Eastman Kodak Co. v. GAF Corp.

• Decision Date: 13 July 1979
• Parties: , 205 U.S.P.Q. 1140, 1980-1 Trade Cases P 63,189 EASTMAN KODAK COMPANY, Respondent, v. GAF CORPORATION, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 372

419 N.Y.S.2d 372

71 A.D.2d 833, 205 U.S.P.Q. 1140,

1980-1 Trade Cases P 63,189

EASTMAN KODAK COMPANY, Respondent, v. GAF CORPORATION, Appellant.

Supreme Court, Appellate Division, Fourth Department.

July 13, 1979.

Skadden, Arps, Slate, Meagher & Flom, New York City, Goldstein, Goldman, Kessler & Underberg, Rochester, by Edwin E. McAmis, New York City, for appellant.

Nixon, Hargrave, Devans & Doyle, Rochester, by William H. Morris, Rochester, for respondent.

Before SIMONS, J. P., and HANCOCK, CALLAHAN, DOERR, and MOULE, JJ.

MEMORANDUM:

Plaintiff sues defendant in contract to recover royalties allegedly due pursuant to several licensing agreements permitting use of various products and processes owned and patented by plaintiff. Relevant to this appeal are two affirmative defenses dismissed by Special Term. The first affirmative defense alleges that the patent license agreements are unenforceable because of plaintiff's monopolization of relevant markets in the photographic industry contrary to federal antitrust laws, a claim which is the subject of a pending antitrust action in federal court. The fourth affirmative defense alleges patent invalidity.

Special Term properly dismissed the first affirmative defense. The alleged antitrust violations are not inherent in the licensing agreements but only collateral to them. That being so, they may not be asserted as a defense to the contract action (see Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475; New York Stock Exch. v. Goodbody & Co., 42 A.D.2d 556, 345 N.Y.S.2d 58; Western Electric Co., v. Solitron Devices, Inc., 1967 Trade Cases (CCH) P 72,057 (Sup.Ct.N.Y. Co., 1967), affd. 28 A.D.2d 1211, 285 N.Y.S.2d 269; cf. Continental Wall Paper Co. v. Louis Voight and Sons Co., 212 U.S. 227, 29 S.Ct. 280, 53 L.Ed. 486). Cases to the contrary cited by defendant are cases in which the contract itself was the basis for an arrangement which violated the antitrust laws. In this case, plaintiff's alleged antitrust violation is not the product of the licensing agreement but rather of plaintiff's domination of the photographic industry and its alleged misuse of patents.

Special Term erred, however, in dismissing the fourth affirmative defense because assuming the factual allegations of the pleading to be true, as we must, patent invalidity is a valid defense to a state court contract action (CPLR 3211; Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610; see, also, McCarthy, "Unmuzzling" the Patent Licensee: Chaos in the Wake of Lear v. Adkins, 45 Geo.Wash.L.Rev. 429). In dismissing, Special Term went beyond the pleadings and, in effect, granted summary judgment because the defense was "untimely".

In Lear the Supreme Court held that a patent licensee is relieved from paying royalties after the date on which the patents, subject of his license, are successfully challenged. Licensees are encouraged to challenge patentability because of public policy favoring the free flow of ideas and information. The exemption from royalty payments, however, accrues only from the date the patents are challenged, and the issue here is when defendant did so.

The several licensing agreements sued upon were executed at various times before 1968 and defendant has failed to pay any royalty since 1972-1973. Nonpayment is an equivocal act...