Crown Drug Co., Inc. v. Revlon, Inc.

• Decision Date: 22 March 1983
• Docket Number: No. 82-2256,82-2256
• Citation: 703 F.2d 240
• Parties: , 1983-1 Trade Cases 65,294 CROWN DRUG CO., INC., and Bolar Pharmaceutical Co., Inc., Plaintiffs-Appellants, v. REVLON, INC., USV Pharmaceutical Corp., and USV Laboratories, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 240

703 F.2d 240

218 U.S.P.Q. 110, 1983-1 Trade Cases 65,294

CROWN DRUG CO., INC., and Bolar Pharmaceutical Co., Inc., Plaintiffs-Appellants, v. REVLON, INC., USV Pharmaceutical Corp., and USV

Laboratories, Inc., Defendants-Appellees.

No. 82-2256.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 15, 1983.

Decided March 22, 1983.

Robert B. Jones, Fitch, Even, Tabin, Flannery & Welsh, Chicago, Ill., for plaintiffs-appellants.

Marie V. Driscoll, Cooper, Dunham, Clark, Griffin & Moran, New York City, for defendants-appellees.

Before BAUER and WOOD, Circuit Judges, and VAN PELT, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

This is an appeal from the district court's order dismissing Counts I, II and III of plaintiffs' complaint seeking a declaratory judgment that they did not violate the Lanham Act, the Illinois Deceptive Practices Act or the Illinois common law by selling a drug of the same color and dosage as one made and sold by the defendants; the district court summarily dismissed these counts for failure to state a justiciable controversy, noting that the plaintiffs had not demonstrated a reasonable apprehension of suit stemming from the conduct. The plaintiffs also appeal from the district court's dismissal of Counts IV through VIII of their complaint alleging that the defendants violated federal and state antitrust laws by extending their patent-created monopoly on the drug at issue through the maintenance of an apprehension of suit stemming from the plaintiffs' sale of the same drug. Because we agree that the plaintiffs failed to establish facts satisfying the threshold tests for a justiciable controversy or an antitrust violation, we affirm.

I. Facts

The facts relevant to both the plaintiffs' declaratory judgment and antitrust counts may be summarized briefly. Defendant Revlon and its co-defendant subsidiaries (collectively, "Revlon") manufacture and sell chlorthalidone, a drug used in the treatment of hypertension. Revlon owned the original chlorthalidone patent, and even though that patent has now expired, Revlon retains a ninety percent market share in that product. Revlon's chlorthalidone tablets come in three colors, each corresponding to a different dosage level. Plaintiff Bolar has since 1981 also manufactured chlorthalidone tablets in the same color-dosage pattern as Revlon's. Fred Bondy, president of plaintiff Crown, was contacted in 1981 by Robert Shulman, president of Bolar, about the possibility of Crown acting as a distributor for Bolar's chlorthalidone. Bondy agreed to do so, but simultaneously expressed concern about possible lawsuits resulting from the identity of Revlon's and Bolar's tablets; consequently, Bolar indemnified Crown in connection with any such legal liability.

Shortly thereafter, Bondy aggressively followed up his legal concern by making several phone calls to Revlon to inquire concerning the company's legal position on the sale of look-alike chlorthalidone. After internal referrals and uninformative responses, Bondy asked to speak to a lawyer and finally reached Mr. Lutz, a Revlon attorney, to whom Bondy put the question of Revlon's legal position. A concededly brief and amicable discussion followed. Bondy testified that he took notes "on what I felt was pertinent to my problem" in this conversation because he "felt litigation would result from this phone call."

Bondy's notes of that conversation, which form the sole basis for plaintiffs' invocation of declaratory judgment jurisdiction, paraphrase Lutz as saying,

Our position reflects current legal status based on the jurisdictional reading. I guess our position would be we would go after the manufacturer. It would depend on many circumstances. I really don't know what we would do. Cutting into sales by X percent. There is a good likelihood that we go after them. If we felt identified by way of color, we might possibly go after them. The bottom line is have they hurt us because of color.

Bondy did not testify that Lutz ever threatened to initiate suit against Crown or Bolar, or that Lutz ever mentioned the Lanham Act, the Illinois Deceptive Practices Act, or the common law. And despite his confession that some of what Lutz said was "legal gobbledygook," Bondy nevertheless concluded that Revlon "would sue the manufacturer and probably the distributor" of look-alike drugs. Bondy emphasized especially Lutz's statement that the initiation of suit may depend on whether damage resulted to Revlon from the identical coloration of the rival product; Bondy testified that he believed there was "no question" that such damage would result.

In speaking with Bondy later, Shulman of Bolar did not solicit details of Bondy's conversation with Lutz; Bolar also never attempted to independently pursue the look-alike issue with Revlon. Neither Bolar nor Crown testified to any incidents of complaints or threats by Revlon to Bolar, Crown or any of their customers regarding the color duplication (indeed Crown had sold same-color chlorthalidone produced by another generic manufacturer for more than three years previous without any such complaint), nor did they indicate any knowledge of any lawsuits brought by Revlon against any other manufacturer in connection with the sale of look-alike drugs (in fact, the company had never taken such a course). Although pointing to Revlon's actions, Shulman and Bondy repeatedly emphasized that their fear of liability stemmed in large measure from their knowledge of other manufacturers' suits against other rival manufacturers in other drug lines. In addition, Crown testified that it had never contacted another manufacturer regarding its position on Crown's sale of identically colored drugs, even when it knew that in one case the product was a focus of litigation.

Based on the Lutz conversation and Revlon's subsequent failure to disavow Lutz's statements or give an affirmative promise not to sue Crown or Bolar over the sale of chlorthalidone, the plaintiffs sought declaratory relief from potential liability under the Lanham Act, the Illinois Deceptive Practices Act, and the Illinois common law of deceptive practices. The district court held that these counts posed no justiciable controversy since neither the Lutz colloquy nor other evidence indicated that Revlon had made any explicit or implied threat of suit, demand to cease manufacturing, or had taken other protective action, and since none of Bolar's customers expressed a reluctance to purchase its generic chlorthalidone tablets because of any action by Revlon. Since the antitrust claims in the latter five counts also rested entirely upon the Lutz conversation and Revlon's subsequent failure to promise legal non-action, and the court had already determined that those facts did not create a justifiable state of apprehension on the plaintiffs' part, the court subsequently dismissed the antitrust claims as well. Plaintiffs appeal both dismissals.

II. Declaratory Judgment

The Declaratory Judgment Act, 28 U.S.C. Sec. 2201, allows the federal courts, in their discretion, to render declaratory judgments only where there exists an "actual controversy"; the latter requirement is a "jurisdictional prerequisite of constitutional dimensions." Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir.1979); Tamari v. Bache and Co. (Lebanon) S.A.L., 565 F.2d 1194 (7th Cir.1977), cert. denied, 435 U.S. 905, 98 S.Ct. 1450, 55 L.Ed.2d 495 (1978). In reviewing the dismissal, we must determine whether the district court abused its discretion in its viewing of the evidence and consequent determination that no controversy existed. International Harvester Co. v. Deere & Co., 623 F.2d 1207, 1210 (7th Cir.1980).

As both parties have argued in their briefs, the proper threshold standard for determining whether a justiciable controversy exists in a declaratory action concerning unfair trade practices like those present here is the same as that articulated in the patent infringement cases: "The defendant must have engaged in conduct giving rise to a reasonable apprehension on plaintiff's part that it will face ... suit or the threat of one if it commences or continues the activity in question." International Harvester, 623 F.2d at 1210; Premo Pharmaceutical Laboratories v. Pfizer, Inc., 212 U.S.P.Q. 681 (S.D.N.Y.1981). The focus of analysis must, however, rest upon the defendant's statements or conduct; a "reasonable apprehension alone, if not inspired by defendant's actions, does not give rise to an actual controversy." International Harvester, 623 F.2d at 1211.

We agree with the district court that the relevant evidence failed to establish that the acts of Revlon could have caused a "reasonable" apprehension of legal action. The plaintiffs rely on Bondy's stilted record of a conversation which he initiated with Lutz, a lawyer for Revlon, and Revlon's subsequent failure to comment upon those statements or make further legal pronouncements. Even accepting at face value Bondy's notes of that conversation, however, we simply cannot see how those notes reveal an explicit or implied threat of suit. Lutz's language comprises a carefully hedged, abstract discussion of a legal issue in purely hypothetical fashion; the use of phrases such as, "I guess our position would be ...," "It would depend on many circumstances ...," "... we might possibly ...," and "I really don't know what we would do," to describe Lutz's view of a possible position towards an unspecified manufacturer hardly connotes an intent to create a positive, let alone forceful, impression that suit against Crown or Bolar was imminent. The plaintiffs place emphasis on Lutz's purported statement that the "bottom line" is whether a rival manufacturer has "hurt us" because of color, but it is clear from the context of the discussion and Lutz's lack of knowledge of Crown and Bolar's market efficacy that this was merely the listing of a factor considered important in the abstract....