Moraine Products v. ICI America, Inc., 70 C 2350.

• Decision Date: 11 January 1974
• Docket Number: No. 70 C 2350.,70 C 2350.
• Citation: 379 F. Supp. 261
• Parties: MORAINE PRODUCTS, Plaintiff and Counter-defendant, v. ICI AMERICA, INC. (as successor to Atlas Chemical Industries, Inc., and Stuart Pharmaceutical Co.), et al., Defendants and Counter-plaintiffs, v. J. Alfred RIDER, M. D., et al., Third-party Defendants to the Counterclaims.
• Court: U.S. District Court — Northern District of Illinois

379 F. Supp. 261

MORAINE PRODUCTS, Plaintiff and Counter-defendant, v. ICI AMERICA, INC. (as successor to Atlas Chemical Industries, Inc., and Stuart Pharmaceutical Co.), et al., Defendants and Counter-plaintiffs, v. J. Alfred RIDER, M. D., et al., Third-party Defendants to the Counterclaims.

No. 70 C 2350.

United States District Court, N. D. Illinois, E. D.

January 11, 1974.

Allen H. Gerstein, Merriam, Marshall, Shapiro & Klose, Chicago, Ill., for plaintiff.

Dugald McDougald, Chicago, Ill., Arthur G. Connolly and William Wier, Jr., Wilmington, Del., W. Donald McSweeney, Schiff, Hardin, Waite, Chicago, Ill., for defendants.

DECISION ON PENDING MOTIONS

McMILLEN, District Judge.

The above-entitled cause actually consists of several separate but somewhat interrelated actions:

1. Moraine has filed a Second Amendment Complaint consisting of five counts against the Atlas defendants, the first three counts of which are also against the Plough defendants.

2. Plough and its wholly owned subsidiary Plough Laboratories Inc. have answered the three counts and have pleaded seven (7) affirmative defenses. They also have filed a counterclaim of two counts against plaintiff and three individual third-party defendants.

3. Atlas and its wholly-owned subsidiary Stuart Pharmaceutical Co., now collectively known as ICI America, Inc., have filed an answer to all five counts of the complaint and have filed nine (9) affirmative defenses. They have also filed five counterclaims against plaintiff and the three individual third-party defendants.

This case now comes on to be heard on a series of contested motions filed by all parties. The Plough defendants have filed a motion to dismiss the Second Amended Complaint or for summary judgment thereon. For reasons to be stated hereinafter, we will deny the motions of these defendants as to the three counts against them. Plaintiff has filed a motion to strike the fifth affirmative defense of these defendants and this motion will be denied. Plaintiff and the third party defendants have also moved to dismiss the counterclaims of the Plough defendants, and we will grant this motion as to the second counterclaim but allow the first counterclaim to stand.

Plaintiff has also moved to strike affirmative defenses 1, 4, 8 and 9 in the Answer of the Atlas defendants (now known as ICI America, Inc.) which motion we will grant except as to the 8th affirmative defense. Finally plaintiff has moved to dismiss the Atlas counterclaims and we will grant this motion, except as to the second and fifth counterclaims. The three individual third-party defendants have joined in and are the beneficiaries of plaintiff's motions.

The legal basis for most of our rulings is that many of the issues in this case have recently been decided as between Moraine and Atlas in the case of Atlas Chemical Industries Inc. v. Moraine Products, Inc., 350 F.Supp. 353 (E.D.Mich.1972). We have been advised by the parties that a final and appealable judgment was entered in that case on November 5, 1973 which will shortly be the concern of the Sixth Circuit Court of Appeals. Other issues have been decided in the case at bar by our predecessor judge, and we will not undo his careful work as reported at 172 U.S. P.Q. 214 and 217 and in an unpublished opinion dated January 11, 1973. Finally, a complaint for infringement filed in this district, Moraine Products v. Block Drug Co. and Plough Inc., 69 C 1471, was dismissed without prejudice on April 23, 1973, and we can give no conclusive weight to the interim decisions made by a different fellow judge in that case.

The immediate problem in the case at bar is to eliminate issues which have already been litigated between the parties and put an end to the pleading stage of the controversy. To some extent, previously litigated issues can be determined on the pleadings, but some of this determination must await trial or at least until the forthcoming pretrial order is complied with. Also a distinction apparently exists between issues which have been litigated or settled and damages which have been awarded to the plaintiff, and this distinction cannot be made on the pleadings. Finally, the problem is complicated by the cross-allegations that every party participated in one way or another in Atlas' fraud but which the decision in Michigan did not establish against any party directly except the Atlas defendants.

The plaintiff Moraine Products, Inc. is the original assignee of Rider patent # 3,422,189 filed in 1959 and issued in 1969. The claims of the Rider patent cover a method for treating stomach gas or flatulency by a specific antifoam composition which is manufactured by Dow-Corning Corporation. Plaintiff is engaged solely in the business of licensing the rights under this and related foreign patents and does not manufacture or sell any products. Pursuant to settlement of a suit in this District filed by Moraine against Atlas in 1961, plaintiff granted an exclusive option to Atlas in 1962 to sub-license the Rider patent for a royalty of 5%, of which Moraine received 2%. This option had been preceded by a 1960 royalty agreement which was rescinded as part of the settlement.

Each of the defendants is engaged in the business of making and selling deflatulents. Plough Laboratories is the assignee of Feinstone Reissue patent No. 25,505 issued in 1962 as a reissue of No. 2,951,011 issued in 1960 which also covers a method for relieving stomach gas. According to Moraine's present complaint, the claims of the Rider and Feinstone patents overlap to such an extent that a licensee cannot manufacture under Rider without a license under Feinstone. The defendants, as well as two alleged co-conspirators not named as defendants (Block Drug Company and its subsidiary Reed & Carnick Corp.), are the sole licensees under the Feinstone patent.

Count I of Moraine's Second Amended Complaint alleges that defendants conspired to limit the number of licensees under the Feinstone patent and thereby to restrict Moraine's marketing of rights under the Rider patent. Moraine claims that this alleged conspiracy has prevented it from acquiring other licensees for its Rider patent and from earning any other royalties, in violation of Sec. 1 of the Sherman Act (15 U.S.C. § 1).

Count II alleges that the facts in Count I constitute an unlawful interference with plaintiff's business and contractual relationships. Count III alleges that the defendants' acts resulted in injury to the public and to competition, incorporating all of the allegations of Count I. Judge McGarr has already sustained the legal sufficiency of these counts, but subsequently Moraine has prevailed in Atlas' declaratory judgment action in the Eastern District of Michigan (supra p. 3).

The key question raised by the Plough defendants' motion is whether Moraine suffered any compensable injury from the conspiracy alleged in Counts I, II and III of the Second Amended Complaint. We find and conclude that Moraine may have suffered such injury as the result of the action by the Plough defendants in the alleged conspiracy and that a geninue issue of material fact exists on this issue. The patent applicant Rider and his assignee Moraine were admittedly in a position of trust and confidence toward the Patent Office and owed a duty to truthfully disclose all material facts concerning this application. Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 818, 65 S.Ct. 993, 89 L.Ed. 1381 (1945). Atlas, because of its preexisting option agreement, was a potential exclusive licensee of the Rider patent and owed the same duty of full disclosure to the Patent Office. Charles Pfizer & Co., Inc. v. F. T. C., 401 F.2d 574, 583 (6th Cir. 1968). However, the Michigan court specifically found that Moraine did not know of or participate in Atlas' fraud, and Moraine was allowed to recover from Atlas for its expenses in enforcing the invalid Rider patent. By the same token, Moraine could have retained any royalties received from the licensing of the fraudulent patent up to the date of the invalidity. Troxel Mfg. Co. v. Schwinn Bicycle Co., 465 F.2d 1253 (6th Cir. 1972). Therefore it could have suffered damages from the alleged conspiracy.

Plough's first counterclaim against Moraine and against the individual third party defendants, Byrell Triggs and Charles Kramer as officers and stockholders of Moraine, and J. Alfred Rider, the inventor of the process covered by Moraine's patent, alleges that the counter-defendants engaged in a series of fraudulent acts in order to procure the Rider patent. They then allegedly conspired to exploit the patent, knowing that it had been fraudulently procured, by filing the infringement action in this District against Plough and by filing the present action. Plough claims that it has been damaged by the expenses it has incurred in defending against these claims. Plough's second counterclaim alleges that the counter-defendants' fraudulent conduct constitutes a violation of Sec. 2 of the Sherman Act and seeks treble damages.

Moraine argues that the two counterclaims are barred by the principle of collateral estoppel arising out of the prior infringement suit brought in this District by Moraine against Plough and its Feinstone licensees (supra p. 3). In order for a prior judgment between two parties to constitute collateral estoppel, however the judgment must be final and on the merits. Canaan Products Inc. v. Edward Don & Co., 388 F.2d 540 (7th Cir. 1968). Moraine's infringement suit against Block et al. was settled and dismissed without prejudice. Such a judgment is not on the merits, even though the trial judge made some preliminary findings against Moraine. In re McDermott, 115 F.2d 582, 584 (7th Cir. 1940); Brunswick Corp. v. Chrysler Corp., 287 F.Supp. 776, 777-778 (E.D. Wis.1968). Moreover the infringement suit did not involve the question of Moraine's fraud, therefore that suit is no bar to...