United States v. United States Gypsum Co., Civil No. 8017.

• Decision Date: 15 June 1946
• Docket Number: Civil No. 8017.
• Parties: UNITED STATES v. UNITED STATES GYPSUM CO. et al.
• Court: U.S. District Court — District of Columbia

67 F. Supp. 397

UNITED STATES v. UNITED STATES GYPSUM CO. et al.

Civil No. 8017.

District Court of the United States for the District of Columbia.

June 15, 1946.

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Wendell Berge, Asst. Atty. Gen., Roscoe T. Steffen and Edward Knuff, Sp. Assts. to the Atty. Gen., and Francis R. Shields, Sp. Atty., of New York City, and Kenneth R. Lindsay, Sp. Atty., of Washington, D. C., for plaintiff.

Bruce Bromley, of New York City, Hugh Lynch, Jr., of Washington, D. C., and George S. Collins, of New York City, for defendants United States Gypsum Company, Sewell L. Avery and Oliver M. Knode.

Nicholas J. Chase, of Washington, D. C., and Elmer E. Finck and Paul W. Lapey, both of Buffalo, N. Y., for defendant National Gypsum Company.

Nicholas J. Chase, of Washington, D. C., and Elmer E. Finck, of Buffalo, N. Y., for defendant Melvin H. Baker.

Clausen, Hirsh and Miller, of Chicago, Ill., and Charlton Ogburn, of New York City, for defendant Certain-teed Products Corporation.^*

Harold F. McGuire and F. W. H. Adams, both of New York City, Leonard B. Ettelson and Stephen Allie, both of Chicago, Ill., and Peter Keber, of New York City, for defendant Henry J. Hartley.

Walter G. Moyle and Ernest H. Oliver, both of Washington, D. C., and Andrew J. Dallstream and Norman Waite, both of Chicago, Ill., for defendants The Celotex Corporation and Bror G. Dahlberg.

Joseph P. Tumulty and Joseph P. Tumulty, Jr., both of Washington, D. C., Alfred W. Varian and Herbert M. Simon, both of New York City, and Elmer E. Finck, of Buffalo, N. Y., for defendants Ebsary Gypsum Company, Inc., and Frederick G. Ebsary.

James O'Donnell, Jr., of Washington, D. C., and Benjamin P. DeWitt, of New York City, for defendants Newark Plaster Company and Frederick Tomkins.

George E. H. Goodner and Scott P. Crampton, both of Washington, D. C., and David I. Johnston, Roy C. Lytle, James R. Keaton, and Frank Wells, all of Oklahoma City, Okla., for defendant Samuel M. Gloyd, doing business under the name of Texas Cement Plaster Company.

Before STEPHENS, Associate Justice, United States Court of Appeals for the District of Columbia (Presiding), and GARRETT, Presiding Judge, and JACKSON, Associate Judge, United States Court of Customs and Patent Appeals, designated as Justices of the District Court of the United States for the District of Columbia.^**

STEPHENS, J.:

This is an action in equity instituted by the United States, hereinafter referred to as the Government, to restrain the defendants from alleged violations of Sections 1, 2 and 3 of the Sherman Act. Injunctive relief is sought under Section 4.¹ The corporate defendants are: United States Gypsum Company (hereinafter referred to as USG), National Gypsum Company (National), Certain-teed Products Corporation (Certain-teed), The Celotex Corporation (Celotex), Ebsary Gypsum Company, Inc. (Ebsary), and Newark Plaster Company (Newark). The individual defendants are Samuel M. Gloyd, doing business under the name of Texas Cement Plaster Company (Texas), Sewell L. Avery, Oliver M. Knode, Melvin H. Baker, Bror G. Dahlberg, Henry J. Hartley, Frederick G. Ebsary, and Frederick Tomkins. Avery was president of USG from 1905 to 1936, and since then has been chairman of the Board of Directors. Knode is president of USG. Baker is president of National. Dahlberg is president of Celotex and chairman of the Board of Directors of Certain-teed. Hartley is president of Certain-teed. Ebsary is president of Ebsary. Tomkins is president of Newark.

The defendants are engaged in the mining of gypsum rock and in the manufacture and in the sale in interstate commerce, in the "Eastern area" of the United States, of gypsum board, gypsum plaster, and miscellaneous gypsum products defined in a bill of particulars as gypsum block, gypsum tile, and Keene's cement. The "Eastern area" includes all of the states of the United States from the East Coast westward to and including New Mexico, Colorado, Wyoming, and the eastern half of Montana.²

Gypsum board consists of two outer sheets of heavy tough paper, front and back, called "liners," between which there is a lightened gypsum core which is firmly bonded to the paper. Gypsum wallboard is a product used as a finished interior wall. Gypsum lath or plasterboard is a product used as a base to which a coat of plaster may be applied. In the manufacture of gypsum products the raw gypsum rock is first subjected to calcination—the process of driving off the water of crystallization by heating. Calcined gypsum, or stucco, when mixed with water, resumes the original content thereof so that the manufactured product is chemically substantially the same as the raw rock and has the same properties. In the reforming process the manufacture of the products above described is made possible. The products are extensively used in the building industry.

In the early periods of its manufacture gypsum board was crudely made by pouring buckets of calcined gypsum mixed with water in thin layers between multiple pieces of rough felt paper, smoothing the product with rollers, hardening it on racks and trimming the pieces to size. This was a hand operation. In 1912 the defendant USG commenced the development of more efficient methods of manufacture of gypsum products. An important advance was in the making, by virtue of patent No. 1,034,746, issued in 1912 to USG on application of an inventor-employee named Clarence W. Utzman, of "closed-edge board."³ Prior to 1912 gypsum board had been made with exposed edges. This required trimming, and there was also breakage in shipping and use, with consequent wastage. The making of closed-edge board solved this problem. Various other improvements were developed, including a board making machine, the use of foam as a substitute for sawdust as an "aggregate" in the gypsum core to lighten the board, and the use of starch to improve the bond between paper and core. Metallized board, gypsum board covered with metallic foil, was devised for purposes of insulation; and a gypsum lath perforated in such manner as to increase the fire resisting qualities of wall structure was devised. These improvements were covered by patents— product, process, and machine—many of which were issued to USG; others were acquired by that company. A demand arose in the trade for these improved products, and companies other than USG commenced to copy them. There ensued many years of litigation in which USG strove to enforce, and eventually succeeded in enforcing, its patent rights.

Prior to 1917 the Bestwall Manufacturing Company (Bestwall) commenced the manufacture of closed-edge board. USG sued for infringement and won. Bestwall Mfg. Co. v. United States Gypsum Co., 7 Cir., 1921, 270 F. 542. Bestwall had, however, in the course of the litigation, been acquired by The Beaver Products Company, Inc. (Beaver), and USG by a supplemental bill sued both of these companies for infringement and again prevailed. United States Gypsum Co. v. Bestwall Mfg. Co., D.C.N.D.Ill.1925, 15 F.2d 704. These decisions made the manufacture of closed-edge board by a competitor of USG impossible without infringement of USG's patent rights. This is admitted by the Government. Prior to the last mentioned decision, Augustus S. Blagden, president of Beaver, made overtures of settlement to Sewell L. Avery, president of USG; he continued these efforts after the decree under the supplemental bill. Avery, at a meeting in December, 1925, specified as terms of settlement the payment of damages by Beaver for infringement of USG's patents, acknowledgment by Beaver of the validity of USG's patents, payment of royalties, and the right in USG to fix prices of gypsum board made and sold by Beaver under the Utzman closed-edge patent. A settlement agreement was executed on July 29, 1926, Beaver paying $250,000 cash damages and USG granting Beaver a license to make, use and sell the patented products, to use the patented processes and to make and use the patented machines. The terms of the license contract are stated in greater detail below.

In September, 1925, after the decision against Beaver, USG sued The American Gypsum Company (American) and the Universal Gypsum and Lime Company (Universal) for infringement, and served a notice of infringement upon the Niagara Gypsum Company (Niagara). On September 17, 1926, a settlement and license agreement was entered into with Universal similar to that with Beaver, except that the lump sum payment was approximately $35,000. A license agreement was entered into between USG and the Atlantic Gypsum Products Company (Atlantic) on March 5, 1927. In this instance no damages were paid. Texas signed a license agreement on April 11, 1927. This contract was not by way of settlement of an existing claim of infringement, although it recited that Texas had equipped its plant to make closed-edge board and that USG was threatening to sue if such board were produced.

These four license contracts are for convenience referred to in the record as the "1926-1927 contracts." The licenses granted were under two Utzman patents No. 1,034,746 (the product patent) and No. 1,029,328 (a process patent), and under a third Utzman patent No. 1,330,413 (a machine patent), expiring February 10, 1937, under a Birdsey patent No. 1,358,508 (a product patent for partially closed-edge board), and under some sixty or more other patents and applications for patents. The material provisions of the contracts were these: USG granted an indivisible and non-exclusive license until the expiration of the Utzman machine patent on February 10, 1937. It reserved the right to fix during the life of the Utzman product patent, expiring August 6, 1929, the minimum prices at which the licensees might sell board embodying the disclosure of that patent, but at not more than the prevailing market price. The licensees agreed to...