Mag-Nif Incorporated v. Royal Sovereign International, Inc., Royal Sovereign Corporation

NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition
is not citable as precedent. It is a public record.
United States Court of Appeals for the Federal Circuit
05-1346
MAG-NIF INCORPORATED
Plaintiff-Appellant,
v.
ROYAL SOVEREIGN INTERNATIONAL, INC., ROYAL SOVEREIGN CORPORATION,
and ROYAL CENTURIAN, INC.,
Defendants-Appellees.
___________________________
DECIDED: February 17, 2006
___________________________
Before RADER, SCHALL, and DYK, Circuit Judges.
DYK, Circuit Judge.
Mag-Nif Incorporated (“Mag-Nif”) appeals from the district court’s decision
holding that Royal Sovereign International, Inc., Royal Sovereign Corporation, and
Royal Centurian, Inc., (collectively “Royal Sovereign”) were not in contempt of the
district court’s Stipulated Order of Dismissal. We affirm.
BACKGROUND
Mag-Nif is the owner of two patents pertaining to coin sorting machines. U.S.
Patent No. 5,902,178 (filed Feb. 12, 1997) (“’178 patent”); U.S. Patent No. 6,165,063
(filed Feb. 10, 1999) (“’063 patent”). These patents relate to a coin sorting apparatus

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that sorts various denominations of coins and deposits them into a plurality of tubes.
Once a coin tube is filled in the patented device, additional coins conveyed down the
coin chute slide over the top of the filled tube and are deposited into another coin tube
of the same denomination. Because the patented coin sorter can automatically fill more
than one tube during a round of coin-sorting, it can sort more coins with less interruption
than other similar devices.
On December 7, 2001, Mag-Nif brought suit against Royal Sovereign claiming
that Royal Sovereign’s “Easy Sort” coin sorter, which had two coin tubes corresponding
to each denomination, infringed both the ‘178 and ‘063 patents. By September 12,
2002, the parties signed a Settlement Agreement. In pertinent part, the Settlement
Agreement stated that:
ROYAL SOVEREIGN agrees that i[t] shall not make, ship, use, sell, offer
for sale, or import in the United States any coin sorting apparatus that has
two or more coin tubes corresponding to each denomination of coin sorted
by the apparatus and that permits coins to flow from a first coin tube to
another coin tube . . . .
Mag-Nif’s Appendix (“App.”) at 9 (emphasis added). The district court then entered a
Stipulated Order of Dismissal, which provided that the court would “retain jurisdiction
over the subject matter of this action, the Settlement Agreement and the parties for the
purposes of enforcement of the Settlement Agreement referred to herein.” App. at 3.
On March 31, 2004, Mag-Nif filed a motion to show cause why Royal Sovereign’s
new coin sorting machine, the “FS-3D” coin sorter did not violate the Settlement
Agreement and Stipulated Order of Dismissal. The FS-3D has three coin tubes for each
of four denominations (pennies, nickels, dimes, and quarters). The coin tubes
proximate to the coin chute are for accepting the flow of coins from the chute, while the
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front row holds empty coin tubes that the operator is to manually place in position when
tubes in the sorting row become filled with coins. The FS-3D has a coin sensor that
keeps track of the number of coins in each denomination that pass through the coin
chute. This coin counting mechanism is designed to ensure that only a certain number
of coins are released from the coin chute at a time so that there is no overflow of coins.
Once a fixed amount of coins is channeled through the coin chute (fifty for pennies and
dimes; forty for nickels and quarters), the machine automatically stops. The operator
must then pull out the tray holding the full coin tube and replace it with an empty tube
from the front row.
There are two situations in which a coin may be deposited into the wrong coin
tube despite the coin counting mechanism. First, during normal operation the FS-3D
occasionally misfires a coin so that it either lands in the wrong tube, or lands elsewhere.
Dr. Joseph Prahl, Mag-Nif’s expert witness, testified that when he ran 540 coins through
the machine (to fill three coin tubes of each denomination) he observed that two nickels
went into the incorrect nickel tube, one penny landed on top of the dime tube, one
penny went into the incorrect penny tube, and one quarter landed on top of a nickel
tube. Prahl testified that this demonstrated that the FS-3D deposits a coin into the
wrong tube at a rate of approximately 0.74%.1
The second way a coin could enter an incorrect tube is when the operator
intervenes to cause the machine to malfunction. Prahl testified and demonstrated to the
district court that if the operator—in contravention of the machine’s instructions—pulls
1 Dr. Prahl testified that in his second run of 540 coins, the failure rate was
roughly 0.9%.
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out the coin tube tray and then pushes it back without removing the full tube, the FS-3D
will resume dispensing coins because the machine “does not know that [the] tube is
filled and . . . will continue to fire coins out trying to fill what it thinks is that tube . . . .”
App. at 87. In this, as Prahl put it, “contrived” state, coins will “flow over the top of that
[full] tube and go to the next tube.” App. at 87, 94. Royal Sovereign explains that when
a full coin tube is placed where the machine expects to find an empty coin tube, the
machine dispenses a round of coins which cannot enter the full tube and therefore “spill[
] out in all directions, including the adjacent tube of the same denomination.” Royal
Sovereign’s Br. at 10. Prahl described this operator-induced overflow as a “malfunction
of the design.”
The district court (Chief Judge Paul R. Matia) held that Royal Sovereign did not
violate the Settlement Agreement because the “overflow possibility of the FS-3D is not
commercially useable” and therefore FS-3D “does not ‘permit[ ] coins to flow from a first
coin tube to another coin tube’ in contravention of the Settlement Agreement.” App. at
5. Mag-Nif timely appealed.
DISCUSSION
The original claim in this case arose under the patent laws, 28 U.S.C. § 1338(a),
and the Stipulated Order of Dismissal disposing of the original claim contained a
provision retaining jurisdiction for purposes of enforcing the Settlement Agreement.
Accordingly, as the district court’s jurisdiction was based, in whole or in part, on 28
U.S.C. § 1338, we have jurisdiction over this appeal pursuant to 28 U.S.C. § 1295(a).
See Novamedix, Ltd. v. NDM Acquisition Corp., 166 F.3d 1177, 1179-80 (Fed. Cir.
1999).
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Whether a party has violated a settlement agreement is a mixed question of fact
and law. Gilbert v. Dep’t of Justice, 334 F.3d 1065, 1071 (Fed. Cir. 2003). A settlement
agreement is simply a contract; therefore, we review the district court’s interpretation of
the settlement agreement without deference. Augustine Med., Inc. v. Progressive
Dynamics, Inc., 194 F.3d 1367, 1370 (Fed. Cir. 1999).
The district court’s construction of the Settlement Agreement requiring that the
overflow possibility be “commercially usable” is incorrect. There is nothing in the
language of the agreement establishing any such standard, and, on appeal, Royal
Sovereign barely makes an effort to defend this particular interpretation—though it
urged this interpretation on the district court in the first place.2 Nevertheless, because
the accused device clearly falls outside the scope of the Settlement Agreement, we
agree with the district court’s ultimate conclusion.
Mag-Nif argues that Royal Sovereign’s FS-3D machine violates the Settlement
Agreement because it permits coins to flow from a first coin tube to a second coin tube
when it randomly misfires coins. The random misfiring of coins by the FS-3D does not
cause the machine to violate the Settlement Agreement because the device does not
cause “coins to flow from a first coin tube to another coin tube.” App. at 9. In
interpreting contract language, it is well established that we may appropriately look to
dictionary definitions. See, e.g., Norfolk S. Ry. v. James N. Krby, Pty. Ltd., 543 U.S. 14,
2 During its closing argument before the district court Royal Sovereign argued
that neither the misfiring of coins nor the “rigging” of the machine causing an overflow of
coins was commercially significant because no one would purchase the FS-3D if what
he wanted was a machine that permitted coins to continuously flow from a first coin tube
to a second coin tube. Therefore, Royal Sovereign argued, the settlement agreement
was not intended to prohibit the FS-3D.
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31-32 (2004) (defining the word “any” in a contract using the dictionary); Stewart v.
United States, 316 U.S. 354, 362 & n.6 (1942) (defining the word “island” in a deed
using the dictionary); Shear v. W. Am. Ins. Co., 464 N.E.2d 545, 548 (Ohio 1984) (citing
to Webster’s Third New International Dictionary to define contract terms); Felton v.
Nationwide Mut. Fire Ins. Co., 839 N.E.2d 34, 37 (Ohio Ct. App. 2005) (same).
The primary dictionary definition of the word “flow” is “to issue in a stream” or “to
move with a continual change of place among the constituent particles or parts.”
Webster’s Third New International Dictionary of the English Language Unabridged 875
(2002). The background of the Settlement Agreement here supports the use of this
definition. As part of the Settlement Agreement, Royal Sovereign agreed not to make,
use, sell, etc., a coin sorting machine with the key feature of Mag-Nif’s patented
product. Mag-Nif’s patented coin sorting machine fills a first coin tube and then, upon
that coin tube becoming filled to capacity, permits additional coins to automatically slide
over the first filled tube in a continuous stream into a second coin tube.
By contrast, the FS-3D’s random misfiring of coins is not a “flow.” The evidence
before the district court demonstrated that at a rate of less than one percent, coins
randomly misfire, falling in the coin tray, on the coin tubes of other denominations, and
occasionally in a second tube of the correct denomination. There was no evidence that
this random misfiring resulted in a continual stream of coins, one after another, into a
second coin tube. Thus Mag-Nif’s argument, that the misfiring of coins breached the
settlement agreement, must fail.
Mag-Nif’s alternative contention—that an operator-induced malfunction can
cause a flow of coins to occur in violation of the Settlement Agreement—is equally
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unavailing. As Dr. Prahl testified and demonstrated to the district court, an operator
acting contrary to the instructions provided with the machine,3 can cause the FS-3D to
dispense coins into an already filled-tube by pulling out the coin tube tray and pushing it
back in without removing the full tube. This causes the machine to resume dispensing
coins, resulting in coins spilling over the top of the full coin tube and into a second coin
tube. That the FS-3D could be “tricked” into such a malfunction does not mean that the
machine violated the Settlement Agreement. Even if the coins “flowed” to a second
tube during this contrived state, the FS-3D cannot be said to “permit” coins to flow from
a first coin tube to another coin tube if the only way coins can flow in this manner is
when the operator deliberately induces the machine to malfunction.
For the foregoing reasons, the decision below is affirmed.
No costs.
3 The “Directions” section of the FS-3D owner’s manual states: “[w]hen a tube is
full, replace with the spare tube. Push the tube tray back all the way to continue
sorting.” The “Procedure” section further states: “[w]hen a coin tube becomes full the
machine automatically stops. Slide the tray with the full tube forward to automatically
restart the machine and fill the back row. As the back row is being filled, remove and
replace the filled coin tube from the front row position. Repeat process in reverse as the
back row is filled.”
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