Appendix — Blume v. Minnesota Mining & Manufacturing Co.
Supreme Court brief1983
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2h e Vourt, U.S,
ities
Marg. 22,1993
JAN 30-1992
No. G2-/L06 A 4rEVAS
In the Supreme Court of the United States
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
Tuomas V. KoyKKA
Counsel of Record
ArTER & HADDEN
1144 Union Commerce Building
Cleveland, Ohio 44115
(216) 696-1144
SraNnLey G. DeLAHunNtT
TERRYL K. QUALEY
2501 Hudson Road
St. Paul, Minnesota 55101
(612) 733-1508
Attorneys for Petitioner Minnesota
Mining ond Manufacturing Com-
pany
January 13, 1983
LL
TAF 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) ..............00000+ Al6
Order of District Court on Bifurcated Trial (June 1,
SN aE ahschinsik nies ccna acide ceaicahiheeaaea sna daiaaiaistangieas 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-
I SEINE FWD steicissteicesnrscenticernincrcenenneeenivsians A84
District Court Findings and Conclusions of Law (Aug-
er eee A87
Order of District Court for Judgment (August 22,
IED = cium: Lisdbisalsiensiataceaseaccbnlaciiandianinceehicsadeilapiabcaseniniicsnes A146
Judgment of District Court (August 22, 1980) .............. A147
Judgment Entry of the Court of Appeals for the Sixth
Cirewlt (Filed dualy 7, 1968) ....2.......ccecccsccsssscscsssssssccoes 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 SIXTH CIRCUIT
684 F.2d 1166, 215 U.S.P.Q. 585
MINNESOTA MINING AND MANUFACTURING
COMPANY,
Plaintiff-Appellant,
Plaintiff-Cross-Appellee,
Vv.
WALTER S. BLUME AND THE ELECTRODYNE
COMPANY, INC.,
Defendants-Appellees,
Defendants-Cross-Appellants.
AppgaL 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.
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-enery
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 1966.2 These claims provide
as follows:
2. The original patent application was filed in 1954. Claims
1-7 described a sound-reproducing device and are not in issue
here. The term “675 patent” will hereafter refer solely to claims
8-10 of that patent.
A4
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 comprising 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 tine
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, 1976.5 Blume,
however decided not to enter the sintered magnet business,
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
>. ss #8
B. Establish or acquire facilities for making and/or
selling Matrix-bonded Permanent Magnets, with the
3. The proposed modification also permitted Blume to engage
in research in the bonded magnet field provided Blume granted
3M a royalty-free license in any bonded magnet Blume might
acquire prior to May 1, 1976. Blume was further permitted to
make and sell magnet 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 September 12,
= The 675 patent had an expiration date of February 15,
AT
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.
Hil.
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.
7. The doctrine of equivalence is grounded upon the motion
that if two devices perform the same task in substantially identical
manners and obtain substantially identical results, they are the
same or equivalent “even though they differ in name, form or
shape.” Graver Tank & Mfg. Co., supra at 608.
A9
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 that 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-
roneous.
8. Blume states that at the second portion of the bifurcated
trial, Dr. Hennig, a witness for the defendants, started to ex-
plain the nature of the modifications to the small Banbury, but
was stopped by Blume’s counsel with the statement, “don’t de-
scribe the modification because that has already been described
in camera in the record.” Later, Blume’s counsel remarked to
the district court during Blume’s cross-examination that “while
{information regarding the TSP] has been submitted to you in
camera it has never been in the testimony itself.” These re-
marks by Blume’s counsel, however, did not serve to introduce
the deposition into evidence. We further note that after both
parties had closed their cases, Blume’s counsel handed the trial
judge five pages of the in camera deposition with the remark, “I
would like for the Court to have them at your ready reference
. . » 80 that you don’t have to go to the entire record to get it.
You have enough papers, it seems to us, as it is.” This remark
undercuts any argument that Blume was justified in treating
_ entire in camera deposition as if it were admitted into evi-
ence.
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 and
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 ‘hat 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-
Al2
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-
10. After concluding that the prior art did contain an
enabling disclosure, the district court suggested that proof of an
enabling disclosure is unnecessary to invalidate a patent on
grounds of obviousness, despite dictum to the contrary in Appli-
cation of Collins, 462 F.2d 538, 542 (CCPA 1972). This Court
has heretofore applied the enabling disclosure doctrine only in
cases involving the 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 follows:
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... .
We see the enabling disclosure requirement .. . as a device
for assuring that the invention in fact is to be found in the
prior art... . But the same reasoning is not applicable
where it is obviousness under 35 U.S.C. § 103, not novelty,
which is being tested. Then prior art is resorted to, not to
show that the very invention sought to be patented is already
known, but . . . to see whether as a matter of fact the in-
vention would be obvious to one skilled in the art from
what is actually disclosed in the references. It would be
artificia) and simply out of place in such a test to impose a
requirement on the prior art reference or references that
each contain an enabling disclosure.
Minnesota Mining and Mfg. Co. v. Blume, No. C-1-76-51 (S.D.
Ohio March 25, 1980) (supplementary order) (emphasis in orig-
inal). 3M replies that:
Since the defense of obviousness implicitly concedes the
prior art to be further removed from the invention under
consideration than where the defense is one of anticipation,
the sufficiency of a prior art teaching should, if anything, be
tested by a stricter rather than a lesser standard.
(Continued on following page)
Al3
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 invention, that invention would
not be obvious. But to argue, as does 3M, that the sufficiency
of each prior art teaching must be tested under a strict standard
requiring an enabling disclosure is to shift the emphasis from
obviousness in light of the prior art, taken as a whole, to the
sufficiency of each prior art teaching separately considered.
The cases cited by 3M in which the enabling disclosure doc-
trine has been applied to the “obviousness” defense under § 103
all involve chemical compounds. Ortho Pharmaceutical Corp. v.
American Hospital Supply, 534 F.2d 89, 92-93 (7th Cir. 1976);
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
theoretical formulations. But even in these cases, the claimed
invention will be found obvious if the compound has been de-
scribed in prior art, and an enabling disclosure is contained in the
prior art or a process for preparing them “would be obvious
to those of ordinary skill in the art.” Application of Hoeksema,
399 F.2d at 272. Thus there is no requirement that the prior art
must make an enabling disclosure before it may be considered
in determining obviousness, rather, the requirement is simply
that the means which would enable the inventor to arrive at
the product be obvious.
However, we hesitate to announce a legal rule in this area
when it is clear that here an enabling disclosure was made by the
778 patent. Thus, we reserve decision on this question, which
has been addressed in only tangential fashion by the parties.
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 held 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 i:: 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.
Al6
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 SOUTHERN DISTRICT OF OHIO
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).
Al7
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. Plaintiff 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 Fekruary 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
Alg
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
to resolve the latter question at this point on the basis
of 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-
fetidants contend that plaintiff’s probability of success on
tie 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.
[p. 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 ciaims 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 District or OnI0
WESTERN DIVvISION
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,
Davin 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 or Onto
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
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
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 tent, like the 275 and 675 patents, was also originally
iss 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;
[p. 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 part of their estoppel
claim that Leyman and Blume were induced to enter into these
agreements by 3M’s representations that 3M was “highly patent
conscious” and would strongly promote the magnetics business so
that even if 3M’s offer as the initial payment was not as high
as that of other companies bidding for the Leyman magnetics
division, in the long run, Leyman and Blume would receive more
money (tr. 48-50, 55, 475-6, 179-84). In fact, Mr. Blume ap-
parently received only $4,300 over the minimum guaranteed
royalty. Defendants contend that this action on the part of 3M
is relevant to show both Mr. Blume’s reliance on 3M to vigorously
prosecute his patents and as evidence with respect to 3M’s failure
to sue Poly-Mag (tr. 49). This Court finds that any evidence
of Mr. Blume’s reliance on any representations made by 3M
prior to entering into the original set of agreements involved
in the Leyrnan acquisition are irrelevant to the issues presented
in this lawsuit. Even if this Court were to find this evidence
relevant, we find that it is not probative as to any of the issues
presented.
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 magnetic 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.
[p. 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
3. Defendants do not contend that this provision in Blume’s
employment contract operated to release Blume to infringe his
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 in‘
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. Blume
was an expert in the field of magnets and magneticm.
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,
[p. 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 i970, 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. i0] 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).5 Such a development would be of tremendous com-
4. Mr. Granrud was, at the time of the events in question
in this case, a partner in the firm of Kinney, Alexander, Sell,
Steldt and Delahunt, patent counsel to 3M.
5. The energy level of this super-magnet would be approxi-
mately 2.25 x 10° gauss-oersteds (jx IV). The energy level of
the sole product of Leyman under the Blume patents was only
about .9 x 10¢ gauss-oersteds (tr. 556).
A34
mercial value to 3M if they could acquire it, since such
a super-magnet would be stronger than any other flexible
magnet presently on the market (tr. 692-93). On the
other hand, perrnitting 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
document is reproduced in the margin.°
6. Joint Exhibit IV reads as follows:
Dear Mr. Blume:
On September 30, 1967, Minnesota Mining and Manufacturing
Company (“3M’’) purchased from the Leyman Corporation its
Magnetics Division which you had created and were heading,
including a number of patents in your name. Your single product
was 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 material. Such permanent magnets are
hereinafter referred to as “Matrix-bonded Permanent Magnets”
and are appreciably different from cast or sintered magnets such
as the aluminum-nickel-cobalt alloys now sold as “Alnico” mag-
nets. Since that date, 3M has continued the business of making
and selling Matrix-bonded Permanent Magnets.
Also on September 30, 1967, by a separate agreement with you
3M purchased your equity in the Magnetics Division of the Ley-
man Corp., and by a written agreement dated October 1, 1967, you
were employed by 3M for one vear Article II of that agreement
(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—
prevents you from participating in tiic manufacture or sale of
any sort of magnet or magnetic composition until September 30,
1973, five years after your eznployment terminated.
You now advise that you wish to acquire from the John
Oster Manufacturing Company its facility for manufacturing
sintered magnets. 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 the man-
ufacture and sale of cast or sintered magnets at the present
time would obviously put you into a better position to begin
making flexible magnets after September 30, 1973. Accordingly,
3M is unwilling to modify the provisions of the aforementioned
Article II except on certain conditions.
This letter shall serve to release you to establish or acquire
a whole or controlling interest in the John Oster facility or in
some other facility for making and/or selling cast or sintered
magnets, subject to the following conditions which shall take
effect upon establishing or acquiring such a facility at any time
prior to September 30, 1973.
(p 12] I. Prior to May 1, 1976, you shall not individually,
in association with others, as an employee of a third party, or
through ownership and control of any corporation, or otherwise,
participate in any way, directly or indirectly, in the (1) design,
(2) development, (3) manufacture, or (4) sale of Matrix-bonded
Permanent Magnets except as provided in paragraphs II and III
below.
II. If at any time prior to May 1, 1976, you or any company
which you own or control should file or acquire a United States
patent application having utility for Matrix-bonded Permanent
(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—
Magnets, you shall promptly furnish 3M with a copy; and when-
ever a U. S. patent issues on any such patent application or on a
division, continuation, or continuation-in-part of any such patent
application, you shall offer to 3M a nonexclusive, royalty-free
license for the life of any such patent to make, use and sell Ma-
trix-bonded Permanent Magnets, and 3M shall release you to en-
gage in the development of Matrix-bonded Permanent Magnets
for this purpose.
III. If the patent application mentioned in the preceding par-
agraph II concerns an invention by which Matrix-bonded Perma-
nent Magnets of an energy product of at least 2.25 x 10° gauss-
oersteds can be produced, 3M shall grant to you for the immediate
benefit of you or your heirs or any company which you own or
control a nonexclusive, royalty-free license to make magnets hav-
ing an energy product of at least 2.25 x 10° gauss-oersteds under
and for the life of any of the patents 3M acquired from Leyman
Corporation, and shall permit that company to immediately make,
use and sell such Matrix-bonded Permanent Magnets.
IV. You are released to make and sell apparatus for testing
magnets or magnetic compositions.
{p. 13] This letter is submitted to you in duplicate. If the
terms and conditions as set out above are satisfactory to you, please
sign both copies and then return one fully executed copy to us.
MINNESOTA MINING AND
MANUFACTURING COMPANY
By /s/ Robert L. Westbee
R. L. Westbee
Vice President
AGREED TO AND ACCEPTED BY:
/s/ Walter S. 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 the 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 Funeral 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 [p. 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. The defendants read the term “such permanent magnets”
at the beginning of the third sentence on page 1 of the May 3
agreement as referring to the prior sentence, viz., “permanent
magnets comprising anisotropic, substantially domain size par-
ticles of permanent magnet material which had been mechanically
oriented and which were bonded together by nonmagnetic matrix
material.” This, defendants contend, constitutes a definition of
the sole product of Leyman Corporation produced under the Blume
patents (tr. 96-99).
.. Subject, of course, to the exceptions provided in clauses II
9. The expiration dates for the patents involved in the case
are as follows:
Expiration Date
No. 2,999,275 September 12, 1978
No. 3,235,675 February 15, 1983
No, 3,312,763 April 4, 1984
No. 3,359,152 December 19, 1984
Under the defendants’ reasoning, Mr. Blume would get a
royalty-free license under the 275 patent for a period of ap-
proxima one year and four months and a royalty-free license
under the 675 patent for a period of approximately six years
nine months,
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 aluminum-nickel-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. This was the reason for the May 1, 1976, date being
chosen. May 1, 1976, is approximately 5 years from the May 3,
1971, date of the letter-agreement (tr. 628). 3M asserts, and
this Court finds, that the May 1, 1976 date was chosen as a
limitation on the restrictions embodied in clause I of the May
3, 1971, letter-agreement and clause B of the June 26, 1972,
letter-agreement in order to avoid the ee application of
the “blue-pencil’ rule by the courts. he “blue-pencil rule”
(which has now been abandoned by the Ohio courts, see Raimonde
v. Van Vlerah, 42 Ohio St. 2d 21 (1975)) provides that:
“.. . if unreasonable provisions [such as a restrictive cove-
nant] exist in [an employment] contract, they may be
stricken if divisible, but not amended or modified. It also
provides that if restrictions are unreasonable and indivisible,
the entire contract fails.” 42 Ohio St., at 23; Extine v.
Williamson Midwest, Inc., 176 Ohio St. 403 (1964).
3M’s fear in drafting these two extensions of the original re-
strictive covenant was that if they were not reasonably restricted
conce a time limitation, they would either be entire
stricken from the contract or cause the entire contract to fa
(tr. 628); doc. 87, at 3, 9.
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 example, to accept defendant’s interpretation of the
term “Matrix-bonded Permanent Magnet” as strictly limited to
magnets made solely under the Blume patents would translate
into an interpretation of lines 7-9 of clause II as follows:
If you acquire a patent on a new development, you shall
offer to 3M a nonexclusive, royalty-free license for the life
of any such patent to make, use and sell magnets produced
under the original Blume patents which 3M already held.
Clearly, as used in both clauses II and III the term “Matrix-
bonded Permanent Magnets” had a broader meaning than that
asserted by defendant Blume.
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 [p, 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 the manu-
facture and sale of cast or sintered magnets at the present
time would obviously put you in a better position to begin
making flexible magnets [Matrix-bonded Permanent Mag-
nets] after September 30, 1973.”
Defendants, of course, assert that this change in language in-
dicates that plaintiff intended a difference between the terms
“flexible magnets” and “Matrix-bonded Permanent Magnets” and
that this alteration in the terms of the agreement clearly supports
defendants’ position that the latter term was clearly limited to
the magnets produced under the Blume patents (defendants’
proposed findings of fact and conclusions of law No. 6). We find
that this substitution of terms, when examined in light of the
entire document, is indicative of Mr. Granrud’s confusion with
respect to his use of the terms “Matrix-bonded Permanent Mag-
nets” and “flexible magnets”—a confusion admitted by Mr. Gran-
rud on cross-examination (tr. 592-93).
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).1* 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 apparently 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. O’Neill
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
15. In his letter to the SBA, Mr. Evans stated that he was
“familiar with the agreement, having assisted Mr. Blume in the
negotiations which led to the agreement” (dx 304). By this sen-
tence, however, Mr. Evans stated at trial he meant that he
merely discussed with Mr. Blume after it had been negotiated
between Mr. Blume and 3M and that he “assisted to the extent
of telling [Mr. Blume] what it was I thought that the agreement
said (tr. 501-02). (Emphasis added.)
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. Butler 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).2° 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 interpretation
of clause I because he understood the term “Matrix-bonded Per-
manent Magnets” to include only the magnets produced under
the Blume patents held by 3M and “there was no way [he]
knew of that anybody could make matrix-bonded permanent
magnets without infringing those patents” (tr. 467; dx 304).
This Court has already determined that the intent of the parties
in using the term “Matrix-bonded Permanent Magnets” in the
May 3 letter-agreement was to refer to a broader class of magnets
than those produced solely under the Blume patents held by 3M.
See p. 18, supra.
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 so.
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. Paul 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, [p. 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 subjecc 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’? 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 magnets,” the plaintiff refers
to magnets with an energy product in the .45 x 10° gauss-oersted
range (tr. 543-44). The 3M product produced under the Blume
patents and sold under the trade name ‘“Plastiform’” has an
energy product of about .8-.9 x 10° gauss-oersteds (tr. 545, 556).
18. At the time of its acquisition by 3M, Leyman had an
infringement action pending against B. F. Goodrich involving
the Blume patents. This suit was subsequently settled between
3M and Goodrich, with the result that Goodrich paid 3M $100,000
for past infringements on the Blume patents, agreed to pay
royalties based on a sliding scale, and, in return, received a
license under those patents to produce magnets in the energy
range of .8 x 10° gauss-oersteds (tr. 632-634; px 16).
One aspect of that license agreement with 3M which is im-
portant for this suit is its “Most Favored Nations Clause,” which
was in effect at the time of the 3M-Blume June 26, 1972, letter-
agreement. The effect of this clause was that if 3M did grant
Blume a license under his original patents, it would have to be
on terms “no more favorable to Blume than to B. F. Goodrich”
(px 16). Hence, if 3M granted Blume a broader license under his
— than it had previously granted to Goodrich, 3M would
ve to give Goodrich, as a prior licensee under the ‘Most
Favored Nations Clause,” the same broader license (tr. 327-28,
547-48; px 16).
19. It appears to us that the parties have taken their respec-
tive positions on this issue in order to bolster their positions on the
of negotiations between the parties leading up to the June
26, 1972, letter-amendment. 3M contends that Blume requested a
release for low energy “noninfringing” magnets and a license
under his patents because he clearly recognized that he did not
have a license under the earlier May agreement. Blume, on the
(Continued on following page)
A49
low and high energy magnets with specific reference
to the magnets ther. 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 [?] I did not receive an
answer, nothing but smiles” (tr. 271, 276).
The outcome of this November 29, 1971, meeting in St.
Paul was 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—
other hand, contends that he requested a release to get back into
the magnet business at “[a]ny energy that [he] could make” and
therefore it was reasonable for him to conclude that he had a
license under the provisions of the June 26, 1972 letter-amendment
(tr. 277). We find Blume’s argument unconvincing in light of his
contention that he received his license under the provisions of
both the May 3, 1971 and June 26, 1972 letter-amendments (tr.
301-05)—for if Mr. Blume actually thought he received a license
under the provisions of the May 3 letter-amendment, why would
he need to request 3M’s permission to make high energy magnets
in November, 19717?
A50
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:
* * o . * a
After looking at other things, Blume has decided that
all he wants is to get back into the 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 doing this. How-
ever, at the last minute Blume backed out, deciding that the
ceramic business has a bad competitive situation.
Blume now wants to get back into the flexible magnet
business. He is making alternative requests. First, Blume
would be satisfied to be permitted by 3M to make unoriented
flexible magnets in the 0.5 range. There would be two ad-
vantages to 3M in permitting him to do so: (1) the added
three years of noncompetition as to oriented flexible magnets
provided by the supplemental agreement of May 3 would
come into effect, and (2) Blume thinks that getting into
the magnet business would give him a good chance to develop
a 2.25 flexible magnet, and if he succeeded, 3M would get
a royalty-free license.
Blume would prefer not to be restricted te unoriented
magnets but hopes 3M will permit him to manufacture mag-
nets having an energy product up to 0.8, but not above.
This would require that Blume be licensed under 3M’s
patents with provisions no more favorable to Blume than to
B. — A copy of the 3M-Goodrich license is at-
[With respect to the 3M-Goodrich license, see note 18
supra. ]
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
Blume’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 [p. 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-y»ar 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.
{p. 31] Mr. Granrud’s letter to Mr. Blume, reproduced
in the margin,” makes it explicitly clear that. in vro-
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-
portant public interest in permitting full and free competition
in the use of ideas which are in reality 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 breach of a con-
tract not to infringe).
24. Jx V reads:
Dear Mr. Blume:
3M Company sent you a letter dated May 3, 1971 grant-
ing you a partial release from the agreement dated October
(Continued on following page)
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 U.S.
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,
[p. 32] points to the language in the December 10th letter
which limits the term “‘Matrix-bonded Permanent Magnet”
Footnote continued—
1, 1967 between you and 3M in order to permit you to acquire
a whole or controlling interest in a facility for making and/or
selling cast or sintered magnets. However, you now indicate
that you are no longer interested in entering the sintered
magnet business, and unless you do so, the conditions under
which that partial release was granted will never take effect.
You now request from the 3M Company a partial re-
lease from the October 1, 1967 agreement in order to permit
you to manufacture and sell ‘““Matrix-bonded Permanent Mag-
nets” (as that term is defined in the aforementioned letter
of May 3, 1971). Mr. Blankenbaker is willing to grant you
such a release so long as the Matrix-bonded Permanent Mag-
nets which you manufacture do not infringe any unexpired
patent in your name which 3M obtained with its purchase
of the Magnetics Division of the Leyman Corporation, espe-
cially your U. S. patent No. 2,999,275. Such release will be
subject to the sort of conditions of the aforementioned letter
of May 3, 1971. Mr. Blankenbacker is rather sure that 3M
management will go along.
Please understand this letter does not serve as a release
but that it will be necessary for 3M Company to send you
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 Matrixebonded Permanent Magnets
on this basis.
As soon as you have made this decision, please let us
know, and we will seek the necessary approval.
Very truly yours,
/s/ Robert E, Granrud
Robert E. 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 30th 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
alludes to 3M’s understanding of the “two strings to its
bow.” As Mr. Granrud stated, “even if a court were
to hold the [restrictive covenant] provision to be unduly
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-
26. Px 17 reads:
Dear Mr. Abbott:
One of the conditions of the May 3, 1971 letter by which
3M released Walter Blume to manufacture sintered magnets
was that Blume vould not manufacture Matrix-bonded
Permanent Magneis for five years, You raised the question
whether this provision is unduly harsh.
When 3M sends the letter promised in my letter today
to Mr. Blume, we will want to modify that condition to the
extent that Blume will agree not to infringe any of 3M’s
Blume patents for 4 or 5 years (e.g., until the same May 1,
1976 date as is recited in paragraph 1 of the May 3 letter.
That does not seem nearly as harsh as the five-year pro-
vision in the May 3, 1971 letter. As you pointed out, even
if a court were to hold the provision to be unduly harsh
and thus unenforceable, Blume would be in a poor position
as an infringer of any of his patents. The basic Blume patent
No. 2,999,275 expires September 12, 1978.
Very truly yours,
Robert E. Granrud
REG:rm
27. See note 10, supra.
A5S6
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
[p. 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 327), which, with minor
28. Defendant points to the opening sentence of the second
paragraph of Granrud’s letter to Abbott (px 17) as indicating
that 3M only intended to limit Blume from manufacturing mag-
nets under his patents “for 4 or 5 years (e.g. until the same
May 1, 1976 date as is recited in paragraph 1 of the May 3, 1971
letter”—that is, that after the May 1, 1976 date, Mr. Blume got
a license under his patents (px 17). We find this construction
of the sentence untenable. Rather, we think the sentence’s more
natural meaning, in the context of 3M’s “two strings to its bow”
contention referred to in the same paragraph, was to emphasize
the necessity of limiting 3M’s contract rights under the proposed
agreement not to infringe for a period of “4 or 5 years” so as not
to run afoul of Ohio’s “Blue Pencil Rule.” See note 10, supra.
As the letter goes on to state, “that [agreement not to infringe
any of 3M’s Blume patents for 4 or 5 years] does not seem nearly
ata as the five-year provision in the May 3, 1971 letter” (px
29. See note 24, supra.
A57
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 September 30, 1967, Minnesota Mining and Manu-
facturing Company (“3M”) purchased from the Leyman
Corporation its Magnetics Division which you had created
and were heading, including a number of patents in your
name. Your single product was permanent magnets com-
prising anisotropic, substantially domain size particles of
permanent magnet material which had been mechanically
oriented and which were bonded together by a non-magnetic
matrix material. Such permanent magnets are hereinafter
referred to as “Matrix-bonded Permanent Magnets” and are
appreciably different from cast or sintered magnets such as
the aluminum-nickel-cobalt alloys now sold as “Alnico”
magnets. Since that date, 3M has continued the business of
making and selling Matrix-bonded Permanent Magnets,
{p. 36] Also on September 30, 1967, by a separate agree-
ment with you 3M purchased your equity in the Magnetics
Division of the Leyman Corp., and by a written agreement
dated October 1, 1967, you were employed by 3M for one
year. Article II of that agreement prevents you from par-
ticipating in the manufacture or sale of any sort of magnet
or magnetic composition until September 30, 1973, five years
after your employment terminated.
Our letter of May 3, 1971 released you in part from the
agreement of October 1, 1967 to permit you to acquire a
facility for manufacturing sintered magnets. Your plans
have since changed, and you now have requested a somewhat
broader release.
This letter, which is a substitute for the letter of May
3, 1971, shall serve to release you to
A. Establish or acquire facilities for making and/or
selling cast or sintered magnets and/or
(Continued on following page)
A58
The Couwit 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-
Footnote continued—
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 unexpired patent in your
name which 3M obtained with its purchase of the
Magnetics Division of the Leyman Corporation, es-
pecially your U. S. patent No. 2,999,275.
The foregoing release is subject to the following con-
ditions which shall take effect upon your establishing or ac-
ogre any such facility at any time prior to September
0,1 .
I,
If at any time prior to May 1, 1976, you or any com-
pany which you own or control should file or acquire
a United States patent application having utility for
Matrix-bonded Permanent Magnets, you shall promptly
furnish 3M with a copy; and whenever a U. S. patent
issues on any such patent application or on a division,
continuation, or continuation-in-part of any such patent
application, you shall offer to 3M a nonexclusive,
royalty-free license for the life of any such patent to
make, use and sell Matrix-bonded Permanent Magnets
and 3M shall release you to engage in the development
of Matrix-bonded Permanent Magnets for this purpose.
[p. 37] Il. If the patent application mentioned in the pre-
ceding paragraph (I) concerns an invention by which
Matrix-bonded Permanent Magnets of an energy product
of at least 2.25 x 10° gauss-oersteds can be produced,
3M shall grant to you for the immediate benefit of you
or your heirs or any assignee of said invention a non-
exclusive, royalty-free license to make magnets hav-
an energy product of at least 2.25 x 10° gauss-oersteds
under and for the life of any of the patents 3M ac-
quired from Leyman Corporation, and shall permit
you or said or assignees to immediately make, use and
sell such Matrix-bonded Permanent Magnets.
(Continued on following page)
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 ke explained again here.
Footnote continued—
III. You are released to make and sell apparatus for testing
and for magnetizing magnets or magnetic compositions.
Upon the foregoing conditions taking effect, Article IV
of the October 1, 1967 agreement will be terminated.
This letter is submitted to you in duplicate. If the terms
and conditions as set out above are satisfactory to you, please
sign both copies and then return one fully executed copy to
us.
MINNESOTA MINING AND
MANUFACTURING COMPANY
By /s/ Robert L. Westbee
R. L. Westbee
AGREED TO AND ACCEPTED BY:
/s/ Walter S. Blume
Walter S. Blume
Date: July 5, 1972
31. Paragraphs one and two in both letters are, in fact,
identical (jx IV, VIII).
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 unexpired 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.
[p. 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 magnets
under the Blume patents and one covering all “flexible magnets,”
presumably as the latter term is used by the plaintiffs. See pp.
13, 15-17, supra. To incorporate defendants’ interpretation into
the language of clause B would alter it to read as follows:
{p. 40] This letter . . . 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 Per-
manent Magnets you will not, prior to May 1, 1976, in-
fringe [the patents 3M acquired from Leyman for mak-
ing Matrix-bonded Permanent Magnets].
This problem was recognized 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’
testimony see pp. 22-25, supra.
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.
[p. 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
[p. 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 fox 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.
38. Following his receipt of the June 26 letter-amendment,
Mr. Blume formed the Electrodyne Company and contracted for
the construction of a manufacturing facility, which was completed
— oo payment being made in August of 1973 (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 on
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 devcid
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;
{p. 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
to the 275 patent, he is now totally free to engage in
general magnet development, manufacture and sales on
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-
38a. Mr. Blume was somewhat mistaken on this point, since,
under the facts as we have found them, he could neither practice
the 275 patent nor the 675 patent “in any event” without 3M’s
permission. (Cf. tr. 753-55).
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 provided in clause I of the May 3, 1971
letter-amendment had, at the time, still applied to him since
he refers in the excerpt above to his “release . . . effective on
May 3, 1971, and . . . subsequently updated on June 26, 1972”
(dx 380). Admittedly Mr. Blume is obviously mistaken on this
point since the May 3, 1971 letter-amendment never came into
effect due to his failure to acquire the Oster facility or some
other facility for making cast or sintered magnets. (See pp.
12-13, supra.)
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 pertion of Mr. Lindholz’s testi-
mony on this point is as follows:
Q. Did you, reading [the June 26 letter-
agreement] 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).
[p. 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.
[p. 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 Leyman” under
the Blume patents (and purchased 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;
i.e., 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
A7l
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
resented at trial—a February 18, 1974 letter written by Mr.
lume to Dr. Sandro Cicogna. That letter, in pertinent part,
states as follows:
{p. 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 Company.
(Continued on following page)
A72
[p. 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
patent situation is concerned and the limits of my obligation
to 3M stand.
However, I have not at this point written 3M about the
situation. There is no sense in alarming them over a matter
about which I am still indecisive. Also, there are still pro-
duction considerations and improved plastic formulation tech-
niques, among other things, to be worked out before a full
= eo evaluation of the matter can be made... .
px ‘
The italicized portion above could be )nterpreted to mean
either that: ( Me wage was entirely free to enter into an arrange-
ment with TDK due to the license he received under the two
letter-amendments or (2) Blume was free to enter into an ar-
rangement with TDK since the arrangement would not infringe
on the Blume patents held by 3M prior to their expiration dates
(“insofar as the patent situation is concerned and the limits of
= obligation to 3M”). Since this letter contains this ambiguity
with respect to what were “the limits of Blume’s obligation to
3M,” we choose not to rely on it.
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:
{[A]n 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 invention 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 the circum-
stances surrounding the drafting of either the May 3, 1971
letter-amendment or the June 26, 1972 letter-amendment,
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
AT
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:
Quite simply put, what they are saying [by this interpreta-
tion of Clause B of the June 26, 1972 letter-amendment] is
we give you the authority to make bananas on the one
hand and [then] turn around and say, but we’ve got a
—_— covering bananas and therefore you can’t make
nanas (tr. 165).
44. Blume is not claiming here that he was using the method
tented under the Peccerill patent. Rather, he contends that
is trade secret process uses magnetic alignment as taught by
=. Polymag (Peccerill) process. As Blume’s counsel stated at
trial:
{Our] assertion is, on the estoppel basis, that Peccerill
teaches magnetic alignment; and we assert we have used
magnetic alignment. We have never asserted that we have
used the Peccerill method. And it is on the basis of mag-
netic alignment that we couch our estoppel (tr. 385).
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.
A77
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 than 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
[p. 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
German 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 articles were “Ceit schrift fur Physic” [sic] in
a German physics periodical, and a review of the French Cam-
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. Graniud and possibly others, whose
names I don’t recaii. I—I 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 cr 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 of not. Such sam-
ples were obtained, and I ray 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.
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.
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.
Q. It was after that. Now, when was it after
that that the 3M people expressed that concern?
A81
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.
Q. 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 cas:not 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 Mr. 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.
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 baseu (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.
Davin 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 US.
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.
Davi S. PorrTer
Chief Judge
United States District Court
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
T
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