Appeal from the District Court of the United States for the Eastern District of New York.
Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
AUGUSTUS N. HAND, Circuit Judge.
These proceedings comprise two suits in equity which have been consolidated for appeal by order of this court of November 28, 1932. The District Court has entered substantially similar decrees and orders in each case, the parties are the same except that there is an additional party plaintiff in one of the cases, and since both cases raise precisely the same questions of law and fact, they will be treated and referred to as one.
In 1929, the defendant was manufacturing and selling certain types of radio tubes which the plaintiffs claimed were infringements of six patents held by them. Accordingly suit was instituted in the District Court seeking an injunction against continued infringement by the defendant, and an accounting for profits and damages resulting from past infringement. Subsequently a settlement was made between the parties pursuant to which a consent decree was entered on February 25, 1930. By the terms of this decree the patents on which the plaintiffs based their claims of infringement were adjudged to be valid, and the defendant was declared to have infringed them by manufacturing and selling vacuum tubes embodying the inventions. It was ordered that an injunction should issue permanently restraining the defendant and its agents from further acts of infringement. The parties having made their own settlement with respect to profits and damages, no accounting was awarded. No writ of injunction was issued or served at the time the order was entered.
As of the same date that the decree ordering an injunction was entered, a written license agreement was adopted by the defendant, Radio Corporation of America, General Electric Company, and Westinghouse Electric & Manufacturing Company, the execution of which was assented to by the American Telephone & Telegraph Company. By virtue of this agreement, the licensors granted to the defendant, as nonexclusive licensee under the patents upon which the proceedings for an injunction were based, the right to manufacture and sell vacuum tubes embodying the inventions covered by the patents. In consideration of this grant the defendant agreed to pay to Radio Corporation of America a royalty of 7 1/2 per cent. of the invoice price of all tubes manufactured and sold under the license; the total royalties for each year to amount at least to $50,000. The defendant agreed to render quarterly by the 15th day of January, April, July, and October of each year a report specifying the total number and invoice price of tubes sold during each month of the preceding quarter. The royalties were stated to be due and payable on the 30th day of January, April, July, and October for the period covered by the report previously rendered in the same month.
Section 2 of article 8 of the agreement provided that: "In the event of the failure by the Licensee at any time during the continuance in force of this Agreement to render any of the statements called for herein upon any of the prescribed dates, or to pay all of the royalties required hereunder when due, or to comply with any of the other obligations of this Agreement, for thirty (30) days after notification from the Radio Corporation by registered mail to the last known place of business of the Licensee, of any such default, this Agreement shall cease and terminate, at the option of the Radio Corporation, thirty (30) days after notice in writing by registered mail to that effect has been forwarded to the Licensee. The Radio Corporation shall also have the right to terminate this Agreement at any time upon the bankruptcy or insolvency of the Licensee or the appointment of a receiver for its property (not discharged within thirty (30) days after appointment), and upon the exercise of such right this Agreement shall terminate thirty (30) days after notice in writing by registered mail to that effect has been forwarded by the Radio Corporation to the Licensee.No cancellation shall release the Licensee from any of the liabilities accruing to the Licensors hereunder prior to the time such cancellation becomes effective. No failure on the part of the Radio Corporation to exercise its right of cancellation hereunder for any one or more defaults shall be construed to prejudice its right of cancellation for any subsequent default."
The license agreement further provided that it should continue in force until January 1, 1934, unless sooner terminated in the manner provided in the section just quoted. The licensee was likewise given an option to extend the agreement until January 1, 1939, if it should duly perform all of its obligations under the license and give written notice of the exercise of its option six months before January 1, 1934.
All royalties due under the agreement up to April 1, 1931, were paid, and reports for the last three-quarters of 1931 were rendered showing accrued royalties for that period amounting to $39,118.99. On February 9, 1932, the Radio Corporation sent the defendant a letter notifying the defendant of a default in payments due for the last three-quarters of 1931, and on March 11, 1932, the defendant was notified that the licensors had exercised their option to terminate the license for default in payment of royalties under section 2 of article 8 of the agreement.
The following day the Radio Corporation instituted an action in the New York Supreme Court for the recovery of royalties alleged to be due in the sum of $39,118.99. As a defense to this cause of action, and by way of counterclaim, the defendant in its amended answer to the complaint alleged that, contemporaneously with the execution of the license agreement, the parties thereto had entered into a parol agreement whereby the licensor, in consideration of the execution of the written agreement by the licensee, promised that it would furnish the licensee with reasonable advance notice of any change in the prices at which the plaintiff sold its tubes and of any new type of radio tube to be sold by the plaintiff; that it would give the defendant detailed information with respect to any methods developed or used by the plaintiff in decreasing the cost of manufacturing radio tubes and give the defendant a reasonable time in which to adopt such new methods; and that it would, in case any further licenses under the radio tube patents were issued to parties who had been or were infringing the patents, rebate all royalty payments made by the defendant to the plaintiff prior to the date on which such infringing parties were granted licenses. The defendant alleged breaches by the plaintiff of all the foregoing provisions of the alleged parol agreement and consequent damage to the defendant, for which it prayed judgment on the counterclaim to an amount exceeding $300,000. As far as is shown by the record, this suit is still pending between the parties in the Supreme Court of the State of New York.
After the notice of termination of the license agreement had been given, the defendant continued to manufacture and sell subes embodying the inventions covered by the patents. Accordingly, on May 26, 1932, apparently without any new application to the court, a writ of injunction was issued by the clerk of the District Court under the order authorizing its issuance entered over two years before, which was served on the defendant the following day. The defendant ignored service of the writ and continued to manufacture and sell tubes, whereupon the plaintiffs secured on July 7, 1932, an order to show cause why the defendant should not be punished by a fine payable to the Radio Corporation for violating the injunction. Affidavits in support of, and in opposition to, the motion to punish for contempt were filed in the District Court which, on September 28, 1932, entered the decree appealed from adjudging the defendant in contempt and imposing a fine of $500 payable to the Radio Corporation.
The same day that the decree was entered the defendant procured an order to show cause way an order should not be made vacating or modifying the injunctions issued on May 26, 1932, and declaring that the defendant might continue to manufacture and sell tubes under the license agreement. This motion was denied by the District Court in the order appealed from filed October 20, 1932.
The defendant contends that the decree adjudging it in contempt was improperly entered on two grounds. Its initial argument is that the lapse of over two years between entry of the order authorizing the injunction and its actual issuance and service, of itself prevents an adjudication of contempt for violation of the writ. The second and more fundamental contention is that, by reason of the plaintiffs' breach of the parol agreement set forth in the counterclaim in the action in the state court, there was no default in payment of royalties because the defendant's damages exceeded the royalties due under the license agreement, and that consequently the plaintiffs could not terminate the license, which, if it remained in force, constituted a complete defense to any action for violation of the injunction.
In support of the first point, the defendant relies chiefly on McCormick v. Jerome, Fed. Cas. No. 8,721. In that case an injunction restraining infringement of a patent was ordered on April 28, 1855, and tested June 11, 1855. No writ was served for almost a year, in the course of which another federal court held that the machines which the defendants manufactured did not infringe the plaintiff's patents. McCormick v. Manny, Fed. Cas. No. 8,724. After this decision, and on June 4, 1856, a writ under the order entered over a year previously was served on the defendants, who did not observe its terms. Upon an order to show cause why a writ of attachment against the defendants should not be granted, it was held by Judge Betts that the failure to put the writ of injunction in execution before the term of court during which it had been ordered had expired rendered it necessary for the plaintiff to make a new application to the court before attempting to enforce the injunction, and that failure to make such new application barred an attachment for contempt. Similarly, in James v. Downes, 18 Ves. Jr. 522, Lord Eldon refused to commit for contempt one who had violated an order for an injunction with knowledge of its pronouncement, where no order had been drawn up or served at the time of the motion to commit three or four months after the order had been pronounced. See, also, In re Cary (D.C.) 10 F. 622, at page 628; Vansandau v. Rose, 2 Jac. & W. 264, at pp. 265, 266; Farnsworth v. Fowler, 1 Swan (Tenn.) 1, at page 5, 55 AM. Dec. 718. We do not think, however, that these decisions should be applied in the present case. It is well settled that a party is liable in contempt for disobedience of an injunction of which he has notice, even though it has not been served upon him. Ex parte Lennon, 166 U.S. 548, 17 S. Ct. 658, 41 L. Ed. 1110. The defendant is adequately protected against unconscionable delay in issuance and service of the writ, in that he can move for dissolution of the injunction for failure to execute it. Failure to serve the writ in the same term of court during which the order was entered should not bar a proceeding for contempt where the defendant has full knowledge of the order. Howe v. Willard, 40 Vt. 654. Nor do we think that the rule announced in McCormick v. Jerome, supra, and similar cases, should be applied except where the plaintiff's failure to obtain issuance of and to serve the writ is of such a nature as to mislead the defendant and make it reasonable for him to suppose that the plaintiff does not intend to execute the order for an injunction. United Telephone Co. v. Dale, L.R. 25 Ch. D. 778. See State v. Durein, 46 Kan. 695, 27 P. 148; Joyce on Injunctions § 267. In the present case no such circumstances appear. Apparently the plaintiffs were unwilling to grant the defendant a license unless the latter would consent to the entry of the consent decree and order for an injunction. It is ...