Warner-Lambert Pharm. Co. v. John J. Reynolds, Inc.

• Decision Date: 16 November 1959
• Parties: WARNER-LAMBERT PHARMACEUTICAL COMPANY, Inc., Plaintiff, v. JOHN J. REYNOLDS, INC., American Bible Society, Susan Hopkins Whitmore, Josephine Hopkins Graeber, Minnie Hopkins Gilbert, individually and as Trustee, and John Graeber, as Trustee, Defendants.
• Court: U.S. District Court — Southern District of New York

178 F. Supp. 655

WARNER-LAMBERT PHARMACEUTICAL COMPANY, Inc., Plaintiff, v. JOHN J. REYNOLDS, INC., American Bible Society, Susan Hopkins Whitmore, Josephine Hopkins Graeber, Minnie Hopkins Gilbert, individually and as Trustee, and John Graeber, as Trustee, Defendants.

United States District Court S. D. New York.

November 16, 1959.

COPYRIGHT MATERIAL OMITTED

Mudge, Stern, Baldwin & Todd, New York City, for plaintiff, Clifton Cooper, H. G. Pickering, Milton Black, Leonard Garment, New York City, of counsel.

Milbank, Tweed, Hope & Hadley, New York City, for individual defendants, Harrison Tweed, William Eldred Jackson, Rebecca M. Cutler, New York City, of counsel.

Hodges, Reavis, McGrath & Downey, New York City, for defendant, John J. Reynolds, Inc., John P. McGrath, Martin D. Jacobs, New York City, of counsel.

Burke & Burke, New York City, for defendant, American Bible Soc., William E. Vogel, New York City, of counsel.

BRYAN, District Judge.

Plaintiff sues under the Federal Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, for a judgment declaring that it is no longer obligated to make periodic payments to defendants based on its manufacture or sale of the well known product "Listerine", under agreements made between Dr. J. J. Lawrence and J. W. Lambert in 1881, and between Dr. Lawrence and Lambert Pharmacal Company in 1885. Plaintiff also seeks to recover the payments made to defendants pursuant to these agreements since the commencement of the action.

Plaintiff is a Delaware corporation which manufactures and sells Listerine, among other pharmaceutical products. It is the successor in interest to Lambert and Lambert Pharmacal Company which acquired the formula for Listerine from Dr. Lawrence under the agreements in question. Defendants are the successors in interest to Dr. Lawrence.

Jurisdiction is based on diversity of citizenship.

For some seventy-five years plaintiff and its predecessors have been making the periodic payments based on the quantity of Listerine manufactured or sold which are called for by the agreements in suit. The payments have totalled more than twenty-two million dollars and are presently in excess of one million five hundred thousand dollars yearly.

All of the defendants move to dismiss the second amended complaint, pursuant to Rule 12(b) (6), F.R.Civ.P., 28 U.S. C.A., for failure to state a claim upon which relief can be granted, or, in the alternative, for summary judgment, pursuant to Rule 56, F.R.Civ.P. In support of the motions for summary judgment defendants rely on the second amended complaint, extensive affidavits and a number of depositions which they have taken during the course of the action. Plaintiff has submitted a number of affidavits in opposition. I will not attempt to pass separately on the motions to dismiss under Rule 12(b) (6), but will address myself to the motions for summary judgment.

As will become apparent from the discussion which follows I find no genuine issue as to any material fact which requires a trial. Such issues of fact between the parties as may exist are peripheral only and are not material to the basic questions to be determined. In my view the defendants, upon the undisputed facts, are entitled to judgment as a matter of law.

The various writings which passed between the predecessors in interest to the parties, and which are the subject of the controversy, are before the court and there is no question as to their authenticity. Those which were not annexed to the pleadings were produced during the extensive discovery proceedings conducted during the course of the action. These proceedings have narrowed the issues considerably.

In the early 1880's Dr. Lawrence, a physician and editor of a medical journal in St. Louis, Missouri, devised a formula for an antiseptic liquid compound which was given the name "Listerine". The agreement between Lawrence and J. W. Lambert made in 1881, and that between Lawrence and Lambert Pharmacal Company made in 1885, providing for the sale of the Lawrence formula, were entered into in that city. Lambert, and thereafter his corporation, originally engaged in the manufacture and sale of Listerine and other pharmaceutical preparations on a modest scale there. Through the years the business prospered and grew fantastically and Listerine became a widely sold and nationally known product. The Lambert Pharmacal Company, with various changes in corporate structure and name which are not material here, continued the manufacture and sale of Listerine and other preparations until March 31, 1955, when it was merged into Warner-Hudnut, Inc., a Delaware corporation, and the name of the merged corporation was changed to Warner-Lambert Pharmaceutical Company, Inc. The plaintiff in this action is the merged corporation which continues the manufacture and sale of Listerine.

Plaintiff's second amended complaint in substance alleges the following:

Prior to April 20, 1881 Dr. Lawrence furnished Lambert with an unnamed secret formula for the antiseptic compound which came to be known as "Listerine", and on or about that date Lambert executed the first of the documents with which we are concerned here. This document, in its entirety, reads as follows:

"Know all men by these presents, that for and in consideration of the fact, that Dr. J. J. Lawrence of the city of St Louis Mo has furnished me with the formula of a medicine called Listerine to be manufactured by me, that I Jordan W Lambert, also of the city of St Louis Mo, hereby agree for myself, my heirs, executors and assigns to pay monthly to the said Dr. J. J. Lawrence his heirs, executors or assigns, the sum of twenty dollars for each and every gross of said Listerine hereafter sold by myself, my heirs, executors or assigns. In testimony whereof, I hereunto set my hand and seal, Done at St Louis Mo. this the 20th day of April, 1881 Jordan W Lambert (Seal)"

On or about May 2, 1881 Lambert began the manufacture of the formula and adopted the trademark "Listerine."¹ The agreed payments under the 1881 agreement were reduced on October 21, 1881 by the following letter addressed to Lambert by Lawrence:

"I hereby reduce my royalty on Listerine from twenty dollars pr gross to twelve dollars pr gross on the condition that a statement of your sales made each preceding month be rendered to me promptly on or before the 10th of each month, and payment of the amount due me on said royalty be made to me or my heirs at the same time. I also hereby waive any demands of royalty on you preceding the 1st of October 1881—"

They were again reduced on March 23, 1883 by a similar letter reading as follows:

"I hereby reduce my royalty on Listerine from ten pr cent on gross amount of sales to six dollars pr gross, the same reduction is hereby made on my royalty on Renalia. Wishing you great prosperity"

Thereafter Lambert assigned his rights to Listerine and other Lawrence compounds to the Lambert Pharmacal Company and this company on January 2, 1885 executed an instrument assuming Lambert's obligations under these agreements with Lawrence and other obligations on account of other formulas which Lawrence had furnished, in the following language:

"J. J. Lawrence of St Louis Mo, having originated & heretofore sold to J W Lambert, the formulae & processes for the manufacture of two medical preparations, known as Listerine and Lithiated Hydrangea, with all the rights & benefits accruing therefrom and has received therefor a monthly royalty from J. W. Lambert, and J. W. Lambert having sold said formulae of Listerine & Lithiated Hydrangea to the Lambert Pharmacal Company, a corporation organized under the laws of the State of Missouri, and doing business in St Louis, and furthermore said J. J. Lawrence having sold to said Corporation his sole & exclusive right to the formulae & processes originated by him for making two preparations called `Dugongol' & Menthated Camphor, therefore know all men by these presents that for & in consideration of these facts, the said Lambert Pharmacal Co. hereby agrees and contracts for itself & assigns to pay to the said J. J. Lawrence, his heirs, executors & assigns, six dollars on each & every gross of Listerine & Lithiated Hydrangea manufactured or sold by the said Lambert Pharmacal Co. or its assigns, and ten per cent (10%) on gross amount of sales of the said Dugongol & Menthated Camphor, and all other goods which said Lambert Pharmacal Co. or its assigns may hereafter manufacture or sell on formulae furnished by said J J Lawrence, account of sales to be rendered & payment of said royalty to be made on the tenth day of each month. In testimony whereof said Lambert Pharmacal Co. has caused these presents to be sealed with its corporate seal and signed by its President & Secretary this second day of January 1885."

The agreements between the parties contemplated, it is alleged, "the periodic payment of royalties to Lawrence for the use of a trade secret, to wit, the secret formula for" Listerine.² After some modifications made with Lawrence's knowledge and approval, the formula was introduced on the market. The composition of the compound has remained the same since then and it is still being manufactured and sold by the plaintiff.

It is then alleged that the "trade secret" (the formula for Listerine) has gradually become a matter of public knowledge through the years following 1881 and prior to 1949, and has been published in the United States Pharmacopoia, the National Formulary and the Journal of the American Medical Association, and also as a result of proceedings brought against plaintiff's predecessor by the Federal Trade Commission. Such publications were not the fault of plaintiff or its predecessors.³

The complaint recites the chains of interest running respectively from Lambert to the present plaintiff and from Lawrence to the defendants, and concludes with a prayer for a declaration that plaintiff is "no longer liable to the defendants" for any...