Laurie Visual Etudes v. Chesebrough-Pond's, Inc.

• Decision Date: 29 May 1979
• Docket Number: No. 76 Civ. 2305.,76 Civ. 2305.
• Citation: 473 F. Supp. 951
• Parties: LAURIE VISUAL ETUDES, INC., Plaintiff, v. CHESEBROUGH-POND'S, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

473 F. Supp. 951

LAURIE VISUAL ETUDES, INC., Plaintiff, v. CHESEBROUGH-POND'S, INC., Defendant.

No. 76 Civ. 2305.

United States District Court, S. D. New York.

May 29, 1979.

Marshall, Morris, Powell, Silfen & Cinque, New York City, and Ford, Marrin, Esposito & Witneyer, New York City, for plaintiff; Robert W. Cinque, Thomas R. Esposito, New York City, of counsel.

White & Case, New York City, for defendant; Edward Wolfe, James B. Rather, Norman Yoerg, Jr., New York City, of counsel.

OPINION

EDWARD WEINFELD, District Judge.

Plaintiff, Laurie Visual Etudes, Inc. ("Laurie" or "Laurie Visual"), is the owner of a patent for a breath exercise device that it has never manufactured, licensed, sold or distributed on a commercial scale. It brings this action against defendant, Chesebrough-Pond's, Inc. ("Chesebrough"), the owner of patents for breath exercise devices that it has manufactured and widely distributed in the commercial market, principally in the medical field. Plaintiff seeks recovery of treble damages from defendant upon a claim of alleged violation of the antitrust monopoly provision, section 2 of the Sherman Act. Laurie also asserts common law claims for (1) fraud and deceit, (2) unfair competition and (3) breach of fiduciary duty. The Court has jurisdiction over the first claim pursuant to section 4 of the Clayton Act¹ and pendent jurisdiction over the state law tort claims. Upon completion of pretrial discovery by the parties, Chesebrough moves to dismiss the Sherman Act claim pursuant to Rule 56 of the Federal Rules of Civil Procedure, on the ground that Laurie Visual lacks standing to sue, and to dismiss the common law claims for lack of federal jurisdiction.

While the Court is mindful of this Circuit's stringent standard for granting such relief,² summary judgment in an antitrust suit following full discovery by both sides is not at all uncommon.³ Indeed, when the facts justify summary judgment, fairness to defendants in relieving them of the expense and heavy burden of trial preparation and the expeditious administration of justice require that the Court's energies not be deflected by an unnecessary and time-consuming trial.⁴ Since the essential facts have been fully developed during the course of extensive depositions of those who were engaged in basic transactions and by documents received during the taking of their depositions, the Court finds the present case appropriate for the exercise of this power.⁵

I

Plaintiff, Laurie Visual, refers to itself as a sister or affiliate of the "Laurie Companies." The latter have been in existence for over twenty years, wholesaling and marketing products in the music, records and entertainment business. Laurie Visual was formed in the late 1960's to develop a music education program for elementary school children, with Robert Schwartz, one of the three controlling shareholders of the Laurie Companies, as its President.

Harold Hanson, an employee of Laurie Visual and a shareholder, was in charge of developing a music education program. As part of this development in or about 1970, he invented a breath exercise device that would be useful to persons playing wind instruments since its regular use improved breath control and volume. A patent was issued for this invention, which Hanson assigned to Laurie in 1972. Hanson's friend and physician suggested that the device might be useful in medical therapy since other devices then sold in the market were expensive, and Laurie thereupon became interested in its exploitation for medical purposes. Accordingly, it commissioned studies and had clinical tests made on the device. During 1973 Laurie considered entering the market for medical-purpose breath exercisers in some capacity and commenced negotiations with Chanal Plastics ("Chanal") to manufacture the device.

In March 1974, Laurie entered into an agreement with Chanal. The "Chanal Agreement" provided that Chanal was to develop an acceptable prototype of the exerciser, following which Laurie would enter into a distribution agreement with another company. Thereafter Laurie would "issue a production order to Chanal for the development of the tooling, engineering and plans . . . required for manufacture of the Device."⁶ Once the tooling had been developed by Chanal for manufacture at a stated price, Chanal would be granted the exclusive right to manufacture the device for a period of three years.

Plaintiff then contacted Chesebrough, showed it a model that had been worked up by Chanal and subsequently gave it a copy of the patent; Chesebrough undertook its own study of the exerciser. Thereafter, the parties engaged in negotiations. Laurie contemplated an arrangement whereby Chesebrough would be the exclusive distributor of the exerciser in the hospital and medical field, in which it had much experience; among its other activities it had for years been marketing a disposable medical breath exercise device known as the "Blow Bottle." The negotiations extended over a period of approximately nine months with proposals and counterproposals, including one by Chesebrough to pay a "royalty" of a fixed sum per unit over cost. Laurie disputes that a "royalty" was to be the measure of payment. The Court, for purposes of this motion, accepts Laurie's position that it did not want to receive payment in the form of "royalties," due in part to its concern that any "royalty" provision might subject it to taxation as a personal holding company under the Internal Revenue Code.⁷

While these discussions with Chesebrough were in progress, plaintiff sought to interest others in the marketing of the device when and if it were manufactured and sent copies of its patent to at least two other national distributors of medical respiratory instruments—Hudson Oxygen Therapy Sales ("Hudson") and Bird Company. The efforts of Laurie and Chesebrough to reach an agreement fell through toward the end of 1974. So, too, Laurie's efforts to interest Hudson and Bird Company failed, as did its attempt in 1975 to contract with Becton-Dickinson, another national supplier of hospital products. Defendant later developed and patented two breath exercise devices of its own, the "Uniflo" and "Triflo" exercisers,⁸ and after market testing in 1975 began. to market the products nationally in 1976.

Soon thereafter plaintiff commenced this action, contending that its entry into the medical breath exerciser market was foreclosed by the monopoly power of Chesebrough. Defendant, according to plaintiff, monopolized this market, originally when it had the only disposable exerciser (the Blow Bottle), and continued to monopolize the market when it deliberately prolonged negotiations to delay plaintiff's entry into the market, thereby enabling it to introduce Uniflo and Triflo ahead of plaintiff's device.⁹ Defendant's instant motion to dismiss the complaint is made upon the ground that plaintiff does not have standing to sue under the antitrust laws in that it had neither business nor property subject to injury and that, assuming it was a viable business entity, any claimed injury was indirect and secondary.

II

Section 4 of the Clayton Act, which provides that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor," has been held to require two separate elements for a litigant to have standing to sue: (1) injury to a specific "business or property" interest of plaintiff, which injury is (2) "by reason of" defendant's violation of the antitrust laws in that plaintiff is the direct object, or "target," of defendant's anticompetitive conduct.¹⁰ Plaintiff, faced with the hard fact that it owns a patent for a breath exercise device that it has never manufactured, licensed, distributed or sold in the competitive market, contends that it is "a primary-line manufacturing competitor of Chesebrough . . who was excluded from the market because of Chesebrough's anticompetitive conduct."¹¹ However, Laurie's mere assertion that it is a primary-line competitor on the edge of the market does not make it such. The allegation must be tested against the facts.

A

One purpose of the requirement for standing to sue to recover damages for alleged antitrust conduct is to prevent the treble recovery provision of section 4 from in terrorem use by plaintiffs having speculative claims or seeking windfall recoveries.¹² Thus the threshold determination is whether plaintiff has a concrete business or property interest that can be subjected to injury by defendant's claimed antitrust violations. It is beyond dispute that Laurie never established a business to compete with Chesebrough or with any other distributor of the product in issue. Instead, plaintiff relies upon those cases that hold that it is just "`as unlawful to prevent a person from engaging in business as it is to drive a person out of business,'" provided that the claim can be supported by evidence that plaintiff had "the intention and preparedness to engage in business."¹³

The depositions and affidavits demonstrate that Laurie did have the intent to set up a business enterprise to exploit its patented invention. However, mere intent or desire to enter a market, without more, does not prove "preparedness." Indicia of preparedness include "the background and experience of plaintiff in his prospective business," any "affirmative action on the part of plaintiff to engage in the proposed business," its ability "to finance the business and the purchase of equipment and facilities necessary to engage in the business" and "consummation of contracts by plaintiff."¹⁴

Laurie Visual contends that it has met the criteria of preparedness in that its officers had prior extensive business experience in the distribution of other products, money had been invested to develop the patent, an agreement had been entered into with Chanal for production of the device, negotiations for contracts to distribute the goods were...