United States v. Westinghouse Elec. Corp.

• Decision Date: 20 October 1978
• Docket Number: No. C-70-852 SAW.,C-70-852 SAW.
• Citation: 471 F. Supp. 532
• Parties: UNITED STATES of America, Plaintiff, v. WESTINGHOUSE ELECTRIC CORPORATION, Mitsubishi Electric Corporation, and Mitsubishi Heavy Industries, Ltd., Defendants.
• Court: U.S. District Court — Northern District of California

471 F. Supp. 532

UNITED STATES of America, Plaintiff, v. WESTINGHOUSE ELECTRIC CORPORATION, Mitsubishi Electric Corporation, and Mitsubishi Heavy Industries, Ltd., Defendants.

No. C-70-852 SAW.

United States District Court, N. D. California.

October 20, 1978.

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Anthony E. Desmond, Bernard H. Meyers, Antitrust Div., Dept. of Justice, San Francisco, Cal., for plaintiff.

Moses Lasky, Charles B. Cohler, Robert M. Chilvers, Brobeck, Phleger & Harrison, San Francisco, Cal., for Westinghouse; Frank W. Gaines, Jr., Pittsburgh, Pa., of counsel.

Russell Baker, Hoken S. Seki, Baker & McKenzie, Chicago, Ill., James K. Haynes, Tower C. Snow, Jr., Orrick, Herrington, Rowley & Sutcliffe, San Francisco, Cal., for Mitsubishi defendants.

FINDINGS, CONCLUSIONS AND ORDER OF DISMISSAL

WEIGEL, District Judge.

In this case the United States of America seeks declaratory and injunctive relief against Westinghouse Electric Corporation (Westinghouse), Mitsubishi Electric Corporation (Melco), and Mitsubishi Heavy Industries, Ltd. (MHI), for alleged violations of Section 1 of the Sherman Act between an unspecified date in 1965 and April 22, 1970, the date of filing. Section 4 of the Sherman Act, 15 U.S.C. § 4 (1976) establishes jurisdiction.

The relationship between Westinghouse and the Mitsubishi defendants and their predecessors extends back more than fifty years. Prior to World War II they were parties to a contract whereby Westinghouse supplied technical and manufacturing information in exchange for royalties on the sale of resulting products. The predecessors of the Mitsubishi defendants were permitted to sell the products only in Japan and China. The contract was interrupted by World War II. After the War, the United States sought ways to help Japan to redevelop her economy. Westinghouse and other corporations were urged to share their technological advances with Japanese industry. As a part of this effort, Westinghouse entered into the first of several technical assistance agreements with Melco in 1951 and with a predecessor of MHI in 1952.¹

The post-war agreements licensed Melco and MHI to manufacture, use and sell certain products under Westinghouse patents, except in the United States and Canada.² The agreements reciprocally authorized Westinghouse to manufacture, use and sell, except in Japan, products incorporating patents and know-how transferred from Melco and MHI.³

The Government contends that because of the conduct of defendants and the territorial restrictions in the agreements, the exchange of information constituted an unlawful conspiracy to divide and allocate the world market. The Government contends that Westinghouse also violated Section 1 of the Sherman Act by requiring Melco and MHI to pay royalties on products not incorporating transferred patent technology, and by coercing Melco and MHI into illegal tying arrangements.

The United States asks for judgment declaring that the defendants are in violation of Section 1 of the Sherman Act and for injunctive relief to restore competitive conditions among the defendants. The United States further requests that the Court order defendants: (1) to terminate the technical assistance agreements; (2) to grant each other, for a reasonable time and under reasonable royalties, nonexclusive licenses on products covered by their respective patents and by their challenged agreements; and (3) to agree not to enforce any rights relating to technology transferred under the agreements.

After presentation of the Government's case in chief, defendants moved for dismissal under Fed.R.Civ.P. 41(b). All parties submitted extensive briefs. Although much of the Government's evidence has been challenged as inadmissible, defendants have stipulated that all such evidence may be considered for purposes of the present motion.⁴

The Government contends that the Court must decide against defendants if the evidence establishes no more than a prima facie case. The contention is not well taken. The language and history of Rule 41(b) establish that the Court is not compelled to deny a motion to dismiss, merely because the evidence viewed in a light most favorable to the plaintiff, is sufficient to make out a cause of action. Rather, in ruling on a motion to dismiss in a nonjury case, the court must resolve conflicts of evidence and credibility. Advisory Committee on Rules for Civil Procedure, Report of Proposed Amendments, 5 F.R.D. 433, 465-66; 9 Wright & Miller, Federal Practice and Procedure, § 2371, at pp. 224-25 (1971) (citing numerous cases). It is within the discretion of the Court to grant the Rule 41(b) motion if the Government's case is not established, or close to being established, by a preponderance of the evidence. Southern Arizona York Refrigerator Co. v. Bush Mfg. Co., 331 F.2d 1 (9th Cir. 1964); Ellis v. Carter, 328 F.2d 573 (9th Cir. 1964).⁵

I

The Government's chief claim is that in exchange for technical "know-how" from Westinghouse, Melco and MHI agreed not to compete with Westinghouse in the United States. The defendants agree, as they must, that market allocations among horizontal competitors are illegal per se under Section 1 of the Sherman Act, United States v. Topco Associates, Inc., 405 U.S. 596, 608, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972), and that if any of the parties did in fact have a tacit agreement not to compete in the United States, it would constitute a violation as the Government contends. Defendants argue, however, that the agreements do no more than license Melco and MHI to sell products encompassing Westinghouse technology and permit sales throughout the world other than in the United States and Canada. Defendants claim that no agreements, written or tacit, prohibit Melco or MHI from selling other products in the United States and Canada and that any failure of Melco or MHI to sell products in the United States and Canada is due to the fear that such sales might infringe Westinghouse patents.

Although the Government now charges the existence of a trilateral conspiracy among defendants, it was not alleged in the complaint and the evidence fails to establish even a colorable case to support it. The fact that the predecessors of MHI and Melco were contained within one giant holding company prior to World War II, does not show that Melco and MHI are now one company or that they are co-conspirators with Westinghouse. Moreover, nothing in the agenda or reports of meetings attended by any or all of Melco, MHI, and Westinghouse shows any three-party conspiracy.⁶ Finally, the Government has shown that there is only one type of product which Melco and MHI made jointly and which was subject to negotiations with Westinghouse.⁷ The evidence demonstrates that Melco and MHI each dealt with Westinghouse independently in that regard.⁸

The Government's charge of unlawful bilateral conspiracies (between Westinghouse and Melco, and between Westinghouse and MHI) not to compete in the United States is unsupported by a preponderance of the evidence. The first theory propounded in support of this claim is that the parties have tacitly perpetuated the 1923 contract, which apparently divided world markets between Westinghouse and the predecessors of the Mitsubishi defendants.⁹ The theory is not borne out by the evidence. None of the provisions of the post-war contracts is unlawful on its face, nor is there evidence of a continuing pattern of conduct among defendants dating back to the prewar period. At most the Government has shown a general desire for continued cooperation. In fact, the documents cited by the Government show that by 1965 there had been a substantial erosion of the relationship between Westinghouse and Melco and that the parties engaged in very hard bargaining to continue their licensing agreement.¹⁰ Furthermore, even if such a pattern of conduct had been shown, there is no evidence that the unlawful terms of the 1923 agreement were followed in the actual practice of the parties between 1923 and 1951.

The Government's second theory is that even if the post-war agreements did not tacitly continue illegal pre-war practices, the post-war contracts themselves contained tacit agreements by defendants not to compete in the United States. The Government has attempted to prove this claim with three types of evidence and argument.¹¹

First the Government notes that the 1951 and 1952 contracts provided for payment of royalties by Melco and MHI to Westinghouse only in the countries where Melco and MHI had been granted patent licenses. There was no provision for royalties on sales elsewhere even as to products embodying non-patent technology provided by Westinghouse. The Government contends that this shows that the parties had reason to believe that Melco and MHI would limit sales of products employing Westinghouse technology but not patents, to countries where Melco and MHI had patent licenses. Otherwise, it seems to be the Government's reasoning, Westinghouse would have required royalties on such products for countries as to which patent licenses were not granted. Furthermore, although these "defects" were cured by providing for royalties in the 1966 and 1967 contracts, the Government argues, in effect, that this was merely pro forma.

The vice in the Government's contention on this score is that the evidence gives rise to competing inferences and the Government has failed to show that it is more probable than not that its claims are correct. A contract expressly drawn to permit sales of products in a finite number of countries and to provide a royalty for those sales need not necessarily contain clauses dealing with sales elsewhere. This is especially true if the parties' basic assumption was that all of the products concerned were subject to a network of patents so that it was improbable that any product could be manufactured simply on the basis of technological information free from any patented process or...