Burlington Industries v. Milliken & Co.

• Decision Date: 23 September 1982
• Docket Number: Nos. 81-1823,s. 81-1823
• Citation: 217 USPQ 662,690 F.2d 380
• Parties: , 1982-2 Trade Cases 64,960 BURLINGTON INDUSTRIES, INC. and Madison Throwing Company, Inc., Plaintiffs-Appellees/Cross-Appellants, v. MILLIKEN & COMPANY, Milliken Research Corporation, Chavanoz, S. A., ASA, S. A. and ARCT, Inc., Defendants-Appellants/Cross-Appellees. (four cases) The DUPLAN CORPORATION, et al., Plaintiffs, v. DEERING MILLIKEN, INC., Deering Milliken Research Corporation, Moulinage et Retorderie de Chavanoz, Ateliers Roannais de Constructions Textiles, and ARCT, Inc., Defendants. (four cases) to 81-1825 and 82-1240.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 380

690 F.2d 380

217 U.S.P.Q. 662, 1982-2 Trade Cases 64,960

BURLINGTON INDUSTRIES, INC. and Madison Throwing Company, Inc., Plaintiffs-Appellees/Cross-Appellants, v. MILLIKEN & COMPANY, Milliken Research Corporation, Chavanoz,

S. A., ASA, S. A. and ARCT, Inc.,

Defendants-Appellants/Cross-Appellees.

(four cases)

The DUPLAN CORPORATION, et al., Plaintiffs, v. DEERING MILLIKEN, INC., Deering Milliken Research

Corporation, Moulinage et Retorderie de Chavanoz,

Ateliers Roannais de Constructions

Textiles, and ARCT, Inc.,

Defendants. (four cases)

Nos. 81-1823 to 81-1825 and 82-1240.

United States Court of Appeals, Fourth Circuit.

Argued May 6, 1982.

Decided Sept. 23, 1982.

Jay Topkis, New York City (Simon H. Rifkind, Steven B. Rosenfeld, Gerard E. Harper, Mary Lu Bilek, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, on brief), Griffin Bell, Atlanta, Ga. (Howard E. Manning, Sr., Manning, Fulton & Skinner, Raleigh, N. C., on brief), for defendants-appellants/cross-appellees.

David L. Foster, New York City (Michael C. Lambert, James J. Calder, Jonathan P. Wolfert, Willkie, Farr & Gallagher, New York City, on brief), William K. West, Jr., Washington, D. C. (W. Warren Taltavull, Cushman, Darby & Cushman, Washington, D. C., on brief), McNeill Smith, Greensboro, N. C. (Michael R. Abel, Smith, Moore, Smith, Schell & Hunter, Greensboro, N. C., on brief), for plaintiffs-appellees/cross-appellants.

Before WINTER, Chief Judge, and BUTZNER and HALL, Circuit Judges.

HARRISON L. WINTER, Chief Judge:

This is an antitrust case in which the district court found a continuing horizontal antitrust conspiracy to stabilize and maintain production royalties on false twist machines and to monopolize the United States market for these machines. ¹ The core of the conspiracy was a 1964 settlement agreement of certain patent litigation then pending between Leesona Corporation (a nonparty to the present case) and defendants which had the effect, as found by the district court, of stabilizing and maintaining the royalties charged by the coconspirators. After we modified the district court's determination of liability to include all defendants, Duplan Corp. v. Deering Milliken, Inc., 594 F.2d 979 (4 Cir. 1979), cert. denied, 444 U.S. 1015, 100 S.Ct. 666, 62 L.Ed.2d 645 (1980), the district court decided the issue of damages. Initially it awarded plaintiffs treble damages in the aggregate sum of $20,902,005.39, and all parties appealed. While the appeals were pending, we remanded the case to the district court at its request to enable it to reconsider its ruling, and the district court reduced its award to $7,462,211.67. The previous appeals from the damage award and an appeal from the order reducing damages are now before us. We vacate the award and remand the case for further proceedings.

I.

The facts of the case were extensively found by the district court prior to the previous appeal. Duplan Corp. v. Deering Milliken, Inc., 444 F.Supp. 648 (D.S.C.1977). We will repeat them only insofar as they bear on the issues before us and then only in connection with the issues to which they relate. From the several appeals, there are seven issues that we must consider:

1. Whether the district court properly applied the measure of damages and correctly excluded evidence proffered by defendants as to the price plaintiffs would have paid for false twist equipment absent the price-fixing conspiracy.

2. Whether defendants should have been permitted to prove, in the damages phase of the trial, that plaintiffs participated in the price-fixing conspiracy and are therefore barred from all recovery.

3. Whether plaintiffs are estopped from recovering royalty-based damages because of their role in other litigation which resulted in a ruling that Leesona's patents were valid.

4. Whether the district court properly applied the statute of limitations to plaintiffs' antitrust claims.

5. Whether plaintiff Madison Throwing Company, Inc. (Madison) may recover damages sustained by a wholly-owned subsidiary of Madison which was merged into Madison during the pendency of the litigation.

6. Whether the district court erred in calculating the value of support services provided to plaintiffs by defendant Deering Milliken Research Corporation (DMRC) and Leesona Corporation (Leesona) during the damages period, and in excluding that value from the royalty-based damages before trebling.

7. Whether the district court erred in recognizing a defense of "claim reduction," whereby it reduced the initial award against defendants by excluding treble damages attributable to Leesona on the grounds that plaintiffs had settled with Leesona in a related case.

We address these issues seriatim.

II.

To approach the issue of whether the measure of damages recoverable by plaintiffs was properly applied and to consider whether the district court erred in excluding evidence proffered by defendants on the matter of damages, it is necessary to describe the context in which these questions arise. ²

Defendant Moulinage et Retorderie de Chavanoz (Chavanoz) owned patents covering specific features of false twist machinery and thus had the right to make, use and sell machinery incorporating the patented features. It divided up its rights by licensing defendant Ateliers Roannais de Constructions Textiles (ARCT-France) to make and sell patented machines, while licensing DMRC to use the patented machines in the United States. ARCT-France issued a sublicense to Whitin Machine Works (Whitin) enabling it to sell the machinery in the United States. Whitin fixed its own price for the machines it sold, but agreed to sell only to purchasers approved by Chavanoz or DMRC. At a later date, ARCT, Inc. (ARCT) was incorporated to be the exclusive American distributor of machines manufactured by ARCT-France. Like Whitin, ARCT sold machines only to purchasers who were licensed to use them. DMRC issued sublicenses to throwsters to enable them to operate the machines purchased from Whitin and ARCT. DMRC required its use sublicensees to pay royalties based on the amount of yarn produced on the machines, and DMRC was required by the provisions of its license from Chavanoz to pay a portion of these production royalties to Chavanoz.

Plaintiffs Burlington Industries, Inc. (Burlington) and Madison ³ are throwsters who purchased ARCT machines from Whitin and obtained use sublicenses from DMRC. They thus paid Whitin a given sum for the purchase of the machines and DMRC a royalty for the use of the machines. A portion of what was collected by DMRC was remitted to Chavanoz.

At the time that Chavanoz's patented device was introduced into the American market, Leesona was the sole established competing manufacturer and distributor of false twist equipment. It, too, charged its throwster customers a production royalty for the use of its machines. The royalties charged by Leesona were roughly comparable to those charged by DMRC. Leesona sued Whitin for patent infringement in 1960, and the suit was settled in 1964 when the competing patent owners exchanged covenants not to sue each other or their respective licensees. In the liability phase of the present case, the district court found that the effect of the settlement was to fix royalties on false twist equipment to the detriment of plaintiffs. Having been affirmed in a previous appeal, that finding and the resulting liability are no longer at issue.

Prior to the trial on damages, the district court, on motion of the plaintiffs, ruled on the scope of the damages inquiry. It held that "proof of the payment of royalties by the plaintiffs following the illegal combination found to have existed between DMRC and Leesona sufficed to establish the fact of damage, and ... proof of the amount of such royalties ... will suffice to establish a prima facie case of actual damages subject to diminution by the value of any considerations received by the plaintiffs in return for the royalties such as 'support services' allegedly furnished plaintiffs by DMRC during the damages period." In pursuance of that concept, the district court awarded Burlington and its subsidiary Madison, for the various periods of liability, treble the royalties they had paid to DMRC and Leesona, diminished only by the value of support services furnished by DMRC and Leesona and an amount received by Burlington from Leesona in settlement of separate but related litigation. In accordance with our mandate in the prior appeal, the judgment was entered against all defendants. Although Leesona is not a party to the case royalties which plaintiffs paid to it were treated as an item of damage against the other defendants on the theory that they were coconspirators with Leesona and hence were jointly and severally liable for the entire damage to the victims of the conspiracy.

This appeal presents no dispute about the governing principle for the measurement of damages in a price-fixing case. Plaintiffs are entitled to recover the overcharge stemming from the illegal combination-i.e., the difference between the prices actually paid and the prices that would have been paid absent the conspiracy. See, e.g., The Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 489, 88 S.Ct. 2224, 2228, 20 L.Ed.2d 1231 (1968); American Crystal Sugar Co. v. Mandeville Island Farms, Inc., 195 F.2d 622, 625 (9 Cir.), cert. denied, 343 U.S. 957, 72 S.Ct. 1052, 96 L.Ed. 1357 (1952); 15 J. von Kalinowski, Antitrust Laws and Trade Regulation P 115.03(3), at 115-27 (1982); see also Phillips v. Crown Central Petroleum Corp., 602 F.2d 616, 632-33 (4 Cir. 1979), cert. denied, 444 U.S. 1074, 100 S.Ct. 1021, 62 L.Ed.2d 756 (1980). The district court recognized this abstract measure. It ruled, however, that in the circumstances of this case the entire amount of royalties paid to the coconspirators constitutes an overcharge and hence is recoverable as damages. Having made this ruling, the district court saw no need for...