Agrashell, Inc. v. Hammons Products Company, 71-1538.
| Decision Date | 30 March 1973 |
| Docket Number | No. 71-1538.,71-1538. |
| Citation | 479 F.2d 269 |
| Parties | AGRASHELL, INC., Appellant, v. HAMMONS PRODUCTS COMPANY, Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
COPYRIGHT MATERIAL OMITTED
Albert C. Johnston, New York City, for appellant.
Before ROSS and STEPHENSON, Circuit Judges, and URBOM, Chief District Judge.
Agrashell, Inc. (Agrashell) appeals from a judgment entered on a jury verdict in favor of Hammons Products Company (Hammons), on a counterclaim filed by Hammons in a patent infringement suit alleging violations of sections 1 and 2 of the Sherman Act and requesting treble damages under the Clayton Act. For reasons hereinafter set forth, we reverse in part and affirm in part the judgment of the trial court and order the dismissal of that portion of the counterclaim alleging violations of section 2 of the Sherman Act.
Agrashell instituted a patent infringement action against Hammons in 1963. The trial court granted Hammons a summary judgment because it found that Agrashell, as an exclusive licensee, did not have a right to sue for patent infringement in its own name without participation of the patent owner as party-plaintiff. Agrashell, Inc. v. Hammons Products Co., 248 F.Supp. 258, 260 (W.D.Mo.1965), aff'd, 352 F.2d 443 (8th Cir. 1965).
Although the patent expired in 1964, Agrashell obtained an assignment of title to the patent and refiled the action in 1965 for past infringement. These proceedings were stayed pending the outcome of the appeal from the 1963 summary judgment. Thereafter, Hammons filed an answer and counterclaim charging violations of sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1-2) and for a declaratory judgment of patent invalidity, unenforceability and noninfringement. The case was then set for trial.
A motion, made by Agrashell at the outset of the 1967 infringement trial, to sever the antitrust counterclaim issue from the patent issue was granted at the conclusion of the patent infringement portion of the case. On the patent claim the trial court entered judgment for Hammons, finding the patent invalid and not infringed either directly or contributorily. The court also found that even if the method claim were valid, it was not infringed by Hammons. Agrashell, Inc. v. Hammons Products Co., 279 F.Supp. 522 (W.D.Mo.1967), aff'd, 413 F.2d 89 (8th Cir. 1969). The court, however, denied Hammons' request for attorneys' fees pursuant to 35 U.S.C. § 285.
Immediately following the trial of the patent issue, both parties conducted discovery relating to Hammons' antitrust counterclaim, and Hammons requested a jury trial. Agrashell then requested leave of the court to file an amended reply and counter-counterclaims for breach of contract and antitrust violations. Agrashell alleged that Hammons had violated sections 1 and 2 of the Sherman Act, section 7 of the Clayton Act (15 U.S.C. § 18), and the Robinson-Patman Act (15 U.S.C. § 13). Both requests were granted and the case proceeded to trial in 1970.
At the outset of the 1970 trial Hammons moved for trial of its counterclaim separate from trial of Agrashell's counter-counterclaim. The trial court decided that each case would be presented separately but to the same jury. However, five weeks later, at the close of all of the evidence on Hammons' counterclaim, the motion for severance was granted over Agrashell's objection, Agrashell's motions for a directed verdict were denied,1 and a verdict was returned by the jury in favor of Hammons. Thereafter, pursuant to a stipulation of the parties, Agrashell's counter-counterclaims were dismissed without prejudice. Agrashell's motions for judgment n. o. v. or for a new trial were denied, and this appeal was taken.
This case involves the use of processed nutshells in two ways: First, as a soft grit abrasive (SGA) in cleaning operations, and secondly, as lost circulation material (LCM) used in oil well drilling.
SGA is "soft" in relation to harder abrasives such as sand. For example, SGA is projected against deposits on engine parts by air blasting and other means so as to remove the deposits with a minimum of damage to the part itself. While SGA may be composed of nutshells, it may also be composed of fruit pits, sawdust, rice hulls, corn cobs and clover seeds. The type of nutshells used may also be differentiated as either soft or hard. Agrashell sells SGA which is composed of black walnut and apricot pit shell, and Hammons sells SGA which is composed solely of black walnut shell.
Various companies processed or "manufactured" SGA in some form during the time periods in question. Agrashell of Los Angeles, California; Hammons of Stockton, Missouri; Gravette Shelling Company of Gravette, Arkansas2 (Gravette); Block Brothers, Inc. of Nashville, Tennessee; and Block Walnut Processing Corp., of Nashville, Tennessee (known together as Block); Continental Nut Company of Chico, California (Continental); Industrial Flour and Abrasives Company of Morristown, Tennessee (Industrial Flour); Lufkin Pecan Company of Lufkin, Texas (Lufkin); Star of Texas Company of Fort Worth, Texas (Star of Texas); Texas Feed and Grain Company of Fort Worth, Texas (Texas Feed); and Southeastern Reduction Company of Valdosta, Georgia (Southeastern) are, or were during the periods of time in question, processors of SGA. Various companies distributed SGA, but apparently did not manufacture it: Pangborn Corporation of Hagerstown, Maryland (Pangborn); American Wheelabrator & Equipment Corporation of Mishawaka, Indiana (Wheelabrator) both Pangborn and Wheelabrator were large manufacturers of blast cleaning equipment; Composition Materials Company (Composition) Block's jobber; Bernard Sirotta Company of New York, New York (Sirotta) which at one time sold Hammons' SGA, and several others distributed Agrashell's SGA.
The Pan American Petroleum Corporation developed another use for processed nutshell and patented the idea, giving Cherokee Laboratories an exclusive license under the patent for part of the time relevant here. Pan American's patent covered the use of processed nutshells in controlling the loss of circulation of drilling muds utilized in oil well drilling. Agrashell sells this "lost circulation material" (LCM) which is composed primarily of english walnut shell and thus different from its SGA. Hammons sells LCM which is almost identical to its SGA, except for somewhat different sizes of the particles. LCM may also be composed of nonnutshell products ranging from cotton seed hulls to golf balls. Other companies, including Gravette and Block, manufacture nutshell LCM.
The geographic markets for LCM and SGA are different. SGA is sold nationwide, with emphasis in the industrial northeast, while LCM is concentrated in the Mid-Continent and Gulf States oil producing regions.
It was later learned that apricot pits have very similar physical characteristics to the black walnut shell, and they are used interchangeably by Agrashell.3 Id. at 523.
Perry assigned the patent to Turco Products Company, Inc., which granted an exclusive license to Agrashell. The patent was in turn assigned to Purex Corporation, when Turco merged with Purex, and finally was assigned by Purex to Agrashell. Throughout this entire period, dating from 1947, Agrashell had an exclusive license. The patent expired on June 10, 1964.
Hammons' claim was essentially that Agrashell had attempted to monopolize hard nutshells within the SGA markets in violation of section 2 of the Sherman Act by means of infringement suits and certain formal and informal contractual relationships so as to extend the Perry patent beyond its terms and life. Hammons also claimed that certain formal and informal contractual relationships unreasonably restrained trade in hard nutshells within the SGA markets in violation of section 1 of the Sherman Act because the arrangements extended the Perry patent beyond its terms and life.
(1) The Sirotta suit
In 1958 Sirotta had begun to purchase Hammons' SGA for sale to Sirotta's customers. In October of 1960 Sirotta received a notice of infringement from Agrashell; Agrashell had in 1954 written Sirotta about the possibility of infringement liability. Sirotta contacted patent counsel who investigated the situation and concluded that there was insufficient basis to challenge the patent at least insofar as "prior art" was concerned. Sirotta was selling nutshell SGA, including black walnut and apricot pit SGA, for use in blasting equipment, including air blasting equipment. Settlement negotiations broke down between Agrashell and Sirotta and the infringement suit was filed in February of 1963.
During the course of taking a deposition Bernard Sirotta, the president of Sirotta, asked to speak to Ayers, the president of Agrashell, alone. Sirotta purportedly asked Ayers whether the suit could be settled as between two businessmen. Sirotta claims Ayers replied as follows:
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