United States v. Glaxo Group Limited 8212 666

• Decision Date: 22 January 1973
• Docket Number: No. 71,71
• Citation: 35 L.Ed.2d 104,410 U.S. 52,93 S.Ct. 861
• Parties: UNITED STATES, Appellant, v. GLAXO GROUP LIMITED et al. —666
• Court: U.S. Supreme Court

410 U.S. 52

93 S.Ct. 861

35 L.Ed.2d 104

UNITED STATES, Appellant,

v GLAXO GROUP LIMITED et al.

No. 71—666.

Argued Nov. 9, 1972.

Decided Jan. 22, 1973.

Syllabus

Appellees, Imperial Chemical Industries Ltd. and Glaxo Group Ltd., British drug companies engaged in the manufacture and sale of the fungicide griseofulvin, pooled their bulk- and dosage-form patents and sublicensed certain firms in the United States to practice the patents. The pooling agreement contained a covenant to restrict bulk sales and resales, and sublicensing agreements prohibited bulk resales to third parties without the licensors' prior consent. The United States filed a civil antitrust suit against appellees to restrain alleged violations of § 1 of the Sherman Act, and the Government also attacked the validity of the dosage-form patents, and sought the relief of mandatory, nondiscriminatory bulk-form sales and reasonable-royalty licensing of the patents. The District Court held that the bulk-sales restrictions were per se violations of § 1 and enjoined their future use, but refused the Government's request to order mandatory, nondiscriminatory sales of the bulk form of the drug and reasonable-royalty licensing of appellees' patents as part of the relief. The court also refused to entertain the Government's claim of patent invalidity, since appellees did not rely on their patents in defense of the antitrust claims. Held:

1. Where patents are directly involved in antitrust violations and the Government presents a substantial case for relief in the form of restrictions on the patents, the Government may challenge the validity of the patents regardless of whether the owner relies on the patents in defending the antitrust action. Pp. 57—60.

2. In order to 'pry open to competition' the market closed by the antitrust violations, an order for mandatory, nondiscriminatory sales to all bona fide applicants is appropriate relief, and where, as in this case, the manufacturer may choose not to make bulk-form sales, and the licensees are not bound by the court's order for mandatory sales, further relief in the form of reasonable-royalty licensing of the patents is also proper. Pp. 60—64.

328 F.Supp. 709, reversed; see also 302 F.Supp. 1.

Daniel M. Friedman, Washington, D.C., for appellant.

Henry P. Sailer, Washington, D.C., for appellee Glaxo Group, Limited.

Sigmund Timberg, Washington, D.C., for appellee Imperial Chemical Industries, Limited.

Mr. Justice WHITE delivered the opinion of the Court.

The United States appeals pursuant to § 2 of the Expediting Act, as amended, 62 Stat. 989, 15 U.S.C. § 29, from portions of a decision by the United States District Court for the District of Columbia in a civil antitrust suit. We are asked to decide whether the Government may challenge the validity of patents involved in illegal restraints of trade, when the defendants do not rely upon the patents in defense of their conduct, and whether the District Court erred in refusing certain relief requested by the Government.

I

Appellees, Imperial Chemical Industries Ltd. (ICI) and Glaxo Group Ltd. (Glaxo), are British drug companies engaged in the manufacture and sale of griseofulvin. Griseofulvin is an antibiotic compound that may be cut with inert ingredients and adminis- tered orally in the form of capsules or tablets to humans or animals for the treatment of external fungus infections. There is no substitute for dosage-form griseofulvin in combating certain infections. Griseofulvin itself is unpatented and unpatentable. ICI owns various patents on the dosage form of the drug.¹ Glaxo owns various patents on a method for manufacturing the drug in bulk form, as well as a patent on the finely ground, 'microsize' dosage form of the drug.²

On April 26, 1960, ICI and Glaxo entered into a formal agreement pooling their griseofulvin patents. At the time of the execution of the agreement, ICI held patents on the dosage form of the drug, and Glaxo held bulk-form manufacturing patents. Pursuant to the agreement, ICI acquired the right to manufacture bulk-form griseofulvin under Glaxo's patents, to sell bulk-form griseofulvin, and to sublicense under Glaxo's patents. Glaxo was authorized to manufacture dosage-form griseofulvin and to sublicense under ICI's patents. As part of the agreement, ICI undertook 'not to sell and to use its best endeavors to prevent its subsidiaries and associates from selling any griseofulvin in bulk to any independent third party without Glaxo's express consent in writing.'

Subsequent to the pooling of the griseofulvin patents, ICI granted a sublicense to American Home Products Corp. (AMHO), ICI's exclusive distributor in the United States. ICI agreed to sell bulk-form griseofulvin to AMHO. AMHO was authorized to process the bulk form into dosage form and to sell the drug in that form. With respect to bulk sales the agreement stated: 'You (AMHO) will not, without first obtaining our (ICI') consent, resell, or redeliver in bulk supplies of griseofulvin.' Glaxo had previously entered into similar sublicensing agreements with two United States companies—Schering Corp. (Schering) and Johnson & Johnson (J & J). The agreements contained a covenant on the part of the licensees 'not to sell or to permit its Affiliates to sell any griseofulvin in bulk to any independent third party without Glaxo's express consent in writing.'³

On March 4, 1968, the United States filed a civil antitrust suit against ICI and Glaxo, pursuant to § 4 of the Sherman Act, 15 U.S.C. § 4, to restrain alleged violations of § 1 of the Act, 26 Stat. 209, as amended, 15 U.S.C. § 1. The Government charged that the restrictions on the sale and resale of bulk-form griseofulvin, contained in the 1960 ICI—Glaxo agreement and the various sublicensing agreements, were unreasonable restraints of trade. The Government also challenged the validity of ICI's dosage-form patent.⁴ The District Court, citing this Court's decision in United States v. Arnold, Schwinn & Co., 388 U.S., 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), held that the bulk-sales restrictions contained in the ICI-AMHO agreement were per se violations of § 1 of the Sherman Act.⁵ 302 F.Supp. 1 (D.C.1969). Because ICI had filed an affidavit disclaiming any desire to rely on its patent in defense of the antitrust claims, the District Court struck the claims of patent invalidity from the Government's complaint, ruling that the Government could not challenge ICI's patent when it was not relied upon as a defense to the antitrust claims. The District Court also denied the Government's motion to amend its complaint to allege the invalidity of Glaxo's patent on 'microsize' griseofulvin.⁶

Subsequently, in separate, unreported orders, the bulk-sales restrictions in the Glaxo-J & J, the Glaxo-Schering, and the Glaxo-ICI agreements were found to be per se violations of § 1. The court enjoined future use of the bulk-sales restrictions, but refused the Government's request to order mandatory, nondiscriminatory sales of the bulk form of the drug and reasonable-royalty licensing of the ICI and Glaxo patents as part of the relief. 328 F.Supp. 709 (D.C.1971). The United States took a direct appeal under the Expediting Act and we noted probable jurisdiction. 405 U.S. 914, 92 S.Ct. 940, 30 L.Ed.2d 784.

II

The major issue before us is whether the District Court erred in ruling that the United States could challenge the validity of a patent in the course of prosecuting an antitrust action only when the patent is relied on as a defense, which was not the case here. We agree with the United States that this was an unduly narrow view of the controlling cases.

United States v. American Bell Telephone Co., 167 U.S. 224, 17 S.Ct. 809, 42 L.Ed. 144 (1897), acknowledged prior decisions permitting the United States to sue to set aside a patent for fraud or deceit associated with its issuance, but held that the federal courts should not entertain suits by the Government 'to set aside a patent for an invention on the mere ground of error of judgment on the part of the patent officials,' at least where the United States 'has no proprietary or pecuniary (interest) in the setting aside of the patent (and) is not seeking to discharge its obligations to the public . . ..' 167 U.S., at 265, 269, 17 S.Ct., at 820, 822. Subsequently, United States v. United States Gypsum Co., 333 U.S. 364, 68 S.Ct. 525, 92 L.Ed. 746 (1948), referred to American Bell Telephone as holding that the United States was 'without standing to bring a suit in equity to cancel a patent on the ground of invalidity,' id., at 387, 68 S.Ct., at 538, but went on to declare that, to vindicate the public interest in enjoining violations of the Sherman Act, the United States is entitled to attack the validity of patents relied upon to justify anticompetitive conduct otherwise violative of the law. The Court noted that because of the public interest in free competition, it had repeatedly held that the private licensee-plaintiff in an antitrust suit may attack the validity of the patent under which he is licensed even though he has agreed not to do so in his license. The authorities for this proposition were Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. 165 (1942); Edward Katzinger Co. v. Chicago Metallic Mfg Co., 329 U.S. 394, 67 S.Ct. 416, 91 L.Ed. 374 (1947); and MacGregor v. Westinghouse Electric & Mfg. Co., 329 U.S. 402, 67 S.Ct. 421, 91 L.Ed. 380 (1947). The essence of those cases is best revealed in Katzinger where the Court held that, although a patent licensee (under the then-controlling law) was normally foreclosed from questioning the validity of a patent he is privileged to use, the bar is removed when he alleges conduct by the patentee that would be illegal under the antitrust laws, absent the patent. The licensee lwas free to challenge the patent in these circumstances because the 'federal courts must, in the public interest, keep the way...