*2 Cоngoleum, Man- countries ALDISERT, and VAN Before GIBBONS including the nington, companies, and other DUSEN, Judges. Corpora- Circuit (now Corporation GAF Ruberoid *3 In that tion) Armstrong Cork Co. and the patents covering year two United States THE OPINION OF COURT vinyl and of embossed the manufacture use GIBBONS, Judge. Circuit Congoleum, which products were issued to Mills, (Man- Mannington infringement Inc. immediately Plaintiff commenced ac- (1) nington) judgment Armstrong appeals from final and against Mannington, tions court, a full trial its dismissing, Congoleum after now holds similar Ruberoid. equitable foreign to sales patents contractual and claims in 26 countries. foreign held patents certain under filing of its in- months after the Some (Con- Congoleum Corporation defendant to Man- Congoleum action sent fringement judg- goleum), (2) granting summary and Agreement and Lit- a draft License nington on its seven counts of amended com- ne- igation Serious settlement Settlement. plaint sounding Only in two antitrust. 1968. gotiations began spring in the In pressed counts of the antitrust claim are on position protect competitive as order to appeal. court’s this We affirm district subsequently licensed un- against any firms claims, Mannington’s license dismissal of Mannington Congoleum patents, der the summary grant judgment and the on its in the from the outset to include sought Congoleum arbitrarily and dis- claim that agreement a most favored proposed license criminatorily unpatented denied it access to proposed licensee clause. know how in violation 2 of Sher- § Agree- License of the domestic second draft think, however, man that Man- Act. We clause, which Man- ment contained such a nington’s con- allegation Congoleum in nington ap- redrafted the form which spired certain of its licensees peared agreement. The in the executed Mannington’s foreign to terminate sales li- parties negotiated sepa- simultaneously may be censes states a claim on which relief concerning Agreement Letter rate 1 of the Act. under Sherman § Congole- additional licenses from terms of Mannington yet Because has not had an Mannington um to to sell adequate discovery to conduct opportunity product preliminary countries. A in allega- on the relevant factual issues was submitted draft of tion, grant summary reverse the we May, in April, in Mannington judgment conspiracy claim.1 Mannington of informed Congoleum which it be licensed to
countries in would sell. I. FACTS 22, 1968, Congoleum May 21 and
The facts are stated here
found
On
as
respectively
three
Jer-
executed
district
is a New
court.2
pending
in settlement of
sey corporation
agreements
which has for a number
Agreement
Liti-
litigation:
embossed
the License
years
chemically
manufactured
Salem,
(License
gation
Agreement), a
vinyl
covering
plant
at a
floor
Settlement
(Letter Agreement)
re-
Congoleum
Agreement
New
manufactures
Jersey.
also
Letter
rights vinyl
Prior to
for-
chemically
garding
embossed
tile.
opinion
growing
court on the
appeals
2. The
of the district
Prior
other related cases
reported
dispute
at 197
U.S.Pat.Q.
out of
license claims
the same
between
(D.N.J.1977).
were before
court in Man
Mills,
nington
Congoleum Corp., 595
Inc. v.
Mills,
1979),
F.2d
Industries,
Inc.,
Inc. v.
577 F.2d
(1978) (mem.).
countries,
Agreement
subject
sales licenses
eign
and an
not to
are
Appeal
Jersey
a certain
decision of
New
revocation
either
or Man-
Superior
The last document is not
Court.
nington
giving
upon
“at
time
the other
at issue here.
months’
party аt least six
written notice.”
Agreement
provi-
The Letter
contains no
Agree-
clause of the License
sion
to the most
licen-
gives
comparable
ment3
favored
licensee under the
make, use,
Agreement.
and sell the
see clause
the License
products
States,
licensed
United
1970, Congoleum
Corpo-
and the
GAF
possessions.
territories and
The term “Pat-
pending infringement
ration settled their
Rights”
ent
is defined in Paragraph 1(a) of
make, use,
Congoleum granted
suit.
GAF
Agreement
“rights
(i)
the Let-
licenses,
and sell
under the United States
‘A’,(ii)
set
ters Patent
forth in SCHEDULE
patents for
and its terri-
States
all
extensions
reissues
thereof.”
*4
possessions,
foreign
tories and
and under
only
Schedule A lists
the two United States
patents
foreign
set-
countries. The
patents.
Agreement
The
defines “Licensed
tlement was embodied in two documents: a
covering
Products” as
floor
covered un-
Agreement
Litigation
License
and
Settle-
der
Rights.”
the “Patent
The License
(the
License) and
ment
GAF
a Manufactur-
Agreement provides for a
royalty
six and
Agreement. The
ing
terms of the GAF
percent
one-half
of the net sales price of all
foreign
domestic and
licenses were more
Licensed Products made
or
and used made
favorable than those of the Mannington
and sold under
Agreement,
the
and is ter-
licenses
respects.
roy-
in several
The GAF
only
minable
for cause or at the end of the
alty
percent,
rate was five
one
patents.
life of
and one-half
Paragraph
the
16 of the
Agreement
percent
Mannington’s.
contains the
lower than
most favored licen-
GAF
sought
see clause
by Manning-
given
and drafted
was
the right to sell in six additional
Finally,
ton.4
Agreement speci-
the License
foreign
in
countries which
was
fies that
interpret-
it is to be construed and
Canada, Australia,
not licensed:
New Zea-
ed under New York law.
land,
Ireland,
Japan,
and Holland. More-
over,
foreign
granted
unlike the
licenses
Agreement provides
Letter
in rele-
Mannington,
foreign
GAF’s
licenses
part
were
vant
that Mannington is
licensed
only
terminable
pro-
sell United
for cause. Two other
States manufactured “Licensed
Products” as
visions of the
Agree-
defined
the License
GAF license are relevant
ment
in twenty
foreign
listed
4,6
clause,
countries.5 this
paragraph
grant
action:
thе
grant
dia, Israel, Mexico, Pakistan, Peru,
3. The
Philippines,
clause reads as follows:
Sweden, Switzerland,
Spain,
Turkey,
hereby grants
LICENSOR
and
to LICENSEE
Vene-
RIGHTS, subject
under the PATENT
to the
zuela.
terms,
hereof,
conditions and
limitations
right
non-exclusive
and license to
(a)
hereby grants
6. 4.
LICENSOR
to LICEN-
(i)
use,
make and
and
RIGHTS, subject
SEE under the PATENT
(ii) make and sell
terms,
hereof,
the
conditions and limitations
said LICENSED
PRODUCTS
the United
right
make,
a non-exclusive
and license to
States,
possessions.
its territories and
through-
use
sell
or
LICENSED PRODUCTS
America,
agrees
4.
out the United
LICENSOR
States of
that should it
territo-
hereafter
possessions.
party
a license to a third
ries and
under
(b)
grants
PATENT
hereby
RIGHTS to
and
or
make
use
sell the
LICENSOR
to LICEN-
sell,
LICENSED
on
PRODUCTS
more favorable
SEE a non-exclusive license to
under all
terms or conditions
RIGHTS,
than those extended
Foreign
PATENT
LICENSED
agreement,
LICENSEE under
then LI-
PRODUCT(S)
manufactured
LICENSEE
CENSEE shall be entitled to such more favor-
4(a)
paragraph
under
hereof.
they
able terms and
as of
conditions
the time
(c)
rights
party
are or become effective as to such third
paragraphs
4(a)
(b)
shall run
all
long
they
and for so
as
shall continue to be
subsequent
resales of LICENSED PROD-
so effective.
componеnts
UCTS as such or as
of another
assemblage,
g.,
e. mobile homes.
Argentina, Austria,
Brazil, Chile,
Belgium,
5.
Colombia, France,
Greece,
Germany,
West
In-
more
it was entitled to the
fa-
Agreement
13(b),7a covenant not to sue
paragraph
rights granted to
foreign
The Manu-
its customers.
vorable
the licensee or
argument
gives
rejected
GAF the
Agreement
facturing
GAF.
product
in all
favored licen-
ground
the most
to manufacture
on
licensed sale after
foreign
applied only
countries
to license
see clause
January
patents.
under the United States
27, 1970,
compliance with the
May
meeting
On
July 15
The sense of the
of the License
most favored licensee clause
July
in a
expressed
letter
President, Harry
Agreement, Congoleum’s
Agreement
(hereinafter
License
Pearson,
letter
F.
sent a
Amendment).
Agreement
The License
offering
favorable terms of the
the more
Agree-
the License
Amendment modified
relating
pat-
to United States
GAF License
exceptions
incorporating, with two
alia,
offered,
five
ents.
inter
Pearson
relevant,
Congole-
terms which
not here
rate,
4(a)
percent royalty
paragraphs
May
um had
its letter
offered
4(c)
No mention
of the GAF License.
1970. Because
4(b)
13(b)
paragraphs
was made of
agree
could not
to the effect of
most
rights in
six
agreement,
GAF
favored licensee clause
where
had
countries
rights,
Agreement
Amendment
License
granted rights,
or of
terms of
been
expressly
parties’
concur-
stated
Agreement.
Manufacturing
On
of the license as
rence
modification
July
sent
*5
be construed as
provided therein was not to
Man-
copy
counsel a
of the GAF License.
party
posi-
of its
relinquishment by
a
either
nington’s representatives were not sent a
to
that
In a cover letter
tion on
clause.
Agreement
copy
Manufacturing
Agreement
signed copies
the License
not
did
learn of its existence until a week Amendment,
hope
stated his
that
Williams
before trial.
ground-
had laid the
July
meeting
15th
15,1970, Mannington
July
Congo
On
“possible
agreement” on
work for
future
leum
more
met
to discuss the
favorable
issue,
licensing
and said that
the Canadian
Mannington
terms of the
License.
GAF
if
like
from Pearson
Pear-
he would
to hear
President,
represented
was
by its
H. Arthur
“any
thoughts re-
changе
had
in
son
[his]
counsel,
Williams,
Cifelli,
patent
Thomas
garding the
situation.”
Canadian
counsel, George
and its general
Doub. Con
early
or
the summer
fall
Several times in
President,
goleum
by its
represented
was
private-
met
and Williams
Pearson
counsel,
Pearson,
T.
Richard
Mannington’s
raised
ly,
again
and Williams
counsel,
Laughlin,
general
Ralph
and its
M.
expanded
it
to
for-
claim that was entitled
to
Jerskey. Mannington wished
obtain ex
rights.
indicated that
eign sales
Pearson
he
panded foreign
rights, particularly
license
granting
would not
of additional
consider
rights,
in
Manning-
Canada. Without such
pend-
the then
rights Mannington
to
until
ton
be
feared that would
unable to com
was
ing litigation against Armstrong
set-
pete effectively
Armstrong,
with GAF
tled.
selling in
both of which were
Canada. At
placed
Williams
a
expressed
On November
meeting, Mannington
its de
unavailable,
to
rights
call
Pearson. Pearson
sire for
and took
Canadian
Laughlin.
¶ 16
position
and Williams
instead with
spoke
that under
the License
Agreement
agree
covenants not
and LICENSOR
to
and LICENSEE
that LI-
LICENSOR
respect
coverings
Stipu-
sue
ture,
with
to the manufac-
CENSEE’S floor
identified in
LICENSEE
coverings
through
Appendix
75 of
A of
use or sale of such floor
lated Facts 55
respect
in the
to the
Final Pretrial Order
CONGOLEUM
LICENSEE’S customers with
provid-
coverings,
LITIGATION shall bear at
use or
INFRINGEMENT
resale of such floor
royalty
paragraph
royalty
paid
this
5,
in
time the
rate stated
that a
under
ed
is
to LICENSOR
agrees
agreement
that
and LICENSOR
LICENSEE
such
the terms of this
for
floor
make,
coverings.
and sell
continue to
use
such floor
coverings pursuant
provisions
to the
Laughlin
just
Williams told
that he had
lost
We have no present plan
to
any
distributor,
in
un-
one
and that
additional
sale
Canada
Canadian
he was
embossing patents.
der our chemical
expecting
day
visit
from another
this,
instructing
view of
I
Trea-
am
our
distributor whose business he wanted to
Mills,
surer to refund to
Inc.
keep.
asked
He
if
would alter
Mannington’s
royal-
amount of
recent
grant Mannington
its refusal
to
ty payment
percent.
in excess of five
Laughlin
suggested
Canada.
you previously,
As indicated to
we have
pay
higher
offer
royalty
this matter
continuous
considera-
rate on its Candían sales. Williams then
tion
change
and if
is any
there
indicated
would
have
policy, we
you.
will
in touch with
go
Laughlin
ahead and sell
in Canada.
Congoleum subsequently
roy-
returned the
responded
him,
okay
it was
with
but
alty premium
Thereafter,
Mannington.
implied
obliquely
would sue
royalty
reduced the
paid on
for infringement
give
and would not
Man-
percent,
Canadian sales
five
but until
nington any priority
respect
with
such
July,
report
1972 it continued to
Canadian
litigation.
contemporaneous
A
memoran-
separately.
sales
dum Williams describes his conversation
During
in accord with the License
Laughlin
licensing
as follows:
“a
Agreement,
accounting
firm of Arthur
Congo-
will be reached between
Co.,&
acting
agent
Congo
Andersen
leum
the Armstrong
Industries
Cork'
leum,
reviewed
Ar
records.
Company,
poor
position
because of our
thur
report
Andersen’s
dated
Canada,
Laughlin
Dick
agreed
has
May
“We
stated that:
were in
eyes
more-or-less close his
transac-
personnel
formed by Mannington
Man
tions we
have
the meantime in Canada.”
nington
presently negotiating
to obtain
Subsequently,
reported
Williams
the sub-
products
to sell license
in certain
however,
foreign jurisdictions,
stance
November 5
the License
conversation to
Agreement
Cifelli,
has
been
amended.” This
Laughlin
who called
to inquire if
*6
by Mannington.
cоmment was cleared
Congoleum
changed
had
position
its
with
worksheets
the Arthur
ac
Andersen
respect
expanded
foreign
rights.
sales
responsible
countant
for
the review also
Laughlin
it
January
indicated
had not.
In
report
contain
a
discussion with Man
1971, Williams met with Pearson and re-
nington’s comptroller, as follows: “Amend
request
newed
expanded
his
for
agreement
not clear on sales to
rights.
sales
position
Pearson reiterated his
Mannington
customers.
wants
that
he would
rights
not
additional
Congol.
to sell
has
said
foreign[;]
during
pendency
Armstrong
liti-
yes
Mannington
minor
no—for this
amt
gation, but
stated
he
believed
(old rate).
pay
felt better
6*/2%
Per
settlement was imminent.
[Mannington’s
comptroller] Congoleum la
In
November or
Man-
December
agreed
accept
ter returned check and
5%.
. . ”
nington recommenced sales in Canada.
In
quarterly
royalty report
Congoleum
Agree-
After the execution of the Letter
made in February
Mannington dis-
May 1968,
despite
ment in
and
fact
$7,098
royalties
closed
generated from
so,
it
formally
was not
licensed to do Man-
sales for shipment
to Canada at the premi-
nington
patentеd prod-
continued to sell the
um rate of six and one-half percent, and it
uct
through distributors
in
and
Australia
payment
tendered
in that
By
amount.
let-
Congoleum
New Zealand.
learned of Man-
February 25, 1971,
ter of
Pearson wrote to
nington’s
sales in
and its
Australian
Williams to inform him that
the one and New
Although
Zealand activities in 1970.
one-half percent
royalty premium paid on Mannington had ceased to
in
sell
Canada as
Canadian sales
would
returned.
Pearson
part
negotiations,
of the 1968 settlement
it
stated:
there
Congoleum’s
recommenced sales
with
knowledge in November or December 1970.
II. PROCEEDINGS BELOW
addition,
Mannington commenced sales
Mannington brought this suit in October
Japan
Congoleum
in
in 1972.
learned of
1974, seeking declaratory
injunctive
re-
year.
these activities in the same
Congole-
compel
lief to
the continuation of its for-
um took
against
no action
eign
Congoleum,
license
infringing foreign sales until July 1974.
rights
well as license
in the six additional
By
25, 1974,
letter
July
Congoleum
rights
countries in which license
had
Mannington
notified
of its intent
to termi-
been
plaintiffs
GAF. The
relied
nate the
Agreement,
Letter
effective Janu-
alternatively
(1)
upon:
the mоst favored
31, 1975,
ary
thereby
to revoke all
licensee clause of the
Agreement;
License
Mannington’s foreign
rights.
license
Fur-
(2)
alleged
an
oral license from
ther, Congoleum
advised
Mannington;
(3)
“implied
a license
was aware
selling
fact” from the
parties;
(4)
conduct of the
countries not covered
the Letter
by estoppel;
(5)
2 and 7 of
§§
Agreement
commencing
and that
Septem-
Act.
Sherman
1, 1974,
ber
it would take action
protect
The district court
ordered
severance
its patent
rights in those countries. The
pur-
license and antitrust
for
claims
district court found
can-
poses
discovery
parties
and trial. The
celled Mannington’s foreign
rights
had
discovery
extensive
and a full trial to
because of the receipt of increasing num-
the court on the license claims. On Novem-
complaints
bers of
about Mannington’s in-
11, 1977,
ber
the district court entered an
fringing
licensees,
conduct from its
and be-
order denying plaintiff’s contractual and
cause
feared that
those licen-
equitable
claims to license
in all re-
sees would commence to sell in areas where
spects,
granting
interlocutory
de-
they were not
licensed if
were
claratory judgment on the license claims in
permitted to infringe with impunity. Con-
Congoleum.
favor of
goleum now
infringement
has
pend-
actions
ing against Mannington
Canada,
New
30,1978,
January
On
filed an
Zealand, Australia,
Japan.8
amended
complaint,
which re-
newed
request
injunctive
for
relief and
original
patent
infringement action
sought
the first time
damages
treble
by Congoleum against Armstrong Cork was
violations of
2 of
the Sherman Act.
§§
decided in
favor in February
separate
Several
alleged.
violations were
1972.9 Two related
trials involved
13, 1978,
January
On
Mannington com-
misuses and the use of a new chemical in
discovery
menced
on the antitrust
issues
the embossing process
place
took
in 1973
*7
serving
Congoleum
on
interrogato-
written
Appeals
and 1974.10
of the trial on the
ries
requests
production
and
infringement questions
of docu-
early
extended to
1976,
1975.11 In March
ments. These
on
documents focused on the
the eve of a trial
damages,
relationship
on
Congoleum
settlement
between
and its
was reached
whereby Armstrong
foreign
17, 1978,
paid
licensees.
February
million in
On
$35
damages and accepted
injunction.
Congoleum objected
No
requests
to most of the
license was ever issued to Armstrong.
as
compel
irrelevant. A motion to
dis-
Mannington Mills,
Indus.,
8.
Congoleum
Congoleum
See
Co.,
Inc.
Armstrong
Inc. v.
Cork
Corp.,
1287,
595 F.2d
1290
F.Supp.
(E.D.Pa.1973) (denying
366
220
motion
reopen
record to consider evidence of new
Congoleum Indus.,
Armstrong
9.
Inc. v.
Cork
embossing technique,
finding
Congo-
Co.,
F.Supp.
(E.D.Pa.1972) (upholding
339
1036
patents).
leum had not misused its
validity
Congoleum’s
Patents).
the
of
U.S.
Indus.,
Congoleum
Armstrong
11.
Inc. v.
Cork
Armstrong
Indus.,
Congoleum
Cork Co. v.
Co.,
denied,
(3d Cir.),
Inc.,
covery filed 27, 1978, April granted Agreement’s on March 1978. In most that the License favored 8,000 apply turned over some docu- clause could not licensee therefore 24, Mannington. April foreign rights granted On the sales in the Let- ments to at Alternatively, pretrial Agreement. the district court directed ter it held that hearing, discovery scope the most licen- proceed on of favored because the antitrust clause to the terms of claim. see is limited grantеd which were under 11, 1978, May On filed no- patents, the clause United States did not depositions tices to take on the antitrust licenses, to GAF’s sales extend present issues from ten or former officers granted Congoleum’s for- which were Congoleum, of employees seven eign patents. Because it felt deposed whom had been during clear, meaning of the phase of the case. moved on refused to consider extrinsic evidence court May protective 12 for a order toas parties’ intent. seven, arguing had had full discovery during to them as We that the district court was think phase 15, May case. On concluding error License summary judgment Manning- moved for on Agreement Agreement could Letter ton’s claims. together as a single read instrument. Congoleum agreed postpone hearing negotiated two were documents on the protective motion for a order until simultaneously set part executed after the district court had ruled on the single litigation. tlement of a The Letter summary judgment motion. Agreement explicit makes reference to the 24, July
On hearing, after a Agreement. terms of the Morе License court, district argument, granted over, after oral subject agreements, matter of the Congoleum’s motion summary judgment identical, closely not' On while related. entirety, mooting Congoleum’s issues, thus Agree important several the Letter pending protective motion for a unintelligible order. ment is without reference to Judgment was entered all claims on Agreement, Au- the License which contains the gust 29, 1978, and appeal royalty provisions followed. applicable to both domes licenses,
tic and
as well as the defi
applicable
III.
nition
“Licensed Products”
agreements.
both
These
there
instruments
A. The License Claims
sepa
fore fall within the rule that where
On appeal, Mannington first contends
writings
part
single
rate
are made as
of a
that under the most favored licensee clause
subject
relating
transaction
the same
Agreement
the License
it is entitled to matter,
they may
together
be read
as one
the more
favorable
sales
con-
agreement.12 Schlossman’s, Inc. v. Rad
tained in Congoleum’s subsequent license to
cliffe,
3 N.J.
70 A.2d
Specifically,
GAF.
Mannington claims that
(1950);
Corp.
General Elec. Credit
v. Casti
it has
to sell in the six additional
glione,
N.J.Super.
360 A.2d
nations where GAF was licensed to sell and
(LawDiv.1976). Moreover,
strong
given the
licenses,
its foreign
like those
interdependence
indications
between
*8
GAF,
to
should be
only
terminable
documents,
express
two
of an
absence
cause.
incorporation clause is not decisive. Ameri
The district
rejected
Service,
court
Express
this contention
Rona
can
Co. v.
Travel
grounds. First,
(Ch.
two
Inc.,
it
that
N.J.Super.
held
Mannington argues Congo that nington’s request for extended until gave leum’s conduct rise to an irrevocable after the Armstrong conclusion of the estoppel license in all liti- sell gation. Congoleum countries license to GAF. coun ters by estoppel that doctrine of license аppeal, On this Mannington con is inapplicable to licenses cedes findings the district court’s are
foreign patents,
governed
which should be
support
sufficient
the conclusion that
by foreign law. The district
did
court
not
Mannington
Congoleum
never believed that
applicability
determine
law
had
patents.
“abandoned” its
argues
But it
estoppel
to the
claim because it concluded
findings
support
will
even under
not
its fur
Mannington
domestic law
ther holding
Mannington
was
agree.
entitled
no relief. We
did not be
lieve
Congoleum
“acquiesced”
had
order
establish a
estoppel,
Mannington’s infringement. Mannington
required
prove
was
four ele-
principally upon Congoleum’s
relies
failure
ments:
infringement
bring
against
action
it
(1) infringement;
July
until
more
years
than four
after
(2) knowledge by
patent
owner of the
of Mannington’s
first
learned
infringement;
infringing
undisputed
sales. But it is
(3)
patent
conduct of the
owner which
until 1976 Congoleum
engaged
in a
misleads the infringer into believing
infringement
series of
against
actions
Arm
patent
that the
owner has abandoned
strong.
general
rule is that
patentee
patent
his
or acquiesced
in-
duty
has
bring
no
an actiоn against an
fringement; and
alleged infringer during
pendency
(4)
reliance
infringer
on such con-
another
infringement action on the same
duct.
patent, and that when
infringer
has
Minnesota
&
Mining Mfg. Co. v. Berwick
action,
pending
notice of the
he
not
Indus., Inc.,
F.Supp.
(M.D.Pa.
rely upon any resulting delay as a basis for
1974), aff’d,
532 F.2d
estoppel.
claim of
Hydraulics,
Advanced
trial,
After
judge
the district
ruled that
Co.,
Inc. v. Otis Elevator
525 F.2d
prove
had failed to
it
that was
(7th
denied,
Cir.),
cert.
423 U.S.
96 S.Ct.
at any
actually
time
misled into believing
(1975);
cel sales the federal policies that underlie hearings in spelled greater out in detail at appli- require that the court,13 (1) may laws on occasion the claim was certain district right? Am I each 13. THE I have five licensees out COURT: That’s days MANNINGTON]: clauses FOR [COUNSEL with six months or 90 termination my option option. correct. exercisable at mutual or finally glad guys say guy I understand I’m Four that this THE COURT: come to me and plaintiff claiming. us, get killing you’ve got is him what the Jones is out of stop going the market or we are to have to Manning- holding that district court’s 14. The making widgets go growing peaches. into conspiracy matter of law claim failed as a ton’s you making money And off the four are more would, correct, independent provide if chеaper, him he’s of us than off of because affirming judgment ground below. way. undersells some suggestion concurring opinion’s Thus the say you, today I him off and I I will shut advisory antitrust issue our discussion of the turn the faucet. contrary, unless we were is incorrect. To problem with that? You have real issue, our decision of the antitrust to decide That FOR [COUNSEL CONGOLEUM]: princi- discovery the settled issue would violate well be a violation. normally empow- ple is not that a federal court my top I THE head don’t COURT: Off declare, government of future for the ered to any problem That’s what Mr. have with that. cases, principles cannot rules of law which you respect alleges to the Bain did it. in the case before affect the result foreign countries. *11 Cernuto, pare F.2d at principles pat- cation of normal antitrust to 595 168-69 ent license restrictions be moderated or Corp. Whirlpool Corp., Oreck F.2d 579 alleged the facts entirely. withheld On denied, (2d Cir.) (en banc), 126 cert. 439 case, however, we think that the anti- 946, 340, 338 U.S. 99 58 L.Ed.2d S.Ct. by trust exemption created the district Friedman, (1978). also Harold Inc. v. See broadly court than extends more is neces- Markets, Inc., 127, 587 F.2d 142 Thorofare sаry to that end. We conclude that (3d 1978). Cir. complaint a of action stated cause under the is whether issue then Sherman Act. patent monopolist status as a immunizes We proposition start with the settled anti- this otherwise actionable conduct from when a non-patentee agrees manufacturer question trust attack. Resolution of that with one or more its dealers of or distribu- requires weigh potential injury us to distributor, tors competing to terminate a competition conduct of al- from the kind subject is to antitrust scru- leged by Mannington against the risk tiny. United v. General States Motors application of will antitrust sanctions 127, Corp., 1321, 384 86 U.S. 16 purposes patent system. frustrate (1966); Cernuto, L.Ed.2d 415 Inc. v. United suggests analysis application Our Cabinet Corp., (3d F.2d 164 595 principles antitrust this conduct would pointed Cernuto, As we out dealer in- materially encourage competition without spired may pose terminations serious anti- posing any patent threat to policy. serious competitive presented by risks not a manu- facturer’s unilateral refusal to deal: grant a con invention decision, When marketing a although os- upon patentee fers the successful “the manufacturer, a tensibly by taken is in making, using, from or exclude others fact the pressure result of from another selling throughout the invention the United customer, such a decision must be scruti- years. States” for a term of 35 seventeen closely solely nized more than unilateral purpose U.S.C. 154. The of that § might action be. . . . aWhen man- monopoly provide a limited is to incen own, ufacturer acts its in pursuing on private enterprise tive for re to devote strategy, own market it is seeking to research, sources to innovative to make compete with other manufacturers im- put required investments new inventions posing what be defended as reasona- practice, into to make the benefits of ble vertical restraints. . . . How- the invention available to a public. wider ever, if the of a action manufacturer Areeda, See P. Analysis ¶ 403 Antitrust supplier other is taken at the direction of Turner, 1974); ed. System The Patent customer, restraint pri- becomes 450, Competitive Policy, 44 N.Y.U.L.Rev. marily horizontal in nature in that one 451-54 suppress customer is seeking its compe- licen- imposed upon Vertiсal restrictions power tition utilizing the of a common by patentee, sees a like imposed Therefore, supplier. although the termi- non-patentee distributors, may upon its of- is, itself,
nation in such a situation
useful,
essential,
perhaps
ten be
even
restraint,
vertical
impact
desired
patentee’s
mo-
dealer,
effort maximize the
horizontal and
not the
manufacturer,
nopoly
patent grant
which
level.
income to
Bowman,
entitles him.
W.
See
Patent
595
purpose
F.2d at 168. Where the
Legal
Ap-
Antitrust Law: A
and Economic
effect of such a
prices,
termination is to fix
Baxter,
praisal
(1973);
Legal
54-57
Restric-
Cernuto,
Corp.,
Inc. v.
Cabinet
Exploitation
Monopo-
tions on
of the Patent
168-69,
F.2d at
enforce a group boy-
or to
267,
ly:
Analysis,
An Economic
76 Yale L.J.
cott,
General
Corp.,
United States v.
Motors
(1966). might
argued
It
therefore be
at
agree-
U.S.
86 S.Ct.
encourage
activity
per
ment is
se
In other
inventive
all
illegal.
cases rule of
reason analysis may
appropriate.
be
anticompetitive
Com-
which
restrictions
be threatened.
policies may
should
tant antitrust
net
income
patentee’s
inсrease the
States,
scrutiny. But
Ethyl
Corp.
v. United
immunized from
Gasoline
See
have
among
those who
a consensus
used,
(allocation
controlling jobbers’
(1977)
patentee
as a means
royalty
prices
suppressing competition among
protected by patent
benefits to licensee not
them.”
This scheme
invalid under the
policy); United
v.
States
American Linen
barring attempts by
pat
settled rule
Co.,
Supply
F.Supp.
(N.D.Ill.
141
113
entee to
price
control
resale
patented product. Bauer
& Cie O’Don
cases,
A second line of
more
closely
nell,
1, 16-18,
S.Ct.
L.Ed.
suspect
point, illustrates the
status of pat-
designed
ent license restrictions
to reduce
decision,
A second basis for the Court’s
competition
operat-
at the licensee level and
however,
understanding
reflects
competing
ed for the benefit of
licensees.
relationship
the patent
between
statute and
Co.,
Mfg.
In United States v. Besser
policy
similar
to that outlined
(E.D.Mich.1951), aff’d,
F.Supp. 304
343 U.S.
above. Justice Stone wrote:
(1952),
L.Ed. 1063
to which appellant’s
extent
domin-
making
patent holders on a concrete block
ion
jobbers’
beyond
over the
goes
business
machine
Stearns and
*13
patent monopoly,
its
emphasized by
is
the Besser, the two
firms in
dominant
the ma-
present
circumstances
here
the
manufacturing industry.
chine
The licenses
prices
practices sought
and market
to be provided that no further
be
would
prescribed by
established are not those
patents
under the
without the con-
appellant-patentee,
by
but
the refiners.
sent
both licensees. The court
held
Appellant
pat-
neither owns
the
nor sells
follows:
ented fuel
any profit through
nor derives
We believe that
the contract under
royalties or otherwise from its sale.
It
question goes further than is
necessary
has
exploit
patents by
chosen to
manu-
protect
patent monopoly
the
of Gelbman
facturing the fluid covered
them
by
and
may
and Andrus.
It
well be
by selling that fluid to
refiners
use in
exclusive
party
license to one
be
would
the manufacture of motor fuel. Such
valid, but
patentees
joined
here the
have
benefits as result from
over
control
the
largest competitors
hands
the two
marketing
job-
of the treated fuel
the
industry
terms of their agree-
bers
primarily
accrue
to the refiners and
virtually
impossible
have
made it
indirectly
appellant,
only
enjoy-
for others to obtain
under those
ment of monopoly
of the fluid secured
patents. The
gives
contract even
Stearns
patent.
licensing
another
con-
power
and Besser the
competi-
restrict
ditions are thus not used as a means of
present
by requiring
tion —
future —
stimulating
development
the commercial
joint
their
consent
licensing
before
oth-
financial returns of the
in-
ers.
It is this combination requiring col-
licensed,
vention
is
which
but for the
lective action that primarily invalidates
development
commercial
of the business
agreement.
We believe it clear that
of the refiners and the exploitation of a
parties
intended
contract to
abe
patent
second
monopoly not embraced in
whereby
means
industry
control of the
the first.
acquired
could be
competition
elimi-
458-59,
309
at
U.S.
Because the threat to antitrust substantial, relitigating license case from the issue of injury and the likelihood of remote, patent policy we the reasons for the license termination. conclude that the There, recalled, fact that patentee is a does not it will be the court found claim, discovery conspiracy Manning- on the that the termination had been undertaken unilaterally by Congoleum prevent a re- depositions the Con- ton noticed of ten volt European licensees. The district goleum May on 11. As to of officials seven rejected correctly argument, court officers, request these was immediate- holding the reason for the that since protective ly opposed a motion for “fully litigated termination was not Simultaneously, Congoleum order. filed its necessary judgment” to the in the license summary judgment. motion for action, there findings collaterally his did not conduct, dilatory Congole- As evidence of estop Mannington claiming a con- from points Mannington’s agreement um spiracy had occurred. Haize v. Hanover hearing postpone on the issuance Co, 1976); Ins. 536 F.2d (Second) Judgments protective July Restatement order until 68 § (Tent.Draft Comment c. No. hearing summary judg- on motion for ruled, however, The district court then that ment, depose failure to the three “the discovery trial cross examination protective officers for whom orders were during phase litigation of this sought period during May not between was conducted with sufficient motivation July appears, 15 and far as So determine the circumstances оf that cancel- on postponement hearing the motion lation record considered protective July order until 24 avoided summary view, judgment.” our hearing day extra and allowed simulta- conclusion acceptance amounted to an briefing issues, neous of the relevant thus Congoleum’s collateral estoppel argument working advantage of the court and in a different If form. the conspiracy issue litigants. Until court ruled on that was litigated necessary judg- to the motion, Mannington pro- was barred from action, in the earlier there was no ceeding any discovery against the sev- incentive to discovery conduct full on that employees en officers and defendant Moreover, issue. in view the bifurcation who directly responsible had been for the discovery on the licensing antitrust and claims, licensing appear program defendant’s during it would might successfully discovery issue, have resisted period at testimony and whose on the during issues the first important therefore most in determining *15 phase of reject the case. We therefore the the of circumstances the termination. trial сourt’s view that discovery afford- Moreover, given large number of claims ed phase in the license of the pressed Mannington, and the relation- adequate case was to permit resolution on ship scope between the of the claims assert- summary judgment of anti- scope expense discovery, ed and the of trust claims. surely justified in deciding Congoleum also contends that Man postpone to discovery further of the three nington right waived its discovery to on the peripheral figures more as whom to no or- antitrust claims by failing pursue to dis sought judge der was until the district had covery it an opportunity when had do to so. pared by ruling down the on mo- case But the events in the court district show no summary judgment. tion for Under these dilatory conduct on Mannington’s part. circumstances, Mannington cannot be said sought first the documents rel to discovery have waived its to on the (and evant to conspiracy necessary, claim antitrust claim. well, deposition to effective of the al Mannington’s alleged conspiracy Since leged conspirators) 13, on January 1978. cause of action states а valid antitrust Congoleum strenuously request resisted the claim, since has been denied documents, and did not turn over them opportunity discovery on that 1978, full mid-April until after the court had charge, granting summary judg- ordered the order production. obtaining their After permission judge proceed of the to with must ment on that claim be reversed. Moreover, although summary I note that IV. CONCLUSION judgment sparingly used in com “should be court’s of order portion the district plex litigation,” antitrust Poller v. Colum equitable dismissing the contractual Inc., 464, System, Broadcasting bia 368 U.S. foreign patent licenses and the to claims 486, 491, (1962); 82 S.Ct. L.Ed.2d discriminatory a alleging denial of claim Cernuto, Corp., Inc. v. Cabinet part will be That know-how affirmed. 1979) (emphasis granted summary which F.2d 165 n.2 judg- the order added), plaintiff’s alleged antitrust con- this not mean district does cause spiracy is reversed and the will be judges grant summary should hesitate proceedings remanded for further consist- judgment antitrust cases. appropriate in opinion. ent with this long ago Supreme rejected Court 56(e) “that argument suggesting Rule ALDISERT, Judge, concurring. Circuit should, effect, out in be read antitrust except join majority opinion permit plaintiffs get jury a I cases in extensive discussion contained Part III allegations on the basis in their com 1069-1073, (B), Maj.Op. at of whether hope plaints, coupled with the that some antitrust Mannington stated a valid claim. thing developed way can at trial in the in presented issue properly The sole allegations. support of evidence to grant- whether the court erred section is .’’ First National Bank v. Cities judgment summary conspiracy on the ing Co., 289-90, Service 391 U.S. 88 S.Ct. We hold that while the district issue. court (1968). plaintiff L.Ed.2d 569 A determining err in record did not never a full-dress trial notwith “entitled to evidence before it contained insufficient significant standing pro the absence adverse to withstand an sum- conspiracy a tending support com bative evidence motion, err in ruling it did mary judgment at plaint.” at 88 S.Ct. Id. motion summary judgment before on the wrap Although tendency is a there opportunity depose had fair glitter in the tinsel and litigation employees on the Congoleum officers esotérica, governing legal precepts illegal agreement existence of an possible sophisticated; complexities are not too usu its licensees. Cоngoleum and We between emerge plain ally only when innovative permit discovery reasonable only reverse government prosecutor tiff or contrives a go forward. given precept. pattern factual to fit a case or genuine faced a con- Until Thus, Judge vigorous over dissent record, I troversy established would Freedman, court, banc, upheld a question meet the whether an antitrust Tripoli Co. summary judgment out, in this case can be made not- violation (3d Cir.), F.2d 932 cert. Corp., v. Wella academic withstanding impressive com- denied, 831, 91 27 L.Ed.2d majority. upon by relied To mentary through Judge Gib *16 Speaking upon acknowledge possibility re- bons, “[ejven we an antitrust noted that sup- able to find appellant might mand . . come forward party case must . thing. is one It port for its antitrust claim facts setting specific forth with affidavits however, to thing, another discuss quite genuine issue for showing is a there of an great length, on the basis incom- at 935; Friedman, Inc. v. trial.” Id. Harold at record, possible what result in this plete (3d Cir. Kroger Co., F.2d majority, case should be. Unlike n.14, our Maj.Op. pro- at 1069 I think on specif- here be based nouncement should facts, facts;
ic until we have the com- acknowledge
ment which does more than upon violation possibility illegal ap-
proof conspiracy of an between simply
pellee advisory. and its licensees is