Mannington Mills, Inc. v. Congoleum Corp.

• Decision Date: 03 April 1979
• Docket Number: No. 78-1845,78-1845
• Citation: 595 F.2d 1287
• Parties: , 1979-1 Trade Cases 62,547 MANNINGTON MILLS, INC., Appellant, v. CONGOLEUM CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 1287

595 F.2d 1287

202 U.S.P.Q. 321, 1979-1 Trade Cases 62,547

MANNINGTON MILLS, INC., Appellant, v. CONGOLEUM CORPORATION, Appellee.

No. 78-1845.

United States Court of Appeals, Third Circuit.

Argued Jan. 15, 1979.

Decided April 3, 1979.

John N. Bain, Jeffrey L. Miller, Carella, Bain, Gilfillan & Rhodes, Newark, N. J., for appellant.

Frederick W. Rose, Young, Rose & Millspaugh, Newark, N. J., Michael M. Maney, Michael Winger, Robert M. Hayes, New York City, Sullivan & Cromwell, New York City, of counsel, Richard T. Laughlin, Kearney, N. J., for Appellee Congoleum Corp.

Before ADAMS and WEIS, Circuit Judges and WEINER, ^* District Judge.

OPINION OF THE COURT

WEIS, Circuit Judge.

Alleging that foreign patents were secured by fraud, which if perpetrated in securing a domestic patent would lead to antitrust liability, plaintiff seeks treble damages and injunctive relief. The district court dismissed the complaint, relying primarily upon the act of state doctrine. We conclude that in this instance that ground does not bar consideration of plaintiff's claim. Because we determine, however, that in deciding whether jurisdiction should be exercised the district court should weigh the enforcement of the antitrust laws against the interests of comity and international relations, we remand for the development of an adequate record.

Congoleum Corporation holds American patents for the manufacture of chemically embossed vinyl floor covering and owns corresponding patents in some 26 foreign countries. Mannington Mills, Inc., too, is in the business of manufacturing flooring and is licensed to use the Congoleum patents in this country. Although Mannington claimed to have similar rights under the foreign patents, that contention was decided adversely in companion litigation, Mannington Mills, Inc. v. Congoleum Industries, Inc., 197 U.S.Pat.Q. 145 (D.N.J.1977), and Congoleum has instituted infringement suits against Mannington in New Zealand, Canada, Australia, and Japan.

In 1974, Mannington filed suit in the district court of New Jersey alleging, Inter alia, that Congoleum's licensing practices in the overseas markets violated § 2 of the Sherman Antitrust Act, 15 U.S.C. § 2. Summary judgment on the antitrust claim was entered in favor of the defendant and the case is presently on appeal. Mannington had sought to amend its complaint in that suit by adding allegations of Congoleum's fraud in securing its foreign patents. The district court denied leave to amend the complaint as to this specific contention. Thereafter, Mannington filed the present action based on essentially the same grounds. The district court dismissed the complaint for failure to state a claim and also declined to exercise jurisdiction in a pendent state unfair competition count.

Mannington's complaint alleges that Congoleum made fraudulent representations to various foreign patent offices in the following general categories:

1. False statements about the reactions and performance of some of the chemical components of the vinyl flooring;

2. Misrepresentation of test data;

3. Suppression of information critical to the practice of the invention;

4. Misleading statements about the status and contents of the United States patent applications.

The complaint charges that Congoleum enforced the foreign patents by bringing and threatening the institution of infringements suits in foreign countries. This activity allegedly restrained the export trade of the United States by restricting the foreign business of Mannington and other American competitors in addition to demonstrating an intent to monopolize. Mannington asserts further that Congoleum's false claims of priority dates were in violation of the Paris Convention of March 20, 1883, As amended, (1962) 13 U.S.T. 1, and the Pan-American Convention of August 20, 1910, 38 Stat. 1811.

The district court held that since no private right of action was set out in the treaties no relief could be granted. The antitrust count was dismissed on the grounds that the validity of the foreign patents was to be determined by the courts of the respective issuing nations and there was no necessity for American firms to apply for foreign patents in any way other than as established by the respective nations. The court stated that to enjoin Congoleum from enforcing its foreign patents in other nations against Mannington would violate the act of state doctrine.

Mannington emphasizes that it is not challenging the right of a foreign government to confer patents under its own requirements and indeed does not seek to have the patents at issue adjudged invalid.

Rather, its claims are said to arise out of breach of standards imposed by American law and thus are properly determinable in the district court. Mannington argues that use of the United States courts to resolve antitrust claims stemming from fraud in the procurement of patents abroad is consistent with the extraterritorial jurisdiction of the Sherman Act, and litigation in a single forum furthers judicial efficiency. Congoleum contends, however, that Mannington's theory for antitrust relief is barred by the act of state doctrine, and subjecting a putative patentee to United States standards for foreign patent procurement is an unwarranted extension of the antitrust laws.

I JURISDICTION

We turn first to the question of jurisdiction. Both parties are subject to service of process in New Jersey and in personam jurisdiction is concededly present. What is at issue, however, is subject matter jurisdiction.

The challenge here is to conduct by an American corporation in a foreign country, arguably legal there, and the issue is whether that activity is answerable in the courts of the United States under the Sherman Act's broad and potentially far-reaching language. The extraterritorial application of the Act to "trade or commerce . . . with foreign nations" has been and continues to be the subject of lively controversy. See, e.g., Kintner & Griffin, Jurisdiction Over Foreign Commerce Under the Sherman Antitrust Act, 18 B.C.Ind. & Com.L.Rev. 199 (1977). Neither the Act nor its legislative history gives any clear indication of the scope of the extraterritorial jurisdiction conferred, leaving such determination to the courts. Id. at 200-19; See Ongman, "Be No Longer a Chaos:" Constructing a Normative Theory of the Sherman Act's Extraterritorial Jurisdictional Scope, 71 Nw. U.L. Rev. 733, 735-41 (1977).

Justice Holmes's opinion in American Banana Co. v. United Fruit Co., 213 U.S. 347, 29 S.Ct. 511, 53 L.Ed. 826 (1909), cast doubt on the intent of Congress to extend the Sherman Act to action perpetrated beyond United States territory. Since then, however, the Supreme Court has made it clear that "foreign commerce" applies to importing, exporting, and other commercial transactions, as well as transportation and communication between the United States and a foreign country. ¹ Acts and agreements occurring outside the territorial boundaries of the United States that adversely and materially affect American trade are not necessarily immune from United States antitrust laws. Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199 (1951); United States v. National Lead Co., 332 U.S. 319, 67 S.Ct. 1634, 91 L.Ed. 2077 (1947); United States v. Sisal Sales Corp., 274 U.S. 268, 47 S.Ct. 592, 71 L.Ed. 1042 (1927); Thomsen v. Cayser, 243 U.S. 66, 37 S.Ct. 353, 61 L.Ed. 597 (1917); United States v. Pacific & Arctic Railway & Navigation Co., 228 U.S. 87, 33 S.Ct. 443, 57 L.Ed. 742 (1913).

In oft-quoted language, Judge Learned Hand in United States v. Aluminum Co. of America (Alcoa), 148 F.2d 416, 443-45 (2d Cir. 1945), concluded that although Congress did not intend the Sherman Act to prohibit conduct having no effect in the United States, it did intend the Act to reach conduct having consequences within this country even where the parties concerned had no allegiance to the United States if the conduct is intended to and actually does It can no longer be doubted that practices of an American citizen abroad having a substantial effect on American foreign commerce are subject to the Sherman Act. As was observed in Steele v. Bulova Watch Co., 344 U.S. 280, 282, 73 S.Ct. 252, 254, 97 L.Ed. 252 (1952), a case involving trademark infringement under the Lanham Trade-Mark Act of 1946, 15 U.S.C. §§ 1051-1127, "Congress in prescribing standards of conduct for American citizens may project the impact of its laws beyond the territorial boundaries of the United States." This view has been criticized because its failure to abide by the basic tenet that a nation's legislation is valid only in the territory it governs leads to unnecessary international friction. ² Nevertheless, when two American litigants are contesting alleged antitrust activity abroad that results in harm to the export business of one, a federal court does have subject matter jurisdiction. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969). Therefore, we are satisfied that the district court did have jurisdiction in this case.

have an effect upon United States imports or exports. This wide-reaching "intended effects" test has been cited with approval by the Supreme Court. See, e.g., Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 705, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962). See also Restatement (Second) of the Foreign Relations Law of the United States § 18 (1965).

II ACT OF STATE

The defendant relies heavily upon the act of state doctrine but we conclude that it does not preclude adjudication of Mannington's claims. The doctrine is a policy of judicial abstention from inquiry into the validity of an act by a foreign government. The premise upon which it rests is that an act by the sovereign power of a foreign state or by its authorized agent in its own territory and within the scope and authority of the office cannot be questioned or...