Gordon v. Turco-Halvah Co.

LEARNED HAND, District Judge (after stating the facts as above). The first question raised is as to the propriety of a proceeding to punish for contempt, where the defendants are manufacturing under a patent of their own issued after the decree, and where the decree itself was entered by consent. We do not know the composition of the original halvah found to be within the patent on March 5, 1915, but on principle we cannot see how the fact that, the defendants are manufacturing under a new patent has any bearing upon this issue. The Patent Office does not and cannot, in granting patents, regard questions of infringement; they are concerned only with conflicting claims. Were it not so, they would have to determine whether every improvement of an existing patent was or was not an infringement, which, of course, they could not do. It is undoubtedly a fact that there is much authority in the books for the proposition that the defendant’s patent creates a presumption of noninfringement; but we observe that the Sixth Circuit has declined to follow the rule (General Electric Co. v. Electric Cont. & Mfg. Co., 243 Fed. 188, 193,-C. C. A.-), and certainly this is the only tenable principle, however strongly the contrary may be fixed in the books. [1] However, we leave that question as we find it, for we do not think that in the case at bar it is necessary to pass upon it. Similarly we do’ not pass upon the question whether it is proper practice to proceed by contempt for a new infringement, or whether the plaintiff should apply for injunction by supplementary bill. Bonsack Machine Co. v. National Cigarette Co. (C. C.) 64 Fed. 858; Crown Cork Co. v. American Cork Specialty Co., 211 Fed. 650, 128 C. C. A. 154. We cannot approve, however, the statement in Onderdonk v. Fanning (C. C.) 2 Fed. 568, that the issue of a patent to the defendant forbids calling his product a merely colorable device. We follow rather the practice laid down by the First Circuit in National Metal Molding Co. v. Tubular Woven Fabric Co., 239 Fed. 907, 153 C. C. A. 35, and approved in our recent decision, Charles Green Co. v. Henry P. Adams Co., 247 Fed. 485,-C. C. A.-, decided November 14, 1917, that in cases of a colorable evasion of the decree the District Court had the [491] discretion either to proceed by supplementary bill or to proceed directly under petition in contempt. The language in Truax v. Detweiler (C. C.) 46 Fed. 117, is to be taken with that exception implied, as appears expressly in the decision of Judge Lowell in Higby v. Columbia Rubber Co. (C. C.) 18 Fed. 601, 602. Nor do we distinguish even when the decree is by consent, else such decrees would be mere nullities. [2] We think, on the showing made before the District Judge, the change in the product was only for evasion, and fell within the exception to the general rule just stated. Saarbach’s affidavit stated the approximate proportions as he found them from the samples; they were the same as those of the claims. Wind’s more specific affidavit showed that the composition of all the halvah made was substantially like that of the Gordon patent, except for the admixture of less than 3 per cent, of corn oil. The proportions in the plaintiff’s patent were expressly stated to be only approximate, and the addition of so trifling an amount of corn oil could not have been for any honest reason. We therefore find that the interlocutory order of the District Judge was authorized, and indeed we do not see how he could have found otherwise than he did. [3] A different question would be raised by Radutsky’s testimony, on the hearing before the master, of the composition of the halvah made during the summer and autumn of 1915, and if that testimony was relevant to the issue we should be disposed to leave the plaintiff to proceed by supplementary bill. But we do not think that it should have been considered, and we agree with the master in holding that, once the plaintiffs had shown, as they did, that all the halvah made during the period of the'accounting was like the samples, it had proved its case as to the whole amount, and that the controversy was closed. The defendants had had their day in court, and had declined to contest the facts; if they had subsequently wished to do so, their only course was to ask to reopen the proceedings before the court, so as to meet the plaintiff’s proof. This they chose not to do, and the decision stood as to the samples. Unless they could, before the master, dispute the plaintiffs’ proof of the homogeneity of the halvah as a whole, it necessarily followed that they were accountable for all the profits. We cannot agree that, after the decision of the court upon the issue at that time before it, the whole evidence came again into hotchpot on motion to confirm the report. Hence we hold that all the halvah was within the decree. [4, 5] There remains only the items of the accounting. Prima facie we agree that the item for depreciation was a correct credit to the defendants, had it been properly proved. . We can find no proof of it, however, in the case, except the testimony of Radutsky, in answer to O. 339, that the item appearing in the account “was for depreciation and discarded machinery, and the machinery was also used in manufacturing tachín oil and sesame seed.” If the credit was challenged, the defendant had the burden of establishing it, and we do not think that this testimony was sufficient. There should have been some indication of what was the average life of the machinery, from which it might have been ascertained what the yearly depreciation would have been, [492] and from this yearly depreciation could have been ascertained the depreciation during the period of the accounting. The testimony is no more than a mere statement of the nature of the claim itself. We think the master was right in disregarding it. [6] We do not, however, assent to the disallowance of three-fourths of the advertising charge of $312.20. We think it should be allowed at $234.15. The advertising of a business is a necessary expense, and, unless something to the contrary appears, must be reasonably regarded as one of the means by which the profits arise. There is no reason to distinguish between it and any other expense by which sales are made, such as salesmen’s commissions, or salaries, or the like. [7] There is undoubtedly authority for the position taken by the master and the court below that taxes and insurance are not a proper credit in accounts of this sort. Winchester Repeating Arms Co. v. American Buckle & Cartridge Co. (C. C.) 62 Fed. 278, 281; National Folding Box & Paper Co. v. Dayton Paper Novelty Co. (C. C.) 95 Fed. 991; Steam Cutter Co. v. Windsor, etc., 22 Fed. Cas. 1166, Fed. Cas. No. 13,332. There are often difficulties in apportioning such items as these to the profits for a particular part of the business in question, but here the manufacture of the halvah constituted three-fourths of the whole business of the company, and we see no reason why we should not apply the rule laid down by the Court of Appealá for the Third Circuit in Carborundum v. Electric Smelting, etc., 203 Fed. 976, 985, 122 C. C. A. 276, that they are proper credits. It is true that in that case the plaintiff was entitled to all the profits of the defendant’s business realized during the accounting period, but there surely can be no difference in principle between a case where the plaintiff is entitled to all the profits and to an aliquot part. General charges of the character of insurance and taxes can only be apportioned upon that jpart of the profits which the infringing device affects; but, when this can be accurately done, it is in accordance with equity and good sense that the defendant should get credit for what was a necessary condition to the creation of profits at all. We therefore allow a credit of three-fourths of this sum, amounting to $268.14. [8] As to the item of $93, for a copy of the stenographic minutes, our decision in Stallo v. Wagner, 245 Fed. 636, - C. C. A. •-, applies only to such items when an attempt is made to tax them as part of the costs; but this is a proceeding for contempt, and, while we have no power to impose a penalty, we do have power to make the plaintiff whole for all reasonable expense to which he may have been put, including a counsel fee. As we regard the charge for copies of stenographer’s minutes as a reasonable disbursement, we deem it just' that the plaintiff should he made whole for that expense, even though he could not have taxed it in his bill of costs. With the modifications above indicated, the decree is affirmed, without costs.