Toledo Scale Company v. Computing Scale Company Fidelity & Deposit Company of Maryland

This case comes here by writs of certiorari granted to the Circuit Court of Appeals of the Seventh Circuit to review the proceedings of that court in enforcement of a final decree in a suit to enjoin infringement of a patent and for an accounting of profits. The patent had expired pending the litigation, but the accounting resulted in a decree of the District Court for Northern Illinois for profits of more than $400,000 in favor of the Computing Scale Company against the Toledo Scale Company. The Circuit Court of Appeals, which had sustained the patent (208 Fed. 410, 125 C. C. A. 622), affirmed the decree for profits (279 Fed. 648), but stayed the mandate to permit an application to this court for a writ of certiorori, which was denied January 9, 1922 (257 U.S. 657, 42 Sup. Ct. 184, 66 L. Ed. 420). On the same day, the Toledo Company, a corporation of New Jersey, filed a bill in the District Court for the Northern District of Ohio against the Computing Company, a corporation of Ohio, to enjoin it from enforcing the decree of the Circuit Court of Appeals of the Seventh Circuit on the ground that it was obtained by fraud. The Computing Scale Company filed an answer, raising first a special plea to the jurisdiction and then responding on the merits, denying fraud, and pleading res judicata. The bill also made parties defendant the sureties on the supersedeas bond in the Circuit Court of Appeals, the Fidelity Deposit Company and the United States Fidelity & Guaranty Company, both corporations of Maryland, as well as three Toledo banks, citizens of Ohio, which held money deposited to the credit of the surety companies by the Toledo Company as indemnity, and asked that they all be enjoined from in any way satisfying or aiding to satisfy the decree. The Computing Company then filed in the Circuit Court of Appeals a petition for a rule against the Toledo Company, to show cause why it should not be enjoined from maintaining the bill in Ohio, and why a summary decree should not issue against the sureties. Pending a hearing as to this rule, the Ohio court granted a temporary injunction restraining the Computing Scale Company, and the sureties and the banks as prayed by the Toledo Company. The Circuit Court of Appeals thereafter heard the petition for the rule to which the Toledo Company had made answer, in which by way of exhibit to its averments it set up as a defense the complete record in the injunction suit in Ohio. The Circuit Court of Appeals then made the order which is here for review. It reads as follows:

'We now receive from the Computing Company the certified copy of the Supreme Court's order denying Toledo Company's petition for writ of certiorari, and we direct the clerk to file it in this cause.

'Unless the mandate which we now formulate be stayed on Toledo Company's motion filed within five days, the clerk is directed to issue and transmit to the court below the following mandate:

'(1) Enter of record our affirmance of the final decree on accounting.

'(2) Enjoin Toledo Company from further maintaining its Ohio bill and from filing elsewhere any similar bill.

'(3) Enter summary decree against the sureties on the supersedeas bonds for the amount due upon the accounting decree, including all costs in both courts, but not exceeding the penalties of the bonds.

'(4) Ascertain Computing Company's expenses in this matter, including reasonable attorney's fees, paid or incurred since the Supreme Court's denial of the petition for writ of certiorari on January 9, 1922, and enter summary decree therefor against Toledo Company, but not against the sureties on the supersedeas bonds.'

281 Fed. 488.

The patent, the subject of controversy in this case, was for an automatic computing scale, issued to one Smith in September, 1895, and reissued April 28, 1896. It related to improvements in weighing scales, wherein the weight and selling price could be seen by the weigher at a glance without mental calculation. It consisted of a pan weighing device attached to an indicator drum inside of a casing with a slot through which the figures on the drum as it revolved in response to the effect of the weight would so co-ordinate with figures on the casing as to show the weight and correct price on the same line. The patentee in his specifications admitted that the general combination was an old one, but said that the object of his improvement was to provide scales, extraordinarily sensitive to weights of small amount, and accurately registering them. He explained that an essential feature of the indicator drum in his improvement was that it should be made of very light material because scales of this kind theretofore would not weigh alike successively, due to the inertia of the revolving drum, the force required to operate it, and the difficulty of stopping, and so he had constructed his drum of a skeleton frame of aluminum with a periphery of a thin sheet of paper.

The claims in controversy were:

'5. An indicator drum for weighing mechanism consisting of a spindle provided with a plurality of skeleton frames of light material and secured to said spindle, and having secured to their periphones a sheet of paper forming a cylinder.

'6. An indicator drum for weighing mechanism consisting of a spindle provided with a plurality of skeleton disks or frames of thin aluminum, having a sheet of paper extending around and secured to their periphones to form a cylinder.'

The Computing Scale Company and the Toledo Scale Company were competitors in business. The former had acquired the Smith patent by the purchase of the assets of the Boston Computing Scale Company, and before 1906 was manufacturing scales using the Smith cylindrical drum in competition with scales of the Toledo Company having a fan-shaped registering dial. There had been patent suits between them concerning other parts of the weighing mechanism than the indicator. Each had other patents in this field. In 1906, the Toledo Company did not give up its fan-shaped scales, but began the manufacture of scales with an indicator drum of skeleton aluminum frame and paper periphery, and so increased its sales of them, so that they ultimately constituted the larger part of its business. T is led to two suits by the Computing Scale Company in 1907 against the Toledo Company in the District Court for the Northern District of Ohio. Nothing was done with them until the suit at bar was brought in the District Court for Northern Illinois in 1910. Then, as a condition of getting extension of time to take evidence herein, the Computing Scale Company was required by the court to dismiss the Ohio suits. In its answer to the bill in this case, filed in August, 1910, the Toledo Company alleged that the Smith patent and the claims 5 and 6 had been anticipated by a patent granted to one Phinney in 1870 and further averred anticipation 'by reason of prior public use and sale by various persons at various places and among others at Pawtucket by William H. Phinney, then and now, as defendant is informed and believed residing at said Pawtucket.'

On the trial, the Toledo Company's expert testified that he had built a Phinney scale following the patent to Phinney, but that he could not get it to stop twice within an ounce of the same weight, and that a scale which would not weigh within a very small fraction of an ounce was not an instrument of precision and not a commercial article at all. It should be said that the specifications of the Phinney patent made no reference to the material of which the cylinder of the scales was to be made or its weight, or the importance of those features. The District Court held that the fourth and fifth claims of the Smith patent were valid, and this was affirmed by the Circuit Court of Appeals, April 15, 1913 (208 Fed. 410, 413, 125 C. C. A. 622), holding that Smith had put in the hands of the world's vendors of commodities the first usable computing scale; that long before the 'paper' art, including a patent to Phinney in 1870, had proposed to teach practical scale makers how to build automatic computing scales, but all attempts to make them were failures, that in the 25 years between Phinney and Smith the brightest and most skillful men had sought the necessarily tremendous commercial success of a reliable computing scale, but had not found it until Smith had the happy conception that the lightest possible drum would secure the required accuracy of revolution and stopping.

On May 14, 1913, the Toledo Company made a motion in the Circuit Court of Appeals that the court include in its mandate, affirming the decree of the District Court for an accounting leave to rehear the cause and to permit the Toledo Company to introduce proof that computing scales had been made and sold and introduced into use by the patentee Phinney of Pawtucket, R. I., which had a cylinder drum of light wood skeleton covered with thin paper and anticipated the drum of Smith. Three Phinney scales and 13 supporting affidavits were introduced. These included one of the son of Phinney, the patentee, who had been with his father during his manufacture and sale of the scales until his death and who still lived at Pawtucket, of Phinney's widow, and also those of residents of Pawtucket who said they had bought and used the scales. The affidavits also disclosed that in a suit against the Federal Company for infringement of the Smith patent brought by the Computing Scale Company in Philadelphia, which never came to trial, all this evidence had been taken and was on file. The three Phinney scales which were exhibits there had been in the custody of Church & Church who had been counsel for the Computing Scale Company in Philadelphia. It was also shown that the Computing Scale Company had three or four of these scales and drums in their possession at Dayton. It also appeared from young Phinney's affidavit that the Boston Computing Company, which owned the Smith patent and which subsequently was bought out by the complainant Computing Scale Company, was trying to buy the scales which Phinney had. The evidence tended to show that only 20 scales had been made by Phinney, and that no scales were made after 1895. The president of the Toledo Company in his affidavit excused failure earlier to discover this evidence by saying that the company made every effort to learn of prior use. His counsel explained that he had been led away from investigation into manufacture of Phinney scales at Pawtucket, which was not visited by agents of the Toledo Company till after June, 1912, by the fact that the model of the Phinney patent at the Patent Office was only a small one of solid wood and not of light material, and that he only acquired knowledge of Phinney's manufacture and use of scales with indicator drums by accident after June, 1912, from counsel for defendant in a suit brought by the Computing Company against the Standard Company in 1911. There was no direct charge in these 1913 affidavits that the Computing Scale Company was purchasing and gathering in these Phinney scales to conceal them, but there were averments in the affidavits which were only relevant to sustain such a charge and were evidently inserted for that purpose. The 1913 motion for a rehearing was overruled by the Circuit Court of Appeals.

The case went back for an accounting, and in 1917 the Toledo Company took depositions of the witnesses whose affidavits had been filed in 1913, and sought to use the evidence to reduce the damages by showing what kind of a scale might have been constructed by the Toledo Company without infringing the Smith patent, but the evidence was not given weight for that purpose. The expert of the Toledo Company in these depositions said he did not test the Phinney scales of wood and paper cylinders when they were in the custody of the Toledo Company, because he did not think they would weigh properly. The District Court confirmed the master's report of the accounting and made a decree accordingly for $420,000. This was carried on appeal to the Circuit Court of Appeals, which affirmed it in October, 1921. 279 Fed. 648.

The Toledo Company at the same time again made a motion for leave to open up the case that it might introduce the evidence contained in the affidavits presented in May, 1913, and the depositions taken in 1917, and retry the issue of validity of the patent and show its invalidity by reason of the Phinney prior manufacture, sale and use. In brief of counsel urging the granting of this motion for the Toledo Company, it was said:

'To refuse to consider the evidence in the present record respecting the Phinney scale, as affecting the validity of the patent in suit, would be to permit the plaintiff to take advantage of essential facts known to it and unknown to the defendant or the court and its consequent imposition on both.'

In the subsequently filed petition for certiorari to this court, counsel for the Toledo Company, in discussing this same issue, said:

'The affidavits further showed that plaintiff had full knowledge of the Phinney scales for more than 10 years, that evidence and numerous samples of them had been introduced in a suit which plaintiff had brought at Philadelphia 10 years earlier upon the reissued patent here in suit, that the prosecution of said suit had been abandoned because of such evidence, and that plaintiff had suppressed and concealed such fact from the court and defendant throughout the litigation in the present cause.'

The motion to reopen the case was denied by the Circuit Court of Appeals. 279 Fed. 674. An application to review this October, 1921, decree by certiorari was made and was denied by this court January 9, 1922. 257 U.S. 657, 42 Sup. Ct. 184, 66 L. Ed. 420.

At once, the Toledo Company filed its bill in the United States Court for the Northern District of Ohio, which is summarized by the Circuit Court of Appeals in its opinion. 281 Fed. 488, 491. It charged that since 1901 the Computing Company had formed a conspiracy with certain of its officers and agents to monopolize the computing scale business of the country, and to put the Toledo Company out of business; that in 1902 it built and sold a dishonest scale that the Toledo Company exposed in circulars, which the Computing Company sought, but failed, to enjoin, which increased its malicious hatred toward the Toledo Company; that then the Toledo Company was making a fan scale, which on the strength of patents held by it the Computing Company sought unsuccessfully to enjoin, but dismissed the suits without a trial; that in 1901 the Computing Company brought suit in the Eastern Pennsylvania District to enjoin the Federal Company from infringing the Smith patent, and introduced three Phinney scales as exhibits in evidence and depositions already referred to; that the suit was dismissed, because the Computing Company was advised by counsel that the Phinney defense was dangerous, and that the exhibits were by stipulation retained by counsel for the Federal Company, who lent them to counsel for Computing Company, in whose custody they were until after the issue of validity had been decided in Chicago in favor of the Computing Company; that a suit brought against one Randall in Pennsylvania in 1901, and against the Standard Company in Wisconsin in 1911, on the Smith patent, by the Computing Company, had been dismissed after production of similar evidence of the Phinney prior use; that after 1906 the Computing Company secretly purchased and took into its possession all the Phinney scales it could get, being all of the 20 which Phinney ever made, except one or two then in the hands of users, and except those in the Federal, Randall, and Standard suits; that these purchases were made in pursuance of the conspiracy, secretly and fraudulently, for the purpose of preventing the Toledo Company and the District Court of Northern Illinois and the Circuit Court of Appeals of the Seventh Circuit from learning of the Phinney commercial practice; that the Toledo Company made diligent effort and investigation to find the Phinney commercial practice, and also evidence of the Computing Company's fraudulent suppression of evidence thereof; that, while Toledo Company had had knowledge of the Phinney commercial practice since 1913, it had no knowledge of Computing Company's fraudulent suppression thereof until December 20, 1921, which was after the affirmance of the accounting decree. The bill further averred that counsel for the Computing Company in 1913, in their brief on appeal from the District Court in this case, said that Phinney had never made a successful scales or put it on the market, which the Computing Company knew to be false, and that this deceived the Toledo Company and its counsel into damaging admissions in the Circuit Court of Appeals as to the material of which Phinney's scales were actually made.

This bill was supported by the same evidence used in the Seventh Circuit applications of 1913 and 1921, and also by the affidavit of one Koehne, who said that he was a patent lawyer and solicitor, and had been in the employ of the Computing Company for a number of years; that he was privy to the conspiracy charged in the bill and a participant in it, but that the counsel employed to defend the various patent suits referred to in the bill were not; and that the agents and managers of the Computing Company with whom he worked and talked were dead.

Messrs. Frederick P. Fish, of Boston, Mass., Geo. D. Welles, of Toledo, Ohio, and H. K. Tenney, of Chicago, Ill., for Toledo Scale Co.

[Argument of Counsel from pages 410-417 intentionally omitted]

Mr. Charles Markell, of Baltimore, Md., for Fidelity & Deposit Co. of Maryland.

Mr. John M. Zane, of Chicago, Ill., for Computing Scale Co.

Mr. Chief Justice TAFT, after stating the case as above, delivered the opinion of the Court.