Reply Brief — Hartford-Empire Co. v. United States (No. 2-7)

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CHARLES Ei LEY

CLERK

IN THE

Supreme Cowt of the United States

OctosEr TERM—1943

No. Ea 5

HAZEL-ATLAS GLASS COMPANY, e¢ al.,

Appellants,

vs.

THE UNITED STATES OF AMERICA,

Appellee.

APPEAL FROM THE District Court OF THE UNITED

STATES FOR THE NorTHERN District oF OHIO,

WESTERN DIvISsION

REPLY BRIEF FOR HAZEL-ATLAS DEFENDANTS

* STEPHEN H. PuHItsin,

“ JoserH D. STECHER,

Counsel for Hazel-Atlas Defendants.

November, 1943.

PE ES ee

I. The reason why Hazel took a Hartford license.. 4

II. Hazel did not restrain competition by taking a

A. Hazel was only a non-exclusive licensee,

without control over Hartford patents and

B.

. Hartford royalties are paid by Hazel for

Hartford patents, and by other licensees for

. Hazel did not violate the anti-trust laws by shar-

ing in the royalties collected by Hartford

A. Hazel furnished valuable consideration to

A. If this Court finds Hazel did not violate the

anti-trust laws by its 1932 Hartford agree-

li

PAGE

B. If this Court finds that Pfazel did so violate

the Suti-trast lowe... 3 Sk i SR

1. The impounding order was illegal... ...

2. The impounded funds ...............

TABLE OF CASES CITED

Hartford v. Hazel, 3 Cir., 59 F. 2d. 399............

Hartford v. Hazel, 3 Cir., 137 F. 2d. 764...........

Hartford v. Nivison, et al., 6 Cir., 58 F.2d. 701......

Hartford v. Obear-Nester, 8 Cir., 39 F. 2d. 769 .....

Missouri-Kansas Pipe Line v. U. S., 3 Cir., 108 F.

a OE, RE RENSERES CREE aS ee On ogee oe es

U. S. v. California Canneries, 279 U. S. 553 ........

United States v. Morgan, 307 U. S. 183........ ‘

IN THE

Supreme Court of the United States

Octoser TERM—1943

No. 10

Hazet-AtTias Grass Company, et al.,

Appellants,

VS.

THE UNITED STATES OF AMERICA,

Appellee.

REPLY BRIEF FOR HAZEL-ATLAS DEFENDANTS

This reply brief is submitted to facilitate consideration

of the particular questions presented by the Hazel appeal,

in the light of the government brief. There are so many

matters discussed in that lengthy brief that it is somewhat

difficult to find what is said concerning some of the Hazel

issues. And there are assertions in the government brief

which seem to us unjustified and misleading.

The Hazel appeal makes the following points (Hazel

brief, p. 15):

.“1. The 1932 agreement between Hazel and

Hartford, and the 1935 supplement, did not violate

the Sherman anti-trust law.

2. The trial court should not have taken Hazel’s

money ‘for the dissolution of Hartford and the

establishment of competing concerns’,

: ee

3. The 1932 agreement between Hazel and

Owens, and the 1935 supplement, did not violate the

Sherman anti-trust law.

4. There was no oral 1933 agreement, limiting

fruit jar production, between Hazel, Owens, Ball

Brothers and Hartford.

5. The Glass Container Association, and Hazel

as a member, did not fix quotas of production, or

keep newcomers out of the industry.

6. Hazel individual defendants McClure, Quay,

Paull, Gee, Holloway and Seabright did not violate

the anti-trust laws.

7. The injunctions were unreasonable and con-

fiscatory.”

With respect to points 3 through 7, in view of the

government brief, only a few words are needed.

3. Hazel did not violate the anti-trust laws by its

1932 non-exclusive license from Owens for suction patents

(Hazel brief, pp. 55-57). The government brief fails to

answer the Hazel brief in this respect, nor does it any-

where attempt to support the decision below that Hazel

did wrong in making this 1932 agreement.

The government brief does say (p. 319) that Owens

continued to participate in the alleged conspiracy in 1935

and later, because the 1935 license which Owens granted

Hazel did not license Hazel in the so-called Corning fields

of ware (heat-resistant ware, etc.) and that this was illegal.

But Owens was the patent owner, Hazel could not compel

Owens to grant a license, and, to be practical about the

3

matter, Hazel never has made such ware or wanted a license

to do so. Surely Hazel did not violate the anti-trust laws

because Owens did not give it something Hazel did not

need or want.

4. The alleged 1933 oral fruit jar agreement to re-

strict production is dealt with in the Hazel brief (pp. 57-

60), and in the government brief (p. 151, et seq., p. 290,

et seq.). It is unnecessary to add anything.

5. The Glass Container Association activities of

Hazel, one of its members, are mentioned ‘in the Hazel

brief (pp. 12, 60, 61) and the government brief discusses

Association matters (p. 157 et seg.). The Association

main and reply briefs deal with this.

6. The Hazel individual defendants, other than

McNash, did not violate the anti-trust laws, even if the

Hazel Company did, as pointed out in the Hazel brief (pp.

61-64). The government brief (pp. 302, 303) does not at-

tempt to answer this, merely referring to the lower court’s

findings, which are fully dealt with in the Hazel brief. The

suit should be dismissed as to these defendants.

7. The nature of the injunctions are sufficiently dis-

cussed in the briefs of other defendants.

The points 1 and 2 will now be considered, which are

the substantial ones individual to Hazel. They relate

to the 1932 cross-license agreement, which is the real

reason for Hazel being included in the present suit. There

is no contention, finding or evidence that Hazel ever acted

4.

improperly with respect to patent suits or Patent Office

proceedings.

I. THE REASON WHY HAZEL TOOK A HARTFORD

LICENSE.

The reason why Hazel entered into a cross-license

agreement with Hartford is plain—it was compelled to

do so by adverse court decisions. Hazel did not want a

license, because it did not need or desire the Hartford

feeders or engineering service, which are used by all the

other Hartford licensees, even the powerful Owens com-

pany. Hazel had its own inventors and engineers, who

had been building machines for its own use since 1896,

long before Hartford came into the field, and who have

made many useful inventions, some of them patented. But

the Hartford Company had patents which it claimed domi-

nated the Hazel feeders. So, from 1926 to 1932 Hartford

and Owens “sought to compel Hazel-Atlas to become a

licensee of Hartford” (gov’t. complaint, 1 R. 29), by bring-

ing patent infringement suits against it, finally succeeding

in May, 1932, when two circuit courts of appeals held that

the Hazel feeders infringed the Hartford patents, Hart-

ford v. Nivison, et al., 6 Cir., 58 F. 2d. 701, Hartford

v. Hazel, 3 Cir., 59 F. 2d. 399. Hazel had done the best

it could, even getting the sixth circuit court of appeals

to invalidate Hartford claims previously sustained in

Hartford v. Obear-Nester, 8 Cir., 39 F. 2d. 769, and

winning in the district court in the third circuit litigation.

But the risk of further litigation was too great and it was

plain common sense for Hazel to protect its business, by

taking a license under the Hartford patents, which was

lawful (Hazel brief, pp. 20-23).-

5

Il. HAZEL DID NOT RESTRAIN COMPETITION BY

TAKING A HARTFORD LICENSE.

There was nothing in the Hartford licenses to Hazel

which restricted competition. On the contrary, they per-

mitted Hazel to continue its competition with the other

glassware manufacturers, using its own feeders, free from

Hartford patents.

A. Hazel was only a non-exclusive licensee, without

control over Hartford patents and licensing policy.

Whether or not it would have been lawful for Hazel

to have received from Hartford any exclusive patent rights

need not be considered-—Hazel received only a non-exclusive

license, which is simply an agreement not to sue for patent

infringement. Hartford was exactly as free after it

granted the license to Hazel to license anyone, on any terms,

as it was before. Hazel had no control over what Hartford

did with its patents. (It would have been foolish for Hart-

ford to allow Hazel, an independent feeder and forming

machine inventor, any control, because Hazel’s interests are

different. )

Despite the plain provisions of the license, and the di-

vergent interests of Hartford and Hazel with respect to

the Hartford patents, the government contends that Hazel

was a full “partner” of Hartford, in the sense of cooper-

ating with it in managing its patent licensing business (and

not merely a royalty sharing partner, such as in Standard

Oil v. U. S., 283 U. S. 163). The trial court so found (Hazel

main brief, pp. 46-50). The government’s brief here (p.

102, footnote 55; pp. 259, 260, footnotes 22 and 23) refers

to the same subject.

6 i

The only evidence cited by the government to support

this proposition are five letters in the first few months after

the agreement was made, from the Hazel president to the

Hartford president. They were entirely natural and proper

letters, such as any non-exclusive licensee might write to his

licensor—none evidenced the slightest control over the

Hartford licensing policy. The findings of the trial court

on this subject are quoted in the Hazel main brief (pp. 47-

49), and the evidence relied upon there discussed—repeti-

tion here seems unncessary.

However, the government brief also says (p. 259)

that Hazel “participated in Hartford’s licensing policies”.

This goes beyond even what the trial court found, and is

unsupported by the record. Such of the record citations

as are pertinent show only that when in the fall of 1932

Hartford asked Hazel if it objected to proposed licenses,

Hazel said it did not (Ex. 155, 19 R. 12675; Ex. 207,

19 R. 12733). In one of these cases, Hartford later

granted licenses, in the other case, the Kerr Company, it

did not. In both cases, Hazel had nothing to do with Hart-

ford’s decision. And it may be noted that there is no

contention that Hazel had anything to do with all the other

numerous license actions of Hartford after July 1932, for

example, the 97 licenses granted or revised (Ex. H-5750,

27 R. 15436) and the 39 alleged Hartford refusals to

license or discouragements of manufacture (gov't brief,

pp. 416-420).

B. Hazel did not violate the anti-trust laws by accept-

ing a limited license.

Hartford limited its license to Hazel to certain fields,

a policy of Hartford for many years prior to 1932 (since

7

1916, gov't brief, p. 241). However, Hazel did obtain a

license to continue doing all the things it had been doing

and wanted to do, namely, to continue manufacturing and

seliing in the large and important fields where it had been

carrying on business for many years, and inventing, mak-

ing and using its own machines in its glassware manu-

facture. There was no reason why Hazel should have tried

to get, and pay for, licenses it did not want.

The Hazel brief (p. 41) pointed out that Hazel did not

agree that it would not manufacture unlicensed glassware,

so that with respect to it Hazel was in the same position

after the license as before, because if Hazel did manufac-

ture such glassware, it would be subject to a suit for patent

infringement and was entirely free to defend on the grounds

that the patent was invalid and not infringed, as many a

licensee has done. In attempted reply, the government brief

(p. 172) refers to the provision in the Hartford standard

license agreements, including Hazel’s (12 R. 8776) that

“The following articles are expressly excluded and shall

not be produced under this General License Agreement.’”’*

The government contends that this means that the licensee

could not produce them, either under the license or not

under the license, asserting (p. 173):

“This was recognized to be an express covenant

not to produce articles excluded under the license

contract.”

But this assertion is unsupported by any citation to the

record, there was never any such recognition by Hazel, nor

can we find any in the record by anyone else.

*Italics ours throughout.

g

The government brief continues:

“Hartford’s counsel, W. J. Belknap, so inter-

preted Hartford’s license as late as February 5,

1938, when he wrote an opinion to F. G. Smith to the

effect that if Owens and Anchor-Hocking produced

ware excluded under their respective licenses, Hart-

ford could sue them not only for infringement but

also for breach of contract (Ex. 377, R. 12945; Ex.

H-5018, R. 14717-8)”.

But the Owens and Hartford licenses, as appears from

the letters of the Hartford lawyer, contained a provision

not in the Hazel license, namely, “Said Leased machinery

and all improvements thereon shall be used only for manu-

facturing the glassware defined as ‘Permitted Ware’ in

Schedule ‘C’ annexed hereto”. It was upon this provision

that the Hartford lawyer relied in giving his opinion to

Smith, the Hartford president, that Owens and Anchor

Hocking, if they made unlicensed ware, could be sued either

for breach of contract or patent infringement. (It does

not appear that anyone agreed with him.)

The difference between agreeing that the manufacture

of certain articles shall not be “under the license”, and

agreeing that licensed machines “shall be used only for”

the licensed articles is obvious. It will be remembered that

the Hazel feeders are owned by it, not leased from Hart-

ford, and Hazel, since its Hartford license, has always had

the right to use them as it desires, subject to the same risk

of patent infringement suit by Hartford that it had before

its Hartford license, if Hazel should make unlicensed use

of them.

9

C. Hozel is not obligated to pay when it does not use

Hartford patents.

The government brief (pp. 225, 264, 363) says that the

Hartford-Hazel license will “discourage Hazel from mak-

ing machinery inventions in the container field and licens-

ing them to others”. There is not the slightest evidence

that since the contract was made in 1932 Hazel has ceased

inventing and developing new machines, there was not the

slightest suggestion in the court below that such was the

case, the testimony shows the contrary (Carnahan, 8 R.

5611; Exs. HA-5678 and 9, 14 R. 10881 and 2), and the

government does not so contend in this Court.

What the government does rely upon is a contention by

Hartford, that Hazel has to pay royalties to Hartford

although no Hartford patents are used, but only Hazel’s

own patents. Of course, if this were right, the govern-

ment assertion that Hazel was a favored Hartford licensee

would vanish, because other licensees pay royalties only

when they use Hartford patents.

The ground for this contention is the agreement by

Hazel to pay royalties for “the use of any Licensed Inven-

tion” (12 R. 8767), which means, of course, any invention

for which Hazel received a license from Hartford. The gov-

ernment says that Hartford contends that this means

Hazel’s own patented inventions as well as those licensed to

Hazel by Hartford, that an arbitrator so reported in a com-

mon law arbitration between Hartford and Hazel (now

under review in the court below), and that if Hazel should

be obligated to pay on its own patents as well as Hartford’s,

Hazel will be discouraged from developing and building

new machines.

10

First, the arbitrator was mistaken.. Hazel has always

owned its own patents and consequently has always had the

right to use them. Hartford got from Hazel only a non-

exclusive license with right to sub-license, and the only pat-

ents licensed to Hazel were the Hartford patents. This

matter is now in suit in the court below, as the government

brief states (p. 264, footnote).

Second, if all patents were abolished, Hazel would con-

tinue developing and building new machines. Many of its

inventions today are unpatented, including one that is worth

$250,000 a year to Hazel (Hazel main brief, p. 32). The

Hazel Company is a glassware manufacturer, whose pri-

mary interest is in making and selling glassware, and since

1896 it has followed the policy of making machines for its

own use. If patenting its improvements were burdensome

to it, it would stop patenting, but not improving.

Third, Hazei has acted under the license since 1932 and

it has not yet been “discouraged” from machine research,

development, and construction, nor has it ever paid for the

use of its own patents.

D. Hartford royalties are paid by Hazel for Hartford

patents, and by other licensees for Hartford feeders, engi-

neering service, and patents.

The government brief in considering the effect of the

Hartford-Hazel cross-license ignores the undisputed fact

that Hazel at great expense invents, builds and maintains

its own feeders. This inventive and development work is

to the public interest, because it cheapens production, adds

-to the sum of knowledge concerning machines, stimulates

inventions by others, and, can be used by others except dur-

ing the term of a valid patent.

11

Hazel for the royalties it pays Hartford gets only a

non-exclusive right to embody Hartford inventions in ma-

chines that are designed, built and serviced by Hazel.

All other licensees in return for their royalties get Hart-

ford feeders, protection against patent suits by others,

and the very valuable Hartford engineering service,

which costs Hartford about $1,000,000 a year (Hazel brief,

p. 36). It costs Hazel much more than $250,000 a year

to maintain its own engineering service (Carnahan, 8 R.

5618). That is the price Hazel has paid to be independent

of Hartford feeders.

The government criticizes the Owens Company for

having in 1932 “completely abandoned the use of its gob

feeders” (gov't. brief, p. 58), and the trial court found that

“Corning and Owens ceased all development work on

feeders as a result of their 1922 and 1924 agreements, re-

spectively, with Hartford” (finding 493, 10 R. 7375).

If it were wrong for Owens and the other Hartford

licensees to depend upon Hartford for their feeders and

engineering service, Hazel’s refusal to so depend on Hart-

ford and insistence upon independent invention and de-

velopment of new machines, at great cost to itself, should

be recognized as evidencing Hazel’s independence from the

alleged conspiracy.

lll. THE HAZEL LICENSES TO HARTFORD WERE

NON-EXCLUSIVE.

Hazel retained full ownership of its own patents, with

full right to grant licenses to others. Hartford received

a non-exclusive license with right to sub-license others.

This did not restrain competition, but, on the contrary,

increased it, because Hartford obtained the right to use

12

Hazel patents, and others now can go to Hartford, as well

as Hazel, for a license under Hazel’s patents (Hazel brief,

p. 26).

The government makes the extraordinary statement

(brief, p. 210) that “The effect of the arrangement made

in 1932 between Hartford and Hazel was to impair the

power of Hazel to grant licenses under its own inventions”,

saying (footnote 77a) “This resulted from Hazel’s ackowl-

edgment of ‘the validity and broad scope’ of Hartford’s

patents”. But how can recognition by a patent owner that

another may have valid patents impair his power to grant

licenses under his own patents? Of course, a prospective

licensee may not be willing to pay as much for a license as

_ if there were no other patents; but that does not in any

way affect the patent owner’s right and power to grant

licenses under his own patents for whatever consideration

anybody desiring such a license is willing to pay.

IV. HAZEL DID NOT VIOLATE THE ANTI-TRUST

LAWS BY SHARING IN THE ROYALTIES COLLECTED

BY HARTFORD.

The real question in this case with respect to the Hazel

Company, and the real reason, we think, why Hazel was

made a party defendant, is because Hazel has received large

amounts of money from Hartford (naturally distasteful to

Hartford and its licensees) in exchange for the Hazel pat-

ent rights, engineering “know how” and a release of an

important claim. This is really what the government thinks

_ is wrong with the Hartford-Hazel license—its other criti-

cisms are mere makeweights.

We think it plain common sense that the grant by the

owner of a patent monopoly of a license to another also to

13

use the invention increases—not decreases—competition,

that the exchange of licenses, i.e., cross-licenses, does the

same, that grants by the cross-licensors of licenses to others

also increases competition; and that the cross-licensors are

entitled to be paid for their licenses, by a division of the

royalties. And that is what this Court held in Standard Oil

v. U. S., 283 U. S. 163, where the four principal gasoline

manufacturers were partners in a patent pooling arrange-

ment, sharing in royalties paid by others, saying (p. 171):

“An interchange of patent rights and a division of

royalties according to the value attributed by the

parties to their respective patent claims is frequently

necessary if technical advantage is not to be blocked

by threatened litigation.”

In the present case, Hazel was faced with actual, not

merely threatened, litigation, including adverse decisions by

two circuit courts of appeals, and the destruction of not

only its technical work, but also its very business. Hart-

ford, on its side, knew that Hazel had been inventing and

operating feeders and forming machines since at least 1906,

that Hazel had many patents and applications, some of

which had been in Patent Office interferences with Hart-

ford, and that a right to use not only the inventions Hazel

then had but what it might get during the next thirteen

years was very valuable to it and its licensees.

The government recognizes that it was lawful for

Hazel to license Hartford, non-exclusively, and to be

paid by a share in the royalties, unless there was some-

thing more. So it asserts that the purpose and effect of

the payments to Hazel were

“to make it a party to the scheme for controlling

the market for unpatented glassware” (brief, 194,

259).

14

“to place and maintain Hazel in a dominant posi-

tion over its competitors (other than Owens) in the

manufacture and sale of unpatented glassware” (id.,

p. 262).

Neither of these contentions is sound. Hazel did not

make any agreement with Hartford concerning unpatented

glassware—its agreement was an ordinary, non-exclusive

exchange of patent licenses for machines—there was no

price fixing, production limiting or other possibly illegal

agreement. If Hazel became a party to “the scheme” by

receiving one of Hartford’s limited licenses, so did every

other Hartford licensee.

And the assertion that the 1932 agreement placed or

maintained Hazel in a dominant position is also without

foundation. In 1932 Hazel had been for many years the

second largest manufacturer in the industry, and the most

successful in the wide mouth ware field. But always in

any industry, or human activity, some are better, and it is

not criminal to succeed.

The Hazel main brief (p. 38) pointed out the lack of

any “domination” by Hazel, which is unanswered in the

government brief. It is true that the government asserts

(brief, p. 10) “Owens and Hazel dominated™ the glass

container field which consisted of approximately 38 manu-

facturers (Owens Ans. par. 5, R. 172)”. But the Owens

answer so cited does not support that assertion about Hazel

in any way or even mention Hazel; the “13” footnote cita-

tions to the record are with respect to only Hartford or

Owens—not Hazel; and the “14” footnote citations are to

pages showing only that the Owens and Hazel shipments

of glassware were greater than other concerns—nothing

more.

15

Certainly a claim that Hazel dominated the industry is

not established by the bare showing that it sells more than

its competitors, excepting Owens.

And it may be observed that the government’s claim of

domination of the glassware industry by Hazel seems in-

consistent with contentions that “Domination of the glass-

ware industry by Owens commenced shortly after October

16, 1903” (finding 92, 10 R. 7295) ; that Owens dominates _

the entire glass industry” (finding 126, 10 R. 7304) ; that

“Thatcher and Owens dominate the milk bottle industry”

(finding 417, 10 R. 7364) ; that Owens is the “price leader”

in the narrow neck field; and Ball Brothers is the largest

manufacturer of fruit jars and the price leader in that field

(gov’t. complaint, 1 R. 52). :

There is nothing in the record to show that the 1932

cross-license agreement restrained any trade in patents,

machines or glassware. The record does show that from

1932 to 1938 the Hazel share of the business decreased,

and that there was no decrease in the numbers of its very

active competitors (GCA Exs. 6082 et seq., 28 R. 16248

et seq.). ;

The record also shows that for this period Hazel did not

make excessive profits (14 R. 7969 et seg.). The complaint

charged that several defendants including Hazel had made

“excessive profits” from the unlawful conspiracy (para.

188, 1 R. 54), the evidence showed that Hazel had not, the

government asked the trial court to find that other defend-

ants, but not Hazel, had made “excessive” profits, and the

trial court so found with respect to other defendants

(Owens, finding 128, 10 R. 7304; Thatcher, finding 419,

10 R. 7364; Hartford, finding 481, 10 R. 7374), but not

as to Hazel.

16 .

The 1932 agreement has been in effect many years.

There is not a scrap of evidence in the record that trade or

competition were restrained by Hazel exchanging non-ex-

clusive patent licenses with Hartford and being paid for

what it sold to Hartford.

A. Hazel furnished valuable consideration to Hartford.

Hazel furnished valuable consideration to Hartford, |

namely, a license for Hazel’s present and future patents, a.

right to Hazel’s engineering “know-how”, and a release

of Hazel’s claims under the Lott patents, as described in

the Hazel main brief (pp. 29-36). In the court below, the

government practically conceded that the Hazel considera-

tions were valuable, by not asking the trial court to find

otherwise (see the 681 findings submitted by government,

9 R. 6917, et seq.), while the failure of the trial court so to

find, as requested by Hazel, undoubtedly was because find-

ings favorable to defendants were not made, even when

undisputed. However, the government’s brief here seeks

to criticize the importance of the Hazel patents and the

Lott release (but not the engineering “know-how”, which

alone was very valuable, Hazel main brief, p. 31).

“(a) There was ne patent deadlock” says the govern-

ment (brief, p. 267). But it is amply shown, and not ques-

tioned, that the Hazel feeders infringed the Hartford

patents so that Hazel could not use them without a Hart-

ford license, and also that the Hazel feeders were covered

by Hazel patents, so that Hartford and its licensees could

not use them.

Under this same heading, the government makes a nice,

but unsubstantial, distinction between using an invention

17

“in” as against “with” a machine, saying that some of the

Hazel patents were used only “with” Hartford machines.

As a practical matter, it makes no difference to the user of

a Hartford machine whether the Hazel invention he needs

for its efficient operation is an integral part of the machine

or connected with it—the point is that he needs the Hazel

invention. According to the undisputed testimony, the

Hartford licensees other than Hazel have been and are

using Hazel patented inventions “in” or “with” Hartford

feeders and forming machines (Brown, 8 R. 6219; Ex.

H-5749, 27 R. 15435), and undoubtedly also benefiting by

the Hazel “know-how” and engineering experience.

During the negotiations leading up to the license, Hart-

ford had a list of the 66 patents and 48 patent applications

then owned by Hazel, including 22 patents and 11 patent

applications relating to feeders, and 8 patents and 6 appli-

cations relating to forming machines (Hazel main brief,

p. 30). And Hartford also obtained the right for itself

and its licensees to use the future acquired patents of Hazel,

during the thirteen years of the license.

The Hazel patent rights were very valuable.

“(b) The claim as to Lott” is said by the government

not to have been taken by the parties “very seriously”

(brief, p. 269), because it was not mentioned on a few oc-

casions, by some one connected with Owens, Hartford or

Hazel. But the contemporaneous documents from 1919 to

1930 established the existence of this claim and its serious

nature, as did also the testimony of several witnesses (Hazel

main brief, pp. 35, 36).

It is difficult to imagine a more serious claim. The Lott

patents were infringed by the Hartford feeders, so that

Hartford and its licensees could not use them without a

18

license under the Lott patents. Indeed, Hartford had ad-

mitted this, by consenting to a decree entered in 1924

against it that the Lott patents were valid and infringed by

the Hartford feeders (Hazel Ex. 5081, 24 R. 14805). As

the Lott patents did not expire until June 1938, Hartford

and its licensees in 1932 were in the position, if Hartford

did not have a license under Lott, of owing millions of dol-

lars for past infringements, and, even more serious, of

being enjoined until 1938.

The Hazel claim was that its 1909 contract with Owens

gave Hazel exclusive rights under present and future

Owens patents, in the wide mouth field (about one-third

‘of all glass containers, finding 314, 10 R. 7345), and that

Owens could not in 1924 license Hartford under the Lott

patents for what Owens had previously sold Hazel.

The 1909 agreement covered both suction and so-called

gob feed (Hazel main brief, p. 35). The government is

mistaken in saying (brief, p. 270) “From the dates and

titles of the enumerated [in the 1909 agreement] patents,

it is clear that they related to suction and not to the gob feed

process which was the distinctive feature of the Lott pat-

ents”. We do not understand what the dates have to do

with it, because the gob feed uses feeders and forming

machines, both older than the suction process. Nor do the

titles show that there is no patent for a gob feeding machine |

(1909 agreement, Ex. H-5208, 18 R. 12333). There are

Bock patents listed in the agreement, it was a Bock patent

“that helped to raise the issue” between Hazel and Owens,

“a forming machine patent covering a machine that was

not fed by suction” (Williams, 5 R. 3768), and the 1919

letter of Hazel was with respect to forming machines being

within the 1909 agreement (Ex. O-5208, received 5 R.

19

3755 im record here, but letter not printed, Stip. 28 R.

16531). :

The negative evidence relied upon by the government to

support its contention that the Lott claim was not serious

consists merely of omissions to mention it as one of the sev-

eral considerations for the Hartford payments to Hazel.

Smith of Hartford in writing to Falck of Corning (Ex.

140, 19 R. 12659) was considering only the “Patent Situa-

tion”, and naturally did not mention releases for past in-

fringement, either by Hazel or by Hartford (although

Hazel had to pay a million dollars). Cartet of Owens writ-

ing to his company (Ex. 141, 19 R. 12663) on July 18,

1932 was primarily interested in the future activities of

Owens under the new licenses, and there was no reason for

his telling his people that the Lott claim was serious—they

knew it, as appears from Carter’s March, 1930 memoran-

dum (Ex. O-5999, 28 R. 16061, 16065) and the prior opin-

ions of Owens counsel (Hazel main brief, p. 35). The 1932

two page letter of Hazel counsel to John W. Davis (Ex.

HA-5084, 24 R. 14806) requesting advice upon the legality

of the proposed agreements did not mention the Hazel re-

lease of its Lott claim, undoubtedly because such release

could not restrain competition or violate the anti-trust laws.

The letter of Hartford counsel (Ex. 1772, 22 R. 14258)

did refer to the Hazel release of “Hartford for past in-

fringement”, saying that “For the release, the license, and

engineering experience Hartford agreed to pay Hazel one-

third of its net income” (p. 14263), such release including

the all important Lott claim. Finally, the cross-license

agreements are in general terms, releasing all claims, with-

out specifying their nature, including even those based on

decrees that Hazel had infringed Hartford patents.

20 .

The positive evidence of the existence of the claim and

its serious nature were uncontradicted documents and tes-

timony (Hazel main brief, p. 39). In this connection,

the government brief (pp. 270, 271, footnote) comments

upon Hazel not suing Owens or Hartford to establish

its disputed rights in the 1909 agreement. But from

1926 to 1932 Hazel was engaged in vigorously defending

itself against numerous patents, any one of which if

broadly sustained would have meant that Hazel could not

use its own feeders. The government says that Hazel had

enough money to retain competent counsel to try the case

against Owens or Hartford. But the patent litigation was

already costing Hazel between $100,000 and $150,000 a

year in direct expenses, and much more in the time required

of its operating men and engineers, and educating new

counsel in the intricacies of the tangled dealings and con-

tracts from 1909 to 1924 would have been a long and costly

process. Hazel wisely concentrated its energies upon de-

fending itself, there being a period of several years when

it was simultaneously defending suits in the sixth and the

third circuit, as well as preparing to defend a suit filed in

the fourth circuit (Ex. HA-5073, 24 R. 14758).

B. The amounts paid by Hazel and by Hartford.

The government’s brief sets forth the amounts paid to

Hazel by Hartford from 1932 through 1940 (pp. 107,

262), saying “Some idea of the extent of the competitive

advantage realized by Hazel under this provision [Hazel’s

share in Hartford income] may be obtained from the fact

that it received $10,034,000 under this provision from the

date of the contract through 1940” (p. 262).

21

But that is very far from the complete story, and is mis-

leading as to the real situation of Hazel, its competitors,

and Hartford.

The Hartford patents cost Hazel from at least 1926

to 1932 between $100,000 and $150,000 a year, in out of

pocket expenses, not including the diversion of Hazel engi-

neers and executives from their business of making and

selling glassware (McNash, 4 R. 2323). And a million

dollars in cash in 1932, to settle patent claims, including the

adverse decrees.

From 1932 through 1940 Hazel paid Hartford $9,335,-

000 (finding 222, 10 R. 7327) and in addition maintained

its own engineering and servicing organization at an ex-

pense of about $250,000 a year plus the salaries of many

engineers (Carnahan, 8 R. 5618).

The royalties paid by Hazel are not because Hazel uses

Hartford feeders and engineering service, as do all other

Hartford licensees, whom Hartford services free of extra

charge. Hazel is independent of Hartford feeders and

service. Nor does Hazel get the protection which Hartford

gives other licensees, indemnifying them against patent

infringement suits by others, by paying all the heavy ex-

penses of defense and saving harmless the licensee with

respect to royalties paid (Hazel main brief, pp. 36, 37).

To summarize, from 1926 to July 1932, the Hartford

patents cost Hazel about $2,000,000, and from 1932

through 1940, the Hazel payments for Hartford patents

and its own engineering have cost it at least $11,000,000,

as against Hazel receipts of $10,034,000. It is plain that

Hazel has not profited by the Hartford patents, and that in

relation to the Hartford licensees, the only advantage Hazel

has is because it is an independent inventor and developer of

22.

machines for its own use, maintaining a costly organization

for that purpose, while its competing Hartford licensees

are content to rely upon Hartford.

We think it is remarkable, and a great tribute to the

Hazel management that in view of the above the company

made any profits. It will be remembered that there is no

longer any contention that Hazel made excessive profits.

Vv. SOME MISCELLANEOUS MATTERS.

Essentially, the question of whether or not it was law-

ful for Hazel to make the 1932 cross-license agreement

with Hartford depends upon whether it was right for Hazel

to exchange non-exclusive licenses, accept a limited license,

and share in the royalties. If this did not restrain trade

or lessen competition, the agreement was lawful, otherwise

not. However, the government brief mentions some minor

provisions of the agreement, intended to carry out the main

provisions.

(a) The license contained an acknowledgment of the

validity and scope of the licensed patents (gov’t. brief, pp.

104, 168). This was a standard provision in the licenses

granted by Hartford, before and after the Hazel license

(gov't. brief, p. 168). As the taking of a license by Hazel

meant that Hazel could not dispute the validity of the li-

censed patents with respect to the licensed matters, this

was proper, for the reasons stated in the Hazel main brief

(pp. 44-46), which the government brief does not attempt

to answer.

(b) The license provides that if Hartford should go

into the business of manufacturing glassware, it should

pay royalties for its use of licensed inventions (Sec. 7, 12

RAS mes NS RN mie xo ree sn aepettll

23

R. 8772). The government says that this tended “to dis-

courage Hartford from the manufacture of glassware”

(brief, pp. 102, 263). But it was not unfair, or illegal, to

require Hartford to pay royalties for its use of inventions

licensed to it. And if Hazel had licensed Hartford to use

Hazel inventions without paying for them, Hartford would

have had a tremendous advantage over Hazel and the rest

of the industry.

(c) Hazel at the time the agreement was made, and

for some years prior, had relied upon feeders and forming

machines for its production, inventing and building such

machines for its own use. Hazel intended to continue do-

ing this, but Hartford could not be certain that during the

thirteen years of the license Hazel might not turn to suc-

tion or some other process. As Hartford was paying

Hazel not only for its then inventions and engineering

“know-how” (and the Lott release), but also for its future

inventions, it obviously was important to Hartford that

Hazel should continue in the feeder and forming machine

field.

So the license provides that if Hazel produces more

than one-fifth of its glassware by non-licensed inventions,

the Hartford payments to it are correspondingly decreased

(Sec. 3A, 12 R. 8767). The government says (brief, pp.

103, 263) this was “To deter Hazel from using any non-

licensed inventions in feeders or formers’’, but it was not,

being for the purpose of ensuring to Hartford that it would

get what it was paying for, namely, the benefit of Hazel’s

future work with feeders and forming machines.

(d) Although Hartford had obtained the third circuit

court of appeals decision that the Peiler “stuffine” patent

was valid and infringed by Hazel, it might be decided other-

24

wise in another case, and then this Court on certiorari might

invalidate the patent. Hazel did not want to be bound by

the patent in such event, especially as others, including the

large Owens Company would not be bound. However,

Hartford was unwilling to release Hazel to a greater extent

than to agree that if the license was terminated within two

years, Hazel would not be bound by the third circuit deci-

sion until Hartford got another favorable decision in an-

other circuit, in which case Hazel would be again under the

third circuit injunction against nsing Hazel feeders (sup-

plemental license, 12 R. 8782).

Obviously, this provision did not help Hazel, because

it could not afford to take the risk of not having a license

under a patent adjudicated against it. Hartford would

then be able to refuse a license to Hazel, thereby aiding its

licensees, or enforce rigorous terms on Hazel.

About a year after the license was made, Hartford

asked Hazel to extend the period for three years and Hazel

agreed, because this was unimportant to Hazel—it could

not terminate the license while bound by the third circuit

decision. At this time Hartford was suing the Reed Com

pany in the second circuit, on the “stuffing” patent, and

did not want to run any risk of Hazel terminating its li-

cense, undoubtedly because that would mean further litiga-

tion and doubts as to what was infringing and was not.

The Hazel-Hartford controversies had been settled, neither

party wanted to commence again, and Hazel could not, as

a practical matter.

The government brief (p. 108) says with respect to this

matter that the “Parties agreed not to put validity of pat-

ents in issue”. That is not so, as appears from the above

statement. It may be observed that after the Hazel license,

25

the “stuffing” patent was sued on by Hartford in the third

circuit against the Shawkee defendants, in the fifth circuit

(Florida) against the Florida Glass Company, etc. (Ex.

973, 11 R. 8023; Ex. H-6100, 15 R. 11043). Hazel had

nothing to do with bringing these suits or what was done

with them, nor is it so contended.

The government brief (pp. 108,-109) also refers to two

letters written in 1933 by Smith, Hartford’s president, to

Corning to the effect that unless Hazel agreed to the re-

quested two year extension, Hartford might be forced to

go to the Supreme Court which might upset the patent

situation (“apple cart”), and that if the suit against Reed

were unsuccessful, this “might destroy the very situation

Hazel desired” (Exs. 162 and 165, 19 R. 12678, 12681).

These 1933 assertions by Smith, unknown to Hazel until

after the present suit was brought, were not agreed to by

Hazel. Its position at the time they were made was that

Hazel was under the third circuit injunction, it could not

safely terminate its license, it expected to pay Hartford

from $100,000 to $200,000 more than it received (McNash,

4 R. 2394; Smith, 2 R. 908), and for the period the license

had been in effect Hazel had paid Hartford more than it

had received (finding 227, 10 R. 7327). Of course, no one

could be sure how the future payments would run, but it

is plain that there was no incentive for Hazel to continue its

license other than to be able to operate its feeders free of

the Hartford patents.

(e) Although the complaint did not charge (paras.

111-121, 1 R. 34), the record show, or the trial court find

that Hazel had anything to do with the alleged forming

machine conspiracy between the Hartford and Owens com-

panies, the government brief here in arguing that Hart-

26

ford and Owens did so conspire (p. 117) entitles one section

“Hartford and Owens acquired O’Neill patent rights with

financial assistance of Hazel” (p. 120). But this is mis-

leading, because all that Hazel did was to pay Owens for

a non-exclusive license to use the O’Neill suction inventions

(Hazel main brief. pp..9, 10). Hazel had a 1932 non-

exclusive license to use Owens suction patents, Owens had

to pay O’Neill for its suction patents, and as Hazel would

automatically get the right to use them when Owens ac-

quired them, Hazel paid something to Owens. That was

all Hazel had to do with any forming machine matters,

and the government does not claim there was more.

VI. THE IMPOUNDING ORDER WAS ERRONEOUS

The trial court impounded on May 9, 1941 payments

by Hartford and by Hazel, under their 1932 cross-license

agreement, to “insure a sufficient fund for the dissolution of

Hartford and the establishment of competing concerns if

that ultimately becomes necessary” (1 R. 518). There is

now impounded over $4,000,000 of which about $1,900,000

are royalties paid by Hazel and the remainder payments by

Hartford.

This subject is considered in the Hazel main brief (pp.

52-54), in the government brief at page 184, where it

is merely mentioned, and on pages 409-412, where it is

discussed.

A. If this Court finds Hazel did not violate the anti-

trust laws by its 1932 Hartford agreement.

In such event, as the government brief says (p. 411),

“no further step would remain but for the court to dis-

27

tribute the. funds to their lawful owners”, i.e., Hazel and

Hartford.

B. If this Court finds that Hazel did so violate the anti-

trust laws.

In such event, the situation is more complicated.

Clearly, if this Court should affirm the decision below

_ that the 1932 Hartford-Hazel agreement was illegal and

performance under it should be enjoined, “payments under

the impounding order will cease”, as said in the government

brief (p. 411). But there remains the question of the

disposition of the impounded funds.

1. The impounding order was illegal.

The trial judge on motion by the government decided

that the government had made a prima facie showing of

the illegality of the agreement and of “the illegality

of the payments” (1 R. 518). He did not enjoin its per-

formance. Instead, he ordered Hazel and Hartford to

continue performing the illegal contract, by making “illegal”

payments in accordance with it, but to the court instead

of to each other.

The reason given for enforcing the Hartford patents

against Hazel, by compelling it to pay royalties for them,

was “to insure a sufficient fund for the dissolution of

Hartford and the establishment of competing concerns if

that ultimately becomes necessary” (1 R. 518). Although

the judge not only considered the contract illegal, but also

the Hartford patents unenforceable, he commanded Hazel

to pay for them. And this was aggravated by the fact

that the third circuit decision which sustained the princi-

pal Hartford patent against Hazel, and which was the

28

cause of Hazel taking a license, had been obtained by a

fraudulent Clarke article, according to the contention of

Hazei, Hartford v. Hazel, 3 Cir., 137 F. 2d 764, certiorari

petition pending, and the findings of the court below in

the present case (findings 155-160, 163-165, 10 R. 7312).

It was also aggravated because the royalties paid by Hazel

are not for the use of Hartford feeders, engineering service

and patent protection, as are all other licensees. The only

reason Hazel pays is the Hartford patents, except for a

very few Hartford machines, 14 of 506 (Carnahan, 8 R.

5626-7). So it was doubly unfair to take Hazel’s money.

The interlocutory impounding order, made during the

trial of the case from which no appeal was possible to this

Court, should be declared erroneous, and the funds im-

pounded between the date of the order, in May, 1941,

and the judgment of October, 1942, should either be paid

to those entitled under the contract to receive them, or, in

the alternative, the royalties which the trial judge compelled

Hazel to pay for the Hartford patents should be returned

to Hazel.

2. The impounded funds.

The court below by its May 9, 1941 order declared the

1932 cross-license agreement to be prima facie illegal, in-

cluding the payments by the parties to each other. Not-

withstanding this, an order was issued, compelling the par-

ties to continue the payments, pending final decision of the

case. If the making of the payments under this contract

was illegal, the order compelling Hazel and Hartford to

continue to make them was manifestly in error, except on

the theory that the payments into court were to be held

in escrow for return to the parties making them, if the

29

judgment of illegality should be finally affirmed. In other

words, the 1941 order could only be valid on the same

basis as the October, 1942 judgment which ordered the pay-

ments continued, pending appeal. In accordance with the

two orders both Hazel and Hartford have made payments

under the contract, but to the clerk to be impounded, instead

of to each other.

The government on this appeal seeks to distinguish be-

tween payments made before the judgment under the May

1941 order, and those made after the judgment under the

October 1942 order. The government suggests that the pay-

ments made by Hazel before the judgment should be re-

tained by the court for dissolution of Hartford, establish-

ment of competing concerns or distribution “in accordance

with equitable principles. See United States v. M organ, 307

U. S. 183, 193-4” (gov’t. brief, p. 411). As for the pay-

ments by Hazel after the judgment, the government sug-

gests that they be “returned to Hazel on the same terms as

those on which the earmarked funds are returned to the

other licensees” (id. p. 412), namely, subject to Hartford

charges for servicing, and “perhaps” for the use of Hart-

ford machines (id. p. 409).

But there is no valid distinction between the payments

which the court ordered Hazel to make, on the ground that

some were made before the judgment and some after. In

both cases, the court ordered “illegal payments” to be made

under a contract held to be illegal, and Hazel paid under

compulsion of the court’s order. (No appeal from the in-

terlocutory order was possible, U. S. v. California Can-

neries, 279 U. S. 553, 558: Missouri-Kansas Pipe Line v.

U. S., 3 Cir., 108 F. 2d 614, 615). All royalties paid by

30

Hazel to the court should be returned to Hazel, if the judg-

ment of illegality is affirmed.

The effect of the government suggestion would be to par-

tially set aside the interlocutory decision and order of the

trial court. With respect to the Hazel payments, they would

then be treated as legal, so that Hartford was entitled to

receive them as royalties for its patents. At the same time,

the government says that the Hartford payments to Hazel

should not be made, because they were illegal. Obviously,

if the trial court were right in deciding that the agreement

was illegal, neither party should have been ordered by the

court to make payments thereunder. On the other hand,

if the agreement was legal, the payments should have been

made in accordance therewith.

The Hazel money paid before the judgment should not

be confiscated for the purpose of dissolving Hartford or

for any other purpose. We do not know of any authority

that in a civil suit in equity, such as the present one, money

or property can be taken as a fine or punishment, or with-

out compensation. None is cited by the government. The

Morgan case held that certain impounded monies should

not be distributed, either to the stockyard customers who

had paid them to agencies for services, or to the agencies,

until a rate dispute was settled. That is very far from the

present case.

If Hazel has violated the antitrust laws and any pri-

vate concern has been damaged thereby, there is a full and

adequate remedy by a private suit for damages (one such

suit is now pending). This suit should not be diverted

into actions by licensees “injured by the conspiracy”, as

suggested by the government. Hazel money should not be

taken to be used for dissolution of Hartford, establishment

of competing concerns, or paying private suitors.

31

All royalties paid by Hazel to the court, and not only

those paid after the judgment, should be returned to Hazel.

With respect to the impounded payments by Hartford,

the government recognizes the inequity of Hartford and

its licensees using the Hazel inventions, etc., without pay-

ing for them, by saying with respect to the period after

the October, 1942 judgment “To the extent that Hazel

has contributed services to Hartford, Hazel should be com-

pensated from the funds impounded on a quantum meruit

basis” (brief, p. 412). But as Hartford and its licensees

also used the Hazel inventions, etc. during the period before

the judgment, for which Hazel has not received payment,

Hazel should have the same rights for that period. There

is no sound distinction between the two periods.

If Hazel can not receive the payments due from Hart-

ford for what it and its licensees got from Hazel, the

latter should be permitted to enforce such rights, if any,

as it may have against them for the entire period not paid

for, not merely a part of such period.

CONCLUSION

Although there are many charges made against the

Hazel defendants, the only serious one, it seems to us, is

in connection with its 1932 Hartford agreement. -

The 1932 agreement with Owens gave Hazel only a

non-exclusive license to use suction machines, and Hazel

has never operated under the license or had any suction

patents.

Neither the alleged oral agreement in 1933 to restrict

fruit jar production or the alleged conspiracy of the Glass

Container Association and various members, including

32

Hazel, had anything to do with the alleged patent con-

spiracy.

The vital question on this appeal is whether Hazel,

compelled in 1932 to take a patent license from Hartford,

after six years of-costly and perilous litigation, was wrong

in taking a non-exclusive license, selling to Hartford the

right to use Hazel inventions and “know-how” and a re-

lease, and receiving payment for what it sold. We think

not.

Respectfully submitted,

STEPHEN H. PHILBIN,

JoserH D. STEcHER,

Counsel for Hazel-Atlas Defendants.

November, 1943.