United States v. Bayer Company

• Decision Date: 10 October 1955
• Parties: UNITED STATES of America, Plaintiff, v. The BAYER COMPANY, Inc. (New York); Sterling Products (Incorporated) (Delaware); Albert H. Diebold; William E. Weiss; and General Aniline & Film Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

135 F. Supp. 65

UNITED STATES of America, Plaintiff, v. The BAYER COMPANY, Inc. (New York); Sterling Products (Incorporated) (Delaware); Albert H. Diebold; William E. Weiss; and General Aniline & Film Corporation, Defendants.

United States District Court S. D. New York.

October 10, 1955.

Stanley N. Barnes, Asst. Atty. Gen., Ephraim Jacobs, Richard B. O'Donnell, Special Assts. to the Atty. Gen., Wilbur L. Fugate, Daniel H. Margolis, Trial Attys., Washington, D. C., for plaintiff.

Winthrop, Stimson, Putnam & Roberts, New York City, Peter H. Kaminer, Herbert L. Abrons, Merrell E. Clark, Jr., New York City, of counsel, for defendant General Aniline & Film Corp. WEINFELD, District Judge.

In this action charging violation of § 1 of the Sherman Act¹ the government moves for summary judgment against the defendant General Aniline & Film Corporation, hereinafter called "General Aniline". General Aniline cross-moves for summary judgment in its favor.

The motions are based on the pleadings, exhibits, requests for admissions, answers to interrogatories and affidavits. Each party in support of its motion urges that no genuine issue exists as to any material fact and that it is entitled to prevail.

The action has had a rather long history. General Aniline was not named as a defendant when the action was commenced in September, 1941. The original defendants were The Bayer Company, Inc. (New York) (hereinafter referred to as "Bayer"), Sterling Products (Incorporated) (Delaware), (hereinafter referred to as "Sterling"), and two individual officers of Sterling.

The complaint charged those defendants with combining and conspiring to restrain interstate and foreign trade and commerce in pharmaceutical products in violation of § 1 of the Sherman Act. It alleged that the conspiracy resulted in and was furthered by two agreements, one dated April 9, 1923 between Bayer and a German company, known as and referred to herein as Leverkusen; the other dated November 15, 1926 which modified and confirmed the earlier agreement and was executed by Bayer and I. G. Farbenindustrie Aktiengesellschaft of Germany (herein referred to as "I. G. Farben") which succeeded to Leverkusen's interest. These agreements, the provisions of which will be considered in greater detail, are referred to herein as the 1923 and 1926 agreements, or the Bayer contract. The present controversy centers about a provision of the agreements under which Bayer agreed to pay I. G. Farben for a period of 50 to 55 years one-half of the net profits derived by Bayer from its business in Cuba, one of the countries where Bayer was given exclusive sales rights for designated pharmaceutical products.

Upon the filing of the complaint in September, 1941, the original defendants consented to the entry of a decree adjudging the 1923 and 1926 agreements to be unlawful under the anti-trust laws.² The decree enjoined Bayer and Sterling (which owned Bayer), their successors and subsidiaries, from carrying out or enforcing the contracts or from paying to I. G. Farben, its successors or assigns, any royalties or share of profits under the contracts with respect to its sales. It is this latter provision which accounts for the present proceeding.

In 1930 I. G. Farben issued a letter of instructions to Bayer to pay its (Farben's) share of the Cuban profits under the 1923 and 1926 agreements to American I. G. Chemical Corporation, which I. G. Farben had caused to be organized under the laws of Delaware. In 1931 it directed Bayer to pay the profits to General Aniline Works, Inc. which in 1939, as a result of changes of names and mergers with subsidiaries, became General Aniline & Film Corporation, the present defendant.³ Bayer made the payments as directed by the instructions to 1940 but refused to make further payments after the entry of the 1941 consent decree.

In 1945 General Aniline, alleging itself to be the assignee of I. G. Farben, commenced an action against Bayer and Sterling in the Supreme Court of the State of New York to recover I. G. Farben's share of the Cuban profits for the years 1941 to 1944. It later filed a supplemental complaint to include the profits for each year from 1945 through 1951. The complaints alleged the due performance by I. G. Farben and its predecessor (Leverkusen) of all the terms and conditions on their parts to be performed under the agreements.

Both Bayer and Sterling pleaded as an affirmative defense impossibility of performance, citing the provisions of the 1941 decree in this action declaring the contracts illegal and enjoining them from making any further payments thereunder. On General Aniline's motion the defense was stricken.⁴ The Appellate Division⁵ and the Court of Appeals⁶ of the State of New York affirmed the order. The underlying rationale of the decisions was the absence of General Aniline as a party to the anti-trust suit, the courts holding that the decree was not binding upon it and that it was entitled to have its day in court to contest the claim of illegality of the Bayer contracts. While the appeal was pending in the New York Appellate Division, the Attorney General applied for, and was granted, leave to serve the supplemental complaint in this action.⁷ Thus it came about that in 1952, more than ten years after the entry of the final decree against the original defendants, the government served first a supplemental complaint and then an amended supplemental complaint naming General Aniline as an additional defendant.

The same general relief is sought as had been obtained under the original complaint declaring the 1923 and 1926 agreements to be illegal and in violation of § 1 of the Sherman Act. The amended supplemental complaint, in addition to the allegations in the original complaint, further charges that General Aniline had been and was engaged in a course of conduct designed to carry out and enforce the 1923 and 1926 agreements; that the prosecution by General Aniline of the New York State court action was for the purpose of giving effect to the unlawful contracts, schemes and conspiracies described in the original complaint; that by carrying out such conspiracies, contracts and combinations in restraint of trade and by its acts, General Aniline has directly, substantially and unreasonably restrained trade in pharmaceutical products. The prayer for relief seeks, in addition to a decree outlawing the agreements, to enjoin General Aniline from prosecuting the New York action or taking any other steps to enforce, or to receive the payments under, the contracts. The defendant's motions to dismiss the supplemental and the amended supplemental complaints were denied.⁸

In support of its motion for summary judgment the government contends that but two questions, both purely of law, are presented: first, are the Bayer contracts of 1923 and 1926 illegal per se under the Sherman Act; and second, if they are, should General Aniline, successor to the rights of I. G. Farben, one of the contracting parties, be enjoined from carrying out or enforcing them.

The defendant contends that the legality or the illegality of the 1923 and 1926 agreements is only of historical interest and is irrelevant with respect to the issue of whether General Aniline is entitled to summary judgment. General Aniline urges that the government has failed to prove that it, as distinguished from I. G. Farben, its assignor, is presently violating or threatens any violation of the Sherman Act; further, that the prosecution of the law suit for the recovery of I. G. Farben's one-half share of the profits of Bayer's business in Cuba cannot be said to further any activity condemned by the anti-trust statute.

I cannot agree with the defendant's position that the legality of the 1923 and 1926 contracts is of no relevancy on these motions. The determination of that issue is basic to a disposition of the matters in controversy. If the contracts are not violative of the anti-trust laws it concludes the inquiry; if they are, then we reach the other questions posed by the parties.

There appears to be no question but that when the 1923 agreement was executed Leverkusen (and later its successor, I. G. Farben) and Bayer were majors in the distribution and production of pharmaceutical drugs and products throughout the world. Indeed, no issue is raised by the defendant on this score.

This brings us to a consideration of the terms of the contracts. The preamble clauses recite that: (1) Bayer was formerly controlled by Leverkusen to carry on business in the United States and elsewhere but was no longer controlled by Leverkusen, the Alien Property Custodian of the United States having disposed of its shares in Bayer; (2) Bayer is the proprietor of various trademarks in the United States, including "Bayer" and "Bayer Cross", and also of trademarks and patents in the United Kingdom; (3) Bayer is entitled to various trademarks in Cuba, particularly the trademark "Aspirin" and "Bayer Cross", and also certain trademarks in South Africa; (4) Bayer obtained a judgment in its favor in Cuba concerning the trademarks "Bayer", "Bayer Cross" and "Aspirin" and is also the proprietor of a patent in Cuba; and (5) Bayer and Leverkusen, each sought the removal from the Register in the United Kingdom of certain trademarks registered in the name of the other and each also filed opposition proceedings to the application made by the other to register the "Bayer Cross" mark in the Commonwealth of Australia.

The substance of the agreements deals with (1) a world wide division of the pharmaceutical market with specific areas allocated to Bayer and I. G. Farben and the exploitation of the remaining areas by a newly formed corporation in which both Bayer and I. G. Farben were to have specified interests; (2) transfer or recognition of trademarks, including future trademarks in certain areas, in favor of the party to whom an area was allocated; and (3) in the instance of Cuba, royalty payments by...