Moraine Products v. ICI America, Inc.
Decision Date | 18 June 1976 |
Docket Number | No. 75-1488,75-1488 |
Citation | 538 F.2d 134,191 USPQ 65 |
Parties | , 1976-1 Trade Cases 60,935 MORAINE PRODUCTS, Plaintiff-Appellant, v. ICI AMERICA, INC., Defendant-Appellee. |
Court | U.S. Court of Appeals — Seventh Circuit |
Allen H. Gerstein, A. Bradley Eben, Chicago, Ill., for plaintiff-appellant.
W. Donald McSweeney, Chicago, Ill., Arthur G. Connolly, Wilmington, Del., for defendant-appellee.
Before PELL and BAUER, Circuit Judges, and WHELAN, District Judge. *
This is an appeal by plaintiff Moraine Products (hereinafter Moraine) from a judgment entered on a directed verdict in favor of defendant ICI America, Inc. (hereinafter Atlas) on Counts I, II, and III of Moraine's complaint after presentation to the jury of the plaintiff's case in chief. The three counts of Moraine's second amended complaint that were tried consisted of two antitrust counts and a count for alleged tortious interference with business relationships. Moraine's claim of injury under Section 4 of the Clayton Act, 15 U.S.C. § 15, was based on its ownership of Patent No. 3,422,189 (the Rider patent), and it charged conduct violative of Section 1 of the Sherman Act, 15 U.S.C. § 1, relating to the licensing of the Feinstone patent, which was originally issued as Patent No. 2,951,011 on August 30, 1960, reissued on July 24, 1962 as Reissue No. 25,205, and which was owned at all pertinent times by Plough, Inc., a codefendant at the trial. Moraine's primary theory of recovery was that a license agreement between Plough and Atlas 1 of January 19, 1961, was illegal per se. Alternatively, Moraine contended that, even if the contract was not unlawful per se, the evidence established that the defendants had conspired or combined to impose an unreasonable restraint on commerce. 2
The challenged agreement involved a grant by Plough to Atlas of a license stated to be exclusive except as to Plough itself and another licensee, the Block Drug Company. 3 The directed verdict in favor of the defendants, and the judgment entered thereon, were based on the trial court's conclusion that Moraine had failed to establish that the Plough-Atlas license agreement or the defendant's conduct incidental thereto had unreasonably restrained trade in violation of 15 U.S.C. § 1 or that the agreement or conduct constituted a tortious interference with any business relationship of Moraine. More specifically, the trial court directed a verdict on the "ground that (the) contract dated Jan. 19, 1961 between the defendants is valid and does not violate antitrust laws," and on the further ground that Moraine had cited no evidence in support of its contention that Plough had participated in causing defendant Atlas to rescind its pre-existing contract with Moraine on January 18, 1961.
Some time during the 1950's, Dr. J. Alfred Rider, a gastroenterologist in San Francisco, California, began research work with a composition containing methylpolysiloxane (MPS) and finely divided silica 4 for the relief of gas or flatulence in human beings. Also during the 1950's, Dr. Wolffe Harry Feinstone filed a patent application for a simethicone-containing composition for the relief of flatulence in humans.
In 1958, Moraine Products was incorporated for the purpose, among others, of promoting Rider's invention. In August 1958, Stuart approached Rider and expressed an interest in marketing deflatulent products embodying his invention. On March 11, 1960, Stuart entered into an agreement with Rider and Moraine. Under that agreement, Stuart was to pay a 5% royalty on its sales of simethicone-containing products in return for an assignment of Rider's alleged invention, including his United States and foreign patent applications thereon. The agreement was to be effective whether or not a U. S. patent was obtained.
Early in 1960, Stuart began marketing a deflatulent product called Mylicon, which contained MPS plus finely divided silica, i. e., simethicone, in accordance with Rider's invention. On August 30, 1960, the Feinstone patent was issued. This patent had both method and product claims covering the treatment of gastrointestinal distress through the use of any antacid material coated with an organo-poly-siloxane. While the claims of the Feinstone patent were not directed to the identical invention covered by the Rider application, Stuart became concerned about its marketing position. Feinstone and Plough, with which corporation he had become associated, advised Stuart that its Mylicon infringed Feinstone's recently issued patent.
After months of correspondence and meetings, both with Rider and Plough, Stuart rescinded its 1960 agreement with Moraine on January 18, 1961. On the next day, January 19, 1961, Stuart signed the previously mentioned patent licensing agreement with Plough. Moraine subsequently brought suit against Stuart (Atlas) for its termination of the 1960 agreement. In June 1962 that suit was settled upon terms which, among other things, granted Atlas an option to obtain exclusive licenses for itself or others under any Rider patent that subsequently issued on his then-pending patent application.
After ten years of patent prosecution, the Rider patent issued on January 14, 1969. Within the thirty days provided in the settlement agreement of June 28, 1962, Atlas exercised its right to obtain an exclusive license under the Rider patent. Shortly thereafter, upon receipt of a letter of demand from Atlas, Moraine sued Plough and Block for patent infringement, the suits eventually being consolidated in the Northern District of Illinois. Thereafter in mid 1970 Atlas sued Moraine in the Eastern District of Michigan seeking, among other things, a declaratory judgment that the Rider patent was invalid. Since the patent suits were filed at approximately the same time as this antitrust suit, pretrial discovery proceeded essentially on a consolidated basis. The evidence developed for purpose of the patent suits was utilized in the present antitrust action.
The patent litigation has proceeded to a final judgment. In Atlas Chemical Industries, Inc. v. Moraine Products, Inc., 350 F.Supp. 353 (E.D.Mich.1972), aff'd in part, rev'd in part, 509 F.2d 1 (6th Cir. 1974), Atlas secured a final adjudication that the Rider patent for the use of simethicone for the relief of gastrointestinal gas and flatulence in humans was invalid. The reported opinions of the Michigan district court and of the Sixth Circuit set forth the essential narrative details and provide a contextual background for the present litigation and need not be repeated here.
The issues in this appeal are numerous and, at least as presented, are complex. Although Atlas filed a cross-appeal, this was withdrawn two days before its answering brief was filed. Some of the issues raised in the answer brief suggest the possibility that as a tactical matter the appellee has determined to present contentions which might more properly have been raised by the cross-appeal resulting from the trial court's striking of certain defenses and counterclaims. We regard the basic issue in this appeal as being whether the district court should have granted a directed verdict; and, being mindful that in considering the correctness of trial court action on review we are not necessarily confined to the reasons advanced in the trial court for the purpose of sustaining the action, we will consider the various contentions of the appellee only to the extent that they would justify the directed verdict. We find little reason for becoming involved in the eristic briefing pertaining to the scope of the decision of the litigation in the Sixth Circuit.
The first aspect of the main issue is found in a matter which appears to be of first impression and is whether it is a per se violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, for the assignee of a patent in licensing a competitor to agree with that competitor that with the exception of another competitor the assignee will not license anyone else although retaining the right to use the patent itself and the first licensee will not grant any sub-licenses. The effect of the Plough-Atlas agreement which embodies the above commitments is that further licensing under the patent can only be accomplished by joint agreement between the two signatories of the licensing agreement.
Moraine contends, that under United States v. Krasnov, 143 F.Supp. 184 (E.D.Pa.1956), aff'd. per curiam, 355 U.S. 5, 78 S.Ct. 34, 2 L.Ed.2d 21 (1957), petition for rehearing denied, 355 U.S. 908, 78 S.Ct. 328, 2 L.Ed.2d 262, the January 19, 1961 agreement between Plough and Atlas was illegal. Undergirding the present question, in part at least, are the competing philosophies of patent and antitrust champions. The speeches and articles of governmental antitrust officials have expressed the view that the days of benign neglect towards restrictions on competition by patentees should be numbered. See M. Adelman & F. Juenger, Patent-Antitrust: Patent Dynamics and Field of Use Licensing, 50 N.Y.U.L.Rev. 273, 274 (1975).
At a panel discussion on patent licensing in August 1973 Bruce B. Wilson, then Deputy Assistant Attorney General, Antitrust Division, stated quite candidly:
. . . (T)he Department believes it to be unlawful for a patentee to agree with his licensee that he will not, without the licensee's consent, grant further licenses to any other person. That is the old Krasnov principle. 42 Antitrust L.J. 683 (1973).
At the same meeting, George Frost, Director of the Patent Section of General Motors, while presenting his own views on matters of patent policy, noted the stringent applications of 15 U.S.C. § 1 and observed:
Another class of cases involves restrictive license provisions for the benefit of the licensee. For example, a license veto power over the grant of future licenses has been held illegal. (citi...
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