Western Geophysical Co. of America v. Bolt Assoc., Inc.

• Decision Date: 25 October 1969
• Docket Number: Civ. No. 11868.
• Citation: 305 F. Supp. 1251
• Court: U.S. District Court — District of Connecticut
• Parties: WESTERN GEOPHYSICAL COMPANY OF AMERICA, Inc., Plaintiff, v. BOLT ASSOCIATES, INC., Defendant & Third-Party Plaintiff, v. LITTON INDUSTRIES, INC., Third-Party Defendant.

305 F. Supp. 1251

WESTERN GEOPHYSICAL COMPANY OF AMERICA, Inc., Plaintiff, v. BOLT ASSOCIATES, INC., Defendant & Third-Party Plaintiff, v. LITTON INDUSTRIES, INC., Third-Party Defendant.

Civ. No. 11868.

United States District Court District of Connecticut.

October 25, 1969.

William J. Doyle, Wiggin & Dana, New Haven, Conn., for plaintiff and third-party defendant.

Roland T. Bryan, Robertson, Bryan, Parmelee & Johnson, Stamford, Conn., for defendant and third-party plaintiff.

RULING ON PLAINTIFF AND THIRD-PARTY DEFENDANT'S MOTIONS FOR SUMMARY JUDGMENT AND JUDGMENT ON THE PLEADINGS WITH RESPECT TO THE ANTITRUST COUNTERCLAIMS

BLUMENFELD, District Judge.

The facts of this case are set out adequately in an earlier ruling. 285 F.Supp. 815 (D.Conn.1968). To summarize, the case began as an action for breach of two agreements between Western Geophysical Company of America, Inc. (Western) and Bolt Associates, Inc. (Bolt) concerning rights and obligations with respect to a pneumatic acoustical repeater device (PAR), to be used in exploration for natural resources under the sea bottom. The second agreement, which is designated the "exclusive license agreement," provided in essence that Western would receive an exclusive license to use the PAR, that it would use its best efforts to sublicense others, and that it would keep 50% of the royalties paid by the sublicensees to Bolt through Western.

To the breach of contract action, Bolt has pleaded several defenses and counterclaims against plaintiff and against Litton Industries, Inc. (Litton), a Maryland corporation with its principal place of business in California.¹ Some of these defenses and counterclaims allege various violations by Western and Litton of the antitrust laws. For convenience, these will be referred to as the antitrust defenses and antitrust counterclaims.

Western and Litton have moved for summary judgment and judgment on the pleadings with respect to Bolt's antitrust defenses and antitrust counterclaims. A hearing was held and the motions were denied with respect to the antitrust defenses.² At the hearing, it developed that additional affidavits were necessary in order to test the sufficiency of the antitrust counterclaims, and additional time was granted the parties to obtain them. Those affidavits have now been received and a ruling on Western and Litton's motions for summary judgment and judgment on the pleadings with respect to the antitrust counterclaims asserted by Bolt is now in order.

Bolt's Standing to Assert Antitrust Counterclaims

Western and Litton challenge Bolt's standing to assert any of its antitrust counterclaims on the ground that Bolt is not a competitor in the relevant fields of surveying and/or offshore sub-bottom exploration.³ Chief reliance is placed on two cases from the Second Circuit, Productive Inventions, Inc. v. Trico Prods. Corp., 224 F.2d 678 (2d Cir. 1955), cert. denied, 350 U.S. 936, 76 S.Ct. 301, 100 L.Ed. 818 (1956), and, more recently, SCM Corp. v. Radio Corp. of America, 407 F.2d 166 (2d Cir.), cert. denied, 395 U.S. 943, 89 S.Ct. 2014, 23 L.Ed.2d 461 (1969). Defendant Bolt does not agree that these cases are controlling and argues that it does not need to be a competitor to have standing to assert antitrust counterclaims. Moreover, claims Bolt, even if it is a requirement of standing that the claimant be a competitor, it is and has been a competitor in the relevant fields. This latter contention was asserted, somewhat belatedly, at the hearing on these motions.

Affidavits have now been received from both sides. The affidavit of Bernard Luskin, the president of Bolt, is sufficient to support the existence of a genuine issue as to a material fact; namely, whether Bolt is in fact in competition in the fields of surveying and/or offshore sub-bottom exploration. Accordingly, the motion for summary judgment on the issue of standing to assert these counterclaims must be denied.⁴

The Antitrust Counterclaims

Defendant Bolt's antitrust counterclaims are those designated as the second, third, and fourth counterclaims in its answer. The second counterclaim alleges that the concerted actions of Western and Litton violated both Section 2 of the Sherman Act (in that they constituted an attempt to monopolize, an illegal conspiracy, and an illegal combination with the intent to monopolize) and Section 7 of the Clayton Act (in that there was an illegal acquisition of an asset of a corporation, the effect of which would be to substantially lessen competition in interstate commerce and tend to create a monopoly in the relevant market).

Western and Litton contend this counterclaim is legally insufficient on a number of grounds. First, they argue, Bolt is guilty of improper procedure in lumping together in one counterclaim its claims under Section 2 of the Sherman Act and Section 7 of the Clayton Act. This objection is not sufficient to warrant summary judgment or dismissal. Cf. Nagler v. Admiral Corp., 248 F.2d 319 (2d Cir. 1957).

Secondly, they assert that Bolt's claim under Section 2 of the Sherman Act is defective because it does not allege that the dominant position of Western in the relevant market amounts to a monopoly, or that Western or Litton intended to obtain monopoly power by suppression of the PAR, or that the alleged suppression created a dangerous possibility that such monopoly power could be effectuated. In essence, the charge is that Bolt has failed to allege sufficient facts to state a claim. The same kind of objection was raised with respect to defendant's antitrust defense, and was found without merit.⁵ It is equally unavailing here.

The objections to that part of Bolt's second counterclaim which invokes Section 7 of the Clayton Act are more substantial. Initially, the claim is made that no private action exists for violations of Section 7. While there has been some difference of opinion on this question until recently, the issue has now been resolved in the Second Circuit in Gottesman v. General Motors Corp. and E. I. DuPont De Nemours & Co., 414 F.2d 956 (2d Cir. Aug.13, 1969): "We agree * * * that a violation of section 7 of the Clayton Act does furnish a basis for a claim for money damages under the broad language of section 4 of the Act."

Western and Litton argue further that Section 7 does not apply to the agreement of April 16, 1963, by which Western acquired an exclusive license to use the PAR, because that section was not intended to apply to a single acquisition and because no "asset" was acquired by Western under the agreement. These points raise interesting and difficult questions.⁶ However, even assuming that a single acquisition of an exclusive license is within the purview of the act,⁷ I now conclude that Section 7 is inapplicable to the present situation.

Clayton Act Section 7 does not prohibit all asset acquisitions, but only those whose "effect * * * may be substantially to lessen competition, or to tend to create a monopoly." The agreement involved in this litigation, while labeled "exclusive license agreement," specifically required plaintiff Western to use its "best efforts to promote worldwide licensing and use of the licensed apparatus to government and non-profit institutions during the first two years * * * and thereafter * * * to all other possible sublicensees of such apparatus." This obligation to use best efforts to sublicense, which Western was required to assume in order to acquire the exclusive license, and which was an integral part of the acquisition agreement, negatives any possible anticompetitive taint on the acquisition itself and thus removes it from the scope of Section 7 of the Clayton Act.

This is not to say that the exclusive license agreement was not without some possible or potential advantage to Western. Thus, although Western, as exclusive licensee, was obligated to use best efforts to sublicense, it was also entitled to retain 50% of the royalties collected from the sublicensees. Moreover, it is clear that at least part of Western's object in acquiring the exclusive license was, as stated by its vice-president at his deposition, "to recoup any investment that we would have to make before the competition all dived in."

I fail to see, however, how these factors change the essentially pro-competitive nature of the agreement. The PAR was not, apparently, sufficiently tested or developed to be commercially marketable at the time of the agreement. Moreover, similar devices of larger size were contemplated but not yet developed. Additional money and technical expertise, not available through Bolt, were necessary to achieve commercial feasibility of the PAR.⁸ Not until full recoupment of Western's investment was obtained, if ever, would it be possible to evaluate whether Western would receive any share of royalties so preferential as to have an anticompetitive effect.⁹

Defendant Bolt complains of an alleged suppression or conspiracy to suppress the PAR by Western and Litton. But suppression of the PAR or failure to use best efforts to promote worldwide licensing of the device would be, as alleged by Bolt in its first counterclaim, a breach of the exclusive license agreement. The alleged anticompetitive effect stems then, not from the acquisition of the exclusive license, which by its very terms would tend to promote competition, but from a misuse (breach of the agreement to sublicense) of the asset once acquired.¹⁰ Thus, whether or not this alleged suppression materializes into future conduct actionable under some other section of the antitrust laws,...