The United States made a contract with the steel company for the
use of a process described as patented. The contract provided that,
in case it should at any time be judicially decided "that the
company was not legally entitled under the patent to the process
and the product, the payment of royalties should cease." In a suit
by the company for royalties, the United States attempted to deny
the validity of the patent while admitting there was no outstanding
decision against it.
Held that this defense was not
open.
Held further that, under the circumstances of this
case, the contract, properly construed, extended to the process
actually used, even if it varied somewhat from that described in
the patent.
The facts are stated in the opinion.
Page 196 U. S. 313
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a claim for royalties upon a contract made between the
parties to the suit under the following circumstances. The Harvey
Steel Company is the owner of a patent, numbered 460,262, for a
process for hardening armor plates and for armor plates. After
careful experiments, made by the Navy Department before the patent
was granted, a contract was made on March 21, 1892, the material
elements of which are these: it recited that the company was the
owner of the patented rights to a process "known as the
Harvey
Process' for the treatment of armor plate for use in the
construction of vessels;" an agreement that armor plate "treated
under the said `Harvey process'" shall be applied to certain
vessels; the previous giving of an option to the Navy
Department
"of purchasing the right to use and employ the 'Harvey process'
for treating armor plates, as follows:"
"We hereby agree to give to the Navy Department an option for
the purchase of the application of the Harvey process for treating
armor plates, which was tested at the Naval Ordnance Proving
Ground, Annapolis, Maryland, February 14, 1891,"
on terms set forth, one of which
Page 196 U. S. 314
was that Harvey, the inventor, should furnish all details in his
possession, or which he might develop in the perfection of his
methods; the acceptance of the offer by the Navy Department, and an
agreement by the United States to pay the expense of applying "the
said process," etc. The contract then went on to agree that the
United States, upon the terms stated, might use "the
hereinbefore-mentioned process known as the
Harvey process,'"
gave the company a royalty of one-half of one cent a pound up to
$75,000, when the royalty was to cease, and stated other
terms.
This contract had conditions for further tests, etc. Numerous
further experiments were made, and on October 8, 1892, the company
was informed by letter that "the Harvey process for armor plate has
been definitely adopted by the Navy Department." In pursuance of
the offer mentioned in the contract, the Navy Department required
and received from Harvey a revelation of the secret process and
improvements, and thereafter, on April 12, 1893, the parties made a
new contract upon which this suit is brought. This recited, as
before, that the company was owner of the patented rights to a
process "known as the Harvey process," and referred to the patent
by number and date. It then recited the making of the agreement of
March 21, 1892, "whereby the party of the first part granted to the
party of the second part the right to use and employ the Harvey
process aforesaid," etc. It then cancelled the old contract, and
agreed that, in consideration of $96,056.46 royalty, the United
States might use "the aforesaid Harvey process" for all naval
vessels authorized by Congress up to and including July 19, 1892,
and further, that it might use the "aforesaid Harvey process" upon
vessels authorized after that date, "paying therefor" a half a cent
a pound. The company covenanted to hold the United States harmless
from further claims, and from demands on account of alleged
infringement of "patented rights appertaining to said process;" to
furnish full information regarding the composition and application
of the compounds employed in the Harvey process,
Page 196 U. S. 315
and all improvements which it might make upon "said process as
covered by the aforesaid letters patent," and that the United
States might adopt and use such improvements. Finally, it was
agreed that,
"in case it should at any time be judicially decided that the
party of the first part is not legally entitled, under the letters
patent aforesaid, to own and control the exclusive right to the use
and employment of said process, and the decrementally hardened
armor plates produced thereunder, as set forth in the letters
patent aforesaid, then the payment of royalty under the terms of
this agreement shall cease, and all sums of money due the party of
the first part from the party of the second part, as royalty for
the use and employment of said process and armor plates, as
aforesaid, shall become the property of the party of the second
part."
The United States has built battle ships armored by the Harvey
process communicated to it, and, subject to the questions which
will be mentioned, by the terms of the contract there was due a
royalty of $60,806.45, to which sum the Court of Claims found the
claimant entitled. 38 Ct.Cl. 662. It never has been judicially
decided that the claimant has not the rights mentioned in the
last-quoted clause of the contract. The United States asked
additional findings which, it now contends, would establish that
the patent was invalid, or, if valid, valid only if restricted to
the use of a heat above 3100� Fahrenheit, in which case the patent
was not used by the United States. These findings were refused as
immaterial, and the United States appealed. The main question is
whether, under the last-quoted clause of the contract, the United
States can set up the invalidity of the patent in this suit. It is
argued also that the United States ought to have been allowed to
show that it had not used the patent, properly construed, although
it is not denied that it has used the process communicated to it
and known in common speech as the Harvey process.
It is not argued that there was a technical entire failure of
consideration. The claimant was under continuing obligations,
Page 196 U. S. 316
which it is not suggested that it did not perform or is not
still performing, and one of which, the imparting of its secret
information and improvements, it had performed under the original
agreement, out of which the last contract sprang. The argument is
put mainly on the construction of the clause quoted, coupled with
the further argument that the United States ought not to be
estopped, as licensee, to deny the validity of the patent, because
it is not a vendor, but simply a user, of the patented article, and
therefore has not enjoyed the advantage of a practical monopoly, as
a seller might have enjoyed it even if the patent turned out to be
bad. This distinction between sale and use, even for a
noncompetitive purpose, does not impress us. So far as the
practical advantage secured is matter for consideration, whether a
thing made under a patent supposed to be valid is used or sold, it
equally may be assumed that the thing would not have been used or
sold but for the license from the patentee. We regard the clause in
the contract as the measure of the appellant's rights.
The words of the condition on which the payment of royalty was
to cease, taken in their natural and literal sense, do not mean
what the government says. A plea of that condition, to satisfy the
words "in case it should at any time be judicially decided" that
the patent was bad, would have to be that it had been decided to
that effect. It would not be enough to say that the defendant
thought the patent bad, and would like to have the court decide so
now. We see no reason to depart from the literal meaning of the
words. It is argued that, so construed, they are very little good
to the United States, since private persons would not use the armor
plates, and the more the United States used them, the larger would
be the royalties which the company received, so that it would have
no motive, even if it had a right, to sue the makers of the plate.
It is answered that armor was made for foreign governments, and
that the makers were sued by the claimants in good faith, although,
as it turned out, the final decrees were entered by consent.
Page 196 U. S. 317
And it is argued on the other hand, that the government's
construction would put the claimants at a great disadvantage, and
would be giving up all benefit of the patent at the moment it was
issued. We do not amplify the considerations of this sort on one
side or the other. They are too uncertain to have much weight. The
truth seems to be that the proviso is a more or less well known and
conventional one in licenses,
Charter Gas Engine Co. v.
Charter, 47 Ill.App. 36, 51, not a special contrivance for the
special case, and that fact alone is enough to invalidate attempts
to twist the meaning of the words to the interest of either side.
The proviso was inserted, no doubt, on the assumption that a
licensee, when sued for royalties, is estopped to deny the validity
of the patent which he has been using, and to give him the benefit
of litigation by or against third persons notwithstanding that
rule.
We have somewhat more difficulty with the other question
mentioned. It is argued that the agreement was only to pay for the
use of the process covered by the patent named, and that, if the
meaning of the parties was to cover anything broader than the
patent, even what was known in their speech as the Harvey process,
that meaning could be imported into the contract only by
reformation, not by construction of the contract as it stands. But
we are of opinion that this defense also must fail. In the first
place, it is not fully open on the record. The findings asked had a
different bearing. All that were asked might have been made without
necessitating a judgment for the United States as matter of law,
and the court believed that the difference between patent and
process was trivial. But we should hesitate to admit the defense in
any event. The argument is that, at the time of the contract, it
was supposed that the heat required for the process was greater
than that actually used, that the patent was valid only for a
process with the greater heat, and that the contract covers no more
than the patent. But the fact that the parties assumed that the
process used and intended to be used was covered by the patent
works both ways. It shows that they thought
Page 196 U. S. 318
and meant that the agreement covered, and should cover, the
process actually used. We think that this can be gathered from the
agreement itself, apart from the mere supposition of the parties.
The contract dealt with a process "known as the Harvey process." It
imported the speech of the parties and the common speech of the
time into the description of the subject matter. The words "Harvey
process" commonly are put in quotation marks in the first contract,
thus emphasizing the adoption of common speech. They mean the
process actually used. The contract states that it is dealing with
the same thing that had been the subject of the former agreement.
That agreement further identified that subject as a process which
was tested at the Naval Ordnance Proving Ground. It also identified
it, it is true, as a patented process, but if the incompatibility
of the two marks is more than trivial, as it was regarded by the
court which found the facts with which we have to deal, the
identification by personal familiarity and by common speech is more
pungent and immediate than that by reference to a document couched
in technical terms, which the very argument for the United States
declares not to have been understood. It is like a reference to
monuments in a deed. As we have said, this identification by a
personal experiment and by common speech is carried forward into
the contract in suit. The latter contract manifests on its face
that it is dealing with a process actually in use, which requires
the communication of practical knowledge, and which further
experience may improve.
We have not thought it useful to do more than indicate the line
of thought which leads us to the conclusion that the claimant must
prevail. We have confined ourselves to the dry point of the law. It
might have been enough to say even less, and to affirm the judgment
on the ground that the findings asked and refused, so far as they
were not refused because not proved, were only grounds for further
inferences, not a special verdict establishing the defense as
matter of law. But the fuller the statement should be made, the
more fully it would
Page 196 U. S. 319
appear that the United States was dealing with a matter upon
which it had all the knowledge that any one had, that it was
contracting for the use of a process which, however much it now may
be impugned, the United States would not have used when it did but
for the communications of the claimant, and that it was contracting
for the process which it actually used -- a process which has
revolutionized the naval armor of the world.
Judgment affirmed.