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HAZELTINE CORP. v. ABRAMS

August 6, 1934

HAZELTINE CORPORATION
v.
ABRAMS et al.



The opinion of the court was delivered by: GALSTON

GALSTON, District Judge.

This is a patent infringement suit in which infringement is alleged of letters patent No. 1,879,863, issued September 27, 1932, to Harold A. Wheeler on an original application filed July 7, 1927, divided and then filed on November 13, 1930.

The patent relates to the radio art, and particularly to means for controlling volume control in a receiving set.

 In the course of the trial the suit as against the defendants Emerson Television-Radio, Inc., and Emerson Radio & Phonograph Corporation was dismissed because neither corporation has a regular and established place of business within the Eastern district of New York, nor did it appear that they had committed any acts of infringement within this district.

 Benjamin Abrams, the individual defendant, is the president of both of those corporations. He resides within the Eastern district of New York, but it does not appear that Abrams as an individual committed any acts of infringement either in this district or elsewhere.

 The plaintiff seeks to hold Abrams on the theory that the Emerson Television-Radio, Inc., is the alter ego. Clearly, it appears that a suit for infringement cannot be maintained against an individual who is not alleged to have infringed, except in his official capacity as an officer of the corporation. Moreover, there is no proof that the corporation is insolvent. Bowers v. *atlantic, Gulf & P. Co. (C.C.) 104 F. 887.

 However, the evidence proves that the Emerson Television-Radio, Inc., is the alter ego of Abrams. He owns only 5 per cent. of the Emerson Television-Radio, Inc. The other 95 per cent. was issued to Mathew Lauer, who paid $9,500 therefor in October, 1932, some months after the corporation was organized. In February, 1933, Lauer sought to borrow $15,000 from Abrams, who, while not in position to advance this sum personally, did agree that the Emerson Television-Radio, Inc., might make a loan of $9,500. From the time of this loan no interest was paid thereon by the borrower. Apparently no demand for the payment of principal and interest was made upon him. Since Lauer has received back the entire amount of his investment in such circumstances it would appear that except for the period from October, 1932, to February, 1933, to all intents and purposes, Abrams was the sole stockholder of the corporation. The testimony also convinces me that he is the only officer who is active therein.

 It would follow, therefore, under the doctrine of Weston Electrical Instrument Co. v. Empire Electrical Instrument Co. (C.C.A.) 177 F. 1006, 1007, that Abrams would be held for the corporate wrongdoing. It was said in that case: "This court absolutely and entirely rejects the not uncommon view that the fiction of distinct corporate existence can be made to serve as a shield against the consequences of individual wrongdoing. Upon the presentation of a case showing active participation by an officer of a corporation in the infringement of a patent, we have been, and shall be, not slow to disregard the corporate device and enforce personal responsibility."

 See, also, Saxlehner v. Eisner (C.C.A.) 147 F. 189, and Claude Neon Lights, Inc., v. American Neon Light Corporation (C.C.A.) 39 F.2d 548.

 The difficulty with the conclusion reached is that the Emerson Television-Radio, Inc., has not within this district committed any act of infringement, so that if a decree were to issue in this case it would not be for actual, but only threatened, infringement. Edison Electric Light Co. v. Packard Electric Co. (C.C.) 61 F. 1002.

 The Davega-City Radio, Inc., the remaining defendant, is a retail dealer in this district, and distributed the alleged infringing device, referred to in the case as "Emerson Model 36" receiver, subsequent to the issuance of the patent and to March 10, 1934, the effective date of cancellation of the Emerson Television-Radio, Inc., license agreement with the plaintiff.

 The plaintiff asserts an estoppel as to the defendant Abrams because the Emerson Model 39 receiver in evidence bears a metal plate patent license marking notice, setting forth that the receiver is licensed under the plaintiff's patents, though the license agreement had been terminated.

 Walker on Patents (6th Ed.) at page 436, states: "Shere a license is really forfeited, and the licensee continues to work under it as though it were still in force, the licensor has an option to sue him as an infringer, or to sue him for the promised royalties. If he selects the first of these remedies, the act of the owner of the patent is regarded as a repudiation of the license, and the license being at an end and the contractual relation having ceased, the infringer may interpose any defense that he could have set up in the absence of a license. An exception is where the licensee continues to hold forth to the public by marking the articles with the patented stamp that he is manufacturing under the patent."

 The exception noted might very well be held to be sound, as was indicated in Regina Music Box Co. v. Newell (C.C.) 131 F. 606, if it appeared that there had been a deliberate effort to hold out to the public the existence of a license after termination; but in this case it appears that Abrams gave oral instructions to the secretary of the Television Company and also to the production manager that the Hazeltine license plates should no longer be affixed to Emerson receivers. Obviously, if despite these instructions there had been such production in quantity in the affixing of the notice in violation of the oral order, one might impute guilty knowledge to Abrams. But the proof falls short of this, and in consequence I do not believe that he is estopped from asserting invalidity.

 Certainly the Davega-City Radio, Inc., is not so estopped. It appears that prior to the commencement of the present action, the Davega-City Radio, Inc., together with a number of other defendants, were charged with the infringement of the patent in suit. The Zenith Corporation, as the manufacturer of the apparatus, undertook the defense. The case was settled and a consent decree was filed. That decree provided: "8. That this decree shall not prejudice defendant, Davega-City Radio Inc.'s rights in any case brought against this defendant by the plaintiff herein, because of the sale or use by the said defendant of radio receiving apparatus other than said 'Zenith' apparatus."

 That reservation in the decree certainly reserves to the Davega-City Radio, Inc., the right to assert any and all defenses that it so elects in the present suit, for the Emerson 39 is not the Zenith apparatus, though it may be similar in principle.

 We come then to the merits of the litigation. The specification sets forth a difficulty in sound reception which the inventor sought to obviate. He aimed to prevent the overloading results in distortion of the reproduced signal. Another advantage sought is uniform reproduction of the amplified signal, irrespective of whether the carrier-current signal is received from a nearby station, from a distant or a high-power station, or a low-power station, since "it has been found in former radio receivers that when the receiver was reproducing strong signals as from a nearby, or a high-power station, the audibly reproduced signal was very loud, whereas when the signal was received from a distant, or a low-power station, it was relatively weak, with the result that if signals were to be reproduced uniformly from both near and distant stations, and from high-power and low-power stations, it became necessary to readjust some volume controlling means in the receiver to compensate for these unequal signals."

 Claims 1, 5, 6, and 10 are in issue. The defenses are invalidity and noninfringement.

 Though there has been prior litigation on the Wheeler patent, there has been no adjudication on its merits. There is, however, pending in this court a suit against the R.E.B. Service Corporation by reason of the sale by that defendant of Bosch, Colonial, and RCA -- Victor receivers. A first suit against the same defendant, alleging infringement from the sale of the Kolster Model K-130, resulted in a default by this defendant; and in consequence a preliminary injunction in the second suit was granted by Judge Moscowitz, because as to validity the default decree was res adjudicata, and no issue of infringement had been raised by the defendant's affidavits presented at the hearing. A ...


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