Carter-Wallace, Inc. v. Otte

• Decision Date: 14 November 1972
• Docket Number: Docket 72-1406.,No. 297,297
• Citation: 474 F.2d 529
• Parties: CARTER-WALLACE, INC., Plaintiff-Appellant, v. William N. OTTE, as Trustee in Bankruptcy of Davis-Edwards Pharmacal Corp., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

474 F.2d 529 (1972)

CARTER-WALLACE, INC., Plaintiff-Appellant, v. William N. OTTE, as Trustee in Bankruptcy of Davis-Edwards Pharmacal Corp., Defendant-Appellee.

No. 297, Docket 72-1406.

United States Court of Appeals, Second Circuit.

Argued September 14, 1972.

Decided November 14, 1972.

Certiorari Denied June 4, 1973.

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Edward J. Ross, New York City (Breed, Abbott & Morgan, New York City, of counsel), George B. Finnegan, Jr., New York City (Jerome G. Lee, John D. Foley, George P. Hoare, Jr., Stephen R. Smith, and Morgan, Finnegan, Durham & Pine, New York City, of counsel), for plaintiff-appellant.

Charles R. Brainard, New York City (Richard K. Parsell, Paul H. Heller, Stuart J. Sinder, George E. Badenoch, Kenyon & Kenyon, Reilly, Carr & Chapin, and Robert P. Herzog, New York City, of counsel), for defendant-appellee.

American Patent Law Assn, Arlington, Va. (Donald R. Dunner, Washington, D. C., Ellsworth H. Mosher, Arlington, Va., and John W. Brumbaugh, New York City, of counsel), filed a brief as amicus curiae.

Before FRIENDLY, Chief Judge, and LUMBARD and FEINBERG, Circuit Judges.

Certiorari Denied June 4, 1973. See 93 S.Ct. 2753.

FRIENDLY, Chief Judge:

In Carter-Wallace, Inc. v. Davis-Edwards Pharmacal Corp., 443 F.2d 867 (2 Cir. 1971), we reversed a preliminary injunction issued by Judge Dooling in the District Court for the Eastern District of New York, restraining Davis-Edwards Pharmacal Corp. (Davis-Edwards), then a debtor in arrangement proceedings under Ch. XI of the Bankruptcy Act, from its conceded infringement of Claim 4 of United States Patent 2,724,720, owned by Carter-Wallace. Claim 4 was on a new composition of matter, meprobamate, which became a highly successful drug widely known by its trade-names, Miltown and Equanil. Our reversal was based on the settled rule that, in the absence of prior adjudication of validity or long acquiescence, "an injunction pendente lite in a patent suit should not go except when the patent is beyond question valid and infringed." Simson Bros., Inc. v. Blancard & Co., 22 F.2d 498, 499 (2 Cir. 1927). The majority's discussion of the patent went only so far as to hold that it was not "beyond question valid;"¹ we emphasized, 443 F.2d at 880, 884, that we were in no way intimating our view of the proper resolution of the issue of patent validity. Familiarity with our earlier opinion is here assumed.

On remand, a trial on the merits of the patent issues was conducted before Judge Dooling.² In a carefully considered and necessarily lengthy opinion, 341 F.Supp. 1303, 173 U.S.P.Q. 65 (E.D.N.Y. 1972), Judge Dooling found the patent claim for meprobamate invalid, dismissed the complaint, and directed that final judgment be entered on the claim of patent infringement, F.R.Civ.P. 54(b). From this ruling Carter-Wallace has appealed.

I. Mootness

Before we reach the issue of the validity of the meprobamate patent, we must consider two preliminary issues raised by Carter-Wallace. The first is its motion to dismiss its own appeal as moot. Understandably, Carter-Wallace does not wish simply a dismissal of the appeal but seeks also an order vacating the judgment of the district court. We will assume that under United States v. Munsingwear, Inc., 340 U.S. 36, 39-40, 71 S.Ct. 104, 95 L.Ed. 36 (1950), it would be entitled to such an order if the case has in fact become moot.

Carter-Wallace's motion is grounded upon a series of events occurring since the trial. During the past winter, storm damage and water seepage at Davis-Edwards' Connecticut plant apparently contaminated its entire stock of pharmaceuticals. In January 1972, state health authorities, acting in conjunction with the Food and Drug Administration, seized and condemned these drugs, including all of Davis-Edwards' meprobamate, as having become unfit for pharmaceutical manufacture. As a result, Davis-Edwards ceased operations and, on April 12, 1972, was adjudicated a bankrupt. All of its tangible assets have now been sold. The trustee in bankruptcy is thus left with a bank account with a balance of approximately $61,000, subject to liens which he expects to settle for no more than $21,000, and a savings account of some $5600. Priority claims against the bankrupt estate vastly exceed these assets. Davis-Edwards' only other assets are an insurance claim, of unspecified amount and apparently subject to a security interest, arising out of the storm damage to its plant and consequent contamination of its physical inventory; and its counterclaims against Carter-Wallace for antitrust violations,³ which Carter-Wallace deems valueless in light of Judge Mansfield's observations when the case was last here, 443 F.2d at 894,⁴ and the disposition of similar defenses raised by the United States in the action against it by Carter-Wallace in the Court of Claims, Carter-Wallace, Inc. v. United States, 449 F.2d 1374, 196 Ct.Cl. 35 (1971) (Davis, J.).

Shortly after it was apprised of these facts, Carter-Wallace moved on June 15, 1972, to dismiss its appeal and vacate the judgment below, contending that since it would be impossible for Davis-Edwards to resume infringement before the patent expires on November 22, 1972, and since Carter-Wallace cannot recover monetary damages, the case has become moot. This motion was heard before a panel of this court on June 27, 1972, and referred to the panel hearing the merits of the appeal.

Carter-Wallace's argument overlooks two critical points. First, its claim for damages for infringement subsequent to the filing of the Chapter XI petition ranks as an administration expense entitled to a first priority under § 64a of the Bankruptcy Act. See 443 F.2d at 874. Although there appears to be one claim of about $47,000 of higher priority, if Carter-Wallace should prevail on this appeal it seems likely that it could recover some small amount as its share among the first priority claims. Second, and more important, it became clear at oral argument that the trustee's savings account of $5600 represents the balance of the fund which we had directed, 443 F.2d at 884, be established by Davis-Edwards in the amount of 5% of the gross proceeds of its sales of meprobamate from the date of the preliminary injunction, February 25, 1971, to be held in escrow for Carter-Wallace's benefit should it prevail on the merits.⁵ To be sure, this is exceedingly small meal when compared to the possible effect of a contrary decision as collateral estoppel, under Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971), in Carter-Wallace's suit against the United States, and the problems a contrary decision may create in the defense of an action brought in the District of New Jersey by Zenith Laboratories on behalf of itself and other purchasers of meprobamate, in which plaintiffs will doubtless also seek to avail themselves of collateral estoppel. Indeed, any possible recovery is much smaller than the expense of prosecuting this appeal. But we cannot see how we can hold this appeal to be moot when reversal would enable the appellant to collect something, however small. Moreover, if this were relevant, we do not regard the equities as being so impressively in Carter-Wallace's favor as it contends. Carter-Wallace has long been aware of Davis-Edwards' weak financial condition; indeed, when the case was last here, it was Carter-Wallace that argued that the defendant's insolvency justified the preliminary injunction it had been awarded. See 443 F.2d at 874. Yet it was Carter-Wallace that chose to pursue this impecunious infringer in the last years of the patent, to push ahead with the trial on the merits against an insolvent defendant, and to take up many days of judicial time with a prosecution which, even on the facts then known, could not of itself have warranted the large expense.

II. Fairness of Trial

Carter-Wallace also contends that the procedure allowed by Judge Dooling at the trial was such gross error, and so prejudiced the plaintiff, as to warrant summary reversal without consideration of the merits. To put this contention in its proper perspective, the circumstances which led to the procedure must be understood.

At the hearing with respect to the grant of a preliminary injunction, and on the appeal therefrom, Davis-Edwards, despite its precarious financial condition, was represented by experienced patent counsel, as its trustee again is on this appeal. However, although these lawyers did agree to handle the antitrust issues, contemplating that most of these would be presented by a motion for summary judgment, Davis-Edwards was unable to retain them to undertake the trial on the merits of the patent issues. Thus, William H. Bisnoff, house counsel for Davis-Edwards and defense counsel of record, was left to present the claims of patent invalidity without having practiced patent law, without having had significant previous involvement in this litigation, and with little time to prepare for the trial. Mr. Bisnoff sought postponement of trial of the patent issues until after resolution of the antitrust issues, but this motion was denied by Judge Dooling in light of the direction of this court on the prior appeal, 443 F.2d at 874, 884, induced by Carter-Wallace's expressed fears as to inability to collect damages for continuing infringement, that the trial be conducted expeditiously.

Faced with a situation in which the attorney for a Chapter XI debtor was not proficient in patent law but the patent issue had been explored in depth in a trial of Carter-Wallace's infringement action against the United States before a Commissioner of the Court of Claims, the court permitted an unusual procedure. Most of Carter-Wallace's witnesses appeared in person;⁶ they gave substantially the same testimony which they had given in the Court of Claims, except for a few instances where they clarified their positions on matters that had...