U.S. v. Westinghouse Elec. Corp.

• Decision Date: 18 June 1981
• Docket Number: 79-4332 and 79-4333,Nos. 79-4109,s. 79-4109
• Citation: 648 F.2d 642
• Parties: 1981-1 Trade Cases 64,112 UNITED STATES of America, Plaintiff-Appellant, v. WESTINGHOUSE ELECTRIC CORPORATION, Mitsubishi Electric Corporation, andMitsubishi Heavy Industries, Ltd., Defendants-Appellees. MITSUBISHI ELECTRIC CORPORATION, and Mitsubishi Heavy Industries, Ltd., Defendants-Cross-Appellants, v. UNITED STATES of America, Plaintiff-Cross-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 642

648 F.2d 642

1981-1 Trade Cases 64,112

UNITED STATES of America, Plaintiff-Appellant, v. WESTINGHOUSE ELECTRIC CORPORATION, Mitsubishi Electric

Corporation, andMitsubishi Heavy Industries, Ltd.,

Defendants-Appellees.

MITSUBISHI ELECTRIC CORPORATION, and Mitsubishi Heavy

Industries, Ltd., Defendants-Cross-Appellants, v. UNITED STATES of America, Plaintiff-Cross-Appellee.

Nos. 79-4109, 79-4332 and 79-4333.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 8, 1980.

Decided June 18, 1981.

Moses Lasky, Lasky, Haas, Cohler & Munter, San Francisco, Cal., Marion Jetton Washington, D. C., argued; Barry Grossman, Washington, D. C., on brief for U. S. A.

James K. Haynes, Orrington, Herrington, Rowley & Sutcliffe, San Francisco, Cal., on brief, for MEC and MHI defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before DUNIWAY, GOLDBERG, ^* and CANBY, Circuit Judges.

DUNIWAY, Circuit Judge:

The United States appeals from the district court's dismissal of its civil action against Westinghouse Electric Corporation ("Westinghouse"), Mitsubishi Electric Corporation ("MELCO"), and Mitsubishi Heavy Industries, Ltd. ("MHI"), (together, "Mitsubishi") alleging violation of section 1 of the Sherman Act, 15 U.S.C. § 1. MELCO and MHI cross-appeal from the district court's imposition of monetary sanctions under F.R.Civ.P. 37 for delinquency in discovery.

I. Background No. 79-4109.

It is now well over ten years since the government filed this action on April 22, 1970, but it was not ready for trial until some six years later. Trial was to the court, and on June 16, 1976, at the conclusion of the government's case-in-chief, the defendants moved for dismissal under F.R.Civ.P. 41(b). The motion was granted and the suit dismissed on October 20, 1978. United States v. Westinghouse Electric Corp., N.D.Cal., 1978, 471 F.Supp. 532.

As might be expected in an antitrust action of this scope, the record and the burdens placed on the parties and the court in this litigation have been formidable. More surprising has been the tergiversations in the government's presentation of its claim for relief. It is fair to say that the government alleged one theory of antitrust violation in its complaint, relied in major part upon another theory at trial, and now appeals on the basis of its original theory. The district judge expressed his distress at the "United States' frequent shifting of position," with the lack of "diligent, effective, workmanlike prosecution," and with the government's failure to determine "just what was its cause of action." R.T. 3040.

The complaint charges that certain Technical Assistance Agreements entered into by Westinghouse with MELCO and with MHI violated § 1 of the Sherman Act. The companies or their predecessors have had agreements to share technology since 1923. This longstanding relationship, briefly interrupted by World War II, was re-established in the post-War era by new agreements between Westinghouse and MELCO in 1951 and between Westinghouse and a predecessor of MHI in 1952. These agreements were renewed in essentially the same form in 1966 and 1967, respectively.

The 1966 and 1967 Technical Assistance Agreements grant to MELCO and MHI licenses to manufacture, use, and sell certain electrical products under Westinghouse's foreign patents, except Canadian. No license is granted under Westinghouse's United States or Canadian patents. But nothing in the agreements forbids Mitsubishi's manufacturing, using, or selling the enumerated products in the United States or Canada. In return for licensing its foreign patents, Westinghouse is granted a royalty and a reciprocal license to manufacture, use, and sell products incorporating MELCO or MHI patents or knowhow.

The government's first theory, urged below and now on appeal, as to why these Technical Assistance Agreements violate § 1 of the Sherman Act, may be stated as follows. The United States market for the electrical products covered by the agreements is heavily concentrated. Although they are two of the largest manufacturers of electrical products outside the United States, MHI and MELCO do not compete in this market. Their entrance into the United States market would substantially increase the amount of competition in that market. By 1965 MELCO and MHI wished to sell in the United States and had the technical ability to design around Westinghouse's many patents. Their failure to do so, the government contends, is a direct result of the Technical Assistance Agreements. Because MELCO and MHI are licensed by the Agreements under Westinghouse's foreign patents, and because they have had such licenses for a long period of time, they have become so committed to Westinghouse technology as to be economically incapable of developing new products that might compete in the United States without infringing upon Westinghouse's United States patents. Without licenses under Westinghouse's United States patents, MELCO and MHI are effectively barred from the United States market by dint of the patent laws and the heavy investment in Westinghouse technology that the Technical Assistance Agreements induced them to make.

The theory is novel and laced with paradox. By the act of helping MELCO and MHI to prosper and to grow into large corporations in its own image, Westinghouse is said to have insulated its home market from their competition in violation of the antitrust laws. The government urges that although the Agreements may not have resulted in an unreasonable restraint of trade when first signed in 1951 and 1952, at some point in 1965, when MELCO and MHI became capable of competing in the United States and capable of designing around Westinghouse's patents but for their investment in Westinghouse technology, the Agreements came to violate the antitrust laws. Accordingly, the government asked the district court to order an end to the Agreements and to require Westinghouse to license MELCO and MHI under its United States patents.

At trial the government put forward several other theories as to why the Agreements violated the antitrust laws. Chief among these theories, and the main theory on which the government went to trial, was the claim that MELCO and MHI had tacitly agreed with Westinghouse not to compete in the United States while Westinghouse had similarly agreed not to enter the Japanese market. In addition, the government charged that Westinghouse had been guilty of patent abuse and of imposing a tying arrangement by forcing MELCO and MHI to pay royalties on certain products not covered by Westinghouse patents, and by requiring MELCO and MHI to include products in the Agreements that they did not want.

II. The Merits.

In a careful opinion, the district judge answered each of the government's theories. On this appeal the government does not challenge the bulk of the court's opinion. It does not challenge the district court's rejection of its claim of a territorial allocation conspiracy a central contention at trial or the rejection of its claims of an illegal tying agreement and of patent abuse.

The appeal is narrow and rests on two contentions. First, the government attacks the district court's rejection of its theory that Mitsubishi has become so wedded to Westinghouse technology, because of the Agreements, as to be unable to compete in the United States market, the theory upon which the case was instituted. Second, the government argues that the district court erred in its handling of evidence that MHI and MELCO would not sell products listed in the Technical Assistance Agreements without first receiving approval from Westinghouse. We reject both arguments; the first is wholly without support in law, the second is without support in fact.

There is an obvious tension between the patent laws and antitrust laws. One body of law creates and protects monopoly power while the other seeks to proscribe it. Bement v. National Harrow Co., 1902, 186 U.S. 70, 91, 22 S.Ct. 747, 755, 46 L.Ed. 1058; Handgards, Inc. v. Ethicon, Inc., 9 Cir., 1979, 601 F.2d 986, 992. "The patent laws which give a 17-year monopoly on 'making, using or selling the invention' are in pari materia with the antitrust laws and modify them pro tanto." Simpson v. Union Oil Co., 1964, 377 U.S. 13, 24, 84 S.Ct. 1051, 1058, 12 L.Ed.2d 98.

Of course, a patent holder may run afoul of the antitrust laws. "(M) onopolization knowingly practiced under the guise of a patent procured by deliberate fraud" may violate the antitrust laws. Walker, Inc. v. Food Machinery, 1965, 382 U.S. 172, 179-80, 86 S.Ct. 347, 351-352, 15 L.Ed.2d 247 (Harlan, J., concurring). So, too the use of a patent "to acquire a monopoly which is not plainly within the terms of the grant," Mercoid Corporation v. Mid Continent Investment Co., 1944, 320 U.S. 661, 665-66, 64 S.Ct. 268, 271, 88 L.Ed. 376, as by a tying agreement, may violate the antitrust laws as may an agreement among patent holders or licensees to set prices, see, e. g., United States v. Line Material Co., 1948, 333 U.S. 287, 68 S.Ct. 550, 92 L.Ed. 701, or to refuse to grant licenses except upon condition that royalties be paid on unpatented products. Zenith Radio Corp. v. Hazeltine Research, Inc., 1969, 395 U.S. 100, 135, 89 S.Ct. 1562, 1583, 23 L.Ed.2d 129. Nor may a patentee attempt to monopolize an industry by acquiring all present and future patents relevant to that industry. Kobe, Inc. v. Dempsey Pump Co., 10 Cir., 1952, 198 F.2d 416, 422-24.

In all of the above cases, and in all of the cases cited by the government, the offending patentee seeks to do more than enjoy the limited monopoly granted by the patent laws. He seeks to expand that monopoly by misuse, agreement, or accumulation. In advancing its theory, however, the government argues that an antitrust violation may be found where a patent holder does precisely that which the patent laws authorize. Westinghouse has done...