BAXTER INTERNATIONAL, INCORPORATED, Plaintiff-Appellant, v. ABBOTT LABORATORIES, Defendant-Appellee.
No. 02-2039.
United States Court of Appeals, Seventh Circuit.
Argued Oct. 29, 2002. Decided Jan. 16, 2003.
315 F.3d 829
The record here readily supports the inference that Gabrielle suffered a psychological injury as a result of the harassment, an injury that not only made her reluctant to attend school but ultimately required months of psychotherapy to address. This is more than enough evidence of a “concrete, negative effect” on Gabrielle‘s education to establish a question of fact as to the harm that Gabrielle suffered as a result of the alleged harassment. Neither she nor future victims of schoolplace harassment should be penalized simply because they seem resilient. In fact, there is no telling at this time what damage Gabrielle‘s traumatic experiences might cause her in the years to come.
For these reasons, I join my colleagues only insofar as they conclude that there is insufficient proof of the school district‘s deliberate indifference to the alleged harassment to proceed beyond summary judgment.
R. Mark McCareins (Argued), Winston & Strawn, Chicago, IL, for Defendant-Appellee.
Before CUDAHY, COFFEY, and EASTERBROOK, Circuit Judges.
EASTERBROOK, Circuit Judge.
Baxter International invented sevoflurane in the 1960s. This substance, a gas at room temperature, has good anesthetic properties. But it was too difficult and costly to produce commercially until the early 1980s, when Baxter devised an efficient process for its manufacture. Baxter obtained two process patents, the latter of which expires in December 2005. But the anesthetic gas still could not be sold in the United States unless it first received the FDA‘s approval, and Baxter was not willing to bear the costs of the required medical testing. So in 1988 it granted to Maruishi Pharmaceutical Company, of Japan, an exclusive worldwide license to practice the sevoflurane process patents Baxter owned or was pursuing. Maruishi obtained approval to sell the anesthetic in Japan, where it was a great success, as it has become in other nations since. This suggested that it would be worth obtaining the FDA‘s approval to sell in the United States. Abbott Laboratories took a sublicense from Maruishi in 1992, obtained the FDA‘s approval after spending approximately $60 million on testing, and in 1995 began selling sevoflurane in the United States. Maruishi remains the sole manufacturer under the Baxter patents; Abbott resells sevoflurane that it purchases from Maruishi, which pays Baxter a royalty based on its total sales. Today sevoflurane is the best-selling gas used for anesthesia in the United States, with approximately 58% of sales. Desflurane holds 35% of this market, and isoflurane accounts for almost all of the remaining sales. Isoflurane is not protected by any patent and sells for less, but it is slower in both onset and recovery and has an irritating taste and smell. Desflurane likewise has an annoying smell and aftertaste, though its properties otherwise are comparable to sevoflurane—which therefore has become the anesthetic of choice and commands a premium price.
Sevoflurane‘s success gave rivals an incentive to invent around Baxter‘s process patents. Ohio Medical Associates (now known as Ohmeda) set out in 1997 to do just this. In 1999 Ohmeda obtained a patent for a new way of making sevoflurane, distinct from Baxter‘s process but equivalently cheap and effective. It planned to introduce a rival sevoflurane anesthetic, which it could do by filing a “me too” application with the FDA. Ohmeda could receive approval without costly tests just by showing that the finished product is identical to Abbott‘s.
Before Ohmeda could bring sevoflurane to market, it was acquired (in 1998) by Baxter—which decided to proceed with Ohmeda‘s plans and compete with the sevoflurane made by Maruishi and sold in the United States by Abbott. Baxter concluded that it would make more from selling Ohmeda-process sevoflurane than it would lose in reduced royalties from Maruishi for Baxter-process sevoflurane.
Abbott contended that Baxter‘s sale of Ohmeda-process sevoflurane before the Baxter patents expired would violate the exclusivity term of the license; Baxter replied, first, that the license does not explicitly forbid Baxter itself from competing with Maruishi (in other words, that exclusivity means only that Baxter can not issue any other licenses), and, second, that if the license does forbid Baxter from competing, then it violates U.S. antitrust law, particularly
Baxter argues at length in this court that the Baxter-Maruishi license, construed to keep Ohmeda-process sevoflurane off the U.S. market until 2006, is a territorial allocation unlawful per se under
Arbitrators regularly handle claims under federal statutes. See, e.g., Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (claims under the Securities Act of 1933); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (claims under the Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt Organizations Act); Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974) (international arbitration of claims under the Securities
Mitsubishi did not contemplate that, once arbitration was over, the federal courts would throw the result in the waste-basket and litigate the antitrust issues anew. That would just be another way of saying that antitrust matters are not arbitrable. Yet this is Baxter‘s position. It wants us to disregard the panel‘s award and make our own decision. The Supreme Court‘s approach in Mitsubishi was different. It observed (473 U.S. at 639 n. 21, 105 S.Ct. 3346):
The utility of the Convention in promoting the process of international commercial arbitration depends upon the willingness of national courts to let go of matters they normally would think of as their own. Doubtless, Congress may specify categories of claims it wishes to reserve for decision by our own courts without contravening this Nation‘s obligations under the Convention. But we decline to subvert the spirit of the United States’ accession to the Convention by recognizing subject-matter exceptions where Congress has not expressly directed the courts to do so.
Starting from scratch in court, as Baxter proposes, would subvert the promises the United States made by acceding to the Convention.
According to Baxter, there is a difference between arbitrating an antitrust issue (the subject of Mitsubishi) and creating one—which it accuses these arbitrators of doing. If the tribunal had construed the Baxter-Maruishi agreement differently, there would have been no antitrust problem. Baxter relies on the observation in George Watts that arbitrators are not allowed to command the parties to violate rules of positive law. That‘s true enough, but whether the tribunal‘s construction of the Baxter-Maruishi agreement has that effect was a question put to, and resolved by, the arbitrators. They answered no, and as between Baxter and Abbott their answer is conclusive. This is a point anticipated in Mitsubishi, which observed (id. at 638, 105 S.Ct. 3346): “While the efficacy of the arbitral process requires that substantive review at the award-enforcement stage remain minimal, it would not require intrusive inquiry to ascertain that the tribunal took cognizance of the antitrust claims and actually decided them.” The arbitral tribunal in this case “took cognizance of the antitrust claims and actually decided them.” Ensuring this is as far as our review legitimately goes.
Treating Baxter as bound (vis-à-vis Abbott) by the tribunal‘s conclusion that the license (as construed to provide strong exclusivity) is lawful does not condemn the public to tolerate a monopoly. If the three-corner arrangement among Baxter, Maruishi, and Abbott really does offend the Sherman Act, then the United States, the FTC, or any purchaser of sevoflurane is free to sue and obtain relief. None of them would be bound by the award. As far as we can see, however, only Baxter is distressed by the award—and Baxter, as a producer, is a poor champion of consumers. See Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990); Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977).
What relief the Antitrust Division, the FTC, or a consumer would obtain, if there is an antitrust problem, is an interesting
AFFIRMED
CUDAHY, Circuit Judge, dissenting.
To understand fully why the majority‘s enforcement of this dubious arbitration award is misguided, a brief synopsis of the background material not fully described by the majority is essential. In 1983 and in 1988 Baxter gave options to Maruishi to license patents covering the one-step process of manufacturing sevoflurane. By 1992, when negotiations with Abbott concerning the introduction of sevoflurane in the United States were undertaken, Baxter‘s product and method-of-use patents for sevoflurane had expired. Arbitration Transcript at 675-83 (“Arb.Tr.“). Hence, the only patents that Baxter could license to Maruishi and that Maruishi could in turn sublicense to Abbott were those covering the one-step manufacturing process, which were still in effect. In its negotiations with Baxter, Maruishi considered attempting to obtain a covenant not to compete not only with respect to the one-step process but also as to sevoflurane itself, but instead turned its attention elsewhere. Maruishi concluded that the exclusive license for the one-step process and related intellectual property was “sufficient protection.” See Arb. Tr. at 523-24. The 1992 negotiations with Abbott dealt only with the one-step process. Arb. Tr. at 386-91.
In 1992, when sublicensing to Abbott was negotiated, two distinct sets of agreements were involved in the negotiations. First, there were the Sevoflurane Agreements establishing the terms of the licenses, and granting exclusive rights to Maruishi and to Abbott to manufacture sevoflurane under the one-step patent, to all improvements on the one-step patents and to all technology and confidential proprietary information (“know-how“) acquired during the development of the one-step process. Next, all the parties entered into a Dispute Resolution Agreement (DRA), first, to ensure that in the event of a dispute commercialization of sevoflurane would go forward and, second, to provide a mechanism (arbitration) for
By the late 1990s, Ohmeda had developed and patented a different, three-step process to make sevoflurane suitable to be marketed as a generic drug. Subsequently, Baxter acquired Ohmeda. Faced with the threat of generic competition—always anticipated, but now apparently to be undertaken by Baxter—Abbott sought arbitration. The arbitration panel conceded that the Baxter-Maruishi licensing agreement would not preclude Baxter‘s offering generic competition because this licensing agreement covered only the one-step manufacturing process, which bore no relation to the three-step process. But a two-member majority of the panel found that, under the Dispute Resolution Agreement invoking the Original Commercial Relationship, Baxter‘s proposed sales of generic sevoflurane could be enjoined because they would reduce Abbott‘s revenues below monopoly levels, even though the expectation of generic competition was nothing new. The third member of the arbitral panel (the only American) dissented since he concluded that the arbitrators were not authorized to act independent of the licensing agreement itself. The majority also found a breach of an Illinois state duty of good faith, which the dissenting arbitrator thought specious.
The majority upholds the arbitration award here by declaring that, once the arbitrators have spoken to the antitrust issues and in effect commanded the parties to violate the Sherman Act, the courts have no business intervening. Of course, the doctrine that requires extreme deference by the courts to arbitration awards is based on the theory that the parties to a contract may cede broad, almost unlimited, power to an arbitration panel to interpret their agreement. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); see also IDS Life Ins. Co. v. Royal Alliance Assoc., Inc., 266 F.3d 645, 649 (7th Cir. 2001) (“Within exceedingly broad limits, the parties to an arbitration agreement choose their method of dispute resolution and are bound by it however bad their choice appears to be either ex ante or ex post.“). In fact, the arbitrators function almost as agents of the parties to extend their deal to cover unforeseen circumstances. See E. Associated Coal Corp. v. United Mine Workers of America, 531 U.S. 57, 62, 121 S.Ct. 462, 148 L.Ed.2d 354 (2000) (telling courts to “treat the arbitrator‘s award as if it represented an agreement between [the parties] as to the proper meaning of the contract‘s words.“); EEOC v. Indiana Bell Tel. Co., 256 F.3d 516, 522 (7th Cir.2001) (“The arbitrator acts on their (joint) behalf, with whatever authority the contract bestows. The resulting award is effectively the parties’ joint decision.“). All this rests on the proposition that the parties are free to adjust rights and liabilities among themselves as they see fit and through the instrumentality of arbitration to follow wherever the situation may demand. In this bilateral context a commitment to deference cannot be questioned.
But other considerations enter the mix when the issue becomes a matter of the arbitrators‘, in interpreting a statute, commanding the parties to break the law or to violate clearly established norms of public policy.1 In the case before us, the arbitrators have instructed Abbott and Baxter (by imposing on Baxter a broad covenant not to compete with respect to sales of
For some considerable time not long in the past, the law of the land was that antitrust disputes were not arbitrable. See Am. Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir.1968); Applied Digital Tech., Inc. v. Continental Cas. Co., 576 F.2d 116 (7th Cir.1978). Claims made under the Sherman Act were not merely private claims, but were quasi-public claims designed to protect the rights of consumers and the public at large. Applied Digital Tech., 576 F.2d at 117. Since more than merely the rights of the parties were at issue, the agreement of the parties to arbitrate could not supersede the public‘s presumed interest in a judicial resolution of antitrust claims.
The growing fondness for arbitration, however, eventually eliminated the prohibition on submitting antitrust matters to arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), did not purport to directly overturn the doctrine that domestic antitrust claims could not be arbitrated, but subsequently, the Supreme Court in dicta and most of the Courts of Appeal considering the issue have interpreted Mitsubishi as placing antitrust and other statutory claims within the ambit of arbitration. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (“The Sherman Act, the Securities Exchange Act of 1934, RICO, and the Securities Act of 1933 all are designed to advance important public policies, but, as noted above, claims under those statutes are appropriate for arbitration.“); Seacoast Motors of Salisbury, Inc. v. DaimlerChrysler Motors Corp., 271 F.3d 6 (1st Cir.2001); Kotam Elecs., Inc. v. JBL Consumer Prods., Inc., 93 F.3d 724 (11th Cir. 1996); Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc., 40 F.3d 247 (7th Cir. 1994); Nghiem v. NEC Elec., Inc., 25 F.3d 1437 (9th Cir.1994); Swensen‘s Ice Cream Co. v. Corsair Corp., 942 F.2d 1307 (8th Cir.1991).
The present case is a good example of the extent to which arbitration has come to pervade the legal culture. First, the parties here constructed an elaborate, predispute arbitration agreement that not only served to regulate the licensing agreement itself, but also, in an extraordinary spasm of creativity during the arbitration, generated a new and seemingly boundless cause of action, entirely separate from the license itself, under which the parties could presumably proceed. Then, during the arbitral process, Baxter submitted to the arbitrators the supplemental argument3 that, if the arbitrators pursued what eventually did become their
Now, the majority has taken the process one giant step further and has found that Mitsubishi not only allows submission of statutory and antitrust claims to arbitration, but denies our prerogative to refuse to enforce awards that command unlawful conduct.4 The deciding circumstance, according to the majority, is that the question was put to, and decided by, the arbitrators themselves. Maj. Op. at 832 (“That‘s true enough, [that arbitrators are not allowed to command unlawful conduct,] but whether the construction of the Baxter-Maruishi agreement has that effect was a question put to, and resolved by, the arbitrators.... [A]s between Baxter and Abbott, their answer is conclusive.“). Therefore, under the majority‘s analysis, the rule that unlawful conduct cannot be commanded by arbitrators is consumed by the exception that, if the arbitrators themselves say that what they have commanded is not unlawful, then “their answer is conclusive.”
This cannot be correct. While Mitsubishi and its progeny make clear that the choice of the arbitral forum is to be respected, they do not confer on the arbitrators a prerogative to preemptively review their own decisions and receive deference on that review in subsequent judicial evaluations.5 The majority is way off-base when it says that Baxter seeks merely to have us disregard the panel‘s decision and “throw the result in the waste basket.” Maj. Op. at 832. Instead, we are performing exactly the traditional function of judicial review properly assigned only to us.
Therefore, I do not think we can simply note the arbitration panel‘s resolution of the antitrust issue and consider our work done. Instead, we must fulfill our judicial responsibilities and examine the effect of the outcome commanded by the arbitral award.6 This means that we have to de-
Sometimes, of course, a horizontal restraint is a necessary part of an endeavor that, in the whole, benefits consumers. Nat‘l Collegiate Athletic Ass‘n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 101, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984). That is the claim here—that Abbott would not have undertaken to launch sevoflurane commercially had it not been guaranteed against all competition by Baxter. Yet it is conceded that there was no express covenant not to compete.7 Baxter gave an exclusive license to the one-step process but no guarantee against competition in sevoflurane produced by some other process. The absence of an express covenant not to compete strongly suggests that such a covenant could not have been the sine qua non of Abbott‘s launching sevoflurane in the United States market. The majority unquestioningly accepts the contrary proposition of Abbott, that this broad implied noncompete covenant was “a lawful ancillary agreement designed to induce Maruishi and its sublicensees to make the investments needed to bring the new drug to market.” Maj. Op. at 823. First, as I have already noted, Maruishi has never argued that it needed, or believed it had received, the broad noncompete found by the arbitrators. Second, this statement begs the question of what possible added incentive Abbott could have received from this additional guarantee of monopoly above and beyond the scope of the one-step patent.8 By agreeing to completely exclude itself from any activity in the sevoflurane market that involved the one-step process, the know-how related to the one-step process or any “improvement” on the technology or know-how of the one-step process patents, Baxter relegated itself to a position identical to that of the other potential competitors that were
Arbitration proceedings aside, and given that a covenant not to compete was not essential to Abbott‘s market development, Abbott and Baxter could not lawfully agree to this arrangement without violating the Sherman Act, and I fail to see why a panel of arbitrators, on behalf of the parties, can interpret a prior agreement of these parties to reach the same unlawful result.
It is, of course, not the interests of the parties themselves that are primarily at stake in the outcome of this arbitration. Instead the interest of the consuming public is at stake. That public faces higher prices and a constrained supply of sevoflurane as a result of Abbott‘s monopoly, conferred by the arbitrators. When public rights are at stake, there is good reason to be more reluctant to defer totally to the arbitrators, since they are acting as delegates of the private parties, not of the consuming public. Too deferential an attitude by the courts when the rights of the consuming public are at stake can severely undermine the foundations of our economy. For there can be little doubt that granting Abbott a monopoly to produce sevoflurane in the United States will raise prices and restrict supply. And applying the analysis of the majority to arbitration awards yet to come will open a royal detour around the antitrust laws.
Nor would a denial of the remedy imposed by the arbitrators result in a real loss to Abbott, since Abbott admitted at the arbitration hearing that it had anticipated and planned for generic competition and had specifically anticipated competition from Ohmeda. Arb. Tr. at 323-25; Supp.App. at 19. In fact, Abbott negotiated with Maruishi provisions that would “account[] for the downsides of generic competition.” Arb. Tr. at 323. The purchase of Ohmeda by Baxter produced a windfall for Abbott whereby Abbott was able to manipulate the arbitration to its advantage and escape the competition it had earlier anticipated.
It is not my role to critique the arbitration decision—however flawed—except in this case to object to its anti-competitive outcome, which orders the parties to violate the antitrust laws. The interest of consumers was not represented on the arbitration panel and the panel‘s decision ignored consumer interests. Defense of public interests is sometimes better fulfilled by courts than by arbitration panels.
Nor am I much reassured by the substitute antitrust enforcement possibilities mentioned by the majority. It is conceivable that the Federal Trade Commission
So while I agree with the majority that antitrust claims are arbitrable, and I also agree that the grounds for refusing to enforce an arbitration award are limited, I do not agree that there is support in the law for the majority‘s excision of antitrust arbitration from the general framework of judicial review that prohibits an arbitration panel‘s award from commanding illegal conduct. And in the case before us, the arbitration panel‘s ruling granting Abbott a monopoly in the United States sevoflurane market commands illegal conduct on the part both of Baxter and Abbott and is unenforceable.
I would remand with instructions not to enforce the arbitral award, and I therefore respectfully DISSENT.