author: MILLER, Judge. RICH, Judge

text:
    Application of Tore V. SAETHER.
    Patent Appeal No. 9085.
    United States Court of Customs and Patent Appeals.
    Feb. 28, 1974.

      David L. Just, New York City, attorney of record, for appellant.
    Joseph F. Nakamura, Washington, D. C., for the Commissioner of Patents. Robert D. Edmonds, Washington, D. C., of counsel.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER, Judges.
   MILLER, Judge.

This appeal is from the decision of the Patent Office Board of Appeals affirming the examiner’s rejection of claim 7 in application serial No. 840,890, filed May 26, 1969, for “Elastomeric Platform For Furniture.” We reverse.

FACTS

The invention is an elastomeric platform defined by certain specific physical characteristics rather than ingredients and having a unitary structure which replaces the webbing normally employed to support cushions in furniture such as chairs and couches. The following figure, taken from appellant’s specification, illustrates in a top view the platform in position in a wood furniture frame:

The claim on appeal, with added paragraphing and bracketed material supplied, is:

A member adapted for attachment to a furniture frame comprising an elastomeric platform having
a durometer, Shore A, ASTM D-676-59T hardness of about 55 to about 80,
a modulus at 50% elongation, [force required to produce a given elongation] ASTM D-412-62T from about 150 to about 600 p. s. i.,
a tear resistance, ASTM D-624-54 die C of at least about 100 pounds per inch and
a tension set, [deformation remaining on removal of deforming stress] ASTM D-412-62T of not more than about 35% and
a permanent set not over about 15%.
_ Distance after Pounding — Original Distance [-„ . . , .--- X 100] Original Distance

The last physical characteristic is a result of the combination of the first four physical characteristics.

In response to the first office action, appellant filed an affidavit by Clement A. Damicone, a participant in the research and development project which culminated in the present application. It states that the first four characteristics “are critical and essential for achieving the improved elastomeric platforms described in the application”; that the improvements are “a minimum permanent deflection,” “a very long life” of up to fifteen years, and increased adaptability for installation “under varying degrees of tension”; that there is a very specific, but “random,” correlation of the claimed physical characteristics which “cannot be defined as an ordered mathematical relationship”; that the claimed ranges must be observed in order to achieve the improvements in elastomeric platforms; and that exemplified elastomeric formulations outside the claimed ranges cannot obtain such improvements. Four elastomeric formulations were presented for comparison, each having approximately the same ingredients but in different proportions. One such formulation met all the physical characteristics of the above claim while the other three lacked one, two, or three of the claimed physical characteristics, depending on the proportion of ingredients. The scope of the claimed ranges was illustrated as follows:

PRIOR ART

Kudriavetz and Heuston show elastomeric platforms, but neither has any disclosure of desired physical characteristics. Coulter discloses an improved rubber composition containing a reinforcing-type furnace black to prevent scorching and to obtain “excellent and uniform physical properties.” The physical properties disclosed are longer scorching times (Mooney scorching test), tensile strength, modulus at 300% elongation, elongation at break, hardness (British Standard degrees), and resilience at 50 °C. Parks discloses improved rubber compositions evidenced by ultimate tensile strength, ultimate elongation, modulus at 300% elongation, and modulus at 200% elongation. Parks and Coulter contain no disclosure concerning the use of their respective rubber compositions for elastomeric platforms for furniture.

THE REJECTION

The Board of Appeals sustained the examiner’s rejection of the claim under 35 U.S.C. § 103 as unpatentable over Kudriavetz and Heuston in view of Parks and Coulter, saying that the claim does not distinguish from “an old sheet of rubber” by use of the term “platform.” Assuming arguendo that “platform” does impart such a distinction, the board agreed with the examiner’s holding of obviousness, stating:

Outside of the wide ranges of hardness and modulus, the claim, in effect, reads upon an elastomer sheet that, ideally, is immune to tearing, tension set, and permanent set, the latter property apparently being the result of the others, rather than an additional one. Certainly these are simply the obviously desirable characteristics to the users of the platforms of Kudriav-etz and Houston [sic]. Put another way, such differences present “no real improvement or advance beyond the physical requirements of the users.” [Citing Magnavox Company v. Muter Co. (Rola Company, Inc.), 160 F.Supp. 169 (N.D.Ohio 1956).]

OPINION

We disagree with the board’s statement, that the term “platform” imparts no distinguishing features or structure. It is axiomatic that not only must claims be given their broadest reasonable interpretation consistent with the specification, but also that all limitations must be considered. Thus, the claim defines “A member comprising an elastomeric platform.” Appellant’s specification states that this platform “forms a support for cushions, upholstery and the like in articles of furniture.” An example is disclosed in the specification as Figure 1 shown above. To give “elastomeric platform” a meaning consistent with appellant’s specification, there must at least be some structure to provide “support” in articles of furniture. We note, incidentally, that Kudriavetz refers to a similar member in his drawing as “elastomer supporting member” and Heuston uses the term “elastomer platform” for his drawing.

The solicitor’s position is essentially that appellant has done nothing more than optimize a set of obviously desirable characteristics by mere “routine” experimentation. Appellant argues that he has made an inventive selection of four specific physical characteristics to define an improved elastomeric platform. The Damicone affidavit states that “the four specifications recited in the application claims are only a selected group of other specifications which are customarily used in the field of elasto-meric compounding and processing.” Appellant’s brief includes a list of these and points out that none of the references discloses the specific physical characteristics claimed.

Appellant further argues that he was the first to recognize that the problem of loss of seating comfort is related to cold flow and sag of the elastomeric platform; that he then devised a testing machine to measure the permanent set and determine that a maximum of 15% was necessary. To achieve the desired permanent set, appellant defines the platform in terms of four specific physical characteristics, rather than chemical ingredients. Thus, appellant says he discovered the source of the problem (cold flow and sag), a means of measuring the source of the problem by permanent set, and a group of specifications (the four physical characteristics) for an elastomeric platform which will possess the desired permanent set.

Although the board described one of appellant’s key discoveries, that of permanent set, as merely an “obviously desirable” characteristic, this would not make appellant’s invention, considered as a whole, obvious. See Puharich v. Brenner, Com’r. of Pats., 134 U.S.App.D.C. 399, 415 F.2d 979 (1969). Obviousness is not to be determined on the basis of purpose alone. In re Graf, 343 F.2d 774, 52 CCPA 1206 (1965). Nor does it appear obvious that a low permanent set is desirable, considering the varying degrees of tension in different items of furniture and the objective of optimum seating comfort for a long period of use. Appellant has presented evidence of unobviousness by his specification and the Damicone affidavit showing discovery of the cold flow problem, the existence of permanent set, and the four physical characteristics required to enable an elastomeric platform to possess the desired permanent set. In contrast, the board’s statement lacks evidential support in the record.

In further support of his argument that he has made an inventive selection of four specific physical characteristics to define an improved elastomeric platform, appellant points out that his claim includes a critical range for each and that there is a random correlation between these critical ranges, as distinguished from a mathematically-predieta-ble correlation. In support of his contention of random correlation before the Patent Office, appellant pointed out that the claimed range for hardness is at the upper range (indicating greater hardness), while the tension set is at the very low end of the total range. We also note that the claimed modulus at 50% elongation is at the lower end of the total range. In the absence of rebuttal by the Patent Office, it appears that if it were obvious to optimize any of the specified physical characteristics, this would not lead one skilled in the art to the claimed ranges for the others.

Concerning the claimed ranges of hardness and modulus, the board states that they are “wide,” while appellant argues they are both “critical” and “narrow.” Appellant states that various methods of measuring hardness over a variety of ranges are known, each having different scales. The claimed range covers 25% of one scale of the Shore hardness method. The claimed values of modulus at 50% elongation cover approximately 15% of the range shown in the above illustration, with moduli at other percentages of elongation further narrowing the breadth of the claim. The tear resistance, while seemingly encompassing a large portion of the range, is measured by die C, there being a number of different dies in the testing procedures set forth in the claim. And appellant notes that the tension set range of less than 35% is even narrower than that shown in the above illustration since tension sets above 100% may exist.

While there may be some differences of opinion over the breadth of the claimed ranges, the important point is that a random correlation of the claimed ranges exists in an elastomeric platform having a permanent set of not over 15% and having the improvements described in the Damicone affidavit, discussed above.

Evidence of the random correlation is also provided by the Damicone affidavit, which shows that, as a result of varying the proportions of the same ingredients, elastomeric platforms possessing different values for the selected physical characteristics were, as would be expected, produced. With these different proportions, the affiant obtained one elasto-meric platform possessing values within all the claimed ranges; another, which failed to meet the required hardness, modulus at elongation and tear resistance; another, which failed to meet the required hardness and modulus at elongation ; and, finally, another which failed to meet the required modulus at elongation. This is persuasive evidence that a random correlation of all the claimed ranges exists in an elastomeric platform possessing an unobvious set of physical characteristics, which are the limitations of the claim, and this random correlation is a further indication of unobviousness.

In his argument that “mere routine experimentation” was involved in determining the optimized set of characteristics, the solicitor overlooks the last sentence of 35 U.S.C. § 103, which states that “[patentability shall not be negatived by the manner in which the invention was made.” In re Fay, 347 F.2d 597, 52 CCPA 1483 (1965). Here we are concerned with the question of whether the claimed invention would have been obvious at the time it was made to a person having ordinary skill in the art — not how it was achieved.

In addition to the differences from the prior art, which is shown by the references and by appellant’s specification, further evidence of unobviousness is shown by the improvements and unexpected results obtained by the claimed invention: first, no special attachments are needed for the claimed elastomeric platforms; second, optimum seating comfort is maintained over an increased life of up to fifteen years; third, a minimum permanent set has been achieved; and fourth, inventory requirements are reduced, because only one type of elasto-meric platform is needed for installation under varying degrees of tension.

The board’s position is that the differences between appellant’s platform and those of the primary references represent merely “the physical requirements of the users.” However, it is noted that during oral argument appellant’s counsel stated that ■ fiberglass chairs would have a Shore A durometer of approximately 100. Since this would presumably be appropriate to the physical requirements of the users, but is clearly outside the range claimed by appellant, we believe some evidence in support of the board’s position should appear in the record. In re Freed, 425 F.2d 785, 57 CCPA 1089 (1970).

In support of its characterization of the differences between appellant’s invention and the prior art as “no real improvement or advance beyond the physical requirements of the users,” the board cites Magnavox Company v. Muter Co. (Rola Company, Inc.), 160 F.Supp. 169 (N.D.Ohio 1956), affirmed on appeal, 253 F.2d 576 (6 Cir. 1958). The claim at issue there involved a loud speaker comprising a small unit for compact spaces such as those in automobiles. In holding the patent invalid, the court said:

The problem then was, as I earlier characterized it, to accomplish a reduction in size of the structure and component parts to suit the requirements of the users without impairing its efficiency or a successful production of the desired tone quality and volume. This, the defendant claims, Smith accomplished in a new and original way; but differences in measurements, or thickness of materials, or design of structures such as here considered do not rise to invention, nor, likewise, do size and cost. To the lay eye and understanding there was no real improvement or advance beyond physical requirements of the users and this did not constitute invention.

To extend this statement, as the board would, beyond the narrow limits of the case to which it was meant to apply, would logically preclude virtually all patents, since “the aim of most inventions is to satisfy the requirement of the users.” This we are not about to do.

To summarize, we conclude that the board erred in affirming the examiner’s rejection and holding appellant’s invention to be obvious for the following reasons: the term “elastomeric platform” denotes a structure to provide support in articles of furniture; the claimed combination of physical characteristics is not suggested by the references, alone or combined; no showing has been made that one skilled in the art would select the four specifically claimed physical characteristics, much less the ranges specified for them; the claimed ranges are critical and produce unexpected results in an improved elastomeric platform; and the relationship of the claimed physical characteristics is one of random rather than mathematical correlation.

The decision of the board is reversed.

Reversed.

RICH, Judge

(dissenting):

I respectfully dissent, believing that the rejection under § 103 was well-founded.

Appellant, in his own specification and in the Damicone affidavit, by one who worked on the invention, makes it plain that, the desired properties of the furniture platform being known, “Anyone skilled in the elastomeric compounding and processing field would know” how to compound rubber to get the properties. Rubber compounded to meet the requirements appears to have been already known. So were rubber chair bottoms. The search for the best one was routineering, the desiderata were obvious, and the way was known. The claimed subject matter was obvious to those skilled in the rubber compounding art.

Appellant did not discover permanent set or cold flow, i. e., sag after use. Anyone who has seen an old rubber band knows that it is desirable to keep that property to a minimum for as long as possible. There is no magic in the 15% limitation; it is merely the maximum, to be tolerated. Appellant prefers 5% and, if attainable, would no doubt prefer none. I think it is very obvious that low permanent set is desirable. Nobody knows that the life of the furniture platform has been extended up to 15 years; that is a mere expectation which appellant forcasts on the basis of accelerated tests conducted during a short period.

      . United States Patent 3,117,819, issued January 14, 1964, on Serial No. 177,588, filed Mareli 5, 1962, for “Resilient Chair Support.”

      . United States Patent 3,179,469, issued April 20, 1965, on application Serial No. 265,932, filed March 18, 1963, for “Elasto-mer Furniture Support.” Both the Kudriav-etz and Heuston patents are assigned to the assignee of the presently appealed application.

      . United States Patent 2,945,834, issued July 19, 1960, on Serial No. 637,860, filed February 4, 1957, for “Vulcanizable Rubber Composition And Process For Vulcanizing Same.”

      . United States Patent 2,909,584, issued October 20, 1959, on Serial No. 788,483, filed January 23, 1959, for “Vulcanizable Natural Rubber Composition And Method Of Vulcanizing Same.”

      . The examiner had relied on an additional reference, but the Board of Appeals deemed it cumulative and ineffective due to its effective date being subsequent to that of appellant’s.

      . Listed were: Tensile strength, elongation %, tensile modulus, compressive strength; flexural yield strength, Rockwell hardness, Shore hardness, Moh’s hardness, Knoop hardness, flexural modulus, compressive modulus, shear strength, deformation under load, tensile impact strength, Izod impact strength, stiffness, stress crack resistance, modulus of elasticity, shear modulus, modulus of elongation, tear resistance, tension set, modulus of elasticity (in tension), modulus of elasticity (in flexure), modulus of elasticity (in shear), and hearing strength. Selection of four from this list, along with the desired ranges for each, is in sharp contrast to optimization of the three principal known ingredients in In re Reese, 290 F.2d 839, 48 CCPA 1015 (1961).

      . Although Coulter discloses a hardness measured in British Standard degrees, no argument. has been presented by the Patent Office that such degrees bear any relationship to the claimed Shore A units. In response to a question at oral hearing, appellant’s counsel admitted that it might be possible to correlate a modulus at 50% with a modulus at 25%, but the Patent Office has made no argument concerning any correlation or comparability between the claimed modulus at 50% elongation and the modulus at 300% and at 200% disclosed by Parks and the modulus at 300% disclosed by Coulter.

      . The solicitor’s brief refers to appellant’s claim as “a claim to an unspecified elasto-mer composition,” but we note that there has been no rejection under 35 U.S.C. § 112. Also appellant’s specification contains an example of ingredients and their proportions used in making an elastomeric platform possessing the claimed physical characteristics.

       Appellant’s specification, after stating his four essential “physical property” ranges, states: “The compounding of rubber and other elastomers to the above specifications is well known in the art,” as the board noted in finding the rubber sheet to be “old.”


source: Caselaw Access Project

author: MARKEY, Chief Judge.

license: Public Domain

text:
    Application of Nguyen DINH-NGUYEN and Einar August Stenhagen.
    Patent Appeal No. 9134.
    United States Court of Customs and Patent Appeals.
    Feb. 28, 1974.
    Anthony M. Lorusso, Kenway, Jenney & Hildreth, Boston, Mass., attorney of record, for appellants.
    Joseph F. Nakamura, Washington, D. C., for the Commissioner of Patents; Henry W. Tarring, II, Falls Church, Va., of counsel.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER, Judges.
   MARKEY, Chief Judge.

This appeal is from the decision of the Board of Appeals, affirming the rejection under 35 U.S.C. § 112 of claims 2, 3 and 11 to 16 of appellants’ application, serial No. 768,950 filed September 16, 1968, for “Method of Deuterating Organic Compounds.” We reverse.

The Invention

The application is directed to the improvement of the process of exchanging the heavy isotope deuterium for hydrogen in organic compounds by the use of deuterium peroxide as a promoter. It is stated in the specification that the presence of this promoter permits the replacement of hydrogen in a “great many organic compounds including compounds of high molecular weight” whereas the earlier methods were only effective with compounds of low molecular weight.

All of the claims are in Jepson form, claim 11 reciting the claimed process in its broadest scope:

11. In the method of deuterating an organic compound containing hydrogen atoms replaceable by deuterium wherein said compound is reacted with heavy water as a deuterium source in the presence of alkali metal deuteroxide and a deuterium reduced Adams catalyst (PtC^H^O) the improvement which consists in carrying out the deuterating reaction in the present [sic] of deuterium peroxide.

Claim 12 restricts the alkali metal deuter-oxide to the sodium species, with further dependent claims 2 and 3 defining specific methods for producing the catalyst, promoter and deuteroxide. Remaining dependent claims 13-16 limit the “deuteratable organic compound” of claim 11 to “a hydrocarbon,” “an alcohol,” “a keton [sic],” or “a fatty acid,” respectively.

The Rejection

The examiner’s rejection under 35 U. S.C. § 112 was based on the conclusion that the specification failed to “effectively support the scope” of the claims. It was his position that the claims encompassed the use of a broad range of organic compounds in the deuteration process, many of which might “properly be expected to undergo interfering reactions.” The known reactivity of hydrogen peroxide with many organic compounds was cited as support for the holding of inadequate disclosure of suitable operating conditions when similar oxidation reactions might be expected due to the presence of its counterpart deuterium peroxide.

The board agreed with the examiner, stating:

None of the appealed claims precludes as a starting material compounds containing groups reactive with deuterium peroxide. The specific examples are devoid of representatives thereof, and the specification, therefore, does not demonstrate how the claimed process would produce an improvement where the stated reactants containing reactive groups are employed. We might particularly note that olefinic, and particularly diolefinic, compounds, which may be hydrocarbons, alcohols, ketones or fatty acids as indicated in the dependent claims, react vigorously with hydrogen peroxide to either split, epoxidize or produce other products, dependent upon reaction conditions. Similar interfering reaction with deuterium peroxide is to be expected and the resulting process is not the argued improvement of an old process since the same product is not obtained as is provided where the oxidizing agent is absent and there is no evidence that the process itself is in any way improved.

The board also concluded that the deuterium peroxide in sufficient quantity might be expected to oxidize the Adams catalyst and thus preclude “the desired results.”

Appellants maintain that their invention lies in the specific improvement of an old process by the incorporation of the promoter deuterium peroxide. Jepson claims have been used to pinpoint this improvement, the preamble simply setting forth the known deuteration process. Furthermore, it is argued that all the requirements of 35 U.S.C. § 112 have been complied with insofar as the deuteration is concerned, which is all that is necessary. Disclosure of means for dealing with possible interfering reactions is said not to fall within the required teaching of how to make and use the claimed invention.

The solicitor, on the other hand, contends the board properly held that the enabling disclosure is “not commensurate in scope with the claim terminology” in that the possibility of undesirable side reactions with certain compounds has not been dealt with. The reasons given by the examiner and board, in addition to the apparent concession by appellants that side reactions might occur, are alleged to establish “at least a strong probability that the invention as broadly claimed encompasses significant areas wherein the process would be inoperative, or at the least, inadequately disclosed.”

OPINION

Although the rejection has not been stated in terms of any particular requirement of 35 U.S.C. § 112, we consider the issue to be restricted to the enabling disclosure requirement of the first paragraph. No real challenge has been made to the claims as not setting forth that which appellants regard as their invention, only the adequacy of support therefor.

Accordingly, the touchstone is that which is claimed. Deuteration by- the general method recited in the preamble of appellants’ claims is a known process. Although, as acknowledged in appellants’ specification, the applicability of that process was limited to certain classes of organic compounds, the basic procedure was a part of the prior art. Appellants’ contribution lies in extending the effectiveness of the process by the addition of a particular promoter. The process may still be characterized as “deuterating an organic compound containing hydrogen atoms replaceable by deuteration,” even though the scope of deuterable compounds has been widened. Thus the accompanying disclosure in the specification need only be sufficient to enable those skilled in the art to achieve deuteration of potentially deuterable compounds in the presence of deuterium peroxide.

Looking to appellants’ specification, we find not only a general discussion of the procedure to be followed but also three specific examples outlining the preparation of the Adams catalyst, the alkali catalyst, and the promoter as well as the exchange reaction with stearic acid, camphor, and anthracene. All the “deuteratable” compounds are of high molecular weight and all are deuterated by appellants’ improved process. The obvious general applicability of the procedure so demonstrated fully satisfies the enabling disclosure requirement of 35 U.S.C. § 112.

Any assertion by the Patent Office that the enabling disclosure is not commensurate in scope with the protection sought must be supported by evidence or reasoning substantiating the doubts so expressed. In re Bowen, Cust. & Pat.App., 492 F.2d 859, decided concurrently herewith; In re Gardner, 475 F.2d 1389, (CCPA 1973); In re Marzocchi, 439 F.2d 220, 58 CCPA 1069 (1971). Here the challenges enumerate possible interfering reactions but, as pointed out by appellants, there has been no challenge whatever to appellants’ repeated assertions that the starting materials containing the so-called “reactive groups” are deuterated. The hypothesized oxidation or even destruction of the original compounds per se, by splitting or other mechanism, cannot be considered an indication of the inoperability of the replacement reaction. The only valid assumption is that the form of the final deuterated product might differ from that of the starting material. Such a change is not inconsistent with claim language, which merely calls for “deuterating an organic compound * * * ” and creates no requirement that said compound remain otherwise unaffected during the course of the reaction. The “improvement” relates to the expanded effectiveness of the deuteration process, regardless of the possible birth or increase of side reactions due to the presence of the promoter. The enabling disclosure need only be of commensurate scope.

Although the board also hypothesized that the peroxide might oxidize the Adams catalyst necessary for the deuteration into inactivity, we agree with appellants that it is implicit in the claims that the conditions of the process have not been met unless the catalyst is present and active as a catalyst. Requiring a recitation in the claims of the specific deuterium peroxide proportions employed in the examples to insure that activity would be an unnecessary limitation. Disclosure in the specification sufficient to enable practice of the invention by one skilled in the art, taking into consideration obvious modifications of the reactant ratios of specific examples, is all that is required. It is not a function of the claims to specifically exclude either possible inoperative substances or ineffective reactant proportions. In re Anderson, 471 F.2d 1237 (CCPA 1973).

The decision of the board is reversed.

Reversed.

      . An apparent continuation of serial No. 522,030, filed January 21,1966.


author: RICH, Judge.

text:
    Application of David BOWEN, Jr.
    Patent Appeal No. 9135.
    United States Court of Customs and Patent Appeals.
    Feb. 28, 1974.
    Stanley M. Tarter, Pensacola, Fla., attorney of record, for appellant, Kelly O. Corley, Pensacola, Fla., of counsel.
    Joseph F. Nakamura, Washington, D. C., for the Commissioner of Patents; Jack E. Armore, Washington, D.C., of counsel.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER, Judges.
   RICH, Judge.

This appeal is from the decision of the Patent Office Board of Appeals, adhered to on reconsideration, affirming the rejection under 35 U.S.C. § 112 of claims 1 and 3-11 of application serial No. 766,192, filed October 9, 1968, entitled “Polymerization Pre-Filter.” The board stated under Rule 196(c) that, in the absence of a new ground of rejection, claim 2 would be allowed if rewritten in independent form with changes indicated by the board, and appellant has apparently filed an amendment complying with the board’s statement, thus placing claim 2 in condition for allowance. We reverse as to claims 1 and 3-11.

The Invention

The invention relates to the removal of agglomerates of delusterants and other finely-divided solid powders, referred to as “pigment,” from polymers by filtration at the optimum time. The pigment agglomerates, which tend to foul the spinning filter used to spin filaments from the polymer, are removed by filtering the polymerization mass before its viscosity has exceeded 400 poises, and preferably at considerably lower vis-cosities. As appellant explains, “Removal at this time can be achieved with simple equipment at relatively low pumping pressures and with a minimum power consumption, resulting in substantially increased service life for the subsequent final spinning filters.” The specification discloses the use of the invention in particular processes and apparatus where the polymer is nylon 66, but notes that “in its broader aspects it is applicable to other specific processes and to other polymers.”

Claim 1 is treated by both appellant and the solicitor as representative of all the appealed claims. It reads:

1. A polymerization process comprising:
(a) introducing melt-polymerizable material having a viscosity less than 400 poises and finely divided pigment into a polymerization vessel, said pigment tending to form agglomerates under melt polymerizing conditions;
(b) maintaining melt polymerizing conditions in said vessel; and
(c) while polymerization is proceeding and before the viscosity of said material exceeds 400 poises:
(1) pre-filtering at least a portion of said material through a pre-filter having a given rating for removal of agglomerates larger than said rating; and
(2) continuing melt polymerization of said filtered portion.

The claims may be read as though the term “melt” has been cancelled in every occurrence, since appellant has apparently filed an amendment deleting “melt” wherever it appears in the claims in response to the board’s criticism of the term as new matter with an indication that appellant should cancel the term.

The Rejection

The sole rejection affirmed by the board was “on the grounds that the term ‘polymerizable material’ is not disclosed in such full, clear concise and exact terms as to enable any person skilled in the art to which it pertains to make and use the same (35 U.S.C. § 112, paragraph one).” The Examiner’s Answer stated only the following as the reason for the failure of the specification to comply with the stated statutory requirement :

The recited “polymerizable material” is not disclosed in such full, clear, concise and exact terms as to enable any person skilled in the art to which it pertains to make and use same.
Applicant had disclosed one specie [sic] of polyamide, i. e., polyhexamethylene adipamide, which alone is insufficient to support such a broad genus. See In re Shokal et al., 1957 C.D. 234; General Electric Co. v. Wabash Co., 37 USPQ 468.

The board, amplifying the examiner’s reasoning, stated the following as the basis for the rejection:

The specific disclosure is drawn to polymerization in an aqueous suspension of certain nylon intermediates only. There is no suggestion that all other polymers can be employed. The nylon components are not representative of all “polymerizable materials,” whatever that is intended to include. Not only are all of the very many organic polymers included but also inorganic polymers, which are not even suggested in the specification.

And, on reconsideration, the board, apparently agreeing with appellant's observation “that there is nothing of record to indicate that one skilled in the art could not use appellant’s process in polymerizing any polymer,” stated that:

However, neither is there any evidence that polymerizable materials other than nylon intermediates will be operable in the claimed process. In our opinion, the situation here is readily distinguishable from the facts of the Burke, [25 CCPA 795, 93 F.2d 50, 36 USPQ 64 (1937),] Roberts, [113 USPQ 205 (Pat.Off.Bd.App., 1956),] Donahey, [126 USPQ 61 (Pat.Off.Bd. App., 1959),] and Marzocchi [, 58 CCPA 1069, 439 F.2d 220, 169 USPQ 367 (1971)] cases cited by the appellant. The properties of “polymeriza-■ble materials” can vary over a wide range, rendering it quite uncertain as to whether or not the claimed process is broadly applicable to all such materials. In the absence of such a teaching, we must agree with the examiner’s rejection in this instance.

The solicitor, zeroing in on specific portions of § 112, first paragraph, quoting from this court’s opinion in In re Marzocchi, 439 F.2d 220, 223, 58 CCPA 1069, 1073 (1971), states that the specification disclosure does not contain “a teaching of the manner and process of making and using the invention in terms which correspond in scope to those used in describing and defining the subject matter sought to be patented” and hence is not in compliance “with the enabling requirement of the first paragraph of § 112.” In addition, the solicitor seeks to state an additional basis under paragraph one in saying that, “consonant with the general position implicit below, there is a ‘failure of the specification to meet the description requirement of the first paragraph of 35 U.S.C. 112 as to the broad claims on appeal’; In re DiLeone, 58 CCPA 934, 935, 436 F.2d 1033, 1034, 168 USPQ 598 (1971).”

OPINION

§ 112. Paragraph One — Enablement

It is apparent from the language of the board that the rejection is based on the enablement portion of the first paragraph of § 112 which, as we have held, “requires that the scope of the claims must bear a reasonable correlation to the scope of enablement provided by the specification to persons of ordinary skill in the art.” In re Fisher, 427 F.2d 833, 839, 57 CCPA 1099, 1108 (1970). Whether, in a particular case, the requisite “reasonable correlation” between the scope of claims and the scope of enablement provided by the specification exists is often a difficult question. Compounded here with the resolution of that question, which requires a factual inquiry into the knowledge of persons of ordinary skill in the particular art, is the question whether, under the circumstances of this case, the applicant ought to bear the burden of coming forward with evidence to prove enablement — or whether the examiner should have the burden of coming forward with evidence to disprove it — when “there is nothing of record to indicate that one skilled in the art could not use appellant’s process in polymerizing any polymer,” and “neither is there any evidence that polymer-izable materials other than nylon intermediates will be operable in the claimed process.”

The board resolved the latter question against appellant, giving as its reasons the general assertion that the “properties of ‘polymerizable materials’ can vary over a wide range, rendering it quite uncertain as to whether or not the claimed process is broadly applicable to all such materials.” The board appears to have based its assertion on its own knowledge of polymer chemistry. Throughout the prosecution, appellant has advanced the theory that his “invention is a purely mechanical filtering process, and is not dependent on the chemical composition of the polymeriza-ble material * * * temperature, pressure, or on any process conditions other than the viscosity of the reaction mass.” Appellant further argued:

It appears that the Examiner is extending the chemical exception to the general rule on disclosure well beyond proper limits. The general rule on adequacy of disclosure is that disclosure of a single species is adequate support for a generic claim. An exception to the general rule has arisen in chemical cases because of the uncertainty of various chemical reactions. However, this exception is properly limited only to cases involving chemical compositions or reactions.

To the extent that there may be a difference in the resolution of the question whether enablement is accomplished when the Patent Office has not shown the ina bility of one skilled in the art to use the invention as broadly as it is claimed and appellant has not shown that materials other than those he discloses will operate in the claimed process, we do not think it hinges on whether the ease is denominated “chemical” or “mechanical.” Compare In re Cook, 439 F.2d 730, 58 CCPA 1049 (1971), with In re Marzocchi, 439 F.2d 220, 58 CCPA 1069 (1971), the latter being a so-called “chemical case” where enablement was found to exist, and the former being a so-called “mechanical” case where the court held enablement not accomplished. As we said in Cook, 439 F.2d at 734, 58 CCPA at 1054, we would prefer to see the dichotomy which lawyers find in the chemical and mechanical cases “denominated a dichotomy between predictable and unpredictable factors in any art.” However, we recognize that the realities of chemical cases often result in unpredictability. As we explained in In re Fisher, 427 F.2d at 839, 57 CCPA at 1108:

In cases involving predictable factors, such as mechanical or electrical elements, a single embodiment provides broad enablement in the sense that, once imagined, other embodiments can be made without difficulty and their performance characteristics predicted by resort to known scientific laws. In cases involving unpredictable factors, such as most chemical reactions and physiological activity, the scope of en-ablement obviously varies inversely with the degree of unpredictability of the factors involved.

It is clear from the decision of the board that the unpredictability which it noted was in the admittedly chemical fact that the “properties of ‘polymeriza-ble materials’ can vary over a wide range,” but no reasons were given to appellant by the Patent Office for the alleged failure — or at least uncertainty— of the class of “polymerizable materials” to work in the claimed process to controvert the statement in appellant’s application that his invention, in its broader aspects, is applicable to other polymers. See In re Nguyen Dinh-Nguyen, Oust. & Pat.App., 492 F.2d 856, decided concurrently herewith. It is clear that even in cases involving the unpredictable world of chemistry such reasons are required. As we stated in In re Marzocchi, 439 F.2d at 223-224, 58 CCPA at 1073:

As a matter of Patent Office practice, then, a specification disclosure which contains a teaching of the manner and process of making and using the invention in terms which correspond in scope to those used in describing and defining the subject matter sought to be patented must be taken as in compliance with the enabling requirement of the first paragraph of § 112 unless there is reason to doubt the objective truth of the statements contained therein which must be relied on for enabling support. Assuming that sufficient reason for such doubt does exist, a rejection for failure to teach how to make and/or use will be proper on that basis; such a rejection can be overcome by suitable proofs indicating that the teaching contained in the specification is truly enabling.
In the field of chemistry generally, there may be times when the well-known unpredictability of chemical reactions will alone be enough to create a reasonable doubt as to the accuracy of a particular broad statement put forward as enabling support for a claim. This will especially be the case where the statement is, on its face, contrary to generally accepted scientific principles. Most often, additional factors, such as the teachings in pertinent references, will be available to substantiate any doubts that the asserted scope of objective enablement is in fact commensurate with the scope of protection sought and to support any demands based thereon for proof. In any event, it is incumbent upon the Patent Office, whenever a rejection on this basis is made, to explain why it doubts the truth or accuracy of any statement in a supporting disclosure and to back up assertions of its own with acceptable evidence or reasoning which is inconsistent with the contested statement. Otherwise, there would be no need for the applicant to go to the trouble and expense of supporting his presumptively accurate disclosure. Here the only reason given appellant

why his specification does not enable one skilled in the art to use his invention as broadly as it is claimed is the statement of the board that “polymeriza-ble materials” include “Not only * * * all of the very many organic polymers * * * but also inorganic polymers.” But even this statement only identifies a subgenus of “polymer-izable materials” without giving a reason for the implication inherent therein that inorganic polymers would not work in appellant’s process. Appellant correctly notes:

The Board of Appeals mentions “inorganic polymers”, presumably intending to refer to something like the various polymers of silicon. Appellant knows of no reason why the filtration step could not be applied to such materials, nor has the Board of Appeals suggested any recognized scientific principle which would be violated in such a case.

The solicitor, possibly recognizing this deficiency, gives the first real explanation of why he doubts the truth of appellant’s assertion that his invention is practicable with all polymerizable materials. He says:

For example, it can be readily recognized that some polymerizable materials, or some polymerizable materials under certain polymerizing conditions, will polymerize so quickly to a higher molecular weight polymer with a viscosity above 400 poises (also containing some agglomerated pigment) that there is no opportunity to pre-filter before the viscosity exceeds 400 poises.

And, in a thirty-three line footnote at the end of the above quotation the solicitor lists several such fast “polymerizable materials” with appropriate textbook authorities.

We think, however, as we stated in a similar context in In re Barr, 444 F.2d 588, 596, 58 CCPA 1388, 1401 (1971), that “the filing of the solicitor’s brief is far too late a point in prosecution to inform an applicant of what additional working examples are thought to be needed to support his claims” or, stated another way, what materials covered by the claims allegedly would not work in the invention as claimed.

Here, however, we fail to see how even the rapid polymerizable materials identified by the solicitor (1) are covered by appellant’s claims which require the pre-filtering “while polymerization is proceeding and before the viscosity of said material exceeds 400 poises,” or (2) if they are within the claim, why one skilled in the art would not immediately appreciate that they are not suitable for use in the process. See In re Skrivan, 427 F.2d 801, 57 CCPA 1201 (1970); In re Cook, supra, and In re Anderson, 471 F.2d 1237 (CCPA 1973).

Accordingly, there appears to be no basis for the non-enablement rejection on the theory that claims read on undisclosed polymers. While the claims literally comprehend numerous polymers in addition to the one specifically described in appellant’s specification, nylon 66, no persuasive reason has been given by the Patent Office why the specification does not realistically enable one skilled in the art to practice the invention as broadly as it is claimed.

Finally, the solicitor takes the position that there is another basis for lack of enablement here since appellant’s disclosure is limited to “polymerizable materials” capable of producing fiber-forming polymers while the claims are not so limited. The solicitor finds this limitation implicit in the specification where appellant explains the function of his filtering process in removing the agglomerates which “foul the spinning filter normally provided just before the spinneret,” the last word representing the device from which the polymer fibers are drawn. The solicitor asserts that the board and the examiner “clearly indicated that appellant’s effective disclosure in the specification appears to be limited to certain nylon polyamides (which cannot reasonably be considered to be representative of all polymerizable materials) — that are in fact fiber-forming polymers,” citing portions of the Examiner’s Answer and the board’s opinion wherein other rejections, reversed by the board, were discussed. Perhaps appellant’s specific illustrative disclosure of an embodiment of his invention is limited to polymerizable materials “that are in fact fiber-forming polymers.” However, that is no basis for a lack of en-ablement rejection. While appellant’s pre-filtering invention undoubtedly is for the stated purpose of removing pigment agglomerates from fiber-forming polymers, appellant’s statement of utility does not thereby mean that he is unable to claim his filtering process more broadly. The first paragraph of § 112 requires only that the specification enable any person skilled in the art to which the invention pertains to make and use the invention. There has been no contention by the Patent Office that any person skilled in the art, if he wanted to filter a polymer which was not fiber-forming, would have any trouble doing so. The only other possible basis in the first paragraph of § 112 is the description requirement, relied upon by the solicitor, and dealt with next.

The Description Requirement

The solicitor’s reliance on what this court has referred to as the “description requirement” of the first paragraph of § 112 is misplaced. The so-called “description requirement,” which exists in the first paragraph independent of the enablement (how to make and how to use) portions, serves essentially two functions. In the simple case, where no prior application is relied upon, the description requirement is that the invention claimed be described in the specification as filed. In re DiLeone, 436 F.2d 1404, 58 CCPA 925 (1971); In re DiLeone, 436 F.2d 1033, 58 CCPA 934 (1971); In re Smythe, 480 F.2d 1376, 1385 (CCPA 1973). As such, a rejection on the description requirement is tantamount to a new matter rejection under 35 U.S.C. § 132. In re Smythe, supra. Both are fully defeated by a specification which describes the invention in the same terms as the claims. Here there has been no assertion by the board or the examiner that there is any lack of correspondence between the appealed claims and the specification (including the original claims) as filed. Indeed the scope of the language of the specification clearly corresponds to the language of the claims, the “polymerizable material” of the claims being referred to variously by the specification as a “polymer” and a ‘‘polymerizable mass * * * added * * * as an aqueous solution of monomeric material, such as hexamethylene-diamine adipate.” (Emphasis supplied.) Thus there is no basis for the solicitor’s reliance upon the description requirement as support for the rejection here.

Summary

The rejection of claims 1 and 3-11 under § 112, paragraph one, is reversed.

Reversed. •

       In another situation where the “description requirement” is relied upon, namely, where the benefit of a prior application is being claimed under 35 U.S.C. § 120, the description requirement comes into play as mandating a description of the invention, which is claimed in the later-filed case, in the specification of the application relied upon for support under the statute. See In re Lukach, 442 F.2d 967, 58 CCPA 1233 (1971).


author: ALFRED T. GOODWIN, Circuit Judge:

text:
    HAWAIIAN EXPRESS SERVICE, INC., a corporation, Appellant, v. PACIFIC HAWAIIAN TERMINALS, INC., a corporation, et al., Appellees.
    No. 72-1696.
    United States Court of Appeals, Ninth Circuit.
    Feb. 20, 1974.
    Daniel W. Baker (argued), of Handler, Baker & Greene, San Francisco, Cal., for appellant.
    Carl H. Fritze (argued), of Russell & Schureman, Los Angeles, Cal., for appellees.
    Before TRASK, GOODWIN, and SNEED, Circuit Judges.
   ALFRED T. GOODWIN, Circuit Judge:

Hawaiian Express Service, Inc., a freight forwarder authorized by the Interstate Commerce Commission to operate in the San Francisco-Hawaii trade, sued under 49 U.S.C. § 1017(b)(2) to enjoin Pacific Hawaiian Terminals, Inc., from offering transportation services which Hawaiian Express contends amount to “freight forwarding” under the Interstate Commerce Act § 402(a)(5), 49 U.S.C. § 1002(a)(5). The district court denied relief, and Hawaiian Express appeals.

With the exception of the degree of Pacific’s utilization of motor common carriers, most of the material facts are covered by stipulation. The crucial question is one of law. We have concluded that the relevant legislative history requires an interpretation of the statutes which brings the activities complained of within the regulatory scope of the I.C.C., and accordingly reverse.

Pacific operates pursuant to a tariff on file with the Federal Maritime Commission. As a “non-vessel-operating” common carrier by water, Pacific contends that its services are not subject to I.C.C. regulation. Because some of Pacific’s activities are competitive with those of Hawaiian Express, and because a resolution of the dispute involves the drawing of lines within the grey area between transportation activities which clearly are subject to I.C.C. regulation and those which clearly are not, we believe it will be helpful to set out the facts in some detail.

Shippers wishing to employ Pacific’s services from the San Francisco Bay Area to Hawaii either bring their freight to Pacific’s San Francisco terminal or call Pacific and request that the freight be picked up. In the latter case, the shipper is advised that freight can be brought to Pacific’s terminal by a carrier of the shipper’s choice, or it can be brought to the terminal by a motor carrier arranged for by Pacific. When Pacific arranges the pickups, it calls one of several motor common carriers, which operate under certificates issued under Part II of the Interstate Commerce Act.

After shipments are received at Pacific’s San Francisco terminal, they are sorted and loaded into container boxes (trailers) furnished by Matson Navigation Company (Matson) or Seatrain Lines California (Seatrain). Pacific then prepares a cargo manifest showing the 30 to 50 individual shipments loaded into each container. Pacific also prepares ocean bills of lading naming Pacific as both consignor and consignee, and listing Pacific’s San Francisco terminal as origin and the Hawaiian address of a Hawaiian motor carrier as destination.

When the containers are loaded and ready to be shipped to Hawaii, Pacific calls either Matson or Seatrain and requests that it pick up the containers and deliver them to the appropriate pier. If the containers are to be transported to the Matson pier, the pickup and delivery service is provided by Encinal Terminals, operating under a Part II motor common carrier certificate filed with the I.C.C. If the containers are to be transported to the Seatrain pier, Walkup’s Merchant Express, also a Part II motor carrier, provides the transportation. Rates charged for the latter service are published as part of Seatrain’s joint freight tariff filed with the I.C.C. Mat-son and Seatrain pay Encinal Terminals and Walkup’s Merchant Express for local ground transportation. Charges assessed Pacific for the delivery and pickup of containers and shipment to Hawaii are set forth in Matson Navigation Company Westbound Container Freight Tariff No. 14-A, FMC No. 137, filed with the Maritime Commission, and Sea-train Lines California Joint and Proportional Freight Tariff No. 500, I.C.C. No. 1, filed with the I.C.C.

At the Matson or Seatrain piers in Hawaii, containers are unloaded by the water carrier and picked up by Pacific’s Honolulu agents, who transport them to their terminal, break bulk, and unload the containers. These agents are motor carriers which have certificates of exemption from I.C.C. regulation, Ex Parte MC-59, Motor Carrier Operations in the State of Hawaii, 84 M.C.C. 5 (1960), and whose rates are filed with the Public Utilities Commission of Hawaii.

Pacific advertises its services as “Freight Forwarding,” and bills of consignors either from the point of origin or from Pacific’s San Francisco terminal to Hawaii.

It was also stipulated that Pacific provided identical service to that which was rendered by Hawaiian Express and other authorized freight forwarders, at least to the extent of consolidating shipments, turning the containers over to Matson or Seatrain, and breaking bulk in Hawaii.

I.C.C. jurisdiction to regulate freight forwarders is undisputed. See Interstate Commerce Act, Part IV, 49 U.S.C. §§ 1001-1022. It is equally undisputed that the Federal Maritime Commission has jurisdiction to regulate non-vessel-operating common carriers by water (NVO’s). See Shipping Act of 1916, 46 U.S.C. §§ 801-842; Intercoastal Shipping Act of 1933, 46 U.S.C. §§ 843-848. Hawaiian Express argues that Pacific’s activities, while admittedly those of an NVO, also bring Pacific within the definition of a freight forwarder, and, hence, in light of the conflict-of-jurisdiction provision of Section 33 of the Shipping Act of 1916, 46 U.S.C. § 832, Pacific’s business falls within the I.C.C.’s jurisdiction. The purpose of Section 33 is to obviate a conflict of jurisdiction if any substantive provision of the Shipping Act of 1916 should overlap a corresponding provision of the Interstate Commerce Act. H.R.Rep. No. 569, 64th Cong., 1st Sess. (1916).

As a result of a belief that integrated regulation of freight forwarders was in the public interest, Congress in 1942 passed, and in 1950 amended, Part IV of the Interstate Commerce Act regulating freight forwarders. Section 402(a)(5), 49 U.S.C. § 1002(a)(5) defines the term “freight forwarder” as any person, other than certain carriers, who:

“* * * [H]olds itself out to the general public as a common carrier * * * in interstate commerce, and which, in the ordinary course of its undertaking, (A) assembles and consolidates or provides for assembling and consolidating shipments of such property, and performs or provides for the performance of break-bulk and distributing operations with respect to such consolidated shipments, and (B) assumes responsibility for the transportation of such property from point of receipt to point of destination, and (C) utilizes, for the whole or any part of the transportation of such shipments, the services of a carrier or carriers subject to chapters 1, 8, or 12 of this title [hereinafter referred to as ‘Part II carriers’].”

49 U.S.C. § 1010(a)(1) provides that it shall be illegal for any person to engage in the business of freight forwarding without first obtaining a permit from the I.C.C.

On the stipulated facts, Pacific’s activities fall within subdivisions (A) and (B) of the definition of a freight forwarder. The crucial question is whether Pacific’s activities also fall within subdivision (C), i. e., whether Pacific sufficiently “utilizes” the services of a Part II motor carrier. The district court, relying primarily upon IML SeaTransit v. United States, 343 F.Supp. 32 (N.D.Cal.) aff’d, 409 U.S. 1002, 93 S.Ct. 433, 34 L.Ed.2d 295 (1972), concluded that Pacific had not “utilized” a motor carrier within the meaning of Section 402(a) (5).

Contacts between Pacific and motor carriers occur at three stages of the shipment process: first, carriage from the point of origin to Pacific’s terminal; second, carriage from the terminal to the piers of the vessel-operating water carrier; and third, carriage from the piers and terminals in Hawaii to the ultimate destination.

The third contact can be dismissed quickly by noting that local Hawaiian motor carriers are exempt from the Interstate Commerce Act. Ex Parte MC-59, Motor Carrier Operations in the State of Hawaii, supra. Consequently, such carriers are not subject to Part II of the Act, and utilization of such a carrier could not of itself bring Pacific within subdivision (C) of the freight-forwarder definition.

At the second stage of contact with motor carriers, there is a difference between Pacific’s arrangements with Mat-son and its arrangements with Seatrain. When Matson is the ocean carrier, Pacific’s contact must be described as a mere incident to the performance of services pursuant to Matson’s all-water tariff filed with the Maritime Commission, and, under the IML Sea Transit case, does not amount to a sufficiently “substantial” commercial connection between Pacific and the Matson-designated motor carrier to support a finding of “utilization” by Pacific. IML Sea Transit v. United States, 343 F.Supp. at 42. However, when Seatrain is the ocean carrier, the charges are assessed pursuant to a joint tariff filed with the 1. C.C. The court in IML Sea Transit refrained from deciding whether Sea-Transit would have “utilized” a Part II motor carrier had Matson and the motor carrier Matson employed entered into through-route and joint-rate agreements pursuant to an appropriate I.C.C. tariff. We need not grapple with that question, for in this case there is another basis for holding that Pacific “utilizes” a Part II motor carrier.

The parties stipulated that at least part of the time Pacific arranges for the transportation of freight by motor carrier from a point of origin to the Pacific terminal. In such a situation, Pacific, not Matson or Seatrain, called a motor carrier, arranged for the pickup, and, in some cases, invoiced the through charges from the initial origin to the Hawaiian destination. This activity amounts to a sufficiently substantial commercial connection with a motor carrier to be included within the reach of Section 402(a) (5). It was precisely this relationship between long-distance transportation by water or rail and local motor-carrier collection or distribution with which Congress was concerned when it amended Sections 402 and 409 of the Interstate Commerce Act in 1950. 1950 U.S.Code Cong.Serv., pp. 4216-4220. The purpose of the amendments was to authorize the I.C.C. to prescribe terms and conditions allowing local Part II motor carriers to charge freight forwarders less for consolidation and distribution pickup service than the motor carriers charged the shipping public generally for such local shipments, and thus enable freight forwarders to secure the profit margin necessary to support their assembly and break-bulk services. Congress explicitly recognized that, as a result of using motor carriers to gather and distribute shipments in wide areas around their consolidation and distribution stations, freight forwarders were able to expand their services beyond terminal-to-terminal movements between large cities to provide a coordinated nation-wide service. It is only by calling on motor common carriers to pick up the freight from the shipper and deliver it to Pacific’s terminal for consolidation and assembly that Pacific is able to provide its advertised through, door-to-door service.

In light of the statutory purpose, we conclude that Pacific utilizes a motor carrier within the meaning of 49 U.S.C. § 1002(a)(5), and that it is therefore a freight forwarder subject to I.C.C. regulation. Inasmuch as Pacific does not have an I.C.C. permit authorizing it to engage in freight forwarding between the San Francisco Bay Area and Hawaii, the requested injunction should have been granted. 49 U.S.C. § 1017(b)(2).

Reversed and remanded, with instructions to enter an appropriate order.

      . “This chapter shall not be construed to affect the power or jurisdiction of the Interstate Commerce Commission, nor to confer upon the Federal Maritime Board concurrent power or jurisdiction over any matter within the power or jurisdiction of such Interstate Commerce Commission * *

      . The Supreme Court’s holding in Acme Fast Freight, Inc. v. United States, 309 U.S. 638, 60 S.Ct. 810, 84 L.Ed. 993, aff’g 30 F.Supp. 968 (S.D.N.Y.1940), that the Motor Carrier Act did not authorize joint rates between freight forwarders and motor carriers, thus requiring motor carriers to charge freight forwarders the same rates charged the shipping public generally, made it imperative that Congress act to provide for the continuance of the freight forwarder’s coordinated service to the public. 1950 U.S.Code Cong. Serv., pp. 4218-4219.


author: PER CURIAM.

text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. SHAWNEE PLASTICS, INC., Respondent.
    No. 73-1187.
    United States Court of Appeals Sixth Circuit.
    Argued Oct. 8, 1973.
    Decided Jan. 22, 1974.
    Peter G. Nash, Gen. Counsel, John S. Irving, Deputy Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, Elliott Moore, Asst. Gen. Counsel, Joseph E. Mayer, Charles P. Donnelly, Attys., National Labor Relations Board, Washington, D. C., on brief, for petitioner.
    Arthur R. Donovan, Harry P. Dees, Joseph A. Yocum, Evansville, Ind., on brief, for respondent; Kahn, Dees, Donovan & Kahn, Evansville, Ind., of counsel.
    Before PHILLIPS, Chief Judge, CECIL, Senior Circuit Judge, and ALLEN, District Judge.

       The Honorable Charles M. Allen, United States District Judge for the Western District of Kentucky, sitting by designation.

   PER CURIAM.

This case is before the Court on petition of the National Labor Relations Board for enforcement of its order against respondent, Shawnee Plastics, Inc., dated November 10, 1972, 200 N.L. R.B. No. 37. The Board submitted the ease to a three member panel of the Board which found that the respondent was guilty of unfair labor practices in violation of Sections 8(a)(5) and 8(a) (1) of the National Labor Relations Act by refusing to bargain with the Union certified for collective bargaining. The Board then ordered the respondent, upon request to bargain with the Union.

The respondent admitted that it refused to bargain with the Union but claimed that the election was illegal by reason of the conduct of the Union members and that it should have been set aside by the Board.

The history of this case is as follows: On November 23, 1970, a petition under ease No. 9-RC-8823 was filed with the Board by International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (U.A. W.) for certification as bargaining representative of the qualified workers of the respondent; a stipulation for certification upon consent election was agreed upon by the parties; an election was held and a tally of the votes showed 122 for U.A.W. and 67 opposed to either U.A.W. or the intervenor International Association of Machinists and Aerospace Workers, AFL-CIO (I.A.M.); on January 18, 1971, respondent employer filed objections with the Board claiming that the conduct of the election and the Unions through their members was such as to prevent a fair election. The employer urged the Board to set aside the election and to order a new election which would be free of the alleged misconduct.

The Board referred the Objections to a Regional Director of the Board for investigation and report. The Director investigated each claimed objection and reported back to the Board with a recommendation that the Employer’s Objections be overruled in their entirety and an appropriate Certification of Representative be issued. The Employer filed timely exceptions to the Report on October 13, 1971. Thereafter, on December 16, 1971, a three member panel of the Board upon consideration of the Objections, the Report and the Exceptions, thereto, overruled the Objections in their entirety and certified the U.A.W. as the exclusive representative of the employees in the appropriate unit for collective bargaining. The Employer’s Exception to the Board’s certification and request for reconsideration was denied by the Board on January 1, 1972.

Up to this point the Employer was afforded no opportunity for an evidentiary hearing on its Objections.

The Employer refused to comply with the Board’s certification and order of December 16, 1971, for collective bargaining and the proceeding now before us was begun by the filing of a charge against the employer under case No. 9-6a-6859, on March 3, 1972. Formal pleadings, a Complaint and Answer, were filed by the parties and then Counsel for the General Counsel moved for Summary Judgment.

To the motion for Summary Judgment all of the documents in the representative proceeding (No. 9-RC-8823), herein-above enumerated, were attached including the Employer’s Objections, the Director’s Report and the Decision and Certification of the Board. The Employer filed a response to the motion for summary judgment and again challenged the validity of the certification in the companion representation case. It sought dismissal of the Complaint or in the alternative a full hearing before a trial examiner of the issues of fact raised in its response.

Without granting a hearing on the facts raised by the Objections and Response of the Employer the Board proceeded to consider and decide the motion for summary judgment on the record made in the representative case. It granted the motion, made Findings of Fact and Conclusions of Law and found that the Employer, respondent was guilty of unfair labor practices as heretofore indicated. The Board made the usual order to cease and desist from refusing to bargain with the Union, or from in any like or related manner interfering with, restraining or coercing employees in the exercise of the rights guaranteed in Section 7 of the Act, post appropriate notices and upon request to bargain with the Union. This is the Decision and Order of November 10, 1972, to which ref-erenee is made in the first paragraph hereof.

In controversies between an Employer and a Union the paramount purpose of the Act is to secure to the employees freedom of choice in their representatives. N. L. R. B. v. Gilmore Industries, Inc., 341 F.2d 240, 241.

The Board is vested with a great deal of discretion in determining whether an election should be set aside. Rockwell Mfg. Co., Kearney Div. v. N. L. R. B., 330 F.2d 795, 796-797 (C.A. 7), cert. den., 379 U.S. 890, 85 S.Ct. 161, 13 L.Ed.2d 94; N. L. R. B. v. Tennessee Packers, Inc., Frosty Morn Div., 379 F.2d 172, 180 (C.A. 6). The question now before us is whether the action of the Board in issuing a bargaining order without granting a hearing to the respondent on its objections, either in the representative case or in the unfair labor ease now under consideration, was arbitrary and capricious. Under the Board’s rules, if objections raise substantial and material issues of fact an evidentiary hearing should be granted. Rockwell Mfg. Co., Kearney Div. v. N. L. R. B., supra.

We have studied the charges of the respondent made in its statement of Objections and in its response to the motion for Summary Judgment. We find that the statements are ambiguous based on hearsay and self serving declarations. They do not, in our judgment, allege facts which if proven would be cause for setting aside the election. Consequently we conclude that the Board did not abuse its discretion and that its order should be enforced.

Note: We have read the opinion of the Supreme Court in N.L.R.B. v. Savair Manufacturing Company, 414 U.S. 270, 94 S.Ct. 495, 38 L.Ed.2d 495. The facts of the Savair case are not analogous to the facts of the instant case. The Sa-vair case is clearly distinguishable on its facts from the case at bar. Its pronouncement therefore is not applicable to the within Shawnee Plastics case.


author: SPRECHER, Circuit Judge. PELL, Circuit Judge

text:
    In the Matter of James J. WHITE, Debtor, v. BOARD OF TRADE OF the CITY OF CHICAGO, Appellant.
    No. 73-1614.
    United States Court of Appeals, Seventh Circuit.
    Argued Jan. 23, 1974.
    Decided March 1, 1974.

      John L. Bordes, Philip F. Johnson, John H. Stassen, Chicago, Ill., for appellant.
    Norman H. Nachman, Gerald F. Munitz, Roy D. Grunnet, Chicago, Ill., for debtor.
    Before SWYGERT, Chief Judge, and PELL and SPRECHER, Circuit Judges.

      . See also, Middleton v. Fidelity-Philadelphia Trust Co., 35 F.2d 851 (3rd Cir. 1929) and Middleton v. Dussoulas, 35 F.2d 857 (3rd Cir. 1929).

   SPRECHER, Circuit Judge.

This appeal seeks to determine the right of the debtor’s receiver to the proceeds derived from the sale of the debt- or’s membership in the Board of Trade of the City of Chicago.

I

James J. White, the debtor in possession, was a member of the Chicago Board of Trade from June 20, 1969 to March 24, 1970. White voluntarily sold and transferred his membership to a qualified purchaser on March 24, 1970 for $38,000, which amount the transferee deposited with the Secretary of the Board of Trade in accordance with the exchange’s Rule 110, which provides in pertinent part:

Transfer of Membership. Membership in this Association is a personal privilege, not subject to transfer except as herein authorized. When a member wishes to transfer his membership, he shall sign an offer to transfer, in such form as shall be prescribed by the Board. If a purchaser, elected to membership, accepts the offer, the transfer shall be consummated upon the deposit of the purchase price with the Secretary by the purchaser and the payment by the purchaser to the Association of a transfer fee.
* •» * * * *
After the membership has been thus transferred, the Secretary shall immediately post the name of the seller upon the bulletin board and shall, within fifteen days, notify the Membership of the transfer. The Secretary shall hold the proceeds of the membership for a minimum period of ten business days after such notification to the Membership, during which period claims may be filed in accordance with Rule 113.

Two members filed timely claims against the proceeds of the sale. On April 3, 1970, Orvis Brothers & Co. filed a claim in the amount of $171,801 arising from the sale to White of shares of stock of the Telex Corporation. On April 7, 1970, Ford Ferguson filed a claim for $100,000 arising from a loan to White for the purchase of shares of stock of Consumer Plus Technical Industries, Incorporated. Neither of the transactions underlying the claims were effected through the Board of Trade.

On April 2, 1970, an involuntary petition in bankruptcy was filed against White. On May 27, 1970, White filed a petition for an arrangement under Chapter XI of the Bankruptcy Act. 11 U.S.C. § 721. In the course of the arrangement proceeding, White filed an application for a turnover order against the Board of Trade praying that the proceeds of the sale of the membership be adjudged an asset of the estate.

Under the exchange’s Rule 112, proceeds of the sale of a membership are to be applied to the transferor’s indebtedness as follows:

“Proceeds of Membership. Upon any transfer of membership, whether made by a member voluntarily or by the Board, the proceeds thereof shall be applied to the following purposes and in the following order of priority, viz:
“First. The payment of all dues, fines, contributions, and charges payable to the Association by the member whose membership is transferred, and all indebtedness of such member thereto and to the Gratuity Fund;
“Second. Payment of all dues, fines, assessments and charges payable by such member to the Clearing House and all indebtedness of such member thereto;
“Third. The payment to creditors, who are members of the Association or who are registered corporations or partnerships under Rule 226, of all filed claims arising from Members’ Contracts if and to the extent that the same shall be determined by the Board to have arisen out of contracts had between the parties thereto in the ordinary course of business, and shall have been allowed by the Board.
“Fourth. If the proceeds of a transfer of membership are insufficient to pay all filed claims arising out of contracts allowed by the Board, such claims shall be paid pro rata, except as provided in Rules 113 and 114 of this Chapter;
“Fifth. The surplus, if any, of said proceeds shall be paid to the person whose membership is transferred or to his legal representatives upon the execution by him or them of a-release or releases satisfactory to the Board.”

The Board of Trade took the position that the two claims filed in this case against the proceeds of the sale of White’s membership fell within the third category and arose from “Members’ Contracts” which are further defined in Exchange Rule 16 as:

“All contracts of members of the Association or of firms or corporations registered under the Rules and Regulations, with other members of the Association, or firms or corporations registered under the Rules and Regulations, for the purchase or sale of commodities, or for the purchase, sale, borrowing, loaning or hypothecation of securities, or for the borrowing, loaning op payment of money, whether occurring upon the floor of the Exchange or elsewhere. . . . ”

On July 11, 1972, the Referee in Bankruptcy sustained the turnover application on the basis that the “rules of the Board of Trade cannot govern transactions which did not occur on the Board of Trade.”

The Board of Trade filed a petition for review of the Referee’s order in the district court on July 20, 1972. The district court by order and memorandum opinion of April 30, 1973 affirmed the Referee’s order, holding that:

“[A]n exchange may not confer a preference in the proceeds from the sale of a bankrupt’s membership to members-creditors if the claims of the member-creditors did not arise as a result of transactions on the exchange.
* * * * * *
“. . . To the extent that the claims of the member relate to transactions on the exchange, then Hyde v. Woods allows such a preference in the proceeds realized from the sale of the membership. To the extent that they involve indebtedness owed by one member to another who becomes bankrupt, the Middleton decisions of the Third Circuit hold that other members may not, by virtue of exchange rules, be given a preference in them.”

II

The district court, the Referee and the parties agree that the proceeds of the sale of a board membership are subject to the claims of members arising as a result of transactions which occurred on the exchange. Board of Trade of City of Chicago v. Johnson, 264 U.S. 1, 15, 44 S.Ct. 232, 68 L.Ed. 533 (1924). The opinion of this court in the Johnson case makes it clear that the transactions involved there occurred on the exchange. Board of Trade of City of Chicago v. Johnson, 283 F. 374, 377 (7th Cir. 1922).

The Supreme Court held in Johnson that transactions on the exchange, at least, are liens “inherent in the property [seat on the exchange or the proceeds of its sale] in its creation” and “these must be satisfied before the trustee can realize anything on the transfer of the seat for the general estate.” 264 U.S. at 15, 44 S.Ct. at 236. The Johnson case also establishes that the balance of the proceeds, after the payment of proper liens, is property of the bankrupt estate.

The controversy here is whether the rules of the Chicago Board of Trade can or do create proper liens against the proceeds even though arising from transactions with fellow-members which did not occur on the exchange.

In addition to Johnson, the Supreme Court adjudicated the respective claims of a bankrupt estate (asserted through a trustee or assignee in bankruptcy) and of member-claimants to the proceeds of an exchange seat in Hyde v. Woods, 94 U.S. 523, 24 L.Ed. 264 (1876). The Court did not discuss nor distinguish transactions on or off the exchange and it is not clear what type of transaction was involved.

However, Hyde and Johnson both make it clear that the liens are the creation of the exchange rules in effect at the time the seat was purchased. In Hyde, the Court said that “[t]here is no reason why the stock board should not make membership subject to the rule in question . . . . ”

In Johnson, the Court interpreted the exchange rule to draw its intent. 264 U.S. at 14-15, 44 S.Ct. 232. Upon doing so here, we find it unnecessary to reach the issue of whether the preference provisions or policies of the Bankruptcy Act prohibit an exchange rule which purports to affect transactions not arising on the exchange. We conclude that the Chicago Board of Trade rules at issue here were not intended to reach such transactions.

Ill

Rule 112 applies by its terms only to claims arising out of contracts “in the ordinary course of business” and which “shall have been allowed by the Board.”

Seldom are the words “in the ordinary course of business” intended to mean in the ordinary course of any business. They usually take on the coloration of their context.

For example, the National Bank Act contains a provision to prevent national banks from creating preferences in contemplation of their failure. 12 U.S.C. § 91. Transactions taking place in the ordinary course of business are not voidable under the statute. Mechanics Universal Joint Co. v. Culhane, 299 U.S. 51, 56, 57 S.Ct. 81, 81 L.Ed. 33 (1936). The phrase is construed very narrowly however. “The term ‘ordinary course of business’ in its application to banking means receiving deposits, paying withdrawals, making loans, and discounting commercial paper.” Aycock v. Bradbury, 77 F.2d 14, 17 (10th Cir. 1935). A bank properly engages in a host of business transactions other than in the strict banking business, to which the preference — avoidance statute is fully applicable.

Another example is § 9-307 of the Uniform Commercial Code which provides that a buyer in the ordinary course of business takes free of a security interest created by his seller even though the security interest is perfected and the buyer knows of its existence. Under the Code the buyer, in order to avail himself of that protection, must buy in ordinary course from a person in the business of selling goods “of that kind.” UCC, § 1-201(9). The comment to the last section states that a pawnbroker cannot be a buyer in the ordinary course of business because he does not buy from a person engaged in selling goods of that kind.

The intent of the Board of Trade in providing for the distribution of the proceeds realized upon the sale or transfer of a membership must be derived from the language used in Rule 112, as further defined in Rule 16.

Rule 112 provides first for the payment of dues, fines, contributions, charges and indebtedness payable to the association. It provides second for the payment of dues, fines, contributions, charges and indebtedness payable to the Clearing House. It provides third for

“The payment to creditors, who are members of the Association . of all filed claims arising from Members’ Contracts if and to the extent that the same shall be determined by the Board to have arisen out of contracts had between the parties thereto in the ordinary course of business, and shall have been allowed by the Board; . . .”

The Board of Trade has acknowledged in its brief on appeal that the rule does not comprehend “a tort claim, gambling debt or personal advance,” but it contended that the two claims at issue were incurred in the ordinary course of business. The question is in the ordinary course of what business? The business of White or the business of Orvis Brothers & Co. or the business of Ferguson or any business?

In Seattle Curb Exchange v. Knight, 59 F.2d 39 (9th Cir. 1932), the court adjudicated a dispute over the proceeds of the sale of a seat of a bankrupt on the Seattle Curb Exchange between the trustee in bankruptcy and a fellow-member of the exchange whose claim arose out of an employment contract. The rule there analogous to Rule 112 (Third) here read

"The payment of creditors who are members of the Exchange of all filed claims arising from contracts subject to the rules of the Exchange, if, and to the extent that, the same shall be allowed by the Committee on Membership.”

However a rule there substantially similar to Rule 16 here defined contracts “subject to the rules of the Exchange” as those with members “for the purchase, sale, borrowing, loaning or hy-pothecation of securities, or for the borrowing, loaning or payment of money, whether occurring upon the floor of the Exchange or elsewhere.” It was contended that the “payment of money” covered the employment contract claim but the court said at 42:

"We do not think that the by-law was intended to cover the contracts of employment by broker, or member, although the employee is also a member. The rights of the Exchange to establish rules of priority of payment for obligations arising in connection with the business it conducts must be limited by the scope and purpose of the organization as well as by the language used in its by-laws. Its power to make rules governing the obligations and rights of its members in contravention of the general law on the subject must be strictly limited to the field legitimately covered by the scope of its business.”

In the present case, the allowable claims must arise from “Members’ Contracts ... in the ordinary course of business.” The “business” intended is the members’ joint business conducted on the board of trade. The kinds of business itemized in Rule 16 could be carried on in connection with Members’ Contracts arising out of transactions occurring on the board of trade and obviously those kinds of business could occur upon the floor of the exchange or elsewhere. In order to consummate an exchange transaction, any of the Rule 16 functions could be employed.

This interpretation is fortified by the second crucial phrase of Rule 112 (Third), that is, claims arising from “Members’ Contracts . . . [which] shall have been allowed by the Board.” The board could not have intended to become engaged in the general arbitration or claim-determination business whereas it has a strong right and a superior expertise to determine and allow or disallow claims arising out of transactions occurring on its own exchange.

We conclude that the two claims against the proceeds of White’s membership involved in this appeal, which con-cededly “did not result from Board of Trade transactions” (Board’s Reply Brief, 2), do not fall within the application of Rule 112 inasmuch as that rule was not intended to cover transactions not occurring on the exchange.

The judgment order affirming the Referee’s turnover order and denying the Board’s petition for review is affirmed.

Affirmed.

PELL, Circuit Judge

(dissenting).

The majority opinion finds it unnecessary to “reach the issue of whether the preference provisions or policies of the Bankruptcy Act prohibit an exchange rule which purports to affect transactions not arising on the exchange” because “the Chicago Board of Trade rules at issue here were not intended to reach such transactions.” I find nothing in the meager record before us to justify this conclusion. I therefore respectfully dissent.

If we are to decide this case on the basis of the transactions that the rules were “intended” to reach, then it appears to me that we should accord almost controlling significance to the interpretation that the promulgating organization or institution places on those rules. It is clear that the Board of Trade does interpret the rules in question here to include business transactions between members whether or not those transactions occur as a part of normal Board business.

I have qualified the significance to be given to the Board’s interpretation by characterizing it as “almost controlling.” Under well-settled rules of construction, if only one meaning can be given to the words of a written instrument because of their plain intendment, because of established custom or usage, or because they are words of art, then an interpretation by the Board inconsistent with unambiguous contractual provisions cannot prevail. It appears to me, therefore, that there is implicit in the majority opinion a holding that the wording is not ambiguous and is susceptible only to a meaning inconsistent with the Board of Trade’s interpretation.

I am unable to accept this result for two reasons. In the first place, it appears to me that the rules in question unambiguously do relate to all business transactions between members. Under the rules, these transactions may occur “elsewhere” than on the floor of the Board. Further, they are not confined to commodities, which is the business of the Board of Trade, but may involve the purchase and sale of securities, not the business of the Board, or the borrowing, lending, or payment of money. The claims of the ereditors-members here arose from the sale of certain securities and the loan of $100,000 for the purchase of other securities.

The rationale of this interpretation is obvious. Members of the Board of Trade may, and from this case obviously do, engage in transactions with each other other than those occurring in the ordinary course of business of the Board. The lien on the proceeds of the sale of a member’s seat is a protective device assuring stability and confidence in all business transactions between members.

Secondly, even if it is assumed ar-guendo that there is some ambiguity, then it appears to me that, in the absence of a sufficient record to determine just what the promulgating party “intended,” there should be a remand for a hearing to ferret out those matters not now in the record which customarily enable the trier of fact to ascertain what that intention was. Thus, although I am unable to state precisely what form the evidence might take, it would seem to be significant if the interpretation now advanced by the Board had been historically a matter of custom and usage. Acquaintanceship and understanding on the part of Board members with the interpretation, particularly at the time they purchased their seats, would be of considerable import. If Board members have, in fact, been relying on the Board’s interpretation, our “bolt from the blue” may seriously disrupt their credit arrangements. The property rights at stake are too substantial and the impact of a construction of the rules by this court too great for us to decide the ease on the basis of possibly inaccurate assumptions as to what the rules “intended,” particularly when those assumptions are at odds with the interpretation of the organization issuing the rules.

Further, the Board of Trade, whose members are in the commercial world, may at a hearing indicate that it does not share the concern expressed by the majority opinion about the prospect of engaging “in the general arbitration or claim-determination business.” Again, this should be a matter of evidence, not an assumption, if the pertinent rules are ambiguous.

Before a remand, it would be necessary, of course, to meet the preference-bankruptcy question, which the majority does not address. In my opinion, there is no bankruptcy preference.

Although it may be “dusty law,” as the district court described it, I have no cause for concluding that the reasoning of the Supreme Court in Hyde v. Woods, 94 U.S. 523, 24 L.Ed. 264 (1876), is other than currently good law:

“There is no reason why the stock board should not make membership subject to the rule in question, unless it be that it is a violation of some statute, or of some principle of public policy. It does not violate the provision of the bankrupt law against preference of creditors, for such a preference is only void when made within four months previous to the commencement of the bankrupt proceedings. Neither the bankrupt law nor any principle of morals is violated by this provision, so far as we can see. A seat in this board is not a matter of absolute purchase. Though we have said it is property, it is encumbered with conditions when purchased, without which it could not be obtained. It is never free from the conditions of article 15, neither when Fenn [the debtor] bought, nor at any time before or since. That rule entered into and became an incident of the property when it was created, and remains a part of it into whose hands soever it may come. As the creators of this right — this property — took nothing from any man’s creditors when they created it, no wrong was done to any creditor by the imposition of this condition.” 94 U.S. at 525. [Emphasis added.]
As the district court also observed: “Subsequent to the Hyde decision, the Bankruptcy Act of 1898 was passed which set out in some greater detail the standards regarding preferred creditors. However, this new bankruptcy law did not [a]ffeet the holding of Hyde v. Woods as evidenced by the fact that it was discussed and reaffirmed in Board of Trade v. Johnson, 264 U.S. 1 [44 S.Ct. 232, 68 L.Ed. 533] (1924).”

For the reasons herein indicated, I would at the very least reverse and remand for a hearing to determine what the intention was as to the scope of the transactions included in the rules in question.

      . Rule 113 provides that “A member to establish his claim and to become entitled to his rights under Rule 112 of this Chapter to share in the proceeds of a membership, shall file a statement of his claim during the period specified in Rule 110. Claims if not so filed and allowed by the Board may be paid out of any surplus after all other claims allowed by the Board have been paid in full and shall be paid in preference to claims [of the seller’s partners] referred to in Rule 114 of this Chapter.”

      . “Whether Henderson traded on the Board’s exchange for his personal account does not appear, but he did not leave personal debts to other members growing out of trades on the exchange. Being an executive officer of Lipsey & Co., a corporation, he did make trades on the exchange for that corporation. Lipsey & Co. is insolvent, but not in bankruptcy, and its creditors, who became such through unsettled trades made for it on the exchange by Henderson, are here, as the Board’s coappellants, contesting the trustee’s rights.”

      . In Hyde, the Court said that a person could no longer be a member when “a member fails to perform his contracts” which could possibly be construed as “contracts qua member” or relating to exchange transactions (94 U.S. at 524), but the language is not that clear.

      . “There is no reason why the stock board should not make membership subject to the rule in question, unless it be that it is a violation of some statute, or of some principle of public policy. It does not violate the provision of the bankrupt law against preference of creditors, for such a preference is only void when made within four months previous to the commencement of the bankrupt proceedings. Neither the bankrupt law nor any principle of morals is violated by this provision, so far as we can see. A seat in this board is not a matter of absolute purchase. Though we have said it is property, it is incumbered with conditions when purchased, without which it could not be obtained. It' never was free from the conditions of article 15, neither when Fenn bought, nor at any time before or since. That rule entered into and became an incident of the property when it was created, and remains a part of it into whose hands soever it may come. As the creators of this right — this property — took nothing from any man’s creditors when they created it, no wrong was done to any creditor by the imposition of this condition.” 94 U.S. at 525.