author: HAZEL, District Judge.

text:
    WESTERN ELECTRIC CO., Inc., et al. v. WALLERSTEIN.
    District Court, W. D. New York.
    Aug. 21, 1930.
    Fish, Richardson & Neave, of New York City (Henry R. Ashton, of New York City, of counsel), for plaintiffs.
    Kenyon & Kenyon, of New York City (Theodore S. Kenyon, of New York City, of counsel), for defendant.
   HAZEL, District Judge.

This motion to strike out various paragraphs of the answer, to wit, sections 29 (a), 29 (b), 29 (c), 29 (d), 29 (e), and 29 (f), on the general ground that they do not constitute a defense to the bill of complaint wherein infringement by defendant of eight United States patents is alleged — all relating to broadcast receiver's and apparatus for sound motion picture recording and reproducing. The first three sections of the answer to which objection is made relate to misjoinder of parties plaintiff appearing on the face of the bill, and the last three sections to the agreement of May 7, 1929, by which the patents in issue were licensed to the Western Electric Company and Electric Research Products, and which is claimed to constitute a violation of the anti-trust laws and'a combination in restraint of trade. All the patents in issue are owned by the plaintiff American Telephone & Telegraph Company, and by the agreement an exclusive license was executed and delivered to -the coplaintiffs to use the inventions' in a specified field, and certain rights were conveyed to sue and recover profits and damages for infringements within the licensed field of use.

At the time this action was brought, there was pending in the Southern District of New York a suit by the same plaintiffs upon the identical patents against the Paeent Reproducer Corporation et al., and a motion made to dismiss the bill for misjoinder of parties plaintiff. The motion was granted and plaintiffs appealed. The Circuit Court of Appeals, in construing the agreement of May 7, 1929, ruled that it was an exclusive license containing a covenant by the owner of the patents not to license others in the same field, and such exclusive licensees were rightly joined with the legal owner of the patents as parties plaintiff. 42 F.(2d) 116.

Coneededly the specified agreement does not constitute an assignment of any of the patents. It does not transfer any part of the legal title in any, and manifestly the rights of the licensees do not spring from acquired ownership. At the time the appeal was taken, dismissing, the bill in the Southern District, the parties stipulated that if- the order was reversed or modified by the Circuit Court of Appeals, a corresponding order having the same force and effect might be entered in this action; and, following the decision reversing the District Court, an order denying dismissal was also entered herein. That that decision is controlling upon this court, wherein the same questions are involved, is beyond dispute. But defendant, admitting that substantially the same questions were presented in the Circuit Court of Appeals, says that he should not be barred from asserting in his answer the grounds upon which the motion to dismiss was based, especially as he has not been fully heard on the questions raised; and also that plaintiffs’ motion to strike cannot prevail, since the issue raised should be saved for disposition by final decree. In my opinion there is no merit in these contentions, for under Equity Rule 29 (28 USCA § 723), defendant-has the right to raise the defense of misjoinder and insufficiency of facts to constitute a valid cause of action in equity, either by motion to dismiss or in his answer. Having elected to move to dismiss before answer, he is bound by the decision of the appellate tribunal as to its complete effect, subject, however, to review by the Supreme Court; and it is wholly unnecessary, in view of the stipulation, to again litigate the same issue, even though new matter were alleged. Krouse v. Brevard Tannin Co. (C. C. A.) 249 F. 538, and see Conway v. White (C. C. A.) 292 P. 837,

As to paragraphs 29 (d) to 29 (f), defendant contends that the right of the exclusive licensees depends upon an illegal contract; and by way of conclusion the answer avers that the agreement is part of a system between plaintiffs and others in the unlawful combination to divide into separate fields the businesses of dealing in electric wave and amplifying devices, and allotting the interstate commerce in the separate fields to the exclusion of others not parties to the agreement or combination, and who are engaged in like businesses, thereby tending to establish and maintain a monopoly.

In passing it may be remarked that insufficient facts are set forth to support the conclusion of invalidity either of the exclusive licenses or of any wrongful purpose in their execution. As said by Judge Rellstab in Motion Picture Patents Co. v. Eclair Film Co. (D. C.) 208 P. 416, 417:

“It is elementary that a plaintiff in equity must allege with particularity all material (ultimate) facts necessary to establish his right to the relief prayed, and an articulated array of generalities, no matter how well sounding, will not satisfy this requirement.”

The action is clearly for infringement of patent rights, and many decisions cited in plaintiffs’ brief are unanimous in holding that violations of the anti-trust laws in a patent suit for infringement are not a proper defense. And this is so, even though the exclusive licensees acquire limited rights from the owner under their agreement as to localities, pursuant to a preconceived plan to restrain trade by granting licenses in different fields or territories; for a defendant, who is an infringer, cannot shield himself from liability on any such ground. It is no ground for denying relief, as Chief Justice Taft said, long before he became Chief Justice, in Brawn Saddle Co. v. Troxel (C. C.) 98 P. 620, for continued trespasses by a third person upon the property of the plaintiff. Counsel for defendant concedes the force and effect of these decisions (for example, see Strait et al. v. National Harrow Co. [C. C.] 51 P. 819), but asserts that the involved question is radically different, inasmuch as in those adjudications the answer pleading unlawful restraint was interposed against the owner of the patent and not against the licensees' who had obtained their licenses through an illegal contract by virtue of which they became parties plaintiff. *

I am not in accord with this view. The question plainly, as I see it, is not on contract, or for enforcement of any provision therein, as was the ease of Dr. Miles Medical Co. v. Park & Sons, 220 U. S. 373, 31 S. Ct. 376, 55 L. Ed. 502; and as that case was construed by the Circuit Court of Appeals, Sixth Circuit, in Coca-Cola Co. v. Gay-Ola Co., 200 P. 720. The Western and Products Companies (so called for short) were necessary parties against the defendant, an alleged infringer of the patents in issue, and in the enforcement of the specific rights acquired by them. See Cimiotti Unhairing Co. v. American Fur Refining Co. (C. C.) 120 P. 672, wherein the court held, in a case where the licensee was joined with the owner of the patent and wrongful combination in restraint of trade was alleged by the defendant, that the action was not to enforce the agreement or contract right, but simply to restrain infringement. This principle also finds support in Bonsack Machine Co. et al. v. Smith (C. C.) 70 P. 383. And in Independent Wireless Telegraph Co. v. Radio Corporation of America, 269 U. S. 459, 46 S. Ct. 166, 70 L. Ed. 357, cited by defendant, the action was brought by an exclusive licensee for infringement to protect his rights, and Chief Justice Taft, writing the opinion for the Supreme Court, said that without joining the patent owner as plaintiff, the suit would not arise under the patent laws and would be based merely on contract rights. In that case, as here, the owner of the patent was joined as eoplaintiff, and such being the fact, the rights of a licensee against an infringer are entitled to protection under the patent laws. Indeed, in the Coca-Cola Case, heretofore cited, the court said that a complainant’s participation in a violation of the Sherman Act (15 USCA § 1 et seq.) does not destroy his right to protection on trade rights, citing Brown Saddle Co. v. Troxel, supra, and other cases.

It is next urged that the legal title of the patent remained in the owner, and that the instrument of May 7,1929, did not amount to an assignment under the doctrine of Waterman v. Mackenzie, 138 U. S. 252, 11 S. Ct. 334, 34 L. Ed. 923. But, the Circuit Court of Appeals in the P'acent Case defined the agreement, as heretofore stated, as an exclusive license and not an assignment, and that the licensees in question were proper parties plaintiff, and therefore I need go no further. It follows that the allegations contained in the answer in paragraph 29, including subsections (e) fro (f), to which objection is urged, must be stricken out. So ordered.


source: Caselaw Access Project

license: Public Domain

text:
    SELDEN CO. v. NATIONAL ANILINE & CHEMICAL CO., Inc.
    District Court, W. D. New York.
    May 22, 1930.

      Newell & Spencer, of New York City (H. Dorsey Spencer, of New York City, and Robert A. Norton, of Pittsburgh, Pa., of counsel), and Wilcox & Van Allen, of Buffalo, N. Y., for plaintiff.
    Pennie, Davis, Marvin & Edmonds, of New York City (W. Brown Morton and Raymond B. Canfield, both of New York City, of counsel), and Kenefick, Cooke, Mitchell & Bass, of Buffalo, N. Y., for defendant.
   HAZEL, District Judge.

This is an action in equity for infringement of patents Nos. 1,285,117, granted November 19, 1918 (application, dated February 17,1917), jointly to Harry D. Gibbs and Courtney Conover, and reissue patent 15,520 solely to Conover, dated January 9, 1923 (application filed April 30, 1919, original patent dated December 9, 1919), covering in the first patent a process for making phthalic anhydride,- phthalic .acid, benzoic acid, and naphthaquinones now useful in a variety of industries notably for the manufacture of dyes, medicinal products, plasticizers for nitrocellulose lacquers and artificial resins, and the second patent covering apparatus for carrying out the process and controlling the generating heat and bringing about reactions of gases. These patents were granted without payment of statutory fees by the inventors under the Act of March 3, 1883 (22 Stat. 625), which reads as follows:

“The Secretary of the Interior and the Commissioner of Patents are authorized to grant any officer of the government, except officers and employees of the Patent Office, a patent for any invention of the classes mentioned in section forty eight hundred and eighty six of the Revised Statutes, when such invention is used or to be used in the public service, without the payment of any fee: Provided, That the applicant in his application shall state that the invention described therein, if patented, may be used by the government or any of its officers or employees in the prosecution of work for the government, or by any other person in the United States, without the payment to him of any royalty thereon, which stipulation shall be included in the patent.”

The specifications state:

“This application is made under the Act of March,' 1883, chap. 143, and the invention herein described and claimed may be used by the Government of the United States or any of its officers or employees in prosecution of work for the Government, or any person in the United States without payment to us of any royalty.”

And on the face of the patent for process are printed the words, “Dedicated to the Public”; and on the face of the reissue patent are printed the words, “Filed under the Act of March 3d, 1883.”

At the time the inventions were conceived and perfected, both patentees were employed as chemists in the United States Department of Agriculture. Prior to their conceptions, phthalic anhydride was extensively imported from Germany for use in the manufacture of dyes, and, owing to scarcity of supplies from Europe during the World War, Congress, at the request of the Bureau of Chemistry and Dr. Gibbs, authorized an appropriation of more than $50,000 for erecting a “Color Laboratory” for research and experimentations for the benefit of the chemical dye industry at large; the laboratory being under the superintendence of Dr. Gibbs assisted by Con-over. On May 31, 1917, after the application for process patent was filed, Conover, assigned all his rights in the joint invention for all foreign countries to his eopatentee Dr. Gibbs,, who, in turn on the same day, assigned all his right, title, and interest of whatever kind or nature as sole owner to the plaintiff, agreeing to execute any and all papers for procuring patents in all foreign countries, and to secure the signature of Conover, if necessary for such purposes; while plaintiff agreed to develop the process and prove its commercial value. On March 27, 1923, Conover executed a confirmatory agreement to plaintiff, .as joint patentee with Gibbs, together with all claims at law or in equity for damages or profits accrued on account of infringement. Prior thereto, and on May 25, 1921, he assigned to plaintiff his original apparatus patent, which afterwards was reissued. On August 30, 1917, at the request of the inventors, the Department of Agriculture granted them permission to apply for foreign patents for the subject-matter of the process patent. The approval so granted made reference to the previous dedication of the inventions to the people of the United States. The administrative regulations of the Department of Agriculture provide that inventions by employees “will be patented in the name of the inventor without expense to him, in such a way as to allow any citizen, of the United States to use the patented article or process without payment of royalties.” And the government expressly reserved the right in the regulations to make use of any device that may have been discovered during the time of the employment of any patentee in its service.

Plaintiff claims that the patentees were the first to discover the method by which phthalie anhydride could be made by partial oxidation of naphthalene in the vapor phase in the presence of a suitable catalyst. The claims define a suitable catalyst as an oxide of vanadium, and the patent points out the way of determining the required conditions of partial oxidation. The reissue patent specifies .and claims instrumentalities for maintaining constant temperature of the boiling liquid by pressure to control the temperature of the catalyst.

Aside from denying invalidity and infringement, the defendant in its answer avers that the involved patents did not reserve to the patentees any interest in their specified inventions; that any person in the United States has the right to use the process and apparatus for his own private purposes without payment of any royalties. The validity of the assignment of the patents to plaintiff is also challenged.

The first question to be decided is the construction of the .act under which the patents in question were granted. Were they, under the act of 1883 and the regulations of the Department of Agriculture and the acts of the parties, in fact a dedication to the public? The enactment,of 1883 had been given conflicting interpretations by nonjudieial department officers. Its history is somewhat beclouded and the- reference in the Senate Committee Eeporj; and the consideration given the' proposed enactment by the Senate does not disclose its intendment or scope other than may fairly be deducible from the lan: guage used which plainly denotes its use by the government in prosecution of work for the government or by any person in the United States without payment of .any royalties. At the time of filing the applications for patents, and indeed ' when the assignments to the Selden Company were executed and delivered, all the parties assumed that, since the discoveries were made in the course of research work by the inventors at government expense, the resultant inventions were in fact dedicated to the free use of any person in the United States. This assumption was apparently based on the written interpretation of the act of 1883 of the then Judge Advocate General, dated November 4, 1910, stating in substance that property rights accruing in the United States from the issue of a patent to an employee of the government at the expense of the government are not vested in the patentee under the final clause of the act, and that use of the invention is open to the public'.and to the United States. In November, 1918, however, General An-sell, Acting Judge Advocate of the Army and Navy Patent Board, adopted a contrary view and ruled that there was no dedication to the public of a patent which issued under the act in question, and that the meaning of the provision was that the government only acquired rights of use in such an invention. He reasoned that if the act of 1883 were subject to a different construction, the patent logically would not be a grant of the exclusive right to make, use, and vend the invention; and that the phrase “or any person in the United States” implied any person engaged in the prosecution of work for the federal government. The Acting Attorney General reached a similar conclusion. The construction of the act for the first time came before the court in Squier v. American Tel. & Tel. Co. (D. C.) .21 F.(2d) 747, affirmed (C. C. A.) 7 F.(2d) 831, 832. Judge Knox decided the case in the District Court adversely to the plaintiff on the ground that he had specifically dedicated his invention to the public without royalty. He interpreted the act of 1883, and reached a conclusion contrary to that of the Judge Advocate and Acting Attorney General. He was of opinion that the earlier interpretation was correct. He based his opinion upon the fact that the long-continued “course of conduct upon the part of persons vitally interested in the administration of the law is not without some persuasive force in an endeavor to reach a correct conclusion.” , And Judge Hough, writing the affirming opinion for the Circuit Court of Appeals, said:

“In respect of the differing and irreconcilable opinions of Judge Advocates of different years, need we go further than • to say that, while we should, if it were necessary, prefer the earlier opinion as better reasoned on the wording of the statute, we think this ease was rightly decided below, even if the later views of statutory meaning .are correct.”

Plaintiff seeks to evade these judicial pronouncements on the ground that the title to the phthalic anhydride invention had been transferred to plaintiff soon after the application for the patent in suit was filed, and before “either Dr. Gibbs or Conover had made any statement regarding their interest in the invention”; and further that the Act of March 3, 1883, specifically authorized a grant to an employee of the government with- • out payment of fees on condition that the patentee would allow the government to use the invention or have it used for government work. The argument on this point is unpersuasive since the administrative regulations of the agricultural department, which have the force of law, not only reserve to the government the right to make use of any device that may have been invented by a patentee during his employment in the government service, but provide for patenting the inven-' tion in such a way as to allow thé people of the United States to use the invention without payment of royalties. Plaintiff did not assert any private rights of ownership, until the announced opinions of Judge Advocate General Ansell and the Acting Attorney General that patents issued under the act of 1883 were not dedications to the public. Prior thereto, it is fair to assume, all the parties regarded that the inventions were for the free use of the people. Plaintiff further urges that the administrative regulations did not confer any rights upon the government in the invention, and to so construe it would be unconstitutional. The regulation, however, is not, in my opinion, inconsistent with the act of 1883, as applied to the patents in controversy, and accordingly it has the effect of law. Maryland Casualty Co. v. U. S., 251 U. S. 342, 40 S. Ct. 155, 64 L. Ed. 297. Although the Conover apparatus was not wholly constructed at government expense, the expense of filing the patent application, preparing the drawings and description was concededly at its expense. That the plaintiff company was in privity with the inventors with relation to both patents in suit is suffieiently proven. Dr. Gibbs swore that he showed the president of plaintiff the letter from the Department of Agriculture granting permission to apply for foreign patents, and further that plaintiff was aware that ho had published to the trade at large that the patents on their issuance were dedicated to the public.

In the circumstances, both Gibbs and Conover were precluded from claiming any interest in the patents at variance with such free use by the public; and, moreover, the plaintiff company could have no other or different interest than was possessed by the patentees. Ingle v. Landis Tool Co. (D. C.) 262 F. 150. Although the government had no interest in the manufacture of phthalic anhydride, such as it would have, for example, in the patenting of devices by an employee of the Navy or War Department, yet it no doubt had the same rights under the .act of 1883 and regulations of the Department of Agriculture to use the inventions, if for any reason it desired to do so. While the patentees undoubtedly had the right to use their creative ideas and patent same under the general statute, retaining a personal interest therein, yet when an invention by an employee is made at the expense of the government, his personal interest in his invention belongs to the government. Even though the enactment of 1883 is somewhat involved or ambiguous, its accepted interpretation, by officials whose duty it is to carry the law into effect, is controlling. Schell v. Fauche, 138 U. S. 562, 11 S. Ct. 376, 34 L. Ed. 1040.

The amendatory act of 1928 (35 USCA § 45) did not repeal the earlier act and cannot be given the same interpretation as the later, for it clearly is not retroactive, Union Pac. R. Co. v. Laramie Stock Yards Co., 231 U. S. 190, 34 S. Ct. 101, 58 L. Ed. 179.

Upon the point of ownership by the government and dedication to the public, there is persuasive analogy in Houghton v. U. S. (C. C. A. 4th) 23 F.(2d) 386, 390, 391. In that ease the inventor was a chemist in the employ of the government health service, and the action was brought by the United States against the patentee as equitable owner to have the patent assigned to it. The court ruled that, even though the government did not desire a monopoly óf the patent, its desire that it should be dedicated to the public could not be thwarted. Plaintiff’s argument that Gibbs and Conover were not directed, as in that case, to “experiment with a view of making an invention” or solve a particular problem, that their conceptions related to a new process .and method in which the government merely retained shop rights, has been considered, but I incline to the view, in the light of the evidence in its entirety, that the principle of the Houghton Case is not inapplicable. Nor has the contention merit that defendant should not be allowed to urge the invalidity of the assignments to plaintiff or assert the government's title to the invention. In the case of Yablick v. Protecto, etc., Corp. (C. C. A.) 21 F.(2d) 885, cited in support of plaintiff’s contention, the patent had not been dedicated to the public under the act of 1883, and was not issued without the payment of any fee, and accordingly the court decided that the legal title was in plaintiff, which enabled him to maintain the action, -leaving it, however, to the government to assert its equitable title as a defense.

It is next contended by defendant that plaintiff is estopped to claim any rights in the patents in opposition to it and its predecessor in interest. The witness Weiss testified that defendant’s predecessor expended large amounts in development work .and in designing apparatus for practicing the process — all in reliance upon the dedication to the publie appearing upon the face of the patents. It is elicited that plaintiff was aware of defendant’s operations, and that as early as 1918 there were negotiations between representatives of plaintiff and defendant with relation to such operations. As early as October, 1918, Dr. Gibbs wrote an article-published in the “Journal of Industrial .and Chemical Chemistry” that the process patent was dedicated Jbo the people by the Department of Agriculture, and before the process patent was issued he had stated that it was dedicated to the free use of the public. It was, no doubt, his intent at such time that the process for the manufacture of phthalie anhydride would be usable by the general publie. Indeed, his intent is fairly inferable by his request and the request of Conover for permission to take out foreign patents. Aside from this, his testimony in an interference proceeding, pending in October, 1921, relating to the process, in which plaintiff was a party, shows that prior to the assignment to plaintiff he had informed plaintiff’s president that all rights were dedicated to the people, and Dr. Johns; who succeeded Dr. Gibbs as head of the Color Laboratory, testified that the Department of Agriculture advised inquiring parties that they were free to use the process. Such acts by an inventor are in the nature of an intentional abandonment to the publie of any special rights in his invention. Squier v. Am. Tel. & Tel. Co., supra, and eases cited. That the assignments to plaintiff were made before patents were granted is not believed to be of material importance inasmuch as the rights of the government and of the publie to practice the process had become vested upon -the filing of the applications. No assignable interests were retained by the inventors [Houghton v. U. S. (C. C. A.) 23 F. (2d) 386, 391], aside from rights to foreign patents — rights that eventuated solely because of the permission granted by the Secretary of Agriculture.

My conclusion is that the Selden Company did not obtain legal or equitable title to the patents in suit. Other defenses relating to intervening rights and laches, invalidity, and infringement need not be considered.

The complaint is dismissed, with costs.


author: DICKINSON, District Judge.

text:
    SCHWEYER ELECTRIC & MANUFACTURING CO. v. READING CO. et al.
    No. 4207.
    District Court, E. D. Pennsylvania.
    March 26, 1931.
    Alfred N. Keim, of Philadelphia, Pa., Church & Church, Melville Church, and C. B. Des Jardins, all of Washington, D. C., and Morrison, Kennedy & Campbell and Donald Campbell, all of New York City, for plaintiff.
    Busser & Harding, of Philadelphia, Pa., A. L. Veneill, of Swissvale, Pa., and Bartlett, Eyre, Seott & Keel, and Richard Eyre, all of New York City, for defendants.
   DICKINSON, District Judge.

This cause concerns letters patent No. 1,-279,454, issued September 17,1918, on an application filed February 9, 1915, for a train-stopping apparatus, and letters patent No. 1,389,602, issued September 6,1921, on an application filed September 6, 1916, for an automatic train control system, both granted to Daniel Herbert Sehweyer.

The patents are paper patents, in the sense that the patentee’s system has never been in use otherwise than in a testing trial, and is not now in use unless the systems which are in use are infringements. The inventor is thus denied the benefit of what is often persuasive evidence of invention. When one enters upon a field of invention, such as the one to which these patents relate, which is so far occupied as to be crowded, and he yet makes a contribution to the art which is a real benefaction, and commands the tribute of a recognition of its merits from those who are selfishly interested to deny to it exclusive rights, the courts are bound to accept this as evidence of the right to the reward of a patent. This opportunity was denied to all inventors in this field. There can be such evidence only when there is an open market for the invented thing. Here there was no such market. The only users and hence purchasers of devices of the kind with which we are now concerned are the railroads. Two special influences are at work to give to the contributions of those outside of railroad circles a cold welcome in addition to the adverse influences which all inventors encounter. One is the to be expected unbelief on the part of those who have official responsibility for the installation of systems of train operations in the merits of any new system proposed by outsiders. Another is the likewise to be expeeted preference of railroad managements to deal with those who are in this railroad fraternity and a reluctance to go outside of them in making railroad contracts. No system of control of train movements would be adopted merely because it looked all right on paper. It must first be checked up and its merits demonstrated by the test of actual trial. No sueh trial test could be made without the co-operation of some railroad. Few inventors could meet the expense of this. Few railroads would volunteer to bear this expense. It is in consequence through no fault of Schweyer that his system has not been installed on any railroad. This situation is reflected in the pleadings in this ease and the developments of this trial. The answer in denying validity to plaintiff’s patents charges also that the system and devices through which it is designed to work will not work, and that the system is an inoperative one. This charge was abandoned at the trial, but it is in the answer.

Through pressure brought to bear upon the railroads, to which reference is later made, Sehweyer induced one of them to give his system the test of an actual trial. Representatives of the defendants witnessed this test. Later, as we will hereafter learn, the railroads installed systems of automatic train control, and the one here in controversy was put in operation on the Atlantic City division of the Reading Railroad. Schweyer, however, was not asked to put in his system, but one was installed under a contract with the Union Switch & Signal Company, which in a real sense is the defendant here. In the mind of Sehweyer, whether openly avowed or not, there is of course the conviction that the system installed on the Atlantic City Railroad is the system, the merits of which defendants’ experts learned from witnessing the trial test of his system.

We dispose, so far as concerns this court, of the criticisms of the Sehweyer system by the finding that, although it has some features which, as will hereafter more clearly appear, are not acceptable to railroad managements, and is lacking in others which they favor, it none the less is a workable system, and with some modifications in these and other features which do not destroy nor materially affect its integrity as a system, is one which would prove efficient if installed. None the less the patents are paper patents and present the potential situation of a contribution to humanity, the benefits of which are so great as to be unspeakable, being compelled to be withheld, except at the cost of paying tribute to those who have intruded themselves upon the art only so far as to be in a position to demand tribute. This contrast-of the rights of the respective parties to this cause calls for the exercise of the most discriminating judgment in deciding upon the conflict between them.

No one can grasp this controversy in all its fullness as one between two systems of train movement control without a masterful knowledge of pneumatics, mechanics, and electrical engineering, as well as a working knowledge of the requirements of train movements. It is, however, we hope possible for the mind uninformed upon these subjects to so analyze the fact situation .as to present the applicable principles of law. What may otherwise seem to be a diversion is necessary to bring out the legal features. The genesis of this art is most impressive. Peace in its industrial aspect has its holocausts of human sacrifices more appalling even than those of war. In the history of industrial development there is nothing so cheap as human life. The statistical story of the number of humans killed and maimed in transportation would be incredible were not the accuracy of the figures unquestionable. The grand total of all must be absolutely horrifying because the number due to a single cause is. frightful. Assuming a system of train control movements to have been found and introduced so that all danger of collision accidents had been eliminated, except those which flowed from the failure of the operators to do their duty, the number of victims from this one cause was yet astonishingly large. Eliminating, we repeat, all others except those killed or injured because of the failure of locomotive engineers to heed signal warnings, from this one cause alone a human life was lost every hour of the twenty-four, and a human being was injured in every eight minutes of elapsed time. This means that in a single year upwards of 75,000 were killed and injured. If to this is,added the hundreds of millions of dollars in destroyed and damaged property and other direct money loss, it is truly astonishing that the railroad managements from purely selfish motives did not welcome the introduction of safety devices which would end or lessen such loss. Money making organizations are not expected to be altruistic, but, however lacking in sympathy with human suffering, they are expected to have a sensitive pocket nerve. The lamentable truth is, however, that the disclosures of this trial reveal that the railroad managements hot only gave the cold shoulder to the suggestion of automatic train control devices, but it required the lapse of nearly a generation in time and the compulsion of the law to induce the railroads (with the exception of a few more or less experimental trials) to install these devices on their trains. There was beyond all doubt a crying need for them; yet it took from shortly after 1900 when the subject began to be agitated until 1923 to have them installed. There must have been a deeper reason than the mere saving of the cost to explain the apathy, if not opposition, of the railroads.

The public interest had long been aroused. Boards and commissions which have been created in the hope to provide regulation of public utility corporations, and to hold them to the performance of the duty they owe to the public, too often do not function unless forced into action by pressure from some selfish interest. Spurred perhaps by Legislatures and by Congress, these boards and commissions actively took up with this general subject. They were early convinced that automatic train control systems were feasible and busied themselves not only through their own limited corps of experts, but by stimulating independent inventors to produce and perfect systems of automatic control, by extending to them every aid in their power. Experts were sent to observe and to assist in trial tests of all systems subjected to such tests and official trial tests were made. All suggestions offered were subjected to exhaustive discussion. Railroad managers were persuaded, whenever they could be, to permit of these tests and to provide for the expense of having them made. At least one railroad which had met with more than its pro rata share of accidents believed to be thus preventable made a contribution to the development of the art by offering a substantial sum of money as a reward to any one who would devise a system which would meet the requirements laid down. The response to this came from the whole world of inventors. There were of course also in the field those who had the urge to invent, for there is ,an itch to invent as well as the itch scribendi. With such a movement on foot, the railroad experts who had to do with train signals or other parts of railroad management concerned with the general subject could not keep out of it, and made their contributions to the art. The result was the whole inventive field was very fully ■combed over, and there was very little unoccupied territory. Another thing which restricted the field of invention was the conditions of the problem. It included a system of brake application. It included also a block and a signal system. It took in a “pick up” system or method of getting information of when signals should be displayed and what were to be displayed. Finally it required a method of co-ordinating all these things and translating them into an automatic train control action.

At the time Schweyer entered the field, there was in use a well-developed air brake system. Its use may be said to have been universal. The railroads could not be expected to abandon the system in use or even to accept of any substantial modification of it. Ono condition of the problem in consequence was that the train control device must incorporate the air brake system as it was. Indeed there was no need to do anything else, for the .air brake system had been as nearly perfected as human limitations permit. The block system was likewise in quite general use on the railroads. This also was required to be incorporated in the new system with its constructions as already in use. The block.' system could not be discarded. There were also signal systems in use. Here there was not the same unanimity as in the case of air brakes, the use of whieh was almost universal, or in the block system the use of whieh was very general. There was no such general system of signals, but there was a universal use of some signal system. There was also in use some method of “pick ups.” One was operated through physical contact with a wayside construction; another through an induction coil. There was here again some method of getting the required information. In the early days there was a pronounced difference of opinion in respect to how the system should operate. The use of air brakes and signals had progressed to the stage that there was supplied or displayed to the engine man, as his train proceeded, information of what he was to do. This might he as formerly a telegraphed or telephoned message delivered to him. It might be a semaphore indication which told him what to do. The weak point in every system was that it was dependent for its eflieieney upon whether the engine man heeded the information given him and did what he was told to do. This is the so-called “human element.” If the information was given by a semaphore, he might miss it because his attention was distracted or his view obscured by fog or rain, or he might be incapacitated by sickness. .He might likewise disobey or disregard a received order or warning to, as the expression goes, “take a chance.” This risk of missing a signal was lessened by having one flashed before his face in the cah.

We have not preserved the chronology of the introduction of what was already in use before Sehweyer, but those mentioned and others were available. The,purpose to be served by the system in question was single. It was to eliminate the risk of a dereliction or failure of duty on the part of the engine man. It was likewise simple in its general thought of putting an automaton in the cab to assure observance of signals. It is said not to be a “complete automaton,” because, as long as the engineer is what is known to this record as “alert,” the train control system does not function. This latter was not at first the idea, nor was it such in the time of Sehweyer, although his first patent incorporates it. That branch of the Interstate Commerce Commission which had taken over the subject of the introduction of train control systems favored a system whieh would function not only when the engineer was doing all he should do, but in spite of anything he could do. This displacement of the engineer was not favored by the railroad managements. Later the Commission changed its views or deferred to the railroad view, but in the time of Sehweyer the idea was accepted and is incorporated in his second patent that the automatic system should at all times function and should be beyond the control of the engineer.

As, we have said, there were different signal systems in use. One was that known to this record as the three position or three speed system. This meant in connection with the block system the display of one of three signals which, in the terminology of this case, is “dear,” “caution,” or “danger.” The latter is called also “stop.” Bloeks are of different lengths. Taking a mile distance for illustration, there was provided a safety space of at least two full bloeks or two' miles between following trains. When there were two unoccupied block's ahead of a train, the signal displayed at the entrance of the approached block was a “clear” signal. This, meant the train might proceed at full speed or speed up to the prescribed limit until it came to the then next block. If this block was clear, but the block ahead of it was occupied, a “caution” signal was displayed. This meant that the train might proceed, but at a reduced speed throughout the block upon which it was entering. If the then next block was occupied before it was entered upon, a “danger” or “stop” signal was displayed. Each train as it passed along in its train movement - actuated the signals displayed to the following train, so that the train ahead kept the following train informed of. its position and the condition respecting oeeupaney of the tracks for two full blocks in advance. There are in use two methods or systems of giving this information. One, known as the “intermittent” method, ■“picked up” its information at a predetermined point and translated this into the appropriate signal to which there was adherence until the next point was reached. This meant that the signal called for hy track conditions ahead at the instant of passing one of these points controlled the movement of the train throughout the block upon which the train was then entering. The other, called the “continuous” system, kept up a fire of track information .at every foot of the way over which the train passed.. Incidentally it may be remarked that, expressed in terms of total mileage, the majority of systems in use are of the intermittent type. The explanation of this preference may and probably does lie in the fact that the continuous system costs more.

We are now prepared to understand why the railroad managements objected to certain features at first proposed in these train controlled systems, to some of whieh we have adverted. Take, for illustration, the feature of whether the system or the engineer should be the master of the movements of the train. If there is a “pick up” at the entrance to a block which calls for a “caution” signal, the train ahead may an instant after have passed into the next block so that the block, in whieh the following train then is may be “clear,” and the engineer may know this. There is no longer need that the train proceed at “caution” speed throughout that block, whieh may be a long one, so that much time is lost whieh might be saved if the engineer could assume control.

It may be interpolated here that, if the engineer is given the power to put the automatic system for the time being out of commission, .a special meehanism for “suppressing” it was necessary, and as a cheek upon the engineer it was thought desirable to require him to make an “acknowledgment” whieh registered the fact that he had taken control.

We can now get a pretty clear view of the conditions of the problem which confronted the deviser of one of these systems. They are fairly well summarized in the offer before mentioned of a money prize made by one of the railroad companies. The job was one of construction. There was little more room for invention than is afforded to a contractor who erects a building in accordance with general plans and specifications, but is left to follow his own working plans. Any two or more constructions whieh followed the same plans and specifications were hound to be very much alike. Every element which entered into the combination whieh made up the device as a whole was not only known, but must be utilized as it was. The only room for choice or selection was in the incorporation or rejection of certain features. The system might be under the control of the engineer or beyond it; it might be of the intermittent or continuous type; it might be a three position or three speed system less or more or it might have or omit other special features. If any two systems were compared they would be alike except in respect to the presence or absence of some of these or other features. As long as the installation was expected of the railroads, the system must be constructed in accordance with their views. As soon .as the installation by enforcement of the order of some Commission was looked for, then the system must conform to the views of the Commission. Congress finally forced action by authorizing the Commission to require' of railroads the installation of an automatic train control system as automatic couplings have been required. The plaintiff has the exclusive right to the system described in these two patents claims 3, 23, 26, 27, and 32, of the first of which and claim 5 of the second are in issue. The Union Switch & Signal Company has installed a system of its devising. The contest here is between the two. There is a denial of invention in the denial of patentable novelty.

We have already in effect anticipated a judgment upon this feature of the ease. Nothing more is required than a formal finding. As already indicated, the condition of the problem which confronted an inventor offered two possible solutions. He might of course (1) revolutionize the whole art, as Napoleon revolutionized the art of war. This is not claimed. All that was left to him was (2) to co-ordinate elements already in use as .separate independent minor systems into one general system of automatic train control. This Sehweyer did, and it is all whieh is claimed for him. Each one of these elements was not only old, but he was obliged to incorporate it (as, for illustration, the braking system) ,as it was. All he could do was to weave it into the general control system, which he was devising, so as to make it a part of his general integral system. There was no call for invention in doing this of itself. He did have a choice or selection in what he would incorporate and what reject. He could, for instance, put his automaton in control of the engine man or give the engine man control. He could, again for instance, adopt the “intermittent” or the “continuous” type and so likewise of other features. He might add or rejeet features, as, for illustration, the dictation of maximum speed. If he incorporated in his system the engineer’s control of the otherwise automatic functioning, he might .add a “suppressing” mechanism and a “registering” device. If he used the “induction” coil, he must introduce an “amplifier.” There was thus room for the combining of selected elements into one system of train control so as to have a patentable combination, making of the system so devised the inventor’s own system. Such a system, being his, could not be made, used, or vended by another. The patentability of such ,a system would reside wholly in that particular combination, and the claims of any patent granted must be correspondingly limited in scope. No such patentee could complain of another devised system because it had many features in common with those of his system. Likeness, or indeed identity, to this extent was forced. All these features came from the possessions of the prior art. The grant of the patents in suit carries to this extent the finding of validity, and with this limitation validity is found.

This brings us to the real issue in the cause,.which is one of infringement. We find the system of the patents and that of the Union Switch & Signal Company, which is the system charged to be an infringement, to be different systems, viewed in the light of the prior art, and that in consequence neither is an encroachment upon the other. We see nothing but an unnecessary prolongation of this opinion to result from a differentiating description of the two systems. The fact features are clearly disclosed in this record. The discussion, on the one hand upholding and supporting the conclusion of identity, in the equivalency sense, of the two systems, and, on the other, the opposing conclusion that the two systems are wholly different in “purpose, functioning, mode of operation and structure,” is in the very ablest of hands pro and eon.

The whole discussion may be summed up in these propositions: ‘

Given a number of separate and independently functioning devices and systems, some and as many as possible of which are to be combined and incorporated in one system of automatic train control; given likewise one combination of some of these elements and a second different combination, each answering to the same final purpose and the first patentable as a specific combination or system — the second is not an infringement of the first because some of the elements in combination are common to both, these common elements being the contribution of the prior art. When all the elements have been contributed by the prior art, the test of infringement between two systems is whether they present the same combination, not whether many of the elements are the same in each nor whether as systems they have the same final purpose and accomplish the same result. Of course the inclusion of one element or the exclusion of another for the sole purpose of making them different would not halt a finding of infringement.

Nothing we could say would add anything of value to this discussion, so we content ourselves with the simple statement of the finding of fact which we have reached, which is that the Sehweyer and the Union systems are different systems, although they have features in common which the prior art has contributed to each. This calls for the finding of noninfringement.

We have filed herewith and incorporate in this opinion the requests for findings of fact and conclusions of law submitted, together with our answers thereto.

To give definiteness of date for appellate or other purposes, no decree is now made, but the parties have leave to submit a formal decree, dismissing the bill for want of equity, with costs to defendant, etc.

Requests for Findings of Fact and Conclusions of Law.

Plaintiff’s Requests.

Findings of Fact.

1. The plaintiff, Sehweyer Electric and Manufacturing Company, a corporation of Pennsylvania, is the owner of the entire right, title, and interest in and to United States letters patent, Nos. 1,279,454 and 1,-389,602, in suit, and all rights of action for past infringement thereof.

Answer: Found as requested.

2. The defendant Union Switch & Signal Company and its owned and controlled subsidiary, Union Signal Construction Company, within six years prior to the filing of the bill of complaint herein, manufactured and installed upon the lines and locomotives of the defendant Atlantic City Railroad Company certain apparatus for automatic train control, the construction and operation of which is illustrated and described in Plaintiff’s Exhibits A, H,. N, and 0, .and which is known as the Union Continuous Three-Speed System of Automatic Train Control.

Answer: Found as requested.

3. The defendant Reading Company, through its subsidiary, defendant Atlantic City Railroad Company, which is owned and controlled by Reading Company, has used and is using the Union Three-Speed System of Automatic Train Control, as illustrated and described in Plaintiff’s Exhibits A, H, N, and 0.

Answer: Found as requested.

4. The' combination of . elements defined by claims 3, 23, 26, 27, and 32 of the Sehweyer patent, No. 1,279,454, was not disclosed in any of the prior patents and publications offered in evidence and is novel.

Answer: Found as a specific combination.

5. The defendants have not established the prior invention or knowledge by others of the combination of elements defined by claims 3, 23, 26, 27, and 32 of Schweyer patent, No. 1,279,454.

Answer: Found as a specific combination.

6. The combination of elements defined by claims 3, 23, 26, 27, and 32 of Schweyer patent, No. 1,279,454, involved invention, and was patentable over the prior art.

Answer: Found as a specific combination.

7. The apparatus disclosed in the Sehweyer patent, No. 1,279,454, is operative to accomplish the results therein set forth.

Answer: Found as operative in the patentable sense.

8. The Union Three-Speed System, illustrated and described in Plaintiff’s Exhibits A, H, N, and 0, embodies a combination of elements which is the equivalent of the combination of elements covered by claims 3, 23, 26, and 27, and 32 of Schweyer patent No. 1,279,454, within the reasonable range of equivalents to which such patent is entitled because of its position in the art.

Answer: Refused.

9. The Union Three-Speed System, illustrated and described in Plaintiff’s Exhibits A, H, N, and 0, embodies the combination of elements covered by claims 3, 23, 26, 27, and 32 of Schweyer patent, No. 1,279,454, and is an infringement thereof.

Answer: Refused.

10. Claim 5 of Schweyer patent, No. 1,389,602, sets forth a patentable combination of elements, not an aggregation.

Answer: Found as a specific combination.

11. The combination of elements defined by claim 5 or Schweyer patent, No. 1,389,-602, was not disclosed in any of the prior patents or publications offered in evidence, and is novel.

Answer: Found as to the specific combination.

12. The defendants have not established the prior invention or knowledge by others of the combination of elements defined by claim 5 of Schweyer patent, No. 1,389,602.

Answer: Found as to this specific combination. '

13. The combination of elements defined by claim 5 of Schweyer patent, No. 1,389,602, involved invention, and was patentable over the prior art.

Answer: Found ,as a specific combination.

14. The apparatus disclosed in Sehweyer patent, No. 1,389,602, is operative to accomplish the results therein set forth.

Answer: Found in the patentable sense of “operative.”

15. The Union Three-Speed System, illustrated and described in Plaintiff’s Exhibits, A, H, N, and O, embodies a combination of elements which is the equivalent of the combination of elements covered by claim 5 of Schweyer patent, 1,389,602, within the reasonable range of equivalents to whjiah such patent is entitled because of its position in the art.

Answer: Refused.

16. The Union Three-Speed System, illustrated and described in Plaintiff’s Exhibits, A, H, N, and O, embodies the combination of elements covered by Schweyer patent, No. 1,389,602, and is an infringement thereof.

Answer: Refused.

Conclusions of Law.

1. Schweyer patent, No. 1,279,454, is not prior art as against Schweyer patent, No. 1,389,602, since the applications for said patents were copending.

Answer: Found.

2. Schweyer patent, No. 1,279,454, as to claims 3, 23, 26, 27, and 32 thereof, is valid, and has been infringed by defendants.

Answer: Refused as written.

3. Schweyer patent, No. 1,389,602, as to claim 5 thereof, is valid, and has been infringed by defendants.

Answer:' Refused as written.

Defendants’ Requests.

Findings of Fact.

1. The defendants’ system at issue does not infringe claims 3, 23, 26, 27, and 32 of the first patent in suit, or any one of them.

Answer: Found as a fact.

2. Defendants’ system does not infringe claim 5 of the second patent in suit.

Answer: Found as a fact.

3. Defendants’ system includes no combination which is like or equivalent to any novel combination disclosed in either of the patents in suit.

Answer: Found as a fact.

4. Neither patent in suit discloses any new and useful combination.

Answer: Refused as written as a conclusion of law.

5. The first patent in suit as to claims 3, 23, 26, 27, and 32 thereof is invalid as covering nothing patentably novel.

Answer: Refused as written as a conclusion of law.

6. The second patent in suit as to claim 5 thereof is invalid as covering nothing patent-ably novel.

Answer: Refused as written as a conclusion of law.


author: BREWSTER, District Judge.

text:
    ELBAG v. UNITED STATES.
    No. 3778.
    District Court, D. Massachusetts.
    Feb. 27, 1931.
    Paul L. Keenan, of Boston, Mass., for plaintiff.
    Frederick H. Tarr, U. S. Atty., John Laurence Hurley, Sp. Asst. U. S. Atty., and William J. Hession, Regional Atty., U. S. Veterans’ Bureau, all of Boston, Mass., for the United States.
   BREWSTER, District Judge.

This is a petition to recover upon certificates of war risk insurance. The veteran enlisted May 7, 1917, and thereafter obtained certificates of war risk insurance aggregating $10,000, which lapsed, for nonpayment of premium on December 31,1918. He subsequently converted and reinstated the policies for smaller amounts, but, inasmuch as he is now seeking to recover on the policies first issued and which expired December 31, 1918, the only question presented is whether, on or before that date, he had become 'totally and permanently. disabled within the meaning of the contract.

Elbey enlisted in the United States Marine Corps and was sent overseas. After he had been in France nearly a year, he suffered a complete mental collapse. He was deluded and hallucinated and at times was so violent that he had to be kept in close confinement. This condition continued until after his return to this country. He was first hospitalized in this country in the Naval Hospital in West Virginia, and then at St. Elizabeth’s Hospital in Washington. He was in this latter hospital from May, 1918, to March, 1919, and during that period he showed marked symptoms of mental disorder. His ease was diagnosed as dementia praeeox. When his condition had sufficiently improved, he was discharged and sent to his home in Worcester, Mass. He has no memory of the psychotic periods in France, and only a hazy recollection of his hospitalization at St. Elizabeth’s. He gave a history of what the doctors expressed as schizophrenia — a splitting of the mind, during and after his military service in France. After his return to his home, he did little or no work, nothing more than odd jobs now and then which were not remunerative. He became nervous and restless and finally left, joining a carnival troup which landed him in Georgia, where he enlisted in the United States Army. He concealed at that time any suggestion of illness and, fearing that his misrepresentations might be discovered, he volunteered for service in Siberia,' and from there he was transferred to the Philippines. He was frequently in the hospital while in the Philippines. His army record shows that, while serving there, he was unreliable, unfaithful to his duties, with little sense of responsibility. He was discharged from the army in August, 1920, and again sent home; In 1921 he seems to have come under the supervision of the Veterans’ Bureau and was examined by specialists in mental diseases in 1921, 1922, and 1923. At the time of these examinations, no evidence of active psychosis was found. In February, 1924, he was sent to the United States Veterans’ Hospital No. 44 at West Roxbury. He remained at the hospital until October, 1924, when he was given a leave of absence for one month. He did not return to the hospital, but again yielded to his wanderlust, and this time sought new experiences on the seas. He signed up for a voyage to New Orleans, was there discharged, and then signed again, sometimes as cook and sometimes as seaman, for voyages across the ocean. 1 At the end of each voyage he was refused re-employment, and in February, 1925, he was picked up in a destitute condition by the Red Cross in Georgia and turned over to the United States Veterans’ Hospital No. 62. From this hospital he was transferred to the United States Veterans’ Hospital No. 95 at Northampton, Mass., where he remained until June, 1925, when he was given a three months’ parole in the care of his family. Again he left home suddenly, joined a circus, tried the vaudeville stage and other employment, but none of his efforts met with success. He also tried to earn a little money by canvasing, but he soon lost this job on account of his inefficiency. His conduct was at all times erratic and every attempt to earn a living met with failure. On more than one occasion he had been obliged to apply to the Red Cross for funds with which to get back to his home and relatives.

At the West Roxbury hospital, his disorder was diagnosed as dementia praecox, simple type, and at Northampton it was diagnosed as manie depressive psychosis. It is significant that at neither of these hospitals was he discharged as a patient completely recovered, but was only given temporary leave of absence.

It is quite apparent that this veteran was constitutionally unstable with a form of mentality which medical experts would define as constitutional psychopathic inferiority, and that this condition existed when he enlisted, and that it was because of this condition that he was unable to withstand without harmful effects the harrowing experiences of the war. One of the marked characteristics of this psychopathic inferiority is, to use the language of one of the witnesses, a “tendency to veer about in one’s mode of life * * * to follow emotional trend rather than businesslike occupation.” Whether his episodes were symbolic of dementia praecox or of manie depressive psychosis, it is none the less the fact that they aggravated the condition and were a contributing cause to the impairment of his capacity to apply himself with substantial regularity to any useful occupation. There was medical testimony that such an episode as Elbey experienced in France would result in a general breaking up of the personality so that thereafter he would not be able to carry on as he did before.

It is no answer to say that a stronger personality would have withstood the pressure of the war or would have made a better recovery. We have to deal with the case of one who, when insured, was psychopathieally inferior, and with effects that were produced upo'n the particular individual.

This mental condition which has rendered it impossible for Elbey to consistently apply himself to any one task clearly had its origin while he was in the service and before the lapse of the policies. It is equally clear that since his return he has not at any time been able to carry on with substantial regularity any gainful occupation. While it is true that he was able, to embark upon numerous adventures, he did not evince the ability to hold any ‘job in the ordinary competition of life. This is the test. Knight v. United States (D. C.) 45 F.(2d) 202; United States v. Cox (C. C. A.) 24 F.(2d) 944.

There can be little doubt, on the evidence, that this disability was due to an impairment of mind, induced or aggravated by the mental abberations which occurred while the veteran was in the service and from the effects of which he has never recovered.

I have been asked to rule that, inasmuch as the veteran enlisted a second time, in 1919, he thereby is to be conclusively presumed to have been sound in body and mind at the time of the enlistment, citing the case of Caprio v. United States (C. C. A.) 45 F.(2d.) 520. In that ease, which arose in this circuit, reference is made to section 200 of the World War Veterans’ Act of 1924 (43 Stat. 615), as amended by the Act of July 2, 1926, § 7 (44 Stat. 793). This act, as amended in 1926, required a conclusive presumption that “for the purposes of this Act” the veteran was in sound condition when he enlisted. In the earlier act it was for the purposes of the section dealing with compensation only that such a conclusive presumption could be invoked, and the substitution of the word “Act” for the word “Section” was deemed to be significant in Caprio v. United States, supra, and also in Brandaw v. United States (C. C. A.) 35 F.(2d) 181 and Jackson v. United States (D. C.) 24 F.(2d) 981. But Congress in 1930 (Act of July 3, 1930, c. 849, § 11, 46 Stat. 995 [title 38 U. S. Code, § 471, 38 USCA § 471]) saw fit to further amend section 200 of the World War Veterans’ Act by inserting, in lieu of the words “for the purposes of this Act,” the words “for the purposes of this section and section 304” (as amended by Act July 3, 1930, § 23 [title 36 U. S. Code, § 515, 38 USCA § 515]), so that, as the law now stands, the presumption can be invoked only for the purposes of section 200 of the act, which relates to compensation, and section 304 of the act, which relates to reinstatement of insurance. The provisions of the statute creating this presumption, therefore, have no application to a ease which does not involve compensation or reinstated insurance.

My conclusion, therefore, is that the veteran became totally and permanently disabled on or before December 31, 1918, and that the plaintiff is entitled to recover on the certificates of war risk insurance issued January 1 and February 12, 1918, respectively, and that upon surrender of any subsequent contracts, or policies, he is entitled to a judgment for the amount lawfully due.


text:
    JARKA CORPORATION OF BOSTON et al. v. MONAHAN, Deputy Com’r, et al.
    No. 3375.
    District Court, D. Massachusetts.
    Feb. 27, 1931.
    Brown, Field & McCarthy, of Boston, Mass., for plaintiffs.
    A. Chesley York, Asst. U. S. Atty., for defendant Monahan.
    George L. Dillaway, of Boston, Mass., for defendant Nellie Barnes.
   BREWSTER, District Judge.

The above-entitled matter is a bill in equity, brought under section 21 (b) of the Longshoremen’s and Harbor Workers’ Compensation Act (Act of March 4,1927, c. 509', 44 Stat. 1436, 33 USCA § 921 (b), to review a compensation order of the deputy commissioner in this district, which order it is alleged was not in accordance with law.

Statement of Facts.

The deputy commissioner has found that on the 5th day of December, 1929, Arthur Barnes received an occupational injury from which he died on the 7th day of December, 1929. His widow, Nellie Barnes, duly elected, in accordance "with section 33 of the act (33 USCA § 933), to institute proceedings to recover damages against the vessel and the owners of the vessel on which Barnes was working at the time of the injury.

The lihel was accordingly brought hy the widow,' as administratrix, which lihel was dismissed after a compromise settlement had been reached with the owners of the vessel.

According to the finding of the deputy commissioner, by the terms of the settlement, the administratrix received $5,250 and her attorneys $250, or a total of 5,500, which was paid by the owner. This settlement was approved in writing by the employer.

The deputy commissioner approved a further charge of $100 for legal services rendered in the compensation proceeding.

The employer and its surety were ordered to pay forthwith to the widow, for the benefit of herself and her two children, the sum of $2,250 in one sum. The validity of this order is challenged on three grounds: First, that the award is for an incorrect amount; second, that the deputy commissioner was in error in ordering it to he paid forthwith; and third, that there is no authority in the statute for his order that it be paid in a lump sum.

Conclusions of Law.

As to the first objection to the award, I am of the opinion that the amount is eorreet. The amount of $2,250 is obtained by deducting the amount reecived by the administratrix as a result of her suit in admiralty ($5,-250) from $7,500, the maximum liability under the act.

Section 33 (g) provides that, if a compromise is made, with the approval of the employer, for an amount less than the compensation to which the person would be entitled under the act, the employer shall he liable for compensation as determined by subdivision (e). Obviously, subdivision (f) rather than subdivision (e) was intended, because subdivision (e) deals with the application of a recovery or compromise made by the employer, while subdivision (f) deals with the application of a recovery hy the employee. In section 33 (f) it is provided that the employer shall pay, as compensation under the act, a sum equal to the excess of the amount which the commission determines is payable, on account of such death, over the amount recovered against the third person. The controversy over the amount involves the correct determination of the amount received by the widow as a result of the compromise. Upon this phase of the matter the finding of the deputy commissioner leaves no room for doubt. He finds as a fact that the sum of $5,250 was paid to Nellie Barnes as administratrix of the estate of Arthur Barnes. Since it has not been made to appear that the evidence did not warrant this finding of fact by the deputy commissioner, the finding must be held to be conclusive. Obrecht-Lynch Corp. v. Clark (D. C.) 30 F. (2d) 144, 146.

If he had found that the owners of the vessel had paid Mrs. Barnes $5,500 out of which she had paid her attorney $250, a different situation would have been presented. In view of the unequivocal finding of the deputy commissioner that Mrs. Barnes received only $5,250, the computation of the excess of $7,500 over that amount cannot be deemed contrary to law.

The second question is whether this amount is to be paid forthwith or is to await the expiration of a period which would elapse before the sum of $5,250 was exhausted, assuming it was to be paid in periodical installments, as provided by the act.

While I agree that such a postponement might be in harmony with the spirit and purpose of the statute, my answer to that question must be that section 33 makes no provision for any postponement of the excess payable under 33 (f) and (g). In my opinion, in order to accomplish such a postponement, there must be found in the statute language, both adequate and definite, to that end. There are no provisions in the act which, by implication even, can be taken to call for such a postponement of the due date of the compensation payable under section 33.

The remaining question is whether this sum is to be paid in one lump sum or in installments. The language of section 33 is that the sum shall be paid as compensation under this act. Section 14 (a) and (h), 33 USGA § 914 (a) and (b), provides that compensation under the act shall be paid in periodical installments to the person entitled thereto. Reading section 14 (a) and (b) and section 33 (f) and (g) together, I have reached the conclusion that a fair construction of the act is one which gives the dependent the full benefits of the recovery, or compromise, in her suit against a third person, and at the same time entitles her to receive the compensation provided for in the act, such'compensation to he payable in installments the same as any other compensation which she would be entitled to receive under the act. This construction is supported somewhat by the provisions of section 14 (j), 33 USCA § 914 (j), which are the only provisions found in the act relating to payment of compensation in a lump sum.

Section 14 (j) reads as follows: “Whenever the deputy commissioner determines that it is for the best interests of a person entitled to compensation, the liability of the employer for such compensation may be discharged by the payment of a lump sum equal to the present value of all future payments of compensation computed at 4 per centum true discount compounded annually. The probability of the death of the injured employee or other person entitled to compensation before the expiration of the period during which he is entitled to compensation shall be determined in accordance with the American Experience Table of Mortality. The probability of the happening of any other contingency affecting the amount or duration of the compensation shall be disregarded.”

I do not understand that the deputy commissioner, in awarding a lump sum, proceeded under this section, or that he made any attempt to get at the present value of future payments. The construction which I have put upon section 33 (f) and (g) is the only one,which seems to me to be consistent with the purpose of the act, and I am unable to see how such a construction will lead to complications.

I have reached the conclusion, therefore, that the award of the deputy commissioner, so far as it required the payment of $2,250 to Nellie Barnes for the benefit of herself and Joseph and Mary Barnes, is lawful, and that the sum of $100 allowed to counsel for legal services in the compensation proceeding is also lawful, but that the order to pay the same forthwith in a lump sum is unlawful, in that the statute requires the said sum 'to be paid in installments in accordance with the provisions of section 14 (a) and (b).

My conclusion, therefore, is that the compensation order should be set aside unless and until it is modified in conformity with this opinion, and I so order.


author: DAWKINS, District Judge.

text:
    UNITED STATES v. FROST LUMBER INDUSTRIES, Inc.
    No. 1966.
    District Court, W. D. Louisiana, Shreveport Division.
    Feb. 12, 1931.
    Philip H. Mecom, U. S. Atty., and J. Fair Hardin, Asst. U. S. Atty., both of Shreveport, La., and Frank J. Ready, Jr., Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., for the United States.
    Wilkinson, Lewis, Wilkinson & Burford, of Shreveport, La., for defendant.
   DAWKINS, District Judge.

The government brings this suit to recover the sum of $51,268.10, which it alleges was erroneously refunded to defendant out of the income taxes assessed and collected for the year 1918, under section 230 of the Revenue Act of that year (40 Stat. 1075).

Defendant has filed a motion to dismiss upon the ground that this court is without jurisdiction.

From the hriefs, it appears that the alleged want of jurisdiction is based upon the fact that the petition alleges the defendant to be a corporation under the laws of Missouri, and the latter contends that the action is not one for taxes, but for money erroneously had and received.

The petition, after stating that the defendant is a Missouri corporation, further alleges that it has “its principal office and place of business in the city of Shreveport, Western District of the state of Louisiana”; that, pursuant to the Act of February 24, 1919 (40 Stat. 1057), known as the Revenue Act of 1918, “and the regulations duly promulgated under said Act * * * the defendant * * * filed its corporation income tax return for the year 1918,” and paid its income tax to the “Collector of Internal Revenue for the District of Louisiana,” who, the court will take cognizance, had jurisdiction at that time throughout the state of Louisiana, including this judicial district; that the original amount paid and collected was $197,629.14, but about July 20,1920, defendant filed a claim for refund of $81,549.72, alleged to have been overpaid “as income and profit taxes for the calendar years 1909 to 1918, inclusive,” which claim “was supported by an amended return for each of the years 1909 to 1918 inclusive,” of which amount $60,128.96 was for the year 1918; that the basis for the refund claimed was “an increase in invested capital,” and “on or about October 4th, 1928, the said sum of $51,268.10 was mistakenly, erroneously, illegally and unlawfully applied to the use and benefit of the defendant as a credit against an outstanding income tax for 1917, then legally due and owing from defendant, when the said sum did not belong to the defendant.” The prayer is for judgment for the said sum with legal interest from October 4, 1928.

Of course, the general rule is that a suit upon a transitory cause of action must be brought at the domicile of the defendant, but the legislative branch of the government may make exceptions to that requirement with respect to particular kinds of proceedings, if proper service may be had. It remains to be determined whether such an exception has been provided in this ease.

Section 241 (b) of the Revenue Act of 1918 (40 Stat. 1057, 1082), covering returns of corporations made thereunder, provides: “Returns shall be made to the collector of the district in which is located the * * * principal office or agency of the corporation. • • •»

At the time defendant made its return for the taxes of 1918, under the revenue law of that'year, there was in effect a regulation of the Treasury Department (Treas. Dec. vol. 16, pp. 259, 264) declaring that “the principal place of business of a corporation is the place or office in which are kept, the books of account and other data from which the return is to be prepared.”

This regulation was made under section 2 of the Revenue Act of Oct. 3, 1913 (38 Stat. 166), but in the meantime, that is, between the passage of the act of 1913 and the making of the return, the Revenue Act of 1916 had been passed (39 Stat. 756, 771), section 13 (b), which as amended provided as follows: “Every corporation * * * subject to the tax herein imposed, shall * * * render a * * * return of its annual net income * * *, [and] the return shall be made to the collector of the district in which is located the principal office of the corporation * * * where are kept its books of account and other data from which the return is prepared.”

This was a legislative recognition and affirmation in exact terms of the regulation which had previously been adopted by the Treasury Department. Then, in the Revenue Act of 1918 (40 Stat. 1057,1082, § 241 (b) it was provided: “Returns shall be made to the collector of the district in which is located the principal place of business or principal office or agency of the corporation, or, if it has no * * * principal office or agency * * * then to the collector at Baltimore, Maryland.”

The Treasury Department thereafter adopted an amended regulation, under date of January 28,1921, in conformity with this section of the Revenue Law of 1918, which has not been changed by the subsequent Revenue Acts. See section 241(b) of the Acts of 1921 (40 Stat. 1082), 1924 and 1926 (26 USCA § 992), and section 53(b) (2) of the Revenue Act of 1928 (26 USCA § 2053 (b) (2).

With reference to suits for the collection of delinquent taxes, section 3213 of the Revised Statutes (26 U. S. C. § 142 [26 USCA § 142]) provides: “Taxes may be sued for and recovered in the name of the United States, in any proper form of action, before any district court of the United States for the district within which the liability to such tax is incurred, or where the party from whom such tax is due resides at the time of the commencement of the said action.” (Italics by writer of this opinion.)

With, respect to actions to recover a refund like the one now under consideration, the Revenue Act of 1928, § 610 (b) (45 Stat. 791, 875 [26 USCA § 2610 (b)]), declared: “Any portion of an internal-revenue tax * * * which has been erroneously refunded * * * may be recovered by suit brought in the name of the United States * * * begun before the expiration of two years after the maldng of' such refund. «.■ * «» (Italics by the writer of this opinion.)

It is alleged that the defendant made its return and paid its income taxes to the collector for the district of Louisiana, and that it also filed its claim for and obtained the refund now in question, through the same channels.

I am of the opinion, therefore, that, for the purpose of the plea or motion to dismiss, the allegation that the defendant has and had its “principal office or place of business” in the city of Shreveport in this district, must be construed as embracing the meaning defined by the regulation- and statutes above quoted. Hence it becomes a question of whether or not the suit is one for the recovery of taxes within the meaning of section 3213 of the Revised Statutes (26 USCA § 142) or section 44 of the Judicial Code (28 USCA § 105). If it is found to be a suit for the recovery of taxes, then defendant further contends that the liability therefor did not arise within this district. The latter contention, I think, is readily disposed of by the suggestion that defendant, according to the petition, chose to make its return in the taxing district of Louisiana, as it then stood, from its principal office or place of business in the city of Shreveport, its claim for a refund was made through the same channel, and whatever may have been its right to do otherwise, that course has foreclosed the question of where its liability for the taxes arose, and it must be conclusively presumed to have arisen in this district.

That the demand now made is one for taxes I believe is also reasonably clear. It is not pretended that there was any other liability to the government, and the recitals of the petition show clearly that what is claimed of the defendant is the amount which the government alleges was justly due to it for income taxes for the year 1918. That indebtedness, if it was due, arose by virtue of the applicable provisions of the revenue law of that period, and no action of the Commissioner or other causes could absolve the -defendant therefrom, except the running of limitations prescribed by the revenue law itself. The remission or refund of any part of those taxes unlawfully would, in legal contemplation, when ascertained in the proper tribunal, have been void. The tax liability which the original payment was intended to discharge was never extinguished, because, within the delays allowed by law, the defendant made its claim for refund and the sum now demanded was returned to it, so that there was never a satisfaction of what was actually due. In other words, the matter was necessarily placed in a condition of suspense, held in abeyance for the time the claim for a refund was under consideration by the Department, and, when the latter was erroneously granted, as alleged in the petition, this left the tax obligation to the government still undischarged.

Congress evidently considered the demand for such reimbursement as one for taxes, for in section 610 (b) of the Revenue Act of 1928 (26 USCA § 2610 (b) under which this suit is brought it is referred to as “any portion of an internal-revenue tax * * * which has been erroneously refunded * * * may be recovered by suit brought in the name of the United States * * * before the expiration of two years after the making such refund.” Of course a legislative interpretation of what is intended, is strongly persuasive. Again, there are strong considerations otherwise for holding that the demand here is for taxes, such as the fact that the defendant may, if it has the proper basis, raise questions of the correctness of the action of the Commissioner in allowing credits or deductions under the revenue law, the presence of the records, witnesses, etc., in this jurisdiction, and, finally, if the defendant’s principal office and place of business is within this district, the prompt and effective collection of the judgment when obtained.

Other provisions of the revenue law give •the taxpayer the right to bring his suit for the recovery of overpayments in the district where the tax was assessed and collected, and if Congress had had any idea the government would have to sue a corporation at its statutory domicile, I feel sure it would have clearly and emphatically provided that such suits should be brought as is now contended by the government.

Counsel for defendant have presented their contention very ably, but I am of the opinion that the eases cited in support thereof aré not applicable. They are principally those where the collecting agent or his estate was sued for the recovery of sums which he had collected from the taxpayer and failed to turn in to the treasury. Clearly, such actions were not for taxes in the sense of a demand by the sovereign against the taxpayer whose liability arises solely from the fact that he owes the tax. I do not find it necessary to review those authorities.

My conclusion is that the suit is properly brought in this jurisdiction, and the motion to dismiss will be overruled.

Proper decree may be presented. The rights ,of the defendant are reserved to present and have settled exceptions, etc.