The opinion of Judge Martin follows:
This action was brought by plaintiff seeking a declaratory judgment interpreting a contract between the parties and, particularly, their rights and liabilities in so far as the same may be affected by a certain agreement between plaintiff and one V.K. Dell.
Defendant demurred to the complaint and filed an answer claiming a default by the plaintiff under the terms of the contract between the parties. Subsequently, a supplemental answer was filed in which it was alleged that the default had been cured by reason of a payment made by plaintiff to defendant under a notice preserving its rights under the suit.
The demurrer was overruled by order of Honorable J. Henry Johnson, Presiding Judge, on the 27th day of September, 1955, in which it was held that the complaint states a "justiciable controversy which can only be properly and justly determined after a hearing on the merits."
Thereafter, on the 26th day of March, 1956, a hearing on the merits was held before me in Spartanburg, South Carolina, testimony taken and evidence received. Briefs have been submitted by counsel for the parties in the matter and carefully considered.
Plaintiff in this case is engaged in the development, promotion and licensing and use of certain wood impregnation processes. The plaintiff succeeded another South Carolina corporation, Taylor-Colquitt Company, of Spartanburg, South Carolina, in this field.
Two processes were developed, one known as "vapor drying", which is not involved in this action, and "solvent recovery". The defendant was issued patents on these processes. It is the "solvent recovery" process which is involved in this suit. The process involves the removal and recovery of organic solvents from wood impregnated with preservaties dissolved in said solvents, the removal being accomplished by heating the impregnated wood in vapor of the solvents.
In October, 1940, the defendant and Taylor-Colquitt Company entered into a written agreement for the promotion, use and licensing of the patented solvent recovery process. Under this agreement, defendant granted to Taylor-Colquitt Company a license to use the process of the invention, to make, use and sell the apparatus and the products thereof, with the license to be exclusive in Taylor-Colquitt Company as to all persons except the defendant, who reserved to himself the right only of personal use of the process. Under this agreement, Taylor-Colquitt Company was given the right to sublicense the use of the process upon any terms and conditions, subject to the agreement with the defendant, and provided the stipulated royalty payments are made to the defendant.
The determination of the amount of royalty payments depended to some extent on whether Taylor-Colquitt Company did or did not "monopolize" the invention in designated fields. The question of "monopoly" deals with the amount of use made by Taylor-Colquitt Company as compared to the amount of use made by all sub-licensees. In so far as this case is concerned, the question of monopoly or nonmonopoly is not in issue.
Paragraphs 8(b) and 8(d) of the October, 1940, agreement provide that Taylor-Colquitt Company "shall pay to the Licensor (i. e., Hudson) 27 1/2% of the gross royalties received during that year from sub-licensees." Taylor-Colquitt Company also computes the average rate of royalties per cubic foot paid to it by sub-licensees and applies that rate to its own use of the process and pays as a royalty to Hudson for its own use of the invention 27 1/2% of the total sum so calculated that year, with Taylor-Colquitt Company guaranteeing the annual minimum payments provided in paragraph 8(f), which guaranteed payments are now $5,000.00 per year.
In January, 1948, Hudson and Taylor-Colquitt Company modified and amended the 1940 agreement. These modifications and amendments dealt solely with the provisions relating to the monopolization of the process and a new requirement that Taylor-Colquitt Company should bear all expenses and fees in connection with further and continued patent applications. These changes, brought about by the 1948 agreement, are not applicable to this action.
To further promote and expand the use of the process, Taylor-Colquitt Company, on March 26, 1953, by letter entered into an exclusive franchise agreement with V.K. Dell of New Orleans, Louisiana, for him to construct and operate solvent recovery plants in certain southern states and parts of states as set forth in the agreement. This contract contemplated the construction and operation by Dell of a minimum of three plants. The Dell contract of March, 1953, expressly provided that "each solvent recovery plant will be issued and granted a license agreement for the use of the process substantially in accordance with the attached sample license agreement." Each separate plant, under the license agreement, would pay royalties to Taylor-Colquitt Company as follows: For the first two million board feet, $2.00 per thousand board feet; from two million to five million board feet, $1.65 per thousand board feet; and over five million board feet, a royalty of $1.25 per thousand board feet, with a minimum annual royalty of $4,000.00 after the first year of commercial operation.
For the granting of the exclusive franchise, Dell guaranteed a minimum annual payment to Taylor-Colquitt Company as follows: Nothing for the first year, $27,000.00 for the second year, $35,000.00 for the third year, $40,000.00 for the fourth year, and $58,000.00 for the fifth year and thereafter. Royalty payments made by the ...