granrud recorded the substance of Blume’s alternative

Footnote continued—

the magnet business at “fa cneray that he] XVI an

therefore it at Cay ener :

(tr. 277 a the provisions t vincing in light of his

f ° uncon

that he his

ASO

requests for (1) a release to make noninfringing low energy

magnets and (2) what Mr. Granrud characterized as a

“license” under the 3M-Blume patents to make magnets in

the 0.8 range, in a letter to Mr. William Abbott, chairman

of 3M’s Patent, Trademark and Copyright Subcommittee

(px 16) for Mr. Abbott's consideration.” Mr. Abbott's

function in the granting of [p. 29] patent licenses by 3M

Corporation as well as those of his committee have been

previously discussed." Suffice it to say here that Mr.

Granrud, Mr. Abbott and Mr. Blankenbaker discussed Mr.

Blume’s requests further and determined that 3M would

20. Px 16 reads:

Dear Mr. Abbott:

After looking at other Blume has decided that

all he wants is to get back into magnet business. Re-

cently he came close to purchasing a ceramic magnet facility

and to permit him to do so, a supplemental agreement dated

May 3, 1971 (copy enclosed) waived the restriction that

would otherwise have prevented him from this, How-

ever, at the last minute Blume backed out, og that the

ceramic business has a bad competitive situation.

business. He is making alternative uests, First, Blume

would be satisfied to be tted to make unoriented

flexible magnets in the LN 2 would be two ad-

vantages to 3M in permitting to do so: (1) the added

21. Seep. 19, supra.

A51

be willing to narrow the scope of Blume’s restrictive cov-

enant (tr. 599-601, 628, 650, 698). It was their decision

that the restrictive covenant (contained in Article II of

Blu »’s 1967 employment contract, as modified by clause

I of the May 3, 1971, letter-agreement) should be nar-

rowed so as to be coextensive with the scope of 3M’s

rights under the two Blume patents (275 and 675) (tr.

600-01, 648, 628, 650), and to be limited in time to avoid

invalidation by a court applying Ohio’s “Blue Pencil

Rule.“ *

This Court is unclear why it was necessary for 3M to

resort to such a complicated process of reasoning in order to

protect rights which 3M already held under the Blume

patents. It would have been much less complicated, in

this Court’s opinion (and far less burdensome from a litiga-

tion point of view), for 3M to release Blume to make

any magnets he wanted to so long as he did not infringe

his patents—period. 3M asserts, however, and this Court

finds, that it was 3M’s intent in drafting the June 26

letter-amendment to give it “two strings to its bow,” so

that if Blume infringed his patents within the five-year

period, 3M would have either a right to sue in tort for

infringement or in contract under the restrictive covenant.

See United Lens Corp. v. Doray Lamp Co., 93 F. 2d 969,

971 (7 Cir., 1937); Bruhn v. S.T.P. Corp., 312 F.Supp.

903, 905 n. 1 (D. Colo., 1970); Battelle Development Corp.

v. Angevine-Funke, Inc., 165 U.S. P. Q. (BNA) 776, 778 (C. P.

Franklin Co., 1970). The benefit to 3M Ip. 30] from

having a contractual right in addition to a right under

the Blume patents was apparently that if Blume did in-

fringe within the five-year period, it would not be “neces-

sary for [3M] to prove the validity of the patents in

22. See note 10, supra.

A52

order to be entitled to enforcement of the agreement by

the Court.” 165 U.S.P.Q. (BNA), at 778; (tr. 650). Al-

though the legal question underlying 3M’s view of the

benefit it received by having “two strings to its bow”

is not so clearly established in this Court’s mind as it

is in the mind of 3M’s counsel,” We find that it was

3M’s intent in drafting the June 26, 1972, letter-

agreement, as well as the correspondence which led up

to it, to limit Blume’s restrictive covenant both in time

(so as to avoid Ohio’s “Blue Pencil Rule”) and in scope

(so as to make the covenant coextensive with 3M’s rights

under its patents) while giving 3M “two strings to its

bow” in tort and contract to sue Mr. Blume, should he

infringe his patents prior to May 1, 1976.

After this decision was made, Mr. Granrud was en-

trusted with the responsibility of notifying Mr. Blume

of this decision and of confirming the nature of the pro-

posed agreement by letter with Mr. Abbott. This Mr.

Granrud did on December 30, 1971 (jx V; px 17). These

two letters confirm this Court’s understanding of the par-

ties’ intentions with regard to the proposed letter-amend-

ment.

Ip. 31] Mr. Granrud’s letter to Mr. Blume, reproduced

in the margin,“ makes it explicitly clear that, in pro-

23. See Massillon-Cleveland-Akron Co. v. Golden State Co.,

170 U.S.P.Q. (BNA) 440, 443 (9 Cir., 1971) (based on the im-

interest in permi full and

II tree tion

the use of ideas which are in ty embodied in the public

domain,” see Lear Inc. v. Adkins, 395 U.S. 653, 670 (1969), “a

valid patent is a prerequisite to recovery” for a of a con-

tract not to infringe).

24. Jx V reads:

Dear Mr. Blume:

A53

ducing the Matrix-bonded Permanent Magnets“ Mr.

Blume would be released to produce, Mr. Blume must

not infringe “any unexpired patent in your name which

3M obtained with its purchase of the Magnetic Divi-

sion of the Leyman Corporation, especially your US.

Patent No. 2,999,275” (jx V). (Emphasis added.) There

is no time limit included in this December 30th letter

on this obligation of Mr. Blume. Defendant, however,

Ip. 32] points to the language in the December 10th letter

which limits the term Matrix-bonded Permanent Magnet“

ect to the sort of conditions of the letter

of 3, 1971. Mr. Blankenbacker is rather sure that 3M

management will go along.

a letter of the same type as the letter of May 3, 1971. How-

ever, there should be no need for that letter until you have

decided to manufacture Matrix-bonded Permanent Magnets

on this basis.

As soon as you have made this decision, please let us

know, and we will seek the approval.

Very truly yours,

/8/ Robert ER. Granrud

Granrud

A5⁴

to its definition in the May 3 letter- amendment. This lan-

guage, defendants contend, when combined with the men-

tion in the December 30 letter that the proposed release

“[would] be subject to the sort of conditions of the...

letter of May 3, 1971,” indicates that Mr. Blume was clearly

intended to be granted a license after May 1, 1976, to

make magnets under the 275 and 675 patents (tr. 251).

This argument by the defendants is merely further elabora-

tion of the defendants’ earlier argument concerning the

meaning of the term “Matrix-bonded Permanent Magnet”

in the two letter-agreements and the effect of clause I

in the May 3, 1971 letter-amendment—arguments we have

already rejected.” Yet, even if we were to accept at

this stage defendants’ argument that the term Matrix-

bonded Permanent Magnets” was clearly intended by the

parties to be limited to the magnets produced under the

Blume patents, it is clear that a significant segment of

the December 30th letter would be meaningless. For ex-

ample, how could 3M be “willing to grant [Mr. Blume]

. » a release“ to make “Matrix-bonded Permanent Mag-

nets” (as defined by the defendants), while, in the

same sentence, specifically limiting such a release to non-

infringing magnets (jx V)? We find, rather, that the

letter of December 30th from Mr. Granrud to Mr. Blume

explicitly informed Mr. Blume that he would be released

to make noninfringing Matrix-bonded Permanent Magnets

and that, in making these magnets, he must not in any

case, infringe the patents held by 3M without limitation

as to time. We also find that this meaning was [p. 33]

understood by Mr. Blume or should have been so under-

stood by him (in light of the negotiations held up to

that time and the meaning of the May 3, 1971, letter).

25. See pp. 15-18, supra.

A55

The December 30th letter from Mr. Granrud to Mr.

Abbott, reproduced in the margin,“ contains 3M’s conten-

tion that the proposed letter amendment was intended

by 3M to limit Blume’s restrictive covenant both in time

and space while giving 3M “two strings in its bow” should

Mr. Blume infringe his [p. 34] patents prior to May 1,

1976. Following his discussion of the necessity for limiting

Mr. Blume’s covenant in time so as to avoid the applica-

tion of Ohio’s Blue Pencil Rule,” Mr. Granrud clearly

harsh and thus unenforceable [under the Blue Pencil test],

Blume would be in a poor position as the infringer of

any of his patents.” Taken together, the two letters

demonstrate 3M’s intention with respect to the proposed

letter amendment and, more importantly, that 3M com-

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A56

municated to Mr. Blume its intent, in granting the requested

release, that Mr. Blume “not infringe any unexpired patent

in [his] name which 3M obtained with its purchase of

the Magnetics Division of Leyman Corporation, especially

. U.S. patent No. 2,999,275” (jx V).“

On January 16, 1972, Mr. Blume responded to the

letter from Mr. Granrud (jx VI). In accordance with

the last paragraph of Mr. Granrud’s letter,” Mr. Blume

Ip. 35] indicated that he was proceeding in his search

for a “suitable business location” and that he expect [ed]

to write to [Mr. Granrud] shortly and affirmatively in

terms of having acted on the various aspects covered in

your letter and to pursue in detail the kind consideration

given me” (jx VI). The record reflects that on May

24, 1972, Mr. Blume contracted to purchase land on which

to erect a facility (tr. 136-37; dx 332). Then, on May

27, 1972, Mr. Blume wrote to Mr. Granrud and requested

3M to proceed “on the matter covered in the second para-

graph of your December 30, 1971 letter” (jx VII). This

Mr. Granrud did, submitting to Mr. Blume a draft of

a proposed letter-amendment (dx 337), which, with minor

28. Defendant points to the opening sentence of the second

23 of Granrud's letter to Abbott (px 17) as indicating

— . intended to limit Blume from manufacturing mag-

pee «Oe Paes soe mete ie eee

May 1 167 1976 date as is recited in paragraph 1 ce ie 3, 1971

letter —that is, that after the 1, 19 ny 1, 1876, dat te, Mr. Blume got

Ne 17). We find this construction

of the sentence untenable. INN

natural gy text of 3M’s “two strings to its bow”

contention referred to in the same paragraph, was to emphasize

AS?

modifications not material to this case, became the second

letter-amendment agreed to by the parties. Following re-

ceipt of this draft agreement, Mr. Blume closed the pur-

chase on his piece of land (tr. 140; dx 339). Finally,

3M drafted and submitted to Mr. Blume the second letter-

amendment of June 26, 1972, incorporating the changes

made from the draft (tr. 140-41; jx VIII; dx 337). This

letter-amendment was accepted and returned by Mr.

Blume to 3M on July 5, 1972 (jx IX) and is reproduced

in full in the margin (jx VIII).“

30. Jx VII reads:

Dear Mr. Blume:

On 30, 1967, Minnesota Mining and Manu-

„„ (“3M”) purchased from the Leyman

HD. vision which you had created

at vy ee F

—— Your Your single pr — was permanent magnets com-

anisotro domain size

particles

. Pore uten had been mechanicaby

w ee

matrix material. Such permanent magnets are hereinafter

referred to as “Matrix-bonded Permanent Magnets” and are

bly different from cast or sintered magnets such as

aluminum-nickel-cobalt alloys now sold as “Alnico”

Since that date, Ge hae atieind the business of

and selling Matrix-bonded Permanent Magnets.

Ip. 36] Also on September 30, 1967, A. ate agree -

ment with you 3M purchased your equi ty in Magnetics

Division of the Leyman Corp., and by a written agreement

dated October 1, 1967, you were employed by 3M for one

year. lee

after your employment termina

Our letter of May 3, 1971 released you in part from the

agreement of October 1, 1967 to t you to acquire a

facility for ufacturing sin magnets. Your plans

r uested a somewhat

broader release. 7

This letter, which is a substitute for the letter

3, 1971, shall serve to release you to a

A58

The Court finds that the intent and purpose of the

parties in agreeing to the second letter-amendment was

similar to that behind the first letter-amendment—to [p.

37] permit Mr. Blume to enter into the production of

certain magnets without violating Article II of his 1967

employment agreement with 3M. We note that the struc-

ditions which shall take upon your establishing or ac-

Pe ee ee

0 .

I. If at any time prior to May 1, 1976, you or any com-

A59

ture of the two letter-amendments is quite similar“ and

that the June 26, 1972 letter states explicitly that it was

entered into “as a substitute for the letter of May 3,

1971” (jx VIII). In order to put into effect the intent

of the parties, [p. 38] the proposed agreement contained

two broad release clauses (A and B) subject to certain

conditions enumerated in clauses I-III (jx VIII). Clause

A, which released Mr. Blume to “establish or acquire

facilities for making and/or selling cast or sintered mag-

nets, is similar to that included in the earlier May 3 letter

discussed earlier“ and so it need not be explained here.

Clause B, on which Mr. Blume’s defense of license ulti-

mately rests, will be discussed below. Clauses I-IV are,

in substance, identical with clauses II-IV of the May 3,

1971 letter-amendment previously discussed“ and there-

fore also need not be explained again here.

Upon the foregoing conditions taking effect, Article IV

of the C tober 1, 2 be tomainted,

This letter is submitted to you in licate. If the terms

and conditions as set out above are sa to you, please

a +4 Robert L. Westbee

L. Westbee

„

/s/ Walter S. Blume

Walter S. Blume

Date: July 5, 1972

and

identical U V. VI) two in both letters are, in fact,

32. See p. 14, supra.

33. See p. 15, supra.

A60

From our discussion up to this point, it must be ap-

parent to the reader that clause B of the June 26, 1972

letter-amendment contains the “slippery words” which

both parties contend mean what they say and say what

they, the parties, meant. That clause, in pertinent part,

reads as follows:

This letter, which is a substitute for the letter of

May 3, 1971, shall serve to release you to

B. Establish or acquire facilities for making and/or

selling Matrix-bonded Permanent Magnets, with the

express understanding that in making such Matrix-

bonded Permanent Magnets you will not, prior to May

1, 1976 infringe any un xpired patent in your name

which 3M obtained with its purchase of the Magnetics

Division of the Leyman Corporation, especially your

US. patent No. 2,999,275.

Ip. 39] Since clause B of the June, 1972 letter-

amendment is the basis upon which Mr. Blume’s license

defense ultimately rests, we feel it necessary here to state

the positions of the parties as to the meaning of that

clause although this will obviously be somewhat repetitive

of our prior discussion.“ Defendants, relying heavily on

the “prior to” language, contend that clause B immediately

released Blume to make “Matrix-bonded Permanent Mag-

nets” so long as he did not infringe any of the patents

3M acquired from Leyman (especially the 275) prior to

May 1, 1976. After that date, however, defendants contend

this clause effectively granted them a license to practice

any of the patents 3M acquired from Leyman, including

those relating to the manufacture of “Matrix-bonded Per-

34. See pp. 15-18, supra.

A6¹

manent Magnets” as that term is defined on page 1 of

both the May 3, 1971 and June 26, 1972 letter amend-

ments, viz., “permanent magnets comprising anisotropic,

substantially domain size particles of permanent magnet

material which had been mechanically oriented and which

were bonded together by a nonmagnetic matrix mate-

rial.“ Plaintiff, on the other hand, contends that clause

B was intended by the parties to act as a release to permit

Mr. Blume to [p. 40] establish or acquire facilities for

making and/or selling flexible magnets (“Matrix-bonded

Permanent Magnets”) subject to certain conditions. One

of those conditions, plaintiff points out, was that in mak-

ing such flexible magnets Blume must not “prior to May

1, 1976 infringe any unexpired patent in [his] name which

3M obtained [from] Leyman Corporation, especially your

U.S. patent No. 2,999,275”—a clause that was clearly in-

tended to act as an extension of the restrictive covenant

in Blume’s 1967 employment contract, limited in time

to avoid invalidation under Ohio’s “Blue Pencil Rule” and

35. See note 7, supra. One of the problems with this argu-

ment is that it adopts two different meanings to the term Mat-

rix-bonded Permanent Magnets“ one limited to the

Ip. 40] This letter ais aati te Cahn poh to

B. Establish or acquire facilities for making and/or selling

Matrix-bonded Permanent with the express

understanding that in making such Matrix-bonded Per-

Scinae [the poteaks Shr will not, prior to May 1, hb in-

pa acquired from Leyman mak-

ing iia -bonded Permanent

t Magnets].

This lem was by both defendants’ counsel

(tr 165-66) and by Mr. Blume’s former counsel Mr. Evans. As

Mr. Evans stated “there was no way that [he] knew of that any-

body could make matrix-bonded permanent magnets without in-

fringing these patents . .” (tr. 467). With regard to Mr. Evans’

testiencmy G00 ep. 23-25, oupre.

A62

in scope so as to make the covenant coextensive with

3M’s rights under its patents. Plaintiff contends it was

never intended, nor was it reasonably understood to be

an affirmative grant of a license to Blume under the Blume-

3M patents.

Ip. 41] From our review of the evidence outlined

above, we must agree with the plaintiff's contention. We

reach this conclusion based on several factors. First, and

most important, are the facts as we have found them

above concerning the intention of the parties in drafting

this agreement and the negotiations leading up to it. Sec-

ond, we find our conclusion to be supported by a compari-

son of the May 3, 1971 and the June 26, 1972 letter-

amendments with respect to organization and structure,

keeping in mind the parties’ intent with respect to clause

I in the May 3, 1971 letter-amendment as we have found

it above. Third, the June 26, 1972 letter-amendment, like

the May 3, 1971 letter- amendment,“ was never brought

up for review before 3M’s Patent, Trademark and Copy-

right Subcommittee” because in the opinion of Mr. Wil-

liam Abbott, the chairman of this committee, the June

26, 1972 letter “did not grant a license under any 3M

patent, particularly the patents. . that were acquired

from the Lehman [sic] Company.” Neither, in his opin-

ion, was the June 26 letter-amendment a “research and

development agreement” since, “while Mr. Blume was au-

thorized to engage in research, 3M was not paying for

the research [nor were they] supplying the facilities for

any such research” (tr. 652). Finally, subsequent to June

26, 1972, several events occurred which further reinforce

our conclusion.

36. Seep. 19, supra.

37. See p. 19, supra.

A63

Ip. 42] First, in May of 1973, Mr. Blume wrote a letter

to Mr. Georg Gronefeld, Director of the Magnetfabric

Bonn of GmbH Gewerkschaft Windhorst, concerning his

re-entry into the magnet business“ (px 22). In that letter,

Mr. Blume informed Mr. Gronefeld that the Electrodyne

Company was Mr. Blume's means of re-entering the magnet

business. The letter then went on to state:

“However, our plant has only recently been completed.

It will take at least a year or two before we become

truly productive with regard to magnet manufacture

and I am, of course, still obliged to honor the patents

I assigned to the 3M Company” (px 22). (Emphasis

added. )

Second, in the fall of 1973, Mr. Blume began negotia-

tions with the Southern Ohio Bank for a business loan to

the Electrodyne Company guaranteed through the Small

Business Administration (tr. 414). In support of this loan,

Mr. Blume submitted various documents to the Bank, in-

cluding a “Business Background and Prospectus” and a

copy of the June 26, 1972 letter-amendment (dx 377, 380).

In his “Business Background and Prospectus,” Mr. Blume

stated the following concerning his relationship with 3M:

The applicant believes such circumstances are in

his favor and for the purpose of further pursuit in

the field of magnetics, he managed to negotiate a partial

release from his rather broad unexpired contractual

obligation to 3M. This release became effective on

May 3, 1971, and was subsequently updated on June

26, 1972. Exhibit 5 attached.

1 > eee

Blume Electrodyne Company contracted

the construction of a manufacturing facility, which was completed

with final payment being made in Auguet of 1979 (tr. 26, 150-52;

A64

To obtain the release, the applicant agreed to give

3M the benefit of a non-exclusive royalty free license

on any improvements he might make with regard to

a permanent magnet product and process specifically

limited to and described [p. 43] under applicant’s

patent No. 2,999,275 and which was previously assigned

to 3M by reason of its acquisition of Leyman. The

obligation of applicant to 3M under this arrangement

is defined within very narrow limits and expires un

May 1, 1976, approximately one year ahead of the ex-

piration date of the patent concerned.

In return for the applicant’s consideration to 3M

and in the event provided for, he, his heirs or as-

signees will automatically receive a royalty free license

to manufacture and sell the product covered under

the patent referred to. It would seem that the con-

cession to 3M is indeed small since the applicant could

not otherwise practice the patent or any improvement

made thereto prior to its expiration in any event

without 3M’s permission. Furthermore, aside from this

single exception, the applicant is now totally free to

engage in magnet development, manufacture and sales

on his own behalf without further or continuing

obligation to 3M.

While the original agreement and the obligations

thereto have now expired, the expediency of obtaining

a partial release prior to this event allowed the ap-

plicant to engage in development work approximately

two and one-half years in advance of the time other-

wise permissible and in an area completely devoid

of any contingent obligation to 3M (dx 380). (Em-

phasis added.)

Counsel for defendants argues that this language sup-

ports his contention that Blume thought (or reasonably

A65

relied in thinking) that he had received a license under

the provisions of the two letter-amendments (tr. 753-55).

We, however, read this language to mean the following:

(1) That in order to obtain his partial release, Blume

agreed in clause I of the June 26 letter-amendment to give

3M a nonexclusive royalty free license on any improvement

he might make on the 275 magnet;

(2) That this obligation in clause I of the June 26

letter-amendment expired on May 1, 1976;

Ip. 44] (3) That in return for this consideration,

Blume, his heirs or assignees under clause II of the June

26 letter-amendment will receive a royalty free license

to manufacture and sell the product under the 275 patent;

(4) That Blume’s “concession” to 3M concerning

the non-exclusive royalty free license mentioned in point

(1) above is small since if he does develop an improve-

ment on the 275 patent, he will get a royalty free license

in return as mentioned in point (2) above and he “could

not otherwise practice the patent or any improvement

made thereto prior to its expiration in any event without

3M’s permission” (emphasis added);

(5) That, aside from this single exception relating

his own behalf without further or continuing obligation

to 3M; and

(6) That this partial release obtained prior to the

expiration of the restrictive covenant in Blume's 1967

employment agreement enabled him “to engage in de-

A66

velopment work approximately two and one-half years

in advance of the time otherwise permissible” to engage

in developmental work, viz., the May 1, 1976 date provided

in clause I of the May 3, 1971 letter- amendment. This

clause prohibited Blume from engaging in the “(1) design,

(2) development, (3) manufacture, or (4) sale of Matrix-

bonded Permanent Magnets” (i.e. flexible magnets) prior

to May 1, 1976 except, as provided in clauses II and III

of the May 3 letter-amendment, under a “contingent ob-

ligation” to 3M that should Blume [p. 45] prior to May 1,

1976 develop a “super” 275 magnet, he would be obligated

to give 3M a nonexclusive royalty free license. The benefit

which we think Mr. Blume is clearly referring to in the

last paragraph of the excerpt above was his new freedom,

under the provisions of the June 26 letter-amendment, to

engage in developmental work prior to May 1, 1976 on

flexible magnets other than magnets produced under the

275 process. This was the benefit which Mr. Blume re-

ceived “two and one-half years” prior to the May 1, 1976

date he had previously been restricted to under clause I

of the May 3, 1971 letter-amendment.”

Defendants also offered in support of their position

the testimony of Mr. Earl Lindholz, Vice-President of the

Southern Ohio Bank and loan officer in charge of the

SBA-Electrodyne loan (tr. 412-13). Defendants contend

that the testimony of Mr. Lindholz establishes that Mr.

Blume informed the Bank, when he applied for the loan in

39. It is clear from this document that Mr. Blume felt

that the restriction in clause I of the 3, 1971

letter-amendment at the time, still applied ‘to since

he refers above to his “re effective on

A67

the fall of 1973, that he was free to produce flexible mag-

nets with the exception that he could not produce magnets

under the 275 method until May 1, 1976. The defendants

also contend that the Bank, having read the June 26, 1972

letter-amendment attached to Blume’s “Prospectus,” was

of the same opinion [p. 46] and relied on this representa-

tion by Mr. Blume in extending the loan. (See defen-

dants’ Proposed Findings of Fact and Conclusions of Law

No, 24-28.) The significant portion of Mr. Lindholz’s testi-

mony on this point is as follows:

. Did you, reading [the June 26 letter-

agrcement] form an opinion with respect to what you

believed Mr. Blume could do?

A. Yes.

Q. What was your opinion of what Mr. Blume

could do with respect to the production of magnets

after reading that instrument?

A. It was our opinion that he could produce mag-

nets.

Q. Did Mr. Blume make any such representation

to you?

A. That he could produce magnets, yes.

Q. Did he indicate to you when he could produce

magnets?

A. He indicated that he was able to produce mag-

nets at the time the loan was approved. He indicated

that there was some situations that he would not be

allowed to produce a specific magnet until a contract

date, and I believe it was in 1976.

Q. All right, sir. Was that opinion which you

reached important to the bank in determining whether

or not to make the loan to Mr. Blume?

A68

A. Yes, it was.

Q. Are you able to state whether or not, without

having such an instrument and having reviewed such

an instrument and shared such an opinion as you've

just described, the bank would have made the loan to

Mr. Blume?

A. Well, I think if our bank had knowledge of

various restrictions and if the applicant was not able

to be released from those restrictions to produce that

product we probably would not have made the loan.

THE COURT: Are you talking about the restric-

tions of the noncompetitive agreement?

THE WITNESS: Yes (tr. 424-26).

Ip. 47] First, we note that portions of this testimony

are not inconsistent with the facts as we have found them

above—following execution of the June 26, 1972 letter-

amendment, Mr. Blume was free in the fall of 1973 to begin

making magnets—so long as they didn’t infringe the Blume

patents held by 3M. Second, to the extent Mr. Lindholz

based his opinion regarding what Mr. Blume could or could

not do on his own reading of the June 26, 1972 letter-

amendment, his testimony stands on the same ground as

that of Mr. Evans (with respect to the earlier May 3 letter-

amendment). Finally, with respect to Mr. Lindholz’s testi-

mony that “there [were] some situations that [Blume]

would not be allowed to produce a specific magnet until

a contract date, . I believe it was in 1976,” we note that

there is some inconsistency on defendants’ part with respect

to scope of this contract limitation referred to. Defendants’

position at trial, of course, is that they have a license under

all of the Blume patents held by 3M by virtue of clause B

in the June 26, 1972 letter-amendment (tr. 766-67). Yet

this contract limitation referred to by Mr. Lindholz was, de-

A69

fendants’ counsel contends, “explained by Blume as limited

to the narrow 152 product patent“ (defendants’ Proposed

Findings of Fact and Conclusions of Law No. 28, at 8)—an

explanation inconsistent with the broad license Mr. Blume

is now claiming. For this reason and for the reason that

Mr. Lindholz, although credible, was never very specific

with respect to the contract limitation to which he was

referring (tr. 425), we choose to disregard his testimony.

Ip. 48] Finally, on March 21, 1974, Mr. Blume met with

his friend, Jim Blankenbaker, from 3M. Following this

meeting, Mr. Blankenbaker wrote a memo recording the

substance of this conversation which, in pertinent part,

reads as follows:

I met with Walter Blume at his request on Wednes-

day morning, March 20, at the headquarters of his

newly founded firm in Cincinnati. As you know,

Walter founded Electrodyn [sic] in order to be in the

magnetic instrument (gaussmeter) business—and to

produce and sell flexible magnets once his contract

with 3M runs out. He is about ready to announce the

availability of his new solid state gaussmeter—has

produced 10-12 already, and has parts/materials on

order for his first production run of 1000. We IEP in

Cincinnati, took delivery of his first unit about two

weeks ago—it looks good.

Walter confirmed the information given me on

the phone—namely, that he had produced several

batches or lots of magnets with energy levels from

about 1.3 to as high as 1.9. I thought he had told

40. The 152 patent, referred to in note 1, supra, was a nar-

row patent which covered the “sole product of under

the Hlume patents (and by 3M) only in a very, very

limited fashion” (tr. 214).

A70

me they were flexible. They are not. They reportedly

are made from conventional Ba, Pb and Sr ferrites;

ie., those suitable for use in making Plastiform. All

were “hand made” by Walter. The binder, I sense,

was something such as a phenolic, epoxy, or maybe

polyester, but no conversations were held re binder.

Walter did state they were made by “pressing.” No

mechanical orientation such as is taught in the primary

Blume patents is used. These magnets could, accord-

ing to Walter’s patent attorney (Evans) be produced

without violation of the basic Blume patent. However,

Walter did state that his product patent No. 3235675

which we now own does complicate the picture to

the extent of preventing him from selling them in

the U. S. Furthermore, this complication is enough

to limit his negotiations with TDK.

At least, half of our morning was spent reviewing

what we've been over several times—his great desire

to be back in the flexible magnet business. He showed

me his new rubber mill (8 in. diameter rollers—about

11-12 in. long), slitter and told me about the Banbury

the Gertin Company is rebuilding for him. He would

like very much to have a new contract or license

with us which would enable him to compete with

us. I told him once again that we had no present

plans to license him nor could I honestly offer [p.

49] him any encouragement for the future. He ob-

viously feels badly about this, but said he could un-

derstand. He was quite firm in stating he would

use his new equipment to make flexible low energy

magnets which would not infringe our (his) patents

until they run out in 78.

Walter pleaded for us to sell him untrimmed

jumbo stock which he would convert and sell either

A7

as Plastiform or under his own trade name if we

wished, I told him I could see no advantage to de-

veloping a sizable business or relationship in this man-

ner in view of his stated objective to compete with

us in 78. He then asked if we would sell him sheet

material or roll stock under the same conditions we

sell our Eastern converter, Smith of Magnetic Aids.

I told him I would see if it were possible to do so

and let him know within 1-2 weeks (px 24).

This memo corroborates the testimony of both Granrud

and Blankenbaker that Mr. Blume repeatedly requested

a license even after execution of the June 26, 1972 letter-

amendment on which Mr. Blume now relies (tr. 697-98,

544-45). When asked by the Court to comment on this

evidence, counsel for defendants could only respond as

follows:

Well, your Honor, we just take a totally contrary

position to that. There’s been no testimony elicited

on cross-examination or direct from the defendants’

side that that is true, and we say that Mr. Blanken-

baker is incorrect. It is just not a fact. We had

the June 26, 1972 agreement (tr. 759-60).

We think that defendants have failed to carry their

burden of proof on the issue of a license arising under

the May 3, 1971 and June 26, 1972 letter-amendments

to Blume’s 1967 employment agreement with 3M.“

41. There was one additional post-1972 piece of evidence

= at trial—a February 18, 1974 letter written by Mr.

to Dr. Sandro Cicogna. That letter, in pertinent part,

states as follows:

Ip. 50] Dear Sandro:

I am enclosing for your reference a copy of a letter and

an attachment thereto which we recently received from the

TDK

(Continued on following page)

A72

Ip. 50] Based on all of the evidence recited above,

it is our conclusion, taking into account the intention of

the parties demonstrated by the facts as we have found

them, that neither the May 3, 1971 letter amendment nor

the June 26, 1972 letter- amendment was intended by the

parties to be an affirmative grant of a license commencing

May 1, 1976 under any of the Blume patents acquired

by 3M from Leyman Corporation. It is our further con-

clusion that these two letter - amendments, in light of the

negotiations surrounding their creation, could not have

been reasonably understood by Mr. Blume to be an affirma-

tive grant of a license. We find [p. 51] that both clause

I of the May 3, 1971 letter-amendment and clause B of

the June 26, 1972 letter-amendment were intended by the

parties to be progressively narrower extensions of the re-

strictive covenant contained in Mr. Blume’s 1967 employ-

ment agreement. That was their sole legal effect—nothing

more, nothing less.

Footnote continued—

. . » [While it is not my intention for the time being to

enter into any arrangement with TDK, my attorneys advise

that I would in any event be free to do so, insofar as the

situation is concerned and the limits of my obligation

to 3M stand.

However, I have not at this t written 3M about the

situation. There is no sense in them over a matter

A73

[p. 52] ESTOPPEL ISSUE

We find the following statement of the requisite ele-

ments for an equitable estoppel to be a correct statement

of law:

“Every fact-essential to an estoppel must be

clearly and satisfactorily proved by a preponderance

of the evidence,” 31 C.J.S. Estoppel § 162, pp. 457,

458; and each of five elements must be present to

sustain this defense:

1. False representation or concealment of mate-

rial facts by words, acts, conduct or silence, where

there is a duty to speak,

2. By a person with knowledge, actual or con-

structive, of the true facts,

3. To a person without as great or sufficient

knowledge,

4. With the intention that the misrepresentation

or concealment shall be acted on by the latter person,

5. Who must so rely and act thereon, or omit

to do some act, to his injury or prejudice. A change

of position which will fulfill this element of estoppel

must be actual, substantial and justified.

(New York Cent. R.R. Co. v. General Mot. Corp.,

182 F. Supp. 273, 288 (N.D. Ohio, 1960) (Kalbfleisch,

D.J.) See also, 28 Am. Jur. 2d Estoppel and Waiver,

§§ 35-36 (1966) ).

In the patent context, the requisite elements of es-

toppel have been interpreted as follows:

[Aln implied license may arise out of any circum-

stances which operate as an estoppel on the owner

of the patent to prevent him from denying the rights

A74

claimed by the apparent licensee. Such circumstances

must, however, be unequivocal and fulfill the ordinary

requisites of an estoppel in pais. ... [A]ny conduct

by which the owner of the patent induces the person

who employs the inwention to place himself in a situa-

tion where he must \suffer injury unless his right to

practice the invention is conceded will be regarded

as implying such a right, and as estopping the owner

of the patent from asserting his prohibitory powers

in its defeat.

(Robinson on Patents, ch. 5, § 834, at 640-41 (1890).

See also, De Forest Radio Telephone & Telegraph

Co. v. United States, 273 U.S. 236, 241 (1927); De

Forest Radio Telephone & Telegraph Co. v. Radio

Corp. of America, 9 F.2d 150, 151 (D. Del. 1925);

aff d 20 F.2d 598 (3 Cir. 1927).)

[p. 52a] We incorporate herein all the facts as we

have found them above. Based on those facts, we find

that defendants have failed to demonstrate an implied

license (or equitable estoppel) arising out of tl e circum-

stances surrounding the drafting of either the Mi y 3, 1971

letter- amendment or the June 26, 1972 letter- ame dment,

or the language of either letter amendment.

In addition to their claim of an estoppel under the

two letter-amendments, defendants present the following

arguments concerning their defense of an estoppel against

plaintiff 3M. First, Blume contends, 3M is estopped to

assert infringement of the 675 patent against him because

3M has consistently represented to him that the 675 product

patent does not cover the product produced under the

275 method patent (i. e., the sole product of Leyman Corp.),

and, therefore, even if he is using the 275 method in

producing “Plastalloy” (as he admits doing subsequently

A

to September 2, 1976), he cannot be charged by 3M

with infringement of the 675 patent. In support of this

argument, Blume points to the language of the two letter-

amendments, arguing that if the 675 patent does cover,

as 3M now claims, the product produced under the 275

method (the sole product of Leyman as defined on page

1 of both letters; Jx IV, VIII), then the two letter-amend-

ments must create an implied license [p. 53] because

otherwise their language would be meaningless.“ Blume’s

second argument is that 3M is estopped to assert infringe-

ment of either the 275 or 675 patents against him because

of 3M’s representations concerning, and conduct with re-

spect to, Polymag, Inc., a manufacturer located in Sag

Harbor, New York. Prior to September 2, 1976, Blume

contends he was manufacturing his product “Plastalloy”

by means of a trade secret process which used both me-

chanical and magnetic, but primarily magnetic, means to

align the magnetic particles, a process he claims is taught

by the Peccerill patent under which Polymag is operating“

42. See stipulation of issues, doc. 56, A. In using the 275

method, Blume relies on the license he claims he received on

May 1, 1976, under the terms of the June 26, 1972 letter-amend-

ment. We have already resolved the license issue adversely to

Mr. Blume. See pp. 36-51, supra.

43. As defendants counsel argued at trial:

ton simply Put, what they are saying [by this interpreta-

of Clause B of the June 26, 1972 letter-amendment] is

ve you the authority to make bananas on the one

e eee

— ri bananas and therefore you can’t make

44. w c

ee ae, under the Peccerill patent. Rather, he contends that

secret process uses uses magnetic alignment ta t b

ho ge ga (Peccerill) process. 1 at

[Our] assertion is, on the estoppel basis, that Peccerill

teaches t; and we assert we have used

a t. We have never asserted that we have

the Peccerill method.

A76

(tr. 280-81, 286, 385) (See p. 2, supra). The 275 method,

it appears, uses solely a mechanical method to align the

particles (Jx IV, VIII; tr. 156, 284-300). In 1968, shortly

after the Leyman acquisition, the activities of Polymag

came to the attention of the 3M personnel, which included

Mr. Blume, who was then receiving royalties under his

agreement with 3M (tr. 373). At that [p. 54] time, Mr.

Blume states he advised 3M that the Peccerill patent under

which Polymag was operating “was no more than a device

to infringe the 275 patent” (tr. 155, 156). Blume was

concerned about this matter because if Polymag was in-

fringing and thus was forced to acquire a license from

3M, Blume would apparently be entitled to more royalties

under his 1967 royalty agreement with 3M (jx II; tr.

486, 372-73). In spite of this advice, Blume contends,

3M took no action with respect to Polymag’s alleged in-

fringement and, in fact, represented to him (Blume) that

Polymag did not infringe because “Polymag was using

magnetic alignment and magnetic alignment did not in-

fringe” (tr. 372, 385). Thus, Blume claims, 3M is estopped

to assert that his trade secret process infringes the 275

or the 675 patents because his process uses primarily mag-

netic alignment as taught by Polymag and 3M has repre-

sented to him that such a process does not infringe. These

arguments, we think, lack merit. We will deal with them

seriatim.

First, with respect to the estoppel concerning the 675

patent, Blume relies primarily on two statements, both

made by Mr. Granrud. The first was a statement al-

legedly made by Granrud to Mr. Evans, Mr. Blume’s coun-

sel at the time, during the negotiations leading up to the

settlement of the B. F. Goodrich-3M patent lawsuit over

the Blume patents.“ Mr. Granrud and Mr. Evans were

45. See p. 26, n. 18, supra.

A

apparently discussing infringement of the 675 patent by

B. F. Goodrich when, as Mr. Evans testified, Mr. Granrud

stated, We don't think much of the 675 patent“ (tr. 450,

468). This statement apparently distressed Mr. Evans

at the time because it was [p. 55] his view that 675 was

a “significant” patent which B. F. Goodrich was infringing

(tr. 450-51, 468. See also 159, 195A). The second state-

ment was made by Mr. Granrud in a March 10, 1972

letter to Mr. Blume. The first paragraph of that letter

reads as follows:

You may recall I told you some time ago that we

were attempting to obtain a patent on high energy

flexible magnets and that the most difficult prior

art was a matrix bonded magnet you exhibited in

Philadelphia in 1958. It is usually difficult to persuade

the Patent Office to issue a patent with the broad

sort of definition we are seeking here—just as you

were never able to obtain a patent broadly covering

your flexible magnet, except in terms of process (dx

322). (Emphasis added.)

Pointing to these two statements, Blume charges that

the “consistent” position of 3M, as communicated to him

through Granrud, was that 3M “did not believe the 675

patent covered the product produced under the 275 method”

and that he was never . . given any contrary opinion

at any time from 3M with regard to the 675” (tr. 159,

195A).

We find this argument unconvincing for several rea-

sons. First, we think defendants have simply failed to

prove the requisite elements of an estoppel. The state-

ments on which defendants seek to rely are too ambiguous

and inconclusive to establish estoppel. As Blume admitted,

dx 322 makes no reference to the 675 patent (tr. 202). And,

as the trial record demonstrates, the statement in dx

A78

322 could equally apply to Blume’s prosecution of the

152 patent, rather thar the 675 patent (tr. 355-56, 472-75,

662-03). Second, Mr. Granrud denied having ever con-

demned the 675 patent or having indicated to Mr. Blume

that 3M would not enforce its rights under the 675 patent

(tr. 627). Third, other 3M documents written during

Ip. 56] this period (copies of which either Blume or his

lawyer received) suggest that 3M’s position was the op-

posite of what Blume now asserts it to be (px 38, 40,

42, 43; tr. 490-91). Finally, it appears that Mr. Blume

placed no reliance on the statements in any case. The

evidence at trial demonstrated that both Mr. Blume and

Mr. Evans, his attorney, initially took the position that

the claims under the 675 patent did cover the sole product

of Leyman produced by the 275 process (tr. 200-201, 452,

475-77). Mr. Evans, it appears, still holds that position

(tr. 452). Mr. Blume, however, testified that he arrived

at his present position concerning the coverage of the

675 patent as a result of reading two articles cited in the

Gertnan opposition to the patent corresponding to his U.S.

patent, 275 (tr. 168-69). Thus, we conclude that Mr.

Blume has failed to establish the requisite elements of an

estoppel against 3M.

As for defendants’ contention that our conclusion ren-

ders clause B of the second letter-amendment meaningless,

we think our findings above concerning the meaning of

that clause disposes of their objections. (See pp. 15-25,

24-32, 38-51.) Defendants’ point is simply a reiteration

of their prior arguments concerning the two letter-

amendments—arguments we have already extensively re-

viewed and rejected.

46. These articl “Ceit schrift fur “of

ꝶ3)3j3½½% petaaind aad 0 tomee ot ae te aye

paigne patent (tr. 168-69).

A79

We conclude Mr. Blume’s second argument concerning

3M’s representations and conduct concerning Polymag is

also without merit for several reasons. First, Mr. Blume

has been unable in this record to point to a specific state-

ment [p. 57] by any of the parties from 3M that 3M

believed Polymag did not infringe the 275 or 675 patents.

Rather, Mr. Blume seeks to rely on 3M’s failure to sue

Polymag after he advised them that, in his opinion, Poly-

mag infringed (tr. 155-161). This point was best sum-

marized in the testimony of Mr. Evans, Mr. Blume’s

attorney at the time:

Q. Did I understand you to indicate that you

were aware that Poly—even though you indicated

you couldn’t recall this meeting, did I understand

you to indicate you were aware that a notice of in-

fringement had been given to Poly-Mag by 3M Com-

pany in respect to both—the 275— ... to both the

275 and 675 patents?

A. I know that a notice was sent. I do have that

recollection. Whether it was under one or both, I don’t

recall.

Q. And did you have any discussions with 3M

people where they disagreed with your opinion that

Poly-Mag infringed?

A. Yes.

Q. With whom did such discussions take place?

A. With Mr. Granrud and possibly others, whose

names I don’t recall. I—TI recall at some later time

than this, that is, later than July 22nd of ’68, Poly-Mag

did not go away, and it continued to be a matter of

concern as to what to be—should be done about them.

And I recall Mr. Granrud and—and one or two

technical people coming up to see me in Hartford or

A80

Springfield, Connecticut where I was then encamped

on a litigation for a long time, [p. 58] and Poly-Mag

was in that general area of the country. And we

had a meeting there, in a motel room there, one

afternoon to discuss what could be done to—to advance

matters against Poly-Mag. At that time we—Poly-

Mag, I think, was willing to open their—or let us get

samples in their—in their plant. So, we worked

out a series of tests or samples that should be taken

that would establish a basis for determining whether

Poly-Mag was using the process or not. Such sam-

ples were obtained, and I may have—I don’t believe

I did actually see the numerical data generated, but I

did ask the question, because I—I thought that Poly-

Mag—the pressure should be brought against Poly-

Mag. That was my feeling, that they were infringing.

And something had been learned as the result of

that inspection which caused 3M to not want to go

after them.

R ¢+ 0 © @

A. And suit was never brought.

Q. Did they use those words?

A. I won't say those were the exact words. They

had that purport, certainly, and I was disappointed

as a result of that.

> W % *

Q. I understood you to say that the concern ex-

pressed by the 3M representatives as to whether the

patents were infringed by Poly-Mag was at the Hart-

ford meeting?

[p.59] A. No, no. It was after that.

@. It was after that. Now, when was it after

that that the 3M people expressed that concern?

Asi.

A. That’s difficult for me to—to state. It was

after the plant inspection, because they relayed to me

the general fact that something had come up on the

plant inspection that caused them to think that there

was an infringement and that they were not very

excited about the prospects of a lawsuit against Poly-

Mag.

. And that was with reference to the 275

patent that that concern was expressed?

A. Well, as I’ve—as I’ve—it was against.

Q. Yeah.

A. —that no suit would be—would be filed.

Those patents were in question apparently from that

letter, and no suit was going to be filed under either

of them, and indeed none was.

Q. But you were of the view that both patents

were infringed by Poly-Mag?

A. Yes, I was. I had not seen anything to the

contrary from Poly-Mag that indicated they wouldn’t

infringe (Tr. 389-90, 492-93). (See also tr. 486, 157-

59, 654, 680-81.)

Thus, the “representation” on which Blume seeks to

rely for his estoppel claim arises from the impression re-

layed to him by 3M that they “were not very excited about

the prospects of a lawsuit against Polymag” coupled with

3M’s subsequent inaction. We think this is a far cry

from the affirmative representation that “Polymag was

using [p. 60] magnetic alignment and magnetic alignment

did not infringe” which Mr. Blume seeks to charge 3M

with making (tr. 372, 385). All of the relevant docu-

mentary evidence indicates that 3M throughout the entire

period considered Polymag as infringing the Blume patents

A82

(px 36, 37, 38, 42, 43, 44, 46, 48; 49, dx 141, 142, 147, 148). Ad-

mittedly, some of this correspondence was carried on after

Blume had left 3M and he therefore cannot be charged

with knowledge of the contents of those letters (doc. 28,

at 3-5). Blume or his lawyer, however, did receive copies

of correspondence as late as January of 1970 indicating that

3M was pursuing—albeit cautiously pursuing—“the ques-

tion of infringement by Poly-Mag of Blume patents No.

2,999,275 and 3,235,675” (docs. 38, 43, at 1). In addition,

Mr. Granrud denied ever stating “to Walter Blume or any-

one else that Polymag was not infringing” (tr. 634).

Defendants on cross-examination pursued the various

explanations offered by plaintiff’s counsel for 3M’s failure

to sue Polymag. These explanations include the inconse-

quential size of Polymag’s business, the fact that Polymag

“was represented [to be] in a failing business condition,”

and the lengthy consideration 3M gave to the possibility

of purchasing either Polymag or the Peccerill patents (tr.

653-54, 670-81, px 43, 48, 49, dx 141, 142, 148). These ex-

planations are in addition to the explanation offered by

Blume, viz., that 3M’s “continuing doubt” about Polymag’s

infringement of the Blume patents, as demonstrated in the

lab reports referred to by Evans and Abbott, caused 3M

not to press a lawsuit against Polymag (tr. 489-90, 492-93,

679-80, dx 148). We think that this line of inquiry only

serves to demonstrate the ambiguous, inconclusive nature

of the “representation” on which M:. Blume ultimately

seeks to rely—that is, 3M’s [p. 61] failure to sue Polymag.

We conclude, with reference to 3M’s actions concerning

Polymag, that Mr. Blume has failed to meet his burden of

demonstrating that there was a false representation on

which he relied.

5 Finally, even if we were to find that 3M was estopped.

to assert that Polymag infringes the Blume patents, this

A83-

finding would be of no assistance to Mr. Blume because

he testified at trial that his “trade secret process” was sig-

nificantly different from and did not follow the Peccerill

patented process on which Polymag is based (tr. 384-85,

286, 288-89). Thus, even if Mr. Blume is using some mag-

netic alignment as is taught by the Peccerill patent in his

“trade secret process,” 3M is not estopped to assert that

this “trade secret process” which Blume used prior to Sep-

tember 2, 1976, infringes the Blume patents held by 3M

since Blume’s “trade secret process” is admittedly not the

same as the Polymag process. Thus, we conclude that the

estoppel defense is without merit.

In sum, we conclude, based on the evidence as we have

found it above, that the defenses of license and estoppel

are without merit. Therefore, they must be rejected.

Davi S. PorTER

Chief Judge

U.S. District Court

A84

ORDER OF DISTRICT COURT HOLDING

675 PATENT “OBVIOUS”

(Filed August 7, 1979)

Civil Action No. C-1-76-51

IN THE UNITED STATES DISTRICT COURT

For THE SOUTHERN DISTRICT oF OHIO

WESTERN DIVISION

MINNESOTA MINING AND MANUFACTURING

COMPANY,

Plaintiff,

vs.

WALTER S. BLUME and THE ELECTRODYNE

COMPANY, INC.,

Defendants.

ORDER

This is a patent infringement case. Plaintiff herein,

the Minnesota Mining and Manufacturing Co. (3M Co.),

alleges patent infringement on the part of the defendants,

Walter S. Blume and the Electrodyne Company, with re-

spect to two patents, U.S. Patent No. 2,235,675 and U.S.

Patent No. 2,999,275. For the reasons stated in Findings

of Fact and Conclusions of Law filed concurrently with

this Order, we conclude that:

(1) defendants have proved by a preponderance

of the evidence that the subject matter of claims 8

through 10 of U.S. Patent No. 3,235,675, when com-

pared to the pertinent prior art, was obvious to an

individual having ordinary skill in the art in 1954.

A85

Since we are unable to construe those claims so as

to exclude the prior art, we conclude that claims 8

through 10 are invalid. Since defendants’ product

clearly follows the teaching of the prior art and the

applicable claims of the patent are invalid for obvious-

ness, defendants therefore cannot be charged with in-

fringement of claims 8 through 10 of U.S. Patent

No. 2,235,675.

(2) plaintiff has proved by a preponderance of

the evidence that defendants’ practice of both the 275

patent process and the Trade Secret Process (TSP)

constitutes literal infringement of claims 1, 2, 4, 5,

and 7 of U.S. Patent No. 2,999,275 in the period from

June, 1975 to September 12, 1978.

(3) Defendants’ practice of their TSP prior to

May 1, 1976 is in breach of the October 1, 1967 employ-

ment agreement between 3M and defendant Blume

(as modified by two letter amendments between the

parties). Defendants’ practice of their TSP from June

9, 1978 to September 12, 1978 constitutes a violation

of the preliminary injunction entered by Order of

this Court on June 9, 1978.

Since this Court intends to refer the complex matter

of the computation of damages to a master chosen for

this purpose pursuant to Fed. R. Civ. Pro. 53(b), the parties

are ordered to submit their proposals for a master within

twenty (20) days of the date of this Order. Finally, this

Court concludes that pages 38 through 53 and footnotes

16 through 26 of the Findings of Fact and Conclusions

of Law and px 80A, 80B, 81 and dx 592, attached as

exhibits to the Findings of Fact and Conclusions of Law,

| should be sealed for the purpose of appeal, if one is taken.

) Access to these portions of the Findings of Fact and Con-

A86

clusions of Law, as well as to the documentary exhibits

presented at the December trial and the transcript of that

trial, shall be permitted only on Order of the Court.

SO ORDERED.

Davy S. Porter

Chief Judge

United States District Court

5

A87

DISTRICT COURT FINDINGS OF FACT

AND CONCLUSIONS OF LAW

(Filed August 7, 1979)

533 F. Supp. 521

Civil Action No. C-1-76-51

IN THE UNITED STATES DISTRICT COURT

For THE SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

MINNESOTA MINING AND MANUFACTURING

COMPANY,

Plaintiff,

vs.

WALTER S. BLUME and THE ELECTRODYNE

COMPANY, INC.,

Defendants.

[p. 1] FINDINGS OF FACT AND

CONCLUSIONS OF LAW

This is a patent infringement case. Plaintiff herein,

the Minnesota Mining and ‘Manufacturing Co. (3M Co.),

alleges patent infringement on the part of the defendants,

Walter S. Blume and The Electrodyne Company, with

respect to two patents, U.S. Patent No. 3,235,675 (herein-

after the “675” patent) and U.S. Patent No. 2,999,275 (here-

inafter the “275” patent). Both patents were originally

issued to Blume as patentee and subsequently assigned

by him to his employer at the time, Leyman Corporation,

subject to a right to receive royalties. On September

30, 1967, Leyman sold all its rights and interest in these

patents to 3M (subject to Blume’s royalty rights). 3M

A88

now contends that Blume (and the Electrodyne Company

of which he is president) are infringing Blume’s patents.

In their amended answer (doc. 127), defendants deny

infringement of the 275 or 675 patent, contend that the

675 patent is invalid under 35 U.S.C. §§ 102, 103, and

assert the affirmative defenses of license and estoppel.

On motion of the defendants, this Court bifurcated the

issues raised by the affirmative defenses. These issues

were tried to the Court on August 29-September 2, 1977

and, in an Opinion and Order dated June 1, 1978, this

Court [p. 2] found the affirmative defenses were without

merit (doc. 96, 97). The case was subsequently set for

trial on the following remaining issues:

(1) Does the product produced by the Blume trade

secret process (TSP) infringe claims 8, 9 and 10 of

the 675 patent or any of them?

(2) Does the product produced by Blume under

the 275 patent infringe claims 8, 9 and 10 of the

675 patent or any of them?

(3) Does the Blume trade secret process (TSP)

infringe claims 1, 2, 4, 5, 6 and 7 of the 275 patent

or any of them (doc. 106, at 2)?

Trial on the above issues was held on December 4-

12, 1978, with daily transcript copy, and the parties have

submitted pretrial briefs and proposed findings of fact

and conclusions of law on the above issues (doc. 132,

133, 134, 135, 136, 139). This Court also heard oral argu-

ment on December 14, 1978 (doc. 162). After careful

consideration, the Court hereby renders Findings of Fact

and Conclusions of Law.

Plaintiff, 3M, is a Delaware corporation with its prin-

cipal place of business at St. Paul, Minnesota. 3M is

A89

the owner of U.S. Patents No. 2,999,275 and 3,235,675.

The individual defendant, Walter S. Blume, resides at 5995

Park Road, Cincinnati, Ohio, and is President and Chief

Executive Officer of the corporate defendant, The Elec-

trodyne Company. The Electrodyne Company, Inc., is a

corporation organized under the laws of the State of Ohio

with its principal place of business at 4188 Taylor Road,

Batavia, Ohio. The alleged acts of infringement, breach

of contract and unfair competiton complained of herein

occurred within this judicial district. The jurisdiction of

this Court is [p. 3] invoked under 28 U.S.C. §§ 2201,

et seq., 1338 (a) (b), 1332 (a). Venue in this District has

not been objected to.

United States Letters Patent No. 3,235,675 entitled

“Magnetic Material and Sound Reproducing Device Con-

structed Therefrom,” issued on February 15, 1966 on an

application filed December 23, 1954 listing Mr. Blume as

inventor (PX 63). The application for the 675 patent

was assigned by the inventor to the Leyman Corporation

and hence, the patent was issued to Leyman. The 675

patent will expire at the end of its statutory 17 year

term on February 15, 1983.

United States Letters Patent No. 2,999,275 entitled

“Mechanical Orientation of Magnetically Anisotropic Par-

ticles” issued September 12, 1961 on an application filed

July 15, 1958 listing Mr. Blume as inventor (PX 60).

The application for the 275 patent was also assigned by

Mr. Blume to Leyman and that patent therefore issued

to Leyman. The 275 patent expired at the end of its

statutory 17 year term on September 12, 1978.

On September 30, 1967, 3M acquired the Magnets Di-

vision of the Layman Corporation (including the 675 and

275 patents) for $2,267,000, of which Blume eventually

A90

received $566,800 under a separate agreement with 3M,

providing for a commutation of royalty payments over

a five-year period. Thus, plaintiff 3M is the undisputed

owner of the patents in suit.

Ip. 4] THE 675 PATENT

3M contends that defendants have infringed the 675

patent by their manufacture and sale of their “Plastalloy”

brand of flexible permanent magnets. The 675 patent

has ten claims, all of which are “product claims”—that

is, they describe a product in its finished form irrespective

of the process by which it is made (doc. 133, No. 24;

doc. 139, No. 7). Claims one through seven, which are

not at issue in this suit, describe a sound reproducing

device (PX 63). This device consists generally of a hollow

cylindrical housing with a coil of insulated, electrically

conductive wire surrounding a central core and a magneti-

cally responsive diaphram mounted “in spaced relation”

to that core, where the core and housing comprise a uni-

tary molding of dispersed ferromagnetic particles in a non-

magnetic, plastic matrix (PX 63, claims 1-7). This device

is similar in some respects to the conventional earphone

or telephone receiver or the miniature earphones used

by secretaries and telephone operators. Since this device

has never been manufactured and sold commercially, de-

fendants contend that the claims of the 675 patent disclose

only a “paper” invention and therefore they should be

narrowly construed (citing, inter alia, Shaw v. Non-Linear

Systems, Inc., 308 F. Supp. 343 (S.D. Ohio 1969) (Weinman,

J.)). Plaintiff, on the other hand, contends that the 675

patent is presumed valid and that this presumption is

strengthened by the extended and careful scrutiny given

the patent by the Patent Office (citing Panduit Corp.

v. Stahlin Bros. Fibre Works, Inc., 430 F. 2d 221, 224

A91

(6th Cir. 1970)). “The magnet of the Blume 675 inven-

tion,” argues plaintiff, stands... as the single, greatest

improvement in bonded magnets since the introduction

of bonded magnets [in] 1934” (doc. 133, No. 46).

[p. 5] Claime 8-10 of the 675 patent which are at

issue herein provide as follows:

“I claim:

“8. A permanent magnet material comprising a

dispersion of particles of a permanent magnet material

in a non-magnetic matrix, a substantial portion of

said particles having two substantially parallel op-

posed faces the distance between which is no greater

than the dimension across said faces.“

“9. A permanent magnet material comprising a

dispersion of small bodies of a permanent magnet

material in a non-magnetic binder, said particles being

in the form of right cylinders and having a length

to width ratio of no more than about one.”

“10. A permanent magnet material comprising

a dispersion of small discs of permanent magnet mate-

rial in a non-magnetic molded binder, said discs having

opposite faces lying in parallel planes and having a

thickness no greater than the width of said faces.”

Defendants’ basic contention is that their magnet prod-

uct is disclosed by prior art and therefore it cannot infringe

claims 8-10 as validly construed (doc. 135, at 5-17). De-

fendants rely on two documents to support this claim:

(1) US. Patent No. 2,762,778 [hereinafter the “Philips

patent” or the “778 patent”) and; (2) an article entitled

“Ferromagnetic Properties of Hexagonal Iron-Oxide Com-

pounds with and without a Preferred Orientation” by G. W.

Rathenau J. Smit and A. L. Stuyts published in Zeitschrift

Ag2

Fur Physik, Bd. 133, at 250-260 (1952) [hereinafter the

“Philips publication“ J. These two documents, when con-

sidered together, defendants contend, disclose every rele-

vant feature of the present Electrodyne product. As per-

tinent prior art, the Philips patent and the Philips publica-

tion therefore operate to either invalidate claims 8-10 of

the 675 patent under 35 U.S.C. §§ 102, 103, or, pre-

ferably defendants contend, to narrow the claims of the

675 patent so as to exclude the relevant features of the

prior art (see doc. 136, No. 9-12). Relying on the Ip. 6]

proposition that patent claims should be narrowly con-

strued so as to avoid prior art and to uphold validity

(if such a construction reasonably can be adopted), defen-

dants urge us to find that their product follows the teach-

ings of the prior art and therefore cannot infringe claims

8-10 of the 675 patent as strictly construed.

Before we deal with these issues, we first must decide

whether defendants can raise them. Specifically, should

Mr. Blume, as inventor and assignor of the patent at

issue here, be permitted either to qualify and narrow the

claims of his own patent or to attack their validity (see

doc. 122, at 9, 11-19, 20-21) (doc. 129, at 9-12, 15-16, 17-

18)? Although plaintiff appears to consent to permitting

Mr. Blume to raise these defenses (doc. 126, at 2-3; doc.

129, at 33-34; doc. 106, at 2-3), this Court feels we should

examine the question independently. (See also doc. 162,

at 1336).

On the sue of whether defendant can use prior art

to qualify or narrow the claims of his own patent, the

law seems relatively clear. In Scott Paper Co. v. Marcalus

Mfg. Co., Inc., 326 U.S. 249 (1945), the Supreme Court

was faced (as we are) with a suit by an assignee of

a patent against the inventor-assignor of the patent. The

issue before the Court was whether the assignor-inventor

A93

was estopped by virtue of his assignment to defend an

infringement suit on the ground that the alleged infringing

device was that of a prior art, expired patent. In an

opinion by Chief Justice Stone, the Supreme Court held

he was not on the ground “that . . . application of the

doctrine of estoppel so as to foreclose the assignor of a

patent from asserting the right to make use of the prior

art invention of an expired patent. . is inconsistent

with the patent laws which dedicate to public [p. 7]

use the invention of an expired patent.” 326 U.S. at 257-

58. The rule thus appears to be that an assignor, in

defending an infringement suit, may show the state of

prior art to narrow or qualify the construction of the

claims, at least where the assignor made no specific repre-

sentations as to the scope of the claims and their construc-

tion on the faith of which the assignee purchased. See

Westinghouse Co, v. Formica Co., 266 U.S, 342, 350-51

(1924); Applied Arts Corp. v. Grand Rapids Metalcraft

Corp., 67 F. 2d 428, 429 (6th Cir. 1933); 4 Deller’s Walker

on Patents § 355, at 432-33; § 357, at 436-37 (2d ed.

1965) ; R. Ellis, Patent Assignments § 361 (1955).

On the other hand, the law is unclear whether an

inventor assignor may attack the validity of his own patent.

As expressed by the Supreme Court in 1924, the established

rule was that

an assignor of a patent is estopped to attack the utility,

novelty or validity of a patented invention which he

has assigned or granted as against any one claiming

the right under his assignment or grant. As to the

rest of the world, the patent may have no efficacy

and create no right of monopoly; but the assignor

cannot be heard to question the right of his assignee

to exclude him from its use. (Westinghouse Co. v.

Formica Co., 266 U.S. 342, 349, 350-52 (1924); 4 Deller’s

Walker on Patents §§ 355, 357 (2d ed. 1965) ).

A94

The Westinghouse case reached this conclusion by

analogizing the estoppel in assignment of a patent right to

estoppui in coveyances of land. 266 U.S., at 350. Sub-

sequent cases, however, have eroded this property-based

rationale by emphasizing the public’s interest under the

patent laws in the right of unrestricted exploitation of all

ideas in general circulation (i.e., not protected by a valid

patent). See Lear, Inc. v. Adkins, 395 U.S. 653 (1969);

Ip. 8] Katzinger v. Chicago Metallic Mfg. Co., 329 U.S.

394 (1947); Scott Paper Co. v. Marcalus Mfg. Co., Inc., 326

U.S, 249 (1945). But see Aronson v. Quick Point Pencil

Co., 47 U.S. L. W. 4219 (Sup. Ct. 1979). As the Supreme

Court stated in Lear:

If [the public policy of the patent laws favoring ex-

ploitation of all ideas in general circulation] forbids

estoppel when the old owner attempts to show that

he did no more than copy an expired patent, why

should not the old owner also be permitted to show

that the invention lacked novelty because it could be

found in a technical journal or because it was obvious

to one knowledgeable in the art? As Justice Frank-

furter’s dissent indicated, id., at 258-264, there were no

satisfactory answers to these questions. The Scott

exception had undermined the very basis of the

“general rule.” (395 U.S., at 666).

Thus, the more recent cases have permitted patentees to

attack the validity of their patents based on the overriding

public interest in insuring that improper patents be de-

clared invalid. See Coastal Dynamics Corp. v. Symbolic

Displays, Inc., 469 F. 2d 79 (9th Cir. 1972); Nationwide

Chemical Corp. v. Wright, 458 F. Supp. 828, 840 (M.D.

Fla. 1976); Brand Plastics Co. v. Dow Chemical Co., 267

F. Supp. 1010 (C.D. Cal. 1967). See also Schlegel Mfg.

Co. v. USM Corp., 525 F. 2d 775, 779 n. 2 (6th Cir. 1975);

A9

Atlas Chemical Ind., Inc. v. Maine Prods., 509 F. 2d 1, 6

(6th Cir, 1974). The best discussion of this issue is in

the Brand Plastics case by Judge Gray who adopted the

more modern rule above but qualified it with the doctrine

of equitable estoppel.

In light of the foregoing, it seems clear that estop-

pel should not be invoked against an assignor of a

patent application in the same automatic manner as is

suggested in the doctrine of estoppel by deed. As the

hereinabove discussed cases show, in many instances

the original assignor of a patent application is the

person best able to establish how his own discovery

fails to meet the test of patentability. The public

has an interest in his ability to make such showing,

in order that a patent that is not worthy of protection

may be so declared and the subject matter restored

to the public domain where it belongs. Hycon Mfg.

Co. v. H. Koch & Sons, 219 F. 2d 353 (9th Cir, 1955);

Tom Lockerbie, Inc, v. Fruhling, 207 F. Supp, 648

(E. D. Wis. 1962).

However, the public has an equally great interest

in supporting the principle “* * * that he who, by his

language or conduct, leads another to do what he

would not otherwise have done, shall not subject such

person to loss or injury by disappointing the expecta-

tions upon which he acted.” Dickerson v. Colgrove,

100 U.S. 578, 580, 25 L. Ed. 618 (1880). It is in fur-

therance of this public interest that the doctrine of

equitable estoppel by conduct has been developed.

The elements of such estoppel are stated in Nelson v.

Chicago Mill & Lumber Corp., 76 F. 2d 17, 21, 100

A.L.R. 87 (8th Cir. 1935), and are quoted with approval

in James v. Nelson, 90 F. 2d 910, 917-918 (9th Cir.

1937):

A96

“** * * (1) Ignorance of the party claiming es-

toppel of the matter asserted; (2) silence concerning

matter where there is a duty to speak amounting to

misrepresentation or concealment of a material fact;

(3) action by the party relying on the misrepresenta-

tion or concealment; and (4) damages resulting if

the estoppel is denied.’” (267 F. Supp. at 1013).

We think this is a sensible rule and we hereby adopt

it. See also Aronson v. Quick Point Pencil Co., 47 U.S.L.W.,

at 4220-21 (Enforcement of contractual obligation, freely

undertaken in arm's length negotiation and with no fixed

reliance on a patent or probable grant of a patent does

not undermine the public’s interest in the exploitation

and use of ideas in the public domain as expressed in

Lear d other cases). Since we conclude that defendant

may raise the defense of invalidity, we now turn to that

issue.

The Supreme Court has indicated a preference for a

Ip. 10] full inquiry into the validity of a patent on the

part of the lower federal courts. See Sinclair & Carroll

Co. v. Interchemical Corp., 325 U.S. 327, 330 (1945). See

also Schlegel Mfg. Co. v. USM Corp., 525 F. 2d at 779;

General Motors Corp. v. Toyota Motor Co., Ltd., 467 F.

Supp. 1142, 1154 n. 3 (S.D. Ohio 1979). It is, of course,

elemental hornbook law that there are three essential

elements of patent validity: novelty, utility and non-

obviousness. 35 U.S.C. §§ 101-103; Graham v. John Deere

Co., 383 U.S. 1, 12-17 (1966); Bolkcom v. Carborundum Co.,

523 F. 2d 492, 498 (6th Cir. 1975). Monroe Auto Equip-

ment Co. v. Heckethorne Mfg. & Supply Co., 332 F. 2d 406,

412 (6th Cir. 1964). Every patent issued by the Patent

Office is “presumed valid” in the sense that the “burden

of establishing invalidity of a patent or any claim thereof

shall rest on the party asserting it.“ 35 U.S.C, § 282.

A97

See Eltra Corp. v. Basic, Inc., No. 77-3364 (6th Cir. May

21, 1979), slip. op., at 8-9. As this Court recently stated,

“the amount of proof which [the party asserting invalidity]

must adduce in order to rebut the presumption of invalidity

varies directly with the quality of the pertinent prior art

which was reviewed by the [Patent & Trademark Office]

during the prosecution of the patent-in-suit.” General

Motors Corp. v. Toyota Motor Co., Ltd., 467 F. Supp., at

1174 n. 164, citing, inter alia, Tee-Pak, Inc. v. St. Regis

Paper Co., 491 F. 2d 1193, 1197 (6th Cir. 1974). Of the

three elements of validity, the Court has concluded that

the basic issue herein involves only the [p. 11] defense of

obviousness under 35 U.S.C. § 103.

1. The Court has reached this conclusion based on our de-

termination that the defenses of lack of novelty (anticipation)

or lack of utility are not present herein. As for the defense of

lack of utility, the parties do not appear to ar that the 675

tent lacks utility (see doc, 132, 133, 134, 135, 136, ng As

defense of anticipation, it is the established rule this

gdh wars Spr pons ayy it is necessary that all of

elements of the 1 nb ag „K —— in

one single me ip * or 8 where they do su tially

the same work suletantiatiy the same way. See Lucerne

Products, Inc. v. Cutler-Hammer, Inc., 568 F. 2d 784, 795 (6th

Cir. 1977); Tee-Pak, Inc. v. St. Regis Paper Co., 491 F. 2d 1193,

1198 (6th Cir. 1974); Monroe Auto Equip. Co. v. Heckethorn

Mfg. & Supply Co., 332 F. 2d 406, 41 f th Cir, 1964); Fire-

stone v. Aluminum Co. of America, 285 F. 2d 928 (6th Cir.

1960); Allied Wheel Products v. Rude, 206 F. 2d 752, 760 (6th

5 5 18640 1 Deller’s Walker on Patents § 57, at 242-43 (2d

Judge N tor the Court in Monroe Auto case,

made clear the which must be drawn between novelty

and invention“ (I. e., non-obviousness):

We must be careful to make the distinction between

novelty and invention in relation to ip, mee Novelty

and invention are two te tests, and anticipation belongs

only with novelty. Court has pointed out that some

courts tend, , to use. anticipation as an equivalent

of invention. Allied el Products v. Rude, supra, F. 2d

at 761, Firestone v. Aluminum Co. of America, 4 See

also, Borkland v. Pedersen, 244 F. 2d 501, 502 (C. A. 7). Thus,

(Continued on following page)

A8

A trial court must make several factual inquiries be-

fore it can make the legal judgment about the validity of

the patent (including the legal conclusion of whether it

would have been obvious at the time the invention was

made to a person having ordinary skill in the art). The

trial court must:

(1) Determine the scope and content of the

pertinen rior art;

(2) Ascertain the differences between the perti-

nent prior art and the claims at issue of the patent-

in-suit;

(3) Resolve the level of ordinary skill in the

pertinent prior art;

(4) Where applicable and relevant, utilize such

secondary considerations as commercial success, long

felt but unsolved needs, failure of others, etc., to give

Footnote continued—

it is incorrect to say that a patent lacks invention because

it is an ted. If it is ant! ted it lacks novelty; it lacks

invention if it would have been obvious.

From this it should be clear that even though the prior

-er tent in question, the disclosures

of the negative invention. Harvey v. Levine,

222 F. 401.4 - 3 (CAS 6); Allied Wheel Products v. Rude,

supra i, 2d 206 F. 2d 2 760; wore v. 9 Motors C

— * enka! the patented device and there

of this prior .

obvious. (332 F. 2d, at 414-15)

In this case, Mr. Blume’s defense is based a combina-

aly oe ge af ny ab He core r tion

(doc, 135, at 15; doc. 126, at 14; doc, 139, at 13-19, 21-26). Hence,

in spite of counsel’s reference to “novelt: Sn thely propened ena”

with the defense of obviousness. See also Nickola v. Peter-

F. 2d 898, 906-911 — Cir. 1978) cert. denied 47 U.S. L. W.

» Inc. v. Hammer, Inc., 568

A9

light to the circumstances surrounding the origin of

the subject matter sought to be patented (i.e. as indicia

of obviousness or non-obviousness). See Graham v.

John Deere Co., 383

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