Mannington Mills, Inc. v. Congoleum Industries, Inc.
| Decision Date | 01 August 1979 |
| Docket Number | No. 78-2431,78-2431 |
| Citation | 610 F.2d 1059 |
| Parties | , 1979-2 Trade Cases 62,790 MANNINGTON MILLS, INC., Appellant, v. CONGOLEUM INDUSTRIES, INC., Appellee. |
| Court | U.S. Court of Appeals — Third Circuit |
Frederick W. Rose, Newark, N. J., Michael M. Maney, Michael Winger (argued), Robert M. Hayes, New York City, Richard T. Laughlin, Kearny, N. J., for appellee; Young, Rose & Millspaugh, Newark, N. J., Sullivan & Cromwell, New York City, of counsel.
John N. Bain, Carella, Bain, Gilfillan & Rhodes, Newark, N. J., Norman Polovoy
(argued), Joseph M. Fairbanks, Weinberg & Green, Baltimore, Md., for appellant.
Before ALDISERT, GIBBONS and VAN DUSEN, Circuit Judges.
Plaintiff Mannington Mills, Inc. (Mannington) appeals from a final judgment (1) dismissing, after a full trial to the court, its contractual and equitable claims to sales licenses under certain foreign patents held by defendant Congoleum Corporation (Congoleum), and (2) granting summary judgment on seven counts of its amended complaint sounding in antitrust. Only two counts of the antitrust claim are pressed on this appeal. We affirm the district court's dismissal of Mannington's license claims, and the grant of summary judgment on its claim that Congoleum arbitrarily and discriminatorily denied it access to unpatented know how in violation of § 2 of the Sherman Act. We think, however, that Mannington's allegation that Congoleum conspired with certain of its foreign licensees to terminate Mannington's foreign sales licenses states a claim on which relief may be granted under § 1 of the Sherman Act. Because Mannington has not yet had an adequate opportunity to conduct discovery on the factual issues relevant to that allegation, we reverse the grant of summary judgment on the conspiracy claim. 1
The facts are stated here as found by the district court. 2 Mannington is a New Jersey corporation which has for a number of years manufactured chemically embossed vinyl floor covering at a plant in Salem, New Jersey. Congoleum also manufactures chemically embossed vinyl tile. Prior to 1966, chemically embossed vinyl tile was manufactured and sold in the United States and foreign countries by Congoleum, Mannington, and other companies, including the Ruberoid Corporation (now GAF Corporation) and the Armstrong Cork Co. In that year two United States patents covering the manufacture and use of embossed vinyl products were issued to Congoleum, which immediately commenced infringement actions against Mannington, Armstrong and Ruberoid. Congoleum now holds similar patents in 26 foreign countries.
Some months after the filing of its infringement action Congoleum sent to Mannington a draft License Agreement and Litigation Settlement. Serious settlement negotiations began in the spring of 1968. In order to protect its competitive position as against any firms subsequently licensed under the Congoleum patents, Mannington sought from the outset to include in the proposed license agreement a most favored licensee clause. Congoleum's proposed second draft of the domestic License Agreement contained such a clause, which Mannington redrafted in the form which appeared in the executed agreement. The parties simultaneously negotiated a separate Letter Agreement concerning the terms of additional licenses from Congoleum to Mannington to sell the patented product in foreign countries. A preliminary draft of that agreement was submitted to Mannington in April, 1968, and in May, Congoleum informed Mannington of those countries in which it would be licensed to sell.
On May 21 and 22, 1968, Congoleum and Mannington respectively executed three agreements in settlement of the pending litigation: the License Agreement and Litigation Settlement (License Agreement), a Letter Agreement (Letter Agreement) regarding Mannington's license rights in foreign countries, and an Agreement not to Appeal a certain decision of the New Jersey Superior Court. The last document is not at issue here.
The grant clause of the License Agreement 3 gives the licensee under the patent rights the right to make, use, and sell the licensed products in the United States, its territories and possessions. The term "Patent Rights" is defined in Paragraph 1(a) of the Agreement as "rights under (i) the Letters Patent set forth in SCHEDULE 'A', (ii) all extensions and reissues thereof." Schedule A lists only the two United States patents. The Agreement defines "Licensed Products" as any floor covering covered under the "Patent Rights." The License Agreement provides for a royalty of six and one-half percent of the net sales price of all Licensed Products made and used or made and sold under the Agreement, and is terminable only for cause or at the end of the life of the patents. Paragraph 16 of the Agreement contains the most favored licensee clause sought and drafted by Mannington. 4 Finally, the License Agreement specifies that it is to be construed and interpreted under New York law.
The Letter Agreement provides in relevant part that Mannington is licensed to sell United States manufactured "Licensed Products" as defined in the License Agreement in twenty listed foreign countries. 5 The foreign sales licenses are subject to revocation by either Congoleum or Mannington "at any time upon giving the other party at least six months' written notice." The Letter Agreement contains no provision comparable to the most favored licensee clause of the License Agreement.
In 1970, Congoleum and the GAF Corporation settled their pending infringement suit. Congoleum granted GAF make, use, and sell licenses, under the United States patents for the United States and its territories and possessions, and under its foreign patents for 26 foreign countries. The settlement was embodied in two documents: a License Agreement and Litigation Settlement (the GAF License) and a Manufacturing Agreement. The terms of the GAF domestic and foreign licenses were more favorable than those of the Mannington licenses in several respects. The GAF royalty rate was five percent, one and one-half percent lower than Mannington's. GAF was given the right to sell in six additional foreign countries in which Mannington was not licensed: Canada, Australia, New Zealand, Japan, Ireland, and Holland. Moreover, unlike the foreign licenses granted to Mannington, GAF's foreign licenses were terminable only for cause. Two other provisions of the GAF license are relevant to this action: paragraph 4, 6 the grant clause and paragraph 13(b), 7 a covenant not to sue the licensee or its customers. The Manufacturing Agreement gives GAF the right to manufacture the patented product in all the foreign countries of licensed sale after January 1, 1974.
On May 27, 1970, in compliance with the most favored licensee clause of the License Agreement, Congoleum's President, Harry F. Pearson, sent a letter to Mannington offering the more favorable terms of the GAF License relating to United States patents. Pearson offered, Inter alia, the five percent royalty rate, and paragraphs 4(a) and 4(c) of the GAF License. No mention was made of paragraphs 4(b) or 13(b) of the GAF agreement, of patent rights in the six foreign countries where Mannington had not been granted rights, or of the terms of the foreign Manufacturing Agreement. On July 1, 1970, Congoleum sent Mannington's counsel a copy of the GAF License. Mannington's representatives were not sent a copy of the Manufacturing Agreement and did not learn of its existence until a week before trial.
On July 15, 1970, Mannington and Congoleum met to discuss the more favorable terms of the GAF License. Mannington was represented by its President, H. Arthur Williams, its patent counsel, Thomas Cifelli, and its general counsel, George Doub. Congoleum was represented by its President, Pearson, its patent counsel, Richard T. Laughlin, and its general counsel, Ralph M. Jerskey. Mannington wished to obtain expanded foreign license rights, particularly in Canada. Without such rights, Mannington feared that it would be unable to compete effectively with GAF and Armstrong, both of which were selling in Canada. At the meeting, Mannington expressed its desire for Canadian license rights and took the position that under P 16 of the License Agreement it was entitled to the more favorable foreign license rights granted to GAF. Congoleum rejected that argument on the ground that the most favored licensee clause applied only to license rights under the United States patents.
The sense of the July 15 meeting was expressed in a letter agreement of July 17, 1970 (hereinafter License Agreement Amendment). The License Agreement Amendment modified the License Agreement by incorporating, with two exceptions not here relevant, the terms which Congoleum had offered by its letter of May 27, 1970. Because Mannington and Congoleum could not agree as to the effect of the most favored licensee clause on foreign license rights, the License Agreement Amendment expressly stated that the parties' concurrence in the modification of the license as provided therein was not to be construed as a relinquishment by either party of its position on that clause. In a cover letter to the signed copies of the License Agreement Amendment, Williams stated his hope that the July 15th meeting had laid the groundwork for "possible future agreement" on the Canadian licensing issue, and said that he would like to hear from Pearson if Pearson had "any change in (his) thoughts regarding the Canadian situation."
Several times in the summer or early fall of 1970, Pearson and Williams met privately, and Williams again raised Mannington's claim that it was entitled to expanded foreign sales rights. Pearson indicated that he would not consider granting of additional rights to Mannington until the then pending litigation against Armstrong was settled.
On November 5, 1970, Williams...
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