Carter-Wallace, Inc. v. Davis-Edwards Pharmacal Corp.

Decision Date04 May 1971
Docket NumberNo. 889,Docket 71-1256.,889
Citation443 F.2d 867
PartiesCARTER-WALLACE, INC., Plaintiff-Appellee, v. DAVIS-EDWARDS PHARMACAL CORP., Defendant-Appellant.
CourtU.S. Court of Appeals — Second Circuit

COPYRIGHT MATERIAL OMITTED

Charles R. Brainard, New York City (Kenyon & Kenyon, Reilly, Carr & Chapin, Richard K. Parsell, Robert H. Morse, Nathaniel D. Kramer, Stuart J. Sinder, George E. Badenoch, New York City, and William H. Bisnoff, Woodside, N. Y., of counsel), for defendant-appellant.

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

Before FRIENDLY and FEINBERG, Circuit Judges, and MANSFIELD, District Judge.*

FRIENDLY, Circuit Judge:

Davis-Edwards Pharmacal Corporation, now in an arrangement proceeding under Chapter XI of the Bankruptcy Act in the Eastern District of New York, appeals from an order of that court granting a preliminary injunction against its conceded infringement of the United States Patent 2,724,720 (Claim 4) for a drug known generally as meprobamate, issued on November 22, 1955, to Frank M. Berger and Bernard J. Ludwig, and assigned by them to plaintiff's predecessor, Carter Products, Inc. The pharmacological compound described in the patent has been made into pills by plaintiff and widely marketed as a tranquilizer under the trade name "Miltown." For many years the only other authorized user and seller of the single compound was the Wyeth Division of American Home Products Corporation, which manufactured it into pills marketed under the trade name "Equanil." As a result of a consent decree in 1962 in an action brought by the Government under the antitrust laws, United States v. Carter Products, Inc., 211 F.Supp. 144 (S.D. N.Y.1962), Carter Products' agreement with American Home was terminated, and it agreed to sell the compound to anyone at a price not to exceed $20.00 per pound, with a protective provision for increase based on the Consumer Price Index. Davis-Edwards purchased the compound from plaintiff at $20.00-$21.40 per pound from 1963 to 1968. Since that time it has been acquiring the compound from other sources, mainly foreign, at about 87 cents per pound. Defendant has not been by any means alone in following this course. Indeed, the largest infringer has been the United States, which began purchasing the compound from other sources at least as early as 1960 but was not sued by plaintiff until 1968.

Although Carter-Wallace was notified by the Bureau of Customs on June 11, 1968 that Davis-Edwards was purchasing meprobamate from foreign sources, plaintiff did not bring this action until October 9, 1969, and did not move for a preliminary injunction until December 22, 1970, some six weeks after this court had sustained the validity of the patent, against limited attack, in Carter-Wallace, Inc. v. Riverton Laboratories, Inc., 433 F.2d 1034 (1970).1 Extensive affidavits, exhibits and memoranda were filed. Judge Dooling heard argument for three days. On the following day, February 25, 1971, he granted the injunction, after delivering an oral opinion which, including colloquy with counsel who were allowed to comment on his observations as he proceeded, fills 167 typewritten pages.2 On the basis of defendant's representation that the loss of its meprobamate business and the effect of this on its sales of other generic drugs not only would preclude any possibility of a Chapter XI arrangement but would prevent its proceeding to trial in this action, a panel of this court, on March 11, 1971, stayed the temporary injunction on condition that the appeal be argued during the week of March 29. We appreciate the assistance rendered by counsel in the excellent briefs filed and the arguments prepared within the severe time limits thus imposed.

I.

Davis-Edwards attacked the patent on three general grounds, the first two of which have some tendency to merge: invalidity over prior art, most of which was not previously cited; inequitable conduct of the applicants before the Patent Office; and patent misuse predicated on violations of the antitrust laws. Examination of the Riverton opinion, 433 F.2d at 1037, shows that none of the specific points raised here was there presented or considered.3

Davis-Edwards' case for reversal rests fundamentally on the rule succinctly stated by Judge Learned Hand in Simson Bros. v. Blancard & Co., 22 F.2d 498, 499 (2 Cir. 1927), "We have often said that an injunction pendente lite in a patent suit should not go except when the patent is beyond question valid and infringed." He cited four cases, Newhall v. McCabe Hanger Mfg. Co., 125 F. 919 (2 Cir. 1903); Hildreth v. Norton, 159 F. 428 (2 Cir. 1908); George Cutter Co. v. Metropolitan Electric Mfg. Co., 275 F. 158, 164 (2 Cir. 1921); and A. B. Dick Co. v. Barnett, 277 F. 423 (2 Cir. 1921). He might also have cited Dickerson v. De la Vergne Refrigerating Machine Co., 35 F. 143, 147-148 (C.C.S.D.N.Y. 1888), where Judge Lacombe referred to "the wholesome and well-settled rule which requires an adjudication in court, or public acquiescence, as a necessary prerequisite to granting the relief a preliminary injunction in an action for patent infringement here prayed for," and Reed Mfg. Co. v. Smith & Winchester Co., 107 F. 719, 720 (2 Cir. 1901).

Perhaps because the rule, imposing on a patentee seeking a preliminary injunction against infringement a burden substantially heavier than the usual ones of showing irreparable injury and probability of success, was regarded as "well-settled" as long back as 1888, most of the later decisions shed little light on the reasons for it. In Rosenberg v. Groov-Pin Corp., 81 F.2d 46, 47 (2 Cir. 1936), Judge L. Hand addressed himself to its rationale:

The doctrine that in the absence of long acquiescence or adjudication an injunction i. e., a preliminary injunction in a suit for patent infringement will not go, is at first blush anomalous in the light of the presumption of validity which courts generally grant to a patent once issued. * * * The theory is * * * practical. Examiners have neither the time nor the assistance to exhaust the prior art; nothing is more common in a suit for infringement than to find that all the important references are turned up for the first time by the industry of a defendant whose interest animates his search. It is a reasonable caution not to tie the hands of a whole art until there is at least the added assurance which comes from such an incentive.4

Indeed, a unanimous Supreme Court in Graham v. John Deere Co., 383 U.S. 1, 18, 86 S.Ct. 684, 694, 15 L.Ed.2d 545 (1966), noted the "notorious difference between the standards applied by the Patent Office and by the courts," and suggested that the "discrepancy" was due in part to "the free rein often exercised by Examiners in their use of the concept of `invention,'" a result, perhaps, of the enormous number of patent applications (nearly 100,000) which are filed each year. Without in any way disparaging the skill and devotion of patent examiners, to which our dissenting brother pays extensive tribute, and despite the statutory presumption of validity, the bald fact is that more than 80% of patent infringement actions on appeal result in a determination that the patent sued upon is invalid. Milgrim, Sears to Lear to Painton: Of Whales and Other Matters, 46 N.Y.U.L.Rev. 17, 31 & n.62 (1971). In apparent recognition of the potential unfairness of allowing one armed with letters patent obtained in an ex parte proceeding to prevent the conduct of business by others before he has submitted all fairly disputed issues of fact to a full adversary hearing and has won a favorable decision by some court, or the industry has in effect conceded the validity of his patent, the "wholesome and well-settled rule" has been followed in other circuits, although with differences in precise formulation. Packard Paper Box Co. v. O. B. Andrews Co., 67 F.2d 783, 784 (1 Cir. 1933); Leavitt v. McBee Co., 124 F.2d 938, 939-940 (1 Cir. 1942); Hoeme v. Jeoffroy, 100 F.2d 225, 226 (5 Cir. 1938); Flintkote Co. v. Philip Carey Co., 13 F.2d 850 (7 Cir. 1926); Stoody Co. v. Osage Metal Co., 95 F.2d 592, 593 (10 Cir. 1938); Pacific Cage & Screen Co. v. Continental Cage Corp., 259 F.2d 87, 88 (9 Cir. 1958) (dicta).5 Carter-Wallace does not seriously question the existence or propriety of the rule, but rather contends that it comes within the exceptions relating to acquiescence and adjudication, and also that Davis-Edwards' insolvency constitutes a basis for a further exception.

Amplifying the explanation of what on its face seems a curious doctrine that acquiescence by others can affect one who does not, Judge Hand stated, Rosenberg v. Groov-Pin Corp., supra, 81 F.2d at 48:

Its only rational justification is that those whose interest would lead them to contest validity, have upon examination concluded that contest would be fruitless, and that that examination is some assurance of the truth.

There are two reasons why that assumption is unwarranted here. First it is questionable whether there has been long acquiescence. The United States began to infringe some five years after the patent issued, and Judge Dooling characterized this as "significant breaches in the picture of acquiescence," despite his ultimate conclusion that there was acquiescence. Despite the considerations adduced in the dissent, one can hardly assume that the Government deliberately infringes patents it considers valid, and Carter-Wallace agreed to waive recovery for any use prior to November 9, 1962, Carter-Wallace, Inc. v. United States, 167 U.S.P.Q. 667, 669 n. 4 (Ct.Cl. 1970). More important, a considerable number of companies in the generic meprobamate market began to infringe the patent soon after the...

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