Koratron Co., Inc. v. Lion Uniform, Inc.

Decision Date12 March 1976
Docket NumberNo. C-70-1252-CBR.,C-70-1252-CBR.
Citation409 F. Supp. 1019
CourtU.S. District Court — Northern District of California
PartiesKORATRON COMPANY, INC., a corporation, Plaintiff, v. LION UNIFORM, INC., a corporation, Defendant.

COPYRIGHT MATERIAL OMITTED

Moses Lasky, Brobeck, Phleger & Harrison, San Francisco, Cal., James W. Geriak, Lyon & Lyon, Los Angeles, Cal., for plaintiff.

M. Laurence Popofsky, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., Lawrence B. Biebel, Biebel, French & Bugg, Dayton, Ohio, for defendant.

MEMORANDUM OF OPINION

RENFREW, District Judge.

This suit for patent infringement was brought by plaintiff Koratron Company, Inc. (Koratron), against defendant Lion Uniform, Inc. (Lion). Lion raised a number of defenses, including the invalidity, limited scope, and misuse of the Koratron patent. This case is now in the second stage in a bifurcated proceeding involving exceedingly complex patent and antitrust questions.

Seventeen actions were consolidated for pretrial proceedings by order of the Judicial Panel on Multidistrict Litigation. Sixteen of the actions, including the instant case, were subsequently consolidated for trial. The trial was bifurcated in the interest of judicial efficiency. Following an extensive trial, the Court issued a Memorandum of Opinion, reported as Jack Winter, Inc. v. Koratron Company, Inc., 375 F.Supp. 1 (N.D. Cal.1974), which resolved many, but not all, of the central issues in the sixteen actions. From the beginning, it was contemplated that a subsequent trial, such as the present proceeding, would be necessary to resolve the remaining issues. The scope of this proceeding is, however, much narrower than was expected because Koratron has successfully negotiated settlements with all of the original litigants with the exception of Lion.1

The complexity of the factual and legal issues before the Court in the first trial necessitated an unusually long opinion. Because of the length and detail of that opinion, a summary review will suffice here. The issues in the first trial revolved around the so-called '432 patent (U.S.Patent No. 2,974,432), a patent held by Koratron which teaches a process for the manufacture of permanent press garments. The Court sustained the validity of the '432 patent, although it restricted the scope claimed for it by Koratron. Although the Court's findings regarding the issues of validity and scope have defined the parameters of the present action, they are not directly involved in the issues now before the Court. More pertinent to the present action are the findings that actions taken by Koratron to strengthen the market power of the '432 patent constituted violations of Section 1 and Section 2 of the Sherman Act and patent misuse.

Two issues are before the Court in this action. The first is whether the patent misuse found by the Court in the first opinion has been abated and its effects in the market dissipated so that Koratron can again enforce its rights under the '432 patent as defined by the Court.2 The second is whether Lion is entitled to recover attorneys' fees and expenses in a stipulated amount for its assertion of the misuse defense and its antitrust counter-claim against Koratron.

I. PATENT MISUSE

The basic statement of the patent misuse doctrine with supporting case citation was set out in the first opinion and need not be repeated here. Suffice it to say that when the Court decides whether misused patent rights can again be enforced, either by way of an action for infringement or by way of an action for unpaid royalties, it sits in equity and is vested with considerable discretion in evaluating the actions of the patentee.

Evaluation of the misuse defense relied upon by Lion must begin with an examination of the Court's finding in the first opinion regarding misuse:

"* * * The Court finds that Koratron has misused its patent in that it violated § 1 of the Sherman Act by tying the use of unpatented Koratron-trademarked products to the granting of a license to utilize the '432 patent footnote omitted and also by tying the rights under '432 to the use of Koratron's trademark footnote omitted. Morton Salt Co. v. Suppiger Co., 314 U.S. 488, 491-494, 62 S.Ct. 402, 86 L.Ed. 363 (1942). Second, these tying arrangements, as well as the Dan River agreement and Swede consent decree, have been held to constitute an attempt to monopolize in violation of § 2 of the Sherman Act. As such, they also constitute patent misuse footnote omitted." 375 F.Supp. at 71-72.

The parties are in apparent agreement that Lion's misuse defense now rests on only two of the misuses described above. The first is the misuse of tying the right to practice the '432 patent to the agreement by garment maker licensees to affix a Koratron trademark to all garments made under the license. The second is the misuse of entering into the Dan River agreement and the Swede consent decree with the intention to monopolize "the manufacture, processing and sale of resin-impregnated fabrics, related textile materials, and durable press garments." Id. at 68. These misuses and the action or inaction on the part of Koratron to dissipate their effects will be discussed in more detail below.

A. The Trademark Tie

Because of the nature of the process taught by the '432 patent, it was necessary for Koratron to license both textile mills and garment makers. In the first opinion, the Court described the complex web of tying agreements that Koratron imposed on those licensees as a condition of granting licenses under its patent. The most significant of these for present purposes was the requirement that garment maker licensees agree to affix the Koratron trademark to all garments made by them under the license. The Court found that this trademark tie constituted a per se violation of Section 1 of the Sherman Act and a misuse of the '432 patent. Id. at 65, 72. The issues now before the Court are when, if at all, this misuse ceased and when, if at all, its effects were dissipated. On these issues the parties are sharply divided.

The history of this trademark tie provision of the garment maker's patent license is not seriously disputed, but the legal conclusions regarding the misuse doctrine to be drawn from that history have been one of the most bitterly contested issues in the present action. The license form with the trademark tie was used by Koratron from 1963 until December of 1967 when it was eliminated from a new and substantially revised license form adopted at that time. Subsequently, the new form was used for all new licensees. Also, in December of 1967, Koratron offered existing licensees the opportunity to change from the old form to the new one and thus to escape from the trademark tie. A number of the then-existing licensees, however, declined to change, and, therefore, remained under the old form with the trademark tie. Furthermore, the old-form licenses included an option to extend the term for an additional period of five years, and several of the licensees who had acquired their licenses before December of 1967 exercised that option. The last of the old-form licenses which included the trademark tie finally expired on June 25, 1975, the extension option having been exercised by the licensee on June 25, 1970.

Based upon these facts, the Court holds that the patent misuse in the form of the trademark tie did not stop before June 25, 1975, when the last of the oldform licenses containing the trademark provision finally expired. This is not a simplistic conclusion drawn from the fact that one such license was outstanding. Koratron's reliance on the facts that relatively few of such licenses were outstanding and that limited royalties were paid under them simply misconceives the burden placed on Koratron by the finding of patent misuse. In the first opinion, the Court held that Koratron would be precluded from enforcing its patent "until Koratron demonstrates to the satisfaction of this Court that these practices or similar ones are no longer followed and that their effects in the market have been dissipated * * *." 375 F.Supp. at 72. Judged by this standard, Koratron has not made the requisite showing. The 1967 change in patent license forms was far from an unequivocal abandonment of the trademark tie provision. The new form included changes in addition to the elimination of the trademark tie. The parties are sharply divided as to whether these changes deterred existing licensees from changing over to the new form. It is clear that a number of existing licensees did not change, and that at least one licensee wrote to express concern over the other changes, suggesting that the new form was perceived as less advantageous than the old. Furthermore, when the new form was made available, Koratron adamantly stated, both publicly and privately, that the licensees had to choose one form or the other and that they would be bound by all of the provisions of the one that they chose, including the trademark tie under the old form.3 The fact that Koratron adopted this posture suggests that it perceived some additional benefit to it from the other changed provisions of the new form. Had Koratron wanted to abandon the trademark tie, many clear methods for doing so were available to it. For reasons known only to Koratron, it did not elect to employ those methods. In the Court's opinion, the militant manner in which Koratron put its licensees to their election of license forms eliminates Koratron's argument that the misuse ended through attrition and benign neglect.

Koratron has presented a number of arguments concerning the trademark tie, each succeeding argument representing a slight retreat and retrenchment based on the assumption that the preceding position was lost. The offer of new license forms without the trademark tie to all licensees in December of 1967 was, in Koratron's opinion, sufficient to end the misuse associated with the trademark tie. Failing that, Koratron argues that, in any...

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