Munters Corp. v. Burgess Industries Inc.

Citation450 F. Supp. 1195
Decision Date07 July 1978
Docket NumberNo. 75 Civ. 4622 (CHT).,75 Civ. 4622 (CHT).
PartiesMUNTERS CORPORATION, Plaintiff, v. BURGESS INDUSTRIES INCORPORATED and Buffalo Forge Company, Defendants.
CourtU.S. District Court — Southern District of New York

Curtis, Morris & Safford, P.C., New York City, for plaintiff; John A. Mitchell, New York City, of counsel.

Morgan, Finnegan, Pine, Foley & Lee, John C. Vassil, J. Robert Dailey, John L. Welch, New York City, of counsel, Richards, Harris & Medlock, V. Bryan Medlock, Dallas, Tex., of counsel, Vial, Hamilton, Koch, Tubb, Knox & Stradley, James A. Knox, George A. Fazakerly, Dallas, Tex., of counsel, for defendant Burgess Industries Inc.

Burns, Van Kirk, Greene & Kafer, Joseph W. Burns, Martin J. Neville, New York City, of counsel, McGrath, Meyer, Lieberman & Lipp, Donald G. McGrath, Buffalo, N. Y., of counsel, for defendant Buffalo Forge Co.

TENNEY, District Judge.

Plaintiff Munters Corporation ("Munters"), a wholly-owned subsidiary of a Swedish corporation, AB Carl Munters, brought this declaratory judgment action against two of its customers, Burgess Industries Incorporated ("Burgess") and Buffalo Forge Company ("Buffalo Forge"). Munters manufacturers, under license from its Swedish parent, a cross-fluted corrugated packing material ("Munters fill") sold under the trademarks "HUMI-KOOL," "CELDEK," "PLASDEK," and "ABES-dek." On October 6, 1972, Munters entered into an agreement with Buffalo Forge ("1972 Agreement") granting Buffalo Forge the "exclusive right and sub-license" to use the Munters fill in its manufacture of evaporative cooling mechanisms for gas turbines of at least 500 horsepower capacity in "the United States, its territories and possessions." 1972 Agreement, arts. I & II. Burgess, also a purchaser of Munters fill and the principal competitor of Buffalo Forge in the sale of evaporative coolers for gas turbines, objected to this exclusive arrangement and to any restrictions which it placed on Burgess's use of the Munters fill as violative of the antitrust laws and proceeded to use the fill in the manufacture of gas turbine evaporative coolers. Munters, caught between the Scylla of a breach of contract action by Buffalo Forge and the Charybdis of an antitrust action by Burgess, brought this action asking the Court to declare the agreement between Buffalo Forge and Munters legal, Complaint at 6 ¶¶ 1-3, and to approve Munters's restrictions on the use of Munters fill by Burgess. Id. ¶¶ 4-5. Following a brief trial to the Court, both Burgess and Buffalo Forge moved for judgment in their favor. In addition, on the eve of trial Burgess moved for leave to amend its answer in order to assert an antitrust counterclaim against Munters and a similar cross-claim against Buffalo Forge. Finally, Buffalo Forge now moves to reopen the record to admit an amendment to the original 1972 Agreement between Munters and Buffalo Forge.

For the reasons stated below, Buffalo Forge's motion to reopen the record is granted. Burgess's motion for judgment in its favor is also granted, and the Court declares that the agreement between Buffalo Forge and Munters violates the federal antitrust laws insofar as it attempts to limit the use of Munters fill by Burgess and other purchasers. Finally, Burgess's motion for leave to amend its answer is also granted, with the understanding that the counterclaim and cross-claim were not before this Court during the earlier trial, which was confined solely to the declaratory judgment action.

Most of the facts involved in this action are not in dispute. Munters's parent corporation, AB Carl Munters, is and has been at all times relevant to this action the owner of eight United States patents relating to the Munters fill.1 Munters itself was incorporated in Florida in 1965 and has an exclusive license from its parent to make, use and sell the Munters fill in the United States.2

In January of 1971 Munters maintained a display booth at the International Exhibit held in Philadelphia in connection with a trade association ("ASHRAE") meeting. An employee of Buffalo Forge, a New York Corporation whose Air Handling Division manufactures, inter alia, evaporative coolers, attended the show and expressed an interest in Munters fill. Subsequently, Buffalo Forge obtained samples of the Munters fill from Munters and tested them for efficiency, pressure drop, and carryover, characteristics relevant to the fill's potential for use in an evaporative cooler. As a result of these tests, Buffalo Forge concluded that the Munters fill was an excellent product and that it would be worthwhile for the company to develop a gas turbine evaporative cooler utilizing it.

At some point in 1971 Buffalo Forge informed Munters that it was interested in using the fill for evaporative coolers but requested an "exclusive license" governing its use for a time period sufficient to recoup its investment in adapting the design of its coolers to incorporate Munters fill and in marketing this new product.

In March of 1972 Robert Jorgensen of Buffalo Forge visited Ulf Nordling, President of Munters, to discuss possible terms for the agreement between Munters and Buffalo Forge. Nordling was unwilling to grant Buffalo Forge an exclusive license for the entire evaporative cooling field but said that Munters would consider a narrower product use field — gas turbines of a given horsepower. Munters was willing to grant this exclusivity since evaporative cooling for gas turbines was a wholly new area to Munters and since "Munters could not make the financial investment necessary to develop and design what was a product for entry into a new product market. Also, Buffalo Forge stated it would not undertake the development unless it received an exclusive license." Stipulation of Facts for Trial ¶ 26. The clarity of the latter point was obscured somewhat at trial, however, when Jorgensen testified that "it was kind of debatable" whether Buffalo Forge would have undertaken the project without the exclusivity and that "I think we would not have done it or at least not so soon." Trial Transcript at 103 (emphasis added).

The agreement was formalized in a document dated October 6, 1972. At its core was the following provision, entitled "Grant of License":

"Subject to and to be effective when Buffalo shall have established the use of Munters' Fill as a competitive product for use in the Product Use Area, Munters Florida grants to Buffalo under the terms of this Agreement, the exclusive right and sub-license under the Fill Patents to use and sell Munters' Fill solely for use in the Product Use Area throughout the Exclusive Territory, and to sublicense others to use such licensed Munters' Fill obtained from Buffalo solely for use in the Product Use Area throughout the Exclusive Territory. Munters Florida reserves all other rights it may have under the Fill Patents for uses of Munters' Fill not within the Product Use Area. Nothing in this Agreement shall be interpreted or construed to grant to Buffalo or its customers any rights whatsoever to manufacture Munters' Fill." 1972 Agreement, Art. II, cl. 1.

The "Product Use Area" was defined as "evaporative cooling applications for cooling air, where the cooling of the air is obtained by evaporation of moisture therein, for gas turbines having a minimum rated capacity of at least 500 Horsepower and for the equipment connected thereto." Id., Art. I, cl. b. The "Exclusive Territory" was defined as "the United States and its territories and possessions." Id.

The exclusivity of Buffalo Forge's right to use Munters fill in the "Product Use Area" was reinforced by several other clauses. Munters was prohibited from doing any act which would "interfere or restrict Buffalo's quiet enjoyment of the exclusive right and sub-license," such as knowingly selling to purchasers who intend to use the Munters fill in the "Product Use Area." Id. art. II, cl. 3; art. VII, cl. 3. Munters was charged with informing its employees, distributors, and customers of the exclusive arrangement with Buffalo Forge; in addition, Buffalo Forge was given the right to require Munters to further notify any purchaser whose use of the fill was discovered to be intruding on the "Product Use Area" that this area was exclusively reserved to Buffalo Forge. Id. art. III.

The 1972 Agreement did not provide for the payment of royalties by Buffalo Forge. Id. art. II, cl. 5. Instead, Buffalo Forge was required to purchase certain minimum amounts of the fill; these amounts were to increase throughout the life of the agreement. Id. arts. IV & V. Finally, the 1972 Agreement provided for its extension through a series of two-year terms, ending December 31, 1981, as long as Buffalo Forge continued to meet the minimum purchase requirements. Id. art. IV. Nordling testified at trial that Munters was somewhat hesitant about the potential ten-year length of the agreement but agreed, since it was felt that Buffalo Forge would not accept a lesser term. Trial Transcript at 33-34.

In April of 1973, some six months after the 1972 Agreement was finalized, Burgess became interested in using the Munters fill. Specifically, it was brought to Burgess's attention that the General Electric Company, a leading purchaser of evaporative coolers for gas turbines, had purchased a Buffalo Forge cooler utilizing Munters fill and that similar coolers were being offered to Westinghouse.3 Ugo A. Bert, Burgess's Sales Manager, called Munters to discuss purchasing the Munters fill. In response, Munters sent Burgess a letter dated April 16, 1973 containing requested technical information, but informing Burgess that

"Munters recently signed an agreement with Buffalo Forge Company for the exclusive use of the HUMI-KOOL fill in gas turbine air intake coolers." Exhibit BF-11.

In a further letter dated June 29, 1973, Munters transmitted a HUMI-KOOL price list to Burgess but again advised that "HUMI-KOOL cannot be applied to gas turbine...

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