
    HARVEY STEEL COMPANY v. THE UNITED STATES.
    [No. 21110.
    Decided May 25, 1903.]
    
      On the Proofs.
    
    The action is upon an express contract for the right to use an invention patented and known as the “Harvey process for hardening armor plates.” The defendants interpose all the defenses that would be admissible in an action on an implied contract or in an action for an infringement.
    I. If an action for the use of a patented invention is founded on implied contract, substantially all of the defenses may be interposed which would be admissible, if the action were for an infringement; but if the action is upon an express contract the court will not enter into an examination of the patent; of the construction which should be given to it; of the state of the art, or of any of those questions which would properly be subjects of consideration if the action were ex delicto, i. e., for an infringement. The case must be' determined by the law of contract. Wright, J., dissenting.
    II. Where the defendants entered into a contract with a patentee for the future use of the Harvey process lor hardening armor plates; advertised for 6,000 tons of armor plate “to be treated by the Harvey process;” notified manufacturers in the advertisement that their bids “must not include anything for royalties,” as the defendants had ‘1 acquired the right to use said process; ’ ’ entered into contracts with manufacturers for armor plate to be so treated by the process; accepted and paid for the plate manufactured as plate which had been so treated, thereby precluding the patentee from proceeding against the manufacturers for an infringement, they are estopped from questioning the obligations of their contract by setting up defenses which should have been set up, if at all, in an action by the patentee against the lhanufacturers for an infringement. The defendants can not hold the patentee to the obligations of the contract and then involve him practically in the risks and expenses of an action e.v delicto. Wright, J., dissenting.
    III. Where the defendants, knowing that plates had been manufactured by a process varying slightly from that described in the patent, accepted the plates from the manufacturers and paid the royalty without objection to the patentee, and continued to manufacture, ostensibly under their contract with him, they can not allege as to subsequently manufactured plates, that the same variations constituted a process not covered by the patent. They should have'notified the patentee of the new attitude they intended to assume and have left him free to test the materiality of the variations by proceedings against the manufacturers.
    IY. Where the contract provides that 10 per cent of royalties due shall be withheld until 11 said process shall have been tried and found to be efficient, and in the judgment of the Secretary of the Navy of satisfactory value,” and the Secretary so decides, his decisionunreversed is conclusive, upon the defendants, and they can not set up the defense of failure of consideration by attacking the validity of the patent.
    V. Where the contract contains a warrantee of a right to manufacture and use undisturbed, it is incumbent upon the defendants to show that they have been ousted from the purchased right by some superior patentee or disturbed in the exercise of it.
    VI. When armor plates treated by a patented process are manufactured and delivered and accepted and paid for, the patentee’s cause of action, for his royalty, apart from some reservation in the contract, is complete.
    YII. Where the contract provides that “if it should at any time be judicially decided that the party of the first part is not legally entitled under the letters patent aforesaid to own and control the exclusive right to the use and employment of said process,” “then the payment of royalty under the terms of the agreement shall cease,” the “judicial decision” must exist when the cause of action becomes complete. The defendants can not subsequently set up such a defense, which does not yet exist, by seeking to obtain such a decision in a suit for royalty that has become due. Wright, J., dissenting.
    
      
      The Reporters' statement of the case:
    The following are the facts of the case as found by the court:
    I. The Harvey Steel Company, the claimant herein, is, and at all times since the year 1887 has been, a corporation created, organized, and existing under the laws of the State of New Jersey.
    II. On the 29th day of September, 1891, letters patent of the United States, bearing date on that day, and numbered 460262, had been granted to the said Hayward A. Harvey, for such ‘ ‘ Harvey ” process and armor plates, and by a written assignment, dated October 7, 1891, the said letters patent had been assigned to and had become vested in the claimant, who then, and at all times thereafter, has continued to be, and now is, the owner of all patented rights in and to said process and armor plates, and all rights otherwise acquired for practicing, using, or producing the same.
    III. In 1890 the claimant exhibited to the Chief of the Bureau of Ordnance of the Navy Department an armor plate, and informed him that Mr. Haywai’d A. Harvey had discovered a process for hardening such plates which would produce plates of a combined hardness and toughness which had not yet been attained by manufacturers. To test this invention the Chief of Ordnance procured two plates from well-known manufacturers — the Linden Steel Company — hardened by known existing methods. One of these was given to the claimant to harden by the Harvey process. The other was retained by the Ordnance Bureau. Both were subjected ultimately to the same test. The Chief of Ordnance officially reported this test to the Secretary of the Navy as follows:
    “One plate, about 2£ feet square and 6 inches thick, was carbonized, in a gradually decreasing amount, to a depth of 3 inches, and subjected to a comparative ballistic test by the attack of a 6-pounder Hotchkiss projectile, with a similar plate untreated. The resulting penetration in the untreated plate was about 3 inches. In the carbonized plate it was nil, the projectile being completely shattered.
    “In view of these results, which were reproduced and corroborated by further experiments, the Bureau has ordered an untreated armor plate 8 feet by 6 feet by 10£ inches, and proposes to have erected at the Washington Navy-Yard the necessary plant for treatment by the Harvey process. It will then be-subjected to a ballistic attack with the 6-inch gun, anda comparative study made with the effects upon the foreign plates recently tested at Annapolis.
    “The object of the experiments, as will be apparent, is the development of an armor plate which shall possess a superficial hardness and the toughness inherent in all steel, or one of its alloys.”
    IV. In February, 1891, the Chief of Ordnance, to further test the Harvey process, procured two armor plates from a foreign manufacturer — Schneider & Co. — known as Creusot plates. One of these in like manner was retained by the Ordnance Bureau and one the claimant hardened by the Harvey process, and both were subjected to the same test. The Chief of Ordnance officially reported the results of this test to the Secretary of the Navy, as follows:
    “In February last took place the test of the Creusot 10-g-inch steel plate, which had been treated by the Harvey process at the Washington Navy-Yard. The plate was attacked by seven 6-inch armor-piercing shells, three Holtzer and four Carpenter, fired from a 6-inch gun of 35 calibers, the striking velocity being 2,065 foot-seconds. . The greatest penetration was 4 inches, except in one round, that at the center of the plate, where the point of the shell reached the backing. All the projectiles were, broken up. The plate was cracked, but until the last round none were detached from the backing; at this round about one-eighth of the plate fell to the ground. These results are remarkable and indicated to the Department a probability that in this treatment has been found the means of producing the ideal armor plate — a hard front combined with a tough back, without any weld or other line of demarcation between the two.”
    V. Following these tests, on the 3d day of March, 1891, at the request of the Navy Department, an option was given by the claimant to the Navy Department to purchase the right to use and employ the “Harvey” process for treating armor plates, as the same had been exhibited to the Navy Department, on the following terms, viz: That if the process, after further tests, should prove of value, said Navy Department should have the right, on demand, to use the said process upon all armor which should be applied to vessels, the construction of which had at that time (March 21, 1892), been authorized by Congress, at the rate of one-half of 1 cent per pound of the weight of the finished plates, until the said royalty should amount to the sum of $75,000, and in the event of the authorization bj^ Cong'ress of the construction of other vessels of war, other than those then authorized, a new contract for the further application of the said “ Harvey” process was to be made, if the Navy Department should so desire. It was also understood that the Navy Department would undertake and bear all the expense of the experimental deAmlopment of the process as applied to armor plates, and that said Hayward A. Harvey should furnish, in consultation with the Bureau of Ordnance, all details then in his possession, or which he might personally develop in the perfection of his methods.
    VI. On the 3d day of March, 1891, the Navy Department accepted the offer or option of the claimant, and agreed to comply with the terms thereof; and on the 21st of March, 1892, the following contract was entered into by and between the claimant and the Secretary of the Navj^:
    “Memorandum of an agreement of two parts, made and entered into this twenty-first day of March, A. D. 1892, bj' and between the Harvey Steel Company, a corporation created under the laws of the State of New Jersey and doing business in' said State, represented by the president of said corporation, of the one part (hereinafter called the party of the first part), and the United States, represented by the Secretary of the .Navy, of the other part (hereinafter called the party of the second part).
    “Whereas the party of the first part is the owner of all and singular the patented rights in and to a certain - process, known as the ‘ Harvey process,’ for the treatment of armor plate for use in the construction of vessels; and
    “ Whereas the parties have agreed and do hereby agree that, upon the terms hereinafter stated, armor plate manufactured or treated under the said ‘ Harvey process ’ shall, so far as possible, be supplied to such of the following-described naval vessels as the Department may from time to time designate, to wit:
    “Cruiser No. 6. Amphitrite.
    “Cruiser No. 7. Monadnock.
    “Cruiser No. 8. Terror.
    “Cruiser No. 9. Texas.
    “Cruiser No. 10. Maine.
    “Cruiser No. 11. Monterey.
    “Cruiser No. 12. New York.
    
      “Cruiser No. 13. Indiana.
    “Gunboat No. 5. Massachusetts.
    “Gunboat No. 6. Oregon.
    “Puritan. Ram.
    “Whereas the said Harvey Steel Company, under date of March 3, 1891, in a communication signed by B. G. Clark, president; H. A. Harvey, general manager, and Theodore Sturges. treasurer, agreed to give the Navy Department the option of purchasing the right to use and employ the ‘Harvey process’ for treating armor plates, as follows:
    “We hereby agree to give to the Naval Depai'tment an option for the purchase of the application of the Harvey process for treating armor plates, which was tested at the Naval Ordnance Proving Ground, Annapolis, Md., February 14, 1891, on the following terms, viz:
    “ In the event of the process proving of value, after further tests, and upon the demand by the Naval Department for its application to armor plating, the sum of §75,000 is to be paid by the latter to the Harvey Steel Company as royalty therefor, and as utilized, at the rate of one-half (|) of one (1) cent per pound of the weight of the finished plate. This royalty of one-half ($) of one (1) cent per pound is to cease when the said sum of §75,000 has been paid.
    “The Navy Department is to have the right to use the process, should it so desire, without further compensation, upon all armor plating which is to be applied to vessels, the construction of which is authorized by Congress at this date. In the event of the authorization by Congress of the construction of other vessels of war than those above mentioned, a new contract, for the further application of the Harvey process of treating armor plates, is to be made between the Naval Department and the latter, should the Department so desire.
    “It is understood that the Naval Department will undertake to bear all the expense of the experimental development of the process as applied to armor plates, our Mr. Harvey to furnish, in consultation with the Bureau of Ordnance, all details at present in his possession in regard to the process, or which he may personalty develop, in the perfection of his methods of treatment as applied to armor plating. ,
    “Whereas the Navy Department, under date of March 3, 1891, in a communication signed by Wm. M. Folger, Chief of the Bureau of Ordnance, accepted the terms of the offer of the Harvey Steel Company, as stated in the communication above mentioned, and by this agreement does accept the option offered by the party of the first part in the first paragraph of said communication; and
    “ Whereas the party of the second part has agreed and does hereby agree to also pay, as hereinafter set forth, the expense of applying said process in the manufacture or treatment of said armor plate:
    “Now, therefore, it is mutually understood, covenanted, and agreed by and bétween the parties hereto that the party of the second part, upon the terms, herein stated, may use and employ, in the treatment of armor plate manufactured or to be manufactured for naval vessels, as hereinbefore stated, the hereinbefore mentioned process known as the ‘ Harvey process. ’
    “ The party of the first part, in consideration of the premises, and provided the said process of treating said armor plate shall be conducted at the Bethlehem Iron Works, at South Bethlehem, Pennsylvania, or elsewhere, under the direction of the party of the first part, hereby guarantees that, in addition to the hereinbefore mentioned royalty of one-half of one cent per pound, to be paid by the party of the second part to the party of the first part, upon armor for vessels which have been authorized by Congress up to March 3, 1891, the additional cost to the party of the second part of applying the Harvey process, hereinbefore referred to, to the armor plate, as aforesaid, shall, during the period of one 3rear from the date hereof, be nine-tenths of one cent (§0.009) per pound of the finished plate, .and that after the expiration of the period of one year from the date.hereof the said additional cost to the party of the second part shall not exceed nine-tenths of one cent per pound of the finished plate, and in case it shall be found that the actual cost of the application of the said process to the armor plate shall have been diminished during one year from the date hereof, then the said additional cost to the party of the second part shall thereafter be equal to the said actual cost of the application of such treatment to the armor plate plus one-half (£) the difference between said actual cost of application and the sum of nine-tenths of one cent (§0.009) per pound of the finished plate.
    “The party of the first part hereby further covenants and agrees that it will hold and save harmless, and, at its OAvn expense, defend the United States from and against all and every demand or demands for or on account of the use and employment of the ‘ Harvey process,’ above mentioned, in the manufacture or treatment of armor; and from all and every demand or demands which shall hereafter be made for the payment of any sum or sums of money in excess of the aforesaid cost for royalty and treatment of armor under said process, to be paid as hereinbefore specified and provided for in this contract.
    “ Finally, it is hereby mutually understood, covenanted, and agreed by and between the parties hereto that the party of the second part shall render to the party of the first part quarterly reports of all armor plate manufactured or treated under the said Harvey» process, which the party of the second part shall have received during the three months next preceding the dates of such reports, respectively', and within a period of thirty days after the rendition of each of said quarterly reports the party of the second pai't shall pay to the party of the first part such sum of money as may? be required to cover the said royalty of one-half of one cent per pound, and also the cost of treatment by said Harvey process of the armor plate which shall have been received by the part}1- of the second part during’ the three months next preceding the commencement of said period of thirty»' days; it being hereby» understood and agreed that the first of the said quarterly reports shall be rendered On' or before the first day of May, 1892, and shall be thereafter rendered every three months until all the armor treated for vessels authorized by Congress to March 8,1891, shall have been received by the party» of the-second part.
    VII. Thereafter additional trial armor plates, treated in accordance with said “ Harvey ” process, were subjected to numerous experimental tests by the claimant and by» the officers and agents of the United States, Avhich demonstrated the beneficial results of the said “Harvey»” process, and on the 8th day» of October, 1892, the claimant was notified that the said process was definitely and formally» adopted by» the Navy» Department by the following letter:
    “DEPARTMENT OP THE NaVY,
    “Bureau of OrdnaNce,
    
      “Washington, D. 0., October 8, 189%.
    
    “The Harvey Steel Co.,
    “ BewarJe, J5T. J.
    
    “ Sirs: Your letter of the 29th ultimo, addressed to the honorable Secretary» of the Navy, has been referred to this Bureau, which has cognizance of the matter.
    . “You are informed that the Harvey process for armor plate has been definitely adopted by» the Navy Department.
    “Respectfully,
    “Wm. M. Folger,
    ‘ ‘ Chief of Bureau. ”
    VIII. Acting under the requirement of said contract of March 21, 1892, by» which the claimant agreed that their Mr. Hayward A. Harvey should furnish to the United States all details then in his possession in regard to the process, or that he might develop in the perfection of his method of treatment, the said United States, on February 18, 1893, and on March 14, 1893, required the said claimant and the said Hayward A. Harvey to furnish and reveal to tb.e Navy Department its secret process and improvements, and thereupon the claimant did so reveal the same.
    IX. On the 30th day of March, 1893, the defendants having at'that time utilized the said ! ‘ Harvey ” process, not only in the construction of armor for vessels authorized by Congress prior to March 21, 1892, but also for the armor of other United States vessels of war, to wit, the Iowa and the Brooklyn, authorized since that date, and for which no contract had existed, and the royalty for the use of said process calculated at the rate of one-half of 1 cent per pound upon 8,576.47 tons of armor, then amounting to the sum of $96,056.46, the Navy Department, acting by its Secretary of the Navy and by W. T. Sampson, then Chief of its Bureau of Ordnance, proposed a settlement between the said Navy Department and the claimant upon the following terms, viz: That the defendant should at once pay to the claimant the said sum of $96,056.46, and should pajT a royalty of one-half cent per pound on all future contracts for armor to be treated ly the “Harvey” process, and that the claimant should furnish all information regarding the composition of the compound employed in the said process and its application in possession of the company, and any improvements which it might make in said process at any future time.
    X. On the 12th day of April, 1893, the Navy Department entered upon a new contract with the claimant, in and by which it agreed to pay to the said claimant the sum of $96,056.46 (it being understood, however, that 10 per cent of the said sum should be withheld by the United States until, upon the receipt of the formulae for the compounds used and employed in the application of the Harvey process, said process should be used and found to be efficient, and in the judgment of the Secretary of the Navy of satisfactory value), and should have the right to employ the said process on all vessels of war which might, after July 19, 1892, be authorized by Congress upon the payment of royalty of one-half of 1 cent per pound for' the finished plate; and the defendants, on or about the 12th day of April, 1893, paid to the said claimant the said sum of §96,056.46, less the 10 per cent reserved therefrom. The contract is in the terms following-:
    “Memorandum of an agreement, of two pai’ts, made and entered into this 12th day of April, A. D. 1893, by and between the Harvey Steel Company, a corporation created under the laws of the State of New Jersey and doing business in said State, represented by the president of said corporation, of the one part (hereinafter called the party of the first part), and the United States, represented by the Secretary of the Navy, of the other part (hereinafter called the party of the second part).
    “Whereas the party of the first part is the owner of all and singular the patented rights in and to a certain process, known as the Harvey process, for the treatment of armor plates for use in the construction of vessels, and of the exclusive right to the use and employment of armor plates manufactured according to said process, as particularly set forth in letters patent of the United States, No. 460262, issued September 29,
    1891, to Hayward A. Harvey, of Orange,-New Jersey, for certain improvements in decrementally hardened armor plates and in the art of manufacturing the same; and
    “ Whereas an agreement was made and entered into, under date of March 21, 1892, by and between the aforesaid parties hereto, whereby the party of the first part granted to the party of the second part the right to use and employ the Harvey process aforesaid in the manufacture of armor plates for certain vessels of the Navy therein named for the sum of $75,000, to be paid by the party of the second part to the party of the first part as royalty therefor, and as utilized, at the rate of one-lialf of one cent per pound of the finished plate, the party of the first part guaranteeing that the cost to the party of the second part, of the application of said process to armor plates, shall not exceed nine-tenths of one cent per pound of the finished plate, provided the application of such process should be made under the direction of the party of the first part; and
    “ Whereas the party of the second part has entered into an agreement with the Bethlehem Iron Company, of South Bethlehem, Pennsylvania, for the treatment, according to said Harvey process, of armor plates for certain of the vessels mentioned in the aforesaid agreement, at a price in excess of the limit guaranteed by the party of the first part hereto, as aforesaid, the application of such process not to be made under the direction of said party of the first part,
    “Now, therefore, the aforesaid agreement of March 21, 1892, is hereby canceled and annulled, and it is hereby mutu-all}' understood, covenanted, and agreed by and between the parties hereto, that for and in consideration of the premises and in consideration of the sum of ninety-six thousand and fifty-six dollars and forty-six cents ($96,056.46) to be paid by the party of the second part to the party of the first part as royalty, the party of the second part may, upon the terms hereinafter stated, use and employ in the treatment of armor plates manufactured or to be manufactured for all naval vessels, the construction of which was authorized by Congress up to and including July 19, 1892, the aforesaid Harvey process, and may use and employ the armor plates for said vessels manufactured according to said process, it being understood, however, that ten per cent of said sum shall be withheld by the party of the second part until, upon the receipt of the formulae for the compounds used and employed in the application of the Harvey process, said process shall have been tried and found to be efficient and, in the judgment of the Secretary of the Navy, of satisfactory value.
    “The party of the first part hereby further covenants and agrees that it will hold and save harmless, and at its own risk and expense defend the United States from and against all and every demand or demands for the payment of any sum or sums of money in excess of the aforesaid sum of $96,056.46 as royalty for or on account of the use and employment of said process in the treatment of armor plates under this agreement, or of the armor plates manufactured in accordance therewith, and from and against all and every demand or demands for or on account of any infringement or alleged infringement of patented rights appertaining to said process or plates.
    “It is hereby further mutually understood, covenanted, and agreed by and between the parties hereto that the party of the second part shall have the right to use and employ the aforesaid Harvey process in the treatment of armor plates for vessels which have been since July 19, 1892, or which may hereafter be authorized by Congress, and to use and employ armor plates for such vessels manufactured according to said process, paying therefor to the party of the first part a royalty of one-half of one cent per pound of the finished plate.
    “It is hereby further mutually understood, covenanted, and agreed by and between the parties hereto that the party of the first part shall furnish full and complete information regarding the composition of the compounds employed in the Harvey process, and the application of the same, and shall impart to the party of the second part all information concerning any and all improvements which said party of the first part may, at any time in the future, make in or upon said process as covered by the aforesaid letters patent, and that the party of the second part shall have the right to adopt and use and employ any or all of such improvements in said process, and'to use the armor plates manufactured in accord anee therewith under the terms of this agi’eement, without the payment of any compensation or royalty therefor to the party of the first part, in addition to that to be paid as hereinbefore stipulated.
    “It is hereby further mutually understood, covenanted, and agreed by and between the parties hereto that this agreement shall not, nor shall any interest herein, be transferred by the party of the first part to any other person or persons, and that no member of or delegate to Congress, officer of the Navy, nor any person holding any office or appointment under the Navy Department, shall bo admitted to any share or part of this agreement or to any benefit to arise therefrom; but this stipulation, so far as it relates to members of or delegates to Congress, shall not be considered to extend to this agreement, it being made with an incorporated company.
    “It is hereby further mutually understood, covenanted, and agreed by and between the parties hereto, that if, at any time, the party of the first part shall fail to comply with and fulfill the terms, conditions, and' requirements of this agreement on its part, the party of the second part may demand and recover from the party of the first part, on account of such failure, and as liquidated damages, a sum of money equal to the penalty of the bond accompanying this agreement, and that in case it should at any time be judiciously decided that the party of the first part is not legally entitled, under the letters patent aforesaid, to own and control the exclusive right to the use and employment of said process and the decre-mentally hardened armor plates produced thereunder, as set forth in the letters patent aforesaid, then the payment of royalty under the terms of this agreement shall cease, and all sums of money due the party of the first part from the party of the second part, as royalty for the use and employment of said process, and armor plates, as aforesaid, shall become the property of the party of the second part.
    “The party of the second part, in consideration of the premises, hereby covenants and agrees that all warrants for payments to be made in accordance with the terms of this agreement shall be made payable to the party of the first part or its order.
    XI. Afterwards, on or about December 7,1893, the defendants’ officers being satisfied that the claimant had complied with the said contract of April 12, 1893, and demonstrated the value and efficiency of the process, the 10 per cent withheld by the United States under said contract of April 12, 1893, was paid over to the claimant.
    XII. Thereafter the said Navy Department having- entered into certain contracts for the price to be paid in the cost of treatment of armor plates by said “ Harvey” process by the Bethlehem Iron Company and by the Carnegie Steel Company, Limited, two large armor-making concerns, the Congress of the United States, by act approved on or about March 2,1895, authorized the construction of two battle ships for the United States Navy, which were known respectively as No. 5 and No. 6, and subsequently named the Kearsarge and Kentucky, and on or about the 15th day of April, 1896, the United States, by the Secretary of the Navy, issued and had advertised on that day inviting proposals for the supply of nickle-steel armor plates for the said two battle ships, to the amount of about 6,000 tons, the said advertisements requiring of the bidders that the said armor plates should be “treated by a process of super-carburization known as the ‘ Harvey’ process,” and the said advertisement further stating to the bidders as follows:
    ‘ ‘ The prices paid for armor treated by the ‘ Harvey ’ process must not include anything for royalties, as the Department has acquired the right to use said process, and will indemnify the contractors against all claims thereof.”
    XIII. The Bethlehem Iron Company and the Carnegie Steel Company, Limited, having made bids in accordance with said specifications and advertisements, the United States, on or about the 1st day of June, 1896, by its Secretary of the Navy, entered into two separate contracts with said companies, respectively, in which they agreed to furnish in certain proportions the armor described in said advertisements and circulars, including therein the “Harveyed” armor; and in compliance therewith proceeded to manufacture and treat the armor plates as foresaid, and supplied and-delivered the same in due course to the United States. These plates were manufactured under the inspection and supervision of officers and agents of the Ordnance Bureau, and were accepted and paid for by the Bureau as having been treáted by the Harvey process.
    XIV. The weight of the finished plates of said armor so treated and supplied to the United States by the said Bethle-bem Iron Company and the Carnegie Steel Company, Limited, for the said battle ships Kearsarge and Kentucky, at the rate of royalty of one-half of 1 cent per pound for the finished plate amounted to the sum of $60,806.45, and the said sum is now wholly due and unpaid.
    The claimant has applied to the United States and the Secretary of the Navy for payment of said royalty, which has been refused, and there is now due and owing from the United States to the said claimant, under the said contract of April 12, 1893, as royalties for armor used for said battle ships Kearsarge and Kentucky, the sum of $60,806.45.
    XY. It has never at any time been judicially decided that the claimant is not legally entitled, under the letters patent No. 460262, to own and control the exclusive right to the use and employment of the process aforesaid, and the decrement-ally hardened armor plates produced thereunder.
    
      Mr. F. 11. Betts and Mr. J. B. Soley for the claimant:
    The law is clear that a party who has contracted to pay royalty for the use of a patented process, with full knowledge of what he was contracting for, and who has had the benefit of the use of such process, can not resist payment of such royalty on the plea that the patent granted is invalid. (3 Bobinson on Patents, 692; -35 O. G., 1339; Walker on Patents, 2d ed., 235; Bartlett v. Holbrook, 67 Mass.; White v. Lee, 14 F. R., 789, 114; McKay v. Jackman, 17 F. R., 641; Oorrell v. Boqfi-wick, 39 F. R., 641; Stott v. Butlurford, 92 U. S., 107; McKay v. Smith, 39 F. R.,'556, 557, 558; Taylor v. Hall, 1 N. R., 260; BirclsaU v. Perigo, 5 Blatch., 253; Crosshy v. Dixon, 10 H. of L. cases, 306; Clark v. Adie, 2 App. Cases, 425; Marstonv. Sweet, 66 N. Y., 206; Evoryv. Candie, 17 Blatch., 234; M. B. Co. v. E. C. Co., 8 0. G., 773.)
    This rule is particularly applicable to the present case, for here the process was revealed to .the Government long before it was patented, and the Government made its contract not especially upon the patent, but based on the exhibition and test of the process which had been exhibited to it, and after numerous and repeated subsequent careful tests.
    It protected itself by a special clause in the agreement against payment of royalties after a judicial determination of the invalidity of the patent, or its inability to cover and protect the process and product. Nothing of the kind has occurred. Surely this clause does not permit the Government to contract for and use the process and receive the full benefits from it and resist payment for what they have used by then, for the first time, alleging that the patent is invalid.
    
      Mr. William 11. Button (with whom was Mr. Assistant Attorney,-General Pradt) for the defendants:
    It is contended by the claimant that it is not open for the United States to roly upon the invalidity of the patent as a defense to this action. This is a technical contention, based upon the proposition that a licensee can not set up the invalidity of a patent as a defense to a suit for royalties brought by the licensor. That this proposition is as a general principle correct is shown by the authorities that have been cited by the claimant in its brief. A case more particularly in point upon this proposition is that of St. Paul Plow Go. v. Starling (140 U. S., 195).
    It may be stated upon these authorities that a contract of license to use a patented process does not imply any warranty of the validity of the patent, and that consequently proof of invalidity is no defense to a suit for promised royalties.
    It has further been held that a contract of license to use a patented process or invention, which is unlimited in time, is a contract for the full period of the life of the patent and can in no wiseobe abrogated by the licensee, but the licensee must pay the royalties if he uses the patented process or invention at any time during- the life of the patent. It will be seen that these holdings are very rigid in regard to the rights of the licensor, and may oftentimes result in a situation in which a licensee is obliged to pay royalties upon the use of a process or invention which had no right to the protection of a patent and the patent for which is invalid.
    These constructions simply point out the wisdom of protecting the rights of the licensee in this regard by express contract provisions, and the question in this case is whether or not the United States has been protected by its contracts with the claimant in such manner as to relieve it of the consequences above pointed out.
    
      It has been pointed out that the contract relations between the claimant and the United States began by the giving of an option by the claimant to the United States upon March 3, '1891, providing that the Navy Department might purchase the right to apply the Harvey process to armor plates upon certain terms. At that time the patent had not been obtained. This option was followed up on March 21, 1892, by the first contract between these parties, in which no provision was made in regard to the invalidity of the patents. This contract was made after the Harvey patent had been obtained. Under this contract the principles which are contended for by the claimant would undoubtedly have applied, but that contract was abrogated on April 12, 1893, by the contract which is now in force. This contract provides for the use of the patented process upon the payment of certain royalties, but the following provision was inserted in regard to the validity of the patent:
    “In case it should at any time bo judicially decided that the party of the first part is not legally entitled under the letters patent aforesaid to own and control the exclusive right to the use and employment of said process and the decremen-tally hardened armor plates produced thereunder, as set forth in the letters patent aforesaid, then the payment of royalty under the terms of this agreement shall cease, and all sums'of money due the party of the first part from the party of the second part as roj^alty for the use and employment of said process and armor plates as aforesaid shall become the property of the party of the second part.”
    The claimant contends that this provision simply means that in case some parties, strangers to this contract, establish the invalidit}'- of the patent in judicial proceedings the royalties shall cease, but that it is not open for the United States itself to establish such invalidity. On the other hand, the defendant submits that this clause was inserted for the express purpose of allowing the United States to defend on this ground in case it became convinced that the patent was invalid.
    This contract must be interpreted in the light of the subject-matter to which it relates and tbe circumstances under which it was entered into. This clause must have been inserted for the purpose of accomplishing some object of some consequence to one of the parties to the contract. It could not have been' intended to apply in a case in which the manufacturers of armor plate for the United States should be enjoined by other parties from the practice of the process, because if the United States or its agents were enjoined that fact of itself would amount to an eviction and bring- the contract for royalties to an end, and no such clause was necessary to protect the United States in that regard. (Walker on Patents, third edition, section 307; American Electric 'Co. v. Gas Company, 47 Fed. Rep.-, 43; Consumers Qas Co. v. Electric Co., 50 Fed. Rep., 778.)
    Neither is the construction insisted upon by the claimant reasonable.
    On the other hand, the construction contended for by the defendant would be of direct benefit to the United States, and directly in lino of protecting the interest of the United States in a very reasonable manner, and such a construction is more particularly necessary in the case of a party which contracts, as the United States does, through various officers, than it would be in the case of an individual.
    This- is the only construction that can be given to this clause which comports with the situation and makes it a.reasonable one. If the claimant has something of value it should be paid for; if, on the other hand, it has nothing of value, it should not be paid for, and it is for this court to say which the situation is.
    In the construction of' the contract, which the claimant contends for, the application of the principles of law work great injustice, in that it would compel the defendant to pay large sums of money for which it has received no consideration whatever.
    The doctrine of estoppel, upon which the principle invoked by the claimant is based, was applied to contracts of license, for the reason that even though it might transpire that the patent was void, yet if the licensee was enjoying a practical monopoly, it did not make much difference to him whether that monopoly was secured by- a patent which was- valid or invalid.
    This led to the conclusion that where a patent was successfully defied by various persons to such an extent as to do awaj1, with the monopoly, sucb circumstances amount to an eviction. (Walker on Patents, third edition, sec. 307.)
    This reasoning does not equally apply to the United States, for the reason that this contract created no monopoly, and was not intended to, and the nature of the product is sucb that it would be impracticable to create a monopoly, there being but one consumer in the United States.
    In this case the United States must have done something which induced the claimant to assume a position which it would not otherwise have assumed and which would be to its damage. JSio such circumstance is disclosed in the present case. The United States made a contract, not with the claimant, but with third parties for the furnishing of certain armor to be treated by the claimant’s process. The claimant took no action in the matter and was not induced to change its position. Furthermore, an estoppel only operates against a party or a privy who has been deceived by the conduct of the other party.
    If this armor had been ordered of the Harvey Company, and that company had furnished it to the United .States as being treated by the Plarvey process and the United States had accepted it, it might be claimed that the United States was estopped from denying that it was properly treated, but in this case the acceptance was from an entire stranger to the claimant and it is manifest that no estoppel could arise.
    These principles are fully set forth in Pomeroy on Equity Jurisprudence, second edition, section 813.
    On the other hand the contention may mean that the United States would not contract for armor to be treated by the Harvey process and accept it unless the armor was so treated— that is, the acceptance by the United States of this armor, which the contract required to be treated, is evidence of the fact that it was so treated.
    It may be that these circumstances in the absence of any further considerations would be some indication that the armor Avas treated by the Harvey process, but the Aveight of this evidence must be determined by a consideration of the circumstances of the acceptance of the armor and what that acceptance means. The contracts with the Carnegie and Bethlehem companies state nothing about what the Harvey process is, except they simply say that certain of the armor is intended to be “harveyed,” — subjected to the Harvey process — and it is stated that the contractors will be saved harmless from any actions for infringements or royalties on account of the use of such process.
    It is apparent that the acceptance by the United States of any armor plates under these contracts simply means that the finished plates presented the requisite uniformity of physical qualities and the ability to resist the ballistic tests prescribed and such plates would be accepted under the contracts irrespective of the manner in which they were manufactured.
    If the armor companies produced face-hardened plates by a process entirely distinct from the Harvey process, they would have been accepted by the United States, provided they successfully" endured these tests.
    Under such circumstances the fact that the United States tested the plates and accepted them is very weak evidence of whether or not they were ever subjected to the Harvey process.
    The finished plates, in order to be within the patent, must be those produced by the exact process described in the patent, because there is prefixed to the second claim the statement that the plates covered by the claim must be the product of the before-mentioned process.
    It appears that what information the United States had at the time it entered into these contracts was what was derived from the four tests referred to, which were tests of plates and not of .the process, and the information that could be derived from the patent itself. The information that the Government .derived from the patent is that the process intended is the one pointed out as the proper construction, and no other information can be said to have been furnished the United States by the four tests referred to.
    These circumstances do not indicate any great acknowledgment on the part of the United States that the process which was applied to the plates of the Kentucky and the Kearsarge is the process which is described in the patent for which the contracts were made. The contracts themselves indicate that there was considerable mystery about the process, so far as the ordnance officers were concerned. The option provided that the patentee should furnish all the information he had and which he might obtain. The first contract provided that the process should be applied under the direction of the claimant and the last contract provided that the claimant should furnish full information in regard to the nature of the carbonaceous material which he used.
    Besides the inaccuracy in stating that the United States had tested this process and was familiar with it at the time the contract was made,. as already pointed out, there is a further inaccuracy in the statement that the process, as used by Mr. Harvey on the first plates that were tested, is the same as that applied to the plates for the Kearsarge and the Kentucky.
    It therefore follows that even if the United States had examined and tested the process, as distinguished from the product, before the contract was made, it was familiar with a process that was very different from the one that was applied to the plates in this suit, and one which differed from the latter process in the very essential element of temperature.
   Nott, Ch. J.,

delivered the opinion of the court:

Actions founded upon patented inventions fall into three classes.of cases: First, ordinary suits for infringement, which are in their nature ex delicto and of which jurisdiction is to be found exclusively in the Federal courts; second, actions on express contracts for the purchase and sale of inventions either to the full extent of the patent or for some limited user of the invention, which are as purely ex contracto as other actions for the purchase and sale of other property. Of these cases State courts have jurisdiction. Third, actions on implied contracts for the taking and user of an inventor’s property where the circumstances were such as to imply that the defendant did not intend to do an unlawful act, and that the claimant consented to the taking. These cases have so far appeared only in suits against the Government.

This is the first patent case which has come into this court founded upon an express contract. As a number of other patent cases came before the court about the same time this, with the others, has been held for more than ordinary consideration.

All of the cases which have hitherto come before the court have been founded apon implied contracts. In such cases all defenses were open to the defendants — the Government— which are open to ordinary defendants .in ordinary actions for infringement. They could set up another-title, a license under another antecedent patent; they could attack the validity of a patent, and show that the invention which they apjTropriated was not property; they could maintain that the device which they manufactured differed in essential particulars from the device which the inventor had protected by letters patent; they could show facts negativing’ a presumption to claim a royalty, such as, in actions for infringement, come under the designation of “implied license.” In a word, they could always treat such suits — and, in fact, their counsel always have treated such suits — as if they were actions for infringement. In the proffer of evidence and the earnestness of argument the distinctions between actions ex delicto and actions ex con-tracto have repeatedly been lost sight of. It is therefore not surprising that this suit has been defended (and with great ability) precisely as have all the other's which have gone before it. But the court, nevertheless, must now consider whether its duties extend further than declaring and determining the contractual rights and obligations of the parties.

In 1890 the Government, like the governments of all other countries, was unable to manufacture or procure properly hardened plates for armored vessels. It was in this dilemma: That if the plates were sufficiently heavy to withstand an ene-rajCs shots, they would sink the vessel; and if they were sufficiently light to leave the vessel a floatative, manageable marine machine, they could be penetrated or shattered by an enemy’s guns. In other words, artillery was then in advance of defensive armor. Such being the case, the inventor of the Harvey process went to the Chief of Naval Ordnance and informed him that he had discovered a process whereby the ideal combination of an exceedingly hard surface with an exceedingly tough interior could be obtained. The assertion was tested by two.of the severest practical tests that could be devised. Two hardened plates were procured from a manufacturer. One was retained by the Bureau of Ordnance; the other was hardened by the Harvey process; both were subjected to the same artillery fire. Under this test the one plate was destroyed and the other uninjured. So far the superiority of the Harvey plate over one of approved manufacture was established, but it was wisely deemed by the Ordnance Bureau that the Harvey plate should be compared with one which was regarded in Europe as superior to all others. Accordingly, two of the then celebrated Creusot plates, made by renowned manufacturers — Schneider & Co. — were imported by the Ordnance Bureau. One was retained as before and one was given to the claimant, and both were subjected to the same artillery fire, and with like results. They indicated, said the Chief of Ordnance in his report to the Secretary of the Navy, “Thatin this treatment has been found the means of producing the ideal armor plate — a hard front combined with a tough back, without any weld or other line of demarkation between the two.” These were the facts and circumstances in the light of which the express contract of March 21, 1892, was entered into.

By this contract of March 21; 1892, it was agreed that the “ Harvey process” should be used in the treatment of armor plates to be manufactured for certain designated vessels, and that a royalty at certain rates “per pound” should be paid. The manufacture of such plates went on until the royalty amounted to $96,056.46. This contract has no particular bearing upon a second contract, the contract now in suit, but it is to some extent made a part of the second contract, and its existence and the work accomplished under it are a portion of the facts and circumstances leading to the last agreement. They are adverted to to show that no purchaser in the world ever better knew, or was more completely bound to know, what he was buying than were the defendants when they entered into the contract of April 12, 1893.

This contract of April 12, 1893, recited much of what had occurred between the parties, and provided that in consideration of the payment of the amount of $96,056.46, before mentioned, the contract of March 21, 1892, should be canceled and annulled; and that the defendants, upon new terms prescribed, should have the right to use the “ Harvey process ” in the manufacture of armor plates for all vessels which Congress had authorized or might thereafter authorize. It also provided that the claimant should hold and save harmless, and at its own risk and expense defend, the United States from and against all and every demand “for or on account of any infringement or alleged infringement of patented rights appertaining to said process.” The terms imposed upon the defendants were that they should pay ‘‘a royalty of one-half of 1 per cent per pound of the finished plate. ”

It was also provided by this contract that 10 per cent of the royalties to be paid should be withheld until the Harvey process ‘ ‘ shall have been tried and found to be efficient, and, in the judgment of the Secretary of the Navy, of satisfactory value.” Under this clause, and a similar one in the preceding contract, 10 per cent had been withheld. But on the 4th of December, 1893, the Chief of the Ordnance Bureau certified to the Secretary of the Navy: “The first Harvey treated plate under the said agreement having been tested, with results demonstrating the satisfactory value and efficiency of the process, and a part of the Maine’s side armor having been set up in the shops and found to be satisfactory, there being no important irregularities due to the application of the process, it is recommended that the reservation referred to bo now paid.”

' The Secretary of the Navy adopted this recommendation and paid the 10 per cent.

After all these things had happened the defendants, on the 15th of Api’il, 1896, without rescinding the still existing contract of April 12, 1893, publicly advertised for proposals for about 6,000 tons of armor plate, to be treated by the “Harvey process.” And they furthermore expressly set forth in this advertisement that: “The prices bid for armor, treated by the Harvey process, must not include anything for roj^alties, as the Department has acquired the right to use said process, and will indemnify the contractor against all claims therefor. ”

In response to this advertisement contracts were entered into on the 1st of June, 1896, with the Bethlehem Iron Company and the Carnegie Steel Company, the advertisement being made a part of each contract. Under these contracts armor plate for two ships of war was manufactured. This armor plate was inspected and tested by officers of the Ordnance Bureau and was accepted and paid for as “armor treated by the Harvey process.” The process employed was precisety the process employed in the previously manufactured armor plates, concerning which the chief of the Bureau had certified to the “satisfactory value and efficiency of the process,” and the Secretary of the Navy had paid the reserved 10 per cent. When the armor plates manufactured by the Bethlehem and Carnegie companies were completed, and delivered, and accepted, and paid for, the claimant’s cause of action certainly was complete. At that time the process was as satisfactory to the Secretary of the Navy as it ever had been; no rival inventor had appeared claiming that it was an infringement of another patent; no court had decided that the patentee “was not legally entitled” to own and contract the exclusive right to the use of the process; ho suit was pending on the 17th of November, 1897, when the claimant demanded payment, in which the validity of the patent was in issue. The royalty was due and pajrable then; the defendants had no defense to interpose at that time, and they can not interpose one of their own subsequent making now.

A plainer case of estoppel never came before a court. The defendants first bound the claimant’s hands by a contract which secured the right to themselves to use the invention and precluded the claimant from prosecuting the manufacturers as infringers. They next closed the claimant’s eyes as against the manufacturers by advertising that the plates to be made were to be treated by the “Harvey process,” and that “the prices bid for armor treated by the Harvey process must not include anything for royalties, as the Department has acquired the right to use said process, and will indemnify the contractor against all claims therefor.” They did not rescind the contract or give a notice which would have put the claimant on its guard, or enabled it to proceed against the manufacturers, but stood silent until the work was done and they had received the fruits of their agreement. Having received every possible benefit that was assured to them by the contract, they now seek to evade its obligations. Their position is that of a man who, to avoid the dangers and costs of an action in trespass or ejectment, enters under a lease and then seeks to evade the payment of rent by assuming the attitude of a wrongdoer and denying his landlord’s title.

The same principle applies to the defense that the armor plates were not manufactured according to the Harvey process, as defined and limited in the patent. The claimant had brought the process to the defendants before it was patented, and they have never been able to obtain the desirable plate except by the use of the process, patented or unpatented. The variations from the patent, if any there were, were trivial — so trivial that they were not known to the manufacturers when they made the plates, or to the defendants’ officers who supervised the making, They were, not discovered by the Ordnance Bureau until after the first work was completed, but they were known to the Bureau when the last work, the work involved in the case, was contracted for as plates to be manufactured by the Harvey process and under the Harvey .patent and in pursuance of the Harvey contract. The process employed did not differ from the process which had been employed for the preceding’ plates. If the defendants conceded that the process which had been employed was the Harvey process, as defined in and secured by the patent, they continued to concede that when^ with all the knowledge which they possess now, they advertised for plates to be manufactured by the Harvey process, and therein adverted to their contract as securing them the right to manufacture under the Harvey patent. The variations from the patented process, if substantial, would have practically stricken down the patent and left the invention valueless. There was but one way in which that issue could be properl}'' tried, and that was by an action for infringement. Instead of misleading the claimant by their advertisement and contracts with the Bethlehem and Carnegie companies, it was the plain duty of the defendants to notify both the claimants and the companies of the new attitude which they intended to assume, and leave the claimant free to fight the battle, of infringement with the manufacturers.

If this agreement did not import a warrantee, it was the duty of the defendants to have investigated the scope and validity of the claimant’s patent before they purchased a right to manufacture under it. But as it does contain a warrantee of a right to manufacture and use, undisturbed, it is incumbent upon them to show that they have been ousted from the purchased right bjr the action of some superior patentee having a higher title, or that they have been disturbed in the exercise of it.

If it should be said that the invalidity of the patent or the exceedingly restricted construction which the defendants seek to place upon it constitute a failure of .consideration, it must be replied that the agreement itself contains a complete refutation of that defense.

A failure of consideration is where a man does not get, in whole or in part, the thing which he has agreed to pay for. The contract in this case provided against that possibility.

After the experimental tests to which the invention had been subjected before any contract was entered into, and after all the work which had been done and accepted under the preceding contract, the second contract, being the contract in suit, expressly provides that 10 per cent of royalties which may become due shall be withheld by the defendants until “ said process shall have been tried and found to be efficient, andin the judgment of the Secretary of the Navy of satisfactory value. ” By this provision the defendants made the Secretary of the Navy the exclusive judge of whether or not there might be found in the future an unforeseen partial failure of consideration; and the claimant agreed to abide by his decision. When the Secretary of the Navy, adopting the recommendation of the Chief of the Ordnance Bureau, decided that the process was “efficient” and “satisfactory,” and that the 10 per cent reserved should be paid, he rendered a decision, irrevocable so far as courts are concerned, that there had been no failure of consideration. That decision, made after the male-ing of the last contract, stands unreversed by the Secretary of the Navy, and can not be questioned by the court.

In a word, this is a case where a man without fraud or misrepresentation entered into a contract; where he received from the other party all that the contract promised him or that he expected to receive; where he kept his mouth closed when he should have spoken, and withheld a defense when he should have interposed it; where, by his silence and his words, he misled the other contracting party and thereby deprived him of his legal right to the adjudication of courts of competent jurisdiction, which adjudication might be favorable to the other party and cause irreparable loss and injury to himself. Such a man is not entitled to set up in an action on the contract the defenses which the defendants’ executive officers have insisted on interposing in this case.

The court has not entered into an examination of the patent; of the construction which should be given to it; of the state of the art; or of any of those questions which would properly be subjects of consideration if this were an action for an infringement. And concerning them no opinion is expressed.

The judgment of the court is that the claimant recover from the defendants the amount of $60,806.45.

Wright, J.,

dissenting:

The chief, if not the only, defense interposed, and to which the evidence and arguments were directed on the trial of the case, is the invalidity of the patent, and that claimant’s process was not used in the treatment of armor plates made for the defendant. The findings and opinion of the majority of the court ignore such defense, except to say, in the opinion, that a plainer case of estoppel never came before a court, and therefore the court did not enter into an examination of the patent, nor of the construction which should be given to it, nor of the state of the prior art, concerning which no findings are made nor opinion expressed. I do not agree with the majority of the court that- the defendant is estopped to insist upon the defense offered, for the reason that I believe the contract, recited in the findings, explicitly reserves the right to do so, wherein it is stipulated that in case it should at any time be judicially decided that claimant is not legally entitled under the letters patent to own and control the exclusive right to the use and enjoyment of the process described in the patent, then the pajunent of royalty under the terms of the agreement shall cease. The specific decision mentioned is sought in the present case, which the court by its refusal to find the facts concerning such defense, as disclosed by the evidence, and by otherwise ignoring the same, has thus denied to the defendant the right of an adjudication upon the subject. What the result might be if the court had entered upon a consideration of the defense interposed it would be useless for one member of the court to discuss, in the absence of a proper finding of the facts, which a majority of the court have refused to make, and a due consideration of the questions arising upon such finding, which a majority of the court have declined to give. Had such finding been made and due consideration given, it is my strong belief that it would appear the process described in the patent of the claimant was included in the prior state of the art, and that' such process was not used in the treatment of the armor plates in question.  