Appendix — Ex parte Phillips
Supreme Court brief1943
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APR 20 3943
— LES ELMORE CBBPLEY
fs OLE RK
—
‘Supreme Court of the United States
OCTOBER TERM, 1942
9457946 © 989
FORD MOTOR COMPANY,
Petitioner,
vs.
THE GORDON FORM LATHE COMPANY,
Respondent.
Transcript of Record
On Petition for Writ of Certiorari to the United States Circuit
Court of Appeals for the Sixth Circuit
VOLUME I.
Trial Papers, Plaintiffs Record and Part of
Defendant’s Record.
I, Josero Farzey,
1664 National Bank Bldg.,
Detroit, Michigan,
Coorzr, Kerr & DunHam,
Woolworth Bidg., 233 Broadway,
New York, New York,
Attorneys for Petitioner.
Lecuer, Micnart, Wuyte & Spoun,
110 East Wisconsin Ave., Milwaukee, Wisconsin,
Ricuey & Warts,
Union Commerce Bldg., Cleveland, Ohio,
Swan, Favs & Harpesty,
Ford Bidg., Detroit, Michigan,
Attorneys for Respondent.
United States Circuit Court of Appeals
FOR THE SIXTH CIRCUIT.
THE GORDON FORM LATHE COMPANY,
Plaintiff-Appellant and Cross-Appellee,
VS.
FORD MOTOR COMPANY,
Defendant-Appellee and Cross-Appellant.
Equity No. 4564.
APPEAL F'RoM
Tue District Court oF THE UNITED SraTEs,
Kastern District or MIcHIGAN,
SovuTHERN Division.
TRANSCRIPT OF RECORD.
VOLUME I.
Trial Papers, Plaintiff’s Record and Part of
Defendant’s Record.
Lecuer, Micnart, Wuyte & Spon,
110 East Wisconsin Ave., Milwaukee, Wisconsin,
Ricuey & Watts,
Union Commerce Bldg., Cleveland, Ohio,
Swan, Frye & Harpesry,
Ford Bldg., Detroit, Michigan,
Attorneys for Plaintiff-Appellant and
Cross-Appellee.
Bopman, LoncLey, Bocie, Mippteton & Far .ey,
1400 Buhl Bldg., Detroit, Michigan,
Coorer, Kerr & Dunnam,
Woolworth Bldg., 233 Broadway,
New York, New York,
Attorneys for Defendant-Appellee and
Cross-Appellant.
apne cece: —
RR ee IO Me BHM ot ED
INDEX.
VOLUME I.
Trial Papers, Plaintiff’s Record and Part of
Defendant’s Record.
CR na Sb 6h Gb cen eins aoe el vehiee boekconse cieeeetrees
GOS Oh POI Soi as ccc escsvcdareessieeuiensecdeveuns
Report of Gpocial Master... .ccscccccveccsscccesccceses
I. Nature of Invention and History of Litigation and
of Defendant’s Use of Machinery.................
i Ee a ca waren ew eeue
III. Accounting Period, and Production of Shafts on In-
fringing Machines: Question of Notice............
A. Boplmming Of Period. ...ccccccscvccvesccccses
B. Production of Camshafts and End of Accounting
WUE cn cecbeeesdeb4densse keane oussee sees
es PN cd nus 0555000540000 Sad eecResaeeresescuNs
A. Profits from Infringement....................
1. Standard of Comparison...................
a. Standard for Model A Shaft............
(1) Pioch and Modified Walcott Machines
(2) Westinghouse Lathe ...............
(3) Ford Cam Shaper..................
b. Standard for Tractor Shaft.............
e. Effect of Choice of Incorrect Standard...
2. Savings from Use of Infringing Machines...
a. Savings or Loss in Other Operations:
UNIO Succ weueuuataceccacsunans
b. Savings in Cam-Roughing Operation.....
(1) Direct Labor Savings...............
I
Sle 5 yc See gee SE aN, Se Bier inne connt
GRE Oe IOS EPR LRT i NPI es ATEN AOD ark EY
36
VLD ERLE PSOE INL UNTIL BRS
(a) Speeds of Production on Model T
DES on utevsdunssecerevecends 43
(b) Speeds of Production on Model A
UE: Skanensaeasavaceedveses< 44
(c) Speeds of Production on Tractor
ME 4 hd i uoeudabessudiwcnenss 46
(2) Other Savings: Overhead or Burden 47
(3) Offset of Loss from Scrapping Shap-
OD vesdcestistecccceusasacestncexs a9
3. Apportionment of Profits.................. 60
V. Damages: Reasonable Royalty................... 7
: A. Conditions to Assessment of Reasonable Royalty 73
3 ee EE EE FI cers ved cedeceescisvakennds 74
i VI. Questions of Clean Hands and of Increase of Re-
: GE bv Awan weussneosdcsnesescecdeuseuedneeeses 81
: iy RL EE ob eccnvuedesseonuds bekevnbecsaks 81
By Miamenen CE ROCNVGES . oo cc cccccsccusnevescees 84
; ee EE Oa yea ec ca ea can eee eee Te re rae ae ee: 93
; Schedule A. Production of Camshafts on Infringing Ma-
GE heads beubeens 4c ediewsestvecceoresncatesres 94
Schedule B. Proration of Production on Camshafts be-
tween Pioch and Walcott Machines, May 14, 1930 to
Beare 15, 1931, imotusive........ 2. ccc cee eevee. 97
Schedule C. Comparative Costs on Cam-Roughing Op-
eration with Walcott Lathes and Standards of Com-
NE aie oe eS a ee ee 99
Clerk’s Notice of the Filing of the Master’s Report........ 101
Plaintiff’s Objections to Master’s Report................. 101
Exceptions of Defendant to the Report of the Special Master 103
Motion for Aciion Upon Master’s Report and Objections
ME | bu Cade resescucioucsocensnééeeevle Siesdeeuns 111
a
Ne ) PPPUTTTTOTTTTETITI TIC TT Cie ie it ee 115
ate TF os cevcscecesenesehedeeveesesedessaceses 115
Reetals TEE cccccccdcccececevnsscdveurd dseuctesecse 115
Maieea TY iscccscccnencsdvcescede geen bsdcceenss os 115
Notice of Motion for Action Upon Master’s Report........ 117
Opinion of the Hon. Arthur J. Tuttle, District Judge, on the
Objections to the Master’s Report...............-+55. 118
Master’s Order for Statement of Account, dated July 6, 1937 132
Exhibit A—Defendant’s Statement of Account, filed Septem-
3h PRP PPT ryrerrrrerer errr Trier sr rrr ery Tere 138
Exhibit 7. Operation Sheet No. 1.............00e eee 151
Coretta Bet HO Fs so kas ccdeciveceyes 152
Operation Sheet No. 3...........0 ee eeeee 153
Cporataen Gent NO. Gra cccccscvecsedteness 154
Operation Sheet No. 5...........cecceeees 155
Exhibit 10. Material Price Card No. 1................ 156
Material Price Card No. 2................ 157
Exhibit 11. Computation of Certain Items of Cost of
Gordon Lathe Operation on Tractor Cam-
SE ia soa eedccddcededeneverncaaursees i 158
Exhibit 12. Computation of Certain Costs Involved in
Rough Grinding Operation on Tractor Cam-
shafts by Landis 10 x 36 Grinders during
Period July 1, 1925 to January 1, 1928..... 160
Exhibit B—Amendment to Defendant’s Statement of <Ac-
count, verified December 31, 1937..............cee cece 161
Ptf. Ree. Vol. III beginning line 18, page 29 of Type-
written Transcript (Mr. Spohn).................. 166
Master’s Order for Statement of Account, dated October 29,
ee NERO RAE PEs AIM EA DALY Birr te 5 GD 169
Exhibit C—Defendant’s Further Statement of Account,
SE I Bs GU hn odo avo tczsoepacantecccsas 171
Ptf. Ree. Vol. III from page 34, line 26 to page 37, line 3
inclusive of Typewritten Transcript (Mr. Spohn).. 193
III
TRANSCRIPT OF TESTIMONY
(Designated by both Plaintiff and Defendant).
RARE: ok cedb a niessektaced dda iagitckaneeeaes
PLAINTIFF’S RECORD.
Frep M. Hovis (Defendant’s Witness) :
Cross Examination by Mr. Spohn.....................
Cross Examination by Mr. Farley....................
Re-Cross Examination by Mr. Spohn..................
Re-Cross Examination by Mr. Farley.................
Re-Cross Examination by Mr. Spohn..................
Harovp M. Woeurte (Defendant’s Witness) :
Cross Examination by Mr. Spohn.....................
Re-Cross Examination by Mr. Spohn
Cross Examination by Mr. Spohn.....................
Re-Direct Examination by Mr. Farley
Re-Cross Examination by Mr. Spohn..................
Re-Direct Examination by Mr. Farley
Frep M. Hovis (Recalled) :
Cross Examination by Mr. Spohn
SCCCCCEHCCECECC ECHL OS
Serecvovvenoeeneeeee se
ee ves Ce Csv ORO ODE 8 EO
Harotp M. Woeurte (Recalled) :
ecoeereoeeeec eee eee seeseee
FCCCCHCOCECCHCCCECCCOCOSEES
Norman R. Scovity (Defendant’s Witness) :
Direct Examination by Mr. Farley
Cross Examination by Mr. Spohn
eeoeeeeeceoeoeeneeeeeesene
Topp L. Morse (Plaintiff’s Witness) :
Direct Examination by Mr. Spohn
Cross Examination by Mr. POs ehxdavancdascecess
Re-Direct Examination by Mr. Spohn
Re-Cross Examination by Mr. Farley
TC CECT CC CHC CC HCE ES OSS
IV
Cuarves Gorpon (Plaintiff’s Witness) :
Direct Examination by Mr. Spohn.................... 275
Cross Examination by Mr. Farley.................06. 280
Re-Direct Examination by Mr. Spohn................. 282
Cross Examination by Mr. Farley.................... 283
Lyte E. Brovenuton (Plaintiff’s Witness) :
Direct* Examination by Mr. Spohn................... 291
Howanrp Jones (Plaintiff’s Witness) :
Direct Examination by Mr. Spohn.................... 296
Cross Examination by Mr. Farley.................... 300
Re-Direct Examination by Mr. Spohn................. 302
Re-Cross Examination by Mr. Farley................. 303
Mites G. SLonrker (Plaintiff’s Witness) :
Direct Examination by Mr. Spohn.................... 304
Cross Examination by Mr. Farley.................... 308
DEFENDANT’S RECORD.
Cuar_eEs Gorpon (Plaintiff’s Witness) :
Cross Examination by Mr. Farley.................... 312
Topp L. Morse (Recalled) (Plaintiff’s Witness) :
Cross Examination by Mr. Farley.................... 423
* The Examination of Lyle E. Broughton by Mr. Spohn, appearing on
page 291, was incorrectly stated in the Typewritten Transcript. It should
be ‘‘Direct’’ instead of ‘‘Cross.’’
VOLUME II.
Defendant’s Record (Continued).
Morris E. SHawkey (Defendant’s Witness) :
Direct Examination by Mr. Farley....................
Spencer W. Lissy (Defendant’s Witness) :
Direct Examination by Mr. Farley..................4.
Cross Examination by Mr. Spohn..................05
Re-Direct Examination by Mr. Farley.................
Re-Cross Examination by Mr. Spohn..................
Morris E. Suawkey (Recalled) (Defendant’s Witness) :
Direct Examination by Mr. Farley....................
Mrxe Kuopstc (Defendant's Witness) :
Direct Examination by Mr. Farley....................
Raupn T. Myers (Defendant’s Witness) :
Direct Examination by Mr. Farley
Victor F. Marentetre (Defendant’s Witness) :
Direct Examination by Mr. Farley
Cross Examination by Mr. Spohn
A. M. Wipe (Defendant’s Witness) :
Re-Direct Examination by Mr. Farley
see eee eee ee eee seoe
Cuartes Gorpon (Plaintiff’s Witness) :
Cross Examination by Mr. Farley
CCRVPSCCECVC OCC EASE ETO 6 &
Tneopore R. Dani (Defendant’s Witness) :
Direct Examination by Mr. Farley
Georce W. Situ, Jr. (Defendant’s Witness) :
Direct Examination by Mr. Farley
PCIE REE SOS CaS REE Se AD
Apert AptTeKar (Defendant’s Witness) :
Direct Examination by Mr. Farley....................
Cross Examination by Mr. Michael
SPO CCC eevee oeavetecee 6
iLL ee eee ee. 2 oe
VI
EAL LS AT tee Ba Ih Pes tere Sh TM ae
Wituram D. Hunt (Defendant’s Witness) :
Direct Examination by Mr. Farley....................
Cross Examination by Mr. Spohn....................-
Re-Direct Examination by Mr. Farley.................
Re-Cross Examination by Mr. Spohn..................
Re-Direct Examination by Mr. Farley.................
Henry G. Prturncer (Defendant’s Witness) :
Direct Examination by Mr. Farley..................4
Cross Examination by Mr. Spohn...................5.
Re-Direct Examination by Mr. Farley.................
Re-Cross Examination by Mr. Spohn..................
Joun L. Scumipt (Defendant’s Witness) :
Direct Examination by Mr. Farley....................
Cross Examination by Mr. Spohn..................00.
Rupy Enruarp Herxiorz (Defendant’s Witness) :
Direct Examination by Mr. Farley....................
WituraM F. Piocu (Defendant’s Witness) :
Direct Examination by Mr. Farley....................
Cross Examination by Mr. Michael...................
Re-Direct Examination by Mr. Farley................
Re-Cross Examination by Mr. Michael................
Re-Direct Examination by Mr. Farley.................
Neus Borsen (Defendant’s Witness) :
Direct Examination by Mr. Farley................0.5.
Axanson P. Brusu (Defendant’s Witness) :
Direct Examination by Mr. Farley....................
Cross Examination by Mr. Michael...................
Re-Direct Examination by Mr. Farley................
Re-Cross Examination by Mr. Michael................
VII
Ervin Franky (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 825
Cross Examination by Mr. Spohn..................... 843
Re-Direct Examination by Mr. Farley................. 846
Re-Cross Examination by Mr. Spohn.................. 846
Re-Direct Examination by Mr. Farley................. 846
Re-Cross Examination by Mr. Spohn.................. 847
JosepH Henry AcuTen (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 847
Cross Examination by Mr. Michael................... 856
Re-Direct Examination by Mr. Farley................. 859
F rep Hovis (Recalled) (Defendant’s Witness) :
Re-Direct Examination by Mr. Farley................. 863
Re-Cross Examination by Mr. Spohn.................. 869
Re-Direct Examination by Mr. Farley................. 874
Re-Cross Examination by Mr. Spohn.................. 877
Re-Direct Examination by Mr. Farley................. 881
Re-Cross Examination by Mr. Spohn.................. 882
VIII
VOLUME III.
Defendant’s Record (Continued),
Appendix to Record and Appeal Papers.
Harotp W. Hoceian (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 883
Re-Direct Examination by Mr. Farley................. 889
Pierce ALBERT WeEyL (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 891
Cross Examination by Mr. Michael................... 911
Re-Direct Examination by Mr. Farley................. 913
Re-Cross Examination by Mr. Michael................ 918
Re-Direct Examination by Mr. Farley................. 920
Re-Cross Examination by Mr. Michaél................ 924
James McEvoy (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 925
Cross Examination by Mr. Michael................... 932
Re-Direct Examination by Mr. Farley................. 935
AuBert ApTekar (Recalled) (Defendant’s Witness) :
Re-Direct Examination by Mr. Farley................. 936
Re-Cross Examination by Mr. Spohn.................. 939
Re-Cross Examination by Mr. Michael................ 940
Re-Direct Examination by Mr. Farley................. 942
Re-Cross Examination by Mr. Michael................ 943
Re-Direct Examination by Mr. Farley................. 945
I. Josepu Fartey (Defendant’s Witness) :
pccnns Moctrecece MR OEE ee ORY arene te COIR 951
Cross Examination by Mr. Michael................... 956
Joun W. Micnaen (Plaintiff’s Witness) :
eb tseece PP RE Rts ret eS Reet Eka 962
Cross Examination by Mr. Farley.................... 965
Norman R. Scoviizi (Defendant’s Witness) :
Re-Direct Examination by Mr. CE eRe tye: 971
Ix
Harotp M. Woeurte (Defendant’s Witness) :
Re-Direct Examination by Mr. Farley................. 980
WituaM F, Procn (Defendant’s Witness) :
Re-Direct Examination by Mr. Farley................. 1051
Re-Cross Examination by Mr. Michael................ 1055
Re-Direct Examination by Mr. Farley................. 1059
Re-Direect Examination by Mr. Farley................. 1060
Re-Cross Examination by Mr. Michael................ 1061
Re-Direct Examination by Mr. Farley................. 1063
Re-Cross Examination by Mr. Michael................ 1063
Re-Direct Examination by Mr. Farley................. 1063
Re-Cross Examination by Mr. Michael................ 1064
Re-Direct Examination by Mr. Farley................. 1064
Re-Cross Examination by Mr. Michacl................ 1065
Haroitp M. Woenrte (Defendant’s Witness) :
Re-Direct Examination by Mr. Farley................. 1065
Re-Cross Examination by Mr. Spohn.................. 1071
Re-Direct Examination by Mr. Farley................. 1080
Donan M. Russe. (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 1082
Harotp M. Wornrwe (Defendant’s Witness) :
Examination by the Master.......................... 1094
Re-Direct Examination by Mr. _ . AR Re Rae 1095
Re-Cross Examination by Mr. Spohn.................. 1096
ALEXANDER OBERHOFFKEN (Defendant’s Witness) :
Direct Examination by Mr. EN SIRS Se a ee 1097
Cross Examination by Mr. Michael................... 1114
Re-Direct Examination by Mr. dues os ure ss i's 1122
Re-Cross Examination by Mr. Michael................ 1124
Re-Direct Examination by Mr. CPO RR ee 1126
Re-Cross Examination by Mr. Michael................ 1127
Re-Direct Examination by Mr. PE Sarena 1129
x
eaten
Henninc Ourn (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 1130
Cross Examination by Mr. Michael................... 1137
Re-Direct Examination by Mr. Farley................. 1150
Cuar_es Hasovicn (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 1151
Cross Examination by Mr. Michael................... 1159
ABeErT Kipta (Defendant’s Witness) :
Direct Examination by Mr. Farley.................... 1165
Cross Examination by Mr. Michael................... 1167
Wituiam D. Hunt (Recalled) (Defendant’s Witness) :
Re-Direct Examination by Mr. Farley................. 1171
Re-Cross Examination by Mr. Michael................ 1174
Re-Direct Examination by Mr. Farley................. 1182
Cuanctes Gorvonx (Recalled) (Plaintiff’s Witness) :
Re-Direct Examination by Mr. Michacl................ 1183
Re-Cross Examination by Mr. Farley................. 1198
Topp L. Moise (Recalled) (Plaintiff’s Witness) :
Re-Direct Examination by Mr. Spohn................. 1210
Re-Cross Examination by Mr. Farley................. 1240
Re-Direct Examination by Mr. SE nee 1258
xI
APPENDIX
TO TRANSCRIPT OF RECORD
Designated Portion of the Testimony of the Witnesses
Otto H. Schultz, Frank Steinke, Bert Weisel, William
Cunningham, and Charles Gordon from Plaintiff’s Exhibit
14—Patent Office Record, Interference No. 47,200—Her-
man W. Melling vs. Charles Gordon and Alfred Redlin.
Orto H. Scuvutzz:
Q. 1, page 132, to and including Q. 22 and Answer, page
136:
Direct Examination by Mr. Earl................. 1261
Q. 45, page 140, to and including Q. 72 and Answer 145:
Direct Examination by Mr. Earl.................. 1264
Bert WEISEL:
Q. 1, page 190, to and including Q. 55 and Answer, page
198:
Direct Examination by Mr. Earl.................. 1268
XQ. 84 and Answer, page 203:
Cross Examination by Mr. Dennett............... 1274
XQ. 100, page 205, to and including XQ. 102 and Answer,
page 206:
Cross Examination by Mr. Dennett............... 1274
XQs. 115 and 116 and Answers, page 210:
Cross Examination by Mr. Dennett............... 1275
XQ. 121, page 211, to and including RDQ. 150 and An-
swer, page 219:
Cross Examination by Mr. Dennett............... 1276
Re-Direct Examination by Mr. Earl............... 1281
RDQs. 153 and 154 and Answers, page 220:
Re-Direct Examination by Mr. Earl.............. 1282
RDQ. 166, page 222, to and including RDQ. 177 and An-
swer, page 224:
Re-Direct Examination by Mr. Earl............... 1282
XII
NON SLE TPES MELLEL IS LTE TIO ICT ET REE ORO MEET St
OTE RAN S, SHAE
PRETO GLEE MeO PED
RDQ. 183, page 224 to and including RXQ. 193 and An-
swer, page 226:
Re-Direct Examination by Mr. Earl..............
Re-Cross Examination by Mr. Dennett............
RRDQ. 207 and Answer, page 229:
Re-Re-Direct Examination by Mr. Earl...........
Frank STEINKE:
Q. 1, page 230, to and including RDQ. 66 and Answer,
page 238:
Wituiam Cunnincuam:
Q. 1, page 288, to and including Q. 16 and Answer, page
293 :
Direct Examination by Mr. SS Kiss cuucewadeeues
XQ. 19, page 293, to and including XQ. 43 and Answer,
page 298:
Cross Examination by Mr. Dennett............__.
RDQ. 44 and Answer, page 299:
Re-Direct Examination by Mr. Earl...............
Cuar_es Gorpon:
Q. 56, page 402, to and including Q. 57 and Answer, page
403:
Direct Examination by Mr. Dennett
eeecereeceeeeeeeens
Q. 66, page 405, to and including Q. 74 and Answer, page
409:
Direct Examination by Mr. Dennett..............
XQ. 188, page 441, to and including XQ. 190 and Answer,
page 442;
Cross Examination by Mr. Earl
XIII
1284
1284
1292
1295
1299
1300
1300
Master’s Report in National Tube Company v. Mark et al.,
pO PP errr err reer rT Tre rrr rrr Tre 1305
I EN os xebdevevedseveesestedeeconses 1305
Proceedings Before the Master............0ccceeeeees 1306
SE EE NAVY ob dp eves cbs ceseectncevezeseosnes 1307
ME EK Fee dse reserve eee eeedeetosvneceeevens 1308
Answers to Questions Referred..............eeeeeeee 1309
ee os des wd avs09-5 04450) o eeveuseonseres 1310
EE SeOcet reduc baede ek sevedeneuedent bed ceeedees 1312
Advantages Derived by Defendant From and Through
PEEL occu er cddareteeenereesceerss 1315
Eons kda evdveaeieecceuderneecvesesverescas 1319
NS eo lial sda decugderes des oeaeey 1321
PCr Et oecsee ee yes rede wacese¥esse seduces. 1322
ee Se Te IO oon eaevcceseevecvcavansesscece 1325
Judge Sater’s Opinion on Exceptions to Master’s Report in
National Tube Company v. Mark et al., Equity No. 4360 1326
Special Master’s Report, on Accounting of Profits, Opinion
and Order, and Opinion and Order on Standard of Com-
parison in O’Neal v. San Jose Canning Co., Equity No.
DUET CUP a reeUet ee ee Gatieae Che 4 edd eee ad oe ees Coles 1333
Special Master’s Report on Accounting of Profits...... 1333
Master’s Opinion and Order...............c0ceeeeeee 1336
Special Master’s Opinion and Order on Standard of
EE bccn tbne es eab-yseen ce Gedeeenuadesy. 1340
Opinion of the Cireuit Court of Appeals for the Sixth Circuit
in Gordon Form Lathe Co, v. Walcatt Machine Co., No.
5911, Decided April 12, 1929, 32 Fed. (2d) 55.......... 1344
Opinion of the Cireuit Court of Appeals for the Sixth Circuit
in Gordon Form Lathe Co. v. Ford Motor Co., Nos. 7363,
7364, Decided January 12, 1937, 87 Fed. (2d) 390....... 1358
XIV
PAREN: ARRnpSRI Ht ie, ee DPCM ERIN HHL Ne eR HME
Pe EE Si 0kdS 0bdbs 005 b ererbensunseeeeddéenwds Gaal 1365
Pe ee Sy Oe IR 0c veccntcncuxavevccesccesves 1369
Be SO AE ES ce doco cnccdncnersereneoucsese 1370
Plaintiff’s Statement of Points To Be Urged on Appeal.... 1371
Notice of Appeal of Defendant................ceeecceeees 1373
Bond on Appeal of Defendant...............cccccccceeeee 1375
Defendant’s Statement of Points To Be Relied On Upon
Appeal under Rule 75(d) of Rules of Civil Procedure... 1376
Stipulation Re Waiver of Supersedeas Bond............... 1379
Stipulation Concerning Number of Copies of Record to be
Ee Sc n.d ci nd Caos paatueeadvericesedeni: 1379
Stipulation Re Exhibits and Transcript of Record on Appeal
in Gordon v. Ford, Nos. 7363-4..........cccccccecucee 1380
Order Re Exhibits and Transcript of Record on Appeal in
Gordon v. Ford, Nos. 7363-4.........ccccccccccecccce 1381
Stipulated Designation of Contents of Plaintiff-Defendant
Composite Record on Appeal..............c0cceceuees 1382
Stipulation Extending Time to J gS REP eae ae 1399
Order Extending Time to July 29, 1941.................... 1399
Stipulation (filed July 21, 1941) Extending Time to Septem-
ber 27, 1941, and Approval of U.S. Circuit Court of Ap-
GONE 0 Centedaecasccesviveddeeisbsealt ieee 1400
Stipulation (filed September 24, 1941) Extending Time to
EN MCG Lut écuacounaeel uae et ae 1401
Stipulation Extending Time to November 26, 1941, and
Approval of U.S. Circuit Court of Ma scasdueeaxs 1402
PE SOs s0s5-desvatereeiidiac ae 1403
XV
Hi POMONA MIR NR ONE LM RE ERE TIFT NPI NR A. PNET RN CTY OND
Sec he es
Da cin Ta ane SR
VOLUME IV.
Plaintiff's Exhibits, Defendant’s Exhibits
and Main Record Exhibits.
PLAINTIFF’S EXHIBITS.
EXxubit Pace
D. Cost Summary Card for A-6250 Camshaft covering
January and March 1930 and September and Oc-
SON EE Sov iaewnsen ¥400sGs0c<kscadensecececadd 1404-5
E. Cost Summary Card for A-6250 Camshaft covering
May, August and October 1930 and March 1931... . 1406-7
E-1, Cost Summary Card for A-6250 Camshaft covering
March, May and July 1929, (Same as Exhibit 6 in
| Per aa Sane 1408-9
F. Cost Summary Card for T-410 Camshaft covering
I WP IN I os v0 6 oe K nese uecdecceecéecs. 1410
F-1. Cost Summary Card for T-410 Camshaft covering
July to November 1923.................cccceeee. 1411
F-2. Cost Summary Card for T-410 Camshaft covering
POY BE BUD TIDE o oo vccveucscscésccccseccu, 1412
F-3. Cost Summary Card for T-410 Camshaft covering
July to November 1924. .........cccccccccccccce. 1413
F-4, Cost Summary Card for T-410 Camshaft covering
April to September 1925................c0c0c0 ee. 1414
F-5. Cost Summary Card for T-410 Camshaft covering
October to November 1925................0.0005. 1415
F-6. Cost Summary Card for T-410 Camshaft covering
January 1926 to October 1929................... 1416-17
F-7, Cost Summary Card for T-410 Camshaft covering
WPI MINE 4 in tin i606 sesbocee obs vac cédecs 1418
F-8. Cost Summary Card for T-410 Camshaft covering
NE ET Seid ba ns odbae subd ieeba co scec.cs 1419
F-9, Cost Summary Card for A-6250 Camshaft covering
August 1928 to January 1929................... 1420-21
XVII
EXHIBIT Pace
F-10. Cost Summary Card for A-6250 Camshaft covering
December 1927 to June 1928.................4.. 1422-23
F-11. Cost Summary Card for F-446 Camshaft covering
April to Beptombber 1GTG......o.cccvccvcecccccceves 1424
F-12. Cost Summary Card for F-446 Camshaft covering
October to November 1925..........ccccccccccces 1425
F-13. Cost Summary Card for F-446 Camshaft covering
January 1926 to March 1928.................0.. 1426-27
H-1. Production Cost Record for T-410 Camshaft cover-
Se Fe Es sown buco eee ase 1428
L-1 to L-3._ Pages from note book kept by witness Spencer
Wis MON 4 Shanvdc cue cauhawsketesbetie cum: 1429-31
M. Operation Sheet compiled from notations appearing
in Exhibit L. (Same as Exhibit 13 attached to Ex-
WE TEE cco dec bcuvcnnysGotourtisied camels 1432-33
N. Operation Sheet for T-410 Camshaft dated 10-8-24.
(Same as Exhibit 14 attached to Exhibit _«) Pee 1434-35
O. Correspondence between Ford Motor Company and
Jackson Shaper Company...................... 1436-63
P-1 to P-14. Ford Work Orders for Repairs to Melling
Face MOP ET PEE EE PO OPO Muay anos ane aetna 1464-70
Q. Inventory card covering Ford Camshaft Shaper
a BES rr Hatten rap art aa angi g 1471
R. Inventory card covering Ford Camshaft Shaper
Gpenee SiAkkPhdekcevariicneet oe ee 1472
S. Inventory card covering Ford Camshaft Shaper
ET OE En Stake eK rela mM Rid | 1473
W-1 to W-14. Study of operation of Melling Lathes. .. .1474-87
X-1.
X-2.
X-3.
Productive Labor and Overhead for Department 410
OE ee bus ee ekeins bab edecdseduliesdasele cul cu. 1488
Same—continued to 2-28-31 ..................... 1489
Productive Labor and Overhead for F-446 Camshaft
Machining 6-1-25 to 3-31-28 ...................... 1490
XVIII
eID acaba tapes teste cateapa. it omen nseynge 2 PEP TOMER LEARN De MS
EXHIBIT Pace
Y-1. Inventory Card covering Melling Cam Turning
SD FI Se oi 0 6a hacked dh esdoescdcenein 1491-92
Z-3. Plaintiff’s statement of account............... 1493-1513
Z-4. Plaintiff’s schedule showing computation of depre-
ciation on Model T type cam shapers and Melling
Cee MIEN, vas dds Gedeeauecebeceensciccen as 1514-16
Z-5. Plaintiff’s compilation of depreciation cost on Model
T Cam Shapers and Melling Cam Lathes......... 1517-18
‘Z-6. Plaintiff’s computation of Maintenance and Over-
ME CE novo caste sueensoaitesenr cl.cee 1519-22
Z-7. Plaintiff’s computation of Cost of Tools......... 1523-24
CC. Telegram dated 11-18-30 addressed to Ford Motor
SINE chucvendndscacocidan teins cl eee 1525
DD. Telegram dated 11-18-30 ........................ 1526
GG. Release to White Motor Company from infringe-
ment of Gordon patent. (Included in Exhibit RR). 1540
HH. Letter of White Motor Company to Mr. John W.
Michael dated 12-24-29, (Included in Exhibit RR). 1532
RR. Gordon Form Lathe Company agreement file..... 1527-57
DEFENDANT'S EXHIBITS.
209. Copy of U. S. Patent No. 1,655,655 of January 10,
1928 to Herman W. Melling.................... 1558-66
217 to 222. Ford Purchase Orders for Melling Cam Turn-
Wt BN Ceaveirnunccorsiere ive cae 1567-73
232. White Motor Company Departmental Correspond-
UP I ng os ods nose cds oessen enn ue, 1574
EXHIBIT Pace
257. Ford assembly print showing attachment for use in
shaping Model A Camshafts....................6. 1578
258. Same—sub-assembly ...............cccccceceeees 1579
259. Same—showing removal of tools numbers 1 and 5.. 1580
263. Sketch drawn by witness Pioch.................. 1581
264. Letter of Mr. Pioch to Mr. Farley dated 11-2-38.... 1582
266. Computation by witness Pioch.................... 1583
268. Print Camshaft Shaping Machine Oberhoffken de-
sign—layout showing ‘‘tools to cut in both direc-
tions—speeds being equal’’...................00- 1584
269. Same—Layout to show individual relief of tools on
ee eer Pe OPC RA ene 1585
272. Sketch by witness Brush showing cutting action of
Shaper 1 l= Aid ic OE 1586
273. Same—showing cutting action of Melling Tool..... 1587
276. Brush sketch of two way cuts..............00000 1588
281. Operation Sheet for T-410 Camshaft dated 12-21-27.
(Same as Exhibit 15 in Exhibit C).............. 1589-90
289 (1 to 10). Engineering Record of T-410 Camshaft,
UNE PIE hbadye sks voutes ee ree dee davee dads 1591-95
290 (1 to 13). Same—Finished Size ............... 1596-1602
291 (1 to 3). Engineering Record for A-6250 Camshaft,
WOE EE epee cisco sa daos soculcisete esc. 1602-03
292 (1 to 4). Same—Finished Size ................. 1604-05
293. Ford print 9-Z-32, Shaper Tool................... 1606
294. Ford print 9-Z-215, Melling Tool................. 1607
295. Letter of witness Pioch dated 2-1-39 re: Surface
Speeds of Shaper Tools .................cc005. 1608-09
BPR LE BILLIE ALT IBLE LCI AALIEEAND DESY COE .
Ey
EXHIBIT Pace
298 (1 to 6). Engineering Record Fordson Tractor Cam-
shaft, Forging and Finished Size............... 1612-14
299. Summary of Ford Tractor Production............ 1615
301. Defendant’s substitute pages for plaintiff’s state-
ment of account Exhibit Z-3 making 3 changes. . . .1616-22
i I aa Sauce ccecndccces 1623-29
304. Pages from Ford Parts Price List, effective 2-1-31
RGRORENGATAEECBAGOAEV ECT £6 4406046666) 00000000 1630-33
305. Defendant’s computation of Comparative Direct
Labor Costs on F-446 Tractor Camshafts........ 1634-35
306. International Harvester Company Requisition for
Gordon Lathe dated 11-20-19..................... 1636
307. International Harvester Company order for Gordon
MM I EME Soe iiiknccccccccccesecce.s.., 1637
308. International Harvester Company installation of
machinery card covering ‘‘Gordon Std. Cam Turn-
gag oh OE CS nani 1638
309. International Harvester Company disposition of
machinery card covering same ................... 1639
312. Copy U.S. Patent No. 1,512,995 of 10-28-24 to Her-
SE Oe hd a ah nos ov icnu ces socccei, 1640-47
313. Copy U.S. Patent No. 1,634,550 of 7-5-27 to Herman
ae od cs ce vances ss hs. ce.,, 1648-52
314. Print #C-2129 of Walcott Machine Company—
*‘Assembly of New Style Parallel Type Tool Head’’ 1653
315. Print #KT-530-A of Walcott Machine Company—
“‘Assembly of Tool Head’ ...................... 1654
XXI
TOIT LT LENE NE PONY LTS BEE be Aap et
Cie ea és
MAIN RECORD EXHIBITS.
EXHIBIT PaGE
» 2 Copy of U. S. Patent No. 1,542,803 of 6-16-25 to
A TOE hs oo nce une ckcubaceeeeceas 1655-69
5. Amended Final Decree in Walcott case........ 1670-72
40. Notice of Infringement dated 7-1-25.............. 1673
41. Cuts only of Waleott Machine Company advertising
WIE h.cduavadasadsedsaekaeseaseueosesauees 1674-75
42 OE DME ab svencecudenscrelevidieadecuese 1676-83
48. 1929 Notice of Infringement.................... 1684-86
52. Photograph of Ford Shaper 34 front view......... 1687
SE. Gamne—Greml COW 5g occccccsccccoscecececcseccous 1688
53-b. Illustrated chart of Ford Shaper tool movements
We CE hes Ve vic dk ebeuoddseecancundevcteuea. 1689
59. Record re: delivery of Gordon machine to Ford.... 1690
06. Copy of Ford order for Gordon machine......... 1691-92
61. Affidavit of I. W. Kindall re: Ford Camshaft Shaper 1693
62. Ford Motor Company Print dated 5-18-15 showing
Ford Camshaft Shaper, front view............... 1694
CR. mn WH oon icc cveccccncvesosucttlidine 1695
64 Walcott letter to Ford 7-30-29.................... 1696
: 71. Copy of General Motors-Gordon Company Agree-
ment. (Included in Exhibit RR)................ 1552-57
| 154-a, b, ec, d. Records produced by Ford in response to
; CE QUES iediwanevcnadedeseciies ak 1697-1700
F
XXII
0 ———————EE—————
Caption 1
CAPTION.
Eastern District or Micuican,
SoutHern Division, ss.
Record of proceedings of the District Court of the
United States within and for the Southern Division of the
Eastern District of Michigan in the cause and matter here-
inafter stated. Said action was commenced on the 6th
day of July, 1937, and proceeded to final disposition on
the 29th day of April, 1941, and during the progress thereof
pleadings and papers were filed and orders of the Court
made and entered in the order and on the dates hereinafter
stated, to-wit:
Present: Tue Honoraste Artnur J. Turrie,
United States District Judge.
Tue Gorpon Form Latur Company
vs. In Equity No. 4564.
Forp Motor Company.
2 Decree on Mandate
DECREE ON MANDATE.
(Entered June 28, 1937 by Arthur J. Tuttle, Judge.)
This cause having been heard by this Court, and upon
consideration thereof and upon arguments and briefs of
counsel, and interlocutory decree of this Court entered
thereon on the 20th day of November, 1934, and appeal of
defendant and cross-appeal of plaintiff having been allowed
to the Circuit Court of Appeals for the Sixth Cireuit from
said decree, and such appeals having been heard and dis-
posed of, and said Circuit Court of Appeals having ordered
and decreed that the said decree of this Court in this cause
be modified and the cause remanded for further proceed-
ings in conformity with the opinion of the Circuit Court
of Appeals given January 12, 1937 and the further opinion
and ruling of said Court given and entered June 4, 1937,
and the mandate of said Court, issued February 19, 1937,
having been recalled and amended, and this cause having
been remanded to this Court on said amended mandate,
now in pursuance thereof, it is
OrpereD, Apsupcep and DrcrEEep
(1) That the interlocutory decree of this Court en-
tered on the 20th day of November, 1934, be and the same
is hereby vacated in favor of this decree which is substi-
tuted and entered in place thereof.
(2) That Letters Patent of the United States to
Charles Gordon and Alfred W. Redlin No. 1,542,803, issued
June 16, 1925 for Lathe is good and valid in law as to
Claims 1, 2, 28, 29, 30, 33, 34, 39, 40, 41 and 42; that the in-
ventors, Charles Gordon and Alfred W. Redlin, named in
the patent, were the first, true, original and joint inventors
of the inventions, improvements and combinations de-
scribed therein; and that the plaintiff, The Gordon Form
Lathe Company, is the lawful owner of the entire right,
title and interest in and to said inventions, improvements
and combinations and in and to said Letters Patent there-
for, as aforesaid, and has full standing in equity with re-
spect to the issues involved in this suit.
(3) That defendant, Ford Motor Company, has in-
fringed the United States Letters Patent No. 1,542,803 to
Gordon and Redlin and Claims 1, 2, 28, 29, 30, 33, 34, 39,
40, 41 and 42 thereof and has violated the exclusive rights
* -
RAMEE ASD MEE PD ARLE GA RII FPR RA CMI ee eae De me -
mR IS :
SSSsSsSs:'” me
Decree on Mandate 3
of the plaintiff thereunder by the use of machines known in
this record as the Melling or Walcott machine and illus-
trated in Exhibit 21 (drawings of the Melling machine
marked B-1, B-2, B-3 and B-4).
(4) That defendant, Ford Motor Company, has not
infringed the United States Letters Patent No. 1,542,803
to Gordon and Redlin and claims 29 and 30 of said Gordon
and Redlin patent by the manufacture and use of machines
known as the Pioch machine illustrated in Plaintiff’s Ex-
hibits 23, 24, 25, 44 and 114.
(5) That a Writ of Injunction issue out of and under
the seal of this Court directed to the said defendant, Ford
Motor Company, its officers, agents, attorneys, employees,
associates and privies enjoining and restraining it and
them and each of them, from directly or indirectly infring-
ing any of the claims 1, 2, 28, 29, 30, 33, 34, 39, 40, 41 and
42 of said Letters Patent and particularly from making or
selling or using any machines like those illustrated in Ex-
hibit 21 (drawings of the Melling machine marked B-1, B-2,
B-3 and B-4), or any apparatus or devices covered by or
containing or embodying any of the inventions defined in
any of said claims, end from offering or advertising so
to do, and from aiding or abetting others or in any way
contributing to the infringement of any of said Claims 1,
2, 28, 29, 30, 33, 34, 39, 40, 41 and 42 of said Letters
Patent.
(6) That the plaintiff recover from the defendant,
Ford Motor Company, the damages which plaintiff has sus-
tained and the profits, gains and advantages which the
defendant has derived, received, earned or saved by rea-
son of defendant’s infringements of said Letters Patent
No. 1,542,803, and this cause is hereby referred to Donald
L. Quaife, Esq., as Special Master, to take and report an
account of such profits, gains and advantages of the de-
fendant, and the damages sustained by the plaintiff by
reason of said infringements, and to compute and report a
reasonable royalty for the use of said machines and to
take evidence and report, on the questions of increase of
damages, and that the defendant, its officers, agents, clerks
and employees are required to attend before said Master
from time to time as he shall direct and produce before
him all of its books, papers, vouchers, documents and de-
4 Report of Special Master
vices as the Master shall order produced, and to submit
to such oral examination as he may direct.
(7) That the bill of complaint is dismissed without
prejudice as to claims 12, 23, 24 and 38.
(8) That costs not having been awarded upon appeal
from the interlocutory decree, no costs on said appeal
shall be taxed herein.
(9) Neither party is awarded any costs in this Court
prior to the date hereof.
Tutte, J. (sgd)
United States District Judge.
Detroit, Michigan,
June 28, 1937.
Approved as to form:
Swan, Frye & Harpesry,
Solicitors for Plaintiff.
Bopman, Lonciey, Bocte, Mippteton & Far ey,
Solicitors for Defendant.
REPORT OF SPECIAL MASTER.
(Filed March 3, 1941.)
To the Honorable Arthur J. Tuttle, District Judge:
This case was referred to me as Special Master to take
and report an account of the profits, gains, and advantages
of the defendant and the damages sustained by plaintiff
by reason of the infringement by defendant of plaintiff’s
patent, Number 1,542,803, issued June 16, 1925, upon a
machine for turning non-geometrical forms, and to deter-
mine also a reasonable royalty for the use of plaintiff’s
patent and the question of whether the damages sustained
by plaintiff should be increased. Pursuant to the order
of reference, I obtained from defendant elaborate state-
ee _
Report of Special Master 5
ments of account, covering facts underlying the determina-
tion of profits and damages and a statement of profit and
loss in debtor-creditor form, which were largely prepared
by independent accountants retained by defendant. The
plaintiff also employed an independent firm of account-
ants to prepare statements of profits of the defendant from
infringement, which were duly filed. A great deal of evi-
dence, including testimony covering approximately 3,500
pages of transcript and hundreds of exhibits, was intro-
duced; and exhaustive briefs covering the legal and fac-
tual issues in the accounting were filed by both parties. I
have carefully studied all of these documents, as well as
the record of the trial before the Court preceding the inter-
locutory decree on the question of the validity and infringe-
ment of the Gordon patent, the opinions of the various
tribunals which have passed upon the said patent, and
the many reported decisions of the federal courts relevant
to the legal issues in the accounting; and I report to the
Court herewith my findings of fact and conclusions of law
resulting from this investigation. Because of the difficul-
ties encountered in this case, and in order to comply with
the standards for a master’s report in a patent account-
ing case set forth in Horvath v. McCord, 100 F. (2d) 326
(C. C. A. 6, 1938), I am putting this report in opinion
form, with the intention that it shall serve as findings of
fact and conclusions of law.
I. NATURE OF INVENTION AND HISTORY OF LITI-
GATION AND OF DEFENDANT’S USE OF MA-
CHINERY.
The infringement of the defendant consisted in the
use of certain cam-cutting machines (referred to herein-
after as the ‘‘Walcott’’ or ‘‘Melling’’ machines) designed
by one Melling and constructed and sold by the Walcott
Machine Company, of Jackson, Michigan. The controversy
over the Gordon and Melling machines has had an extend-
ed history of litigation, including interference proceedings
in the patent office appealed to the highest tribunal (Mell-
ing v. Gordon, 4 F. (2d) 945, C. A. D. C., 1925); a pro-
ceeding under Sec. 4915 R. S. by Melling to compel the
issuance of a patent (Melling v. Gordon Form Lathe Co.,
14 F. (2d) 437, D. C., Ohio, 1926); a suit for patent in-
6 Report of Special Master
fringement by the present plaintiff against the Walcott
Company (Gordon Form Lathe Co. v. Walcott Machine
Co., 20 F, (2d) 673, D. C., Mich., 1927, same case on appeal,
32 F. (2d) 55, 1929); and, finally, the present suit, the
opinion of the Cireuit Court of Appeals being found at
87 F. (2d) 390 (1937). In all of this litigation Gordon was
successful on the question of validity and infringement,
with the exception of the decision by Judge Simons of this
district reported at 20 F. (2d) 673 (1927), in which the
Gordon patent was held valid but the Melling machine non-
infringing. The Cireuit Court of Appeals in both of the
decisions held the Gordon patent to be a pioneer patent.
Reference is made to the c'ted opinions for a fuller under-
standing of the history of litigation over these machines,
and for a complete description of the Gordon invention
and the mode of operation of the Gordon and Walcott ma-
chines, all of which it is unnecessary to repeat in detail
here. However, a brief statement of the nature of the
patent in litigation and the history of the defendant’s use
is advisable at the outset.
Plaintiff’s patent is one upon a lathe to turn non-
geometrical forms, as applied to this case specifically, the
pear-shaped cams on an automobile camshaft. The germ
of the Gordon invention, as found by the Cireuit Court
of Appeals, is the oscillation or tilting of the tool under
the control of a master cam to maintain at all times a
proper cutting angle between the upper surface of the
cutting tool and the surface of the work cam. The func-
tion of a camshaft in an automobile is to regulate the
opening and closing of the valves which admit the com-
bustible mixture into the cylinder and permit it to be
expelled after combustion. There are, therefore, two cams,
inlet and outlet, for each cylinder. In order to secure
proper timing in the engine, it is necessary to machine
the camshaft with great accuracy, both cams and bearings
generally being machined to a finish tolerance of 2/1000
of an inch. The method of manufacture of a camshaft
during and prior to the period of infringement was to
forge a steel shaft of the same general shape as the fin-
ished shaft but with as much as one fourth inch of excess
metal upon it, and to reduce it to finished form and com-
position in approximately fifty different operations upon
ie
eee ona
Report of Special Master 7
it. In the sequence of operations, the shaft is centered;
the concentric bearings and the parts between the cams
are turned; and the surplus metal is removed from the
cams in two steps: (1) a rough machining operation, which
removed most of the metal, and which was the operation
performed by the machines in litigation; and (2) a finish
grinding of the shaft. In between these two operations,
the shaft is casehardened to make its surface wear-resist-
ant. After these and other operations to, finish the flanges
and bearings, and to put on the necessary screw threads
and dowel holes, the shaft is polished and is ready for
inspection.
The removal of the excess metal from the cams of a
camshaft has always involved difficulty because of their ir-
regular shape. Until the development of the machines in
litigation, it was generally thought not to be feasible to use
a lathe, such as was used on the cylindrical parts of the
shaft, because of the poor cutting angle of the tool traveling
around the nose of the cam and the sharp clearance angle
required; and only one instance of the use of this type of
machine (the so-called Westinghouse lathe) prior to the
plaintiff’s patent is known. The method in most general
use before 1920 was that of grinding—a slow and expensive
operation in which the metal was ground off each cam in-
dividually with an emery wheel. There were isolated uses
of other machines, notably by the defendant, which had
not used the grinder (except for its tractor shaft) since
early in the century. Prior to 1913, the defendant was using
a form miller, which rough machined the cams in three
operations, but in that year it adopted for its automobile
production a special production machine, designed by its
engineers and built to order, known as the Ford cam shaper.
In this machine (which is classified as a planer), the cam-
shaft was mounted upon a ram and reciprocated longi-
tudinally beneath eight cutting tools, one for each cam,
which were relieved individually under the control of mas-
ter cams to secure the desired shape of the work. The
tools cut in only one direction, and on the return stroke
(which was twice as rapid as the forward stroke) the tools
were retracted in a body and the shaft rotated a small dis-
tance in preparation for the next cutting stroke, approxi-
mately ninety strokes being required to cut entirely around
the cams. A second revolution of the shaft was made for a
8 Report of Special Master
finishing cut, the tools not being advanced but the natural
spring back of the shaft permitting the removal of a slight
additional amount of metal.
The commercial use of the Gordon machines was lim-
ited, less than thirty being sold and their manufacture
discontinued some time before the issuance of its patent,
due to the successful competition of the Walcott machines,
which were better adapted to machine the type of cams in
use in the automotive industry. In 1923, defendant pur-
chased on approval a Gordon lathe for use on its tractor
shaft, but found that the rapid angular swing in the tool
cutting around the point of the sharp-nosed cam used in
the Ford shaft during a small angular rotation of the work-
piece caused the tool frequently to depart from its proper
path, resulting in a nick on the leading side of the nose of
the cam, which made it necessary to scrap the shaft. The
machine was consequently rejected by defendant. The
Walcott lathe (which was designed by Melling after wit-
nessing the operation of a Gordon machine on a Ford
tractor camshaft) avoided this difficulty by pivoting the
tool upon a center remote from the cutting point, which
caused the tool to cut slowly around the point of the cam
with a relatively small change in its angular position. (This
departure from the Gordon machine, which pivoted the tool
around its cutting point, was held by the Court of Appeals
to be insufficiently substantial to negative infringement.)
Accordingly, in 1924, defendant purchased a battery of
eighteen Walcott machines for its entire production of cam-
shafts (two for the tractor and sixteen for the automobile
shaft). It continued to use them (with the addition of six
more in 1929) until 1931, when they were finally replaced
by milling machines which were designed by defendant’s
engineer Pioch to avoid the effect of the decision of the
Court of Appeals in 1929 that the Walcott machines were
infringing, and which in this case were ultimately held non-
infringing. To bring this recital down to date, it should be
stated that in 1935 the defendant eliminated the operation
for which the machines in litigation were used by sub-
stituting cast alloy shafts, cast with such accuracy that a
roughing operation preceding the finish grinding of the
cams became unnecessary. It appears, however, that ex-
cept for Ford, the Walcott machines are still in general
use in the industry for rough-machining camshafts.
eC ee
Report of Special Master 9
Il. CLAIMS OF PARTIES.
Despite the thoroughness with which every avenue of
this case has been explored in the hearings, the parties are
very far apart on the ultimate question of defendant’s lia-
bility and on practically every issue in the accounting. The
plaintiff claims that the profits, savings, gains, and ad-
vantages of the defendant from infringement, computed
on a conservative basis, amounted to a minimum of $957,-
340.36; and that the damages suffered by plaintiff, on the
basis of a reasonable royalty of six cents per camshaft
turned on the infringing machines, amounted to $475,095.74.
Plaintiff also claims that the reasonable royalty should be
tripled for willful infringement, at least for the period sub-
sequent to the decision of the Cireuit Court of Appeals in
Gordon v. Walcott in 1929. On the other hand, the defend-
ant claims that it realized no savings, but rather lost money,
from the use of the infringing machines; that the plaintiff
suffered no damage from the infringement; that its in-
fringement was not willful and plaintiff is not entitled to
increased damages, if any be found to exist; that, if defend-
ant realized any profits or savings, they are attributable not
to the Gordon invention but rather to patented improve-
ments incorporated in the Walcott machine; and, finally,
that in any event the plaintiff is entitled to neither dam-
ages nor profits for the period prior to notice of infringe-
ment on June 13, 1929. Defendant further charges that
the plaintiff is guilty of unclean hands, which should bar it
from any relief.
Before considering specifically the issue in this ac-
counting, it may be advisable to make some general com-
ments upon the claims made by the parties. With regard
to defendant’s claim of loss, while it is conceivable that it
made a mistake in adopting the Walcott machines and that
it did not notice the slight loss per cam claimed it, especially
since it was attributable to the addition of another opera-
tion, still such a condition would be the exceptional thing,
and the contention should be scrutinized closely before be-
ing accepted. A claim of loss by the infringer appears to
be quite common in patent accounting cases. While it is
true that in many cases the claim has been sustained, the
courts have always regarded it with some suspicion. (See
remarks in Carson v. American Smelting Co., 25 F. (2d)
PLENUM ai 0. De
10 Report of Special Master
116, 121, D. C. Wash., 1928; Haiss Mfg. Co. v. Link Belt Co.,
00 F. (2d) 450, D. C. Pa., 1931, affirmed 63 F. (2d) 479;
Emigh v. B. € 0. R. Co., 6 Fed. 283, C. C. Md., 1881.) While
the claim is here certified to by independent accountants,
such also was the case in Larson v. Wrigley, 20 F. (2d) 830,
and 277 U.S. 97, 72 L. Ed. 800 (1928), where profits of ap-
proximately $1,000,000 were found to exist.
Defendant’s claim should be considered further in the
light of its experience with the Walcott machines. Defend-
ant first ordered two Walcotts in January, 1924, after an
investigation by its purchasing department. After trying
them out, it ordered sixteen more in April, receiving the
last one in June ; and it cancelled orders for five new shapers
under construction, at a cost of $20,000. The Model T ma-
chines were first installed at its Highland Park plant, and a
study of their operation was made by the purchasing de-
partment from August 11 to November 1, the conclusion
being reached that they were only sixty per cent efficient.
Nevertheless, no attempt was made to recover from the
Walcott Company on its guarantee of production, which
defendant had insisted upon; but instead the defendant
moved the machines to the Rouge plant, to which its main
productive activities were being transferred, making some
changes in the machines, particularly the slides. Before
moving them, it set up the shapers at the Rouge plant, but
again replaced them with the Walcotts. Within the next
two years, it had scrapped all of the shapers. In 1929, de-
fendant purchased six more Walcotts, and neither then nor
later in the year when it was searching for a non-infringing
substitute did it consider returning to them.
It may also be noted that there was some change be-
tween the infringement and accounting stages of this case
in the attitude of defendant’s employees toward the Walcott
lathes. While during the main trial they were regarded
as excellent machines, there was some tendency to disparage
them on the accounting as being overly complicated and
troublesome. Of course, as in practically all patent ac-
countings, most of the evidence here has had to come from
defendant; and this should be considered in weighing the
evidence, since the testimony of some (though by no means
all) of its witnesses was understandably affected by the
self-interest of their employer.
LOCI SIL I TOTALS SRL OOD LOM cniemeaniiiiiens —— i
PLETE LL TOE APE see
Report of Special Master 11
I have the feeling, on the other side, that plaintiff, as
well as defendant, has taken a somewhat extreme position
in this case. There is a tendency on its part to measure
the benefits of the Walcott machines to Ford largely by
reference to the grinding process, overlooking the fact that
Ford had had a machine much superior to that in use by
the rest of the industry. There was some difference: of
position on the part of plaintiff upon similar issues: for
example, it has minimized the differences between the Gor-
don and Walcott machines, while at the same time claiming
that a relatively slight change in the Westinghouse machine
by defendant entirely changed its principle of operation.
Of course, an accounting of this sort is necessarily of
a speculative nature and offers room for considerable dif-
ference of opinion. Difficulties are inherent in an attempt
to compute profits from the use of a machine producing one
out of several thousand parts in an automobile, and even
under ideal conditions a large element of guesswork is in-
evitable in the conclusions adopted.
Ill. ACCOUNTING PERIOD, AND PRODUCTION OF
SHAFTS ON INFRINGING MACHINES: QUES-
TION -OF NOTICE.
The first problem is to define the scope of defendant’s
infringement, both in duration and in the number of sep-
arate accounts of infringement. The infringement period
cannot begin before June 16, 1925, when the plaintiff ob-
tained its patent and on which date the infringing machines
had been used by defendant for more than a year. The
period ends on March 16, 1931, when the Walcott lathes
were finally replaced with the non-infringing Pioch ma-
chines.
A. BEGINNING OF PERIOD.
Defendant claims, however, that its infringement can
not have commenced until June 13, 1929, when actual notice
of the claim of infringement was received. In the main
trial of this case, there was sharp dispute on this question,
the plaintiff claiming that it mailed a notice of infringe-
ment to defendant in 1925; while defendant denied receiv-
ing the purported notice and also claimed that it was
couched in such vague language as not to constitute a notice
aii = a
12 Report of Special Master
of infringement, even if received. Your honor held that
the sending of the 1925 notice to plaintiff had not been suf-
ficiently proved, and provided in the interlocutory decree
that the accounting period would commence on June 13,
1929. The Court of Appeals, however, ordered this pro-
vision stricken and the whole question reserved for the
accounting, the court saying:
‘*Concerning the cross appeal which challenges para-
graphs 5 and 6 of the decree, it is our view, upon the
authority of Wine Railway Appliance Co. v. Enterprise
Railway Equipment Co., 297 U. S. 387, 56 S. Ct. 528,
80 L. Ed. 736, and because of the apparent incomplete-
ness of the record upon the issues involved, that all
questions relating to the accounting should be post-
poned until after the return of the master’s report.’’
87 F. (2d) 393.
In the accounting proceeding, the plaintiff submitted
no additional evidence on the question of notice, relying
upon the legal contention that actual notice is not a condi-
tion to its right to recover. After examination of the
record, I see no reason to take a different view of the evi-
dence than that of the District Court; and, insofar as the
question is before me, I find that plaintiff first actually noti-
fied defendant of the infringement on June 13, 1929. Since
the matter of giving notice is within the control of the
plaintiff and a notice can easily be given in such manner
that it can be proved, it is fair to require of plaintiff a
fairly high standard of proof on this question.
The record further shows that the plaintiff had discon-
tinued the manufacture of its patented machines some time
before the issuance of its patent, and it neither manufac-
tured nor sold machines after that date. All of the ma-
chines manufactured and sold theretofore, including the
one sold to defendant, were marked with a notice of the
pending patent application.
The question is now encountered of whether the plain-
tiff can recover prior to June 13, 1929, in the face of the
provision of the Patent Statutes, 35 U. S. C. A. Sec. 49,
requiring a patented article to give public notice that it
is patented by marking it as such, and permitting him in
default thereof to recover for infringement only upon
proof of actual notice to defendant of infringement and con-
ILLITE LAOS LIE NONE PS MEA A
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OLE LOLI LION LALO DIT CMON ELEL LIL DSA SIE AIOE SEONG IL PEE POLL AIEEE DO PD ;
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Report of Special Master 13
tinuance of the infringement after such notice. The deci-
sion of the Supreme Court in Wine v. Enterprise, supra
(decided subsequent to the decree of the District Court in
this case), is controlling on this issue. In that case, the
court held that a non-manufacturing patentee, who was un-
able to mark his products, is not required to give actual
notice to an infringer as a condition to recovery. The pur-
pose of the statute, according to the court, is to require
marking of patented articles and to prescribe a penalty for
non-compliance; but it does not apply to non-producing
patentees, because penalty for failure implies an oppor-
tunity to perform. The opposite rule would make it im-
possible for a patentee to recover against a secret infringer,
a result Congress could not have intended.
Defendant claims Wine v. Enterprise does not apply
to the case at bar because plaintiff here manufactured its
machines prior to the issuance of his patent and hence is not
a non-producing patentee. However, plaintiff did not
manufacture subsequent to his patent, and obviously could
no more mark its machines as patented than the plaintiff in
the Wine case. The case of Hazeltine v. Radio Corp., 20
Fed. Supp. 668 (D. C., N. Y., 1937) cited by plaintiff, dif-
fers from the present one, because there the plaintiff’s licen-
sees failed to mark the patent articles manufactured by
them, and it was held that under the statute the plaintiff
was in the same position as if it had manufactured itself.
Defendant further contends that the principle of Wine
v. Enterprise does not apply to this case, because plaintiff
here was not in the position of a patent owner “‘guilty of
no neglect’’ but rather had full knowledge of defendant’s
use from the beginning, and a secret infringement is not
therefore involved. However, neither the statute nor the
court’s interpretation of it makes the knowledge of either
party of the infringement of any importance—in fact, it
does not appear whether the patentee in the Wine case
had such knowledge. The court states (p. 395) that ob-
viously, except for the statute, a patentee might recover
all damages without giving prior actual notice to the in-
fringer; and then holds that the statute does not apply to
a non-producing patentee. Perhaps, it would be most just
to require a patentee having knowledge of an infringement
to notify the infringer as a condition to recovery, although
the argument in favor of such requirement would equally
LLLP LEAS IEIE YL LAE ERS
14 Report of Special Master
apply whether the patentee had marked his articles with
public notice or not. At any rate, the statute does not now
require such notice; and defendant’s appeal must be to
Congress to amend the act.
It is finally contended that even if the act itself did not
require plaintiff to notify defendant as a condition to
recovery, still, under the authority of Horvath v. McCord,
100 F. (2d) 326 (C. C. A. 6, 1938), the plaintiff is precluded
by the form of its pleadings from taking advantage of that
fact. In that case, the court held that the intervening plain-
tiff-licensee, having alleged in its complaint actual notice,
which was not proved, and not having claimed in its plead-
ings in rem notice to the public, could not rely upon in rem
notice on the trial. (It appears that the intervening plain-
tiff had built three machines without the statutory mark-
ings, and that the court held, as an additional ground for
its decision, that it had not shown compliance with the
provisions of the statute.) I do not think, however, that
the Horvath case bars the plaintiff here from recovering
for infringement prior to June 13, 1929. The plaintiff in
its complaint alleges the issue of its patent on June 16,
1925, and (in paragraph 8, which alleges actual notice)
states that it ‘‘* * * has neither made nor sold the patented
machine since the issue of the patent in suit.’? This would
seem sufficiently to set forth the facts underlying plaintiff’s
claim of in rem notice: the only thing more it could have
done would have been to have alleged specifically that de-
fendant had constructive notice of the patent, which is in
the nature of a legal conclusion. In order to have claimed
in rem notice, it would have been necessary for the inter-
vening plaintiff in the Horvath case, being a manufactur-
ing licensee, to have made additional allegations that it
had marked its machines with the statutory notice. Here,
no additional allegations are necessary to raise the issue.
I therefore conclude that, under the statute, plaintiff
can recover full profits and damages from defendant from
the date of issue of its patent, without giving defendant
actual notice. Of course, a patentee who sits idly by while
an infringer builds up a business without protest may be
barred from all recovery on the ground of laches. Dwight
& Lloyd Sintering Co. v. Greenwalt, 27 F. (2d) 823, 827
(C. C. A. 2, 1928). However, no defense of laches as such
7 exes
. OVS LEEDS MELB AAEM Te RIESE LEGS ILL N BENS IL EEE ME IG LEANINGS FEA,
RRO teen trarrE NR Re ony IRE IN IOI MS TENE OID
—————————
Report of Special Master ‘ 15
is made here; and there is no such neglect by plaintiff of
its patent rights here as in those cases (see discussion of
‘‘Unclean Hands,’’ infra).
B. PRODUCTION OF CAMSHAFTS AND END
OF ACCOUNTING PERIOD.
The defendant used the Walcott lathes to machine
three different types of camshafts: that for the Model T
ear from 1924 to 1929; the Model A car from 1927 to 1931;
and the Model F tractor from 1924 to 1928. Actual produc-
tion records are available for most of the months of in-
fringement and for all of the months of Model A produc-
tion. For nineteen months of Model T production and
seventeen months of tractor production, actual production
records were not kept; and the production during those
months has been estimated by the defendant by adding
motor production and camshaft service sales. This
method is not one hundred per cent accurate because it does
not take inventories into consideration, defendant’s in-
ventory records for the period having been destroyed. In
fact, records of tractor camshaft production for certain
months found during the trial showed a higher production
than had been estimated. However, it has been the prac-
tice of defendant to have only a few days elapse between
the delivery of raw materials to its plant and the produc-
tion of the completed car, and to keep only a small and
fairly constant inventory of parts on hand. Such errors
as may result from variance between camshaft motor
production plus service sales, and actual production, in a
given month should not be great, and should tend to cancel
out over a period of months. In the case of tractor shafts,
the estimated method may result in an understatement of
shafts during the later months of production, because of
the probability that an inventory of camshafts was built
up for the purpose of servicing tractors after the discon-
tinuance of production; but no basis for estimating such
production exists on this record.
A more serious difficulty is encountered in determining
the production of Model A shafts on the Walcott lathes
from May 13, 1930, when the first Pioch machine was in-
stalled, until the end of the accounting period, during
which time the two types of machines were used simul-
_
16 Report of Special Master
taneously. The testimony indicates that as each Pioch
machine was installed it was placed in immediate produc-
tion and continuously so used. Finally, after all six Piochs
had been installed, the overhead oscillating cams were
removed from the Waleotts and their use for machining
cams discontinued. While defendant has assigned Feb-
ruary 4, 1931, as the terminal date for Walcott production,
it is reasonably clear from the evidence that the date of
discontinuance was March 16, 1931, which is in accordance
with Pioch’s own affidavit. The records show that all the
Walcotts remained available until February 5, 1931, when
eight were removed from the department, but that seven
were not removed until March 16. The last Pioch machine
was installed on February 3. It seems natural that de-
fendant would run the Piochs a few weeks to see if they
would turn out the production satisfactorily before dis-
carding the Walcotts; and this conclusion fits in with
Meyers’ recollection (D. A. R. 444) to the effect that some
Waleotts were moved out before the removal of the over-
head mechanism.
Defendant kept no records showing actual production
of camshafts upon each type of machine during the period
of concurrent use. Defendant prorates the production for
that period as follows: Pioch production is estimated by
multiplying the number of hours of production in the de-
partment by the production per hour on the Pioch machines
(at the rate of 42 shafts per machine, the figure shown on
a time study in July, 1931); and the remaining production
is assigned to the Walcotts. While defendant’s method of
proration attributes much the largest part of the produc-
tion during the period to the Walcotts, plaintiff claims it
overstates production on the Piochs, because the rate of
production at the outset when the machines were new was
probably considerably less than in July, 1931, and since the
lunch period (of approximately twenty minutes per shift on
three-shift days) was disregarded in computing production
hours. Defendant’s proration also assumes that all Pioch
machines were working full time, without allowance for
repairs beyond that provided in the time study. (On the
other hand, there was considerable testimony that the
Piochs averaged 55 shafts per hour in operation instead
of 42; and during the months when only one was available,
HG)
GOLD LODE LLY RUIN LILO DOBLE IH PENSE, FEE 4a
SSox”-—_“<—
Report of Special Master 17
the rate of production would tend to be higher than when
one man operated two machines.)
Plaintiff claims that because of defendant’s failure to
keep separate records of Pioch production, all production
during the period must be assumed to have been made on
the Walcott machines. Support for this position is found
in Producers’ & Refiners’ Corp. v. Lehmann, 18 F. (2d)
492, 498 (C. C. A. 8, 1927), where the records of defendant
failed to separate the oil made and sold by it which was
treated with the infringing process from that which was
not so treated, and the court held that plaintiff was en-
titled to recover profits on all the oil. However, it seems
clear that there was a considerable production upon the
Pioch during the period. Making due allowance for the
factors pointed out by plaintiff and resolving every rea-
sonable doubt against defendant, it still seems probable that
an average of at least 30 shafts per hour (including the
lunch period) were produced on the Pioch machines, and I
have therefore prorated the production on that basis.
Schedule A, attached to this report, shows the yearly
production of shafts of the three types; Schedule B is a
computation apportioning Pioch and Walcott production
according to the method adopted here. The resultant total
production of camshafts during the accounting period is as
follows: Model T, 3,420,166; Model A, 4,306,504; Tractor,
275,664.
IV. PROFITS.
Under the law, defendant is obliged to account to
plaintiff for all profits, gains, and advantages realized
from infringement, the defendant being treated in this
respect as a trustee ex maleficio of the profits derived
from its wrongful act of appropriating another’s property.
(See Computing Scale Co. v. Toledo Co., 279 Fed. 648, C. C.
A. 7, 1921.) In determining these profits, the inquiry is
directed to two main questions: First, what profits, if any,
were realized from the use of the infringing machines?
Second, what part of the profits so realized is legally at-
tributable to the plaintiff’s patented invention, and what
part, if any, is attributable to other elements incorporated
in the infringing machines. In general, the burden of proof
on both of these issues rests upon the plaintiff, although
under certain circumstances it may shift to the defendant.
eres — ss
18 Report of Special Master
A. PROFITS FROM INFRINGEMENT.
1. Sranparp or CoMPARISON.
In cases of this kind, where the infringement con-
sisted in the use of a patented machine or process, rather
than the manufacture and sale of a patented thing, defend-
ant’s profits are measured by the savings accruing to it
from the use of the infringing machine or process as com-
pared with what it would have cost with the best alternative
machine or process available to accomplish the same result.
The issue in such cases was stated in Mowry v. Whitney, 81
U. S. 620, 650, 20 L. Ed. 860 (1872), as follows:
‘*What advantage did the defendant derive from
using the complainant’s invention over what he had in
using other processes then open to the public, and
adequate to enable him to obtain an equally beneficial
result? The fruits of that advantage are his profits.’’
The principle was recently stated in similar language by
our Circuit Court of Appeals in Horvath v. McCord, supra
(p. 330). It seems obvious that, other things being equal,
the real benefit to a party from using a patented con-
trivance is the saving in cost of such use as compared with
the cost of what he would otherwise have been obliged to
resort to. Further decisions of the Supreme Court affirm-
ing this principle are as follows: Littlefield v. Perry, 88
U. S. 205, 22 L. Ed. 577 (1875); Mevs v. Conover, 23 L. Ed.
1008 (1877); Black v. Thorne, 111 U. S. 122, 28 L. Ed. 372
(1884) ; Cawood Patent Case, 94 U. S. 695, 24 L. Ed. 238
(1877) ; Tilghman v. Proctor, 125 U. 8. 136, 31 L. Ed. 664
(1888) ; Sessions v. Romadka, 145 U. 8. 29, 36 L. Ed. 609
(1892).
The savings or advantages from infringement found by
this method bear no necessary relation to the profit derived
from the defendant’s general business. The cases hold
that even though he realized large profits from his business
as a whole, if he could have accomplished the same result
by another method no more expensive than the infringing
one, he is chargeable with no profits; while, conversely, de-
fendant must account for the savings from the use of the
patented invention even though its business as a whole was
conducted at a loss, or even though the infringing operation
itself was a useless or non-profitable one. (See Cawood
Patent Case, supra.)
af
Hh
i
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Report of Special Master 19
In applying the rule for determining profits from use,
the first problem is the determination of the proper stand-
ard of comparison, or the alternative machine or process by
reference to which savings are to be judged. The differ-
ences in the conclusions of the parties as to the profits of
defendant here is largely attributable to a difference in
choice of the standard of comparison. Consequently, the
issue is probably the most important one in the case.
Certain rules as to what is required for a good stand-
ard of comparison have been laid down by the courts. The
standard selected must have been available to the defend-
ant at the time of infringement and capable of producing an
equally beneficial result. Black v. Thorne, 111 U. S. 122,
28 L. Ed. 372 (1884); Producers’ d& Refiners’ Corp. v.
Lehmann, supra; Cambria Iron Co. v. Carnegie Steel Co.,
224 Fed. 947 (C. C. A. 3, 1915); LaCross Plow Co. v. Van
Brunt, 220 Fed. 626 (C. C. A. 7, 1915). If the result can-
not be obtained in any other way than the patented method,
the patentee is entitled to all the profits derived by defend-
ant from the sale of the thing made by the infringement.
Western Glass Co. v. Schmertz Wire Glass Co., 226 Fed.
730 (C. C. A. 7, 1915) ; Novelty Glass Co. v. Brookfield, 170
Fed. 946 (C. C. A. 3, 1909). (However, see Pressed Prism
Glass Co. v. Continuous Glass Prism Co., 181 Fed. 151,
C. C., Pa., 1910, where in such a situation the court com-
puted the difference in the value of the product obtained by
the infringing and the alternative processes.)
A machine developed after infringement cannot be
used as a standard of comparison. Novelty Glass Co. v.
Brookfield, supra; Union Electric Welding Co. v. Curry,
279 Fed. 465 (C. C. A. 6, 1922); Knox v. Great Western
Silver Mining Co., Fed. Cas. No. 7907. Whether the ma-
chine proposed as a standard must have been in existence
prior to the time of infringement is a disputed question,
which will be considered hereafter.
The standard of comparison must be the least costly
of the alternative machines available, and where plaintiff
has failed to select the best standard and there was no evi-
dence in the record from which costs can be computed upon
it, the award of profits has been denied. Empire v. De-
Laski, 281 Fed. 1 (C. C. A. 2, 1922); Dunkley Co. v. Central
California Canneries, 7 F. (2d) 972 (C. C. A. 9, 1925). The
20 Report of Special Master
presentation by defendant, however, of several alternative
standards of comparison, where the costs have been com-
puted upon each to show a loss has been approved by the
courts. Carson v. American Smelting Co., supra.
Although it appears most usual for the standard of
comparison to be the machine or process actually used by
defendant for the purpose prior to infringement, this is not
required, as the cases hold that the defendant can take ad-
vantage of another machine which could have been used at
less cost. Tilghman v. Proctor, supra; Locomotive Safety
Truck Co. v. P. R. Co., 2 Fed. 677 (1880).
Obviously, it is often difficult to decide what machine
should be adopted as the standard of comparison; and the
question has resulted in a sharp dispute here. There is no
dispute about the proper standard for Model T produc-
tion: the Ford shaper was used to machine the Model T
shaft over a ten-year period preceding the infringement;
it produced a result substantially equivalent to that pro-
duced by the Walcott lathes; and from cost standpoint, it
was evidently at least as good as any of the other non-
infringing machines available at the time and much su-
perior to the grinder. It is agreed that the Ford shaper is
the correct standard for the Model T. The difficulty arises
with the Model A and tractor camshafts, because of the
fact that, in order to obtain improved engine performance,
the diameter of the bearings was made considerably greater
than that of the cams. As a result the shaper in its origi-
nal form could not have been used to machine these shafts,
because of interference between the center and one of the
end bearings and the apposite cutting tools of the shaper.
Defendant’s witness Herklotz testified on the main trial
that the Ford cam shaper could not have been used on the
Model A or tractor shafts. Plaintiff accordingly claims that
the shaper was not available for the production of these
shafts, and adopts the grinder as the standard upon which
its accounts are based.
While it is clear that the grinder was an available
method of machining the Model A and tractor camshafts,
defendant attacks it on the ground that much less expensive
machines, including the shaper, were available to it for that
purpose. It is claimed that the shaper could have been used
by making alterations in its design or in the design of the
eee ee Oe te
Report of Special Master 21
camshaft, obvious to any skilled mechanic and resulting in
an equally good product; and several methods of accom-
plishing this have been presented. In addition, defendant
proposes three other machines as standards of comparison,
the use of any one of which, it is claimed, would have been
less expensive than the grinder, as follows:
1. The Westinghouse lathe (a machine which was the
subject of considerable discussion in the main trial of the
case).
2. The modified Waleott machine with a non-tilting
tool, for Model A production.
3. The Pioch machine, for Model A production subse-
quent to May 13, 1930.
In view of the fact that the problem for tractor pro-
duction is different from that of Model A and some of the
proposed standards do not apply to the former, I will con-
sider first the question of the proper standard for the
Model A shaft.
a. Standard for Model A Shaft.
(1) PtocH anp Mopiriep Watcott MaAcHINEs.
The last two machines suggested can be considered
first, since I am of the opinion that neither is an acceptable
standard of comparison. The modified Walcott machine is
embodied in a patent issued July 5, 1927 (prior to the com-
mencement of Model A production), and differs from the
original in that the tool is fixed in a vertical bar which is
attached at the end to two parallel arms (one of which
contacts the master overhead cam), with the result that
the entire tool moves up and down in a parallel position
instead of pivoting upon an axis. Although a constant
angle between tool and work is not obtained with the
parallel type head, the variation is not great enough to re-
sult in inefficient cutting. The Walcott Company began to
manufacture machines of this type in 1929 to avoid the
effect of the decree of infringement against it, and accord-
ing to testimony of its engineer, no decrease in speed or in-
crease in selling or maintenance costs resulted. The de-
velopment of the Pioch machine has been previously out-
lined. The first one was placed on the production line on
May 13, 1930, and five more added between December, 1930,
ae
Report of Special Master
and February 4, 1931; and they proved to be much faster
than the Walcotts. Defendant claims that by comparison
with the modified Walcott lathe after July 5, 1927, or the
Pioch after May 13, 1930, it realized no profits from its
infringement.
Plaintiff claims that neither of these machines can be
used as a standard of comparison because they were not in
existence at the commencement of the infringement, but
were designed during infringement to avoid its effects.
Defendant contends that the law does not make such a re-
quirement, and that, in any event, the modified Walcott
lathe was available during the entire Model A production,
which was a separate infringement from the Model T and
tractor production.
The authorities are not entirely clear on the question
of when a machine must be developed to be a good standard
of comparison. The general rule, as stated above, prohibits
the use of a machine developed after infringement. At
least one case, following early dicta of the Supreme Court,
has held that the standard must have been in existence be-
fore the date of issuance of the plaintiff’s patent. Turill
v. Illinois Railroad Co., 20 Fed. 912 (C. C., Ill., 1880; af-
firmed 110 U. S. 301, on grounds eliminating this as an
issue). Later cases more logically have held the date of
invention controlling, on the ground that the infringer
could have resorted to any machine developed before in-
fringement, if the necessity had appeared. American Pneu-
matic Co. v. Snyder, 241 Fed. 274 (D. C., N. J., 1917);
Columbia Wire Co. v. Kokomo Co., 194 Fed. 108 (C. C. A.
7, 1911). (See also Philadelphia Rubber Co. v. Reclaiming
Works, 277 Fed. 171, C. C. A. 2, 1921, where the court said,
*“‘The field of selection of process which might be used
should be, in principle, that which is open to the art at the
time the invention is appropriated.’’)
The courts holding the latter view, however, have split
in turn on the question of whether a machine developed
during infringement may be used as a standard. In Er-
panded Metal Co. v. General Fireproofing Co., 247 Fed. 899
(D. C., Ohio, 1917), the court held it could not. (This rule
was approved in dicta by the lower court in the Pennsyl-
vania Rubber case, supra, 276 Fed. 600, and apparently fol-
lowed in National Carbon Co. v. Richards, 85 F. (2d) 490
22
_
Report of Special Master 23
(C. C. A. 2, 1936), where a machine placed on the market
a year before the termination of infringement was rejected
asa standard.) On the other hand, in Minerals Separation
v. Butte Mining Co., 274 Fed. 878 (D. C., Mont. 1921), the
court held that the field of selection of processes was on a
day-to-day basis, and that the standard of comparison need
not have been in existence at the commencement of infringe-
ment. (Cf. Novelty Glass Co. v. Brookfield, supra, where
plaintiff claimed no profits for the period subsequent to
the acquisition of rights to a superior machine.) It would
seem that this is the fairer rule (provided allowance is
made for the cost of the change-over), since the defendant
could shift to an improved machine developed during in-
fringement.
I think, however, that further discussion of this issue
would not be profitable, since I feel that both of these
proposed standards should be rejected on other grounds.
As to the Piochs, the evidence indicates that they were con-
structed by defendant to replace the Walcotts as rapidly as
could practically be done, in order to avoid piling up lia-
bility for infringement. A single machine was first con-
structed for testing purposes, and, as soon as it was found
successful, the remaining five were ordered on a rush
basis and installed as soon as completed. Consequently, the
Pioch machines, from every practical standpoint, were not
available until the time they actually replaced the Walcott
lathes, and cannot be used as a standard of comparison.
With the modified Walcott lathe, the serious question
is whether it avoids infringement of the plaintiff’s patent.
The essence of the plaintiff’s invention has been found by
the courts to relate to the tilting or oscillation of the tool
to maintain a proper cutting angle. The claims which
have been upheld variously describe means for ‘varying
the angular relation of the tool to the work,”’ for ‘‘swing-
ing’’ the tool, and ‘‘tilting’’ it. The tool of the parallel
head type Walcott does not tilt or pivot upon an axis. How-
ever, it does retain a vertical back and forth movement
under control of a cam, in addition to the reciprocating
movement, for the same purpose of maintaining a proper
cutting angle as with the original. This movement can
fairly be described as an oscillatory one; and it can also be
considered a swinging one; for while the term ‘‘swinging’’
RAD: PR PR 2
24 Report of Special Master
ordinarily connotes movement about an axis, it is also de-
fined as ‘‘oscillation’’ or movement ‘‘to and fro.’’ (See
Webster’s New International Dictionary, Second Edition.)
While this issue, raised incidentally in the accounting,
might well be the subject of a separate lawsuit, it would,
in my opinion, be giving undue significance to a seemingly
trivial difference between two machines to hold the original
Walcott lathe infringing and the modified one not; and I
think the adaptation sufficiently comes within the language
of the claims of the Gordon patent, reasonably interpreted,
to hold that if the original one infringes the modification
does also. My conclusion is reinforced by the fact that the
same conclusion was reached by defendant’s chief tool de-
signer, Pioch, after inspecting the parallel head Walcott in
1929 as a possible method of avoiding infringement and
that it was thereafter adopted by defendant. Consequently,
this machine is not a good standard of comparison.
(2) Westinenouse LATHE.
The Westinghouse lathe was developed by the Westing-
house Electric & Manufacturing Company about 1909; and
was used to machine the cams on some 3,000 camshafts for
the Chalmers and Bergdoll automobile engines in 1910 and
1911, and some 40,000 shafts for its own farm lighting out-
fits (of one and two cylinders) from 1917 to the time of this
accounting. Its method of operation is relatively simple,
the machine being a lathe, with a master camshaft in the
rear, in which each tool is moved straight in and out
(to produce the desired shape in the work) under pressure
of the master cam contacting a follower bar mounted rigid-
ly on the same shaft as the tool, the shaft being held tightly
against the master cam by pressure of a spring. As there
is no tilting of the tool, the angle of presentation of the
tool to the work varies considerably as it cuts around the
nose of the cam, and relatively sharp clearance angles
are necessary to give the tool proper clearance. The work
cam is substantially a replica of the master, with a slight
deviation in contour, due to the use of a slightly blunt-
nosed follower and a knife-edged tool, this variation mak-
ing necessary the use of a developed master cam slightly
fatter around the nose than the cam produced by turn-
ax . 7 ‘ S. PARTLY NOLS LD PEO OL CLE ELS DO EVOL, DIE OS GOES OT
ALE SLIP EAE SY EGA TI EIA PLL IEE BEI A SL HOS oF
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Report of Special Master 25
ing. So far as is known, a machine of this type has never
been used outside the Westinghouse plant, although several
instances of such use to turn eccentric cylinders are known.
There has been a great deal of debate between expert
witnesses throughout this case on the question of the prac-
ticability of the Westinghouse lathe for cutting cams. Ex-
perts called by plaintiff claim that the machine disregards
the fundamental principles of cutting metal by permitting
wide variation in the cutting angle of the tool, causing it
to scrape the metal off on one side and requiring unduly
sharp clearance angles for proper tool support, which dif-
ficulties are accentuated with a sharp-pointed cam of the
Ford type. It is further claimed that unequal pressure of
the followers on the nose of the master cams tends to
throw the master and work shafts out of synchronism.
Support for these claims is found in the testimony of de-
fendant’s witness Oberhoffken, the designer of the Ford
cam shaper, who rejected that type of machine in 1913 he-
cause of the clearance angles required. On the other hand,
other witnesses testified that the Westinghouse is an en-
tirely practicable production machine for cutting cams;
and it has been used successfully in the Westinghouse plant
for that purpose for many years. While the Court of Ap-
peals in this case stated that ‘‘* * * the product of the
[Westinghouse] machine was far from perfect and * * *
its use was abandoned after cutting a comparatively small
number of shafts,’’ the court must have been referring to
the 1909 machine, as the 1917 one has never been aban-
doned.
No evidence was submitted here as to the speed of pro-
duction attained on the machine in the Westinghouse plant;
but for the purpose of showing the production which could
have been obtained on the Ford shafts, defendant con-
structed an attachment based on the Westinghouse blue-
prints but adapted to machine the Model A camshaft, and
mounted it on a standard Reed-Practice lathe dating back
to the infringing period. The tools were fabricated from
cutting metal of a composition in use at that time. De-
fendant made two one-hour test runs of Model A shafts
on this machine, turning them at a faster rate than that
obtained with the Walcotts. On the basis of this evidence,
together with expert testimony that the machine could
i al a Ce Se ea OR
26 Report of Special Master
have been constructed as cheaply as the Walcott and would
have been simpler and less expensive to maintain, defend-
ant contends that by reference to the Westinghouse ma-
chine it made no profits from its infringement.
In constructing the Ford-Westinghouse attachment,
certain departures from the original Westinghouse design
were made to adapt it to the Ford shaft and to increase its
speed of production. Among the refinements incorporated
in the machine for the latter purpose were a quick-acting
steady rest, quick-acting tailstock, a rack and pinion mecha-
nism to retract the tools for rapid loading, and a stop
mechanism for making a double cut on the cams. All of
these devices, it appears, were known to machinists at the
time of infringement, although they were rarely, if ever,
brought together in one machine. A further change result-
ed from the use of a production camshaft for the master
shaft to save expense, which made it necessary to secure
in the work an exact replica of the contour of the master
cam. As a knife-edged follower (which would have accom-
plished this result) would have been impracticable, the de-
sign of the tool was modified so that the profile of the eut-
ting edge formed an are of a radius identical with that of
the follower, making the point of contact of tool and work
shift in synchronism with the movement of the point of con-
tact of the follower and master cam.
Consideration of this machine as a possible standard
of comparison leads to the question of whether it can be
used as such in view of the fact which appears from the
record that defendant knew nothing of its existence during
infringement, even when it was searching for a substitute
for the Walcott lathes. In Reed Roller Bit Co. v. Hughes
Tool Co., 12 F. (2d) 207 (C. C. A. 5, 1926) (a case of will-
ful infringement), it was held that a device patented prior
to infringement but not known to the defendant while in-
fringing could not be a standard of comparison, the court
distinguishing the problem before it from that of anticipa-
tion of a patent, where lack of knowledge is immaterial.
However, the plaintiff has conceded that the Westinghouse
machine was available to the defendant.
Plaintiff’s chief attack on the Westinghouse lathe as a
standard of comparison centers around the changes made
in the Ford adaptation. It is contended that it is improper
OLE OS ARLES me NORA PELIBD OEOL VELE AL ORE AEGON ELD ASEDR LGN IGEL SE
NE ORE EEL DILL LL A PLONE! ie et
; 4
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Report of Special Master 27
to present a standard with many changes from the original
which increase its speed. More emphasis, however, is
placed upon the change which results in a replica of the
master cam being formed in the work, which, it is claimed,
alters the principle of operation of the machine. Whether
this is so, the tool as thus modified has an edge with little
support which chips easily, resulting in alteration of the
shape of the cam. The only test of a shaft turned on the
machine was made by Gordon, who showed that the cams
were not properly aligned and the shaft would have to be
scrapped. While this may have been due in part to the
soft metal of the production camshaft used as the master,
it seems clear that the modification which makes the con-
tour of the master and work cams identical results in a ma-
chine which is not a practicable production proposition and
which would not have been used by defendant in produe-
tion.
Does the rejection of this change made by defendant as
impracticable eliminate the Westinghouse as a standard
of comparison? The original machine worked satisfactori-
ly at the Westinghouse plant; and defendant could readily
have developed a master shaft which would permit the use
of a tool of the original form, except for the steeper clear-
ance angle required. Plaintiff does not claim this would
not work, but claims the speed obtained would have been
less than with the grinder. Plaintiff claims the Westing-
house blueprints show that in using the machine the com-
pany left a large surplus stock on the nose of its cams,
which it had to remove by grinding or some other process.
While I do not agree with plaintiff’s interpretation of the
Westinghouse blueprints, I think for another reason the
Westinghouse machine must be rejected as a standard:
there is not sufficiently reliable evidence of the speeds ob-
tainable with it in actual production. There is virtually
no evidence of the speeds on the machine in the Westing-
house plant. It seems clear they must have been very slow,
because of the absence of the speed-boosting features added
by Ford to the machines. The production problem of
manufacturing approximately 2,000 camshafts per year
at Westinghouse is quite different from that of turning out
the Ford production averaging upwards of a million. As
to the demonstration runs on the Ford-Westinghouse ma-
EONS GY BES OR PONY
—
28 Report of Special Master
chine, even if the speeds obtained were identical with what
would have been secured if the original tool form had been
used, still these were in the nature of laboratory tests of
the machines, which are not a reliable guide to production
obtainable under production conditions. Nearly any ma-
chine can be pushed for short periods far beyond the speed
at which it is normally run. Therefore, although it is pos-
sible that an adapted Westinghouse would have turned out
the Ford production in a satisfactory manner faster than
the Walcott lathes, I do not think the evidence as to that is
clear enough to permit its use as a standard of comparison.
(3) Forp Cam SHAPER.
Defendant presents several ways in which the Ford
shaper or the camshaft could have been adapted to permit
the use of the shaper on the Model A shaft, despite the en-
larged bearings, which, it is claimed, is perfectly permis-
sible under the law relating to standards of comparison.
The principal methods can be summarized as follows:
1. A machine (designed under the direction of defend-
ant’s engineer Pioch) constructed like the original shaper,
except that the two interfering tools are mounted in an
attachment at the front which is connected with the driving
mechanism in such a way that the tools machine the cams by
pursuing them at twice their speed and overtaking them on
the same stroke on which the other tools cut.
2. A machine which differs from the original shaper
chiefly in that every other tool is mounted to cut in the op-
posite direction of the one next to it. Additional changes
make the two strokes of the ram of equal duration; and the
tools are individually relieved on the non-cutting stroke, in-
stead of being relieved in a body. (This adaptation was
originally designed by Oberhoffken, the designer of the
shaper, around 1919 to machine the tractor cams, but was
never built because tractor production was too small to war-
rant the construction of special machinery.)
3. A modification of the shaft, in which the length of
the center and end bearings is reduced to provide addi-
tional space eliminating tool interference, and in which
the diameter of the bearing is either increased or addi-
tional ones added to provide as much bearing surface as on
the original shafts.
RI PTI NE a ENEMY PM LOE AEI EEI IRS E E MEE LE IES DERI IMO ER OS AT RE 4
= we Ba aii icles aia b : - a
Report of Special Master 29
4. A modification of the shaft in which the end bearing
is attached after the remainder of the shaft has been ma-
chined.
Defendant further contends that even if none of the
above methods are considered available during the in-
fringement, the shaper at least could have been used on the
Model A shaft in a less efficient way, but still less expensive
than the grinder, with no appreciable change in the design,
by simply removing four of its tools and using two shapers
to machine the shaft, turning the shaft end for end on the
second one.
Evidence was submitted by defendant showing that it
is routine practice in its plant upon change of car models
or of parts to redesign existing production machinery to
adapt it to the new parts. A large staff of tool designers is
employed by defendant for this purpose and to design new
special production machines. Thus, when the change was
made from the Model T to the Model A automobile, ap-
proximately five hundred production machines were modi-
fied. At that time, changes were made in the Walcott
lathes, particularly in the form of the overhead cams, to
fit them to the Model A camshaft. Similarly, when de-
fendant changed from a four to eight cylinder motor, the
Pioch cam millers had to be altered. It also appears to be
common for defendant’s engineers to alter the design of
automobile parts to facilitate production. On the basis of
the evidence, defendant contends that it is not reasonable
to suppose that in machining the Model A cams it would
ever have gone back from a speedy machine like the shaper
to the slow and expensive grinding method.
Plaintiff submitted no evidence on the practicability of
the modifications in the shaper proposed by defendant, but
rather relied on the aforementioned testimony of Herklotz
that the Ford shapers could not have been used on the
Model A or tractor camshafts. Plaintiff contends that de-
fendant should not be allowed to shift its position on the
accounting; that, further, the modified shaper cannot be
considered an acceptable standard of comparison because
it was not represented by a completed machine at the time
of infringement; and, finally, even if it were a good stand-
ard, costs of production upon it cannot be computed from
the present record.
_.
30 Report of Special Master
The question of whether, and to what extent, modifica-
tion of an available machine is permissible in a standard
of comparison is a difficult one. The practical factors on
either side can readily be seen. On the one hand, it is dif-
ficult to know whether the modified machine would work
satisfactorily in actual practice, whether the change would
have occurred to mechanics at the time of infringement,
and precisely how costs would be affected by the modifica-
tion. If too much liberality were to be allowed, a wide
field would be opened in patented accountings for specula-
tion as to how existing devices could be adapted for new
uses and to get better results. Human ingenuity can
always conceive of ways of improving methods followed in
the past; and infringers caught with a decree against them
may be expected to be much more adept than at the time of
infringement in thinking up other methods which might
have served their purposes as well. On the other hand,
there is equal danger in not permitting modification in that
an infringer may be muleted in a large recovery of profits,
when a simple adaptation of a machine available from the
start of infringement would have rendered it as advantage-
ous to him as the infringing device. Very often, changes
in dimensions of a machine are necessary to adapt it to a
particular work, yet no one would think of objecting to a
machine on that ground alone. Plaintiff, in fact, does not
claim that the necessity of a change such as that made in
the overhead cams of the Walcott machines to adapt to it
the Model A would be cause for rejecting it as a standard.
It would be unrealistic not to recognize the frequency with
which modifications in existing machines for special pur-
poses are made in actual practice.
It is surprising that there are so few cases on the ques-
tion thus encountered. The leading case is the decision of
our Cireuit Court of Appeals in National Tube Co. v. Mark,
10 F. (2d) 430 (C. C. A. 6, 1929). There the defendant re-
lied for a standard of comparison upon a machine not
regarded as usable during the infringing period and which
would not have been usable except for changes not com-
pleted until after the termination of infringement, the
modified machine being demonstrated on the accounting.
The court, finding that the modified machine was prac-
ticable, held it a good standard of comparison on the
Report of Special Master 31
ground that the same mechanical ability which was later
developed would have appeared had the defendant been
forced to turn to some other than the infringing machine.
A similar decision was reached in Oneal v. San Jose Can-
ning Co., 33 F. (2d) 892 (C. C. A. 9, 1929), where a modi-
fication of a device made by one of defendant’s employees
prior to the infringement and used experimentally at that
time, and which was used in production after an injunction
was issued, was held to be a good standard of comparison.
In Brown v. Lanyon Zine Co., 179 Fed. 309 (C. ©. A. 8,
1910), a modification in use, rather than design, of an ex-
isting machine was approved, the court adopting as a
standard of comparison for roasting zine a furnace which
had previously been used only for heating copper, but which
was found adaptable to the former use. Reference should
also be made to Columbia Machine Corp. v. Adriance, 79
F. (2d) 16 (C. C. A. 2, 1935), where it was suggested that a
machine developed after infringement, if sufficiently obvi-
ous, might be a standard.
Two cases are cited by plaintiff in opposition to the
rule contended for by defendant. In Expanded Metal Co.
v. General Fireproofing Co., supra, the District Court
stated that the standard must have been in existence in its
completed form prior to the time the infringer appro-
priates the patented process. However, the court there
was not dealing with the modification of a process in use
prior to infringement, but rather with a process which was
in its experimental stages until after infringement. In
Philadelphia Rubber Co. v. Reclaiming Works, supra, the
District Court, citing the Expanded Metal case, rejected a
process known before infringement, but which was a mere
paper process then and not used advantageously until after
infringement, on the ground that a modified process was
not a proper standard of comparison. The decision on this
point was affirmed by the Circuit Court of Appeals on
grounds not entirely clear. The statement of the court in
its broad form seems inconsistent with the rule in this
circuit in the National Tube case, although it is possible
the two cases could have been distinguished on their facts.
The rule which in principle seems correct and which
is in harmony with the weight of authority and with the
National Tube case would seem to be that a modification of
—ene —y
32 Report of Special Master
a machine available in its original form at the time of in-
fringement is acceptable as a standard of comparison
under certain limitations, as follows: (1) the modified ma-
chine must be workable; (2) the modification must not rep-
resent a radical departure from the principle of operation
of the original or involve inventive genius itself; and (3)
the cost of doing the work on the modified machine must be
capable of calculation with reasonable certainty. It seems
clear in this circuit that the mere fact that some modifica-
tion must be made to adapt it to the work done by the in-
fringing machines is not a fatal objection to the machine as
a standard of comparison.
Considering the evidence here, I am convinced that,
with the only problem being one of bearing interference,
defendant could have adapted the shapers for use on the
Model A shaft; and the probability is very strong that
it would have done so if it had continued to use the shapers
until the time of the changeover to Model A production
and if the Waleotts had not been available at that time.
The modification adopted would probably not have taken
the precise form of those suggested here, but some prac-
ticable modification along the lines here suggested could
almost certainly have been accomplished.
The method proposed by defendant of using two
shapers to machine each shaft, four cams being shaped
on each, would certainly have worked, and would have
involved very little change in the design of the original
machine. Costs by this method can be computed on this
record with reasonable accuracy, since they would be ap-
proximately double (or slightly less) the costs of the shaper
of the original design. At the same time, they would still
be substantially less than with the grinder; consequently,
if all other standards proposed by defendant for the Model
A should be rejected, the double shaper method should
be used in preference to the grinder.
| However, I am sufficiently convinced of the practica-
bility of the modifications of the shaper which permit the
Model A shaft to be machined in a single operation to
adopt that type of machine as the standard of compari-
son for that shaft. The problem to be overcome in adapt-
ing the shaper to the Model A shaft does not seem to be
one of unusual difficulty. Careful inspection and scrutiny
Report of Special Master 33
of the proposed modifications disclose no reason why if
the original shaper would work they should not also; nor
do they seem to be especially ingenious or change the prin-
ciple of operation of the machine. These conclusions are
reinforced by the testimony of Oberhoffken, Brush, and
Pioch, which was not controverted. The strongest evi-
dence against them is the fact that in 1929 when defendant
was casting about for a substitute for the Walcott lathes
it gave no consideration to the shaper but instead exneri-
mented with the development of a new type of machine.
However, the problem was not presented to it then in the
same form as it would have been if it had used the shapers
through the Model T production and was trying to find
a method for machining the new Model A shafts. The
testimony of Herklotz on the infringement trial also tends
to mitigate against the use of the shaper as the standard
of comparison for Model A production, but, while this has
caused me some difficulty, I do not think defendant should
be precluded by the testimony of one of its employees from
showing the true facts with respect to the use of the
shapers.
I do not think it necessary to pick out a particular
form of modification to be used as the standard; but, if it
should be thought necessary to do so, I would select the
one suggested by Oberhoffken. It should be noted inat
the choice of the modified shaper as a standard of compari-
son does not involve the adoption of a machine not in ex-
istence at the time of infringement, but rather one which
was commercially used for ten years before the infringe-
ment adapted to perform a particular type of work on which
it could have been used, had the necessity appeared. This
is in full accordance with the principle of National Tube Co.
v. Mark, supra.
Some difficulty is involved in determining costs on the
modified machine, since, other things being equal, it is
probable that with either form proposed here or any other
form which could have been adopted for the Model A shaft
costs of operation would be somewhat increased over the
original form. However, I think due allowance can be made
for that factor. In my opinion, the court should resolve
here to avoid the one result which seems certainly unjust
of using the grinder as a standard of comparison on the
a
34 Report of Special Master
Model A when there is little likelihood that the defend-
ant would ever have been forced to use it. Doubts as to
speed and costs of the standard can be resolved against the
defendant. This is in line with the approach taken by the
Supreme Court in the recent case of Sheldon v. Metro-
Goldwyn Pictures Corp., 309 U. S. 390 (1940) upon a re-
lated problem in an accounting case.
The record is less satisfactory with respect to the
modification of the Model A shaft to permit a shaper of
the original design to be used in machining it. The prac-
ticability of changing the design of the shaft has not been
as thoroughly explored in the trial as the practicability of
adapting the shaper itself, and the effect of the changes
upon the design and cost of the automobile engine is not
clear. At least one of the methods originally proposed—
the one involving the use of a detached end bearing—was
later rejected as impracticable by defendant’s own engineer,
Weyl, and in fact would require the production of an extra
part and numerous extra operations. Similar objections
can be made to the other modifications presented, which,
however, I believe it unnecessary to state here. I accord-
ingly think the modified shaper is to be preferred to the
modified shaft in the selection of the standard of com-
parison.
b. Standard for Tractor Shaft. —
The choice of standards for the tractor camshaft is
between the Westinghouse lathe, the shaper and the grinder.
The Westinghouse machine should be rejected for the same
reason already stated with respect to the Model A shaft.
As to the shaper, the mechanical problem in using it is the
same as with the Model A (the situation with respect to
bearing interference being identical); however, the pro-
duction problem is very different.
The grinder was used continuously to machine the
tractor shaft until the purchase of the Walcott lathes, ex-
cept for a brief interlude in 1923 when the Gordon machine
was experimented with but rejected. During this time, the
defendant was receptive to a less expensive method of do-
ing this work. Oberhoffken designed his modification of
the shaper for this purpose, but it was not built because it
was felt that the production of the tractors was too small
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Report of Special Master 35
and its future too uncertain to warrant the construction of
special production machines. While such machines were
perfectly feasible for the tremendous Model A production,
the testimony of witnesses called by the defendant itself
indicates that at no time did tractor production become
great enough or its future sufficiently certain to justify the
construction of a special shaper for them. A good deal of
work beyond Oberhoffken’s rough sketches would have been
necessary before blueprints could be completed and the
machines ordered; they would no doubt have been consider-
ably more expensive than the Model T shapers; and it would
have been difficult to find a use for them if tractor produc-
tion were discontinued, since the shaper inherently is not
an adaptable type of machine. The purchase of the ready-
built Walcotts was obviously quite a different problem.
I think therefore the shaper was not available to defendant
within the meaning of the cases setting forth the require-
ments for a good standard of comparison. Despite the
demand for improved machinery for the cams, defendant
did not construct a modified shaper, nor did it alter the
tractor camshaft. Consequently, the Landis grinder, which
Ford was using and would very likely have continued to
use except for the purchase of the Walcotts, should be
adopted as the standard of comparison. While it is pos-
sible that the resultant savings from the use of the Wal-
cotts are higher than the cost of constructing two shapers
for the tractor the same point could be made by defendant
with reference to its production in 1919 to 1924, when it
continued to use the grinder, although the construction of
a shaper might, in retrospect, have saved it money.
c. Effect of Choice of Incorrect Standard.
Defendant claims that if the court finds that plaintiff
has selected the wrong machine as a standard of com-
parison it must be restricted to nominal damages for the
production to which it is applicable, citing Empire Rubber
€ Tire Co. v. DeLaski Co., 281 Fed. 1 (C. C. A. 3, 1922),
and Dunkley Co. v. Central California Canneries, 7 F. (2d)
972 (C. C. A. 9, 1925). However, it does not appear that in
those cases there was other evidence, as here, from which
savings with reference to the proper standard of com-
parison could be ascertained. That the evidence submitted
ia ’
36 Report of Special Master
by defendant can be used in computing the profits to which
plaintiff is entitled is seen from Producers’ & Refiners’
Corp. v. Lehmann, supra, where the court rejected evidence
of experts called by plaintiff estimating the cost of pro-
duction and sale of oil treated with the infringing process,
but, instead of dismissing the case, computed such costs
from evidence submitted by the defendant. Furthermore,
it would seem that the correct standard was more obvious
in the cited cases than here—in view of the testimony of
Herklotz in the main trial, and the fact that defendant’s
accounts do not state the nature of the shaper relied on as
a standard, plaintiff can hardly be criticized for selecting
the grinder as the standard, nor could it be expected on the
accounting to think up and present methods of adapting the
design of the shaper to the Model A shaft. Under the cir-
cumstances, it would seem to be up to defendant to prove
the availability of the shaper for the Model A and the cost
of using it.
2. Savincs rrom Use or Inrrincinc MAcHINEs.
The next problem is to compute the amount of the
savings realized by the defendant from the use of the Wal-
cott lathes, as compared with what it would have cost if it
had used the standards of comparison instead. Under the
law, the plaintiff is entitled to recover all kinds of savings
from the use of the infringing machines which can be com-
puted with reasonable certainty. If the use of the infring-
ing machine results in savings in some items of cost coupled
with losses in others, the losses are offset against the sav-
ings. The savings accountable take many different forms,
depending on the nature of the particular case. There may
be a reduction in labor or machine costs in the operation
performed by the infringing machine itself. There may be
reduced labor costs, with increased machine costs for the
same operation offsetting them, or vice versa. The intro-
duction of infringing machinery may affect other opera-
tions in the defendant’s plant, either decreasing or in-
creasing their cost or adding new operations or eliminating
old ones. To mention a few examples of the kinds of sav-
ings the courts have held the patentee could recover, in
Tilghman v. Proctor, supra, the saving was in chemical
materials, and in Williams v. Railroad Co., 18 Blatchf. 181,
wert AG EAID LORI Me DRONE BOE OMI RE NA A PE ST I
Report of Special Master 37
it was found in the lower cost of using kerosene oil as com-
pared with lard oil for locomotive headlights. In Morgan
Construction Co. v. Forter-Miller Engineering Co., 234 Fed.
324 (C. C. A. 3, 1916), the saving was in labor costs; and
there were some operations prior to the infringing one
which were added and some eliminated upon infringement,
the cost of which was taken into consideration, In Doten
v. Boston, 138 Fed. 406 (C. C. A. 1, 1905), the savings were
found in the lessened repairs from carelessness resulting
from the use of the patented device. In Lawther v. Hamil-
ton, 64 Fed. 221 (C. C., Wis., 1892), they were represented
by a greater yield of oil resulting from use of the patented
process; and, somewhat similarly, in Fullerton Walnut
Growers’ Ass’n v. Mfg. Co., 166 Fed. 443 (C. C. A. 9, 1908)
in a smaller percentage of culls. Other illustrations are
found in Webster Looms Co. v. Higgins, 43 Fed. 673 (C. C.,
N. Y., 1890), where the saving lay in machine costs, and in
Brickell v. New York, 112 Fed. 65 (C. C. A. 2, 1901), where
it consisted of lower fuel costs.
Mathematical exactness in computing savings in pat-
ent cases is obviously impossible, and is not insisted upon
by the courts: the only requirement is that they be proved
with a reasonable degree of certainty. Fullerton v. Ander-
son Mfg. Co., supra; Doten v. Boston, supra.
In each case, it is necessary to analyze the entire situa-
tion to ascertain which elements of the costs and revenues
of defendant remain constant and which ones are altered
by a change from the infringing machinery to the standard
of comparison. Since in computing costs we must work
with the records available, an understanding of the system
of cost accounting used by the defendant here is neeessary.
A primary division is made in defendant’s accounting prac-
tice between administrative and selling expenses, on the
one hand, and manufacturing expense on the other. The
former can be disregarded so far as this case is con-
cerned ; it is obvious that the use of the Walcott in prefer-
ence to the shaper or the grinder would not affect selling
and administrative expense, since the identical product is
obtained with all three types of machines. Similarly,
since the product is the same, the price and the volume
of sales must be assumed to remain constant with all three
machines. It may be that the substitution of more effi-
APIO WR GATO REE
—
38 Report of Special Master
cient machinery (such as the Walcott in place of the
grinder) has the effect of reducing prices as well as in-
creasing labor costs, in view of the well-known tendency
for profits from labor-saving machinery to be shared by
the manufacturer with consumers and employees. How-
ever, any result of that sort is too remote and speculative
for computation; no claim for a deduction on that ac-
count is made by defendant, and I know of no ease which
takes it into consideration. Consequently, the savings in
the use of the Walcott lathes in place of the standards of
comparison to machine the defendant’s cams boil down to
savings in the cost of production or manufacturing cost.
Under defendant’s method of accounting, the process
of determining its manufacturing expense is centered
around the effort to determine the cost of each part going
into the automobile or other machines sold by it. Its pur-
pose in computing the cost of the part is (1) to price the
finished product, and (2) to evaluate its inventory for in-
come tax purposes. It does not use its cost accounting
system to control costs of production. Defendant’s plant
is divided into a large number of departments, the succes-
sive operations on the camshaft taking place in several
departments. At intervals (averaging about once every
two or three months during the accounting period) manu-
facturing costs are computed for each part for a single
month, the summary costs for the part being set down on a
cost summary card. On these cards, the manufacturing
cost is divided into three categories: (1) material; (2)
direct labor; and (3) burden. Material cost is the cost of
the raw stock for fabricating the part. Direct labor con-
sists of the wages paid to the operators of the machines
directly used in producing the finished part. This is de-
termined by dividing the total time of all direct labor in the
department for the month in question by the number of
shafts produced, to get a minute labor cost, and multiply-
ing the result by the average departmental labor rate to
get the labor cost per unit expressed in dollars and cents.
Burden includes all other manufacturing expense con-
sisting of some thirty elements. In computing the burden
cost of the part, some of its elements (such as machine
depreciation) are costed directly in each department; other
items, not capable of direct computation in the department,
Or, q
A 2 ry ere vas
PUPAE IAM LIE NES Lee Lee ee — .
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——”CDU™”™:*~<“‘“S™S
Report of Special Master 39
are computed for the whole factory and then apportioned
among the different departments on some recognized basis
(such as relative area, direct labor, ete.), depending on the
nature of the item. The total burden expense in the de-
partment is then divided by the total direct labor expense,
resulting in a departmental percentage ratio of burden to
direct labor, which is used in turn in computing burden cost
per unit for the cost summary cards.
In its routine calculation of costs, defendant does not
make any attempt to go behind the cost of the part to com-
pute the cost of the individual operations in producing it.
The only occasions (apart from lawsuits like the present
one) when it becomes necessary for the defendant to ascer-
tain the cost of such operations are (1) in evaluating the in-
ventory of unfinished parts for tax purposes, and (2) in
determining prices on the infrequent sales of unfinished
parts. In computing the cost of operations for these pur-
poses (during the accounting period, at least), unit burden
costs for each part were apportioned among the various
operations by using the departmental burden percentages
(based on direct labor cost). (The actual procedure used to
determine the cost of a part in process was to multiply the
total labor and burden cost per unit in the department by
the percentage of the time taken for operations already
performed upon the part to the total time taken for all
operations in the department, and then add to the resultant
figure the cost of the material entering the department.)
- In comparing manufacturing costs of using the Wal-
cott lathes and the standards of comparison for the cam-
roughing operation, it is obvious that the cost of the mate-
rial entering the department remains constant, so this
factor may be immediately eliminated from consideration.
With respect to the question of scrap loss, the defendant has
kept no records of scrap loss on individual machines, and no
difference in this item as between the three types of ma-
chines here in question has been shown. The problem of
determining comparative costs of the remaining elements
—labor and burden—can be broken down into two parts:
(1) determination of savings (or losses) in the cost of
the operation performed by these machines; (2) deter-
mination of savings or losses in other operations which may
be affected by the use of one type of machine rather than
_
40 Report of Special Master
another to machine the cams. As to the latter, it appears
conclusively that no other operations were eliminated by
the adoption of the Walcott lathes. Nor does it appear that
the time for performing any other operations was reduced
by their use. (It is possible that tolerances on the roughing
operation were stepped up during the accounting period,
resulting in a reduction in finish-grinding time, but there
is no clear evidence to this effect which would permit a cost
computation.) However, it is claimed by the defendant that
the introduction of the Walcott lathes made necessary a
straightening operation on the camshafts not used or re-
quired with the shaper. If so, it is clear, upon principle
and authority, that the cost of performing it should be
offset against any savings which may be found in the cost
of the cam-machining operation itself. (See Morgan Con-
struction Co. v. Forter-Miller Engineering Co., supra.)
Since this question can be disposed of more quickly than
the question of the comparative cost of the infringing op-
eration itself, I will consider it first.
a. Saving or Loss in Other Operations: Straightening.
The issue as to straightening is an important one,
since it is largely responsible for the difference between the
loss found by defendant from the use of the Walcott lathes
on the Model T shaft and the profits in excess of $40,000
claimed by plaintiff. It appears that at several points in the
manufacture of a camshaft the shaft becomes slightly
crooked, and it is necessary to straighten it before perform-
ing certain operations upon it. Consequently, there have al-
ways been several straightening operations in producing
a camshaft, but the claim here is that an extra one immedi-
ately preceding the cam-machining operation was required
with the Walcott lathes, which was not necessary with the
shaper. The evidence relied upon in support of this claim
can be summarized as follows: (1) the fact that such
operation appears upon the only time study for the shapers
in evidence taken in 1924 is omitted from a time study taken
later in the year after installation of the Walcotts; (2) the
testimony of Ford employees, supplemented by that of a
representative of the Walcott Company, that it was found
necessary to add this operation when the Walcotts were
installed; (3) expert testimony that the shapers had an
OIA OLESEN: MTL fA P IRE LOIS ok PERLE RIE aR Ta HO
.
Report of Special Master 41
automatic straightening action, due to the downward pres-
sure of the shaper tools forcing the camshaft against the
subjacent steady rests, while the pressure of the Walcott
tools upon a shaft floating more freely in space had no such
correctional tendency.
On the other hand, independent expert witnesses testi-
fied that straightening the shaft before machining the cams
was always considered the proper practice with all types
of machines. Brush and Pioch, defendant’s principal ex-
perts, both testified that the necessity of straightening
could have been eliminated by modification of the steady
rest or the addition of other steady rests. Furthermore,
it appears that the standards of workmanship in manufac-
turing the Model T car were raised from time to time; al-
though there is no record of a change in tolerance for rough-
machining the cams, such a change would not necessarily
appear in the records.
The conclusion I draw from this and other evidence not
detailed here is that while the use of the Walcott lathes
may have been the occasion for adding the straightening
operation, it was not the underlying cause for doing so, the
operation being rather attributable to improvement in
defendant’s standards of workmanship. Under the testi-
mony of its own witnesses, defendant could have made the
Walcotts exactly like the shapers with regard to the neces-
sity of straightening by simple changes with respect to
steady rests, but it preferred instead to adopt the straight-
ening operation, which was undoubtedly the better prac-
tice. Ii the extra straightening operation was in fact
attributable to the difference in machines, it is indeed diffi-
cult to see why the defendant upon discovery of that fact
did not reject the Walcott machines instead of buying more
and then discarding the shapers. I therefore reject this
operation as an element of the cost of using the infringing
machines, not on the ground that it was not added upon
their installation (because I think it was), but rather on
the ground that its addition was not attributable to differ-
ences between the two machines. I recognize the rule that
an infringer need account only for actual and not reason-
able profits (Tilghman v. Proctor, supra, and many other
cases); but in making a comparison between two types of
machinery similar factors on both sides should be kept con-
Be Ne ath Loti BES at TAT Ne ay ve EE A RE ECL | Oe I Tea RED TRONS eS
_
42 Report of Special Master
stant, and the actual operation of the infringing machines
should not be weighed against a theoretically ideal opera-
tion of the standard of comparison.
This conclusion becomes much clearer with the Model
A shaft, because of its greater weight and rigidity and the
fact that the modification of the shapers presented by de-
fendant for that shaft differ from the original with respect
to the pressure tending to correct a bowed shaft. It is to
be noted that no claim of such a deduction has been made
with regard to the grinder.
b. Savings in Cam-Roughing Operation.
(1) Direct Lasor Savings.
The problem of savings is therefore resolved into the
question of what savings, if any, were obtained in the cam-
roughing operation itself from the use of the Walcott
lathes. The first type of cost to be considered is direct
labor. To determine the direct labor cost of turning out
the infringing production on the various machines, it is
first necessary to know the average speed at which the
operator could machine camshafts on each type of machine.
With this information plus a knowledge of the wage rates
paid to the operators and the total production of camshafts
during infringement, total direct labor costs with each ma-
chine can be readily computed. Average departmental
wage rates are either shown directly on records available
or have been closely estimated for all the months of in-
fringement; and, since a uniform wage rate for productive
labor prevailed in the department in which the infringing
operation was performed, their use results in substantial
accuracy. It affirmatively appears from the record that the
wage rate would be identical with the Walcott machines
and the standards of comparison. The direct labor costs
of the various machines are therefore inversely propor-
tioned to their speeds of production, with adjustment made
for the fact that one man operated two shapers or Wal-
cott lathes but only one grinder.
The determination of the average rate of production
of each machine is a matter of some difficulty. Defendant
has not kept permanent records of the actual rate of pro-
duction obtained on the individual operations in producing
the part. (It appears that daily rates of production for the
, ee
REN ee ee ee ARRAS EL APD HP RH Mee ne See SALONS Te q
ao
Report of Special Master 43
Walcotts were recorded on blackboards for at least part of
the period of infringement, but were erased the next work-
ing day.) Throughout a large part of the accounting pe-
riod stop watch time studies of the operation of its ma-
chines were made by defendant from time to time as a guide
to its foremen, which studies show the expected rate of
production; but these have not been systematically re-
tained and only a few are available for the machines in
litigation. As might be expected, the rates of production
shown by the time studies do not always coincide with ac-
tual speeds of production, as is shown by production ree-
ords for the complete camshaft. A complete analysis of
all the evidence on rates of production would be imprac-
ticable here. The difficulty of fixing them is well illustrated
with the Pioch machine, where a time study in 1931 gave
their speed as 42 shafts per hour and a production specifica-
tion the same year as 75, while the consensus of recollection
of witnesses fixed it at 55 to 60.
(a) Speeds of Production on Model T Shaft.
The figure of 25 camshafts per machine per hour or 50
per operator per hour is agreed upon as the most nearly
accurate figure for the average speed of production of the
shaper on the Model T shaft. This figure is shown by a
stop watch time study in 1924 and other production records
of the defendant, and was also testified to by witnesses,
although some witness gave the production rate as 20 per
machine hour.
There is sharp dispute about the rate of production of
the Walcott machines on the Model T shaft, 37.5 and 35
shafts per machine hour being adopted by plaintiff and de-
fendant, respectively. The former figure is shown upon an
operation sheet of defendant showing productive capacity,
dated March 16, 1925, and apparently taken from an earlier
production and machine specification, which records, ac-
cording to the testimony, were based upon a careful study
of the situation. There is a good deal of evidence tending
to support a speed of 35 or slightly less. This figure is
given by a stop watch time study taken in October, 1924,
just before removal of the machines to the Rouge plant;
and it is also shown by a study by the purchasing depart-
ment of the actual operation of the machines at Highland
—_,
44 Report of Special Master
Park over a period of a number of weeks. A Walcott en-
gineer calculated the probable speed, on the basis of the
machine cycle, at only 32.5 shafts per hour. The
guaranteed production of 45 was based upon 100% efficiency
from the machine running in a high gear, which was never
used by defendant in production. The testimony of Ford
employees based upon recollection also tends to support the
35 figure.
On the other hand, there is some evidence tending to
support a much higher speed, up to 58 per hour in the later
years of Model T production, resulting from the use of
faster motors. It seems probable under the evidence that
the speeds were increased after removal to the Rouge plant,
although, of course, it would hardly be fair to consider in-
creases resulting from external factors, such as improved
conveyors, which would operate to increase shaper speed
as well. If the evidence is equally balanced between 35 and
37.5, I think the latter figure should be used, in view of the
fact that many of the records of defendant which would
help to clear up the question are missing. Moreover, the
higher of two possible shaper speeds was adopted, and the
absolute speed of the two machines is not as important in
comparing costs as the differential between them. Under
all the circumstances, I think the figure of 37.5 shafts per
machine hour or 75 per man hour is conservative and should
be adopted by the court.
(b) Speeds of Production on Model A Shaft.
The Model A shaft was the same length as the Model T,
but was thicker and approximately twice as heavy. The
cams were of the same width, but had a more pronounced
lift on the nose and a slightly larger base circle. The steel
in the shaft was of slightly harder composition. On the
question of the rate of production attained with the Wal-
cott machines on the Model A shaft, there is comparatively
little record evidence, no reliable time study being available.
The only record of value is a report prepared in 1930 from
existing time studies for use in the Soviet Autostroy plant,
which shows production speeds on Ford machines in even
multiples of five and which states the Walcott speed as 30
shafts per machine hour. Theoretically, if the same motor
were used, the Walcott lathes would turn the Model A cams
om i)
oceeeicsaaiiniatiiaiit ER ETS Se eee eee fer; SED LYRE RAI) AEE BY NARUC ARIE A OME IMENT 7 7
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Report of Special Master 45
as fast as the Model T, although undoubtedly in practice
the harder shaft and larger perimeter and lift would cut the
speed down considerably. Handling time would be in-
creased because of the heavier shaft. Ford employees tes-
tified that greater difficulty was encountered in machining
the Model A cams with the Walcotts, and their recollection
of speeds obtained ranged from 25 to 30. Plaintiff uses a
speed of 32.711, computed by reducing the speed of 37.5 on
the Model T shaft in inverse proportion to the increased
periphery of the Model A shaft. I think, however, that
there is little evidence to support that speed, and I prefer
to adopt the figure of 30 per machine hour or 60 per man
hour, as shown on the Autostroy report and as adopted by
defendant. Again, it should be pointed out that the abso-
lute speeds of the shaper and Walcott are not as important
as relative speeds.
The question of shaper speeds on the Model A shaft is
more hypothetical, since they were never used for that
purpose. If there were no problem of bearing interference
and a shaper of the original type could have been used,
the larger cams would have probably decreased the speed
of production somewhat. While there is some evidence
that a wider cut on the cams could have been taken with
a more rigid shaft, tending to compensate for the greater
perimeter, still the same general factors which operated
to reduce the Walcott speeds would no doubt affect the
shaper, and probably in about the same proportion. For
a shaper of the original type, therefore, the Model T speeds
should be reduced for the Model A shaft by 20% (the per-
centage of reduction used for the Walcott lathes), resulting
in a figure of 20 shafts per machine hour.
However, I think an additional reduction should be
made because of the lower speeds which would probably
result from the modification of the shaper to adapt it to
the Model A shaft. With the Oberhoffken modification, for
example, if the speed of each of the two cutting strokes
was equivalent to the speed of the cutting stroke on the
original, the machine time would be increased one third.
While the cutting speed of the tools is not the limiting
factor in the speed of the shaper, but rather the inertia of
the parts upon the rapid change in velocity of the ram, it is
very doubtful if the Oberhoffken or any other form of modi-
fication could have been made as fast as the original, other
' >
Report of Special Master
things being equal. Because of that doubt, I think the
speed of the Model A shaper should be reduced an addi-
tional 10%, resulting in a final figure of 18 shafts per ma-
chine hour or 36 per man hour (which is approximately
18% under the speed adopted by defendant’s account,
which was based upon the relative perimeters of the Model
A and Model T shafts). Defendant makes no allowance
in its accounts for slower speeds on the modified shaper,
claiming that the original shaper was designed very con-
servatively and that by substitution of a light alloy ram
and a stronger driving mechanism it could have stepped
up the speed of the original by at least 50%. While it may
be that this could have been done, I do not think that factor
ean be taken into consideration in determining speeds in
this lawsuit. The improvements suggested were never made
by defendant, even with the nine shapers ordered in 1923,
although the same necessity was present for making them
then as now. It is to be noted that the speed of the Wal-
cotts could similarly have been, and later was, increased
by rearrangement of the overhead cams, but no claim is
made that the faster speed should be used for the account-
ing period.
46
(c) Speed of Production on Tractor Shaft.
It is agreed that the grinder produced tractor cam-
shafts at an average rate of 8 per machine and man hour.
There is a dispute, however, as to whether the rate of pro-
duction on the Walcott lathes was 15 or 20 per machine
hour, although the use of one or the other of these figures
does not make a very substantial difference in the result.
A time study in defendant’s English plant showed a pro-
duction speed of slightly less than 15 tractor shafts per
hour, but information is not available as to motor speeds
or handling methods in that plant and it seems probable
that a higher rate of production was obtained in the United
States. The recollection of speeds by Ford employees
ranged from 15 to 25. The guaranteed production was 30.
In my opinion, the figure of 20 shafts per machine hour or
40 per man hour should be adopted, which figure is very
close to that which is obtained by reducing the speeds found
for the Medel T and Model A shafts in inverse proportion
to the greater periphery of the tractor cams.
_d
pers ” ms FR LT IIE aa oe
Report of Special Master 47
(2) Orer Savincs: OVERHEAD oR BURDEN.
The next problem is to determine the savings of de-
fendart, if any, from infringement, in manufacturing ex-
pense other than direct labor and materials. In defendant’s
accounting system, all such expenses are grouped under the
heading of burden. It is obvious that some burden costs—
e.g., machine depreciation and repairs—will vary with the
type of machinery used to perform a particular operation;
and, in addition, a variety of indirect expenses may be
affected. Defendant’s burden costs as of the time of the
trial were broken down into thirty-one different items,
thirty of which are applicable to the accounting period and
which I set forth here for the court’s information, as fol-
lows:
‘*Administrative salaries; depreciation of land im-
provements; depreciation of buildings; depreciation of
machinery ; depreciation of durable tools; depreciation
of factory and miscellaneous equipment; depreciation
of freight car equipment; depreciation of locomotive
equipment; depreciation of power equipment; insur-
ance ; experimental engineering and designing ; moving
and re-arranging department; factory supervision;
final inspection ; miscellaneous manufacturing expense ;
power operations; repairs to land improvements; re-
pairs to buildings, fixtures and structures; repairs to
machinery ; repairs to durable tools; repairs to factory
and miscellaneous equipment; repairs to freight car
equipment; repairs to locomotive equipment; repairs
to power equipment; expense of tools; insurance (em-
ployees’ liability and compensation); sweeping and
cleaning; taxes (state, city and county); miscellaneous
services for employees; timekeeping, pay rolls and fac-
tory clerical salaries.’’
As previously stated, some of these elements of burden
are costed direct in the department and others are first
costed for the whole factory and then apportioned among
the departments on arbitrary bases. For the infrequent
occasions when it was necessary to determine the cost of
operations in producing a part, the departmental ratios of
burden to direct labor costs were used to apportion burden
among the operations. Records showing the breakdown of
departmental overhead into its component elements for the
48 Report of Special Master
accounting period have been destroyed, although total de-
partmental overhead figures are available. Permanent ree-
ords have been kept by the defendant of the cost and de-
preciation rate of each machine purchased by it; and there
are scattered records of overhaul and tool costs available.
However, no systematic attempt has been made to compute
individually the cost of repairs, tools, and power consump-
tion attributable to each operation.
Plaintiff and defendant adopt two different methods of
determining overhead savings in this case. Defendant uses
what may be described as the breakdown method of deter-
mining them. It assumes that nearly all of the burden ex-
penses are fixed costs, not affected to any appreciable ex-
tent by a change in machinery for the operation on the
cams. Defendant’s accountants consider the principal vari-
able factors in a comparison of costs on the Walcott lathes
and shapers to be those for depreciation and maintenance
of machinery and tool costs; and their method has been to
reconstruct from the records available the costs of each of
these items on the two types of machines. Their final com-
putation shows a slight advantage to the Walcott lathes on
depreciation, which is more than offset by considerably
greater expense of maintenance and repairs upon them, as
follows;
Cost on Cost on
Shapers _— Melling lathes
Model T shaft
Depreciation $19,248.69 $16,921.58
Maintenance repairs 8,252.10 14,853.80
Extraordinary repairs 23,579.66
$27,500.79 $55,355.04
Loss on Melling lathes $27,854.25
Model A shaft
Depreciation $31,728.94 $27,645.49
Maintenance repairs 25,234.66 45,829.12
$56,963.60 $73,474.61
Loss on Melling lathes $16,511.01
Tractor shaft (Not calculated, but assumed to
follow results with other shafts.)
0
PLAT RAE FEET es parang SIMI PSI CCE EFT TE IY DLT YIM EMAAR OLN HE MN ep “ts
Report of Special Master 49
Defendant’s accountants believe that costs of tools, power,
factory supervision, and costs incident to housing the ma-
chines, which were not computed because of insufficient
records, would have been greater on the Walcott lathes
than with the shapers.
Plaintiff’s accountant, on the other hand, uses the de-
partmental burden percentages based upon direct labor to
compute burden savings. Since these percentages gener-
ally run in excess of 100% for the accounting period, the
burden savings found by his caleulation are somewhat
greater than the savings in direct labor. Plaintiff concedes
that theoretically the breakdown method used by defendant
is the better one, but contends that an accurate computa-
tion cannot be made on that basis because of insufficient
records or other evidence of costs of the individual ele-
ments of overhead liere. According to plaintiff’s account-
ant, Mr. Moise, the kind of overhead costs which remain
unaffected by a change in cam-shaping machinery consti-
tute only an insignificant portion of total overhead. A
large group of items ( particulgrly factory supervision), not
considered in defendant’s accounts, are said to vary gen-
erally in direet proportion to direct labor costs. A third
substantial group of which the most important is machine
depreciation and repairs, are ordinarily affected by a
change of machinery but not necessarily in proportion to,
or in the direction of, direct labor costs. As to the latter
group of costs, however, Mr. Moise believes that in this
case they will average out to vary approximately in direct
proportion to direct labor costs. A computation made by
him of comparative costs with the Waleott lathes and
shapers for Model T and Model A production (assuming
the shapers could have been used on the Model A shaft)
shows savings with the Waleotts of approximately $120,000,
However, he considers, in view of the way defendant has
kept its cost records, that overhead savings should be com-
puted by use of the departmental burden percentages, even
though they result in a smaller figure than that.
In considering the authorities on the proper method of
determining savings of this type, I have found no reported
patent cases where the defendant’s profits were determined,
as here, by the standard of comparison method which dis-
cuss the treatment of overhead savings as such, but con-
sideration is given to overhead, if at all, only in terms of
—— .
_
a
Report of Special Master
its elements. (See, e.g., Morgan Construction Co. v. Forter-
Miller, supra, where plaintiff restricted its claim to savings
arising from a lower cost of labor, and Carson v. American
Smelting Co., supra, where the defendant’s account in-
cluded a comparison of costs of a number of items which in
the Ford system of accounting would be classified as bur-
den, but which were not discussed in terms of burden.)
However, there are a large number of cases dealing
with overhead where the infringement consisted of the
manufacture and sale of a patented thing, rather than its
use. The problem arises when (as is usually the case) the
infringing business accounts for only a small part of the
total business of the defendant, and where part of the over-
head expenditures of the entire business are claimed as a
deduction from gross profits of the infringement. The
situation in those cases is in effect only the converse of that
in the case at bar where the infringement was one of use:
in those cases, the defendant claims a deduction for over-
head expenses increased by infringement, while here the
plaintiff claims as profits decreased by infringement. Con-
sideration of them is therefore pertinent. It is significant
that the claims made by the parties in those cases closely
resemble those in the case at bar, one side contending that
the increase in overhead from infringement was negligible
and should be disregarded, while the other contends that
overhead should be charged to the infringing business on
the same proportion it bears to the whole business,
The general principle established by the decisions on
overhead referred to is that the one claiming the benefit of
overhead expenses must show, and the burden is on him to
do so, what portion of total overhead expenditures were
actually attributable to the infringement. Levin Brothers
v. Davis Manufacturing Co., 72 F. (2d) 163 (C. C. A. 8,
1934); Haiss Manufacturing Co. v. Link-Belt Co., 63 F.
(2d) 479 (C. C. A. 3, 1932); Sheldon v. Metro-Goldwyn Pic-
tures Corp., supra; Krentler-Arnold Hinge Last Co. v.
Leman, 24 F. (2d) 423 (D. C., Mass. 1928); Cf. Horvath
v. McCord, supra. Usually, this involves segregation of
overhead into its constituent elements, accompanied by
proof showing which ones have been increased by infringe-
ment. Levin v. Davis, supra; Standard Mailing Machines
Co. v. Postage Meter Co., 31 F. (2d) 459 (D. C., Mass.,
1929); Horvath v. McCord, supra; Flat Slab v. Turner,
Report of Special Master 51
285 Fed. 257 (C. C. A. 8, 1922). No case requires the in-
fringer to go to the extent of proving every expenditure
for overhead affected by the infringement, as this would be
impossible from a practical standpoint. (See above cases
and remarks of court in Stearns-Roger Manufacturing Co.
v. Ruth, 87 F. (2d) 35 at 41 and 42, C. C. A. 10, 1936.)
Overhead expenditures are rather dealt with under broad
classes, analogous to the elements of Ford overhead set
forth above, and each class is apportioned between the in-
fringing and non-infringing branches of the business on
some recognized accounting basis, such as proportionate
direct labor costs. In cases, however, where it is found
impracticable to separate overhead into its elements and
treat them individually, the apportionment has been made
by dividing all overhead expenses between the infringing
and non-infringing branches on a recognized accounting
basis, usually direct labor for manufacturing overhead.
(See Standard Co. v. Cropp Co., supra, where general over-
head was allocated between departments on the direct labor
wage basis and total departmental overhead was then
divided between the articles worked on in the department
on the same basis; Computing Scale Co. v. Toledo Com-
puting Scale Co., 279 Fed. 648, 657-8, C. C. A, 7, 1921, where
all manufacturing overhead was apportioned on a direct
labor plus materials basis. With administrative and sell-
ing, as distinguished from manufacturing, expense, the
basis of apportionment is usually relative gross sales of
the two branches.) In some cases where the use of an over-
head ratio for the whole business has seemed not to reflect
accurately the actual increase in overhead from infringe-
ment, the courts have arbitrarily reduced the ratio to the
point thought to represent the actual increase. (See, e.g.,
Winchester Arms Co. v. American Buckle and Cartridge
Co., 62 Fed. 278, C. C, Conn., 1894, where the court added
10% to the cost of labor and materials for the infringement
in place of 26-1/5% overhead of the business in general;
Flat Slab v. Turner, supra, pages 278 and 279.)
The courts recognize that there is no perfect method of
apportioning overhead to the infringing business (Stand-
ard v. Cropp, supra; Stearns-Roger v. Ruth, supra), and
accordingly take a practical approach to the problem, using
the best method that the nature of the particular case and
the records available will permit. This is well illustrated
52 Report of Special Master
by Haiss Manufacturing Co. v. Link-Belt Co., supra, where
the defendant infringed by manufacturing and selling
wagon loaders, which constituted a small fraction of its
business. It kept to separate account of the overhead
chargeable to the infringing business, and there was no
evidence under which the elements of its general overhead
could be apportioned. Defendant claimed that a propor-
tionate part of its total overhead should be charged to the
infringing line on the basis of direct labor costs, which
showed a small profit to defendant. The court, being con-
vinced that defendant had made a substantial profit from
infringement, held that defendant had not sustained its
burden of showing overhead expenses were increased by
infringement in proportion to direct labor costs. It did
not, however, leave overhead out of consideration entirely
by awarding plaintiff the defendant’s gross receipts from
infringement minus only material and direct labor costs; :
but instead computed defendant’s profits by taking the
percentage of average clear profit from its entire business
and applying this to the infringing business, thus taking
overhead into account indirectly.
Since the problem of treatment of overhead in the case
of the infringing manufacturer is only the other side of the
problem with the infringing user, the principles above con-
sidered are applicable to the case at bar. In this ease, it
seems clear that from a theoretical standpoint defendant’s
method of computing overhead savings is the most accurate
and the correct one. Overhead expenses do not always vary
with direct labor costs incident to the use of machinery: it
is common knowledge that in modern factories expensive
labor-saving machinery is frequently adopted with which
the great increase in some of the burden costs is more than
compensated by the saving in labor costs. As between dif-
ferent machines available for the same operation, one may
be the least expensive in depreciation cost, another in tool
costs, a third in maintenance, and a fourth in labor. (See,
as an example of this, defendant’s account in Carson v.
American Smelting Co., supra.) Defendant’s system of
apportioning burden among its departments recognizes that
all kinds of burden do not vary in proportion to direct
labor, different bases being used for apportioning the dif-
ferent elements. It is true that it apportioned departmen-
tal burden among operations entirely on a direct labor
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Report of Special Master 53
basis, but for its purposes in doing this a refined method
was not necessary. It would seem that defendant, by the
adoption of an accounting method of distributing burden
among operations for a different purpose, should not neces-
sarily be barred from proving similar costs here by a better
method, if available. On the other hand, it must be recog-
nized that the adoption of a particular system of computing
burden costs by defendant may result in its records being
kept in such a way as to make it impossible to calculate
them by a theoretically more precise method. Furthermore,
it appears that the method of applying manufacturing over-
head on the direct labor basis is generally accepted by ac-
countants as the best one where it is impossible or imprac-
ticable to use a theoretically more accurate system.
Consideration of the problem leads me to the conclu-
sion that, with the records available here, a computation of
comparative overhead costs of the shaper and Walcott ma-
chines on a breakdown basis is going to be deficient in im-
portant respects. In the first place, it will be unsatisfactory
with respect to important elements of overhead which de-
fendant thinks it unnecessary to consider in the compara-
tive cost study, but which would seem reasonably certain
to be greater with the shapers than with the Walcotts. For
example, a very important item of overhead, factory super-
vision, varies in general with the amount of direct labor,
and consequently would be greater with the shapers. While,
as pointed out by Mr. Moise, the addition of a single laborer
in a department might not require an additional foreman,
the point will eventually be reached when it will become
necessary to add one. It would be unfair to charge the
expense of the added foreman to the last productive worker
taken on: it should be apportioned upon an average basis.
If records of the cost of this element of overhead in the
camshaft department were still available, the additional
cost for the shapers could be calculated with reasonable
accuracy: without such records or any reliable basis for
estimation, the cost of this element by itself cannot be com-
puted. The same situation prevails with the similar cost
elements of einployees’ liability and compensation insur-
ance, and timekeeping, pay roll, and clerical salaries.
Another element of overhead costs which would probably
be larger with the shapers, but which was disregarded by
54 Report of Special Master
defendant for lack of records, is that of power. There are
some records indicating the use of a 74% horsepower motor
on the shaper, as compared with a 5 horsepower one with
the Walcotts. Even if the motors were the same, however,
power consumption (which in general varies with the rated
motor power) would be proportional to the time consumed
in the cam-roughing operation, and, in turn, with direct
labor costs. While this element should not be disregarded
if it can be determined, there is no evidence in the record
frum which its cost with the shapers and Walcotts can be
computed as an individual element.
in the second place, as to the three items of overhead
—machine depreciation, machine maintenance and repair,
and cutting tool costs—which defendant admits are ap-
preciably affected by a change from the Walecotts to the
shapers on the cam-roughing operation, it is difficult, if not
impossible, to state a satisfactory account of them as indi-
vidual elements here, in view of the fact that defendant’s
accounting system has not been built around the effort to
ascertain costs by operations, and the records available,
particularly as to maintenance and repairs, are somewhat
scattered. An analysis of these three items indicates, in
my opinion, that they would probably vary in the same
direction (and roughly in the sa
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