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Cold Metal Process Co. v. United Engineering & Foundry Co.

United States Court of Appeals for the Third Circuit · Civil Procedure

Civil ProcedureContractsPatent licensingAppealsInterest on judgmentsspecific performanceroyaltiesmaster's report

Facts

In 1927 Cold Metal agreed to grant United a license under patent claims later issued as Patent No. 1,779,195, and the parties also agreed to negotiate royalties, with arbitration if necessary. In January 1928 they exchanged letters confirming a royalty schedule of $500 per stand for mills with rolls 18 inches or less and $500 plus $65 per inch over 18 inches for longer rolls, although no formal license was ever signed. United later made and sold 4-high rolling mills within the patent claims but paid no royalties. The master's report awarded royalties on 91 mills, denied royalties on certain mills made for foreign shipment and use, denied prejudgment interest until the report date, and rejected United's attempt to avoid royalty liability based on Cold Metal's conduct.

Issue

Whether the district court correctly determined the royalty basis under the 1927 contract, correctly excluded certain foreign mills from royalty liability, properly limited prejudgment interest, and properly refused to discharge United from royalty obligations because of Cold Metal's alleged breaches. Also, whether United could avoid liability based on payments Cold Metal received from others or on arguments about particular mill configurations not timely raised below.

Rule

When a contract has been partly performed but omits a payment term, equity may enforce it by supplying the missing term in accordance with the parties' intention as shown by the evidence. Absent express contrary language, a patent license to make, use, and sell is territorially limited like the patent itself to the United States; with a combination patent, the invention is not made until all elements are completed, and sale of all elements unassembled for assembly and use only abroad does not create royalty liability. Under Pennsylvania law, prejudgment interest in an action for unliquidated contract damages is discretionary.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Pittsburgh, Aurora Forge LLC agreed in 2018 to grant Keystone Mill Systems an exclusive license under a patent application if the claims later issued. The agreement said the parties would later settle royalties, with arbitration if needed. Before any patent issued, the presidents exchanged signed letters confirming a schedule of $400 per machine plus $50 per inch over a stated size, and Keystone later built covered machines but no formal license was ever signed.

If Aurora sues in equity to enforce the agreement and recover royalties, which is the best basis for the court to use in supplying the missing payment term?

Explanation. The majority held that where the contract had been partly performed but omitted the payment term, equity could enforce it by supplying the missing term in accordance with the parties' intention as shown by the evidence. The exchanged letters established a meeting of the minds on royalties even though no formal license was later executed. Later-perceived value of the patent was not the correct measure. (Derived from Cold Metal Process Co. v. United Engineering & Foundry Co. (n.d.).)