Appendix — Clark Equipment Co. v. Keller

~ Office supreme Court

83-777 | FILTD

ei Noy 15 i963

IN THE - - STEVAS,

Supreme Court of the United states

October Term, 1983

CLARK EQUIPMENT COMPANY,

Petitioner,

VS.

LOUIS J. KELLER and CYRIL N. KELLER,

Respondents.

APPENDIX TO PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS FOR

THE EIGHTH CIRCUIT

JOHN D. KELLY

NICHOLAS J. SPAETH

Vogel, Brantner, Kelly,

Knutson, Weir & Bye, Ltd.

P.O. Box 1389

Fargo, North Dakota 58107

701-237-6983

FRED E. SCHULZ

Wildman, Harrold, Allen & Dixon

One IBM Plaza

Chicago, Illinois 60611

Attorneys for Petitioner

1983—Northwest Brief Printing Co., 3010 2nd St. No., Minneapolis 55411—588-7506

APPENDIX INDEX

Page

Keller v. Clark Equipment Co., 715 F.2d 1281 (8th

SON EEEY cc Uacienh bats oven de Oc span eee A-1

Keller v. Clark Equipment Co., 210 U.S.P.Q. 742

SEREGEE LOWED ob. ch ct cb evyecdeccktene ea mmee A-26

Louis J. KELLER and Cyril N. Keller, Appellees,

v.

CLARK EQUIPMENT COMPANY, and

Clark Equipment, A.G., Appellants.

CLARK EQUIPMENT COMPANY, Appellant,

v.

Louis J. KELLER and Cyril N. Keller, Appellees.

No. 82-2066.

United States Court of Appeals, Eighth Circuit.

Submitted May 16, 1983.

Decided Aug. 11, 1983.

HEANEY, Circuit Judge.

This case began as a challenge to the validity of three

patents covering various aspects of a successful four wheel

loader marketed initially by Melroe Manufacturing Com-

pany (Melroe), and subsequently by Clark Equipment Com-

pany (Clark), under the trade name “Bobcat.” The present

appeal involves one of the three patents—a manufacturing

patent entitled “tractor vehicle and drive therefore”—which

this Court declared invalid under 35 U.S.C. § 102(b) be-

cause the application for it was not filed within one year

after the invention had been offered for sale. Clark Equip-

ment Co. v. Keller, 197 U.S.P.Q. 209 (D.N.D.1976), aff'd,

570 F.2d 778 (8th Cir.), cert. denied, 439 U.S. 825, 99

S.Ct. 96, 58 L.Ed.2d 118 (1978). Clark now appeals from

the district court’s holding that Melroe was liable to Cyril

A-2

and Louis Keller—two of the owners of the manufacturing

patent in question—for its negligent failure to file the pat-

ent application in a timely manner and that Clark assumed

that liability when it purchased Melroe in 1969. We affirm.

I,

FACTS

A. THEPATENTS

1. The 503 Patent

In 1956, Louis and Cyril Keller began building a self-

propelled, three-wheel Joader. The Kellers completed the

first loader in February, 1957, and throughout 1957 and

1958, they made various modifications to improve the ma-

chine’s design. On December 1, 1958, the Kellers filed an

application for a patent on the three-wheel loader. The Pat-

ent Office issued U.S. Patent No. 3,151,503 (503 patent)

on October 6, 1964. The 503 patent was a mechanical pat-

ent entitled “transmission system” and its duration was for

17 years.

2. The254 Patent

In about September, 1958, the Kellers became employed

by Melroe. They continued to work on the development of

their three-wheel loader, which Melroe was marketing with

only limited success. In the summer of 1961, Louis Keller

and Clifford Melroe, then president of Melroe, began experi-

menting with a self-propelled four-wheel skid steer loader.

During the experimentation in 1961, four prototypes of

the four-wheel loader were produced. While still developing

the prototypes, Melroe began demonstrating and promoting

the new loader, which would be marketed under the trade

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name “Bobcat,” in August 1961. Shortly thereafter, Melroe

offered the new loader for sale to Midland Cooperative on

September 29, 1961, and to the Farmers Union Central

Exchange one week later. In December, 1961, the company

commenced commercial production of the Bobcat. On Jan-

uary 4, 1962, it made its first commercial delivery.

Because of the advertising and sales activity surrounding

the Bobcat, Louis Keller began urging Clifford Melroe in

September or October, 1961, to seek patent protection on

the four-wheel loader. When Clifford expressed no interest,

Louis obtained permission from Roger Melroe—the com-

pany’s vice president and Clifford’s brother—to pursue

patent protection for the four-wheel loader. In February,

1962, and then in early May, 1962, Louis Keller autho-

rized his attorney to begin preparing applications for a

design patent and mechanical patent respectively.

At a meeting between the Kellers and the Melroes on

May 31, 1962, Clifford Melroe learned for the first time

of Louis Keller’s patent application efforts. Clifford ac-

cused Louis of attempting to steal the patents for the four-

wheel loader. Although Roger Melroe attempted to explain

the circumstances to his brother, Clifford demanded that

he be given all material relating to the mechanical patent

and that the company’s attorney prepare the application for

that patent. With respect to the design patent, Clifford

agreed to permit the Kellers’ attorney to proceed with the

patent application since it was nearly completed, and agreed

that he, Louis and Cyril should be listed as co-inventors.

Clifford, however, insisted that the design patent be assigned

to the company.

On June 21, 1962, the Kellers and Clifford Melroe

signed the documents for the design patent application and

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the assignment of patent ownership to the company. The

design patent application was filed on July 25, 1962, and

subsequently was issued on May 21, 1963, as U.S. Patent

No. D195,254 (254 patent) under the title “self-propelled

loader.”

3. The 117 Patent

On June 13, 1962, Clifford Melroe contacted the com-

pany’s patent attorney, John Swindler, concerning a me-

chanical patent for the new loader. In subsequent conver-

sations, Clifford discussed assigning the mechanical patent

to the company and stated that he and Louis Keller were to

be named as inventors. Clifford also discussed the applica-

tion deadline with Swindler. Clifford was generally familiar

with the application requirements of the patent laws from his

past experience with obtaining patents for Melroe products,

and he knew that the four-wheel loader had been demon-

strated in the summer or fall of 1961. Nonetheless, Clifford

indicated to Swindler that the first loader was not placed on

the market until January 4 or 5, 1962.

Swindler, sent the completed patent application and as-

signment of patent documents to Louis Keller and Clifford

Melroe in October, 1962. Keller and Melre promptly signed

the application and returned it to Swindler. They never exe-

cuted or returned the document assigning the patent to the

company, however. Swindler filed the application for the

mechanical patent on the four-wheel loader on October 23,

1962—approximately three weeks after the one-year filing

deadline. The patent office issued U.S. Patent No. 3,231,117

(117 patent) on January 15, 1966. It was a mechanical

patent including eighteen claims which was entitled “tractor

vehicle and drive therefor.” If the 117 patent had been timely

filed, it would have expired on January 25, 1983.

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B. THE ROYALTY AGREEMENTS

The respective rights and obligations of the Kellers and

Melroe, and its successor Clark, with respect to the 503, 117

and 254 patents were governed by three agreements entered

into by the parties.

1. The 1959 Agreement

In May, 1959, the Kellers and Melroe entered into an

agreement under which the Kellers granted Melroe an ex-

clusive right to manufacture the three-wheel loader, and

lifting and scraping devices, disclosed in the 503 patent ap-

plication. In return, Melroe agreed to pay the Kellers a

royalty fee of 2.5 percent of the sales price of each loader

sold.

2. The 1963 Agreement

On October 1, 1963, the Kellers executed an agreement

with Melroe which superceded their 1959 agreement.’ The

1963 agreement contained two principal changes. First, the

Kellers granted the company an exclusive right to make and

sell loaders embodying the invention claimed in the 117

patent application, as well as the 503 patent referred to in

the 1959 agreement. Second, Melroe agreed to pay royalties

to the Kellers pursuant to a fixed rate, rather than the per-

centage method utilized in the 1959 agreement.? Melroe

1Clark contends that this second agreement was not finalized until late

1964 or 1965. The contract which the parties signed, however, is dated

October 1, 1963.

2The new fixed royalty schedule was $25 for each of the first 1000 Bob-

cats sold on a yearly basis and $15 for each additional Bobcat sold

during the year. This fixed rate schedule apparently resulted in lower

royalty payments than the percentage formula utilized in the 1959

agreement.

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continued to pay royalties to the Kellers under the 1963

agreement until August, 1969.

On August 11, 1969, Clark and Melroe entered into a

purchase of assets agreement. The agreement provided that

Melroe, in exchange for 475,000 shares of Clark’s voting

common stock, would convey to Clark all of Melroe’s assets,

except as specifically excluded in the agreement. The agree-

ment further provided that Clark would assume all of Mel-

roe’s liabilities, obligations, and covenants except as specifi-

cally excluded in the agreement. Pursuant to this purchase

agreement, Clark continued to pay the Kellers royalties

under the 1963 Melroe agreement.

3. The 1971 Agreement

In May, 1971, the Kellers and Clark entered into a license

agreement which superceded the 1963 agreement. Again,

the new agreement contained two principal changes. First,

the 254 patent was covered for the first time, when the Kel-

lers granted Clark an exclusive right to make, use and sell

(with a right to grant sublicenses) the inventions claimed in

the 503, 117 and 254 patents. Second, the royalty rate was

changed, with Clark agreeing to pay the Kellers $15 for

each Bobcat it sold and $10 per loader sold by a sublicensee.

Clark continued to make royalty payments under the 1971

agreement until approximately the second quarter of 1972.

C. INFRINGING ACTIVITY

Shortly after Melroe began marketing the Bobcat loaver

in 1961, competing loaders appeared on the scene. By 1966,

at least five possible unlicensed infringers were in the mar-

ket. In 1966, Melroe and the Kellers brought a patent en-

forcement action against Universal Manufacturing to halt

A-7

its infringing activities. Universal defended on the ground,

inter alia, that the 117 patent was invalid because the appli-

cation for it had been filed too late. In 1968, Owatonna Man-

ufacturing Company, Inc., filed a declaratory judgment

action against Melroe and the Kellers to have the 504, 117

and 254 patents declared invalid. Again, the 117 patent was

challenged on the ground of late filing. Both the Universal

and Owatonna lawsuits were settled without a determination

of the validity of the patents.

Subsequently, in 1970, Clark entered into sublicense

agreements with Owatonna and J.I. Case Company to man-

ufacture and sell loaders covered by the 503, 117 and 254

patents. Both license agreements obligated Clark to enforce

its patent rights against infringers.

Near the time of the signing of the 1971 Clark-Keller

agreement, Owatonna and Case began threatening to cease

their license payments if Clark did not take action against

the unlicensed infringers in the market. In response, Clark

stopped paying royalties to the Kellers near the end of the

first quarter of 1972, and thereafter filed an action seeking

a declaration that its 1971 royalty agreement with the Kel-

lers was unenforceable because the three subject patents

were invalid. This filing initiated the protracted legal battle

summarized below.

Il.

PROCEDURAL BACKGROUND

Clark filed its declaratory judgment action in October,

1972.* In August, 1973, the Kellers filed an answer and a

*Clark initially filed suit in the Western District of Michigan, but the

matter subsequently was transferred in August, 1973, to the District of

North Dakota.

A-8

counterclaim. The counterclaim (1) sought royalties due

from Clark under the 1971 royalty agreement with the

Kellers and under certain sublicense contracts between

Clark and others, and (2) alleged that Clark or its prede-

cessor in interest, Melroe, had negligently failed to comply

with the requirements of 35 U.S.C. § 102(b) by neglecting

to file a patent application for the 117 patent within the

one-year period after the invention had been offered for sale.

In response to this negligence counterclaim, Clark filed

a third-party complaint against the law firm of Williamson,

Bains and Moore. Clark alleged that the Williamson firm

had represented Louis Keller and Clifford Melroe in prose-

cuting the application for the 117 patent, and that it had

breached its professional obligation to investigate the facts

and to file the patent application in a timely manner.

On July 25, 1973, the Kellers filed a separate action

against Clark. The lawsuit alleged that Clark and its wholly-

owned Swiss subsidiary, Clark Equipment A.G. (CEAG),

had failed to account for and pay royalties due pursuant to

a license agreement between the Kellers and CEAG, which

named CEAG as an exclusive licensee under certaiu foreign

patents corresponding to the licensed patents in the agree-

ment with Clark.

Thereafter, the district court consolidated the separate

actions initiated by the Kellers and Clark. Then, in April,

1974, the district court ordered the issues of liability for

the alleged late filing of the 117 patent severed from the

declaratory judgment action concerning the parties’ rights

and obligations under the various license agreements. In

July, 1974, the district court ordered a separate trial on the

issue of the validity of the three patents in question. After a

lengthy trial, the district court held that the 503 and 254

A-9

patents were valid. Clark Equipment v. Keller, supra, 197

U.S.P.Q. at 94-98, 117-121. It further held that the 117

patent covered a patentable invention, but the patent was

invalid under 35 U.S.C. § 102(b) because the patent appli-

cation had been filed more than one year after the invention

had been on sale. /d. at 109-114. On appeal, this court af-

firmed the district court’s decision with respect to the 503

and 117 patents, but reversed its decision that the 254 pat-

ent was valid. Clark Equipment Co. v. Keller, supra, 570

F.2d at 784-799.

In a March 30, 1981, decision,* the district court held the

503 patent did not cover any product made or sold by Clark,

and accordingly, conc.uced that Clark was not liable to the

Kellers under the 1971 royalty agreement for any royalties

with respect to that patent. On the Kellers’ negligence claim,

however, the district court held that Melroe negligently

failed to file the application for the 117 patent in a timely

manner. The court concluded that pursuant to the purchase

of assets agreement between Clark and Melroe, Clark ex-

pressly assumed Melroe’s tort liability arising from the late

filing of the 117 patent. Alternatively, the court held that

Clark was liable for Melroe’s negligence under the de facto

merger doctrine. Finally, the court concluded that the Kel-

lers’ damages consisted of all the royalties they would have

received if the 117 patent had not been adjudged invalid.

Clark now appeals from this judgment.

4Prior to this decision, Clark voluntarily dismissed with prejudice its claim

against the Williamson law firm, and the Kellers settled their separate

action involving the foreign patents and CEAG.

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Ill.

DISCUSSION

A. STATUTE OF LIMITATIONS

[1] Clark contends that the Kellers’ negligence action

is barred by the applicable six-year statute of limitations

established in N.D.Cent.Code § 28-01-16. Clark argues that

the Kellers’ cause of action accrued on September 30, 1962,

which was the last day on which the 117 patent application

could have been timely filed, and thus the limitations period

ran out on September 30, 1968—four years before the plain-

tiffs filed suit in 1972. The district court rejected Clark’s

position, holding that the Kellers initiated their claim within

the limitations period because their cause of action did not

accrue until 1972 when Clark ceased paying the royalties

due under the parties’ 1971 agreement. We affirm.

The district court succinctly summarized the controlling

principles of North Dakota law:

A cause of action accrues when the right to com-

mence it comes into existence; when it can be brought

in a court of law without being subject to dismissal for

failure to state a claim. * * * [A]n essential element of

every cause of action is that plaintiff has suffered an

injury caused by defendant’s wrongful act. Injury is

usually but not always contemporaneous with the

wrongful act. It is the conjunction of darmmages and

wrongful act that creates a cause of action for tort or

contract, and there is no cause of action if either dam-

age or wrong is wanting.

Keller v. Clark Equipment Co., 474 F.Supp. 966, 969

(D.N.D.1979) (citations omitted).

A-11

The district court found that although the wrongful act—

the failure to timely file the patent application—occurred in

1962, the Kellers suffered no injury until 1972 when Clark

stopped making royalty payments. Clark, relying principally

upon Boehm v. Wheeler, 65 Wis.2d 668, 223 N.W.2d 536

(1974), argues that both the wrongful act and injury oc-

curred in 1962 when the application deadline expired.

In Wheeler, the Wisconsin Supreme Court held that a

negligence cause of action accrued against an attorney who

filed an untimely patent application on the last day that ap-

plication could have been timely filed. 223 N.W.2d at 541.

The court stated:

It was in October or November, 1965 [when the one-

year application deadline passed] that the plaintiffs lost

their right to get a patent on the power unit. We think

that the loss of the right to a patent is the loss of the

right to exclude others and, therefore, the injury oc-

curred on that date the right to a patent was lost. Pat-

ents do have the attribute of personal property and are

assignable. 35 U.S.C., Sec. 261. The right to exclude

others is a valuable right, and the loss of it would be

an injury which would commence the running of the

statute of limitations. Therefore, the trial court was

correct in holding the first cause of action accrued in

1965.

Id.

Relying on the reasoning in Wheeler, Clark urges that even

though the Kellers continued to receive royalty payments

into 1972, they were injured, and thus could have brought

their negligence claim, in 1962 because they lost their pat-

A-12

ent right to exclude when the application was not filed in

time.

The Wheeler case is distinguishable from this one. In that

case, the Patent Office apparently never issued a patent be-

cause of the untimely filing of the application, or if it did so,

the plaintiffs never received any payment pursuant to the

license agreement. Thus, the plaintiffs in Wheeler never re-

ceived any of the royalties to which their patent entitled

them, and their injury consequently was as immediate as it

was obvious. In sharp contrast, in this case even though the

Kellers technically lost their right to exclude others in 1962

when the patent was untimely filed, they continued to re-

ceive royalty payments for ten years from first Melroe and

then Clark. Thus, the Kellers theoretical loss of their right

to exclude infringing competitors did not actually harm

them.

Clark, however, contends that the injury resulting from

the loss of the right to exclude others was not merely theo-

retical. Specifically, Clark claims that the Kellers did not

vigorously seek to enforce their patent rights against infring-

ers because they had learned in the 1966 infringement ac-

tion against Universal that the 117 patent might be invalid

due to late-filing. Additionally, Clark emphasizes that be-

cause the Kellers had learned of the potential late-filing prob-

lem in the 1966 litigation, they had sufficient notice to file

a cross-claim against Melroe in the infringement action

against Universal or otherwise initiate a declaratory judg-

ment action prior to September 30, 1968.

We find Clark’s position unpersuasive. Common sense

dictates that the Kellers would have no reason to sue Melroe,

their own employer, as long as it was continuing to pay the

royalties due under the parties’ agreement. Moreover, if the

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Kellers had filed a negligence claim while they were still re-

ceiving royalties, it almost surely would have been subject

to dismissal. An essential element of any negligence action

in North Dakota is damage which was proximately caused

by the alleged breach of duty. See infra, at 1287. While the

necessary proof of damage need not be exact, it cannot be

mere speculation or conjecture. See Johnson v. Monsanto

Co., 303 N.W.2d 86, 93 (N.D.1981); United Power Asso-

ciation v. Heley, 277 N.W.2d 262, 268 (N.D.1979). Clark’s

theory that the Kellers were damaged in some amount be-

cause their knowledge of the late-filing problem allegedly

caused them to not vigorously enforce their patent rights is

at best speculative and conjectural.

In any event, we are not convinced that the Kellers were

less than vigilant in enforcing their patent rights. They, along

with Melroe, brought infringement claims against Universal

and Owatonna in 1966 and 1968, respectively. An inventor

need not always litigate the validity of his or her patent

against every possible infringer to retain his or her patent

rights. See Jenn-Air Corp. v. Penn Ventilator Co., 464 F.2d

48, 50 (3rd Cir.1972); Montgomery Ward & Co. v. Clair,

123 F.2d 878, 883 (8th Cir.1941).

Accordingly, the district court did not err in finding that

the negligence action filed by the Kellers in 1973 did not

accrue until 1972, and that it thus was not barred by the

applicable six-year statute of limitations.

B. THE NEGLIGENCE CAUSE OF ACTION

[2] The elements of a negligence cause of action under

North Dakota law are the existence of a duty, failure to dis-

charge that duty and resulting injury which is proximately

caused by the breach of duty. E.g., Brauer v. James J. Igoe

A-14

& Sons Construction, Inc., 186 N.W.2d 459, 468 (N.D.-

1971). Clark contends that the Kellers are not entitled to

relief in this case because they possessed no protectible in-

terest in the 117 patent in 1962, and, therefore, Melroe

owed them no duty to file the patent application in a timely

manner. Specifically, Clark urges that even though Louis

Keller® was named inventor in the 117 patent, Melroe was

the exclusive owner of the patent because it had hired Louis

to engage in inventive activities.

Clark relies primarily on N.D.Cent.Code § 34-02-11,

which states:

Everything which an employee acquires by virtue of

his employment, whether acquired lawfully or unlaw-

fully or during or after the expiration of the term of his

employment, except any compensation which is due

him from his employer, belongs to the employer.

Although there are no cases construing this North Dakota

law, the prevailing view in the United States is that when a

person is employed for the purpose of inventing, and he or

she succeeds in that task during the period of employment,

the employer is the equitable owner of the invention and the

employee must assign to the employer any patent he or she

may obtain on the invention. E.g., United States v. Dubilier

Condenser Corp., 289 U.S. 178, 187, 53 S.Ct. 554, 557,

5The 117 patent names only Louis Keller and Clifford Melroe as the in-

ventors of the subject claims. The 1963 royalty agreement, however,

recognizes both Louis and Cyril Keller as the developers of “certain

self-propelled vehicles * * * and a novel drive or transmission

for driving said vehicles.” The 1971 agreement refers to Cyril and

Louis Keller as “joint owners” of the 503, 117 and 254 ¢ patents. Be-

cause Cyril Keller is expressly named in the 1963 and 1971 agreements,

the district court properly denied Clark's summary judgment motion to

dismiss Cyril as a plaintiff in the negligence action. Keller v. Clark

Equipment Co., 474 F.Supp. 966, 969-970 (D.N.D. 1979).

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77 L.Ed. 695 (1933); Melin v. United States, 478 F.2d

1210, 1213 (Ct.Cl.1973).

The district court found that Louis Keller was hired for

his inventive abilities. Thus, absent any express or implied

agreement by the parties to the contrary,” Melroe would

have been the exclusive owner of the 117 patent under

N.D.Cent.Code § 34-02-11. The district court, however,

found that Melroe indeed agreed to recognize that the Kellers

retained an ownership interest in the 117 patent and never

claimed sole ownership. The court primarily based this find-

ing on the 1963 agreement in which Melroe agreed to pay

royalties to the Kellers on the 117 patent application in ex-

change for an exclusive license.

Clark challenges the district court’s reliance on the 1963

agreement, contending that the agreement constituted a

compromise to resolve a dispute over who owned the 117

patent under which Melroe conveyed to the Kellers an in-

terest in the 117 patent in exchange for a reduction in royal-

ty fees due under the 1959 agreement. Clark also urges that

the 1963 agreement was not actually finalized until 1965

after protected negotiations. Thus, Clark contends the 1963

agreement provides no evidence that the Kellers possessed

an ownership interest in the 117 patent in 1962 which could

give rise to a duty on the part of Melroe to timely file the

patent application.

Clark’s position is untenable. The plain language of the

1963 agreement provides that “the Kellers grant to Melroe

the sole and exclusive right and license” to make and sell

loaders embodying the 117 patent. (Emphasis added).

It is clear that an employer may contract away—either expressly or im-

gy egy patent rights it would possess absent such an agreement.

.g., Aero Bolt & Screw Co. of California v. laia, 180 Cal.App.2d 728,

5 Cal. Rptr. 53 (1960).

A-16

Moreover, the whereas clauses of the agreement explicitly

recognize that “the Kellers have developed and invented

certain self-propelled vehicles” and that “Melroe desires to

obtain and the Kellers are willing to grant Melroe a license

to make and sell such vehicles.” (Emphasis added). No-

where in the agreement does Melroe agree to convey any-

thing to the Kellers—except for a royalty fee in exchange

for the exclusive license granted by the plaintiffs. As the

district court recognized, if the Kellers possessed no owner-

ship interest in the 117 patent prior to the 1963 agreement,

they could not have granted a license to Melroe nor would

the company have had to agree to pay them royalty fees.

With regard to the effective date of the 1963 agreement,

the document is dated October 1, 1963. The record, read as

a whole, suggests that the agreement was effective as of that

date even though some details remained to be finalized. In

any event, even if the question of the Kellers’ ownership in-

terest in the 117 patent was not resolved until 1965, the fact

remains that in the agreement signed by the company, it

recognized that the Kellers had developed various self-pro-

pelled loaders, that they had a protectable interest in the 117

patent and that Melroe must pay royalty fees to obtain the

Kellers’ permission to utilize that patent. The clear inference

from this recognition in the 1963 agreement is that the Kel-

lers held an ownership interest in the 117 patent in 1962

when Melroe failed to file the patent application in a timely

manner.’

7Clark also argues that Melroe evinced its intent in 1962 to exercise sole

ownership over the 117 _— by sending, at the request of Clifford

Melroe, an assignment of the patent to Louis Keller. court below

rejected this argument because the assignment was never executed,

Clifford could not recall why it had not been executed, and Louis did

not remember ever being asked to sign the document. Under these cir-

cumstances, we agree with the district court that the failure of the par-

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The district court also properly recognized that the 1971

agreement between Clark and Melrove provides evidence

that the Kellers possessed an ownership interest in the 117

patent which created a duty to file the patent applications.

That agreement expressly states that “the Kellers are joint

owners” of the 503, 117 and 254 patents, and, like the 1963

agreement, provides that the Kellers “grant” an exclusive

license to Clark in exchange for certain royalty payments.

[3] In summary, the fact that Melroe, and subsequently

Clark, paid royalties to the Kellers on the 117 patent for

over nine years is inconsistent with Clark’s present claim

that the Kellers did not have any ownership interest in that

patent. Accordingly, the district court did not err in finding

that the plaintiffs had such a protectable interest and that

Melroe consequently had a duty to file the application for

the 117 patent in a timely manner.*

C. CLARK’S LIABILITY

1. Contractual Assumption

[4] Asa general rule, when one company sells or other-

wise transfers all of its assets to another company, the trans-

ties to execute the assignment rebuts any inference of Melroc’s intent to

claim sole ownership which purportedly results from the fact that the

document was sent. Moreover, we agree with the district court that the

argument that Melroe intended to claim sole ownership in all inventions

developed by its employees tends to be rebutted by the fact that the

company attorney prepared a contract in which all employees would

agree to assign eid Cee arising from their employment, but the

employees never signed the contract.

When two people jointly make an invention, they must apply for a patent

jointly and both must sign the application. 35 U.S.C. § 116. Thus, not-

withstanding the Kellers’ interest in the 117 patent, neither Clifford

Melroe nor the Melroe company would have had an obligation to file

the patent ication to protect that interest. The district court, how-

ever, held that Clifford Melroe, on behalf of the company, assumed

that obligation by representing at the May 31, 1962, meeting that the

company’s attorney would prosecute the application for the 117 patent.

Clark does not appeal from this finding.

A-18

feree is not liable for the debts and liabilities of the trans-

feror. Armour-Dial, Inc, v. Alkar Engineering Corp., 469

F.Supp. 1198, 1201 (E.D.Wis.1979); J.F. Anderson Co. v.

Myers, 269 Minn. 33, 206 N.W.2d 365, 368 (1973);

Annot., 49 A.L.R.3d 881 (1973) (collected cases). That

general rule is inapplicable, however, when the transferee

expressly or impliedly agrees to assume the transferor’s debts

and liabilities. /d.°

[5] The district court found that in this case the plain

terms of the 1969 purchase agreement between Clark and

Melroe demonstrated Clark’s intent to assume the Keller

liability. We agree with this determination.

In the whereas portion of the purchase agreement, Clark

agreed to “assume all the liabilities, obligations and cove-

nants of Melroe, except as specifically excluded herein, all

as hereinafter provided.” The written assumption attached

to the purchase agreement pursuant to sections 3.1 and 3.2

of the agreement stated:

[Clark] * * * assumes and agrees to pay * * * to the

extent that they are existing and outstanding on the

date hereof, * * * such liabilities of Melroe * * * as are

to be assumed by Clark * * * under the terms of [the

1969 agreement].

The district court found that Clark assumed Melroe’s

liability to the Kellers under the above-stated provisions of

the purchase agreement. The court first found that the liabil-

ity was a contingert one because although the negligent act

occurred prior to the closing of the purchase agreement in

*Although the North Dakota Supreme Court has not addressed this mat-

ter, neither party contends that the court below erred in concluding

thet these principles represent the law in North Dakota.

A-19

1969, the injury to the Kellers—Clark’s cessation of the

royalty payments—did not occur until after the closing.

The court then found that, because Clark did not exclude

this contingent liability from those obligations, it agreed to

assume responsibility for Melroe’s liability to the Kellers.

Clark contends that because the district court held that

the Keller’s negligence claim did not accrue until 1972 for

statute of limitations purposes, it must follow that the claim

did not exist at all in 1969. Therefore, Clark argues that it

could not have agreed to assume responsibility for the Kel-

ler liability since it assumed only those obligations “existing

and outstanding” on the date of the purchase agreement. We

cannot agree.

The district court properly recognized that in 1969 Mel-

roe’s contingent liability to the Kellers was already in ex-

istence because the negligent conduct had occurred in 1962.

The 1969 purchase agreement demonstrates that Clark con-

sidered such contingent liabilities to be “existing and out-

standing” obligations since it lists several contingent debts

which Clark agreed to pay if Melroe’s liability for them was

established after the agreement was closed. Moreover, be-

cause the Kellers were continuing to receive royalties at the

time of the closing, and Melroe thus had no reason to believe

that the Kellers would assert their contingent negligence

claim, the failure of the 1969 purchase agreement to list the

Kellers’ claim as a contingent liability evinces no intention

to exclude that liability from those assumed by Clark. See

infra, at 1289-1291.

Clark alternatively urges that even if the Kellers’ claim

existed in 1969, it was expressly excluded from the assump-

tion agreement because Clark agreed to assume only those

liabilities disciosed by Melroe, and Melroe did not disclose

A-20

the Kellers’ claim. Specifically, Clark relies on section 3.1

of the agreement which stated that Clark did not assume

“any liabilities arising out of tie breach of any representa-

tion or warranty of Melroe contained herein” nor “any lia-

bilities not disclosed due to any misrepresentation by Mel-

roe herein.” Clarks contends that the Keller liability arises

from Melroe’s misrepresentation in not disclosing the con-

tingent negligence claim.

The district court rejected Clark’s position, finding that

Melroe had made no misrepresentations with respect to the

Keller liability. The court reasoned:

The only provisions of the Agreement in which Melroe

warranted or represented anything which would relate

to the late filing tort claim are sections 1.4, 1.8, 1.14

and 1.21. In these provisions, however, Melroe only

represented that the disclosures were correct to its best

knowledge. Since Melroe had no knowledge of the tort

claim, its nondisclosure of the claim was not due to

any misrepresentation contained in the agreement.

Therefore, the late filing tort claim was not specifically

excluded, and thus according to the terms of the

Agreement was assumed by Clark.

We agree with this analysis.

In section 1.6 of the agreement, Melroe represented that

the listed contingent liabilities—which did not include the

Kellers’ claim—reflected all “known” claims, and that to the

“best of its knowledge,” no legal action was threatened which

would materially affect the company’s liabilities. Similarly,

in section 1.8 of the agreement, Melroe warranted that “to

the best of its knowledge” it was not engaged in or threatened

with any legal action.

A-21

The foregoing sections demonstrate that the “misrepre-

sentations” which Clark excluded in section 3.1 from its

general assumption of liability were only those knowingly

made. Even though Melroe was aware of the late-filing prob-

lem raised in the Universal and Owatonna litigation in 1966

and 1968, Melroe had no reason to believe in 1969 that the

Kellers would assert any claim with respect to the 117 pat-

ent. Melroe never failed to fulfill its contractual obligation

to pay royalties to the Kellers for use of the 117 patent. In-

deed, if Clark had not ceased making royalty payments in

1972, the Kellers’ contingent claim never would have be-

come a present one and they would not have filed suit. Thus,

Melroe’s failure to disclose the Kellers’ contingent claim did

not constitute a “misrepresentation” within the meaning of

section 3.1 of the purchase agreement, and Clark cannot

rely on that section to urge that it excluded the Kellers’ claim

from the liabilities it assumed in 1969.

Notwithstanding the above analysis, Clark argues that

Melroe’s failure to disclose its contingent liability constituted

a misrepresentation within the meaning of section 1.21 of

the agreement because it contains no “best knowledge”

provisions.*°

[6] The district court, however, held that in order to

construe section 1.21 in harmony with the other warranty

provisions in the agreement, an omission would be

misleading only if it violated the specific disclosure require-

ments contained in sections 1.4, 1.8 and 1.14. This construc-

10Section 1.21 stated:

Section 1.21. No Mislecding Statements. Neither the financial state-

ments of Melroe and Melroe, Ltd. * * * nor this Agreement contain

any untrue statements of a material fact or omit to state a material fact

necessary in order to make the statements contained therein or herein

not misleading.

A-22

tion was clearly proper under North Dakota law. The inten-

tions of contracting parties must be determined from the in-

strument as a whole, not from any isolated clause. Bjerken

v. Ames Sand Gravel Co., 189 N.W.2d 366, 374 (N.D.-

1971). Moreover, a contract must be construed so as to

harmonize its various parts whenever reasonabiy possible.

Id.; N.D.Cent.Code § 9-07-06. Accordingly, because in

1969, Melroe did not know, nor have reason to know, of the

contingent liability to the Kellers, it committed no misrep-

resentations under the specific disclosure sections or section

1.21 of the purchase agreement.*? The District court, there-

fore, did not err in finding that Clark assumed the Keller

liability in the 1969 agreement.

2. DeFacto Merger

[7] The district court alternatively held that Clark was

liable for Melroe’s negligence under the de facto merger

doctrine. We affirm.

Although the North Dakota courts have not addressed

de facto merger questions, the court below found that North

Dakota would likely follow the majority view concerning

the requirements and applicability of the doctrine. The dis-

trict court concluded that to find a de facto merger, the fol-

lowing elements must be present:

(1) There is a continuation of the enterprise of

the seller corporation, so that there is a continuity of

management, personnel, physical location, assets, and

general business operations.

11This construction also controls section 1.11 of the agreement in which

Melroe warranted that it did not have “any indebtedness, contingent

or otherwise, except as set forth in [its] balance sheets.” Melroe did not

breach this warranty by not listing the Kellers’ negligence claim be-

cause to the best of its knowledge the Kellers were going to continue

receiving royalties and they were not intending to assert their claim.

A-23

(2) There is a continuity of shareholders which

results from the purchasing corporation paying for the

acquired assets with shares of its own stock, this stock

ultimately coming to be held by the shareholders of the

seller corporation so that they become a constituent

part of the purchasing corporation.

(3) The seller corporation ceases its ordinary busi-

ness operations, liquidates, and dissolves as soon as

legally and practically possible.

(4) The purchasing corporation assumes those

liabilities and obligations of the seller ordinarily nec-

essary for the uninterrupted continuation of normal

business operations of the seller corporation.

We find no error in this construction of the de facto

merger test. See, e.g., Atlas Tool Co., Inc. v. Commissioner,

614 F.2d 860, 870-871 (3d Cir.), cert. denied, 449 U.S.

836, 101 S.Ct. 110, 66 L.Ed.2d 43 (1980); Ladjevardian

v. Laidlaw-Coggeshall, Inc., 431 F.Supp. 834, 838-839

(S.D.N.Y.1977); Shannon v. Samuel Langston Co., 379

F.Supp. 797, 801 (W.D.Mich.1974).

The district court found that each of these four factors

was present in this case.’* Clark does not seriously dispute

these findings. Instead, Clark contends a de facto merger did

not occur here because two indispensable requirements of

the doctrine are lacking: (1) the corporation selling its

12In the 1969 purchase agreement, Melroe transferred all its assets to

Clark in exchange for 475,000 shares of Clark common stock worth

approximately $15 million. The Melroe operations—including most

management officials, employees and assets—became the Melroe Divi-

sion of Clark. The former Melroe company, in turn, changed its name

to Gwinner Holding Company. It agreed to cease business operations,

liquidate and dissolve as soon as legally and practically possible.

A-24

assets must not have been amenable to suit after the sale;

and (2) the sale must have been performed to actually or

constructively defraud the selling corporation’s creditors.

Clark urges that the Kellers could have pursued their neg-

ligence action under various provisions of North Dakota

and Delaware law which purportedly permit creditors to sue

a dissolving corporation which is winding up its affairs or

to proceed against the former stockholders of a dissolved

corporation to whom the assets were distributed. The dis-

trict court rejected this claim, finding that the Kellers had

no effective remedy ynder either Delaware or North Dakota

law. We agree.

Gwinner, the holding company which succeeded Melroe,

never was anything but a corporate shell with essentially no

assets or business activities. While Gwinner technically re-

mained in business until 1974,** it effectively liquidated its

assets pron.ptly after the closing of the 1969 purchase agree-

ment by distributing the Clark common stock to the former

Melroe shareholders. Gwinner’s remaining assets consisted

of only $50,000, which the 1969 purchase agreement pro-

vided for winding up expenses. It had no employees or bus-

iness activities capable of producing income. Indeed, the

former shareholders of Melroe had covenanted not to com-

pete with Clark’s business activities. In addition, Clark has

not demonstrated that the Kellers could have held the former

Melroe shareholders personaily liable for the corporation’s

negligence nor eveti that the Kellers in 1978, when they filed

suit, could have traced the Clark stock to the former Melroe

shareholders to whom the shares were distributed after the

1969 closing.

18Delaware revoked Gwinner’s corporate charter in 19° 4 for failure to

file an annual report.

A-25

Clark’s other primary contention is that the de facto

merger doctrine is inapplicable here because there is no

showing that the 1969 sale was consummated to defraud

creditors. We cannot agree.

While evidence of fraudulent intent may strengthen the

case for finding a de facto merger, such evidence simply is

not an indispensable requirement in every case. See supra,

at 1291. Indeed, the existence of a fraudulent transfer in and

of itself generally is considered to be an exception, in addi-

tion to the de facto merger doctrine, to the general rule that

a purchasing corporation is not liable for the debts and lia-

bilities of the selling corporation. See Acheson v. Falstaff

Brewing Corp., 423 F.2d 1327, 1329-1330 (9th Cir.1975),

J.F. Anderson Lumber Co. v. Myers, supra, 206 N.W.2d

at 368-369; Annot., supra, 49 A.L.R.3d at 883-890.

Accordingly, we find no merit to Clark’s objections. The

district court, therefore, did not err in finding Clark is liable

to the Kellers for Melroe’s negligence under the de facto

merger doctrine.

A-26

IV.

CONCLUSION

For the reasons stated above, the decision of the district

court is affirmed.

District Court, D. North Dakota, S.E. Div.

Kelier et al.

v. Clark Equipment Company et a!

Nos. 4839 and 4875

Decided Mar. 30, 1981

PATENTS

1. Construction of specification and claims—Claim defines

invention (§22.30)

Patent claims are measure of patentee’s rights.

2. Infringement—Tests of—In general (§39.801)

Specific format employing two analytical techn jues is

generally followed in determining infringement issue; if there

is no literal infringement, there may be infringement under

doctrine of equivalents.

3. Infringement — Tests of —- Comparison with claim

(§39.803)

Patent claims’ literal words constitute only the starting

point in literal infringement determination.

4. Construction of specification and claims—By specifi-

cation and drawings—lIn general (§22.251)

Construction and claims — Claim defines invention

(§22.30)

A-27

Although patent claims are sole measure of protection

and patent is not limited to preferred embodiments shown

in specifications, claims are construed in light of specifica-

tion and drawings and both are read with view of ascertain-

ing invention to determine claim’s scope.

5. Construction of specification and claims—By Patent

Office proceedings—In general (§22.151)

Patent Office proceedings should be considered in deter-

mining claims’ scope.

6. Construction of specification and claims—By prior art

(§22.20)

State of prior art is important factor in construing claim’s

scope; prior art cited in file wrapper gives clues as to what

claims cover, as claim must be construed to be limited so as

to exclude prior art.

7. Infringement — Tests of — Comparison with claim

(§39.803)

It is not enough to constitute literal infringement that

claim’s words read literally on accused device; this is only

initial hurdle in establishing literal infringement.

8. Infringement—Claims infringed in terms only (§39.20)

Infringement — Identity of function or operation

(§39.50)

Not only do claim’s words have to read on accused de-

vice in order to sustain literal infringement charge, but ac-

cused device must be substantially identical with one al-

leged to be infringed in result attained, means of attaining

that result, and manner in which its different parts operate

to produce that result; literal infringement charge is not sus-

A-28

tained as to accused device that is substantially different in

either of these respects.

9. Infringement — Substitution of equivalents — In gen-

eral (§39.753)

Infringement —- Tests of — Comparison with claim

(§39.803)

Infringement is not necessarily ruled out in event patent

clairn’s words do not read literally on accused structure;

doctrine of equivalents prevents one from avoiding infringe-

ment by making changes in patent that take copied matter

outside claim’s literal language, but add nothing to inven-

tion; in Eighth Circuit, application of equivalency test en-

tails making determination that infringing device is substan-

tially identical to one alleged to be infringed in result at-

tained, means of attaining that result, and manner in which

its different parts operate and cooperate to produce that

result.

10. Infringement — Combinations — Omission of ele-

ment (§39.257)

It must be shown that every essential element of combina-

tion claim or its equivalent is embodied in accused device,

in determining possible infringement; absent such showing,

infringement cannot be upheld.

11. Infringement—Additions and improvements (§39.05)

Addition of element to patented structure, as general rule,

does not avoid infringement; it is doubtful that addition of

wheel on each side which does not substantially change pat-

ented vehicle’s function and means employed to perform

that function avoids infringement.

A-29

12. Infringement—Substitution of equivalents—In gener-

al (§39.751)

Infringement — Tests of — Comparison with claim

(§39.803)

Patent law would reward literally skill and not mechani-

cal creativity if infringement test were whether claim’s words

read literally on accused device; since law is to benefit in-

ventor’s genius and not scrivener’s talents, claims must not

only read literally on accused structures, but also structure

must do same work, in substantially same way, and accom-

plish substantially same result.

13. Presumption from patent grant—Patent Office consid-

eration of prior art (§55.5)

It is presumed that examiner who searched class and sub-

class in which particular prior art patent was cross-refer-

enced considered that patent and discarded it as being no

more pertinent than art cited by him.

14. Estoppel—In general (§35.01)

Notice and marking patented (§46)

Marking product with patent number, at least in some

instances, may estop marking party from asserting that prod-

uct is not covered by patent.

15. Estoppel—In general (§35.01)

Notice and marking patented (§46)

Kenyon v. Automatic Instrument Co., 87 USPQ 301,

does not stand for proposition that patent marking estoppel

doctrine is not applicable in case in which patent plate head-

A-30

ing “covered by one or more of the following patents” is

allegedly vague and allegedly does not convey to public that

patent in suit, which is one of at least nine patents listed,

was embodied in device in suit.

16. Estoppel—In general (§35.01)

Notice and marking patented (§46)

No statute requires one to mark device with patent num-

ber that does not identify patent embodied in device.

17. Estoppel—In general ($35.01)

Notice and marking patented (§46)

Court is hesitant to apply patent marking estoppel doc-

trine partially because of absence of its application in recent

case law and partially because more recent cases have used

it as alternative ground for their decisions.

18. Patentability-— Anticipation— Prior knowledge, use

or sale (§51.223)

Title—Employer and employee—In general ( §66.301)

Use and sale—Sale (§69.8)

Person who in course of his employment as company pres-

ident and on behalf of company took upon himself to file

patent, assumed duty toward inventor to exercise reasonable

care in doing so; by failing to inform company patent attor-

ney of demonstrations of patented device of which he was

aware and sales activities relating to device that he should

have discovered and could have discovered with reasonable

inquiry, he failed to exercise reasonable care required by

circumstances, causing patent application to be filed late,

which resulted in damages sustained by inventors.

A-31

19. Pleading and practice in courts—State law considered

(§53.73)

Title—Employer and employee—In general ( §66.301)

Although there are no cases construing N.D. Cent. Code

Section 34-03-11, there is general body of common law that

governs rights between employer and employee as it relates

to inventions and that may aid court in discovering what

North Dakota law is; as general rule, law does not regard

ordinary employment contract as including right on em-

ployer’s part to products of employee’s inventive genius;

rather, it depends upon particular employment contract’s

terms.

20. Titlk—Employer and employee—Shop right ($66.

307)

Employer is recipient of implied, nonexclusive, royalty-

free license, or “shop right,” where employee makes and

reduces to practice invention on his employer’s time, using

his employer’s tools and other employees’ services.

21. Titl—Employer and employee— Assignment ($66.

301)

Employer of person who is employed for express purpose

of using his inventive faculty for his employer to make in-

vention and who succeeds in accomplishing assigned task

during period of employment is equitable owner of inven-

tion; that employee is obligated by way of implied contract,

to assign to employer any patent that may be obtained on

invention, since employee has only produced that which

he was employed to invent.

A-32

22. Titlk—Employer and employee—In general (§66.

301)

Respective rights and obligations of employee’s inven-

tion arise from employment contract.

23. Title—Contracts—In general (§66.201)

Title—Employer and employee— Assignment (§66.303 )

Any particular relevance of fact that employer prepared

contract to be signed by all employees by which they would

agree to assign all future patent rights arising from their

employment may have toward ownership of patent is out-

weighed by fact that contract was never signed; thus, it sup-

ports no inference on employer’s part to claim sole ownership »

in inventions developed by employees, but instead, fact that

it was recommended by legal counsel and not done rebuts

inference.

24. Title—Co-owners ($66.25)

Titlke—Employer and employee—In general (§66.301)

Title—Employer and employee— Assignment ( §66.303 )

Fact that employees-owners of one patent assigned their

rights to their employer could, under ordinary circum-

stances, be evidence of agreement to assign all inventions;

this would perhaps be applicable had employer demanded

assignment of patent in suit and owner refused; it cannot

be inferred from company president’s failure to assign

his own interest in patent until requested to do so in con-

nection with law suit that company intended to claim sole

ownership over patent prior to law suit.

A-33

25. Titlkk—Employer and employee— In general (§66.

301)

It is reasonable to infer from employer’s agreement to

pay royalties that it recognized employee-inventor’s owner-

ship interest in patent as co-inventor and never claimed

sole ownership; notwithstanding any implied right employer

may have to employee’s invention, parties may contract

as they wish and employer may contract away implied right

that would come into existence if parties had remained

silent; thus, when patent owner and his employer have con-

tracted on royalty basis, question of employer’s implied

rights to patent is excluded; fact that employer and suc-

cessor employer, pursuant to royalty license, paid employees

royalties on patent for some nine years is inconsistent with

employer’s contention that employees never had interest

in patent.

26. Applicants for patent—In general (§14.1)

Applicants for patent—Who may apply (§14.7)

Two or more persons who jointly make invention must

apply for patent jointly and each must sign application; law

ordinarily imposes no duty upon co-inventor to file applica-

tion to protect other co-inventor’s interest in patent.

27. Applicants for patent—In general (§14.1)

First co-inventor has duty to exercise reasonable care in

filing application so as to protect second co-inventor’s in-

terests in invention under circumstances in which second

co-inventor had taken steps to make application for patent,

first co-inventor on employer’s behalf represented to second

co-inventor that employer would use its own attorney to

proceed on patent application, first co-inventor then took

A-34

affirmative steps to secure patent protection, and second

co-inventor relied on first’s efforts and not daring to interfere

with those efforts did not take any further action on patent

application.

28. Patentability — Anticipation — Prior knowledge, use

or sale (§ 15.223)

35 U.S.C. 102(b) provides that person is not entitled to

patent on invention that was in public use or on sale in this

country more than one year prior to patent application’s

date; failure to abide by Section 102(b) requirement results

in destruction of inventor’s rights in what would otherwise

be valuable patent.

29. Applicants for patent—In general ($14.1)

Patentability — Anticipation — Prior knowledge, use

or sale (§51.223)

Pleading and practice in Patent Office — In general

(§54.1)

Reasonable care in filing patent application includes ex-

ercising reasonable care in complying with Section 102(b)

provisions; in certain cases, this would include exercising

reasonable precaution in gathering necessary information

and fully disclosing this information to patent attorney.

30. Accounting—Parties liable (§11.45)

Applicants for patent—In general ($14.1)

Patentability — Anticipation — Prior knowledge, use

or sale (§51.223)

Title—Employer and employee—In general ( §66.301 )

Reasonable care, in light of extreme importance of filing

application within statutory time, requires that first co-in-

A-35

ventor, who has taken from second co-inventor right to file

patent application, who as company president had access to

sales records, make such inquiry as would be necessary to

inform himself and patent attorney of company’s sales activ-

ities; failure to make simple inquiry at sales office that would

have placed reasonable person in his position and responsi-

bility on notice of sales activities is negligence; since he was

acting in furtherance of, and in scope of his employment, his

negligence is attributable to his employer.

31. Accounting—Damages—In general (§11.251)

Accounting — Reasonable or established royalty

(§11.65)

Infringement damages are those that are adequate to com-

pensate for infringement, but in no event less than reason-

able royalty for infringer’s use of invention.

Consolidated actions by Louis J. Keller and Cyril N.

Keller, against Clark Equipment Company and Clark

Equipment A.G., for royalties, negligence, and breach of

contract, and by Clark Equipment Company, against Louis

J. Keller and Cyril N. Keller, for declaration of patent in-

validity and or rights and obligations under license agree-

ment, in which defendants counterclaim for royalties, neg-

ligence, and breach of contract (Williamson, Bains &

Moore, third party defendant). Judgment that Clark Equip-

ment Company is not liable under royalty agreement and

that Clark Equipment Company is liable for damages re-

sulting from late filing of patent.

See also 197 USPQ 83, 197 USPQ 209, 200 USPQ 64,

and 206 USPQ 478.

Ry,

A-36

Malcolm L. Moore, Herman H. Bains, and Williamson,

Bains, Moore & Hansen, all of Minneapolis, Minn., and

Alan Foss, and Van Osdel, Foss & Miller, both of Fargo,

N.D., for Louis J. Keller and Cyril N. Keller.

John D. Kelly, and Vogel, Brantner, Kelly, Knutson, Weir

& Bye, both of Fargo, N.D., Thomas D. Allen, Fred E.

Schulz, Wildman, Harrold, Allen & Dixon, James P.

Ryther; and McDougall, Hersch & Scott, all of Chicago,

Ill., and Harry G. Thibault, Buchanan, Mich., for Clark

Equipment Company.

Benson, Chief Judge.

Procedural History

The above entitled consolidated actions arise out of a pat-

ent license agreement whereunder Louis and Cyril Keller,

residents of North Dakota, granted exclusive licenses on

three interrelated patents to Clark Equipment Company, a

corporation incorporated under the laws of Delaware and

with its principal place of business in Michigan. Also at

issue was a similar agreement between the Kellers and Clark

Equipment, A.G., a Swiss corporation which is a wholly

owned subsidiary of Clark. Involved were United States Pat-

ents 3,151,503 (hereinafter 503 patent), 3,231,117 (here-

inafter 117 patent), and Design Patent 195,254 (hereinaf-

ter 254 patent).

The licensed patents relate to a self-propelled four wheel

drive skid steer loader manufactured by Clark and others.

Clark manufactures the loader at its Melroe Division, for-

merly the Melroe Manufacturing Company, Gwinner, North

Dakota, and sells it under the trace name “Bobcat.”

A-37

Civil Action 4875 is a declaratory judgment action be-

tween Clark, plaintiff, and the Kellers, defendants. The ac-

tion was originally filed in the United States District Court

for the Western District of Michigan on October 10, 1972,

seeking in part, an adjudication of the licensed patents.

Upon the Kellers’ motion, the action was transferred to the

United States District Court for the District of North Da-

kota on August 27, 1973.

On September 19, 1973, the Kellers filed their answer and

counterclaim. Their counterclaim in part is for royalties al-

legedly due under their license agreement with Clark and

for their share of royalties due from Owatonna Manufac-

turing Company, Inc., and J. I. Case Company, nonexclusive

sublicensees under the agreement.

The counterclaim further alleges that Clark, as a succes-

sor to the Melroe Company, had been negligent in failing to

file the patent application on the 117 patent within the one

year period after the invention had been in public use or

on sale. 35 U.S.C. §102(b). In an amended pleading filed

on January 31, 1979, the Kellers alleged additionally that

Clark, as successor to the Melroe Company, had breached

a contract with the Kellers to timely file the 117 patent

application.

In response to the negligence claim, Clark filed a third-

party complaint against the law firm of Williamson, Bains

& Moore as third party defendant, alleging that if there wa:

negligence in filing the application for the 117 patent, the

third party defendants, or predecessor partnerships or part-

ners, who were representing the joint inventors, Louis J.

Keller and Clifford E. Melroe, had a professional obligation

to investigate the facts and see that the obligation was filed

on time. It is alleged that should the 117 patent be found

A-38

invalid under 35 U.S.C. §102(b), the third party defendants

would be liable to Clark as successor of the Melroe interest.

On April 29, 1974, the court bifurcated the portion of the

counterclaim directed at Clark for late filing of the 117 pat-

ent, and the third party action.

Civil Action 4839 was originally filed by the Kellers in

this court on July 25, 1973, against Clark, setting forth the

corresponding allegations in the answer and counterclaim of

Civil Action 4875, and naming as an additional defendant

Clark Equipment, A.G. The complaint alleged that Clark

Equipment A.G., pursuant to a similar license agreement

with the Kellers, was an exclusive licensee under certain

foreign patents corresponding to the licensed patents in the

agreement with Clark, and had fuiled to account and pay

for royalties allegedly due under this contract. This action

was consolidated with Civil Action 4875 on December 21,

1973.

On July 18, 1974, the court ordered a separate trial on

the issue of validity of the three patents. After a lengthy trial

to the court, in an unpublis!ied memorandum decision dated

September 23, 1976, this court held the 503 patent and the

254 patent to be valid. The court found the subject matter

of the 117 patent to be nonobvious to one possessing ordi-

nary skill in the art, but concluded that the patent was in-

valid pursuant to the provisions of 35 U.S.C. 102(b) be-

cause a machine incorporating all the elements of the 117

patent was “on sale” more than one year prior to the filing

of the patent application. On appeal, the Eighth Circuit

Court of Appeals affirmed this court’s holding as to the 503

and 117 patents, but reversed this court’s holding that the

254 patent was valid. Clark Equipment Co. v. Keiler, 570

F.2d 778, 197 USPQ 209 (8th Cir. 1978), cert. denied. 439

U.S. 825, 200 USPQ 64 (1978).

A-39

The third party complaint against the law firm of William-

son, Bains & Moore has been voluntarily dismissed with

prejudice. Furthermore, the Kellers’ claim against Clark

Equipment, A.G., in Civil Action 4839, and the question of

foreign patents has been settled and dismissed as an issue

in this litigation. Clark moved for summary judgment on

the 117 patent late filing issue, alleging the claim was barred

by the statute of limitations and that Cyril Keller was not a

proper party because he was not a named co-inventor on the

117 patent. The motions were denied. Keller v. Clark Equip-

ment Co., 474 F.Supp. 966, 206 USPQ 478 (D.N.D.

1979)."

Issues Remaining

Several issues remain to tye decided. One of the unresolved

issues in Civil Actions 4875 and 4839, is whether Clark is

liable to the Kellers under their royalty agreement as it re-

lates to the 503 patent. This requires a determination

whether the structure claimed and disclosed in the 503 pat-

ent is embodied in any, loader manufactured by Clark and

its sublicensees from the time Clark ceased paving royalties

to the Kellers. Another related issue is whether the doctrine

of patent marking estoppel estops Clark from denying the

incorporation of tne 503 patent structure in its skid steer

loaders.

A second unresolved issue is whether Clark is liable to the

Kellers for damages resulting from the late filing of the 117

patent. This involves determining whether the Melroe Man-

ufacturing Company breached either a contractual duty or

+Fer a more detailed procedural history of this case, see this court's

memorandum decision of September 23, 1976, and the Eighth Circuit's

opinion on appeal, supra.

A-40

tort duty owed to the Kellers by failing to diligently prepare

and timely file the application for the 117 patent. In the

event this issue is found in favor of the Kellers, the additional

issue of whether Clark, as successor to the Melroe Manu-

facturing Company, can be held liable for Melroe’s breach

of duty, must be decided.

Jurisdiction

The court has jurisdiction in Civil Action 4875 under the

Declaratory Judgment Act, 28 U.S.C. §2201 and 2202; the

amount in controversy exceeds the sum of Ten Thousand

Dollars ($10,000.00) exclusive of interests and costs; is

between citizens of different states, 28 U.S.C. §1391 (a)

and §1338, and venue lies in this judicial district pursuant to

28 U.S.C. §1391 (a).

In Civil Action 4839, the court has jurisdiction over the

subject matter under 28 U.S.C. $1332(a), there being di-

versity of citizenship, the amount in controversy exceeds

Ten Thousand Dollars ($10,000.00), and venue lies in this

judicial district under 28 U.S.C. §1391(c).

Royalty Liability Under the 503 Patent

The Evidence, Findings, and Conclusions

1. U.S. Patent No. 3,151,503 was issued to Louis J.

Keller and Cyril N. Keller on October 6, 1964. The 503

patent is entitled “TRANSMISSION SYSTEM.”

2. Clark is the successor in interest to the former Mel-

roe Manufacturing Company, which was exclusively lic-

ensed by the Kellers under the 503 and 117 patents pursuant

to an October 1, 1963 written agreement. (Ex. 553).

A-41

3. When Clark acquired the Melroe Company in 1969,

the licenses as well as the other assets of Melroe were trans-

ferred to Clark. After Clark acquired the Melroe Company,

it continued to pay royalties to the Kellers pursuant to the

October 1963 license agreement.

4. In May, 1971, Clark entered into its own license

agreement with the Kellers which superceded the 1963

agreement. A copy of the agreement is in evidence as Ex-

hibit 55i. By the terms of the license agreement, Clark ob-

tained an exclusive license, with the right to grant sub-

licenses, to make and sell self propelled loader vehicles

embodying the inventions disclosed and claimed in the

aforementioned 503, 117 and 254 patents.

5. Pursuant to the provisions of paragraph 4 of the

license agreement, Clark agreed to pay the Kellers a royalty

of Fifteen dollars ($15.00) for each licensed vehicle made

and sold by Clark in a country where there is a licensed pat-

ent and Ten Dollars ($10.00) for each licensed vehicle

made or sold by a sublicensee of Clark in a country where

there is a licensed patent.

6. In March 1970, Clark entered into a nonexclusive

sublicense agreement relating to the three patents with J. I.

Case Company. In December 1970, Clark entered into a

similar agreement with Owatonna Manufacturing Company,

Inc. (Exs. 554,555).

7. Clark paid royalties to the Kellers under their May

1971 agreement until early 1972. Shortly thereafter it filed

the declaratory judgment action.

8. The application for the 503 patent was filed on De-

cember 1, 1958. A copy of the patent was received into

A-42

evidence as Exhibit 1, and is attached in the appendix to

this Memorandum. Exhibit 8 is a copy of the Patent Office

file wrapper of the 503 patent. Exhibit 613 is a blow up of

the drawings of the 503 patent.

9. The 503 patent application disclosed a transmission

system for self propelled vehicles having independently ro-

tatable propulsion wheels. As disclosed by the drawings of

the 503 patent, each of the two propulsion wheels W has a

separate but identical transmission system consisting of a

pair of clutch units 9 and 9’ rotating on stub shafts 12 and

12’ connected to plate P. Each clutch unit consists of a pair

of clutch plates 11, 11’ and 10, 10° adapted for movement

into radial frictional clutching engagement with one another

when axial pressure is exerted on cam followers 17 and 17’.

Mounted on plate P and interposed between plate P and

cam followers 17 and 17’ is an elongate slideable shifting

bar 18 tapered on each end to form cam elements 19 and

19° which can be selectively engaged with cam followers 17

and 17’ to move their respective clutches into driving en-

gagement. The thinner middle portion of bar 18 allows

both clutches to be simultaneously disengaged resulting in

idling of wheel W. Chain belt 20 connects the source of

power with sprockets 10a and 10a’ on the outer clutch

plates 10 and 10 of both clutches, causing them to be ro-

tated in the same direction. Chain 21 is trained over sprock-

et 11a on inner clutch plate 11’ and under sprocket 11a of

inner clutch plate 11 and around sprocket 23, which in turn

is connected to the propulsion wheel W by chain 25. By

training chain 21 under one sprocket wheel and over the

other, the chain, as well as wheel W will be driven in oppo-

site directions according to which clutching unit is engaged,

ae

A-43

thereby providing selective reverse and forward driving of

the propulsion wheel W. This perimits the transmission sys-

tem in cooperation with the propulsion wheels to perform

the dual functions cf driving and steering the vehicle.

10. The 503 patent application originally contained 11

claims reciting a transmission system for a self propelled

vehicle. (Ex. 8. File Wrapper of 503 patent, pages 8-13).

11. In Patent Office action on April 13, 1959, the exam-

iner rejected all the claims. (Ex. 8 File Wrapper of 503 pat-

ent, pages 16 and 17). Claims 1-7 and 9 and 10 were re-

jected as fully anticipated by the Loyd patent. As described

by the examiner, Loyd disclosed a self-propelled vehicle

having independently rotatable propulsion wheels, a source

of power, a belt driven mechanism for transmitting driving

power to each wheel, a clutch assembly comprising a pair

of clutches adapted to be moved into and out of clutching

engagement, one of said clutches being connected to drive

the propulsion wheel in a forward direction when engaged,

the other clutch being connected to drive the propulsion

wheel in a backward direction when engaged and shifting

means adapted to selectively engage said clutches.

12. The examiner deemed claims 8 and 11 as unpat-

entable over Loyd in view of the patent in Schreck.

13, The Schreck patent was introduced into evidence

as Exhibit 230. Exhibits 224 and 225 are blowups of the

patent drawings. In its memorandum decision of September

23, 1976 this court described the Schreck patent as follows:

The Schreck patent discloses a self-propelled dolly

which is controlled by an operator walking in front of

the dolly. As disclosed by the drawings of the Schreck

A-44

patent, steering and driving control is achieved through

a draft tongue 6 having a rotatable gripping handle 61.

A linkage bar 63 connected to handle 61 serves to

move a link bar 51 (Fig. 6) for actuation of a pair of

clutch units 21, 31 and 22 and 32 through crank arms

49, 50 connected to the opposite ends of link 51. The

two clutch assemblies are mounted on upper and lower

shafts 16, 17. Shiftable collars 39, 46 on the clutch

shafts serve to engage the clutches in response to axial

displacement of those collars by thrust pins 58 as the

collars are rotated simultaneously by link 51 and crank

arms 49, 50. The single dolly support wheel 5 of

Schreck is rotationally mounted for steering action by

swinging movement of the draft tongue 6. Upward

movement of draft tongue 6 stops the vehicle by urg-

ing brake shoe 68 against wheel 4. With the draft

tongue 6 in an upward position, gripping handle 6 can-

not be moved in such a way as to engage the clutches |

for forward movement of the dolly. Power is trans-

mitted from a motor 12 through a chain 29 to the in-

put sprockets 26, 27 on the clutch shafts 16, 17. A |

final drive chain 42 to the dolly wheel 4 has its inside |

face wrapped around clutch output sprocket 36 and its

outside face wrapped around lower clutch outside

sprocket 37. Thus wheel 4 will be driven forwardly or

rearwardly depending upon whether the upper or low-

er clutch assembly is engaged by hand rotation of

handle 61.

14. In reference to claims 8 and 11 the examiner was of

the opinion that it would not constitute an invention to sub-

stitute a forward and reverse drive means such as that shown

A-45

by Schreck for the forward and reverse means of Loyd. This

was felt to be an obvious step to one skilled in the art. The

examiner also noted that the Schreck patent teaches the con-

cept of training the driven belt over one driving sprocket

and under the other driving sprocket, said sprockets driving

in the same direction, so as to obtain a forward or reverse

drive of the driven belt depending on which clutch is en-

gaged. It was further noted that Schreck disclosed a single

control means for simultaneous engagement of one clutch

and disengagement of the other. (Ex. 8, page 17).

15. Original claim 11 had claimed the following combi-

nation:

In a self-propelled vehicle having independently ro-

tatable propulsion wheels and a source of power for

driving said wheels, a separate transmission system for

propelling each of said wheels, each said transmission

system comprising a pair of clutches, each suid clutch

comprising a pair of rotatable, coaxially mounted

clutch plates adapted for movement into and out of

frictional clutching engagement with one another, belt

drive means interconnecting one clutch plate of each

clutch with each other and with the source of power

and adapted to rotate said clutch plates simultaneously

in the same direction, belt drive means interconnecting

the other clutch plate of each clutch with each other

and with the propulsion wheel, the connection between

the belt drive and the clutch plates being such that each

plate drives the belt and propulsion wheel in an oppo-

site direction to provide forward and reverse drive for

said wheel, and a movable shifting member adapted to

selectively engage the clutches to transmit forward or

A-46

reverse driving power to the propulsion wheel or simul-

taneously disengage both clutches to permit idling of

said wheel.

16. In response to the rejection by the examiner of its

previous claims, the Kellers, through their patent attorney

Thomas Lennon, filed an amended application of July 6,

1959. In it they cancelled claims 1, 2, 3, 4 and 10, amended

claims 5, 6, 7, 8, 9 and 11 and added new claim 12. (Ex. 8,

pages 18-23).

17. Claim 11 was amended by deleting language in the

last four lines and adding language so that the last portion

of the claim read as follows:

* * * provide forward and reverse drive for said wheel,

cam follower means associated with each of said

clutches, and a movable shifting member having a cam-

ming surface opposed to and contiguous with adjacent

pairs of said cam follower means, said camming sur-

face including a pair of drive promoting cam portions

and an idling portion and means for moving said mem-

ber to selectively engage one of said cam followers or

with said idling portion to transfit forward or reverse

driving power to said propulsion [sic] wheel or simul-

taneously disengage both clutches to permit idling of

said wheel.

18. Newclaim 12 had a substantially similar recitation,

but more specific, of an elongate, slidable shifting member

having a pair of longitudinally spaced apart protruding cam

portions contiguously opposed to cam follower means car-

ried by clutches in combination with a single operating mem-

A-47

ber in the vehicle cab for reciprocating the slidable member

across the cam followers to selectively engage one of the

cam portions with one of the cam follower means to driv-

ingly engage one of the clutches. (Ex. 8, page 20).

19. In remarks made by the Kellers’ attorney in the

amendment, it was argued that it would not be obvious to

one skilled in the art to substitute the drive system of

Schreck in the structure of the Loyd patent. In addition he

made the following argument:

[T]he shifting mechanism disclosed by Schreck for op-

tionally moving his clutches into and out of driving en-

gagement is quite dissimilar from that shown by appli-

cant and claimed by him, the shifting mechanism of

the Schreck device being considerably more compli-

cated and requiring a greater number of elements and

a complicated linkage which is more likely to result

in malfunctioning then [sic] is applicants [sic].

(Ex. 8, pages 22 and 23).

20. Amended claim 5 reads as follows:

In a self propelled vehicle having independently ro-

tatable propulsion wheels, and a source of power for

driving said wheels, a transmission system for each

wheels [sic] each said system comprising two pairs of

clutching members, each of said pairs being adaptable

for moving into and out of clutching engagement with

one another, means connecting one clutching member

of each pair with the source of power to drive said

members, means connecting the other clutching mem-

ber of each pair with the propulsion wheel in such

fashion as to cause forward or reverse drive depending

on which pair of clutching members are engaged,

)

A-48

cam follwer [sic] means associated with each of said

pairs of clutching members, and shifting means includ-

ing a cam member adjacent said cam followers and

selectively cammingly engaging one or the other of

said cam followers to selectively move one or the other

of said pairs of clutch members into clutching engage-

ment so as to selectively drive the propulsion wheel

forward or back as desired.

21. On November 10, 1959, the examiner made his

second report which stated in part as follows:

Claims 5 and 6 are rejected as unpatentable over the

patent of record to Loyd in view of the patent of record

to Schreck. It would be considered obvious to one

skilled in the art and an unpatentable step to substitute

the forward and reverse unit of Schreck for the forward

and reverse unit at each: wheel of the Loyd device. Note

that elements 39 of Schreck may be termed cam mem-

bers and elements 58 may be termed cam follower

means.

Claims 7-9 were rejected as indefinite. The examiner al-

lowed claims 11 and 12 which became claims | and 2 of the

503 patent. (Ex. 8, page 24).

22. In response to the second report of the examiners,

the Kellers on March 30, 1960, further amended their appli-

cation. They amended claims 5-9 and added new claims

13-21. (Ex. 8, pages 25-37).

23. On June 29, 1960, the examiner deemed the amend-

ment to be incomplete, (Ex. 8, page 38), whereupon the

Kellers again amended the application on July 19, 1960.

(Ex. 8, pages 39-50).

A-49

24. On April 25, 1961, the examiner, citing three new

patents, including Hellwarth, rejected the amended claims as

being unpatentable over the prior art. The Hellworth patent

is Exhibit 229.

25. In response to the examiner’s actions, the Kellers

amended their application on October 27, 1961. They can-

celled claims 5, 6, 7, 9, 15, 16 and 20, amended claims 13,

14, 17 and 18, and added new claims 22 and 23. (Ex. 8,

pages 54-63).

26. In remarks to the examiner, the Kellers’ attorney

stated that new claim 22 was drawn along the same general

lines as allowed claim 11 and differed therefiom only in the

recitation of the directions in which the clutch plates are

rotated. He further stated as to new claim 23 as follows:

New claim 23 is drawn along the same lines as new

claim 22 with the exception that the shifting means has

been recited in different terms so as to provide appli-

cant with a scope of protection different from that pro-

vided by allowed claims 11, 12 and new claim 22.

Since these new claims 22 and 23 are patterned along

the same general lines as allowed claim 11, they are

also bel'eved to be in allowable form.

(Ex. 8, page 58).

27. As this court found in the validity portion of the

trial (Memorandum decision of September 23, 1976, page

24), the same basic cam actuated clutch mechanism was

again recited in application claims 22 and 23. This recitation

included a movable shifting member with a pair of drive

promoting cam portions and an idling portion and means

A-50

for moving the shifting member to selectively engage one of

the drive promoting cam portions with one of a pair of cam

followers or with said idling portion to transmit forward or

reverse driving power to a propulsion wheel or to simultane-

ously disengage both clutches to permit idling of the wheel.

Application claim 23 included a similar recitation of cam

actuating means for the vehicle clutches, in slightly different

form.

28. In action taken on February 2, 1962, the examiner

allowed application claims 11, 12, 22 and 23, and rejected

all others as being anticipated by the prior art. (Ex. 8, pages

64-67). Application claims 22 and 23 became claims 3 and

4 of the 503 patent.

29. The Kellers’ subsequent efforts to obtain patent pro-

tection on the vehicle itself were unsuccessful, for it was the

position of the examiner as well as the U.S. Patent Office

Board of Appeals that the Hellwarth patent already disclosed

a land vehicle with independently rotatable propulsion

wheels which could be used for steering the vehicle. (Ex. 8,

pages 131-33).

30. The accused device is a clutch driven skid steer

loader manufactured by Clark and its two sublicensees J. I.

Case and Owatonna Manufacturing Company.

31. Clark also manufactures hydrostatic driven skid

steer loaders. They do not employ a clutching mechanism. A

hydrostatic machine is depicted in parts manual, Exhibit 12.

32. The drive system of the clutch driven loaders is typ-

ified by the drive of the Model 610 “Bobcat” loader manu-

factured by Clark and which is depicted in parts manual,

Exhibit 10. (Tr. Trans. Vol. I, page 152). The clutch drive

A-51

is also depicted in the drawings of the 117 patent. (Tr.

Trans. Vol. 1, page 74, testimony of Robert Gottschalk).

Exhibit 3 is a copy of the 117 patent.

33. Exhibits 4, 5 and 6 are blowups of the drawing of

the clutch mechanism disclosed in the 117 patent. Exhibit

617 is a blowup of page A-13 of Exhibit 10, a figure depict-

ing the transmission system of the Model 610 “Bobcat”

loader.

34. The clutch driven “Bobcat” is a small self-propelled

loader having four propulsion wheels. Referring to the 117

patent drawing, Fig. 4, Exhibit 4, there are two propulsion

wheels 11 on each side, which rotate independently from the

two on the opposite side. Each side has separate but identical

transmission systems. Referring to exhibit 618, each trans-

mission system consists of two clutches. Each clutch has an

input plate 15 and an output plate 18 rotated around a com-

mon axis, shaft 12. The source of power is transferred to

sprocket 27. A chain connecting sprocket 27 with the two

outer clutch plates 18, drives the two clutch plates simultane-

ously in the same direction. Chain 19 is trained over one of

the inner clutch plates 15 and under the other inner clutch

plate, and around sprocket 20, which in turn transfers power

to the propulsion wheels. This over and under arrangement

results in the two propulsion wheels being propelled in either

a reverse or forward direction depending on which clutch is

engaged. The shifting member for the clutches consists of

items 5, 10, and 11 which are operated by lever 6. Items 11

are externally threaded collars and are fixed to shafts 12.

Items 5 are internally threaded rotary actuators which are

positioned on collars 11. Item 10 is a bar connecting the

rotary actuators in such a manner that when it is moved for-

A-52

ward or backward, the actuators are rotated. The threads

on one actuator and its corresponding collar is right handed

while the other actuator and the corresponding collar is left

handed. Thus, rotation of actuators 5 causes those actuators

to move axially on the fixed threaded collars 11. The op-

posite threaded arrangement causes one of the actuators to

move toward and exert pressure on thrust bearing 13 and

washer 14, and the corresponding clutch plate, engaging that

clutch. Simultaneously, the other actuator is moved axially

away from the other clutch, disengaging it. Reverse move-

ment of bar 10 will in turn reverse the movement of the ac-

tutors and change the engagement of the clutches. The actu-

ators can be positioned so as to put both clutches in a neutral

position.

35. The 1971 exclusive license agreement between

Clark and the Kellers provided that Clark shall apply to all

devices embodying the inventions disclosed and claimed

in the three patents, patent markings for the three patents

in accordance with the applicable statutes.

36. On the “Bobcat” skid steer loaders manufactured

by Clark, a patent marking plate has been utilized.

37. The marking plates contain the heading “COV-

ERED BY ONE OR MORE OF THE FOLLOWING

PATENTS.” Exhibit 777 is an example of a patent mark-

ing decal appearing on the loaders in 1979.

38. The plates are revised periodically. The procedure

followed is that Clark’s legal staff contacts the Engineer-

ing Liaison Supervisor, advising him that a patent number

should be added or deleted. The Supervisor in turn initiates

an engineering change request which initiates the changes

A-53

required. Exhibit 776 is an example of such an engineering

change notice.

39. Since 1972, the plates have been amended several

times and at various times have contained a listing of from

9 to 38 United States Patents. Exhibit 228 is a compilation

of all the patents which were shown on the marking plates

for the skid steer loaders since 1972.

40. Until about 1974, Clark applied a universal patent

marking plate on both their farm implements and their

skid steer loaders manufactured by their Melroe Division.

After that time, the Melroe Division split into an Agri-

cultural Implement Division and a Bobcat division. There-

after, each division had its own patent plate.

41. The same patent plates appear on both the clutch

driven and hydrostatic models of the Bobcat loaders. The

patents listed include some applicable only to hydrostatic

loaders. Patents are also listed which cover optional at-

tachments for the Bobcat not sold with the basic units.

42. U.S. Patent No. 3-151,503 has been listed on all

patent marking plates for all models of skid steer loaders

manufactured and sold by Clark from January 1, 1972 to

date. (Response of Clark to Kellers’ Requests for Admis-

sions, Ex. 619).

Conclusions of Law

The court concludes on the basis of all the evidence

that none of the skid steer loaders manufactured by Clark

and its sublicensees embody the intention disclosed and

claimed in the 503 patent.

The court further concludes that Clark is not estopped

A-54

by reason of its marking the 503 patent number on their

skid steer loaders from denying royalty liability.

Discussion of the Facts and Application of the Law

[1,2] Itis well settled that the claims in a patent are the

measure of the patentee’s rights. L. S. Donaldson Company

v. LaMaur, Inc., 299 F.2d 412, 417, 132 USPQ 486, 490

(8th Cir. 1962). In determining the issue of infringement,

a specific format employing two analytical techniques is

generally followed. First, the court determines whether

there is literal infringement. And if there is no literal in-

fringement, there may be infringement under the doctrine

of equivalents. See Parmelee Pharmaceutical Company v.

Zink, 285 F.2d 465, 469, 128 USPQ 271, 274-275 (8th

Cir. 1961).

[3] As stated in Graver Mfg. Co. v. Linde Co., 339

U.S. 605, 607, 85 USPQ 328, 330 (1950), “In determin-

ing whether an accused device or composition infringes a

valid patent, resort must be had in the first instance to the

words of the claim. If [the] accused matter falls clearly

within the claim, infringement is made out and that is the

end of it.” The literal words of the patent claim constitute,

however, only the starting point in the determination of

literal infringement.

[4, 5, 6] Although the claims made in the patent are

the sole measure of protection, Aro Mfg. Co. v. Convert-

ible Top Co., 365 U.S. 336, 339, 128 USPQ 354, 356-357

(1961), and although a patent is not to be limited to the

preferred embodiments shown in the specifications, Conti-

nental Paper Bag Co. v. Eastern Bag Co., 210 U.S. 405,

419 (1908); Ziegler v. Phillips Petroleum Company, 483

A-55

F.2d 858, 869, 177 USPQ 481, 4874488 (Sth Cir. 1973),

cert. denied, 414 U.S. 1079, 180 USPQ 1 (1973), to deter-

mine their scope, the claims are to be construed in the light

of the specifications and drawings and both are to be read

with a view of ascertaining the invention. United States v.

Adams, 383 U.S. 39, 49, 148 USPQ 479, 482-483 (1966);

Studiengesellschaft Kohle v. Eastman Kodak Co., 616 F.2d

1315, 1324, 206 USPQ 577, 585-586 (Sth Cir. 1980);

Ellipse Corporation v. Ford Motor Company, 452 F.2d

163, 167, 171 USPQ 513, 514-515 (7th Cir. 1971), cert.

denied, 406 U.S. 948, 173 USPQ 705 (1972); Ethyl Cor-

poration v. Borden, Inc., 427 F.2d 206, 209, 166 USPQ 97,

99 (3rd Cir. 1970); Illinois Tool Works, Inc. v. Brunsing,

389 F.2d 38, 40, 156 USPQ 610, 610-611 (9th Cir. 1968);

Food Processes, Inc. v. Swift Company, 280 F.Supp. 353,

357, 155 USPQ 640, 643-644 (W.D. Mo. 1966); Rota-

Carb Corporation v. Frye Manufacturing Company, 197

F.Supp. 54, 60, 130 \'SPQ 307, 312-313 (S.D. Iowa 1961),

aff'd, 313 F.2d 443, 136 USPQ 507 (8th Cir. 1963). Ad-

ditionally, proceedings before the patent office should be

considered in determining the scope of the claims. Graham

v. John Deere Co., 338 U.S. 1, 33, 148 USPQ 459, 472-473

(1966); Ingersoll-Rand Company v. Brunner & Lay, Inc.,

474 F.2d 491, 498, 177 USPQ 112, 116-117 (Sth Cir.

1973), cert. denied, 414 U.S. 865, 179 USPQ 321 (1973);

Autogiro Company of America v. United States, 384 F.2d

391, 398-99, 155 USPQ 697, 703-704 (Ct. Cl. 1967);

Morpul, Inc. v. Glen Raven Knitting Mill, Inc., 357 F.2d

732, 734, 149 USPQ 1, 2-3 (4th Cir. 1965). Finally, the

state of the prior art is an important factor in construing

the scope of a claim. See Graham v. John Deere Co., supra;

Decca Limited v. United States, 420 F.2d 1010, 1013, 164

A-56

USPQ 348, 350-351 (Ct. Cl. 1970), cert. denied, 400 U.S.

865, 167 USPQ 321 (1970); Morpul, Inc. v. Glen Raven

Knitting Mill, Inc., supra; Hansen v. Siebring, 231 F.Supp.

634, 642, 142 USPQ 465, 471 (N.D.Iowa 1964), aff'd,

346 F.2d 474, 145 USPQ 634 (8th Cir. 1965), cert denied,

382 U.S. 943, 147 USPQ 541 (1965). The prior art cited

in the file wrapper gives clues as to what the claims do not

cover. Autogiro Company of America v. United States,

supra at 399, 155 USPQ at 703-704, for it is axiomatic that

a claim must be construed to be limited so as to exclude the

prior art. Smith v. Mid Continent Inv. Co., 106 F.2d 622,

624, 43 USPQ 59, 60-61 (8th Cir. 1939).

[7] Furthermore, to constitute literal infringement it is

not enough that the words of the claim read literally on the

accused device. This is only an initial hurdle in establishing

literal infringement. In Westinghouse v. Boyden Power

Brake Co,, 170 U.S. 537 (1898), the Court stated as

follows:

But even if it be conceded that the Boyden device cor-

responds with the letter of the Westinghouse claims,

that does not settle conclusively the question of in-

fringement. We have repeatedly held that a charge of

infringement is sometimes made out, though the letter

of the claims be avoided. * * * The converse is equally

true. The patentee may bring the defendant within the

letter of his claims, but if the latter has so far changed

the principle of the device that the claims of the patent,

literally construed, have ceased to represent his actual

invention, he is as little subject to be adjudged an in-

fringer as one who has violated the letter of a statute

has to be convicted, when he has done nothing in con-

flict with its spirit and intent.

A-57

Id. at 568 (citations omitted).

[8] Therefore, in order to sustain a charge of literal in-

fringement, not only do the words of the claim have to

read on the accused device, but the accused device must be

substantially identical with the one alleged to be infringed

in the result attained, the means of attaining that result,

and the manner in which its different parts operate to pro-

duce that result. If the accused device is substantially differ-

ent in either of these respects, the charge of literal infringe-

ment is not sustained. Graver Mfg. Co. v. Linde Co., supra

at 608-09, 85 USPQ at 330-331; Nat. Rolled Thread, Etc.

v. E. W. Ferry Screw Prod., 541 F.2d 593, 599-600, 192

USPO 358, 363-364 (6th Cir. 1976); Business Forms Fin-

ishing Service, Inc. v. Carson, 452 F.2d 70, 76, 171 USPQ

519, 523-524 (7th Cir. 1971); Decca Limited v. United

States, supra, at 1014, 164 USPQ at 351-352; Autogiro

Company of America v. United States, supra at 399-400,

155 USPQ at 703-705; Skirow v. Roberts Colonial House,

Inc., 361 F.2d 388, 391, 149 USPQ 882, 884-885 (7th Cir.

1966); Pursche v. Atlas Scraper and Engineering Co., 300

F.2d 467, 482, 132 USPQ 104, 115-116 (9th Cir. 1962).

See also Ronson Patents Corp. v. Sparklets Devices, 202

F.2d 87, 93, 96 USPQ 201, 205-206 (8th Cir. 1953);

Montgomery Ward & Co. v. Clair, 123 F.2d 878, 881, 51

USPQ 499, 502-503 (8th Cir. 1941).

[9] In the event the words of the patent claim do not

read literally on the accused structure, infringement is not

necessarily ruled out. The doctrine of equivalents prevents

one from avoiding infringement by making changes in a

patent which take the copied matter outside the literal lan-

guage of the claim, but add nothing to the invention. Graver

A-58

Mfg. Co. v. Linde Co., supra at 607, 85 USPQ at 330. In

this circuit, applying the equivalency test entails making the

determination that, “ ‘the infringing device [is] substantially

identical with the one alleged to be infringed in (1) the

result attained; (2) the means of attaining that result; and

(3) the manner in which its different parts operate and co-

operate to produce that result.’ ” Farmhand, Inc. v. Craven,

455 F.2d 609, 611; 173 USPQ 1, 2-3 (8th Cir. 1972). The

relationship between literal infringement and infringement

under the doctrine of equivalents has been described as fol-

lows: “Equivalence is the obverse of the discounting of lit-

eral overlap. The latter is to protect the accused; the former

to protect the patentee.” Autogiro Company of America v.

United States, supra at 400 155 USPQ at 704-705.

[10] The parties are not agreed as to the scope of any

of the four claims of the 503 patent but are agreed that if

claim 4 does not cover the Bobcat loader, neither do the

other three. (Tr. Trans. Vol. 11 page 88, cross-ex-examina-

tion of John C. Barnes). Thus, the first step in determining

whether there is literal infringement is reading the language

of claim 4 of the 503 patent on the accused device, the

clutch-driven Bobcat loaders. In determining possible in-

fringement, it must be shown that every essential element

of the combination claim, or its equivalent, is embodied in

the accused device. Absent such a showing, infringement

cannot be upheld. Scharmer v. Carollton Mfg. Co., 525

F.2d 95, 103, 187 USPQ 736, 742 (6th Cir. 1975).

Claim 4 reads as follows:

In a self-propelled vehicle having independently rotat-

able propulsion wheels and a source of power for driv-

ing said wheels, a separate transmission system for pro-

A-59

pelling each of said wheels, each said transmission

system comprising a pair of clutches, each of said

clutches comprising a pair of rotatable, co-axially

mounted clutch plates adapted for movement into and

out of frictional clutching engagement with one an-

other, first belt drive means interconnecting one clutch

plate of each clutch with each other and with the source

of power and adapted to rotate said clutch parts simul-

taneously, second belt drive means interconnecting the

other clutch plate of each clutch with each other and

with the propulsion wheel, one of said belt drive means

being wound in the same direction with respect to the

plates engaged therewith whereby movement thereof

in one dtn:ction causes rotation of said plates in the

same direction, the other of said belt drive means being

wound in opposite directions with respect to the plates

engaged therewith whereby movement thereof in one

direction causes rotation of said plates in the opposite

directions with respect to each other, cam follower

means cooperatively interconnected with each of the

said clutches, and shifting means including single cam

members interconnected by a single shiftable connect-

ing member and contiguous with each of said cam fol-

lower means and adapted to selectively cammingly

engage one or the other of said cam follower means

upon shifting movement of said connecting member

for shifting movement of said connecting member

for selectively engaging one or the other of said clutches

or to simultaneously disengage both of them to permit

idling of said wheel.

The accused device is a self-propelled vehicle havirg a

source of power for driving the propulsion wheels. It has

A-60

four propulsion wheels, all of which are not independently

rotatable. There is not a separate transmission system for

each wheel. However, the two wheels on one side of the ve-

hicle are independently rotatable from the two wheels on

the other, and each side has a separate transmission

system. Referring to Exhibit 618, each transmission system

is comprised of a pair of clutches. Each clutch is comprised

of a pair of rotatable, co-axially mounted clutch plates 15,

18, adapted for movement into and out of frictional clutch-

ing engagement with one another. There is a belt drive means

interconnecting one clutch plate. 18 of each clutch with

each other and with the source of power, 27 to rotate the

clutch plates simultaneously in the same direction. There is

a second belt drive means, 19 interconnecting the other

clutch plate, 15 of each clutch with each other and with the

propulsion wheel. This second belt drive is wound in op-

posite directions with respect to plates 15 whereby move-

ment of the belt in one direction causes rotation of plates 15 ©

in opposite directions with respect to each other. There are

cam follower means, 13, 14 cooperatively interconnected

with each of said clutches. The accused device has shifting

means, including single members 5, interconnected by a

single shiftable connecting member 10 and contiguous with

cam follower means 13, 14. The shifting means are adapted

to selectively engage one or the other of the cam follower

means upon shifting movement of connecting member 10,

for selectively engaging one or the other of the clutches or

to simultaneously disengage both clutches to permit idling.

[11] In just reading the words of claim 4 on the accused

device, it would appear that the clutch driven Bobcat em-

bodies all the elements of the claim, except for the language

describing a transmission system for each wheel. The ac-

A-61

cused structure differs from the claim in this respect only in

having an additional wheel on each side. As a general rule

the addition of an element to a patented structure does not

avoid infringement. See King-Seeley Thermas Co. v. Refrig-

erated Dispensers, Inc., 354 F.2d 533, 540, 148 USPQ 114,

119-120 (10th Cir. 1965); Hayes Spray Gun Company v.

E.C. Brown Company, 291 F.2d 319, 326, 129 USPQ 383,

389 (8th Cir. 1961); Aluminum Company of America v.

Sperry Products, Inc., 285 F.2d 911, 924, 127 USPQ 394,

404-405 (6th Cir. 1960); Ronson Patents Corp. v. Sparklets

Devices, 202 F.2d 87, 93, 96 USPQ 201, 205-206 (8th Cir.

1953). Here, the addition of a wheel on each side does not

substantially change the function of the vehicle and the

means employed to perform that function. Therefore, it is

doubtful that that aspect of change would avoid infringe-

ment.

Of greater concern, however, and that which was the

focus of this portion of .e lawsuit, is whether the accused

device embodies the essence of the 503 patent, the cam

actuated shifting means.

From a reading of the file wrapper it is evident that in

each of the four claims it was the portion describing the

shifting means which constituted invention over the prior

art. For example, when patent claims 1 and 2 were allowed,

the examiner rejected others such as claim 5, which were

similar in all respects but had a broader recitation of the

shifting means. Furthermore, it was that portion of patent

claim 1 describing the shifting means which was amended

before it was allowed. The examiner was of the opinion

that a vehicle having independently rotatable wheels was

not invention. This concept was disclosed in the Loyd patent.

Nor was it a novel idea to train the driven chain over one

A-62

driving sprocket and under the other so as to obtain forward

or reverse drive depending on which clutch was engaged.

This concept was taught in Schreck. The examiner also

stated that it would be considered obvious to one skilled in

the art and an unpatentable step to substitute the forward

and reverse unit of Schreck for the forward and reverse

unit of each wheel of the Loyd vehicle. The examiner had

not changed his position on any of these matters when he

allowed claim 1 after it had been amended. In addition, at

this state of the patent prosecution, it appears that the

examiner considered Schreck to be the most pertinent prior

art concerning the shifting means. (Ex. 8, pages 17 and

24). The Kellers’ attorney, in referring to the shifting means

in his remarks to the examiner, argued that the shifting

mechanism disclosed by Schreck was dissimilar from that

shown in the applicants’ device in that the latter was less

complicated. Therefore, it is evident that the examiner

allowed claims 1 and 2 because he was of the opinion that

the cam actuating shifting means disclosed in those claims

was patentable over the prior art of Schreck.

When patent claims 3 and 4 were allowed, the Kellers’

attorney had argued that they were drawn along the same

general lines as previously allowed claims 1 and 2. The court

adopted this characterization of those claims when it ad-

dressed the validity of the patent. Memorandum of Decision

and Order, September 23, 1976, page 24. It further found

that with respect to the cam actuated clutch drive features

claimed in all of the claims of the 503 patent, the patents

to Schreck and Hellwarth were the most pertinent prior art.

Id. page 17, finding 40.

In concluding the 503 patent was valid, the court on page

28 of its Order stated as follows:

=

A-63

* * * but there existed a gap in the teaching of the

prior art—Hellwarth and Schreck—as to how to in-

stall clutches in such a way to be able to actuate them

to maintain steering and forward and reverse control

in a smooth and effective manner from the operator’s

compartment. The Kellers conceived a new clutch drive

mechanism, and in addition combined with it an effec-

tive, positive cam actuated clutch mechanism which

proved to be highly effective and commercially suc-

cessful. The solution by the Kellers was not readily

obvious to one having ordinary skill in the pertinent art.

On the basis of the foregoing, the court concludes the

invention in the 503 patent lies in that portion of each of

the four claims which describes the cam actuated clutch

mechanism.

[12] Looking solely to the language of claim 4, it could

be argued that the words describing the shifting means read

literally on the accused device. However, if this was the

test for infringement, the patent law would “reward literary

skill and not mechanical creativity.” Autogiro Company of

America v. United States, supra at 399, 155 USPQ at 703-

704. “And since the law is to benefit the inventor’s genius

and not the scrivener’s talents, claims must not only read

literally on the accused structures, but also the structures

must ‘do the same work, in substantially the same way, and

accomplish substantially the same result.’ ” Id. at 399-400,

155 USPQ at 703-705.

In the 503 structure, referring to Exhibit 613, shifting

bar, 18 has protruding camming portions 19 and 19’ on each

end. This bar is adapted to slide horizontally along plate P.

Longitudinal slot 19b encloses stub shafts, 12 and 12’ so

A-64

as to keep the shifting member in a contiguous relation with

the cam follower means. When the bar is shifted horizon-

tally one or the other camming portion will exert axial pres-

sure on cam follower means 17 or 17’, v. ich in turn will

move their respective clutches into driving engagement. The

non-protruding portion of the shifting bar is of sufficient

length that it can be positioned to disengage both clutches

simultaneously.

Figures 4, 7 and 8 of the 117 patent shown on Exhibits

4, 5 and 6, depict the shifting mechanism for the transmis-

sion in a clutch-driven Bobcat loader. Referring to those

drawings, internally threaded rotary actuator members, rep-

resented by the numbers 95, 99 and 100 and «olored pink,

are threaded on externally threaded collars 96, which col-

lars are fixed in a stationary position on shaft 71 by means

of pins 97. Shifting member 101 connects the two actuators

at points 102 in such a manner that moving the member

forward or backward will cause the actuators to rotate. Ro-

tation of the actuators causes them to screw in or out in

relation to fixed collars 96. One actuator and its correspond-

ing collar is right hand threaded and the other actuator and

its corresponding collar is left hand threaded. Therefore,

when connecting member 101 is moved forward one of the

actuators will screw toward and exert axial pressure on

thrust bearing 93 and the corresponding clutch plate, while

the other actuator will simultaneously screw away from its

corresponding thrust bearing and disengage the clutch.

Moving the shifting member the opposite direction will re-

verse the movement of the actuators. The member 101 can

also be positioned so as to put both clutches in a neutral

position.

The shifting mechanism of the accused device is sub-

A-65

stantially identical with the structure of the 503 patent in

the result attained. Both achieve selective engagement of the

clutches for reverse or forward driving power. However,

the means by which they attain that result and the manner

in which their different parts operate to produce that result

are substantially different. The shifting bar in the 503 patent

requires plate P to aid in the camming action. It provides

the axial force of the camming protrusions on bar 18. In

the 503 structure the connecting member also acts as the

cam and is contiguous with the came followers. In the ac-

cused structure, connecting member 101 merely connects

the cam members and is not contiguous with thrust bearing

93. Furthermore, in the accused structure, the force re-

quired for the camming action is not provided by any side

plate, but rather is provided by the screwing action on the

stationary collars, 96. The importance of this latter distinc-

tion can be gleaned from Louis Kellers’ testimony concern-

ing the development of the rotary actuators. (Tr. Trans.

Vol. I pages 137-143, direct examination. )

He described that when the 440 series Bobcat loader, a

forerunner to the present Bobcat loaders, was being devel-

oped, the same slide bar actuated shifting mechanism dis-

closed in the 503 patent was used. However, a manufactur-

ing problem with the frame developed which upset the slide

bar mechanism. On a side plate on the 440, comparable to

plate P on the 503 structure, some welding was done be-

tween the two clutches. This caused the plate to warp and

create a high spot on which the slide bar could rock. The

resulting problems were sticking of the clutches, jerking, and

lack of control over the machine. This problem never existed

in the 503 structure since there was no welding done in that

location. The problem was severe. As Louis Keller described

A-66

it, “Now when that was warped on the other side, that slick

bar gives serious trouble, serious problem in the manufac-

turing of the frame. There ws no straight way to straighten

it. Anything you weld on the flat plate in the middle, it’s

going to warp. There was no way we couid hold it without

a serious cost.” (Tr. Trans. Vol. I page 141). As a result,

the threaded rotary mechanism was developed. The prob-

lem of the warped plate was solved because the plate had

nothing to do anymore with the actuating of the clutches.

[13] The threaded rotary actuators later were incorpo-

rated in the 117 patent. This court has already made a find-

ing that the principle features recited in certain claims of the

117 patent which contributed to their allowance were the

pairs of rotary threaded actuators for actuating the clutches

of the vehicle. (Memorandum of Decision and Order, Sep-

tember 23, 1976, page 29, finding 3). The court also found

that when the patent examiner allowed the claims in the 117

patent, he had searched the class and subclass in which the

503 patent was cross-referenced. Id. page 51, finding 129. It

is therefore presumed that the examiner considered the 503

patent and discarded it as being no more pertinent than the

art cited by him. See Panduit Corporation v. Burndy Cor-

poration, 517 F.2d 535, 538 n.2, 186 USPQ 75, 77 n.2

(7th Cir. 1975), cert. denied, 423 U.S. 987, 188 USPQ 48

(1975).

It is evident that the rotary actuating shifting mechanism

of the clutch driven Bobcat loader is substantially different

from the 503 structure in both the means by which it attains

the desired result and the manner in which its different parts

operate to produce that result. The Bobcat shifting mechan-

ism was developed to overcome deficiencies in the 503

structure. It was not a mere improvement over the 503

A-67

structure, but rather was an innovative device employing

different principles to more effectively achieve the desired

result, and a device later found patentable over the dis-

closures of the 503 patent.

As previously stated, the prior art is helpful in determin-

ing what the claims of the 505 patent does not cover. Auto-

giro Company of America v. United States, supra. Both

the examiner and this court treated Schreck as pertinent

prior art. Schreck was cited by the examiner both for teach-

ing the over and under belt means and the control means

for engaging and disengaging the clutches. (Ex. 8, File

Wrapper of 503 patent, page 17). It was by distinguishing

the shifting means portion of patent claims 1 and 2 from

that disclosed in Schreck which led to their being allowed

by the examiner. Since claim 4 was drawn along the same

lines, Schreck is also relevant prior art as to it. This being

the case, claim 4 must be read so as to exclude the shifting

means disclosure of Schreck.

The Schreck structure is described in its patent drawings

appearing on Exhibits 224 and 225.

Shifting collars 39 and 40 have extending arms 49 and

50. Connecting member 51 connects the arms so that the

collars are constrained to rotate simultaneously in the same

direction. When the connecting member is moved up or

down, the shifting collars are rotated on shafts 16 and 17

respectively and interposed between shifting collars 39 and

40 and inner supporting plate 18. The shifting collar 39 and

adjacent stationary collar 52 on upper shaft 16 and the

corresponding elements on lower shaft 17 have on their

opposed faces circumferentially spaced recesses 56 and 57,

which provide seats for opposite ends of thrust pins 58. The

pins are regularly spaced around the axis of the collars at

A-68

an incination to the opposed faces of the collar. The pins

are so disposed that upon rotating movement of either col-

lar 39 and 40 in one direction the pins move toward a posi-

tion parallel with the axis and exert an axial thrust on the

collar. The thrust pins engaging one shifting collar are in-

clined opposite to the pins engaging the other shifting collar

so that pressure is applied to one collar when it is turned in

one direction and to the other collar when it is turned in the

opposite direction. When axial pressure is applied to a col-

lar, it exerts pressure on washer 34 and clutch plate 31,

engaging the clutch. Thus by moving connecting member

51 up or down, one or the other of the clutches will be en-

gaged, providing forward and reverse power. A neutral posi-

tion is also provided.

A literal reading of the language of claim 4 relating to

the shifting means so as to read upon Bobcat structure

would also describe the Schreck shifting mechanism. Schreck

has shifting means including single cam numbers 39, 40,

contiguous with cam follower means 34, connected by a

single shiftable connecting member 51. The single cam

members are adapted to selectively cammingly engage one

or the other of the shifting of connecting member 51 for

selectively engaging one or the other of the clutches or to

simultaneously disengage both of them to permit idling. But

this is an impermissible reading, for a claim must be con-

strued to avoid the prior art.

Looking beyond the literal language of the claim, it is

evident that although the 503 shifting means attains the

same result as the Schreck shifting means, the means by

which they attain the result are vastly different. The 503

patent achieves the desired result by a positive cam actu-

ated clutch mechanism, with far less parts and linkages than

A-69

required by Schreck. The Schreck patent was also consid-

ered by the examiner before he allowed the claims of the 117

patent. (Memorandum of Decision and Order, September

23, 1976, page 51, finding 131). The threaded actuators

were patentable over the disclosure in Schreck. But if the

shifting means portion of claim 4 is read to cover the trans-

mission system in the Bobcat it would also read on the shift-

ing means structure disclosed in Schreck. The file wrapper

is clear that when the 503 claims were allowed, the examiner

did not intend to give them that scope.

Assuming arguendo that the language of claim 4 reads

literally upon the Bobcat transmission system, the latter

“has so far changed the principle of the device that the

claims of the patent, literally construed, have ceased to rep-

resent [the alleged infringer’s] invention.” Westinghouse v.

Boyden Power Brake Co., supra at 568. Although the shift-

ing mechanism of the Bobcat is substantially identical to the

503 mechanism in the result attained, the means by which

they attain that result and the manner in which their differ-

ent parts operate to produce that result are substantially

different. There is no literal infringement on the 503 by the

accused device.

Since the court has assumed that the words of claim 4

read literally on the accused structure, the court has also

disposed of the issue of the doctrine of equivalents. In find-

ing that the accused structure employs substantially differ-

ent means to attain the desired result and its parts operate

in a substantially different manner than the 503 structure,

‘the court has found that the Bobcat transmission system is

not equivalent to the 503 structure. Farmhand, Inc. v.

Craven, 455 F.2d 609, 611, 173 USPQ 1, 2-3 (8th Cir.

1972).

A-70

Having decided that the 503 patent is not infringed by

the Bobcat structure, it is necessary to consider the legal

effect of Clark’s marking its loaders with the patent number.

The Kellers contend that because of the marking, Clark is

estopped to deny that the clutch driven Bobcat loaders em-

body the invention disclosed by the 503 patent.

[14] Case law appears to establish that at least in some

instances, marking a product with a patent number may

estop the marking party from asserting that the product is

not covered by the patent. See e.g., Gridiron Steel Co. v.

James & Laughlin Steel Corp., 361 F.2d 791, 797, 149

USPQ 877, 881-882 (6th Cir. 1966); Collis Co. v. Consol-

idated Machine Tool Corp., 41 F.2d 641, 645, 6 USPQ

109, 113 (8th Cir. 1930); Kant-Skore Piston Co. v. Sinclair

Mfg. Corp., 32 F.2d 882,885, 2 USPQ 112, 115-116 (6th

Cir. 1929), cert. denied, 281 U.S. 735 (1929); Crane Co.

v. Aeroquip Corporation, 364 F.Supp. 547,560, 179 USPQ

596, 606-607 (N.D. Ill. 1973), modified, 504 F.2d 1086,

183 USPQ 577 (7th Cir. 1974); Canaan Products, Inc. v.

Edward Don & Company, 273 F.Supp. 492,502 (N.D.IIl.

1966), aff'd, 388 F.2d 540 (7th Cir. 1968); Touchett v.

EZ Paintr Corporation, 150 F.Supp. 384,391, 113 USPQ

16, 21-22 (E.D.Wis. 1957); Smiths America Corp. v. Ben-

dix Aviation Corp., 140 F.Supp. 46, 52-53, 108 USPQ 302,

306-307 (D.C. 1956), aff'd, 248 F.2d 621, 114 USPQ 518

(D.C. Cir. 1957); Lathrop v. Rice & Adams Corporation,

17 F.Supp. 622,626, 33 USPQ 72, 75-76 (W.D. N.Y.

1936).

[15] Clark contends, relying on Kenyon v. Automatic

Instrument Co., 186 F.2d 752, 755-56, 88 USPQ 301, 303-

304 (6th Cir. 1951), that the doctrine is not applicable in

A-71

the instant case since the patent plate heading, “Covered by

one or more of the following patents,” is vague and did not

convey to the public that the 503 patent, one of at least nine

patents listed, was embodied in the Bobcat loader. The Ken-

yon case, however, does not stand for that proposition. The

court considered the patent plate heading as only one of the

factors leading it not to apply patent marking estoppel. This

was recognized in Smiths America Corp. v. Bendix Aviation

Corp., supra, where the court distinguished Kenyon and de-

fendant was estopped to deny infringement where it had

marked its product with plaintiff's patent number on a plate

containing five patent numbers under the phrase, “Manu-

factured Under One or More of the Following Patents.”

[16] Clark also argued that the contractual provision

concerning patent marking prevents patent marking estop-

pel. It implied that the contract required it to mark the 503

patent number on its skid steer loaders regardless of whether

, it covered the machine. However, that provision required

Clark to mark devices which embodied one of the three pat-

ents, in accordance with the applicable statutes. The court

is aware of no statute that requires one to mark a device

with a patent number which does not identify a patent em-

bodied in the device. Nor did the contract require this ac-

tion. This alone is no defense to patent marking estoppel.

See Gridiron Steel Co. v. James Laughlin Steel Corp., supra

at 796-97, 149 USPO at 880-882.

[17] The court, however, is hesitant to apply the doc-

trine, partially because of absence of its application in re-

cent case law and partially because the more recent cases

which have applied it appear to have used it as an alterna-

tive ground for its decision. In Gridiron, supra, the district

A-72

court had found that defendant’s device embodied features

of the patent in question but went on to find patent marking

estoppel. Id. at 796, 149 USPQ at 880-881. In Smiths

America Corp. v. Bendix Aviation Corp., supra, Canaan

Products, Inc. v. Edward Don & Company, supra and Kant-

Skore Piston Co. v. Sinclair Mfg. Corp., supra, the court

did not use the patent marking estoppel doctrine as the sole

ground for its decision. Either the court found infringement

or considered additional factors not present here. The deci-

sion in Collis v. Consolidated Machine Tool Corp., supra,

was a suit for unfair competition in the use of a trade name.

The court held the defendant was not guilty of laches since

its delay had been induced by reliance on plaintiff's false

public representations that certain articles were protected

by plaintiff's patent which in fact had expired. 41 F.2d at

645, 6 USPQ at 113. In Crane Co. v. Aeroquip Corporation,

supra, the district court found that the accused device did

not infringe the patent. Despite its holding of non-infringe-

ment the court held that by reason of marking the patent

number on the device, the defendant was estopped from

denying it was liable for royalties. On appeal, however, the

Seventh Circuit Court of Appeals found there was infringe-

ment. In referring to the district court’s treatment of mark-

ing estoppel, the court stated, “it is unnecessary for us to

decide the question whether the court was right in holding

defendant liable by reason of marking. We express no opin-

ion on that phase of the decision below. 504 F.2d at 1093,

183 USPQ at 581-582.

In the instant case, several factors considered together

persuade the court not to apply the doctrine. Other than the

marking plates, Clark since 1972 has not represented to

the public that their loaders were covered by the 503 patent.

A-73

The patent plate heading, along with the number of patents

listed, upwards to 38, is another such factor. Furthermore,

the same paient marking plate containing the 503 patent

number was placed on both clutch-driven and hydrostatic

machines. The patent numbers included patents which cov-

ered only optional attachments. Applying the patent mark-

ing estoppel doctrine as the Kellers wish would reach the

result that Clark would have to pay 503 royalties on their

hydrostatic loaders, a result not remotely suggested by the

Kellers. Also, holders of patents on an optional feature

could seek royalties on the loader not equipped with the

feature solely because their patent number was listed on the

loader. It is equally incredible that the patent marking estop-

pel doctrine would dictate that Clark pay royalties on the

clutch-driven loaders-despite the court’s holding that the

loader does not embody the invention disclosed in the 503

patent. On the record before the court, the court holds that

Clark is not estopped from denying that its loaders embody

the invention disclosed in the 503 patent.

The court concludes that Clark is not liable for royalties

to the Kellers under their license agreement for the 503

patent.

Issue of Late Filing of the 117 Patent Application

The Evidence, Findings, and Conclusions

1. In about September, 1958, Louis and Cyril Keller

became employed by the Melroe Manufacturing Company

in Gwinner, North Dakota. Louis Keller was employed full

time working in the engineering department and devoting

his time to loader development. He was paid a monthly sal-

ary. Melroe Manufacturing provided the work area and all

A-74

the necessary materials. Louis Keller was so employed until

1967.

2. The transmission system for a three wheel front

loader which was the subject of the 503 patent was devel-

oped by the Kellers before their employment with Melroe

Manufacturing. That patent application was filed on De-

cember 1, 1958.

3. On May 19, 1959, the Kellers and Melroe Manufac-

turing entered into an agreement whereby in return for a

percentage royalty, the Kellers granted Melroe an exclusive

right to manufacture three wheel lifting and scraping de-

vices disclosed in the 503 patent application still being

prosecuted. That agreement provided that the Kellers would,

at their own expense, continue to protect patent rights, but

that Melroe Manufacturing could, at its own expense, take

whatever steps it deemed appropriate for establishment and

protection of the Keller’s patent rights. (Ex. 556).

4. The Kellers’ patent attorney at that time was Thomas

Lennon, an associate with the law firm of Williamson,

Schroeder & Palmatier in Minneapolis. He had processed

for the Kellers the 503 patent application and a design pat-

ent, D 191,506, covering the design of the structure disclosed

in the 503 patent. Louis Keller was sole inventor on the

design patent which was filed on April 6, 1960. (Ex. 643).

5. In the summer of 1961, Louis Keller together with

Clifford Melroe, then president of Melroe Manufacturing,

began developing a new four wheel drive loader.

6. Starting in either September or October, 1961, and

continuing into February, 1962, Louis Keller on several

occasions approached Clifford Melroe about obtaining ad-

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ditional patent protection on the four wheel loader. Clifford

Melroe expressed no interest. (Tr. Trans. Vol. IV p. 73).

7. In the fall of 1961, the Kellers were still correspond-

ing with Thomas Lennon concerning the prosecution of the

503 patent. (Exs. 646,647). On November 20, 1961, Louis

Keller wrote to Mr. Lennon, enclosing five photographs of

the new four wheel “Bobcat” loader, and asked him to re-

view the photographs to see if the design patent covering the

three wheel loader would be sufficient to cover the design

of the new loader. (Exs. 654,655). The letter and photo-

graphs were received by Mr. Lennon on November 22, 1961.

8. On November 24, 1961, Mr. Lennon wrote to Louis

Keller stating he had compared the photographs with the

design patent on the original loader and that the new loader

had a distinctive appearance. He suggested that Louis autho-

rize him to file a new design application for the new loader

(Ex. 664).

9. Roger Melroe, then vice president of Melroe Manu-

facturing, had overheard some of the conversations Louis

and Clifford had had concerning patent protection and in-

quired of Louis what the problem was. This was shortly be-

fore February 14, 1962. Louis told Roger about his concern

of patent protection for the new loader, explaining his un-

derstanding of the one year critical date of the patent laws.

Roger told Louis to get the patents started. (Tr. Trans. Vol.

VII p. 39).

10. On February 14, 1962, Louis Keller wrote to

Thomas Lennon authorizing him to go ahead on a design

patent. (Ex. 285). On February 16, the Williamson law

firm opened a file on the design patent. (Ex. 261).

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11. On February 28, Mr. Lennon wrote to Louis Keller

requesting additional photographs he needed for work on

the new design patent. He also inquired as to the persons

involved in the invention. (Ex. 649).

12. On March 16, 1962, Mr. Lennon again wrote to

Louis. In that letter, he discussed further progress on the

503 patent application, including an upcoming interview

with the Examiner. He also stated that at the first oppor-

tunity he was going to visit Melroe’s Minneapolis sales office

and look at the latest model of the loader so he could give

consideration as to whether it would be advisable for Louis

to file a mechanical application on the new loader. He stat-

ed this would turn in part on the results of the interview

with the Examiner concerning the 503 patent. (Ex. 650).

13. Shortly after, Louis sent to Mr. Lennon a series of

photographs of the new loader which Lennon had request-

ed. These photographs were received by Mr. Lennon on

March 20, 1962.

14. On April 3, 1962, Mr. Lennon wrote to Louis in-

forming him of the results of the interview with the Exam-

iner on the 503 patent. He further stated that after expected

action took place on the 503 application, they would discuss

the scope of the 503 claims and give consideration as to

whether it would be advisable to file a mechanical applica-

tion on the new loader. (Ex. 651).

15. Around the first of May 1962, Louis met with

Thomas Lennon at the Melroe sales office in Minneapolis.

There they observed the new loader and took the side panels

off to inspect it. After conferring with Mr. Lennon, Louis

verbally authorized him to go forward on a mechanical pat-

“

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ent application for the new loader. (Tr. Trans. Vol. IV p.

98).

16. On May 25, 1962, Mr. Lennon wrote to Louis in-

forming him that the drawings for the new design patent

were completed, and again inquiring who should be listed as

inventors on the design patent and wliether there was going

to be an assignment of that patent to Melroe Manufacturing.

(Ex. 290).

17. On May 31, 1962, Louis and Cyril Keller and Clif-

ford and Roger Melroe met at the Williamson law office to

discuss a license agreement concerning a snow plow attach-

ment the Kellers had developed before coming to work for

Melroe Manufacturing. Clifford Melroe had been unaware

up to that time of Louis Keller’s efforts to get a design and

a mechanical patent on the new loader. At the meeting he

inadvertently observed the drawings for the new design pat-

ent. He became angry, accusing Louis of stealing. Roger

attempted to quiet him down, and later, discussions took

place. In the course of the discussions it was agreed that

since the design patent was nearly completed, Lennon would

be allowed to finish it. Louis, Cyril and Clifford were to be

listed as co-inventors. Clifford insisted that the design patent

be assigned to Melroe Manufacturing. He further demand-

ed that Lennon turn over to him anything relating to the

mechanical patent. He stated that he would use Melroe

Manufacturing’s patent attorney to prepare the application.

He specifically requested that Lennon provide him with the

allowed claims of the 503 patent and those claims he ex-

pected to be allowed.

18. Louis Keller did not agree with Clifford Melroe’s

actions relating to the mechanical application, but felt pow-

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erless to protest because Clifford was his boss. However,

Louis relied on Clifford’s representations that Clifford would

handle the application, and Louis did not take any further

action on the mechanical application. Nor was Louis ever

consulted in the course of the preparation of the application.

(Tr. Trans. Vol. IV p. 107-113).

19. Thomas Lennon construed Clifford’s actions as tak-

ing away his authority to file a mechanical application.

(Depos. of Thomas Lennon, 1-8-80, p. 81).

20. The following day, on June 1, 1962, Mr. Lennon

sent Clifford Melroe a list of the claims in the 503 patent

application that had been approved. (Ex. 293). On June 7,

1962, Lennon forwarded to Clifford a copy of the claims in

the 503 he expected to be approved. (Ex. 298).

21. The evidence is inconclusive as to how much work

Thomas Lennon had done on the mechanical portion of the

new patent application as of May 31, 1962. Louis Keller

had no specific recollection of what was in the file Clifford

observed. (Tr. Trans. Vol. IV p. 106). Clifford testified

that he recalled seeing drawings of the Bobcat, but believed

that most of them related to design, although there might

have been some work on the mechanical patent. (Depos. of

Clifford Melroe, 10-5-79 p. 34). Thomas Lennon had little

or no recollection of the events surrounding this time, other

than he did recall that his authority to file a mechanical pat-

ent application was taken from him. He could not recall

whether a file had been opened or what documentation he

had for a mechanical application. The only file from the

Williamson law firm received in evidence which related to

the 117 patent was opened on October 25, 1962. There is

no indication that Mr. Lennon forwarded anything to Clif-

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ford other than the claims of the 503 patent. The only itém

or document found in the files of the Williamson firm which

would be related to the mechanical portion of the new loader

was a photograph of the clutch mechanism, (Ex. 655B),

which was not forwarded to Clifford.

22. On June 1, 1962, Thomas Lennon sent copies of

the design patent application for the new loader to Melroe

Manufacturing for execution of signatures. Also sent was an

assignment of the patent ownership to Melroe Manufactur-

ing. (Ex. 661). Both the application and assignment were

executed by Louis and Cyril Keller and Clifford Melroe on

June 21, 1962. (Exs. 282, 283). The documents were sent

by Lennon to the Commissioner of Patents on July 24, 1962.

(Ex. 289). That patent was filed on July 25, 1962 and sub-

sequently issued as D 195,254 on May 21, 1963. (Ex. 644).

23. John R. Swindler of the law firm Irons, Birch,

Swindler & McKie in Washington, D.C., had been Melroe

Manufacturing’s patent attorney since the mid 1950s.

(Depos. of John Swindler, 2-6-80, p. 5).

24. On June 13, 1962, Clifford Melroe first contacted

Mr. Swindler by telephone concerning patent protection for

the new loader It was also discussed that Warner-Swazey

Company had contacted Melroe Manufacturing about buy-

ing up its rights to the loader. Swindler was told that the

loader was first introduced around the first part of 1962. He

requested that Clifford send him a copy of the 503 patent

application along with drawings and photographs of the new

Bobcat loader so as to determine whether the new loader

was covered. Exhibit 67 is Swindler’s handwritten notes of

the conversation. Exhibit 66 is a typewritten memorandum

dated June 13, purportedly regarding a phone conversation

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on June 16, 1962. Swindler, at his deposition, thought that

the two memos related to two phone conversations, one on

the 13th and a second on the 16th. The court finds that both

memos relate to the call on the 13th. In the call noted on

Exhibit 66, Swindler requested documents from Clifford to

be mailed that same day. On June 13, Clifford sent to

Swindler, pursuant to their phone conversation on that day,

all the information he had received from the Williamson

firm, along with pictures and blueprints of the parts for the

Bobcat. (Ex. 68).

25. On June 15, 1962, Mr. Swindler called Clifford

Melroe and requested authorization to inspect the 503 pat-

ent application at the Patent Office. Exhibit 70 is Swindler’s

notes to the conversation. That same day, Louis Keller sent

the authorization. (Ex. 71).

26. On June 27 and 28, 1962, Clifford Melroe went to

Washington, D.C. and met with John Swindler concerning

further patent protection for the new Bobcat loader. Clifford

explained the mechanical inventions to Swindler and Swin-

dler sketched some rough drawings. (Ex. 72). Clifford also

informed Swindler that he and Louis Keller were to be the

named inventors. There was also a discussion about an as-

signment of the invention to Melroe Manufacturing.

27. It was Swindler’s customary procedure at that time

to explain to a patent applicant the law of public use and

offer for sale and that an offer for sale could create the prob-

lem even if no actual sale or shipment took place. Depos.

of John Swindler, 2-6-80, p. 174. Clifford Melroe had had

experience in the past with obtaining patent protection on

Melroe products. He was aware of the “public use” and “on

sale” provisions of 35 U.S.C. §102(b) which bar patent

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applications not filed before the critical date. (Depos. of

Clifford Melroe, 10-5-79, p. 60).

28. Following his normal procedure, Swindler inquired

of Clifford as to when the subject matter of the Bobcat in-

vention had been first offered for sale. (Depos. of Clifford

Melroe, 10-5-79, p. 63). Clifford responded that the first

machine did not go out until January 4 or 5, 1962. He re-

ported no other sale activity. Swindler felt he had no reason

to question the dates Clifford had given him in response to

his questions on the subject, and thus relied on this informa-

tion for determining the critical date. (Depos. of John

Swindler, 2-6-80 pp. 126-130).

29. This court has previously found that loaders em-

bodying the elements of the 117 patent was offered for sale

out of Melroe’s Minneapolis sales office to Midland Coop-

erative around September 29, 1961 and to the Farmers

Union Central Exchange around the first week of October,

1961. (Memorandum of Decision and Order. September

23, 1976, page 58).

30. The M-440 Bobcat loader was the first production

model to incorporate the elements of the invention disclosed

in the 117 patent. The first commercial production model

of the M-440 was delivered to the Farmers Union Central

Exchange on January 4, 1962. (Memorandum of Decision

and Order. September 23, 1976, finding 91, p. 44).

31. The loader which eventually became the one dis-

closed in the 117 patent began as a series of preproduction

loaders built in the spring and summer of 1961. The 4th

prototype was the first preproduction loader to incorporate

the elements of the invention disclosed in the 117 patent

which eventually were put into the M-440 production model.

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This prototype loader was first constructed near the end of

the third quarter of 1961. (Memorandum of Decision and

Order, September 23, 1976, finding 49, pp. 36-37).

32. The court has found that an M-440 was demon-

strated to Midland Cooperative and Farmers Union Central

Exchange in the late summer or early fall of 1961. (Prior

order, findings 92 and 102, pp. 44 and 45).

33. At the time of the June meeting with Swindler, Clif-

ford Melroe knew of the prototypes which had been devel-

oped, since as co-inventor of the 117 patent he was person-

ally inveived in their development. (Depos. of Clifford Mel-

roe, 3-11-80 p. 32).

34. He was also aware of demonstrations of the loaders

in the summer or fall of 1961. He knew the new machine

was being shown to customers who had in the past purchased

some of the older model machines and who wanted a new

improved machine because the older model was not satis-

factory. The customers were shown what had been done to

see if it was an acceptable machine to them. (Depos. of Clif-

ford Melroe, 3-11-80, p. 35).

35. It was Clifford Melroe’s opinion these demonstra-

tions did not constitute offering the machine for sale. He

did not inform John Swindler of these demonstrations.

(Depos. of Clifford Melroe, 3-11-80, p. 48).

36. Exhibits 741-755 are sales documents which in-

dicate that a number of M-440 loaders were offered for sale

to Midland Cooperative and Farmers Union Central Ex-

charge as early as September 29, 1961. These records were

maintained in the ordinary course of Melroe’s business at its

Minneapolis sales office. The court relied on these docu-

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ments as circumstantial evidence of an offer ior sale in its

determination that the 117 patent was invalid.

37. Clifford Melroe had not examined the company’s

sales records, and was not aware of the documents when he

informed Swindler that the machine first came out in Jan-

uary, 1962. (Depos. of Clifford Melroe, 3-11-80, p. 35).

38. When Clifford Meiroe was seeking patent protec-

tion on the loader, he was acting in furtherance and in the

course of his employment as president of Melroe Manufac-

turing Company.

39. On July 2, 1962, John Swindler wrote to Clifford

Melroe, advising him that in consideration of the complete

redesign of the loader construction and the important fea-

tures included therein, a patent application for the new

loader should be filed. Swindler stated that as discussed at

the June meeting, his firm was proceeding with obtaining

patent application drawings and they would prepare and

submit to Clifford a patent application for the new loader.

He also confirmed that the inventors would be identified as

Clifford E. Melroe and Louis J. Keller and that an assign-

ment would be forwarded with the application to assign it

to Melroe Manufacturing. (Ex. 73).

40. At the June meeting, Clifford Melroe and John

Swindler had discussed drafting an agreement to be signed

by all the Meiroe Company employees which would obligate

them to assign to the company any inventions they developed

during their employment. On July 5, 1962, Mr. Swindler

sent Clifford copies of the agreement (Ex. 58). Melroe

Manufacturing never utilized the agreements.

41. John Swindler corresponded regularly with the Mel-

roe brothers on the progress of the patent application. On

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August 30, 1962, he sent copies of four sheets of pencil

drawings reflecting the new patent. (Ex. 715). On October

11, 1962, Mr. Swindler sent the completed patent applica-

tion to Clifford Melroe for signatures. He also sent an as-

signment of the patent, assigning it to the Melroe Company,

to be signed by Louis and Clifford at the same time they

were to sign the application. ( Ex. 84).

42. Louis Keller and Clifford Melroe signed the patent

application on October 19, 1962 and returned it to Swin-

dler on October 23, 1962. Swindler filed it with informa!

pencil drawings, as was his customary practice, with the

Patent Office on October 23, 1962. He later filed formal

inked drawings. (Ex. 86).

43. When Swindler filed the patent in October, 1962,

he believed he was working against a critical bar date of

around the first of January, 1963, based upon what Clifford

had told him. (Depos. of John Swindler, 2-6-80, p. 130).

An experienced patent attorney could have prepared and

filed the 117 patent application within three or four weeks

after receiving authorization to do so and having the neces-

sary information. (Testimony of Richard O. Bartz, Tr.

Trans. Vol. IV, p. 139-140).

44. On November 5, 1962, Mr. Swindler wrote to Clif-

ford Melroe advising him that he had not yet received an

executed copy of the assignment. (Ex. 85).

45. The assignment was never executed. Clifford Mel-

roe could recall discussing it with Louis Keller, but could

not recall why it was never signed. (Depos. of Clifford

Melroe, 3-11-80, pp. 29-31). Louis could not recall Clifford

ever asking him to sign an assignment. (Tr. Trans. Vol. IV,

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p. 69). Clifford did not assign his rights in the 117 patent

to the Melroe Company until April 7, 1966, following a

specific request by Swindler to do so in order to simplify

the naming of parties in the Universal suit. (Ex. 108 and

unmarked letter of April 5, 1966, contained in Swindler’s

patent file, Ex. 65).

46. The patent on the Bobcat loader on the application

filed October 23, 1962, was issued as patent 3,231,117 by

the Patent Office on January 25, 1966.

47. On October 1, 1963, Louis and Cyril Keller entered

into an agreement with the Melroe Manufacturing Com-

pany which superceded their 1959 agreement. Pursuant to

the agreement, the Kellers granted to Melroe the exclusive

right and license to make or sell machines embodying the

inventions disclosed and claimed in a number of patents,

including the application for the 117 patent. In return, Mel-

roe agreed to pay the Kellers a predetermined royalty for

each such device sold. (Ex. 553).

48. The Melroe Manufacturing Company paid the Kel-

lers royalties under the 1963 agreement until August, 1969.

49. - Prior to February, 1969, the stockholders group of

Melroe Manufacturing were concerned with the rapid

growth of the company and with securing additional funds

for future growth. The group contemplated a public issue

and the question arose whether it would be more advanta-

geous to go a public issue route or sell the company.

50. In February, 1969, Roger Melroe had a casual con-

tact with a representative of Clark Equipment Company in

Chicago where there was an initial conversation concerning

Melroe Manufacturing’s financial situation.

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51. On March 31, 1969, the Melroe Manufacturing

Company, a North Dakota corporation, merged with the

Melroe Company, a Delaware corporation. Pursuant to the

articles and agreement of merger, the surviving Delaware

corporation assumed all the debts, liabilities and obligations

of the old corporation. (Ex. 717, tab 24).

52. Communication between Clark and Melroe contin-

ued over the following months leading to negotiations con-

cerning Clark’s acquisition of Melroe’s assets. Exhibit 717

is a compilation of documents prepared by Clark, covering

the transactions leading up to its acquisition of Melroe.

53. On June 30, 1969, Clark announced the forthcom-

ing acquisition of the Melroe Company.

54. On August 11, 1969, Clark and Melroe entered

into a written Agreement and Plan of Reorganization in

which Melroe, in exchange solely for voting common stock

of Clark, agreed to convey to Clark on the closing date of

August 15, 1969, all of Melroe’s assets except as specifically

excluded in the Agreement and Clark agreed to assume all

the liabilities, obligations and covenants of Melroe, except

as specifically excluded in the Agreement. (Ex. 207, con-

tained in Ex. 717, tab 17).

55. In §1.4 of the Agreement, Melroe represented and

warranted that the balance sheets reflecting Melroe’s finan-

cial status, previously given to Clark, reflected all known

claims against, and all debts and known liabilities of Melroe,

fixed and contingent. Melroe also represented that to its

best knowledge, no fact or condition existed or was contem-

plated which might cause a material adverse change in the

future.

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56. In §1.8 of the Agreement, Melroe represented and

warranted that Schedule C contained a listing of patents

owned by or licensed by Melroe and that to the best knowl-

edge of Melroe, there were no claims or demands of any

other person pertaining thereto. Kellers’ interest in the 117

was shown as an interest licensed to Melroe.

57. In §1.21 of the Agreement, Melroe represented and

warranted that neither the financial statements referred to in

§1.4 nor the Agreement contained any untrue statement of

a material fact or omitted to state a material fact necessary

in order to make the statements contained therein not

misleading.

58. Melroe also warranted and represented in §1.14 of

the Agreement that other than that listed in Schedule E, to

the best knowledge of Melroe, it was not threatened with any

legal action or proceedings.

59. Section 3.1 of the Agreement reads in part as

follows:

§3.1 Conveyances and Expenses. Melroe agrees to

convey, assign and transfer to Clark and Clark agrees

to acquire from Melroe on the Closing Date all of the

properties and assets of Melroe of every kind and de-

scription (except those assets to be retained by Melroe

pursuant to the next paragraph of this §3.1 and the

records to be retained by Melroe referred to in §4.1,

including but not limited to, cash, moneys on de-

posit and securities, all the goodwill of the business car-

ried on by Melroe and all of its customers, lists, credit

and sales records, and all other interests in which it has

a conveyable or assignable interest on the Closing Date,

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in consideration of (1) the delivery of 475,000 shares

of Common Stock of Clark on the Closing Date, and

(2) the assumption by Clark of all liabilities, obliga-

tions and covenants of Melroe on the Closing Date

except (i) any liabilities arising out of the breach of

any representation or warranty of Melroe contained

herein or the failure of Melroe to perform any of its

agreements contained herein, (ii) any liabilities not dis-

closed due to any misrepresentation by Melroe herein

and (iii) any liabilities referred to in the next para-

graph of this §3.1.

The next paragraph provided that after the closing date,

Melroe would retain a sum not exceeding $50,000.00 in

cash to be used to pay the incidental expenses connected

with Melroe’s acquisition by Clark.

60. Under the terms of the Agreement, on the closing

date Melroe would change its corporate name to a name not

including the name “Melroe,” and would transfer to Clark

the right to the use of its corporate name. .

61. Furthermore, pursuant to the Agreement, as soon

as practicable after the closing date, Melroe would effect its

dissolution and complete its liquidation by distributing to

its stockholders the 475,000 shares of common stock of

Clark delivered to Melroe.

62. The Agreement by its terms is to be construed in

accordance with the laws of the State of North Dakota.

63. In Schedule C of the Agreement, Melroe disclosed

the pending lawsuit asserted against it by Owatonna con-

cerning the 503, 117 and 254 patents. Also disclosed was

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the prior litigation initiated by Melroe against Universal

which in 1967 resulted in a consent judgment and Uni-

versal’s taking a license on the three patents.

64. There was no disclosure of any possible assertion

of tort liability against Melroe for late filing of the 117 pat-

ent application. Melroe had no knowledge of such a claim

and had no reason to know that such a claim would be

asserted.

65. On August 15, 1969, the closing date, the Clark

shares were delivered to Melroe. Shortly thereafter the

shares were reissued to the former Melroe stockholders.

66. Following the acquisition, the Melroe Company

changed its name to Gwinner Holding Company. Gwinner

Holding Company existed as a corporate shell or dormant

corporation with no employees, no business function, and

holding as assets only the $50,000 provided for in the agree-

ment for windup expenses. In August, 1973, the authority

of Gwinner Holding Company to transact business in North

Dakota was revoked by the Secretary of State for failure to

file a required annual report. (Ex. 733).

67. The physical plant at Gwinner became known as

the Melroe Division of Clark Equipment. It continued to

manufacture and sell the same line of products as it had as

Melroe Company.

68. With one or two exceptions, the corporate officers

of Melroe Company became officers of the Melroe Division

of Clark Equipment.

69. Most of the former Melroe employees became em-

ployees of the Melroe Division and they were allowed to con-

tinue their pension fund.

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70. For accounting purposes, the transaction was treat-

ed as a pooling of interests. (Ex. 717, tab 54).

71. Clark continued to pay the Kellers royalties under

the 1963 Melroe agreement. (Testimony of Kenneth Witt,

Tr. Trans. Vol. VIII p. 34).

72. In May, 1971, the Kellers and Clark Equipment

entered into a license agreement superceding the 1963 agree-

ment and which recognized the Kellers as joint owners of the

503, 117 and 254 patents. Pursuant to that agreement, the

Kellers granted to Clark an exclusive right and license to

make, use and sell. with the right to grant sublicenses to

third persons to make, use and sell, vehicles embodying the

inventions disclosed and claimed in the 503, 117 or 254 pat-

ents. Clark agreed to pay the Kellers a royalty of $15.00 for

each Licensed Device made and sold by Clark in a country

where there is a licensed patent and $10.00 for each Li-

censed Device made and sold by a sublicensee in a country

where there is a licensed patent. License Device was defined

as vehicles embodying the inventions or any thereof disclosed

and claimed in the licensed patents. (Ex. 551).

73. Royalties were paid to the Kellers by Clark under

the new agreement until approximately the second quarter of

1972. Thereafter royalties were paid into an escrow account

for a period of time and then discontinued altogether. On

October 10, 1972, Clark filed this declaratory judgment

action against the Kellers.

74. Since January, 1972, Clark has manufactured or

sold in the United States the following models of hydrostatic

skid steer loaders: Models 174, 520, 530, 533, 620, 630,

631, 632, 700, 720, 721 722, 730, 731, 732, 825, 833,

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970, 974, 975, 1074, 1075 and 1080. All these models

embody the invention disclosed in claim 9 of the 117 patent.

(Tr. Trans. Vol. III p. 133), reading from answers to

Keller’s Interrogatories, Set 6, Vol. VI pp. 132-144, testi-

mony of John Barnes).

75. Since January, 1972, Clark has manufactured or

sold in the United States the following models of clutch

driven skid steer loaders: Models 310, 313, 371, 600, 610,

611. All these models embody the invention disclosed. in

claims 1-6, 15, 18 as well as claim 9 of the 117 patent.

76. Exhibits 500-518 and 522-550 are parts manuals

for those Clark skid steer loaders.

77. Exhibit 582 is a written transcript of a tape used

by Clark in training distributors and dealers about com-

petitors’ skid steer loaders. Exhibits 584 through 590 are

copies of “Confidentially Speaking,” and “Kopycat Kon-

fessions,” publications put out by Clark which contain the

specifications and information on competitors’ machines,

comparing them to the Bobcat.

78. Claim 9 of the 117 patent reads as follows:

A tractor vehicle for use in handling material com-

prising an elongated body having an engine space at

the rear end thereof and a forward space for the

vehicle operator’s legs at the front end thereof with

a seat for the operator mounted on said body inter-

mediate and at an elevation above said engine space

and said forward space, an engine mounted in said

engine space, spaced wheels rotatably mounted on

opposite sides of the body, means for connecting said

engine to selectively drive said wheels in forward or

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reverse directions to propel and maneuver said vehicle,

a stanchion projecting upwardly from adjacent the

rear end of said body on each side of said engine

space and providing at the upper end thereof a pivotal

mounting, a lifting arm connected to said pivotal

mounting of each stanchion with each arm extending

forwardly along a side of said body past said operator’s

seat and downwardly adjacent the front end of said

body, a material handling member mounted on the

forward ends of said arms, and means connected to

each arm to make raise arms and the material handling

member mounted thereon in connection with use of

the vehicle.

79. Several of Clark’s competitors manufacture or sell

skid steer loaders which incorporate all the elements

recited in Claim 9 of the 117 patent, which loaders would

have infringed upon the patent if the patent application

had been timely filed. Some of the companies which sell

skid steer loaders are provided the loaders by other

companies.

80. Claim 9 of the 117 patent, if the patent applica-

tion had been timely filed, would be infringed upon by the

following skid steer loaders manufactured or sold presently

or in the past by companies oftier than Clark:

a. The Case models 1816 (Ex. 557), 1830 (Ex.

558), 1845 (Ex. 588A), and any other similar models

of loaders manufactured or sold by J. I. Case which

have component parts arranged so as to literally read

upon claim 9 of the 117 patent.

A-93

b. The Owatonna models 310 (Ex. 572), 440

(Ex. 573), 1700 (Ex. 574) and any other similar

models manufactured or sold by Owatonna Manu-

facturing which have component parts arranged so

as to literally read upon claim 9 of the 117 patent.

This also includes comparable machines manufactured

by Owatonna for John Deere.

c. The Gehl models 3000 (Ex. 562), 4500 (Ex.

563) and any other similar models of loader manu-

factured or sold by the Gehl Company which have

component parts arranged so as to literally read upon

claim 9 of the 117 patent.

d. The Rounder model L-600 (Ex. 576), L-700

(Ex. 577), L-1000 (Ex. 575), and any other similar

models of loader manufactured or sold by Oakes Man-

ufacturing, Inc. which have component parts arranged

so as to literally read upon claim 9 of the 117 patent.

This includes comparable models manufactured by

Oakes Manufacturing for the Gehl Company.

e. The various models of the Little Eric and Big

Eric (Exs. 588B and 560) manufactured and sold

by Erickson Corporation. This includes comparable

machines manufactured by Erickson for Ford. Illustra-

tive of such a Ford machine is the CL-40 (Ex. 561).

f. The Mitey-Mac models 8C, 9C, 12C, 14C and

20C manufactured or sold by Hydra Mac. The model

12C is illustrated in Ex. 568. This would include

comparable models marufactured by Hydra Mac for

International Harvester and Gehl. Not included is

the model 6C, a loader with one lift arm manufactured

by Hydra Mac.

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g. The Thomas 700 (Ex. 580), 173 (Ex. 579),

and any other similar models of loader manufactured

or sold by Thomas Equipment which have component

parts arranged so as to literally read upon claim 9

of the 117 patent.

81. Evidence offered on other competitive loaders, such

as the Lawman, Davis, New Holland, and Massey Fergu-

son, was insufficient for the court to make a determination

whether such loaders would infringe on the 117 patent, if

the patent was valid.

82. Had the 117 patent application been timely filed,

the patent would expire on January 25, 1983.

Conclusions of Law

[18] The court concludes the Kellers have established

by a preponderance of the evidence that Clifford Melroe

in the course of his employment as President of Melroe

Manufacturing and on behalf of Melroe Manufacturing,

took upon himself to file the 117 patent and thereby

assumed a duty toward Louis Keller to exercise reasonable

care in doing so; that by failing to inform Melroe’s patent

attorney of demonstrations of the loader of which he was

aware, and sales activities relating to the loader which he

should have discovered and which he could have discovered

with reasonable inquiry, he failed to exercise reasonable

care required by the circumstances, causing the patent

application to be filed late, resulting in damages sustained

by the Kellers.

The court further concludes the Kellers have established

by a preponderance of the evidence that when Clark

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acquired the assets of Melroe it contractually assumed

Melore’s liability to the Kellers, and further, notwithstand-

ing the agreement, the transaction in which Clark acquired

the assets constituted a de facto merger by which Clark

assumed the obligation as a matter of law.

Discussion of the Facts and Application of the Law

The Kellers claim that Melroe Company is liable for the

late filing of the 117 patent because it was either negligent

in the prosecution of the application, or breached a contract

with Louis Keller with respect to the prosecution of the

patent. Additionally it is alleged that Clark is responsible

for the liability which the Kellers claim against the Melroe

Company because Clark assumed the liability contractu-

ally and also as a matter of law is liable as the successor

in interest by reason of a de facto merger.

Clark’s defense is that Melroe Company was not negli-

gent and did not breach any contract. Clark further asserts

that if Melroe Company is found to be liable to the Kellers,

Clark did not assume such liabilities either contractually

or by law when it acquired the Melroe Company. It also

asserts its 1971 -ensing agreement with Kellers bars any

claim against Clark and it reasserts its statute of limita-

tions defense.

A. Statute of Limitations Defense

In reasserting its statute of limitations defense, Clark

requests this court to reconsider its order o

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