670 F.2d 1122 (D.C. Cir. 1981), 79-1634, United States v. Studiengesellschaft Kohle

Docket Nº:79-1634.
Citation:670 F.2d 1122
Party Name:1981-2 Trade Cases 64,394 UNITED STATES of America v. STUDIENGESELLSCHAFT KOHLE, m.b.H., Director Max Planck, Institut Fur Kohlenforschung, Appellant, Hercules Incorporated, et al.
Case Date:December 11, 1981
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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670 F.2d 1122 (D.C. Cir. 1981)

1981-2 Trade Cases 64,394




Institut Fur Kohlenforschung, Appellant,

Hercules Incorporated, et al.

No. 79-1634.

United States Court of Appeals, District of Columbia Circuit

December 11, 1981

Argued May 7, 1980.

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Appeal from the United States District Court for the District of Columbia (D.C.Civil Action No. 1255-70).

Arnold Sprung, New York City, with whom Nathaniel Kramer, New York City, and Barry E. Cohen, Washington, D.C., were on the brief, for appellant.

Bruce E. Fein, Atty., Dept. of Justice, Washington, D.C., with whom John J. Powers, III and Kurt Shaffert, Attys., Dept. of Justice, Washington, D.C., were on the brief, for appellee.

Before ROBINSON, Chief Judge, McGOWAN, Senior Circuit Judge, and LOUIS F. OBERDORFER, [*] United States District Judge.

Opinion for the Court filed by District Judge OBERDORFER.

OBERDORFER, District Judge:

This is a civil antitrust enforcement action brought by the United States against Studiengesellschaft Kohle m.b.H. (S.K.) and its licensees. Essentially, the complaint challenged certain arrangements which granted an exclusive license to sell the product of a patented process as an unreasonable restraint of trade and an attempt to monopolize a part of trade or commerce in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Before trial, the district court denied defendants' motion for summary judgment, holding that the patents did not immunize the challenged arrangements from antitrust scrutiny. United States v. Studiengesellschaft Kohle, m.b.H., 426 F.Supp. 143 (D.D.C.1976). After

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a trial without a jury, the district court found that the license provisions in question, stripped of any patent law protection, violated Sections 1 and 2 of the Sherman Act. The court entered a decree enjoining defendant S.K. 1 from enforcing any agreement limiting sales of the product of its process patent, and requiring defendant to license the patented process to all applicants at a reasonable royalty. This appeal followed. For reasons stated below, we reverse the judgment of the district court and remand with instructions that it enter judgment for the defendant.


Between 1953 and 1954, Dr. Karl Ziegler, the Director of the Max Planck Institute in Mulheim, West Germany, developed a new process for the production of aluminum trialklys (ATAs), a catalytic agent and chemical reactant. For this and other related discoveries of organic-metallic catalysts and processes, Dr. Ziegler was awarded the 1963 Nobel Prize in Chemistry. He was also awarded with a number of U.S. patents on his process for producing ATAs.

Prior to Ziegler's invention, ATAs were known but had no commercial uses. J.A. 163. Experience with the invention shows that ATAs produced by the Ziegler process cost an estimated 5% of what it cost to produce ATAs using the prior art. As the district court found, Ziegler's process "is so economical that no other process can be commercially competitive with it." J.A. at 95. Primarily as a result of these economies, the number of uses for ATAs increased dramatically. ATAs are now consumed in large quantities as a reactant in the manufacture of biodegradable household detergents and as a catalyst in the manufacture of synthetic rubber for tires. J.A. 90, 95. But since Ziegler did not discover the product ATAs, he was not awarded a patent on ATAs, but only on the process which he invented for their more economical manufacture.

In 1954 Dr. Ziegler concluded an agreement with Hercules Incorporated (formerly Hercules Powder Company) to exploit his process patents. Hercules had followed his research for a number of years and had previously expressed interest in obtaining licenses for the exploitation of his inventions. This Ziegler/Hercules agreement, designated by the parties as the "Technical Field Contract," granted Hercules a nonexclusive license to manufacture ATAs by the Ziegler process for use in Hercules' own manufacturing operations. It also granted to Hercules "an exclusive license to sell in the United States the aluminum trialkyl produced within the scope of the Technical Field." J.A. 143. Ziegler's agreement with Hercules permitted him to grant nonexclusive licenses to a number of other manufacturers as long as they used, but did not sell, the ATAs manufactured pursuant to the license. Accordingly, Ziegler granted licenses to Ethyl Corporation (Ethyl), Continental Oil Co. (Conoco) and others to use his process to manufacture ATAs for internal use.

In 1959 Hercules entered into a joint venture with Stauffer Chemical Co. in an effort to exploit the exclusive license to manufacture ATAs for sale. Together they formed Texas Alkyls, Inc. (Texas); Stauffer contributed capital while Hercules contributed its exclusive license. This transaction purported to give Texas the exclusive right to sell ATAs in the United States, diluted only by licenses authorizing ATA users such as Conoco and Ethyl to manufacture ATAs for internal consumption. Several nonexclusive licensees sought licenses from Ziegler to use his patented process to produce ATAs for sale in competition with Texas, but he consistently denied these applications.

Ethyl was one such disappointed licensee. In 1959 it reacted to Ziegler's denial of its application for a license to sell by filing a declaratory judgment action in the United States District Court for Delaware challenging Ziegler's right to enforce the license provisions banning ATA sales by Ethyl. Before that case came to issue, the parties agreed that, whatever the outcome, Ethyl would be permitted to sell ATAs-by right if the result was in favor of Ethyl, and if otherwise, according to the terms of a special license that would require Ethyl to pay Hercules an additional 2% royalty on sales

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of ATAs. 2 The Delaware Court ultimately found that the license restrictions were a valid exercise of the monopoly power inherent in Ziegler's process patent. Ethyl Corp. v. Hercules Powder Co., 232 F.Supp. 453 (D.Del.1964). Ethyl took no appeal, but began selling ATAs, subject only to an obligation to pay the 2% royalty agreed upon in partial settlement of the Delaware litigation. Only Hercules and Ethyl have sold industrial quantities of ATAs since that time.


On April 24, 1970, the United States filed the complaint in this case against Dr. Ziegler, Hercules, Stauffer, and Texas. After extensive discovery, defendants moved for summary judgment on the ground that the exclusive license to market ATAs manufactured by the Ziegler process was protected by the patent laws and thus immune from attack under the antitrust laws. The district court denied this motion, finding, contrary to the Delaware decision, that the patent laws did not protect the Ziegler licensing agreement. J.A. 77; 426 F.Supp. 143, 149 (D.D.C.1976). The court emphasized that S.K. (which was substituted as a defendant upon the death of Dr. Ziegler) held a process patent and not a product patent. The court concluded that a restriction on sales of the product by the nonexclusive process licensees exceeded the scope of a process patent. According to the district court, Ziegler's

"... patent claim gave him the right to exclude others from marketing, using, or selling his process. He therefore never had protection under the patent laws when he sought by whatever means to extend his process claim to restrict use or distribution of the unpatented product, the ATAs.... The holder of a process patent could not ... license several companies to use the process and attempt to limit the manner in which some of those companies decided to use the ultimate product."

426 F.Supp. at 148, 149 and n.3. Having denied defendants' motion for summary judgment, the court set the case for trial on the issue of whether the agreements limiting sales violated the Sherman Act.

With trial pending, defendants Hercules, Stauffer and Texas agreed to consent judgments and decrees. 3 After a trial in which S.K. was the sole remaining defendant, the district court entered findings of fact and conclusions of law. The court found essentially four anticompetitive effects from the restrictions at issue: (1) the nonexclusive licensees, prospective sellers of ATAs, were excluded from the market, (2) the price of ATAs exceeded competitive levels, (3) the development of new uses for ATAs was retarded because of their supracompetitive price, and (4) trade in certain aluminum alkyls other than ATAs was restrained as a result of the restrictions on the Ziegler process. J.A. 125-27. Without discussion of relevant authorities, the district court concluded that the agreements constituted an attempt to monopolize the sale of the ATAs in the United States in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, and were illegal restraints of trade under Section 1 of the Sherman Act, 15 U.S.C. § 1, both under a per se rule and as measured by the rule of reason. 4 On March

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15, 1979, the court entered an amended final decree that, inter alia, prohibited defendants from enforcing or granting limited licenses and mandated compulsory licensing at reasonable and nondiscriminatory rates of the Ziegler process, including the right to sell any ATAs so produced. See J.A. at 130.

On appeal, the parties make a number of contentions, not all of which need be addressed in view of the conclusion we reach. Appellant renews its argument below in support of its motion for summary judgment that its conduct is protected by the patent laws because (1) it effected no greater restraint than the patent granted, and (2) it could have legally imposed a much greater restraint by...

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