Dairy Foods Incorporated v. Dairy Maid Products Coop., 13338

• Decision Date: 18 December 1961
• Docket Number: No. 13338,13421.,13338
• Citation: 297 F.2d 805
• Parties: DAIRY FOODS INCORPORATED, Plaintiff-Appellee, v. DAIRY MAID PRODUCTS COOPERATIVE, Defendant-Appellant, v. CARNATION COMPANY, a corporation, Foremost Dairies, Inc., a corporation, and Pet Milk Company, a corporation, Counter-Defendants-Appellees (two cases).
• Court: U.S. Court of Appeals — Seventh Circuit

297 F.2d 805 (1961)

DAIRY FOODS INCORPORATED, Plaintiff-Appellee, v. DAIRY MAID PRODUCTS COOPERATIVE, Defendant-Appellant, v. CARNATION COMPANY, a corporation, Foremost Dairies, Inc., a corporation, and Pet Milk Company, a corporation, Counter-Defendants-Appellees (two cases).

Nos. 13338, 13421.

United States Court of Appeals Seventh Circuit.

December 18, 1961.

Leon E. Isaksen, Madison, Wis., Melville C. Williams, Chicago, Ill., Joseph G. Werner, Madison, Wis., Orr, Isaksen, Werner & Lathrop, Madison, Wis., Pope, Ballard, Uriell, Kennedy, Shepard & Fowle, Chicago, Ill., of counsel, for appellant.

James P. Hume, Chicago, Ill., Julian O. von Kalinowski, Los Angeles, Cal., Wayne D. Hudson, San Francisco, Cal., Byron, Hume, Groen & Clement, Chicago, Ill., Gibson, Dunn & Crutcher, Los Angeles, Cal., of counsel, for appellees.

Before SCHNACKENBERG, CASTLE and KILEY, Circuit Judges.

CASTLE, Circuit Judge.

Dairy Foods Incorporated, plaintiff-appellee, brought suit in the District Court against Dairy Maid Products Cooperative, defendant-appellant, for infringement of a patent. Defendant's answer raises issues of validity and infringement of the patent, alleges misuse of the patent in furtherance of a conspiracy in violation of the antitrust laws,¹ and asserts two counterclaims. The first counterclaim seeks a declaratory judgment against the plaintiff as to the validity and infringement of the patent. An amended second counterclaim against plaintiff and additional counter-defendants, Carnation Company and Foremost Dairies, Inc.,² seeks recovery of treble damages pursuant to Section 4 of the Clayton Act³ and injunctive relief under Section 16 of that Act.⁴ Dairy Foods, Carnation and Foremost made substantially identical motions to dismiss the amended second counterclaim, Carnation and Foremost moving, in addition, that the order making them defendants to the counterclaim be vacated. The motions to dismiss the amended second counterclaim assert failure of the counterclaim to state a claim upon which relief can be granted and consequent lack of jurisdiction of the subject matter. These assertions are grounded on contentions that the counterclaim fails to allege facts sufficient to show injury to defendant's business or property as the result of federal antitrust violations and is premature in that it states no accrued claim. The District Court granted these motions. A judgment order was entered dismissing the amended second counterclaim, vacating the order making Carnation and Foremost counter-defendants, and containing a determination by the District Court that no just reason for delaying entry of the judgment existed.⁵ Defendant's appeal in No. 13338 is from that part of the judgment order dismissing its amended second counterclaim and vacating the order making Carnation and Foremost counter-defendants.

After defendant filed its notice of appeal in No. 13338 the District Court, on motion of the plaintiff, entered an order, subsequent to the filing of the record and docketing of the case in this Court, that its judgment order be "corrected" by adding that:

"The Court releases for appeal only its dismissal of the amended second counterclaim and reserves and retains its jurisdiction to proceed with all other claims and issues involved in this action."

The order further directed that a separate trial be first had limited to the issues of validity, scope and infringement of the patent; that discovery limited to those issues proceed; and that defendant produce certain of its officers and agents for the purpose of depositions by plaintiff. A motion by plaintiff, made in this Court, that the order entered to correct the judgment order be included in the record in No. 13338, was taken with the case. Defendant's appeal No. 13421 is from the order entered by the District Court after the notice of appeal in No. 13338 was filed.⁶

The two appeals have not been consolidated, except for the purpose of oral argument, but to avoid unnecessary repetition we elect to dispose of both in this opinion.

The counterclaim in question contains allegations which if proved are adequate to establish that plaintiff, Carnation and Foremost are engaged in a combination and conspiracy in unreasonable restraint of and to monopolize trade and commerce in instant milk and instant milk products in violation of Sections 1 and 2 of the Sherman Act through the pooling of patents and patent applications pertaining to instant milk and instant milk products, including Peebles Patent No. 2,835,586,⁷ and using the patents in the pool in a manner and with objectives which violate the Sherman Act.

The contested issue which emerges from defendant's appeal in No. 13338 is whether the counterclaim alleges an injury to defendant's business or property requisite to state a claim upon which relief can be granted under the provisions of Sections 4 and 16 of the Clayton Act.⁸

In appraising the sufficiency of the counterclaim, as tested by the issue presented, the following allegations become pertinent:

"35. As a proximate result and effect of said combination and conspiracy and of the acts of said named co-conspirators in furtherance thereof:

* * * * * *

"(b) Defendant and other smaller producers of instant milk and instant milk products have been and are threatened with loss and damage. They are faced with choosing between the three alternatives of ceasing production of instant milk, defending expensive patent litigation if they refuse to accept plaintiff\'s proffered license, or accepting a discriminatory and restrictive license under patents in plaintiff\'s pool that deprives them of an equal opportunity to compete with Carnation and Foremost and that will increase their costs of production.

"(c) Defendant has been injured in its business and property as the proximate result of said acts of Carnation, Foremost and Plaintiff in furtherance of said violation of said antitrust laws, which injury is continuing, and includes:

"(1) Defendant has been, and will be, forced to make expenditures of money and to use the time of its officers and employees to defend said patent infringement suit. Said injury to date is substantial.

"(2) Defendant has been forced by the threat of suit to expend a substantial amount of money before the filing of the infringement suit to investigate the scope and validity of plaintiff\'s patents."

In our opinion these allegations adequately set forth an injury to defendant in its business or property. The injury is the necessity that defendant make a choice among alternatives each of which has an adverse economic or financial impact on its instant milk business. It was allegedly compelled either to cease production with consequent loss of sales of the product, pay tribute with consequent increase in production cost, or incur the financial burden of expenses incident to the defense of litigation. Each of these alternatives had its particular adverse economic or financial effect on defendant's instant milk business. To place a person in such a situation is an injury to his business. True, it is the defendant's choice which determines the nature of the resulting damages but it is the necessity of having to choose from such alternatives that is the injury. The congressional enactments here involved were designed to afford a legal right to engage in business free from conspiratorial compulsion such as here alleged. A violation of that right is a legal injury to the business adversely affected. Section 4 of the Clayton Act by its reference to the person "injured" recognizes that it is the "injury" which gives rise to the consequent liability to respond in threefold "damages".

The counterclaim must be considered as a whole. The allegations of paragraph 35 are to be evaluated in the context of those which set forth the antitrust law violations. And they are to be considered in combination with the allegations that one of the elements of the conspiracy was an agreement that patent infringement suits would be threatened and filed to coerce the acceptance of licenses which would effectuate the conspiracy and that plaintiff by threats of an infringement suit attempted to coerce defendant to accept a discriminatory and restrictive license under the patent pool. When so considered and appraised it becomes apparent that the alleged necessity of choice set forth in paragraph 35 coupled with the assertion therein that defendant "has been injured in its busines and property as the proximate result of said acts of Carnation, Foremost and Plaintiff in furtherance of said violation of said antitrust laws" constitutes a sufficient allegation of injury to business or property under the controlling principles of notice pleading authorized by the Federal Rules of Civil Procedure as interpreted and applied in Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80; United States v. Employing Plasterers Association, 347 U.S. 186, 74 S.Ct. 452, 456, 98 L.Ed. 618; Central Ice Cream Company v. Golden Rod Ice Cream Company, 7 Cir., 257 F.2d 417; Sandidge v. Rogers, 7 Cir., 256 F.2d 269. And the necessity of choice, which constitutes the injury, was allegedly generated by the asserted combination and conspiracy in unreasonable restraint of and to monopolize commerce and allegedly resulted from acts of plaintiff and the counter-defendants designedly in furtherance of such combination and conspiracy.

Where an infringement suit is brought as part of and in furtherance of a combination and conspiracy which violates the antitrust laws and results in injury such as is here alleged the person injured may recover threefold the damages he sustains. Clapper v. Original Tractor Cab Company, 7 Cir., 270 F.2d 616; Kobe, Inc. v. Dempsey Pump Co., 10 Cir., 198 F.2d 416, 424-425. And each of these cases is authority for the recovery of threefold the cost and expense of defending such an infringement suit.

We are not persuaded by plaintiff's contention that the counterclaim is...