In re Yarn Processing Patent Validity Litigation

• Decision Date: 22 March 1972
• Docket Number: No. 82.,82.
• Citation: 341 F. Supp. 376
• Court: Judicial Panel on Multidistrict Litigation
• Parties: In re YARN PROCESSING PATENT VALIDITY LITIGATION.

341 F. Supp. 376

In re YARN PROCESSING PATENT VALIDITY LITIGATION.

No. 82.

Judicial Panel on Multidistrict Litigation.

March 22, 1972.

Before ALFRED P. MURRAH, Chairman, and JOHN MINOR WISDOM, EDWARD WEINFELD, EDWIN A. ROBSON, WILLIAM H. BECKER, JOSEPH S. LORD, III, and STANLEY A. WEIGEL, Judges of the Panel.

OPINION AND ORDER

PER CURIAM.

Preliminary Proceedings Before the Panel

The question whether to transfer this unusually important litigation was first presented to the Panel on a motion filed by Celanese Corporation ("Celanese" hereinafter) for an order transferring most of these thirty-five actions in 4 districts¹ to the Southern District of Florida for pretrial proceedings. Without explanation of the reasons, this motion was withdrawn by Celanese. Because of the apparent importance of the question of transfer to the parties, witnesses and to the administration of justice an Order to Show Cause why the thirty-five actions, listed in Schedule A hereof, should not be transferred to a single district for coordinated or consolidated pretrial proceedings, under § 1407, Title 28, U.S.C., was issued by the Panel. Pursuant to the Order to Show Cause the questions whether and where to transfer were briefed and argued before the Panel.

There was agreement among most and perhaps all the affected parties that the actions should be transferred under § 1407 to a single transferee district for pretrial proceedings, and indeed for trial of all actions triable in the transferee district, because of original filing therein, or prior or anticipated transfer thereto under § 1404(a), Title 28, U.S.C.

Multidistrict Nature of the Litigation

The litigation is multidistrict litigation within the definition of § 1407. It involves litigation pending in four districts involving common questions of fact. The transfer of the litigation to a single district for consolidated or coordinated pretrial proceedings "will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions."

Unusual Nature of the Litigation and Patents Involved

The litigation is unusual, and its prompt disposition is urgent to commerce in the very important double knit yarn (sometimes "false twisting") industry, because it involves primarily the validity of 6 basic patents which presently dominate the double knit yarn industry.

The first 3 patents are usually referred to as the "single heater patents".² These patents involve methods and equipment to impart a texture to raw yarn by thermal processing of the yarn in one stage of heat treatment.

The second 3 patents are usually referred to as the "double heater patents".³ These patents involve methods and equipment for processing the raw yarn in two sequential stages of heat treatment, the first of which corresponds to the process of the single heater patents.

Sometimes, but not always employed in addition to the single heater process and the double heater processes are the three "high speed spindle" patents.⁴

The inventors of five of the six single heater and double heater patents are Nicholas J. Stoddard and Warren A. Seem.⁵ Stoddard and Seem, along with two other individuals, formed a partnership known as The Permatwist Company ("Permatwist" hereinafter), to which they assigned their patents. Permatwist subsequently assigned the five patents to the Leesona Corporation ("Leesona" hereinafter) which is owner of the three spindle patents. Some of the parties to this litigation allege that Permatwist retained the right to share in royalties received from licensees under the five patents and was given a voice in the formulation of Leesona's patent licensing policies.

Leesona later assigned the two double heater patents held by it to a third corporation, Lex-Tex, Inc., a North Carolina corporation, whose only stockholders are alleged to be general counsel to Permatwist and one of Leesona's outside patent counsel. Thereafter, the two double heater patents were reassigned to Lex-Tex, Ltd., a Florida corporation. These assignments were also allegedly subject to Permatwist's residual interest. Lex-Tex, Ltd., later acquired the third double heater patent and is engaged in the business of licensing these three patents to producers of textured yarn. It, too, is alleged to be solely owned by general counsel to Permatwist and patent counsel to Leesona.

The remaining parties to this litigation are mainly producers of textured yarn who at one time operated as licensees under the Leesona single heater patents and Lex-Tex double heater patents and are now attacking the patents and the licensing program. Several other plaintiffs have only recently begun to produce textured yarn and are seeking a declaration of the invalidity of some of the patents. Some, but not all, of the single heater and double heater patent licensees also employed the high speed spindle processes.

I. Further Background of This Multidistrict Litigation

Leesona has been engaged in litigation over these patents for some time. That litigation has a long and complicated procedural history, only part of which will be summarized here. The litigation began in August, 1969 when Leesona's licensees under the single heater and high speed spindle patents stopped royalty payments and sought to terminate the license agreements. The first suit by a licensee, Kayser-Roth Corporation, was filed shortly thereafter in the Eastern District of New York, seeking a declaratory judgment of non-infringement of the single heater patents. Other suits were soon filed in that district by other former licensees seeking similar relief. In June, 1970, all these actions were consolidated for pretrial purposes, first before Judge Dooling and upon his recusal before Judge Zavatt.

In the meantime, Leesona sued all of its licensees in the state courts of Rhode Island in October, 1969, seeking equitable relief including a construction of the licensing agreements and a declaration of the validity of the single heater patents. The defendants removed the action to the United States District Court, where it was dismissed for lack of derivative jurisdiction. Leesona Corp. v. Concordia Mfg. Co., 312 F.Supp. 392 (D.R.I. 1970). Leesona then filed a similar second suit, in the United States District Court for Rhode Island, requesting a declaration of the validity of the single heater patents.

At this point, with actions pending in Rhode Island and New York and an additional related action filed in the Western District of North Carolina, this Panel ordered the parties to show cause why all actions should not be transferred to a single district court for consolidated or coordinated pretrial proceedings under 28 U.S.C. § 1407. Shortly thereafter the Rhode Island district court transferred Leesona's action against a number of licensee defendants to the Eastern District of New York, pursuant to 28 U.S.C. § 1404(a), and stayed the Rhode Island action as to the few defendants whose cases could not be transferred under § 1404(a). Leesona Corp. v. Duplan Corp., 317 F.Supp. 290 (D.R.I. 1970). When a stay of proceedings pending disposition of the New York cases was also entered in the North Carolina case, the Panel vacated its Order to Show Cause. Since that time a number of additional related actions have been filed in the Eastern District of Pennsylvania, the Middle District of North Carolina and the Southern District of Florida.

II. Actions Now Pending and Proceedings Therein

As noted above the twenty-four actions by former licensees pending in the Eastern District of New York have been consolidated for pretrial purposes.⁶ An amended complaint has been filed on behalf of all plaintiffs against Leesona, seeking a declaratory judgment of the invalidity, noninfringement and unenforceability of the three single heater and three spindle patents. This amended complaint also asserts a claim for relief under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, alleging a conspiracy by Leesona and others to restrain and to monopolize interstate trade and commerce in the sale of "false twisting" machinery and processes. In the amended complaint Leesona is alleged to have acted with certain foreign and domestic companies and individuals to pool their "false twist" patents, to cross-license illegally those patents and to leave Leesona in control of the licensing of and royalties received from the patents. Lex-Tex is named as one of the co-conspirators but has not been made a party defendant, for reasons discussed hereinafter. The five infringement suits brought by it under one of the double heater patents in the Southern District of Florida, mentioned hereinafter, are alleged to be brought in furtherance of the alleged conspiracy.⁷

The New York plaintiffs state that they have spent a total of "250 man days" (not 250 days) in discovery and have examined over 200,000 documents. They have taken one deposition, that of Leesona's chief patent counsel, and have begun depositions of the partners of Permatwist. However, Leesona the defendant has engaged in no discovery, although much is anticipated, and at the first pretrial conference before Judge Zavatt on September 24, 1971, it was concluded that at least an additional year of discovery was required before a meaningful trial date could be discussed.

The Eastern District of Pennsylvania action was brought in 1970 by Sauquoit Fibers Co. ("Sauquoit" hereinafter), another former licensee of Leesona, against Leesona, Permatwist and the individual partners of Permatwist. The complaint seeks a declaration of the invalidity of the single heater patents and also includes one of the double heater patents in its allegations of patent misuse.⁸ As a second cause of action, Sauquoit alleges that the defendants have conspired to violate Sections 1 and 2 of the Sherman Act by their conduct with respect to these patents.

Discovery in the Eastern District of Pennsylvania actions has been narrowly limited to issues...