Ansul Company v. Uniroyal, Inc.
| Decision Date | 31 October 1969 |
| Docket Number | No. 68 Civ. 2244.,68 Civ. 2244. |
| Citation | 306 F. Supp. 541 |
| Parties | The ANSUL COMPANY, Plaintiff, and Daly-Herring Co., Carolina Chemical Co., Louisville Chemical Co., Food Machinery Co. and Triangle Chemical Co., Plaintiff-Intervenors, v. UNIROYAL, INC., Defendant. |
| Court | U.S. District Court — Southern District of New York |
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Morgan, Finnegan, Durham & Pine, New York City, for plaintiff and plaintiff-intervenors, John A. Diaz, Warren H. Rotert, and David H. Pfeffer, New York City, of counsel.
Arthur, Dry, Kalish, Taylor & Wood, New York City, for defendant, Walter Barthold, Bert J. Lewen, Martin J. Cohen, and Steven H. Bazerman, New York City, of counsel.
This action arose out of Ansul's entry into the manufacture and sale, beginning in 1968, of a maleic hydrazide composition used by tobacco growers, farmers and others to inhibit certain types of plant growth. Prior thereto Uniroyal, claiming the exclusive right to make and sell the composition pursuant to U. S. Letters Patent No. 2,614,916 (the "916 patent" herein), was the sole source of supply. On May 31, 1968, Ansul sought a declaratory judgment to the effect that defendant's 916 patent was invalid because of failure to meet the requirements of patentability set forth in the Patent Act of 1952 (35 U.S.C. § 100 et seq.) and misrepresentations to the Patent Office, and that it was unenforceable because of Uniroyal's misuse. Ansul also sought a declaration that the patent was not infringed by it or its distributors and damages for Uniroyal's alleged violation of 35 U.S.C. § 292 by mismarking products purporting to be within the claims of the patent.
Uniroyal countered by instituting suits for infringement in several district courts in the southeastern states against various distributors of Ansul's maleic hydrazide ("MH" herein) products, Daly-Herring Company, Carolina Chemical Company, Louisville Chemical Company, Food Machinery Company and Triangle Chemical Company. At Ansul's instance we enjoined Uniroyal from prosecuting those suits. Recognizing Uniroyal's desire to have the controversy decided in a district with a less crowded calendar so that the validity of the patent might be resolved prior to its expiration date (October 21, 1969), we ordered Ansul to request its customers named in the suits brought by Uniroyal to intervene in this action, which resulted in intervention by some distributors, and ordered the parties to cooperate in seeking a speedy trial pursuant to Rule 57, F.R.Civ.P., and the Local Rules of this Court.
Uniroyal answered the general denials and counterclaimed for infringement of both its 916 patent and its 2,575,954 patent (the "954 patent" herein).1 All plaintiffs filed a joint amended complaint, which contained a second cause of action on behalf of Ansul and plaintiff-intervenors Daly-Herring and Louisville Chemical seeking treble damages for injuries caused by Uniroyal's alleged violations of §§ 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2).
In March, 1969, pursuant to Rule 42 (b), F.R.C.P., and with a view to efficient and speedy resolution of the issues raised, we separately tried the validity and infringement issues, following which we held invalid the 916 patent's claim to the MH composition itself (Claim No. 1) and upheld the validity of the method claim (Claim No. 7) for use of MH products to regulate the growth of tobacco and other plants. We also found that Claim No. 7 had been infringed by Ansul and plaintiff-intervenors' sales of Ansul's MH products for use in regulating the growth of plants. See Ansul Co. v. Uniroyal, Inc., 301 F.Supp. 273 (S.D.N.Y.1969).
Our decision left for trial (1) Ansul's contentions that Uniroyal's patent was unenforceable because of misuse of the patent and fraud on the Patent Office, (2) Ansul's claim that defendant violated 35 U.S.C. § 292 by labeling of its patented products with four patent numbers, two of which were inapplicable, and (3) the treble damage claims of Ansul, Daly-Herring and Louisville Chemical. These issues were tried during most of July and part of early August of this year. For the reasons set forth below we hold that because the patent has been misused by Uniroyal and the misuse has not been purged or dissipated, the patent is unenforceable. All other claims are dismissed.
Before turning to the issues, a summary of certain essential background facts with respect to Uniroyal's marketing of its MH products from 1960 to date is essential. The principal such product is a composition of the diethanolamine salt of MH with a wetting agent, which is sold by Uniroyal under the trade name "MH-30." "MH-30" is used by tobacco growers to prevent tobacco sucker growth and by farmers to prevent sprouting of potatoes and onions. Ninety percent of the MH-30 sold by Uniroyal has been marketed by it for the former use in the so-called "tobacco belt" in the southeastern states (North Carolina, Virginia, South Carolina, Georgia, Kentucky and Tennessee). This constitutes the major commercial use of the product, and though Uniroyal also manufactures an identical product named "SLO GRO" which is used to control the growth of grass, trees, shrubs and ivy, the important issues here, as well as most of the facts brought out on trial, involved the marketing of MH-30.
For some years prior to 1960 Uniroyal sold the chemical MH (more technically known as 6-hydroxy-3 (2H)-pyridazinone) to formulator-distributors who, pursuant to directions furnished by Uniroyal, converted the composition (a dry powder about 98% MH) into the diethanolamine salt of MH with a wetting agent2 and sold it under Uniroyal's registered label as "MH-30." This earlier system of marketing proved unsuccessful because of widespread drastic price-cutting that developed as a result of competition between formulators, making the item so unprofitable that some refused to handle it and Uniroyal sales personnel urged that "drastic measures be taken to stop such practices of price cutting", (PX 608).
Beginning in early 1960 Uniroyal changed its marketing methods; it ceased selling technical MH to formulator-distributors and, instead, itself manufactured the finished formulated composition which it thereafter sold under the trade name "MH-30" or "SLO GRO" to distributors. The latter resold the finished product to dealers who, in turn, resold it to the end user. In the case of MH-30 the end user would be the tobacco grower or farmer, whereas SLO GRO was to be sold primarily to golf courses, utility companies, cemeteries and state highway departments.
Uniroyal's primary objective in discontinuing sale of technical MH in 1960 to formulators and substituting its system of selling finished MH-30 through distributors and dealers was to gain greater control over the MH-30 market and thereby establish price stability in lieu of the rampant price-cutting that had characterized the earlier system of selling MH to formulators who had then sold the MH composition formulated by them at prices independently established by each. This earlier marketing method had amounted to a relinquishment of the potential market control inherent in Uniroyal's patent. Under the new market program by selling only the finished product Uniroyal was in a better position to control prices, since its patent entitled it to exclude all others from manufacture and sale of MH-30 for purposes of regulating plant growth. Since it was the sole source of MH-30, it would not take much influence to convince a distributor that he should maintain Uniroyal's "suggested" resale prices and, to a lesser extent, convince a dealer to do likewise. In view of Uniroyal's patent monopoly its "suggestion" would amount almost to a command, once it indicated that failure to adhere to such "suggested" resale prices might result in the distributor being cut off or having its supply reduced. No alternative source of the patented MH-30 was available from any competing suppliers. Thus by virtue of its 916 patent Uniroyal enjoyed a command position in the market.
A second but subordinate reason for adoption of the new marketing program in 1960 was to impede a campaign launched by various leading tobacco companies against the use of MH-30 on the ground that it adversely affected the chemical and physical and smoking properties of tobacco. Apparently MH-30 reduced the tobacco leaf's nicotine content, a goal now sought in view of increasing evidence of a connection between nicotine content and cancer but thought undesirable in the early 1960's. In addition, tobacco companies objected to MH-30 on the ground that it caused tobacco to pack in such a manner that cigarette manufacturers had to use more tobacco per cigarette. From 1959 until 1963 the tobacco industry supported legislation seeking to ban the use of MH-30 and threatened to boycott tobacco which had been treated with MH-30. The latter threat particularly bothered Uniroyal, for if use of the product was concentrated in any one geographical area, the tobacco companies' boycott would be more effective than if use of MH-30 were dispersed throughout the entire tobacco belt.
To counter this threat Uniroyal believed it advisable to limit and allocate the supply of MH-30 so that no more than 30% of the tobacco acreage in any one county would be treated with the chemical, and thought it imperative that the end sellers of MH-30, the dealers, be required to educate farmers in the use of the product so that no misapplications of the chemical would result in destroying a tobacco field and inhibiting the product's acceptance. To encourage this type of special-service dealer to handle and sell MH-30, Uniroyal's management realized that dealers (and distributors) holding educational meetings for the farmers must be adequately compensated. However, it feared that the price instability and low rates of return that had prevailed in the late 1950's would discourage dealers from making the extra...
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