Bendix Corporation v. Balax, Inc., No. 71-1483.

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtHASTINGS, Senior Circuit , and CUMMINGS and SPRECHER, Circuit
Citation471 F.2d 149
PartiesThe BENDIX CORPORATION and Sellew Corporation, Plaintiffs-Appellants, v. BALAX, INC. and John M. Van Vleet, Defendants-Appellees.
Docket NumberNo. 71-1483.
Decision Date06 January 1973

471 F.2d 149 (1972)

The BENDIX CORPORATION and Sellew Corporation, Plaintiffs-Appellants,
v.
BALAX, INC. and John M. Van Vleet, Defendants-Appellees.

No. 71-1483.

United States Court of Appeals, Seventh Circuit.

Argued September 12, 1972.

November 29, 1972.

Rehearing and Rehearing Denied January 6, 1973.


471 F.2d 150
COPYRIGHT MATERIAL OMITTED
471 F.2d 151
Maxwell H. Herriott and Thomas O. Kloehn, Louis H. Parent, Milwaukee, Wis., for defendants-appellees

Edward L. Foote and Brian A. Loftus, Daniel C. McEachran, Chicago, Ill., John R. Collins, Milwaukee, Wis., Harold S. Barron, Secretary and Gen. Counsel, Bendix Center, Southfield, Mich., for plaintiffs-appellants.

Before HASTINGS, Senior Circuit Judge, and CUMMINGS and SPRECHER, Circuit Judges.

Rehearing and Rehearing En Banc Denied January 6, 1973.

SPRECHER, Circuit Judge.

This appeal involves primarily the scope of the retroactive application of Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1886, 23 L.Ed.2d 610 (1969).

I

This suit was commenced on June 17, 1964, seeking to enjoin, and for an accounting of profits and damages resulting from, defendants' alleged infringement of three patents owned by the plaintiff relating to a fluteless swaging tap.1

Before trial, plaintiff withdrew its patent No. 2,991,491, admitting its invalidity due to plaintiff's own prior public use. The trial court held plaintiff's patent Re. 24,572 valid and infringed and patent No. 3,050,755 infringed but invalid for prior public use by plaintiff. It dismissed defendants' antitrust counterclaim. Besly-Welles Corp. v. Balax, Inc., 291 F.Supp. 328 (E.D.Wis.1968).

Upon appeal, this Court affirmed the judgment of invalidity of No. 3,050,755 and reversed the judgment of the validity of Re. 24,572. Bendix Corp. v. Balax, Inc., 421 F.2d 809 (7th Cir.), cert. denied, 399 U.S. 911, 90 S.Ct. 2203, 26 L.Ed.2d 562 (1970).2

The Court vacated that part of the judgment dismissing defendants' antitrust counterclaim in order to consider "the relevance, if any, of Lear."3

471 F.2d 152

Upon remand, the district court concluded that the defendants had established their counterclaim and were entitled to judgment. The district court considered that this court's statement that "the right to estop licensees from challenging a patent is not part of the `limited protection' afforded by the patent monopoly," constituted the law of the case. Then, inasmuch as many of plaintiff's license agreements contained "a concession by the contracting party either that it would not legally challenge the Besly patent or that it acknowledged the patent's validity" and inasmuch as some of those concessions were to continue "during the life of this agreement or thereafter," the district court concluded that "Besly had gained and retained control of a substantial portion of the swaging tap market." Bendix Corp. v. Balax, Inc., 321 F.Supp. 1095, 1096 (E.D.Wis.1971).4

II

The basic facts may be summarized as follows: Until 1950 a cutting tap was the only tool available in the United States for internal thread forming. In 1950 at least two manufacturers began making swaging taps. In 1957 the plaintiff commenced marketing its improved swaging tap in regard to which it eventually obtained three patents.

Plaintiff's earliest swaging tap patent was issued in 1957 and reissued as Re. 24,572 on December 2, 1958. Patent No. 2,991,491 was issued on July 11, 1961. Patent No. 3,050,755 was issued on August 28, 1962.

Defendant Balax was incorporated in 1959 and defendant Van Vleet has been its president since then. From May to November 1961, Van Vleet met and communicated with representatives of plaintiff, at which time Van Vleet disclosed that he had been developing what he considered a superior type of swaging tap. The discussions included the possibility of a cross-license agreement between Balax and plaintiff. Van Vleet took copious notes of these discussions, which ended without any agreements being reached.

471 F.2d 153

Balax sold its first swaging tap on January 3, 1962, and later obtained a patent on its "no lead error" swaging tap.

When plaintiff filed its complaint for infringement on June 17, 1964, it also charged that Balax and Van Vleet had appropriated plaintiff's trade secrets. The district judge, after the original trial, found that the information disclosed by plaintiff to Van Vleet took great effort to develop, had value to plaintiff, and was claimed by plaintiff to have been used by the defendants as a short cut to get into the swaging tap business. 291 F.Supp. at 344-346. Nevertheless, the district court "concluded that while the information disclosed by plaintiff constituted trade secrets, no confidential relationship existed between the parties." 421 F.2d at 821. This Court affirmed the district court's finding that the defendants were not liable for appropriation of plaintiff's trade secrets.

At the time the infringement suit was filed in 1964, plaintiff had license contracts with ten companies to act as either a manufacturing licensee or sales outlet. Several others were added prior to June 22, 1970, when the Supreme Court denied a petition for certiorari from this Court's opinion invalidating plaintiff's last patent. 399 U.S. 911, 90 S.Ct. 2203, 26 L.Ed.2d 562. At that time, plaintiff notified all of its licensees of the cancellation of their agreements.

According to flow diagrams furnished by both plaintiff and defendants in their briefs, prior to June 22, 1970, (1) plaintiff sold some of its kind of taps to distributors; (2) plaintiff sold other of its kind of taps to purchasing licensees who in turn sold them to other distributors; (3) plaintiff's manufacturing licensees manufactured plaintiff's kind of taps and sold them to other distributors; (4) defendant Balax sold its own patented kind of taps to other distributors; and (5) Balax's licensed manufacturers made Balax's kind of taps and sold them to yet other distributors. Thus both plaintiff's and Balax's respective kinds of swaging taps reached the hands of some of the approximately 20,000 independent distributors of swaging and cutting taps. These distributors, in turn, resold the taps to hundreds of thousands of machine shops and other tap users throughout the country.

In seeking to support the judgment of the district court upholding their counterclaim, the defendants have relied primarily upon (1) the provisions of several of plaintiff's license agreements which provided substantially that "Licensee agrees that it will not contest the validity of any patent which is now a part of this Agreement during the life of this Agreement and thereafter"; (2) the provisions of several of plaintiff's sales contracts wherein the tap purchaser acknowledged the validity of the underlying patent or patents without limiting the acknowledgment to the life of the sales arrangement; (3) the bringing or threatening to bring of patent infringement suits by the plaintiff; and (4) the granting of nonexclusive licenses and the exaction of royalties by plaintiff as consideration for not bringing infringement suits.

III

In the prior appeal, Judge Hastings, speaking for this Court and after pointing out that defendants' counterclaim charged two violations of federal antitrust laws, the first of which was "illegal procurement and enforcement of patents" under the doctrine of fraud-practiced-on-the-patent-office of Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965), said at 421 F.2d 819:

"The district court specifically found that defendants had not met their burden of proving fraud on the patent office by clear and convincing evidence as required in Armour & Co. v. Wilson & Co., 7 Cir., 274 F.2d 143, 148 (1960). Our examination of the record leads us to conclude that such finding is not clearly erroneous and thus we accept it. Accordingly, the
471 F.2d 154
conclusion of the district court that this claim of antitrust violation is without merit should be approved."

This conclusion constituted the law of the case and established that the invalidity of the plaintiff's patent was the result of an error of judgment by the patent office based upon good faith applications by the plaintiff. Hence, the fact of invalidity has no probative value in the case in attempting to establish any antitrust violation.

The defendants' second contention of plaintiff's violation of Sections 1 and 2 of the Sherman Act, as analyzed by Judge Hastings in the first appeal, was that "even if all of plaintiff's patents were valid, plaintiff would be guilty . . . for the reason that they have misused their patents to extend the patent monopoly beyond the scope permitted by the Constitution and the Congress." Id.

Every patent misuse does not constitute a per se antitrust violation,5 excusing proof of precise damage or foreclosing inquiry into reasonableness.6 The Report of the Attorney General's National Committee to Study the Antitrust Laws 254 (1955) concluded that "from some abuses of patent policy may flow consequences not drastic enough to meet antitrust prerequisites of effect on competition."7

Therefore we must determine whether a patent misuse occurred and if so, its nature and whether it constituted an antitrust violation.

IV

Congress has made it clear that the exaction of a royalty and the

471 F.2d 155
granting of a non-exclusive license as consideration for not suing for infringement, or suing to prevent infringement, do not constitute, in and of themselves, misuse of a patent.8 As we indicated in the prior appeal and hold in this one, whether any antitrust violation has occurred must be measured as though the plaintiff's patents were valid. Correlatively, an infringement suit does not become an antitrust violation because a patent is held invalid.9

The district court concluded that plaintiff monopolized the swaging tap market by, among other matters, "having obtained concessions as to the `validity'...

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35 practice notes
  • Photovest Corp. v. Fotomat Corp., Nos. 77-1741
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • October 25, 1979
    ...Inc., 508 F.2d 547, 550 (1st Cir. 1974), Cert. denied, 421 U.S. 1004, 95 S.Ct. 2407, 44 L.Ed.2d 673; Bendix Corp. v. Balax, Inc., 471 F.2d 149, 161-64 (7th Cir. 1972), Cert. denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51 (1973); Cooper, Attempts and Monopolization: A Mildly Expansionary A......
  • Southern Pac. Com. Co. v. American Tel. & Tel. Co., Civ. A. No. 78-0545.
    • United States
    • United States District Courts. United States District Court (Columbia)
    • January 10, 1983
    ...should be avoided by a holding of non-retroactivity" (395 U.S. at 706, 89 S.Ct. at 1900). Similarly, in Bendix Corp. v. Balan, Inc., 471 F.2d 149, 155-58 (7th Cir.1972), cert. denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51 (1973), the Seventh Circuit applied the principle to prevent the r......
  • City of Mishawaka, Ind. v. Am. Elec. Power Co., Inc., No. S 74-72
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • January 30, 1979
    ...See generally Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264, 66 S.Ct. 574, 580, 90 L.Ed. 652 (1946); Bendix Corp. v. Balax, Inc., 471 F.2d 149, 163 (7th Cir. Defendants rested their case without introducing any evidence from which the court could measure or quantify I & M's alleged......
  • U.S. v. Studiengesellschaft Kohle, No. 79-1634
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • December 11, 1981
    ...(licensees may challenge validity of patent even though there are contractual provisions to the contrary); Bendix Corp. v. Balax, Inc., 471 F.2d 149, 154-59 (7th Cir. 1972), cert. denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51 (1973) (restraint of licensee challenge by patentee may violat......
  • Request a trial to view additional results
35 cases
  • Photovest Corp. v. Fotomat Corp., Nos. 77-1741
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • October 25, 1979
    ...Inc., 508 F.2d 547, 550 (1st Cir. 1974), Cert. denied, 421 U.S. 1004, 95 S.Ct. 2407, 44 L.Ed.2d 673; Bendix Corp. v. Balax, Inc., 471 F.2d 149, 161-64 (7th Cir. 1972), Cert. denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51 (1973); Cooper, Attempts and Monopolization: A Mildly Expansionary A......
  • Southern Pac. Com. Co. v. American Tel. & Tel. Co., Civ. A. No. 78-0545.
    • United States
    • United States District Courts. United States District Court (Columbia)
    • January 10, 1983
    ...should be avoided by a holding of non-retroactivity" (395 U.S. at 706, 89 S.Ct. at 1900). Similarly, in Bendix Corp. v. Balan, Inc., 471 F.2d 149, 155-58 (7th Cir.1972), cert. denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51 (1973), the Seventh Circuit applied the principle to prevent the r......
  • City of Mishawaka, Ind. v. Am. Elec. Power Co., Inc., No. S 74-72
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • January 30, 1979
    ...See generally Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264, 66 S.Ct. 574, 580, 90 L.Ed. 652 (1946); Bendix Corp. v. Balax, Inc., 471 F.2d 149, 163 (7th Cir. Defendants rested their case without introducing any evidence from which the court could measure or quantify I & M's alleged......
  • U.S. v. Studiengesellschaft Kohle, No. 79-1634
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • December 11, 1981
    ...(licensees may challenge validity of patent even though there are contractual provisions to the contrary); Bendix Corp. v. Balax, Inc., 471 F.2d 149, 154-59 (7th Cir. 1972), cert. denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51 (1973) (restraint of licensee challenge by patentee may violat......
  • Request a trial to view additional results

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