United Technologies Corp v. Chromallory Gas

• Decision Date: 25 August 1999
• Parties: (Fed. Cir. 1999) UNITED TECHNOLOGIES CORPORATION, Plaintiff-Appellant, v. CHROMALLOY GAS TURBINE CORPORATION, Defendant-Appellee. 98-1577 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1338

189 F.3d 1338 (Fed. Cir. 1999)

UNITED TECHNOLOGIES CORPORATION, Plaintiff-Appellant, v. CHROMALLOY GAS TURBINE CORPORATION, Defendant-Appellee.

98-1577

United States Court of Appeals for the Federal Circuit

DECIDED: August 25, 1999

Rehearing Denied; Suggestion for Rehearing En Banc Declined.

Appealed from: United States District Court for the District of Delaware Judge Roderick R. McKelvie

[Copyrighted Material Omitted]

Donald E. Scott, Bartlit Beck Herman Palenchar & Scott, of Denver, Colorado, argued for plaintiff-appellant. With him on the brief were Rhett R. Dennerline and Jason L. Peltz, Barlit Beck Herman Palenchar & Scott, of Chicago, Illinois. Of counsel on the brief were Donald R. Dunner and Howard A. Kwon, Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P., of Washington, DC.

Howard B. Comet, Weil, Gotshal & Manges, LLP, of New York, New York, argued for defendant-appellee. With him on the brief was David J. Lender. Of counsel on the brief were Michael G. Scheininger and Daniel E. Johnson, McKenna & Cuneo, L.L.P., of Washington, DC.

Before SCHALL and GAJARSA, Circuit Judges, and CUDAHY,^* Senior Circuit Judge.

GAJARSA, Circuit Judge.

United Technologies Corporation ("United") appeals the August 15, 1998 decision of United States District Court for the District of Delaware, Docket No. 95-CV-444. United initiated the present action in the district court against Chromalloy Gas Turbine Corporation ("Chromalloy") for patent infringement and breach of contract for non-payment of royalties. In response, Chromalloy filed various counterclaims, including a Third Counterclaim for breach of contract. The district court segregated the issues for a series of separate trials. In December 1997, the district court denied United's motion for summary judgment to bar Chromalloy's Third Counterclaim under the doctrine of res judicata. The district court held a bench trial concerning the Third Counterclaim, ultimately granting specific performance in favor of Chromalloy after finding that United had breached a February 4, 1985 agreement between the parties. Because the district court erred in failing to apply the doctrine of res judicata to bar Chromalloy's Third Counterclaim, following a state law antitrust action against United in a Texas state court, we reverse the district court's res judicata decision and vacate the judgment concerning Chromalloy's Third Counterclaim.

BACKGROUND

United manufactures gas turbine engines for use in jet aircraft through its Pratt & Whitney ("Pratt") Aircraft division. United licenses other companies to use its technology to repair component parts for these engines. On February 4, 1985, United and Chromalloy entered into an agreement ("the Repair Agreement") in which United agreed to license certain of its proprietary repair technology, including patented processes, to Chromalloy for use in developing repairs for certain engine components. Under the terms of the Repair Agreement, United agreed to test and evaluate samples of each repair process delivered by Chromalloy to help Chromalloy meet regulatory requirements established by the Federal Aviation Administration ("FAA"). Once Chromalloy's repair processes met the relevant requirements, it was to be listed in Pratt's engine manual as a "qualified repair source" for a ten-year period, with optional five-year extensions. Chromalloy was to pay United a royalty for each repair that used United's proprietary information.

Appended to the Repair Agreement was "Exhibit A" that listed the repair processes for engine parts based on various patents licensed to Chromalloy. At the time the Repair Agreement was signed, Exhibit A contained 99 parts relating to one of four engine models: "JT9D-7Q, -59A, -70," "JT9D-7R4 Series," "PW2037," and "PW4000 Series." The parts listings are general descriptions, sometimes listing the material from which the part is made, such as "1 Stage Turbine Blade - PWA 1422 Material." The repair processes listed are also general descriptions such as "Strip Coating(s)," "Clean Internal Cavity," or "Restore PWA 270 Coating." Over the course of performance, the list was expanded by mutual agreement to include additional repair processes and newly developed engines. United also approved additional repair processes that were not specifically listed in Exhibit A or its amendments.

Starting in 1992, Chromalloy was investigated by the federal government for alleged defective engine repair, including those Pratt engines covered by the Repair Agreement. Eventually, in 1996, two of Chromalloy's executive vice presidents were convicted of criminal fraud in connection with those repairs. Meanwhile, United continued to develop new engines and new technologies and Chromalloy requested to become an approved repair source for the new engines and related parts. In 1995, the parties entered into negotiations for an agreement that would encompass the new engine repairs. The parties ceased negotiations after United conducted a royalty audit of Chromalloy in 1995 under the Repair Agreement and allegedly discovered that Chromalloy had under-paid royalties and had made unauthorized uses of United's proprietary technology.

On July 11, 1995, United filed the present action in the United States District Court for the District of Delaware alleging patent infringement and breach of contract. Chromalloy, on August 29, 1995, in lieu of an antitrust counterclaim in Delaware, filed an action in Texas state court alleging that United monopolized and attempted to monopolize the engine part repair business in violation of the Texas Free Enterprise and Antitrust Act, the Texas state version of the Sherman Act. Chromalloy sought both damages - actual and statutory treble damages - and permanent injunctive relief to prevent United from engaging in any predatory or exclusionary conduct. United moved to stay the Texas case in favor of the Delaware action, arguing that antitrust claims are generally filed as counterclaims to patent infringement suits if they arise from the same transactions. Chromalloy argued that the state antitrust claim was not a compulsory counterclaim to the Delaware action and different issues were to be litigated in the two cases. The Texas state court denied the motion to stay on September 13, 1995. On August 5, 1996, United filed a motion in limine in the Texas action to prevent Chromalloy from arguing any breach of contract claims during the upcoming Texas trial, arguing that the contract issues had not been pleaded. Chromalloy agreed that it was not seeking to have the Texas court or jury adjudicate any breach of contract claims and did not seek any damages based on breach of contract; Chromalloy contended that it was seeking relief for United's alleged anticompetitive behavior. The court granted United's in limine motion. It limited the discussion of contract issues between the two parties to the voir dire and to the opening statements of the Texas trial.

On August 16, 1996, Chromalloy filed its Third Amended Complaint in the Texas action alleging, among other things, that United was seeking to destroy the engine repair market by "den[ying] Chromalloy approval for a repair based solely on its arbitrary determination that the market . . . was already 'sufficiently served'"; "restricting the availability of categories of drawings and other technical information . . . for use in the repair of parts of the development of new repairs . . ." ¶ 30; "refusing to timely distribute Internal Engineering Notices ('IEN(s)') and other technical information necessary to perform repairs . . ." ¶ 31; "denying approval for new repairs so that Defendant [United] could sell more new spare parts and capture repairs for its own units" ¶ 34; and "imposing or attempting to impose new contracts on . . . repair companies when there were applicable existing contracts and when new contracts were more favorable to Defendant than Defendant's existing contracts which were then in force . . . ." ¶ 35.

In November 1996, following a three-month trial, a jury found that although United did not engage in actual monopolistic conduct, it had attempted to engage in monopolistic conduct. The jury, however, returned a zero damages award. In post-trial motions, the Texas court denied Chromalloy's request for injunctive and mandatory relief which sought, among other things, to enjoin United from withholding technical information necessary to establish and verify the airworthiness of any proposed repair and to enjoin United from not licensing proprietary technology to Chromalloy. Specifically, Chromalloy sought in the injunction to enjoin United from

grant[ing] preferential treatment in its repair businesses to United affiliated entities in connection with (i) developing Pratt Approved Repairs; (ii) obtaining and maintaining approvals for Pratt Approved Repairs, (iii) performing Pratt Approved Repairs, (iv) making available and pricing parts, materials and technical information used for Pratt Approved Repairs. . . .

By definition, Pratt Approved Repairs included repairs that required the use of United's proprietary information. Chromalloy also sought to prevent United from "making a true claim about ownership of its proprietary technology" unless it was accompanied by documentation specifying "the reasonable terms upon which United is willing to license such technology. The Texas trial court's ruling was upheld on appeal. See Chromalloy Gas Turbine Corp. v. United Techs. Corp., No. 04-97-00674-CV (Tex. App. Oct. 14, 1998).

The patent infringement suit filed by United in Delaware proceeded during the course of the Texas antitrust action. On May 15, 1996, Chromalloy submitted its Third Counterclaim in the Delaware action alleging that United had breached the Repair Agreement by failing to provide Chromalloy with updated technical information, particularly IEN's, to perform authorized repairs to authorized parts and by refusing to approve and...