United States v. FMC Corp.

• Decision Date: 21 May 1981
• Docket Number: Civ. A. No. 80-1570.
• Citation: 514 F. Supp. 1166
• Parties: UNITED STATES of America v. FMC CORPORATION.
• Court: U.S. District Court — Eastern District of Pennsylvania

514 F. Supp. 1166

UNITED STATES of America v. FMC CORPORATION.

Civ. A. No. 80-1570.

United States District Court, E. D. Pennsylvania.

May 21, 1981.

Kurt Shaffert, Geraldine F. Katz, U. S. Dept. of Justice, Antitrust Division, Washington, D. C., for plaintiff.

Mari M. Gursky, Dechert, Price & Rhoads, Philadelphia, Pa., for defendant; Joseph M. Fitzpatrick, Fitzpatrick, Cella, Harper & Scinto, New York City, of counsel.

MEMORANDUM

CAHN, District Judge.

The United States has sued FMC Corporation ("FMC") for an alleged violation of 35 U.S.C. § 135(c). Section 135(c) requires parties to patent interference settlements to file any resulting settlement agreements with the United States Patent and Trademark Office. FMC has moved to dismiss the suit on the ground that § 135(c) does not establish a right of action in the United States, but only a defense available to a defendant in a patent infringement action. The statutory language provides that a failure to file an interference settlement agreement will render the underlying patent unenforceable, but is silent as to the procedure by which the patent becomes enforceable. I hold the United States may sue to have such a patent declared unenforceable, and I will deny FMC's motion to dismiss.

I. FACTS

FMC holds the patent for the agricultural pesticide carbofuran.¹ The Patent Office issued the patent to FMC as assignee of its employee following an interference between FMC and Bayer, a German chemical manufacturer.²

Before the termination of the interference, FMC entered into three written agreements with Bayer and two additional written agreements with Bayer's whollyowned subsidiary Chemagro and one unwritten agreement with Bayer. The government alleges that each of these agreements was made in connection with or in contemplation of the termination of the interference within the meaning of 35 U.S.C. § 135(c). The United States further alleges that it notified defendant of the filing requirements of § 135(c).

Defendant filed one of the five written agreements, the "United States Patent Interference Settlement" between FMC and Bayer, dated September 10, 1968. Defendant did not file any other agreements with the Patent Office.

The Board of Patent Interferences decided in favor of FMC in Interference No. 95,192.

In an antitrust investigation, the United States Department of Justice discovered the unfiled settlement agreements. Its suit against FMC seeks, inter alia, a declaratory judgment that the patent is unenforceable due to FMC's failure to comply with § 135(c). It claims standing to sue because FMC's failure to comply with the filing requirement hindered the Justice Department's performance of its duty to enforce the antitrust laws by denying it one avenue of access to the unfiled agreements.

II. THE STATUTE

35 U.S.C. § 135(c) reads, in pertinent part:

Any agreement or understanding between parties to an interference, including any collateral agreements referred to therein, made in connection or in contemplation of the termination of the interference, shall be in writing and a true copy thereof filed in the Patent and Trademark Office before the termination of the interference as between the said parties to the agreement or understanding. If any party filing the same so requests, the copies shall be kept separate from the file of the interference, and made available only to Government agencies on written request, or to any person on a showing of good cause. Failure to file the copy of such agreement or understanding shall render permanently unenforceable such agreement or understanding and any patent of such parties involved in the interference or any patent subsequently issued on any application of such parties so involved. The Commissioner may, however, on a showing of good cause for failure to file within the time prescribed, permit the filing of the agreement or understanding during the six month period subsequent to the termination of the interference as between the parties to the agreement or understanding.

(Emphasis added). No express provision is made for a method by which such patent becomes "permanently unenforceable."

III. DISCUSSION

The issue of first impression before me is whether the United States has standing to enforce § 135(c) in declaratory judgment actions. Neither Congress nor the courts have ever addressed this question directly.³ The statute is silent as to who may enforce it. However, Congress passed § 135(c) solely to give law enforcement agencies access to interference settlement agreements. To limit the statute to use as a defense by patent infringers as FMC urges would increase the likelihood that violations would go undetected. This would frustrate the Congressional purpose of § 135(c). Applying rules of statutory construction, I conclude that Congress must have intended a right of action in the United States and will therefore imply one.

A. THE LEGISLATIVE HISTORY OF § 135(c) SHOWS THE NECESSITY OF A RIGHT OF ACTION IN THE UNITED STATES

1. THE FILING REQUIREMENTS OF § 135(c) ARE DESIGNED TO BENEFIT THE PUBLIC AT LARGE

Section 135(c) was enacted in response to President Kennedy's call for remedial legislation in his consumer message of March 15, 1962:

In view of the potentially anticompetitive abuses to which the use of patents and trademarks are by nature subject, I recommend enactment of legislation requiring publication of the terms of all settlement agreements between different persons applying for patent rights on the same invention—for recent hearings have shown that such agreements may include features designed to weaken future competition at the expense of the consumer; ....⁴

In Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 65 S.Ct. 993, 89 L.Ed. 1381, the Supreme Court held a private interference settlement to be so inequitable as to preclude enforcement of the resulting patent even before the enactment of § 135(c). The Court commented:

The possession and assertion of patent rights are `issues of great moment to the public.' citations omitted A patent by its very nature is affected with a public interest. As recognized by the Constitution, it is a special privilege designed to serve the public purpose of promoting the `Progress of Science and useful Arts.' At the same time, a patent is an exception to the general rule against monopolies and to the right to access to a free and open market. The far-reaching social and economic consequences of a patent, therefore, give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their legitimate scope.

324 U.S. at 815-816, 65 S.Ct. at 997-998. Precision Instruments is another statement of the problem that led Congress to enact § 135(c). It was very much in the legislators' minds when they formulated their own statement of the problem:⁵

Recent experience has indicated that parties have sometimes used these interference proceedings in derogation of the public interest, in that interference settlement agreements have been entered into for the purpose of restricting competition. ... The bill would make it more difficult for patent applicants and owners to use an interference settlement agreement as a means of secretly violating the antitrust laws.⁶

The legislative history of § 135(c) does not reveal any additional purposes that the legislators may have in mind when they enacted the bill. Specifically, there is no evidence that Congress considered as a purpose of the bill the incidental benefit to a competitor who could use the offending patentholder's technology without a license.

2. CONGRESS DID NOT ADDRESS THE ISSUE OF WHO COULD ENFORCE § 135(c)

I have been unable to locate any discussion in the legislative history of the means by which the patent would become unenforceable.

FMC makes much of Congress's refusal to incorporate the following proposed language into the bill:

Should the parties to any such agreement or understanding fail to file a copy thereof as specified herein, a civil penalty of not more than $5,000 shall accrue to the United States and may be recovered in a civil action by the United States.

FMC emphasizes that another proposal which was included in the bill as enacted made no mention of a right of action in the United States, but that Congress rejected the only proposal that provided for such a right. FMC argues that by rejecting the second provision Congress meant to preclude the possibility of a civil action by the United States, except when the United States was a defendant in an interference action.⁷ A better interpretation of this legislative decision is that a money penalty was deemed to be an additional unnecessary penalty. Congress decided patent unenforceability would be a sufficient deterrent. As shown by the following analysis of the legislative history, the legislators' decision concerned money fines and not the standing of the government to challenge a patent.

The original version of the bill that eventually became § 135(c) provided only for the invalidation of settlement agreements made in connection with patent interferences. The bill did not provide originally for the unenforceability of any resulting patent.⁸

The Department of Justice urged enactment of this legislation but urged two additions. Under the first, failure to file an agreement would render any patent issued on any application involved in the interference unenforceable. Under the second, the parties to an unfiled agreement would forfeit a civil penalty of up to $5,000 to the United States in a civil action.⁹

The first Department of Justice proposal was incorporated into the legislation.¹⁰ The second proposal was not included because "the subcommittee was of the opinion that unenforceability of unfiled agreements and of patents owned by parties to the unfiled agreements and involved in, or...