Neumann v. Reinforced Earth Co., 84-5532

• Decision Date: 25 March 1986
• Docket Number: No. 84-5532,84-5532
• Citation: Neumann v. Reinforced Earth Co., 786 F.2d 424, 252 U.S.App.D.C. 11 (D.C. Cir. 1986)
• Parties: , 229 U.S.P.Q. 383, 1986-1 Trade Cases 67,002 Albert NEUMANN, et al., Appellants, v. The REINFORCED EARTH COMPANY.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 424

786 F.2d 424

252 U.S.App.D.C. 11, 229 U.S.P.Q. 383,

1986-1 Trade Cases 67,002

Albert NEUMANN, et al., Appellants, v.The REINFORCED EARTH COMPANY.

No. 84-5532.

United States Court of Appeals District of Columbia Circuit.

Argued May 24, 1985.

Decided March 25, 1986.

Appeal from the United States District Court for the District of Columbia(Civil ActionNo. 81-00459).

Wayne M. Mansulla, with whom Robert A. Taylor, Jr., Michelle A. Parfitt, James M. Hanny, Jerry D. Anker and Ann Adams Webster, Washington, D.C., were on brief, for appellants.

Richard McMillan, Jr., with whom Adrienne J. Davis, Washington, D.C., was on brief, for appellees.

Before GINSBURG and BORK, Circuit Judges, and McGOWAN, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge BORK.

BORK, Circuit Judge:

This is an appeal from a judgment notwithstanding the verdict entered by the district court in favor of the defendant, now the appellee, Reinforced Earth Company ("RECO"), 594 F.Supp. 139.Appellants, Albert Neumann, et al., seek reinstatement of the jury's finding that RECO violated section 2 of the Sherman Act by attempting to monopolize a market for retaining walls.That attempt, the jury found, consisted of engaging in "sham litigation" against Neumann and his company in order to keep them out of the market.Because we find that appellants failed to define a proper relevant market at trial, as they were required to do, we affirm the ruling of the district judge.

I.

RECO was founded in 1971 to market a patented technology for building retaining walls.Retaining walls keep earth masses in place and are commonly used in the construction of highways and bridges, but have other applications as well.From 1971 to 1976, Neumann, an independent contractor, did drafting work for RECO.In 1976, Neumann terminated that relationship and formed a company to work on his own retaining wall design.After developing his Tension Retaining Earth System ("TRES"), Neumann applied for a patent.A design owner needs a patent so that contractors who wish to use the design must pay royalties.

When RECO learned of Neumann's patent plans and of a demonstration TRES wall he had built, it began a series of lengthy and complex legal proceedings against him.Neumann claims RECO knew these proceedings were without merit, hence sham litigation designed solely to keep him out of the retaining wall market.In the view we take of this appeal, it is not necessary to rehearse the intricacies of these proceedings and we merely outline them.

In February, 1977, RECO sued Neumann in federal district court in Maryland, alleging misappropriation of trade secrets, trademark infringement, unfair competition, and breach of a fiduciary relationship.While the suit was pending, Neumann's patent became due to issue.RECO moved for an injunction against issuance.By agreement of the parties, RECO dropped this motion and instituted a protest in the Patent Office.

On June 5, 1978, the Maryland court ruled that despite certain similarities, Neumann's wall and the RECO wall he allegedly copied "are based on completely different mechanical principles."Appellants' Record Excerptsat 92.The court rejected all of RECO's claims except one, holding that RECO was entitled to an injunction against future disclosure of trade secrets and confidential information contained in drawings and documents Neumann had retained and against any use by Neumann of certain confidential calculations and designs.Id. at 106.

The Patent Office proceedings--which had been held in abeyance pending the outcome of the Maryland suit--then went forward.In response to RECO's protest, the Patent Office withdrew Neumann's patent from issue for closer examination "because newly discovered prior art raises serious questions of patentability."Appellee's Record Excerptsat 32.There followed complicated proceedings involving a number of issues.Suffice it to say that RECO, although very persistent in filing allegations, fared badly.All of its contentions were ultimately rejected by the Patent Examiner and by an Assistant Commissioner.Neumann's patent issued in July, 1982.

Neumann filed the present action during the patent protest's pendency.On May 27, 1982, the district judge granted summary judgment for RECO.He dismissed Neumann's antitrust claims on the ground that Neumann failed to show either his experience in the retaining wall business or his ability to obtain financing, and therefore did not establish that he was actually prepared to enter the market.The court dismissed the common law abuse-of-process claims (analogous to the present "sham litigation" contentions) on the ground that Neumann was barred by res judicata and was equitably estopped from challenging the patent protest by his acquiescence in the protest's initiation.On June 21, 1983, this court reversed and remanded.SeeNeumann v. Vidal, 710 F.2d 856(D.C.Cir.1983).

A jury trial was conducted and on March 28, 1984, the jury concluded that there had been no actual monopolization and that the Maryland suit had not been a sham.The jury, however, found that the patent protest was a sham and that RECO had filed it in an attempt to monopolize the market for retaining walls and awarded Neumann damages of $1 million.SeeAppellants' Record Excerptsat 69-73.¹On July 5, 1985, the trial judge entered judgment for RECO notwithstanding the verdict.Id. at 16.The district judge offered four reasons for granting RECO's judgment n.o.v. motion.He held Neumann had failed to prove: (1) the patent protest was a sham; (2) a "dangerous probability" that RECO's actions could win it a monopoly; (3) standing; and (4) damages.Because we find the second reason adequate to support the district court's judgment, we have no occasion to examine the others.

II.

Section 2 of the Sherman Act,15 U.S.C. Sec. 2(1982), provides, among other things, that it is unlawful to "attempt to monopolize ... any part of the trade or commerce among the several States."Section 4(a) of the Clayton Act,15 U.S.C. Sec. 15(a)(1982), creates a private right of action in any person "injured in his business or property" by reason of any antitrust violation.

It will be useful to put the concepts of predation, sham litigation (which is a subcategory of predation), and attempted monopolization in their legal context.It is now settled, despite doubts created by some earlier decisions, that a company does not "monopolize" by growing at the expense of rivals due to its superior efficiency.United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778(1966).It follows that a competitor does not commit the offense of attempting to monopolize by attempting to grow through efficiency.When the law speaks of attempts to monopolize it generally refers to predation.Predation involves the deliberate seeking of monopoly power by means other than superior efficiency, by means that would not be employed in the normal course of competition.Thus, predation involves aggression against business rivals through the use of business practices that would not be considered profit maximizing except for the expectation that (1) actual rivals will be driven from the market, or the entry of potential rivals blocked or delayed, so that the predator will gain or retain a market share sufficient to command monopoly profits, or (2) rivals will be chastened sufficiently to abandon competitive behavior the predator finds threatening to its realization of monopoly profits.

An extensive theoretical and empirical literature has grown up concerning methods of predation and the conditions under which it may occur.We need not enter into the complexities of that debate because Neumann alleged a technique--predatory litigation--about whose existence there is no theoretical or empirical doubt.²Special problems arise, however, when the technique of predation alleged is an approach to an arm of government, such as a court or an agency.Citizens have a first amendment right to petition government for action on their behalf and government needs the information and suggestions that parties bring it even when those parties act out of self-interest.³For that reason, the law requires that litigation be a "sham" before it may be held to constitute a violation of the Sherman Act.It is not enough to be found to have attempted to monopolize that the party's sole intent in bringing an action is to exclude a rival from the market.The patent laws, involved here, give the right to do just that for reasons of economic efficiency.See W. Bowman, Patent and Antitrust Law 2 (1973).It is also an element of the offense that the party demonstrate knowledge that its legal proceeding is without merit.The development of doctrine on this topic may be found in the Supreme Court's decisions in Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464(1961);United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626(1965);Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247(1965);California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642(1972);andOtter Tail Power Co. v. United States, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359(1973), and417 U.S. 901, 94 S.Ct. 2594, 41 L.Ed.2d 207(1974), summarily aff'g 360 F.Supp. 451(D.Minn.1973).

Neumann claims that RECO tried to keep him from the market with sham litigation in the Patent Office and is therefore guilty of an attempt to monopolize.But even if the litigation was a sham, a point we do not decide, Neumann must still prove the other elements of an illegal attempt to monopolize.He must prove that the defendants' action created a "dangerous probability" that a monopoly would be achieved.SeeSwift & Co. v. United States, 196 U.S. 375, 396, 25 S.Ct. 276, 49...