Warner-Jenkinson Co. v. Allied Chemical Corp., No. 76 Civ. 2744.

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Writing for the Court: Donald G. Leavitt, Koenig, Senniger, Powers & Leavitt, St. Louis, Mo., for Warner-Jenkinson Co
• Citation: 477 F. Supp. 371
• Parties: WARNER-JENKINSON COMPANY, a division of the Seven-Up Company, and H. Kohnstamm & Company, Inc., Plaintiffs, v. ALLIED CHEMICAL CORPORATION and Buffalo Color Corporation, Defendants.
• Decision Date: 31 July 1979
• Docket Number: No. 76 Civ. 2744.

477 F. Supp. 371

WARNER-JENKINSON COMPANY, a division of the Seven-Up Company,
and
H. Kohnstamm & Company, Inc., Plaintiffs,
v.
ALLIED CHEMICAL CORPORATION and Buffalo Color Corporation, Defendants.

No. 76 Civ. 2744.

United States District Court, S. D. New York.

July 31, 1979.

477 F. Supp. 372

COPYRIGHT MATERIAL OMITTED

477 F. Supp. 373

Kenyon & Kenyon, New York City, for plaintiffs Warner-Jenkinson Company and H. Kohnstamm & Company, Inc.; Francis T. Carr, Paul Lempel, Edwin Baranowski, New York City, of counsel

Donald G. Leavitt, Koenig, Senniger, Powers & Leavitt, St. Louis, Mo., for Warner-Jenkinson Co.

Patrick J. Joyce, Stamford, Conn., for H. Kohnstamm & Company, Inc.

Fish & Neave, New York City, for defendants; William K. Kerr, William J. Gilbreth, New York City, of counsel.

Battle, Fowler, Lidstone, Pierce & Kheel, New York City, for defendant Buffalo Color Corp.

OPINION

EDWARD WEINFELD, District Judge.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Plaintiffs Warner-Jenkinson Co. ("Warner") and H. Kohnstamm & Co. ("Kohnstamm"), two commercial manufacturers of synthetic food colors, brought this action against defendants Allied Chemical Corporation ("Allied" or "Allied Chemical") and Buffalo Color Corporation ("Buffalo Color"), the patentee and assignee, respectively,¹ of two patents relating to a red food dye known as FD & C No. 40 ("Red 40"), the leading red food color now on the market. This is the second such action commenced by plaintiffs. The first lawsuits were brought against Allied Chemical in January 1972 (and were subsequently consolidated for trial purposes), seeking a declaratory judgment of invalidity, noninfringement, and unenforceability of Allied's patents for Red 40.² Allied counterclaimed for infringement.

After extensive pretrial discovery over a three-year period, during which twenty-seven witnesses were deposed and more than 30,000 pages of documents were produced, the trial commenced before Judge William Conner of this Court, with each side prepared to proceed with an array of fact and expert witnesses. On the second day of trial, after cross-examination of plaintiffs' first witness, settlement negotiations were

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initiated; discussions continued over a period of four months. The settlement reached by the parties provided for a $200,000 payment by plaintiffs to Allied; release of plaintiffs by Allied from all liability for infringement based upon their activities prior to March 1, 1975; release of Allied by plaintiffs from charges of unfair competition prior to March 1, 1975; and the grant to each plaintiff of a manufacturing license by Allied Chemical, with provision for a royalty charge of 17½% of the sales price of all quantities of Red 40 manufactured and sold by plaintiffs. Based on the parties' stipulation, an order was entered on July 23, 1975 by Judge Conner, dismissing the plaintiffs' claims of patent invalidity without prejudice, their unfair competition claims with prejudice, and defendants' infringement claims without prejudice

The instant complaint was filed shortly after another, competing, red food dye was banned by the Food & Drug Administration ("FDA") in February 1976. Plaintiffs again request a declaratory judgment that the Red 40 patents are invalid, unenforceable, and not infringed by plaintiffs and as a consequence further seek invalidation of the licensing agreements, restitution of royalties paid to defendants under those agreements, and damages resulting from defendants' alleged unfair competition subsequent to March 1, 1975. Defendants deny plaintiffs' averments and counterclaim against each plaintiff for patent infringement in the event that plaintiffs are held to be unlicensed because the existing agreements are void. In addition, Allied alleges a counterclaim against plaintiffs for breach of the settlement agreement. After a line-by-line review and study of the 2500-page trial record, the several thousands of pages of exhibits received into evidence, and the Court's daily trial notes, which include a contemporaneous appraisal of each witness and his demeanor, the Court finds that plaintiffs have failed to sustain their burden of proof on the claims asserted in their complaint and, similarly, that defendants have not established their counterclaims.

I

The patents in suit, numbered 3,519,617 ('617) and 3,640,733 ('733), were granted by the United States Patent Office to Allied for an invention, the main object of which was to provide "highly soluble non-toxic monoazo dye combinations which are useful in the coloring of edible substrates."³ "Manifestly, the validity of each of these patents turns on the facts";⁴ background facts bearing on the issues in this case include the history of the food dye industry, the circumstances under which the chemical compositions were synthesized and patented, and the impact of the patent on the industry.

A

At least since the 1880s, the marketplace has recognized the usefulness of artificial color in foods, primarily to correct for natural variations in food color and to make edibles more visually appealing and palatable.⁵ By 1900 most of the food dyes used in this country were synthetic "coal-tar dyes," that is, dyes prepared from derivatives of compounds recovered in the distillation of coal (particularly benzene and naphthalene).⁶

477 F. Supp. 375

Among the most common coal-tar dyes were the simplest — "phenyl-azo-naphthol dyes" having the following general chemical structure:⁷

Such dyestuffs are prepared by diazotizing the "phenyl intermediate" and then bonding it with the "naphthol intermediate," a process in use for over 100 years.⁸

At the turn of the century, Dr. Bernhard C. Hesse, a German dye expert, was retained by the United States Department of Agriculture to investigate the safety of coal-tar dyes. In his classic study, Dr. Hesse described several desired characteristics of coal-tar food dyes: (1) nontoxicity and safety for human consumption; (2) desirable shade and brightness, together with high tinctorial strength; (3) stability of the color when subjected to great heat, light, reducing agents, and acids that are used in the preparation of foods; (4) solubility in water and other liquids; (5) suitability for mixing or blending with other colors; and (6) lack of taste, odor, or other potentially offensive characteristics.⁹ Hesse's research focused on the first desideratum, safety and nontoxicity, and sifted through dozens of coal-tar dyes to select seven that were certified for general food use under the Pure Food and Drug Act of 1906.¹⁰ Hesse's choices — including three red dyes, Ponceau 3R (now known as "Red 1"), Amaranth ("Red 2"), Erythrosine ("Red 3")¹¹ — were made only after extensive physiological testing on dogs, rabbits and humans, since "it has been known since 1888 that it is unsafe to attempt to predict the harmfulness or the harmlessness of coal-tar colors by analogy" to other, chemically similar, dyes.¹²

Accordingly, what the food color industry strives for, and indeed must seek to achieve under exacting statutory standards, is, first and foremost, nontoxicity and safety of the product for human consumption. But to achieve commercial success other properties are also of importance. Between 1907 and 1938, due to industry demand for additional shades and further safety testing, other new colors were added to the approved list. One such dye, now known as "Red 4" (a scarlet color slightly less blue than Red 1),

477 F. Supp. 376

was developed by plaintiff Warner and added to the list in 1929.¹³ At the same time, continued concern over the safety of food colors led to the passage of the Food, Drug and Cosmetic Act of 1938, which made certification mandatory and required toxicological data based on animal tests for continued or new listings of food colors.¹⁴ As of 1951 there were nineteen coal-tar colors authorized for unrestricted food use, after public hearings required by the Act

In the 1950s, however, the FDA, after conducting animal tests to reassess the toxicity of food colors, "delisted," or removed from the certified lists, no less than seven colors. Pursuant to the Color Additive Amendment of 1960,¹⁵ the FDA in 1963 promulgated stringent and detailed regulations outlining the type of experimentation and other data to be submitted to establish grounds for permanent listing of food colors.¹⁶ Concomitant with the FDA's heightened concern over toxicity, the red dye industry faced a "crisis" because of the delistment of Red 1 in 1960 (on the ground that it produced liver damage in test animals) and Red 4 in 1964 (on the ground of adverse pathological findings).¹⁷ The delistments, which considerably narrowed the approved coal-tar additives, created an urgent need in the industry for a bright scarlet food color that could pass the FDA's ever more stringent toxicity tests and that had the vital "application properties" of a good food dye — useful shade and tinctorial strength, stability, solubility, suitability for blends, tastelessness and odorlessness.¹⁸

B

Defendant Allied and plaintiffs Warner and Kohnstamm were in the early 1960s major manufacturers of food dyes, and red dyes constituted a large segment of their business. The crisis in red dyes produced an immediate reaction. In August or September 1964, Raymond Leary, Allied's Food Colors Product Manager, requested the Company's Analytical Laboratory to determine whether "any foreign food reds or any present as well as obsolete D&C or Ext. D&C colors might offer a suitable substitute" for Red 4.¹⁹ The laboratory was unable to find such a substitute, and Leary turned to Allied's Research Department, specifically to Dr. Russell Steiner, a noted organic chemist with substantial theoretical and practical knowledge of coal-tar dye synthesis;²⁰ Steiner selected as his assistant

477 F. Supp. 377

Gustav Rast, a senior dye chemist. The object of their research, which extended over a period of two and one-half...