View Full Version : 'The Wrench Case' : Inventor vs. Sears

Mergie Master

A teenager invented a quick-release ratchet and offered the patent to Sears. Sears told him it was valueless and gave him $10,000 for it. Then they went on to make $44 million of it.



'The Wrench Case': Inventor vs. Sears: 17-Year-Old Saga Continues (http://articles.latimes.com/1986-07-14/business/fi-19337_1_wrench-case)



WASHINGTON  The "wrench case"--Peter M. Roberts vs. Sears, Roebuck & Co. -- has shipped eastward from the U.S. 7th Circuit Court of Appeals to Washington. Twice it made round trips to the Supreme Court, which declined to review rulings of the 7th Circuit Court. Twice later, it came to the U.S. Court of Appeals for the Federal Circuit.



In the Federal Circuit, the first visit ended last November, when the court sent the case back to U.S. District Judge Bernard M. Decker, who, on June 5, ordered a new trial. The second visit began recently, when Roberts petitioned the Federal Circuit to hold that a third trial would violate his constitutional rights.



Roberts was a teen-ager when he made a stunningly successful invention -- a major advance in socket wrenches -- that would make tens of millions of dollars in profits for Sears, the world's largest retailer.



In December, 1969, he filed a lawsuit claiming Sears defrauded him when it paid him $10,000 for his patent. Sears claimed that the patent was "legally valueless." Although the federal judicial system has provided a partial resolution of the dispute, it has yet -- 17 years later -- to provide full and final answers.



Unusual Situation



Seldom have the wheels of civil justice ground more slowly in a case brought by an individual. Rarely -- and, attorneys say, maybe never -- has the system taken so long to resolve a dispute between an individual and a corporation over a patent or other intellectual property right. Neither side is willing to talk about the cost of the case, but legal experts say it must be in the millions.



Meanwhile, Roberts has moved from young manhood to his early 40s and fatherhood, and from Gardner, Mass., to Newport, Tenn.; from Newport to Air Force service in England; and from military duty back to Tennessee, where, in Red Bank, he holds down two full-time jobs while his wife holds down a third.



His original lawyer, Louis G. Davidson, became ill and, before his death late last year, was replaced as lead counsel by his son, John B. Davidson.



Sears, after suffering a severe court setback in the spring of 1982, dropped Arnstein, Gluck, Lehr, Barron & Milligan, which had represented it throughout the case, and hired Latham & Watkins.



Peter Roberts' story began in Gardner in 1963. He was 18, had a high school diploma and clerked full-time for Sears. It was still the Dark Ages for socket wrenches, there being none that did not force automobile mechanics, do-it-yourselfers and others into an often awkward use of both hands to replace a socket of one size with another of different size: one hand to hold the wrench, the other to make the replacement.



Invented Simple Device



On his own time, Roberts transformed wrenchery by inventing a simple quick-release device to enable a user to change sockets easily and quickly with just one hand. He also did the tooling for a prototype and produced one. Then he hired lawyer Charles Fay of Worcester, Mass., to file a patent application. But, aware that Sears was selling about 1 million wrenches a year, Roberts also decided to show his invention and the prototype to his store manager.



Roberts was persuaded to submit the invention and the prototype--the only one in existence--as an employee suggestion. He sent them to Sears' office in Chicago on May 7, 1964, noting on the form that a patent application was pending. Soon thereafter, Sears closed its Gardner store, and Roberts moved with his parents to Tennessee.



On receipt of the prototype, Sears sponsored physical tests, which showed that the quick-release feature was practical and did not weaken the wrench, and market-acceptance tests, which showed that garage mechanics were enthusiastic.



Then, in October, 1964, Sears ordered the quick-release device incorporated into a completely new line of ratchet wrenches that was being prepared for marketing.



"The company anticipated that sales in the first year alone would total 750,000 units," U.S. District Judge George N. Leighton wrote in May, 1979.



Through all of this, Roberts was kept completely in the dark, although he once phoned Sears' main office and made an inquiry of a person who seemed to be familiar with the subject. A written inquiry in early January, 1965, drew no response.



In late January, however, Roberts was phoned by Leonard Schram, a Sears attorney.



Schram asked for and obtained the name of Roberts' patent lawyer, Fay. Then, Roberts has testified, he inquired "what was happening to my device, and he said that they were looking into it with some interest and they might be interested in it on some parts of their lines." Schram "wouldn't give me an answer" to questions about the value of his device, Roberts said.



While Fay, in Judge Leighton's words, "was purportedly working for Roberts," and without the inventor's knowledge, Sears proceeded to hire Fay to protect its interests in certain patents that it expected to be issued on the quick-release device.



He was able to tell the company, first, that the quick-release was patentable and then that the Patent Office had approved Roberts' patent application. Fay did not divulge these facts to Roberts.



In April, 1965, through Fay, Sears began to negotiate with Roberts for use of the quick-release device. Schram deprecated it in letters to Roberts: It wasn't new; the patent, were one to be issued, would be "quite limited"; the cost of adding the device would be about 44 cents per wrench; the wrenches would sell only to the extent they were promoted, and, for all of these reasons, a license to use the device was worth $10,000.



"Sears' agents knew that Roberts trusted the company for which he had worked," Leighton wrote. Roberts, "relying on what was transmitted to him from Sears (via Fay), accepted as true the representations which had been made."



Assigned All Rights



Sears prepared an agreement that did not include its original proposal for Roberts to license it to use his rights to the invention. Instead, he would assign to Sears all of his rights, including worldwide patent protection; in exchange, Sears would pay him a royalty of 2 cents per unit, up to a maximum of $10,000.



The agreement also put the maximum number of quick-release wrenches Sears expected to sell in any one year at 50,000. This was "quite in contrast" with Sears' actual expectation that it would sell 750,000--15 times as many--in the first year alone, Leighton said. In addition, he noted, the unit cost of adding the quick-release would be about 20 cents--less than half the 44 cents Sears had cited.



Roberts signed the agreement on June 15, 1965, when he was 20. "Its contents and their legal meaning were never explained to him," and, relying on Fay, he hired no other lawyer, the judge wrote.



Within days, Sears began to make 44,000 quick-release wrenches a week and scared off possible imitations by competitors for several years by stamping on each the number of the patent issued to Roberts. Within three months, Sears had begun to sell the wrenches and was advertising the quick-release feature as a breakthrough. Within nine months, Sears had sold 500,000 units--enough to pay the $10,000 royalty in full.



On receiving the final royalty payment, Roberts signed papers, prepared by Sears, that conveyed all of his invention rights to the company. Then he went into the Air Force and sought legal advice from its lawyers. The advice was to get a lawyer on his return to the United States. He notified Sears that he wanted to rescind the June, 1965, agreement, wanted the patent back and would refund the $10,000.



Sears turned Roberts down, and his December, 1969, lawsuit followed. A jury tried it before Leighton. He instructed the jury to return a verdict on each of three of Roberts' claims: that Sears had defrauded him of his rights to his invention, breached the confidential employer-employee relationship and his trust in the company, and made negligent misrepresentations about the value, potential sales and public acceptance of his invention.



A monthlong trial began on Dec. 20, 1976. By then, Roberts' attorney Louis Davidson told the jury, Sears' extra profits on the Roberts wrenches totaled $44 million (including interest) as a result only of the premium based on the quick-release feature. The estimate excluded tens of millions of dollars in profits from a vast increase in sales volume. Sears disputed the figures but offered no contrary evidence. On Jan. 20, 1977, the jury held Sears liable on all three counts and returned a $1-million verdict for Roberts. The award, which he has collected, was for the period from the June, 1965, agreement to the judgment.



Both sides filed post-trial motions. Roberts, saying he had been denied equitable relief, sought recision, i.e., termination, of the 1965 agreement with restitution of the $44 million. Leighton denied the motion for recision, holding that Roberts had closed the door to it by electing to let the case go to the jury. Sears sought a judgment notwithstanding the verdict or, alternatively, a new trial, but was turned down.



Both sides appealed. In April, 1978, the 7th Circuit upheld the jury verdicts and the $1-million award but told Leighton to determine "whether recision is appropriate under the facts."



The court also held that the agreement between Roberts and Sears ended with the judgment in January, 1977, and that he consequently had no claim against Sears for subsequent profits. At the same time, Judge Robert A. Sprecher's opinion found "no merit" in Sears' appeal and chided it for having argued that the patent "was valueless when it had made every effort in its marketing to exploit (its) economic value."



In May, 1979, after a hearing, Leighton entered a decree of recision without ordering restitution of the $44 million. Instead, he ordered an accounting hearing to determine--for the years both following and preceding the jury verdicts--the profits that Sears made "through the use of an invention it acquired by fraud, breach of a confidential relation, and negligent misrepresentations."



'Basic Misunderstanding'



Sears appealed. In a 2-1 ruling in March, 1980, the 7th Circuit faulted Leighton for "a basic misunderstanding" and sent the case back to him again. In its April, 1978, ruling, Sprecher wrote for the majority, the appeals court had intended "recision" to mean merely return of the patent.



The court also held that Roberts could sue for patent infringement from January, 1977, to the patent expiration on Sept. 28, 1982, but not for the decade in which Sears had been found to have defrauded him, and also that Sears could allege patent invalidity as a defense.



Under court order, Sears later would reassign the patent to Roberts and introduce a quick-release wrench that, it said, differed significantly from his.



Later in 1980, after regaining the patent, Roberts sued for infringement and for willful infringement. The company countered that the patent was invalid because his invention was "obvious," meaning that "the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains."



A long trial followed. At the end, Sears argued that there should be no jury instruction as to obviousness but was overruled by U.S. District Judge Nicholas J. Bua.



On March 31, 1982, the jury awarded Roberts $5 million for patent infringement. Bua increased the award to $8.2 million by doubling the portion of the award made for willful infringement.



Sears appealed. Ten months later, a unanimous three-judge panel of the 7th Circuit upheld Sears' claim of obviousness, reversed Bua and directed him to dismiss the case. The panel opinion was written by Circuit Judge Richard A. Posner, often mentioned as a possible choice of President Reagan for the Supreme Court.



"Roberts' quick-release mechanism was simplicity itself," Posner said. "The idea that a socket could be locked to a wrench with a pin and ball device and that a push-button could be used to make the pin release one socket and lock in another was not new. What was new was a device in which these ideas worked smoothly to enable sockets to be changed easily with one hand."



The opinion drew widespread objection in the Chicago press and legal community and, on a motion by Roberts, the full 7th Circuit struck it down. Once again, however, Roberts won no clear victory. The appeals court remanded the case for a new trial, under its rules, by any judge but Bua.



Meanwhile, Congress granted exclusive authority over patent appeals to the Federal Circuit, starting on Oct. 1, 1982--a few months after Sears had appealed to the 7th Circuit. The time gap appeared to be the basis for the 7th Circuit's denial of a Roberts motion for a rehearing. In turn, the 7th Circuit's denial would become the basis for Judge Bernard Decker's denial of a Roberts motion to reinstate the $8.2-million verdict.



Inventor Sought Relief



The Federal Circuit rulings developed a legal principle that repudiated the sole basis for the 7th Circuit's decision: The Seventh Amendment gives an inventor the right to a jury trial on the issue of obviousness.



Roberts sought relief from the Federal Circuit, asking it to order Decker to reinstate the $8.2-million verdict.



Last November, a Federal Circuit three-judge panel remanded the case to Decker "so as to allow" him to review Sears' claims that Judge Bua had made reversible errors that the 7th Circuit had not dealt with.



Roberts then filed a motion asking Decker to clarify the standards that Decker would use for the review. On June 5, however, Decker denied Roberts' motion and said he will hold a new trial "in accordance with the 7th Circuit's mandate."



Earlier this month, Roberts' attorney, John Davidson, joined by Charles Alan Wright, a leading authority on the federal courts, told the Federal Circuit that Decker had failed to comply with its Nov. 25 order, that there is "no legitimate basis" for the set-aside of the $8.2-million verdict and that a new trial would violate Roberts' Seventh Amendment rights. The petition asked the court either to order Decker to make the review or to hear Sears' "other objections" on the merits.



That's where the case stands after 17 years.