Volk v. Volk Manufacturing Co. , 101 Conn. 594 ( 1924 )

The judgment appealed from is for royalties upon knife-blade fuses and links manufactured and sold by the defendant. These are nonpatentable improvements or changes over the ferrule type of fuse, the right and interest in and to the patent rights for such fuse and the improvements thereto having been granted by patents to plaintiff, and transferred to defendant's predecessor. The validity of the judgment depends upon whether the contract between the parties transferred only these patent rights and the improvements thereto, together with the sole and exclusive right to manufacture and sell the same, upon which sales royalties were to be paid, or whether it included the payment of royalties upon the knife-blade fuse and links which were improvements or changes over the patents thus granted but which were not patentable. This will be resolved by determining the meaning of this contract of transfer. An invention is prima facie an improvement, but an improvement is not necessarily an invention. Schwarzwaelder Co. v.Detroit, 77 F. 886, 891. The addition to, or change of a machine, manufacture or composition, by which its value is increased, or its utility or excellence enhanced, will be an improvement, but whether the improvement is patentable depends upon whether it embodies a new principle or mode of operation not theretofore utilized in another invention. So that the use of the term improvement in connection with a transfer of a right or interest in a patent is not necessarily a patentable improvement, but may be one which is nonpatentable. Its meaning must be found from the subject-matter and context of the contract of transfer construed in the light of the surrounding circumstances.Wolff Chemical Co. v. Philadelphia, 217 Pa. 215, 66 A. 344, 347.

The use of the term royalty as applied to a patent is a tax or duty paid to the owner of a patent for the privilege of manufacturing or using the patented article. Western Union Tel. Co. v. American Bell Tel.Co., 125 F. 342, 348. But this is not its exclusive meaning. It may be appropriately used when applied to rental based on the quantity of coal or other mineral taken from a mine. Raynolds v. Hanna, 55 F. 783, 800; Kissick v. Bolton, 134 Iowa 650, 112 N.W. 95,96; Burke Hollow Coal Co. v. Lawson, 151 Ky. 305,151 S.W. 657. Or, when used in a gas lease, as referring to a share of the product or profit reserved by the owner for permitting another to use the property. IndianaNatural Gas Oil Co. v. Stewart, 45 Ind. App. 554,90 N.E. 386. And it is likewise an appropriate term as applied to improvements which are nonpatentable. In McGill v. Holmes, Booth Haydens, 48 A.D. 628,64 N.Y.S. 787, royalties were permitted to be recovered on goods not patented, under an agreement to grant a license to manufacture goods under certain patents and to sell these and other goods. The transfer in the contract before us is of "any subsequent invention or improvement of said fuse." The language does not in and of itself confine the transfer to an improvement of a patent. Defendant's sole claim, that this contract merely transfers a patent monopoly, must be determined by the proper construction of this contract, and this involves a search for the intention of the parties as to the use of the term improvement.

After provision for the assignment of the patent right to the ferrule type of fuse, the contract provides that any subsequent invention or improvement of this fuse by plaintiff shall be the sole and exclusive property of the defendant's predecessor, "and that during the continuance of this contract he [plaintiff] will not engage in the manufacture or sale of any style or type of fuse," and will be paid a royalty of ten per cent of all monthly sales. Appeal to the context of this contract does not make clear and definite its meaning, but leaves it doubtful as to whether its intention was to require defendant's predecessor to pay royalties only for its right to exercise a patent monopoly, as the defendant argues, or includes that, together with all improvements relating to this patent right, whether the same were patentable or not, as the plaintiff argues. Since the meaning is doubtful, the law admits evidence of the practical construction of this contract by the words, acts and conduct of the parties. Such evidence, in cases of doubtful construction, is strong presumptive evidence of the intention of the parties that the contract should be construed in accordance with their own practical construction. This rule is applied to the construction of contracts, documents, deeds and laws.French v. Pearce, 8 Conn. 439, 443; Safford v. MorrisMetal Products Co., 97 Conn. 650, 653, 118 A. 37;Construction Information Co. v. Cass, 74 Conn. 213,217, 50 A. 563.

When applied to the circumstances of this case, the rule settles the question of intention in accordance with the plaintiff's construction. Defendant's predecessor, the Volk Manufacturing Company, from July 9th, 1918, paid plaintiff royalties upon the knife-blade fuses and links, nonpatentable improvements upon the patent right to the ferrule type of fuse transferred by plaintiff to it. No question was ever raised during this period as to the right of the plaintiff to royalties under this contract upon the sales of the articles containing these improvements. The defendant, Volk Manufacturing Company, took over the business of the Volk Manufacturing Company about August, 1920, and continued to manufacture and sell both the ferrule and knife-blade fuses and links as its predecessor had done, and to pay plaintiff royalties upon these until about March, 1921. It is a reasonable inference that at the time defendant took over this business, it must have become acquainted with the terms of this contract, since it appears to have been the basis of the business taken over. Further, the defendant continued to label the knife-blade fuses "patented." The knife-blade fuses and links are improvements made by the plaintiff. Defendant claims that because they are not patentable they could be manufactured and sold by anyone. The contract gave defendant the right to cancel this agreement at any time. It did not exercise this right, but continued to use these improvements in its manufacture and effected sales of over $24,600, and purposes appropriating the profit thereon without paying the plaintiff the ten per cent royalties due under this contract upon the sales of subsequent improvements of the ferrule type of fuse. The practical construction placed upon the contract by the parties and the situation surrounding the carrying out of the contract, make it certain that the parties intended that royalties should be paid upon the sale of these improvements. To permit the defendant to refuse to reconvey these improvements and to continue their manufacture and enrich itself in large measure through the product of plaintiff's brain, would be inequitable, a circumstance indicating the improbability of plaintiff's having intended to make such an unfair and inequitable contract for himself. Defendant relies upon Strong v. Carver Cotton Gin Co.,197 Mass. 53, 59, 83 N.E. 328. The case supports the rule of the practical construction of a doubtful contract, to which we have referred, and holds that the contract before it was not within this rule, since the contract was in the particular case under inquiry free from ambiguity.

There is no error.

In this opinion the other judges concurred.