
143 S.E.2d 707 (1965)
265 N.C. 257
MORPUL, INC.
v.
MAYO KNITTING MILL, INC.
No. 698.
Supreme Court of North Carolina.
August 27, 1965.
*712 David Rabin, McNeill Smith and Jack Floyd, Greensboro, for plaintiff appellant.
McLendon, Brim, Holderness & Brooks, by Thronton H. Brooks, Greensboro, Bridgers, Horton & Britt, by H. Vinson Bridgers; Tarboro, and B. B. Olive, Durham, for defendant appellee.
SHARP, Justice.
"Only a Federal Court has jurisdiction to consider an action involving the construction of the patent laws, the validity of a patent, or questions of infringement. (Citations.) * * * But not every case involving rights conferred by the patent laws is beyond the jurisdiction of state courts. When the action is brought on a *713 contract, or in tort, with respect to the exercise of a patent right the state court has jurisdiction (citations); or to enforce the payment of royalties or license fees, 40 Am.Jur., 653." Coleman v. Whisnant, 225 N.C. 494, 499, 35 S.E.2d 647, 651. See Annot., Jurisdiction of state court over actions involving patents, 167 A.L.R. 1114, 1123.
Infringement of a patent is an unauthorized use of it. Black's Law Dictionary 920 (4th ed., 1957). Plaintiff here does not sue for infringement, as it had authorized defendant to use the patent in question; and defendant, being a licensee, is estopped to assert the invalidity of the patent. Freeman v. Altvater, 66 F.2d 506 (8th Cir.). Plaintiff sues for the royalties which defendant agreed to pay if it made use of the patent. As the referee pointed out, however, whether the means or method used by a licensee would infringe the patent but for the license determines whether such means or method is covered by the license. Although defendant, as licensee, cannot use "the state of the art" to destroy the patent, yet "the state of the art may be used to construe and narrow the claims of the patent, conceding their validity. The distinction may be a nice one but seems to be workable." Freeman v. Altvater, supra at 507.
The findings of fact of the referee, approved by the judge, are conclusive on appeal if there is any competent evidence to support them. Murphy v. Smith, 235 N.C. 455, 70 S.E.2d 697. A careful examination of the record discovers that the referee's findings here are supported by such evidence and that, in essential part, the evidence is not in conflict. The only question, therefore, is whether the facts found support the legal conclusion that the Mayo method of producing the sock styles in question is covered by the Surratt patent.
"In United States v. Esnault-Pelterie, 303 U.S. 26, 30, 58 S.Ct. 412, 414, 82 L.Ed 625, the Supreme Court said: `* * * where, with all the evidence before the court, it appears that no substantial dispute of fact is presented, and that the case may be determined by a mere comparison of structures and extrinsic evidence is not needed for purposes of explanation, or evaluation of prior art, or to resolve questions of the applications of descriptions to subject-matter, the questions of invention and infringement may be determined as questions of law.'" Sbicca-Del Mac v. Milius Shoe Co., 145 F.2d 389, 396 (8th Cir.).
The other questions debated in the briefs, (1) whether defendant has estopped itself by its original use of plaintiff's trademark and patent number to deny liability for the royalties in suit, and (2) whether defendant has breached its contract to promote the trademark and the use of defendant's patents and thereby rendered itself liable for royalties, are not raised by the pleadings. "A plaintiff cannot make out a case which he has not alleged." Calloway v. Wyatt, 246 N.C. 129, 133, 97 S.E. 2d 881, 884.
One does not avoid liability for the use of the method of a patent by varying the details of the method or of its apparatus. Lever Bros. Co. v. Procter & Gamble Mfg. Co., 139 F.2d 633 (4th Cir.). Neither a reversal of the motion of parts of a machine to accomplish the same purpose, Wachs v. Balsam, 38 F.2d 50 (2d Cir.); Reece Button-Hole Ma. Co. v. Globe Button-Hole Ma. Co., 61 F. 958 (1st C.C.A.), nor a shifting from the horizontal to the vertical without change of function, International Banding Mch. Co. v. American Bander Co., 9 F.2d 606 (2d Cir.), will avoid infringement. Thus, if defendant has achieved the mock-ribbed, laid-in elastic cuff by a method equivalent to that of plaintiff, then it is liable; if it has achieved the same result by another, non-equivalent, method, it is not liable for the royalties in suit. The Surratt patent is not on a *714 product, but on a process which uses an apparatus. It does not purport to arrogate the result.
The doctrine of equivalents in the law of patents evolved to prevent the pirating of an invention by minor variations.
"The essence of the doctrine is that one may not practice a fraud on a patent. * * * The wholesome realism of this doctrine is not always applied in favor of a patentee but is sometimes used against him. Thus, where a device is so far changed in principle from a patented article that it performs the same or a similar function in a substantially different way, but nevertheless falls within the literal words of the claim, the doctrine of equivalents may be used to defeat the patentee's action for infringement. Westinghouse v. Boyden Power Brake Co., 170 U.S. 537, 568, 78 S.Ct. 701, 722, 42 L.Ed. 1136. In its early development, the doctrine was usually applied in cases involving devices where there was equivalence in mechanical components. * * * Today the doctrine is applied to mechanical or chemical equivalents in compositions or devices. * * * What constitutes equivalency must be determined against the context of the patent, the prior art, and the particular circumstances of the case. Equivalence, in the patent law, is not the prisoner of a formula and is not an absolute to be considered in a vacuum." Graver Tank & Mfg. Co. v. Linde Air Prod. Co., 339 U.S. 605, 608, 70 S.Ct. 854, 856, 94 L.Ed. 1097, 1102.
The doctrine originated in Winans v. Denmead, 56 U.S. (15 How.) 330, 14 L.Ed. 717.
It appears from the face of the Surratt patent, as well as from the evidence, that it is not a pioneer patent, but merely an improvement on the prior art. The same product was obtainable by means of the prior art, indeed by means of older patents owned by plaintiff and included in the license agreement of May 1, 1955. Under these circumstances, the patent would, as a general rule, on an issue of infringement, be given a narrow construction. Miller v. Eagle Manufacturing Co., 151 U.S. 186, 14 S.Ct. 310, 38 L.Ed. 121, but, as between licensor and licensee, the courts will give to the claims of the patent in suit as liberal an interpretation as can be justified. Nevertheless, a licensee is not estopped to show the limits of the licensed patent by evidence of the prior art or by any other relevant fact. Freeman v. Altvater, supra.
Although the evidence with reference to the language of the Morpul and the Mayo methods is not in dispute, the conclusions of the patent experts who interpreted them are in dispute. Mr. Paul Bell, whom the referee found "to be qualified as an expert in the area of patent claim interpretation," testified for plaintiff that "the Mayo method appears to be the same as the Surratt method" in that it simply reversed two or more mechanical parts. In both methods the elongated stitch is obtained by increasing the distance between the needle hooks and the position of the body yarn on the sinkers. The application for Surratt's patent was prepared in the office of Mr. Bell, who was then "aware of the fact that circular knitting machines were capable and were on the market for producing longer stitches in various portions of the circular knit fabric." One of defendant's witnesses said that the Mayo method of raising the cylinder, the conventional way of lengthening the stitch, is "old in the art"; that the apparatus and method in the Surratt patent are conventional, except for the lowering of the needles by means of the auxiliary stitch cam. Mr. Dalbert U. Shefte, whom the parties stipulated to be "a patent attorney, qualified to interpret patents," testified for defendant that, in his opinion, the Mayo method does not come under the Surratt patent because it is limited *715 "to an auxiliary stitch cam or other means for abnormally lowering the needles," and the Mayo machines do not use the auxiliary cam or any other means for lowering the needles. "The Surratt patent," he testified, "contains apparatus and method claims. It is not based upon obtaining an elongated stitch, but on abnormally lowering the needles."
Mr. Julian H. Surratt, the inventor to whom the patent was issued, testified that he brought forth his "invention" for the purpose of producing a sock of the type Morpul then had on the market, "but only doing it in a different way." At that time the Morpul method, under the Crawford patent, was to pass the body of the yarn over the nib, or high portion, of the sinker. When Mr. Surratt sold his patent to Morpul, he did not reserve a license to himself. Nevertheless, he is now manufacturing socks with mock-ribbed tops containing laid-in rubber. He said that the Mayo machines which manufactured the socks in controversy do not operate according to his patent. He explained: When the auxiliary cam of his patent is out of action, the distance between the platform of the sinker and the needle hook is the normal distance, which determines the length of the stitch in the foot portion of the sock, but "when the auxiliary cam is actuated the needle is lower relative to the top of the sinker and that distance is the determining factor." Although Claim 7 of the Surratt patent does not specify the particular "means of lowering the needles to an abnormally low level as compared to the level to which they are normally lowered during ordinary kitting to produce very elongated loops with the elastic strand laid in front of alternate loops and in back of others," both the specifications in the patent and the evidence interpreting the patent establish it beyond a peradventure that no means other than the auxiliary stitch cam have ever been attempted in connection with the Surratt patent.
The essence of the Surratt patent is the insertion of the auxiliary stitch cam (or some other, presumably possible but unidentified, "means") into the machine. Mr. Surratt said, "As far as I know, all that I used to draw the abnormally elongated stitch was the auxiliary stitch cam." The auxiliary stitch camor some other, similar apparatus which must be inserted into a circular knitting machineis clearly what differentiates the Surratt patent from the prior art. The patent must be referred to the distinctive features of the prior art, even as against a licensor, and the patent will not be held to include the prior art. Had defendant used the auxiliary stitch cam or inserted any other means or apparatus into its Scott and Williams B-5 circular knitting machines, by which means or apparatus the needles were lowered to an abnormally low level to produce an elongated stitch, it would have used the patent. But this it has not done. It has not, therefore, "infringed." Leader Plow Co. v. Bridgewater Plow Co., 237 F. 376 (4th C.C.A.). It has merely used standard machines, known to the industry for 50 years, and, without adding attachments of any kind, has attained the elongated stitch. Surely, under these circumstances, it ought to be able to use its machine to make any stitch of which the machine is capable, without incurring liability to the owner of a patent whose apparatus and method are not used. Obviously, the Scott and Williams B-5 machine, patented for 50 years, is capable, by means of adjustment, not modification, of doing what defendant is doing. "It is the use of the whole of that which a purchaser buys when the patentee sells to him a machine. * * *" 40 Am.Jur., Patents § 152 (1942). How could we say that defendant is using plaintiff's patent by using, in an unmodified way, a machine long since patented by another? Where, as in textiles, "the cross-lights of the prior art," Wachs v. Balsam, supra 38 F.2d at 51, are many, a later patent cannot so easily diminish an earlier one. It is just the other way *716 around. We concur with the referee and the judge below that, notwithstanding that it is plaintiff's licensee, defendant has not used the Surratt patent, during the period of the second suit; and we affirm their conclusions of law.
The division of the costs of the reference was within the judge's discretion. G.S. § 6-21(6). We note, however, that Judge McLaughlin, with the exception of the one item of cost, merely affirmed, ipsis verbis, the referee's report, without entering any judgment upon it. G.S. § 1-194; G.S. § 1-195. But the parties have treated his order as a judgment, and, to dispose of the appeal, so do we. The case is remanded to the Superior Court for judgment in accordance with the report as amended by Judge McLaughlin.
Remanded for judgment.
