Carter-Wallace, Inc. v. United States

• Decision Date: 15 October 1971
• Docket Number: No. 322-67.,322-67.
• Citation: 449 F.2d 1374
• Parties: CARTER-WALLACE, INC. v. The UNITED STATES.
• Court: U.S. Claims Court

449 F.2d 1374 (1971)

CARTER-WALLACE, INC. v. The UNITED STATES.

No. 322-67.

United States Court of Claims.

October 15, 1971.

Stephen R. Lang, New York City, for plaintiff, George B. Finnegan, Jr., New York City, attorney of record. Morgan, Finnegan, Durham & Pine, Edward J. Ross, Louis A. Mangone, Breed, Abbott & Morgan, Jerome G. Lee, and George P. Hoare, Jr., New York City, of counsel.

James A. Curley and Howard E. Shapiro, Washington, D. C., with whom was Asst. Atty. Gen. L. Patrick Gray, III, for defendant; Richard W. McLaren, Washington, D. C., Harry First, New York City, and A. David Spevack, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON, and NICHOLS, Judges.

DAVIS, Judge.^*

This is an opening skirmish in a patent suit under 28 U.S.C. § 1498 to recover "reasonable and entire compensation" for unauthorized use by the United States of the invention described and claimed in U. S. Patent 2,724,720, "Dicarbamates of Substituted Propane Diols." Plaintiff owns the patent and filed its petition charging infringement of claims 1 and 4. Claim 4 is representative and reads "2-methyl-2-n-propyl-1,3-propane diol dicarbamate," which is a chemical compound or drug with the generic name "meprobamate." Meprobamate, and combination drug products containing meprobamate, have been sold by plaintiff and others under various trademarks, including "Miltown" and "Equanil," and have for many years been leading tranquilizer drugs for treatment of neurosis, anxiety and tension.

Defendant filed an answer asserting the usual defenses of patent invalidity and noninfringement. The answer also alleged that the patent is unenforceable because plaintiff "combined and conspired" to "restrain" and "monopolize" trade in meprobamate in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and that plaintiff has "misued its patent * * * to secure a monopoly beyond the scope of the patent * * *." Later, defendant filed a first amended answer adding paragraphs 22 through 33. Paragraphs 25 through 33 set out in detail certain alleged antitrust violations and patent misuse; and those paragraphs are the basis of the present dispute. The allegations challenge some of plaintiff's licensing, marketing and pricing practices with respect to the meprobamate patent.

Plaintiff has moved to strike paragraphs 25 through 33 or, in the alternative, for summary judgment dismissing those paragraphs. Defendant opposed both halves of the motion before the trial commissioner. He allowed the motion in its entirety, as one for summary judgment. In seeking review by the judges, defendant acquiesces in some of the commissioner's conclusions but challenges others. Because plaintiff's motion relies on affidavits and documents outside the pleadings, we treat it as a motion for summary judgment (as did the trial commissioner) rather than as a motion to strike.¹

I Background

The meprobamate patent issued to plaintiff in 1955. Shortly thereafter, plaintiff entered into a licensing arrangement with American Home Products Company ("American") under which American was granted the exclusive right (except for plaintiff) to use and sell meprobamate. American was not given the right to make meprobamate. Plaintiff retained that right for itself and agreed to supply American's requirements "at prices as may be mutually agreed upon." Plaintiff also retained the right to sell meprobamate to other pharmaceutical manufacturers for use in making combination drug products, but only after first discussing such proposed sales with American. The license contained other restrictive provisions, the details of which need not be set out here (they are set out at 211 F.Supp. at 146 infra), which were deemed by the Government to be violations of the antitrust laws. Accordingly, an antitrust suit was filed by the United States against plaintiff and American as codefendants in the District Court for the Southern District of New York. Before trial and after extensive negotiations, the suit was settled and a consent judgment entered. United States v. Carter Prod. Inc., 211 F.Supp. 144 (1962). The consent judgment contains many terms and conditions relating to plaintiff's licensing, marketing and pricing practices with respect to meprobamate; and the judgment was entered only after the court was satisfied that it was in the public interest. See 211 F.Supp. at 147, 148. In essence, the judgment requires plaintiff to sell meprobamate to any qualified pharmaceutical manufacturer at no more than a specified maximum price for unrestricted use and sale by such manufacturer. There are other conditions and qualifications in the judgment some of which will be noted later.

It is settled that courts will not aid a patentee in infringement litigation if the patentee, in dealing with the patent by licenses or product sales, engages in conduct violative of the antitrust laws or the principles of equity. Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 315 U.S. 788, 62 S.Ct. 402, 86 L.Ed. 363 (1942). Such conduct has come to be called patent misuse and is an application of the equitable doctrine that he who seeks equity must come into court with clean hands. When patent misuse and its consequences have been dissipated, however, the patentee is once again free to pursue his statutory remedy against infringers. Metals Disintegrating Co. v. Reynolds Metals Co., 228 F.2d 885, 889 (C.A. 3, 1956); Kins, Dissipation of Patent Misuse, 1968, Wis.L.Rev. 918.

The main question is whether the consequences of the patent misuse existing prior to the consent decree in 1962 were dissipated as a result of that judgment. Plaintiff notes that it has agreed to waive recovery against the United States for any infringement prior to November 9, 1962 (the date of the consent judgment), and argues that, accordingly, pre-1962 activities relating to licensing, marketing and pricing practices have no post-1962 relevance.² The affidavit of the attorney (Ross) who represented plaintiff in the antitrust litigation leading up to the consent judgment declares that the company promptly complied with the consent judgment and that it has unswervingly adhered to its terms ever since. Defendant does not dispute this statement (at least at the present stage of the litigation) and we must assume that it is so. The issue is whether, nevertheless, a proper defense of patent misuse has been stated. We treat separately with the various types of defense raised in the challenged paragraphs.

II Paragraphs 25, 26, 29

Paragraphs 25, 26, and 29 of the amended answer relate to license agreements between plaintiff and American Cyanamid, entered into in 1957 and 1959; and plaintiff and Merck, entered into in 1956. The agreements provide that plaintiff sell meprobamate to the respective licensees which in turn will resell the meprobamate, but only in combination with certain other drugs.³ Defendant says this practice is unlawful because plaintiff "* * * restricted the free use and alienation of meprobamate in the United States after plaintiff has sold the product * * * and parted with dominion and control thereover * *," citing, among other cases, United States v. Univis Lens Co., 316 U.S. 241, 62 S.Ct. 1088, 86 L.Ed. 1408 (1942) and United States v. Arnold, Schwinn & Co., 388 U. S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967).

Under Article IV of the consent judgment, plaintiff was "ordered and directed to offer to sell and to sell meprobamate compounds * * * without quantity discounts, and on unrestricted and nondiscriminatory terms and conditions, to every qualified pharmaceutical house placing a written order therefor," the maximum selling price to be "Twenty ($20.00) Dollars a pound" (adjusted for increases in the Consumer Price Index). Further, plaintiff was "ordered and directed to make every reasonable effort to assure a supply of meprobamate compound adequate to discharge its obligation * * *" under Article IV. Also, by Articles V and VI, plaintiff was "enjoined and restrained" from conditionally selling meprobamate or "entering into, adhering to, maintaining or enforcing any contract," the effect of which was to "prevent, limit, restrict or designate in any manner" the following: the uses to which meprobamate could be put; the sale of meprobamate by anyone to any qualified pharmaceutical house; the price, terms or conditions at which meprobamate drugs could be sold by any person; the persons to whom or the areas in which meprobamate or combination drugs could be sold by anyone; and the publication or dissemination by any pharmaceutical house of the results of research conducted by it. Article IX (H) provided, however, that "contracts in existence as of March 1, 1962," which includes the American Cyanamid and Merck contracts, shall not be invalidated to the extent they provide for "payments for meprobamate compound and of royalties to Carter, or otherwise impose any limitations, restrictions or obligations on such person; provided, however, that if such person e. g., American Cyanamid or Merck is a qualified pharmaceutical house it shall be eligible to purchase meprobamate * * * from Carter in accordance with the provisions of this Final Judgment and for purposes other than those provided for in such contracts; * * *."

The upshot is this: (1) American Cyanamid and Merck, as well as other qualified pharmaceutical houses, were free after the consent judgment to buy meprobamate from plaintiff on nondiscriminatory terms for unrestricted use, except that (2) American Cyanamid and Merck were bound by the terms of the earlier licenses to sell only combination drugs insofar as they bought meprobamate at the price agreed to in the license, which was considerably lower than $20 per pound. If, however, American Cyanamid or Merck bought meprobamate at the price set out in the consent judgment (i. e., no more than $20 per pound), rather than that agreed to in the licenses, then they...