Petition — Harco Products, Inc. v. Rex Chainbelt, Inc.

~upreme Court, U. &

é FILED

MAR

3 1979

Supreme Court of the United sti RODAK, JR, CLERK

Qe

October Term 1978

HaArco Propucts, INc., dba DFC ComMPAny,

Petitioner,

vs.

REX CHAINBELT, INC.,

Respondent.

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit.

JOSEPH E. MUETH,

WILLS, GREEN & MUETH,

Law Corporation,

700 South Flower Street, Suite 1120,

Los Angeles, Calif. 90017,

(213) 688-7407,

Attorneys for Petitioner.

Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622

SUBJECT INDEX

Page

Citations to Opinion Below ..........................::see++++++ y

gE SS SEES ESS ESA SSE TTT Z

The Question Presented for Review .....................----- 2

The Statutes Involved in This Case .......................... 3

Statement of the Case and Facts Material to Con-

sideration of the Question Presented .................... 3

Ne nn csncenscecceee 3

B. The Matter Raised by This Petition .............. 5

Reasons for Allowance of the Writ .........................- 6

A. The Decision Below Denying Damages Was

Based Solely on Respondent’s Subjective

EES ESE 6

B. The Courts Below Failed to Follow the

“Pattern of Baseless, Repetitive Claims Test”

EOL SESE SEE 6

a. cnusascsecccsnccceces 13

ESTEE App. p._ 1

Appendix B. Judgment After Remand on Remand-

ee ees s scsewecccnecece 2

Supplemental Finding of Fact and Conclusion of

EE 3

cc carrccrcessreccornces 5

ii.

TABLE OF AUTHORITIES CITED

Cases Page

AP v. United States, 326 U.S. 1, 89 L.Ed. 2013

I cerca a Es lemtaaileiibnoaie

Blonder-Tongue Labs. v. University Foundation,

402 U.S. 313, 28 L.Ed.2d 788 (1971) ................

California Motor Transport Co. v. Trucking Un-

limited, 404 U.S. 508, 30 L.Ed.2d 642 (1972)

RP SS RCL SES ESSER ee. Une 2 ea Ret acc

Kobe, Inc. v. Dempsey Pump Co. (C.A. 10, 1952),

198 F.2d 416, cert. den. 344 U.S. 837 (1952)

LecamneeniMieisitincielisiacngiib -ackinstslocebiancntictpkismcsattiouboen 11,

Leitch Mfg. Co. v. Barber, 302 U.S. 458, 82 L.Ed.

PRE i IES sicdastilioschnatecnieseshenneliceacdnasiniseuinonns 8, 9,

Locklin v. Day-Glo Color Corp., 429 F.2d 873 (CA

elastic ihil siaigs cole dchingdincmbenkindvensiadonstie

Paramount Famous Lasky Corp. v. United States,

Bee Uae Foy To Ba, 145 (1990) ....ccccrcrcerrerse-

Picard v. United Aircraft Corporation, 128 F.2d

I NE Uk a iis cascisecuicpusranainnicban

Radovich v. Football League, 352 U.S. 445, 1 L.

SE RR sis ashisialechidaveissesusiecasahassubenstins

Standard Sanitary Mfg. Co. v. United States, 226

eM ee A eG yb ) nn

Straus v. Victor Talking Mach. Co. (C.A. 2, 1924),

ge CSA ESRI PREFS RSE nN CON Cats ie

Switzer Brothers, Inc. v. Locklin, 297 F.2d 39 (CA

Be NG its Ste gic oe ee

12

11

ili.

Page

United States v. Griffith, 334 U.S. 100, 92 L.Ed.

Se CRUD icetentighinibhsiciconsninrsiersedeessttinontin 10, 11

United States v. Socony-Vacuum Oil Co., 310 U.S.

5G, BA RT SE Ce | cateecictinciccentrciens 11

United States v. United States Gypsum Co., 340

RI. Fe BS: Ge Oe CSD -secctncsserecensscctinisntinnnse 11

Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623,

Bm he BS Oe. gs ees ae

Miscellaneous

“Report of the President's Commission on the

Patent System,” U.S. Government Printing Office,

Br. 3D CTDGG) ..-ne.nnsnennrcnccscccescesnneccen snnessoncenseteneses 12

Rules

Rules of Supreme Court of the United States, Rule

OO ccucssadiceeach billed sate seaeketauiaieniaerlnipneteonn 2

Statutes

Clayton Act, Sec. 16 ....................0c.cccceessensesesenseosnses 6

I I, BE ca icnstesckosetitinsscusitncmicncincpsne 1,2, 4, 10

United States Code, Title 15, Sec. 1 .-............... a oe

United States Code, Title 15, Sec. 15 -......... eo Fe

United States Code, Title 28, Sec. lt & Berane 2

United States Code, Title 28, Sec. 2283 0.000000... 6

Textbooks

Borkin, “The Patent Infringement Suit: Ordeal by

Trial,” 17 Chicago Law Review, p. 634 (1950).. 13

Diggins, 53 Michigan Law Review, pp. 1093, 1103

© ID daciieekeon sensi sceenricaowennninnnscenvinipichiitniganniten 12

IN THE

Supreme Court of the United States

October Term 1978

Re eee

HARCO Propucts, INC., dba DFC Company,

Petitioner,

vs.

REX CHAINBELT, INC.,

Respondent.

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit.

Petitioner, Harco Products, Inc., dba DFC Company

prays that a writ of certiorari issue to review the

judgment of the United States Court of Appeals for

the Ninth Circuit which held that petitioner could not

recover damages under the Sherman Act stemming from

respondent’s Rex Chainbelt, Inc., Section 1 violation

(15 USC 1) because respondent had acted in “good

faith” in the belief that it was not violating the antitrust

laws.

Citations to Opinion Below.

The opinion of the Court of Appeals and the finding

of the District Court for the Central District of Cali-

fornia are printed respectively in Appendices A and

B, pages la through 4a hereof. These opinions are

not yet reported.

es. Oe

The opinion of the Court of Appeals follows its

earlier opinion remanding the case to the District Court.

The earlier opinion of the Court of Appeals is printed

in Appendix C, pages 5a through 34a hereof. The

earlier opinion of the Court of Appeals is reported at

512 F.2d 993.

Jurisdiction.

The judgment of the Court of Appeals was entered

on December 11, 1978, and rehearing was denied on

February 2, 1979.

The jurisdiction of this Court is invoked under 28

USC 1254(1).

This petition should be granted under Rule 19 of

this Court since the “Court of Appeals—has decided

a federal question in a way in conflict with applicable

decisions of this Court.”

The Question Presented for Review.

This is a patent-antitrust case, and the Court is

requested to review the following question:

Is a pattern of repetitive patent infringement suits

brought by the owner of a combination patent

against sellers of an unpatented component of

the patented combination which effectuates an un-

lawful tie-in of the unpatented component under

Section 1 of the Sherman Act, “in furtherance”

of the antitrust violation, and if so, is a seller

of the unpatented component who is forced to

defend against such an infringement suit entitled

to recover his litigation expenses as treble damages

under 15 USC 15?

ae

The Statutes Involved in This Case.

15 USC 1—Trust, etc., in restraint of trade illegal;

“Every contract, combination in the form of trust

or otherwise, or conspiracy, in restraint of trade

or commerce among the several states, or with

foreign nations, is declared to be illegal . . .”

15 USC 15—Suits by person injured; amount of

recovery

“Any person who shall be injured in his business

or property by reason of anything forbidden in

the antitrust laws may sue therefor in any district

court of the United States in the district in which

the defendant resides or is found or has his agent,

without respect to the amount in controversy, and

shall recover threefold the damages by him sus-

tained, and the cost of suit, including a reasonable

attorney’s fee.”

Statement of the Case and Facts Material to

Consideration of the Question Presented.

A. Proceeding Below.

Respondent is the owner of United States Patent

No. 2,970,783, the claims of which relate to a rock

crusher comprising several different components, one

of which is epoxy resin which serves to adhere or

join several of the other components. Epoxy resin is,

and long has been, a stable article of commerce general-

ly available and used for divers purposes. Respondent

has always sold epoxy resin under the trademark “Nord-

bak” to various builders and re-builders of rock crush-

ers. Each can of “Nordbak” epoxy resin carried a

“can label license” authorizing the purchaser to use

a

the contents within to make the patented combination

claimed in United States Patent No. 2,970,783.

Some time after the issuance of the patent to respond-

ent in 1961, competing suppliers of epoxy resin to

the rock crusher industry appeared. Respondent sued

each such supplier of epoxy resin for “contributory”

infringement as he appeared, and each suit was settled

either with the competing supplier getting out of busi-

ness or with the competing supplier taking a royalty-

bearing license from respondent for the right to continue

selling epoxy resin.

On December 28, 1971, Petitioner became the fifth

supplier of epoxy resin to be sued for “contributory”

patent infringement by respondent. Respondent counter-

claimed for violation of Section 1 of the Sherman

Act, viz., that respondent’s activities including the sub-

ject contributory patent infringement suit constituted

a tying arrangement in violation of Section 1 of the

Sherman Act. The counterclaim prayed that the costs

incurred by respondent in defending against the

contributory infringement suit be awarded as treble

damages pursuant to 15 USC 15.

After a trial, the District Court held the patent

invalid, and that Petitioner’s use of the patent consti-

tuted an illegal tie-in of epoxy resin and a per se

violation of Section 1. The District Court further held

that respondent’s costs incurred in the defense of the

contributory patent infringement suit could not be re-

covered as treble damages under 15 USC 15.

Appeal was taken to the Court of Appeals fer the

Ninth Circuit which affirmed the District Court except

as to the issue of antitrust damages arising out of

respondent having to defend against the contributory

io oe

infringement suit, 512 F.2d 992, 1003. As to that

issue, the Court of Appeals held that such costs consti-

tuted antitrust damages provided the contributory in-

fringement suit was “in furtherance” of the antitrust

violation. The Court of Appeals also set forth certain

criteria which were to guide the District Court on

remand on that question. These rather inexplicit criteria

appear at pages 1003-1007 of 512 F.2d.

Upon remand to the District Court, further proceed-

ings were held which eventuated in the decision of the

District Court of March 25, 1976, which appears in

Appendiy B. In its decision, the District Court adopted

a totally subjective “good faith” test to determine the

“furtherance” issue.

Respondent’s appeal from that decision resulted in

effirmance by the Court of Appeals, Appendix A.

B. The Matter Raised by This Petition.

This petition involves the proper criteria to be applied

in determining whether a patent infringement suit is

“in furtherance” of an antitrust violation, triggering

the recovery of treble the cost of the defense of such

suit as antitrust damages under 15 USC 15.

All of the other issues including the substantive

antitrust violation by respondent have previously been

finally determined.

Po me

REASONS FOR ALLOWANCE OF THE WRIT.

A. The Decision Below Denying Damages Was Based

Solely on Respondent’s Subjective State-of-Mind.

Respondent submits that the decision of the District

Court on remand is fundamentally and seriously flawed.

The District Court on remand (Appendix B) held that

respondent’s contributory patent infringement suit was

not “in furtherance” of the antitrust violation because

of respondent’s “good faith” and its subjective belief

that its contributory infringement suit was not an anti-

trust violation.

B. The Courts Below Failed to Follow the “Pattern of

Baseless, Repetitive Claims Test”.

The decisions of the District Court and Court of

Appeals below conflict with the decision of this Court

in Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623,

53 L.Ed.2d 1009 (1977).

Lektro-Vend mandates that the legality of suits al-

leged to be “in furtherance” of an antitrust violation

be determined by the “pattern of baseless, repetitive

claims” test. The Courts below completely ignored this

proper test, and instead focused exclusively on respond-

ent’s “good faith” and ignorance of the antitrust law.

In Lektro-Vend, supra, this Court divided as follows:

Three Justices, Rehnquist, Stewart and Powell, ex-

pressed the view that §16 of the Clayton Act did

not qualify under the “expressly authorized” exception

to the Anti-Injunction Act, 28 USC 2283 (1970).

Mr. Justice Blackman joined by the Chie! Justice con-

cluded that although $16 may be an “expressly author-

ized” exception, the lower courts erred in applying

Calijornia Motor Transport Co. v. Trucking Unlimited,

c= ESS

404 U.S. 508, 30 L.Ed.2d 642 (1972), as the courts

could not find that the single state court suit there

involved was part of a “pattern of baseless, repetitive

claims”, 433 U.S. at 643. Mr. Justice Stevens, joined

by Justices Brennan, Marshall and White dissented,

concluding that relief under the antitrust laws was

proper and that the “pattern of baseless, repetitive

claims” test as used in Trucking Unlimited was satisfied.

At least six of the Justices adhered to the “pattern

of baseless repetitive claims” standard of determining

when the use of the adjudicatory process constitutes

an antitrust violation. This test derives from California

Motor Transport Co. v. Trucking Unlimited, supra,

where this Court established a substantially objective

standard, viz.,

“While unethical legislative activity is within the

Noerr immunity, adjudicatory conduct is clearly

subject to antitrust scrutiny. If the conduct is

sufficiently ‘unethical’ or ‘reprehensible’, it may

constitute a sham, and not be immune.”

The emphasis on “ethical” conduct in the articulation

of the “pattern of baseless, repetitive claims” precludes

total reliance on the actor’s subjective knowledge or

lack of knowledge of the law, as occurred in this

case below.

No ethics-based standard can survive if a business-

man is free to alter or obliterate the standard by

simply showing that he did not “know” what he was

doing when he caused the filing of a series of suits

which result in the monopolization of a line of com-

merce. This is not to say that the actor’s state of

mind cannot be a factor. Justice Blackman states in

Lektro-Vend at page 645 of 433 U.S., page 1025

of 53 L.Ed.2d:

®

“In reaching this conclusion, the court looked

to Vendo’s purpose in conducting the state litiga-

tion and to several negative consequences that that

litigation had for respondents.” (emphasis added).

The opinion of Justice Stevens seems to share this

approach. Thus, the question of whether respondent's

pattern of filing infringement suits was in “furtherance”

of the antitrust violation cannot be resolved by an

inquiry which is limited to the actor’s state of mind

or belief. The negative consequences thereof (the elimi-

nation of all competition in epoxy resin used in

crushers ) must be also considered.

The proceedings below in this case were fatally

flawed because of the total failure by the District

Court and Court of Appeals to consider or give any

weight to the “negative consequences” of respondent's

pattern of repetitive infringement suits.

The Court of Appeals aptly describes the “negative

consequences” of respondent’s program of repetitive

infringement suits:

“The record discloses that Rex has had a consistent

program of bringing patent infringement suits

against all other sellers of epoxy resin to be used

as backing material for crushers. In doing so,

Rex has effectively dried up any source of supply

which a crusher user might look to, except for

Rex and its licensees.” 512 F.2d at 1003, Appen-

dix C at page 22a.

The “good faith” test endorsed by the Ninth Circuit

in this case unfairly shifts the cost burden of illegal

tie-ins to the victims and away from the perpetrator.

Ever since Leitch Mfg. Co. v. Barber, 302 US.

458, 82 L.Ed. 371 (1938), contributory infringement

callin

suits against sellers of ordinary unpatented components

of a combination patent have been “baseless” as a

matter of patent law. In Leitch Manufacturing Co.

v. Barber, supra, the Barber Company and the de-

fendant, Leitch Manufacturing Company, were compet-

ing manufacturers of bituminous emulsion. The Barber

Company owned a patent on a process for treating

freshly laid concrete roadways which involved covering

the wet concrete with a film of emulsion to prevent

the rapid evaporation of water. The emulsion was an

unpatented article. The Barber Company sold un-

patented emulsion to road builders for the purpose

of practicing the patented process with an implied

license to practice the patent. The Barber Company

brought suit against a competitor who sold the same

emulsion for the same purpose, on the ground that

such sale was contributory infringement. The result

was obviously to monopolize the sale of all emulsion

used in curing concrete roads.

Mr. Justice Brandeis held that the effect of the

contributory infringement suit was to restrain trade:

“The Barber Company acquired the process pat-

ent sued on and seeks to use it to secure a

limited monopoly in the business of producing

and selling the bituminous material for practicing

and carrying out the patent method. * * * It

adopts a method of doing business which is the

practical equivalent of granting ypitten license

with a condition that the patented method may

be practiced only with emulsion purchased from

it. For any road builder can buy emulsion from

it for that purpose, and whenever such a sale

is made, the law implies authority to practice

the invention. On the other hand, The Barber

— =

Company sues as a contributory infringer a com-

peting manufacturer of this unpatented material

who sells it to a road builder for such use. Thus,

the sole purpose to which the patent is put is

thereby to suppress competition in the production

and sale of staple unpatented material.”

Respondent used its patent “in furtherance” of a

restraint of trade in the sale of its unpatented epoxy

resin to rock crusher users in exactly the same way

as Barber Company used its patent to control the

sale of bituminous emulsion to road builders. Thus,

respondent’s repetitive contributory infringement suits

were baseless and a sham.

The “good faith” test applied below is at odds with

long-standing decisions of this Court. As regards Section

1 of the Sherman Act, its prohibitions cannot:

“be evaded by good motives. The law is its own

measure of right or wrong, of what it permits and

forbids, and the judgment of the Courts cannot

be set up against it in a supposed accommodation

of its policy with the good intention of the parties”,

Standard Sanitary Mfg. Co. v. United States,

226 U.S. 20, 49, 57 L.Ed. 107, 118 (1912).

Also, Paramount Famous Lasky Corp. v.

United States, 282 U.S. 30, 75 L.Ed. 145,

151 (1930).

In United States v. Griffith, 334 U.S. 100, 92 L.Ed.

1236 (1948) this Court said:

“It is sufficient that a restraint of trade or mo-

nopoly results as the consequence of a defendant’s

conduct or business arrangements. United States

v. Patten, 226 U.S. 525, 543, 57 L.Ed. 333,

341, 33 S.Ct. 141, 44 LRA NS 325; United

a

States v. Masonite Corp., 316 U.S. 265, 275,

86 L.Ed. 1461, 1473, 62 S.Ct. 1070. To require

a greater showing would cripple the Act. As stated

in United States v. Aluminum Co. of America

(CCA 2d NY) 148 F2d 416, 432, ‘no monopolist

monopolizes unconscious of what he is doing.’

Specific intent in the sense in which the common

law used the term is necessary only where the

acts fall short of the results condemned by the

Act.”

“Good intentions” are no defense to a consummated

per se antitrust violation, United States v. Socony-

Vacuum Oil Co., 310 U.S. 150, 211, 84 L.Ed. 1129,

1162 (1940); Fashion Originators v. FTC, 312 US.

457, 468, 85 L.Ed. 949, AP v. United States, 326

U.S. 1, 16, note 15, 89 L.Ed. 2013 (1945); United

States v. United States Gypsum Co., 340 US. 76,

95 L.Ed. 89, 100 (1950); and Radovich v. Football

League, 352 U.S. 445, 453, note 10, 1 L.Ed.2d 456

(1957).

Numerous lower courts have held that patent infringe-

ment activities become actionabie under the antitrust

laws where they are performed in furtherance of illegal

conduct, Kobe, Inc. v. Dempsey Pump Co. (C.A. 10,

1952), 198 F.2d 416, 425, cert. den. 344 U.S. 837

(1952); Switzer Brothers, Inc. v. Locklin, 297 F.2d

39 (CA 7, 1961), on damages sub nom., Locklin

v. Day-Glo Color Corp., 429 F.2d 873 (CA 7, 1970);

as well as the soundly’ reasoned dissenting opinion

in Straus v. Victor Talking Mach. Co. (C.A. 2, 1924),

297 Fed. 791 at pp. 808-812.

In Kobe, Inc. v. Dempsey Pump Co., supra, the

defendant’s injuries were caused by prosecution of the

=

infringement suit and although Kobe did not bring

the infringement suit in “bad faith’, at page 424 of

198 F.2d, the Court held that the defendant must be

granted recovery lest patent infringement suits be a

vehicle for maintaining an unlawful monopoly. In Kobe,

the assessment of damages incurred in the defense

of a patent infringement action was allowed under

the Sherman Act in spite of a specific finding that

the principal patent was valid and infringed.

Respondent’s patent infringement suit sought to drive

petitioner out of business in the tied article, epoxy

resin. As one writer has noted, Diggins, 53 Mich.

L.R. 1093, 1103 (1955):

“Patent litigation is notoriously and inevitably ex-

pensive and the mere possibility of an infringement

suit may be enough to maintain tying arrange-

ments.”

The expense of patent litigation has been recently

noted by this Court in Blonder-Tongue Labs. v. Univer-

sity Foundation, 402 U.S. 313, 324, 28 L.Ed.2d 788,

803 (1971), and has been the subject of comment

by the authors of the “Report of the President’s Com-

mission on the Patent System,” U.S. Government

Printing Office (1966) who stated, at page 39, “One

of the most common grievances called to the Commis-

sion’s attention, by all branches of the patent using

community, has been the high cost of patent litigation.”

Judge Frank in Picard v. United Aircraft Corporation,

128 F.2d 632, 641 (CA 2, 1942) referred to one

of the undesirable consequences of patent litigation,

“the expense of defending a patent suit is often stag-

gering to the small businessman. And there is reason

to believe that, unable, for that reason, to defend

ants tale

a threatened patent suit, many persons capitulate to

a well financed patentee without litigating . . .” Also

Borkin, “The Patent Infringement Suit: Ordeal by

Trial,” 17 Chicago Law Review 634 (1950). Here,

respondent had effectively succeeded in obtaining com-

plete control over the sale of epoxy resin to crusher

users through repetitive infringement suits. In the pres-

ent case, respondent had been able to force even sub-

stantial businesses to either become part of the illegal

tie-in scheme or to get out of the epoxy resin business.

To prevent a patentee from maintaining tie-ins through

the means of baseless, repetitive patent infringement

suits, it is essential that the patentee be made to

understand that he may be liable for threefold damages

for any expenses incurred by the victim in defending

against such suits. The pattern of litigation involving

the respondent’s patent since 1961 shows that the nega-

tive consequence of patent infringement actions can

be the enforcement of illegal tie-ins. A necessary de-

terrent to this practice is the imposition of treble dam-

ages based on expenses caused by such suits.

Conclusion.

The petition should be granted.

Respectfully submitted,

JosEPH E. MUETH,

WILLS, GREEN & MUETH,

Law Corporation,

Attorneys for Petitioner.

APPENDIX A.

Order.

United States Court of Appeals, for the Ninth Circuit.

Rex Chainbelt, Inc., Plaintiff, vs. DFC Company,

Inc., Defendant.

Harco Products, Inc., dba DFC Company, Inc.,

Counterplaintiff-Appellant, vs. Rex Chainbelt, Inc.,

Counterdefendant-Appellee. No. 76-2099.

Filed: Dec. 11, 1978.

Appeal from the United States District Court for

the Central District of California.

Before: GOODWIN and SNEED, Circuit Judges, and

SCHWARTZ,* District Judge.

After a review of the briefs and pertinent portions

of the record we find that no reversible error occurred

in the trial court proceedings. The irial court conducted

the inquiry for which we previously remanded this

case and made findings of fact that are not clearly

erroneous. The trial court also properly rejected appel-

lant’s contention that such inquiry was not dispositive

of the issue whether the infringement action was in

furtherance of the conduct previously held to be violative

of the antitrust law. We adhere fully to our position

set forth in our original disposition of this case. Rex

Chainbelt, Inc. v. Harco Products, Inc., 512 F.2d 993

(9th Cir.), cert. denied, 423 U.S. 831 (1975).

We, therefore, affirm the judgment of the trial court.

*Hon. Edward J. Schwartz, United States District Judge,

for the Southern District of California, sitting by designation.

oer, Woe

APPENDIX B.

Judgment After Remand on Remanded Issue.

United States District Court, Central District of Cali-

fornia.

Rex Chainbelt, Inc., Plaintiff, v. DFC Company

(Inc. ), Defendant.

Harco Products Inc., d/b/a DFC Company, Coun-

terplaintiff, v. Rex Chainbelt Inc., Counterdefendant.

No. CV 71-3050-IH.

Filed: March 25, 1976.

In the above entitled case, a judgment was entered

and filed in this Court under date of March 28, 1973.

On appeal from said judgment by a decision which

has heretofore become final, the Court of Appeals

for the Ninth Circuit remanded a single issue to this

Court for decision. Said issue has been decided by

virtue of Supplemental Finding of Fact and Conclusion

of Law After Remand, filed contemporaneously here-

with. The intent of this Judgment After Remand on

Remanded Issue is to reflect and effectuate said Sup-

plemental Finding and Conclusion. In all other respects,

the judgment entered and filed March 28, 1973, remains

in effect.

NOW THEREFORE, IT IS ORDERED, AD-

JUDGED AND DECREED AS FOLLOWS:

1. Defendant-counterplaintiff is not awarded any

damages under the antitrust laws.

2. Defendant-counterplaintiff is not awarded its at-

torney’s fees.

DATED: March 25, 1976.

/s/ Irving Hill

IRVING HILL, Judge

United States District Court

vie, tare

Supplemental Finding of Fact and Conclusion

of Law After Remand.

United States District Court, Central District of Cali-

fornia.

Rex Chainbelt Inc., Plaintiff, v. DFC Company

(Inc.), Defendant.

Harco Products Inc., d/b/a DFC Company, Coun-

terplaintiff, v. Rex Chainbelt Inc., Counterdefendant,

Civil Action No. 71-3050-IH.

Filed: March 25, 1976.

This case came on regularly for hearing before the

Court, Honorable Irving Hill, District Judge Presiding,

sitting without a jury, on March 15, 1976, pursuant

to a remand from the United States Court of Appeals

from the Ninth Circuit, dated February 6, 1975, as

amended March 31, 1975. Joseph E. Mueth appeared

as counsel for the defendant-counterplaintiff, and Lyon

& Lyon and Kinzer, Plyer, Dorn & McEachran by

Alfred H. Plyer, Jr. appeared as counsel for plaintiff-

counterdefendant. The Court having heard argument

of counsel and having examined the evidence offered

by the respective parties, and the cause having been

submitted for decision, and the Court being fully ad-

vised in the premises, makes this Supplemental Finding

of Fact as follows:

FINDING OF FACT

Plaintiff-counterdefendant not only in good faith be-

lieved that its patent was valid, but also believed that

it was not misusing its patent or violating the antitrust

laws

octal tas

From the foregoing fact, the Court concludes:

CONCLUSION OF LAW

Defendant-counterplaintiff is therefore not entitled

to any award of damages.

DATED: March 19, 1976.

/s/ Irving Hill

United States District Judge

APPROVED AS TO FORM:

LYON & LYON and

KINZER, PLYER, DORN & McCEACHRAN

/s/ R. Douglas Lyon

Attorneys for Plaintiff-

Counterdefendant

Disapproved

JULIUS L. RUBINSTEIN &

JOSEPH E. MUETH

/s/ Joseph E. Mueth

Attorneys for Defendant-

Counterplaintiff

ee

APPENDIX C.

Opinion.

United States Court of Appeals, for the Ninth Circuit.

Rex Chainbelt Inc., Plaintiff-Appellant, (Cross-

Appellee) vs. Harco Products, Inc. d/b/a DFC Com-

pany, Defendant-Appellee, (Cross-Appellant). Nos. 73-

2139, 73-2059.

Appeal from the United States District Court for

the Central District of California.

(Filed Feb. 6 1975).

Before: Van Oosterhout,* Barnes, and Hufstedler, Cir-

cuit Judges, Barnes, Circuit Judge:

This action was instituted by Appellant Rex Chain-

belt Inc. in the Federal District Court for the Central

District of California against Harco Products, Inc. for

infringement of Rex’s U.S. Patent No. 2,970,783. Harco

answered the complaint alleging that the patent was

unenforceable because of misuse, and that the patent

was void as being “obvious” under 35 U.S.C. § 103.

Harco also filed a cross-complaint alleging that Rex’s

misuse of its patent and the bringing of this patent

infringement suit constituted a violation of § 1 of

the Sherman Act in that the patented process was

being used to “tie” the sales of an unpatented compo-

nent used in the process.

The district court found that it had jurisdiction over

this contest under both the patent law (28 U.S.C.

§ 1338) and the antitrust law (28 U.S.C. § 1337).

After a trial on the merits, the court found: (1) the

patent in question was void for obviousness under

*Honorable Martin D. Van Oosterhout, Senior Circuit Judge

of the Eighth Circuit, sitting by designation.

a a

35 U.S.C. § 103; (2) If the patent were valid, then

while Harco had not directly (35 U.S.C. § 271a)

or contributorily (35 U.S.C. § 271c) infringed the

patent, they had actively induced others ‘to infringe

on the patent (35 U.S.C § 271b); (3) Rex’s sales

of an unpatented staple commodity (epoxy resin) ac-

companied by an implied (can label) license to practice

the patent constituted a non de minimis tying arrange-

ment in violation of § 1 of the Sherman Act; (4)

that Rex’s tying arrangement also constituted a misuse

of its patent (making the patent unenforceable) which

misuse was not absolved because Rex had for royalties

licensed other manufacturers of epoxy resin to issue

“can label” licenses to practice the patent in question;

and (5) that Harco has shown no damages to it

as a consequence of Rex’s antitrust violation, and was

not entitled to attorney’s fees, although costs were

awarded.

Both Rex and Harco appeal to this court.

Rex appeals from the decision of the court below

holding: 1) that the patent is void for obviousness,

and 2) that Rex’s “can label” licensing program con-

stituted an antitrust violation or a misuse of its patent.

Harco appeals the decision of the district court hold-

ing that they were not entitled under the antitrust

laws to treble the amount of the attorney’s fees which

they had expended in defending against the patent

infringement suit.

I. Validity of Patent

To provide a background with which to view the

arguments as to the validity of the patent. we quote

from Rex’s Statement of Facts, which is, as quoted,

ine, Sa

essentially a conversational version of the facts agreed

upon in the Pre-Trial Order (C.T. 1005-1031).

“The patent in suit is concerned with the art

of gyratory crushers which are used in the mining

and aggregate industry to crush rock, aggregate,

minerals, etc. Rex’s predecessor, Nordberg Manu-

facturing Company, has long been one of the

major manufacturers of cone crushers in the United

States and throughout the world. .. .”

* * *

“A conventional cone crusher is shown in Figure

5 of the ’783 patent, plaintiff's exhibit 1 (herein-

at TR ins ) with material being fed in the

top and passing through a crushing cavity that

flares outwardly and downwardly. The crushing

cavity is defined by an overhanging bowl which

opposes a generally conical head. The head itself

is mounted for gyratory movement within the bowl

so that, as the material being crushed passes

through the crushing zone, it is subject to a series

of nips or impacts causing it to break and fracture

before dropping through the bottom of the machine

(CR 1007, Fact 6).

Crushing takes place between the bowl and

head and each is provided with a removable wear-

taking liner, the upper liner, which is on the

bowl, being referred to as the bowl liner, and

the lower liner, which is on the head, being referred

to as the mantle. The bowl liner and mantle

for many years have been made of manganese

steel which is a tough metal with high wear-

resistant properties. The liner and mantle are often

referred to in the trade as “manganese”. When

either the bowl liner or mantle or both are worn

ili.

out, they are removed and replaced with new

ones (CR 1007, Fact 7). The bowl liner is held

in place by lugs or hooks 35 which project through

openings in the bowl by a locking sleeve 44 and

lock nut 45 (PX 1).

Since crushing impacts are being delivered to the

bowl liner and manile under tremendous force,

it is important that these wearing parts be solidly

supported in the machine and fuliy backed in

solid contact with the bowl and head so that

the crushing impacts will not cause differential

stresses between a fully backed area and an un-

supported adjacent area in one of the wearing

parts. Manganese steel is very difficult and ex-

pensive to machine or grind so the practice has

been to reduce the amount of contact area to

a bare minimum at the bottom, Reporter’s Tran-

script 313, 314 (hereinafter RT ........ ). For years

it has been customary to provide a thin cavity

or space above the contact area between the back

of the liner and mantle and their supporting part,

the bowl and head (CR 1008, Fact 9). Molten

zinc has been poured into this thin space and

allowed to solidify, hoping to obtain a full solid

backing of the wearing part. Thus the practice

has been for over half a century (CR 1008 Fact

10).

Zincing (as the procedure was called) has,

in the best of circumstances, been unsatisfactory

and in the worst, disastrous. Molten zinc has

a number of very serious disadvantages:

1. It is extremely difficult to handle and pour

liquid zinc. Very expensive protective clothing

must be worn by the personnel, and serious burns

om Wes

have resulted from spilling and accidents (RT

102, 103, PX 3a-h).

2. The equipment to melt, handle and pour

molten zinc is very expensive. . . . (RT 104,

PX 3a-h).

3. The zinc shrinks substantially as it solidifies.

Even though the space behind the mantle or liner

may be full of molten zinc, when it solidifies

or freezes, voids will occur due to shrinkage. Stria-

tions and unsupported fissures will appear and

differential stresses will be caused in the man-

ganese during crushing, resulting in early failure

of the wearing parts (RT 105).

4. The continual pounding from the crushing

action and the stretching and twisting of the man-

ganese quite often will cause zinc to powder or

granulate early in the life of a mantle or liner,

referred to in the trade as “powdering out,” which

results in very little, if any, backing during use

of the part which inevitably leads to its early

failure (RT 105).

5. The problem of molten zinc has long existed

in the industry ... (CR 1018, Fact 72).

With the invention of the °783 patent, all of

the disadvantages of zinc have been overcome

and no new difficulties have been encountered.

This patentee was the first to suggest the use of an

epoxy formulation with very little, if any, solidifi-

cation shirinkage as the backing for crushing wear-

ing parts. It doesn’t powder out. . . . It has

now become standard in the industry practically

completely replacing zinc, with other major crusher

and parts manufacturers taking licenses, . . . . The

patented subject matter is in use in every mining

=

country in the world (CR 1011, Fact 33) and

the old zincing procedure is quite limited in the

mining industry and practically non-existent in

the aggregate industry (CR 1014, Fact 44).

Claims 1-6 of the patent cover a two-element

combination, namely a manganese steel wearing

part and a backing portion made of an epoxy

resin formulation with certain physical characteris-

tics. Claim 7 covers a three-element combination,

the above two plus the crusher.” (Rex’s Opening

Brief at 4-6.)

35 U.S.C. § 103, under which the district court held

Rex’s patent invalid reads:

Ҥ 103. Conditions for patentability; non-obvious

subject matter

A patent may not be obtained though the inven-

tion is not identically disclosed or described as

set forth in section 102 of this title, if the dif-

ferences between the subject matter sought to be

patented and the prior art are such that the sub-

ject matter as a whole would have been obvious at

the time the invention was made to a person hav-

ing ordinary skill in the art to which said subject

matter pertains. Patentability shall not be negative

by the manner in which the invention was made.

July 19, 1952, c. 950, § 1, 66 Stat. 798.”

In the leading case of Graham v. John Deere Co.,

383 U.S. 1 (1966), the Supreme Court interpreted

§ 103 so that a decision of obviousness is to be based

on a three step analysis.

“Under § 103, the scope and content of the

prior art are to be determined; differences between

— =

the prior art and the claims at issue are to be

ascertained; and the level of ordinary skill in the

pertinent art are resolved. Against this background,

the obviousness or nonobviousness of the subject

matter is determined. Such secondary considera-

tions as commercial success, long felt but unre-

solved needs, failure of others, etc., might be

utilized to give light to the circumstances surround-

ing the origin of the subject matter sought to be

patented.” (/d. at 17-18.)

We have little difficulty in determining the first

two elements in this test. We have heretofore outlined

the most important facts concerning element one, the

state of the prior art. We now look to the second

element, the difference between the prior art and Rex’s

patent.

The crusher structure of the Cheyette (Rex’s) Patent

is old and well known as can be seen by a comparison

with the Gruender Patent (No. 2,223,956) which was

issued in 1940. Indeed, the only difference between

the two patents is the substitution of an epoxy backing

material for the prior zinc one. (C.T. 1017 #65,

C.T. 1090 #9.)

At the time of the invention of the process (use

of epoxy backing instead of zinc) upon which the

Cheyette Patent was based, the properties of epoxy

resins were well known. (C.T. 1090-91 #10); includ-

ing its ability to impregnate and fill voids, to cure

at low temperatures, to resist impact and mechanical

shock, its low shrinkage, and its extensibility with fillers.

(C.T. 1091 #13.) It should be noted that Rex did

not invent a special type of epoxy resin with special

properties for use in the process. Nordbak (Rex’s com-

=

mercial name for its epoxy resin fofmulation for use

as a crusher backing) is an unpatented combination

of epoxy resin “extended” by several inert “fillers.”

(C.T. 1093-94 ##33, 36, 37.) The Cheyette Patent

does not call for a specific formulation of epoxy resin,

although it does mention that certain fillers may be

used to obtain a variety of results. What the Cheyette

Patent does call for is epoxy resin “having a high

dimensional stability and a modulus of elasticity on

the order of 1-3% of that of steel and a compression

strength on the order of from 8-10 thousand psi.”

(C.T. 1090 #6.) Epoxy resin of such specifications

were well known prior to the Cheyette Patent. (C.T.

1090-91 #10.)

Viewed in light of the prior art, we must determine

whether the substitution of one backing material for

another is patentable, or alternatively, whether it was

obvious “to a person having ordinary skill in the art.”

(35 U.S.C. § 103) (Element three of the Graham

test).

As the Court notes in the Graham case, supra,

at 17, the requirement of nonobviousness as expressed

in 35 U.S.C. § 103 is but a codification of the leading

case on the patentability of substituted materials:

Hotchkiss v. Greenwood, 11 How. (52 U.S.) 248

(1850).

In Hotchkiss the issue was whether the substitution

of clay or porcelain for wood or metal as the bulbous

part of a doorknob was a patentable invention. The

court held:

“(I]n the case before us, the knob is not new,

nor the metallic shank and spindle, nor the dovetail

form of the cavity in the knob, nor the means

ron, ae

by which the metallic shank is securely fastened

therein. All these were well known, and in common

use; and the only thing new is the substitution

of a knob of a different material from that hereto-

fore used in connection with this arrangement.

Now it may very well be, that, by connecting

the clay or porcelain knob with the metallic shank

in this well-known mode, an article is produced

better and cheaper than in the case of the metallic

or wood knob; but this does not result from any

new mechanical device or contrivance, but from

the fact, that the material of which the knob is

composed happens to be better adapted to the

purpose for which it is made. The improvement

consists in the superiority of the material, and

which is not new, over that previously employed

in making the knob.

But this, of itself, can never be the subject

of a patent. Not one will pretend that a machine,

made, in whole or in part, of materials better

adapted to the purpose for which it is used than

the materials of which the old one is constructed,

and for that reason better and cheaper, can be

distinguished from the old one; or, in the sense

of the patent law, can entitle the manufacturer

to a patent.

The difference is formal and destitute of in-

genuity or invention.

* * K

In other words, the improvement is the work

of the skillful mechanic, not that of the inventor.”

(Id. at 265-67.)

We feel that Hotchkiss is controlling of the factual

situation present in this case. See in addition, our deci-

_ |

sion in Griffith Rubber Mills v. Hoffar, 313 F.2d 1

(9th Cir. 1963).

Rex’s principal arguments seeking to distinguish

Hotchkiss and its progeny from the instant case are:

1) Rex’s allegation that the discovery that epoxy resin

wouldn’t “powder out” was an unusual, surprising and

unexpected result, citing: Hewlett-Packard Co. v. Tel-

Design, Inc., 460 F.2d 625 (9th Cir. 1972); and

Great Atlantic & Pacific Tea Co. v. Supermarket Equip-

ment Corp., 340 U.S. 147, 152 (1950); and 2) that

Rex’s process (in the language of the Graham case)

filled a “long felt but unresolved need” in the industry

and was “commercially successful.”

Concerning the first argument, Rex assures us that

it was truly astounded when it learned that epoxy

resin wouldn’t “powder out” when used as a backing

material in crushers. In their brief, Rex amplifies on

this point:

“The ‘synergistic result’ here required by Edoco

Products, Inc. v. Peter Kiewit Sons’ Co., 177

USPQ 418 (9th Cir. 1973) is that an epoxy

formulation backing will not ‘powder out’, a result

totally surprising and completely unanticipated.

Harco (DB 45) dismisses this as merely the

known impact resistance of epoxy resin. But none

of Harco’s evidence, and specifically the exhibits

Harco refers to, teaches that epoxies are known

not to granulate or powder and there is no evidence

that impact resistance has any relationship to gran-

ulation or, as we have termed it, ‘powdering out.’

Impact resistance means a material won't break

when struck. Powdering or granulation goes beyond

that. There is a clear difference between breaking

on the one hand, and disintegration, on the other.

Lots of materials break without distintegrating.”

(Rex’s Reply Brief at 2-3.)

We find Rex’s argument specious. It is true that

a material which breaks may not disintegrate, but the

converse of that statement, and the question before

us, seems hardly true. Given the known impact resist-

ance of epoxy resin, which the court finds and both

parties admit, it certainly was within the ordinary

skill of the art, that from a knowledge that a material

had a high impact resistance one would postulate that

it also would be a very likely candidate not to powder

out.

The very cases which Rex cites in support of their

first argument weighs against them on the facts of

this case. The A & P case, supra, the leading statement

on the law of combination patents states:

“The conjunction or concert of known elements

must contribute something; only when the whole

in some way exceeds the sum of its parts is the

accumulation of old devices patentable. Elements

may, of course, especially in chemistry or elec-

tronics, take on some new quality or function

from being brought into concert, but this is not a

usual result of uniting elements old in mechanics.

This case is wanting in any unusual or surprising

consequences from the unification of the elements

here concerned, ....

Neither court below has made any finding that

old elements which made up this device perform

any additional or different function in the combina-

tion than they perform out of it.

* * 86%

allio,

Courts should scrutinize combination patent

claims with a care proportioned to the difficulty

and improbability of finding invention in an as-

sembly of old elements. The function of a patent

is to add to the sum of useful knowledge. Patents

cannot be sustained when, on the contrary, their

effect is to subtract from former resources freely

available to skilled artisans. A patent for combina-

tion which only unites old elements with no change

in their respective functions, such as is presented

here, obviously withdraws what already is known

into the field of its monopoly and diminishes the

resources available to skillful men. This patentee

has added nothing to the total stock of knowledge,

but has merely brought together segments of prior

art and claims them in congregation as a monop-

oly.” (340 U.S. at 152-53.)

As to Rex’s second argument, apart from the fact

that we could readily dispose of it on the basis of

the contrary finding of fact by the trial court (C.T.

1092 #24), we note that even if we assume that

the epoxy backing did fill a long felt need for crusher

users, this is only an indication, and not a prima

facie demonstration, of invention. As the Supreme Court

said in Anderson’s-Black Rock v. Pavement Salvage

Co., Inc., 396 U.S. 57 (1969):

“A combination of elements may result in an

effect greater than the sum of the several effects

taken separately. No such synergistic result is ar-

gued here. It is, however, fervently argued that

the combination filled a long felt want and has

enjoyed commercial success. But those matters

‘without invention will not make patentability.’

a

A. & P. Tea Co. v. Supermarket Corp., 340

U.S. 147, 153.” (Id. at 61.)

Likewise, Rex’s reliance upon our decision in Reeves

Instrument Corp. v. Beckman Instruments, Inc., 444

F.2d 263 (9th Cir. 1971), cert. denied 404 U.S. 951

(1971), is misplaced. Looking at the Cheyette crusher

as a whole (Cf. Radiator Specialty Co. v. Micek,

327 F.2d 554 (9th Cir. 1964) cert. denied 379 US.

821 (1964)), we see an improved product but not

an innovatively different one. Looking at the problem

of finding a suitable means for handling the internal

stresses in crushers, in substituting epoxy for zinc we

see the development and refinement of an old concept

(i.e. a backing material) but not an inventive or new

approach to the problem.

In sum, the record discloses ample evidence to sup-

port the district court’s finding that Rex’s patent was

void for obviousness under 35 U.S.C. § 103.

II. The Antitrust Violation and Patent Claims

We next review the district court’s determination

that Rex’s label licensing program constituted a tying

arrangement, per se violative of § 1 of the Sherman

Act, and consequently, a misuse of its patent. (Cf.

Ansul Co. v. Uniroyal, Inc., 448 F.2d 872, 879-81

(2d Cir. 1971), cert. denied 404 U.S. 1018 (1972).)

We agree with the court below that it did.

The findings of the court below relevant to this

portion of the appeal are quoted in the margin."

1(C.T. 1094-98)

(Findings as numbered)

“34. Epoxy resin with additives of the type involved in

this case, as exemplified in “Rockfill” and “Nordbak” is a staple

article of commerce having substantial non-infringing uses.

* * *

(This footnote is continued on next page)

ou] §.

Rex sells its unpatented epoxy crusher backing ma-

terial (Nordbak) with a “can label” license authorizing

the purchaser thereof to use the contents in the practice

of Rex’s Cheyette Patent No. 2,970,783. Rex has never

38. Plaintiff-counterdefendant sells, and since at least April

28, 1960, has sold “Nordbak” epoxy resin to crusher users

with directions for using the same in the practice of United

States Letters Patent No. 2,970,783, and an implied license

under said patent has accompanied the sale of every can of

“Nordbak.” “Nordbak” is sold with the instructions and direc-

tions as shown by Plaintiff's can labels and brochures for using

the backing material int he practice of the alleged invention

claimed in United States Letters Patent No. 2,970,783. Plaintiff

does not identify or otherwise specify any portion of the sales

price of the epoxy sold under the name “Nordbak” as being

a royalty and it does not demand payment of royalties from

hasers of backing material sold under the name “Nord-

ak” or otherwise require an accounting to it for the practice

of the alleged invention covered by said patent.

39. Plaintiff-counterdefendant has brought actions for in-

fringement of Patent No. 2,970,783 against each supplier of

epoxy resin products competing with “Nordbak,” which actions

have resulted either in a settlement and a license to the competi-

tor, or the competitor’s stopping competitive sales.

40. Each of the Plaintiff's licensees sells epoxy resin to

crusher users under circumstances which imply a license under

Patent No. 2,970,783 with every can of epoxy resin sold.

41. Defendant began selling its epoxy resin under the name

“Rockfill” in 1970 and since that time Plaintiff and Defendant

have been direct competitors in the sale of epoxy resin to

crusher users.

42. Prior to the filing of the present action, Defendant re-

quested a license under Patent No. 2,970,783 from Plaintiff.

Plaintiff did not offer defendant a license under Patent No.

2,970,783 until after the filing of Defendant’s antitrust counter-

claim herein, and then offered a license at a royalty rate four

times greater than the royalty rate provided in the Plaintiff's

other licenses.

43. The sales of “Nordbak” with said implied license to prac-

tice Patent No. 2,970,783 constitute tying contracts between

Plaintiff and crusher users buying ‘“Nordbak” from it.

44. The tying item is the right to practice Patent No. 2,970,-

783 which accompanies each can of “Nordbak.” The requisite

economic power in the tying item is provided by the purported

Patent No. 2,970,783.

(This footnote is continued on next page)

=

issued a direct license (i.e., one apart from the can

label license) to a crusher user to practice the patent,

and Rex has no company policy in connection with

the issuance of such licenses. (C.T 1017 #62).?

45. The tied item is epoxy resin, and the relevant market

and line of commerce herein affected is the national market

in epoxy resin.

46. The sales of “Nordbak” epoxy resin to crusher users

in the above-described manner have been substantial, exceeding

Five Hundred Fifty Thousand ($550,000) Dollars in 1971.

47. The effect of Plaintiff-counterdefendant’s tie-in sales of

“Nordbak” with an implied license and its infringement actions

has been to restrain trade and to substantially lessen competi-

tion in the sale of epoxy resin to crusher users in violation

of Section 1 of the Sherman Act, Section 1, Title 15, United

States Code.

48. Defendant is entitled to an injunction against the contin-

uation of said antitrust violation pending the within adjudication

of the invalidity of the patent in suit becoming final. When

the said finding of invalidity becomes final, no further injunction

will be required. If Patent No. 2,970,783 is later found to

be valid, Defendant shall be entitled to a permanent injunction.

49. Plaintiff by its use of Patent No. 2,970,783, as set

forth in Findings 31-47, has misused said patent, rendering

the patent unenforceable.”

*Rex is correct in its contention that the fact that no one

has yet asked them for a direct license (and consequently

no one was refused one) is evidence that there is no economic

tying effect or misuse present. Federal Sign & Signal Corp.

v. Bangor Punto Op. Inc., 357 F.Supp. 1222 at 1240 (S.D.

N.Y. 1973); Ansul Co. v. Uniroyal Inc., 306 F. Supp. 541,

562-63 (S.D.N.Y. 1969) 448 F.2d 872 (2d Cir. 1971), cert.

denied 404 U.S. 1018 (1972); however, it is not conclusive

of the point. It is merely one factor to be considered by

the district court. E.g.:

“At the oral argument it seemed to me that the method

of business adopted by the plaintiff in the case at bar

could not be considered objectionable in the absence of

a finding that the plaintiff had refused or would refuse

to grant an unrestricted license to any shoe manufacturer

who chose to buy from some other source the materials

used in reinforcing the insoles by the patented process.

That is, if the plaintiff is prepared to grant an unrestricted

license on a royalty basis to any shoe manufacturers who

prefer to obtain the unpatented precoated duck and top

coat elsewhere, it is difficult at first blush to see how

(This footnote is continued on next page)

sli indie

Given the fact that the label license is the only

apparent way that a crusher user can obtain a license

to exercise the Cheyette process, and because no other

licensing program for the patent was visibly available,

we have little difficulty in holding that there was suffi-

cient evidence from which the trial judge could conclude

that a tying agreement was implicit in the label license

(C.T. 1094-95 #40) and that such an agreement

constituted a misuse of the patent. See Leitch Mfg.

Co. v. Barber Co., 302 U.S. 458 (1938); B. B. Chemi-

cal Co. v. Ellis, 314 U.S. 495 (1942).

This court in Stearns v. Tinker & Rasor, 252 F.2d

589 (9th Cir. 1957), cert. denied 350 U.S. 830 (1955),

long ago noted in the patent misuse context:

“{18] The mere fact that an owner of a patented

article combines the article with an unpatented

article and sells or leases the unit as a whole

does not per se prove misuse. The holder of a

patent can exploit his legally protected monopoly

in the patent as best he sees fit, so long as in doing

so he does not restrain competition in the unpat-

ented article. Probably the best way for an owner

the plaintiff would be doing anything wrong in furnishing

the unpatented materials and incidental services at so much

per web yard of duck to those shoe manufacturers who

prefer to do business with the plaintiff on that basis. But

this point was urged in Leitch Mfg. Co. v. Barber Co.,

supra, and it was pointed out in the plaintiff's brief before

the Supreme Court that the plaintiff was ‘not shown to

have refused to grant any license under the patent, much

less granted any license conditioned on purchase of emulsion

from it.’ The argument was to no avail. The court con-

sidered it sufficient to condemn the plaintiff's method of

doing business, that, as matters stood, no road contractor

had a license to practice the patented process except those

contractors who bought their bituminous emulsion from

the plaintiff.”

B. B. Chemical Co. v. Ellis, 117 F.2d 829 at 838 (1st Cir.

1941) (Magrager, C.J. concurring, aff'd 314 U.S. 495 (1942).

= ee

of such a patent to protect himself from a charge

of misuse would be to offer or stand ready to

offer the patented item alone.'®”

Footnote 13. “If 35 U.S.C.A. § 271 is appli-

cable, perhaps the owner need not even offer

or stand ready to sell the unpatented article.

This would be where the unpatented part is

a non-stable material part of the invention,

which is not capable of substantial non-infring-

ing uses.” (Jd. at 604.)

A patentee, such as appellant, who does not affirma-

tively offer, or express a willingness to offer, a licensing

program from the label license attached to a staple

article of commerce,” runs the risk that the court may,

in conjunction with the particularized evidence in the

case, conclude that a tying arrangement is implicit,

and that a misuse of the patent has occurred. Our

holding is certainly not intended to rule out or otherwise

affect the certain narrow “packaging” “component” or

“total product” justifications previously enunciated by

the courts for certain marketing techniques which may

appear to have the technical appearance of a tying

arrangement without the economic coercion. See, e.g.,

United States v. Jerrold Electronics Corp., 187. F. Supp.

8There is ample evidence in the record to support the district

court’s finding that Nordbak was a staple commodity. It is

well settled that the mere addition of extenders to a staple

article does not make the article non-staple. Dr. Salsbury’s

Laboratories v. 1.D. Russell Co., 212 F.2d 414 (8th Cir. 1954),

cert. denied 348 U.S. 837 (1954). There the court held that

the addition of other dilutive ingredients to a staple article

of commerce does not cause the article “to lose its characteristics

as a common raw material.” (p. 417) This is particularly

true here since the extenders are not “Components” of the

invention. The epoxy resin present in ‘“Nordbak” is the only

component of the patent at issue and that is a staple article

of commerce.

—

545 (E.D. Penn. 1960), aff'd 365 U.S. 567 (1961).

We merely indicate that any patentee who sells the

patented item only in conjunction with some other un-

patented staple goods raises serious suspicions of tying

behavior and misuse. The users of such marketing

programs bear a heavy burden in overcoming this suspi-

cion and in bringing themselves within one of the

aforementioned justifications. Additionally we note, that

as in the instant case, where there has been a factual

determination by the trial court that such an arrange-

ment is indeed coercive tying, that determination will

not be easily reviewable, nor likely to be reversed,

in this court.

The record discloses that Rex has had a consistent

program of bringing patent infringement suits against

all other sellers of epoxy resin to be used as backing

material for crushers. In doing so Rex has effectively

dried up any source of supply which a crusher user

might look to, except for Rex and its licensees.* (C.T.

1094 #39.)

Admittedly, Rex has acted attendant to a bona fide

belief that it was done in protection of their patent,

but the effect upon the tied market has been to restrain

commerce in epoxy resins nonetheless. Tying is still

a per se violation of § 1.

In short, Rex has exercised the market power attend-

ant to its rights under the Cheyette patent (the tying

4Rex’s licensees are producers of epoxy resin whom Rex

has in the past sued for contributory infringement and with

whom it has settled. This is further evidence of the effect

upon the tied market. Rex has in effect achieved the result

that it is licensing its licensees to produce epoxy resin for

_ use in its patent process. That is, part of the royalties are

derived not from the right to practice the patent, but rather

from the right to sell unpatented epoxy resin (the tied product).

'

it.

product) in the epoxy resin market (the tied product).

Such power is significant and the amount of commerce

atfected is not de minimis.

The facts in this case are controlled as to its antitrust

aspects by /nternational Salt Co., Inc. v. United States,

332 U.S. 392 (1947); and as to the patent misuse

claim by Leitch Mfg. Co. v. Barber Co., 302 US.

458 (1938).

The district court did not err in holding that Rex’s

can label licensing program violated §1 of the Sherman

Act, and constituted a misuse of its patent.

III. Attorney's Fees

We turn now to Harco’s appeal from the district

court’s holding that Harco could not recover as part

of treble damages under the antitrust laws, the attorney’s

fees which it incurred in defending against the patent

infringement action brought by Rex.

The holdings of the court below, as stated in its

findings of facts and conclusions of law (C.T. 1089-

98), which are relevant to our consideration of this

issue, are quoted in the margin.°

5(C.T. 1072, 1096-86)

(Findings as numbered)

“27. Assuming the patent were valid, then Defendant has,

by its bulletin for epoxy resin sold under the name “Rockfill,”

and its can labels actively induced Livingston-Graham Inc.,

a purchaser of said epoxy resin from Defendant, to directly

infringe U.S. Patent No. 2,970,783. Defendant has actively

induced infringement under Section 271(b), Title 35, United

States Code.

* * *

50. Defendant has failed to meet its burden of proof that

it has been damaged by plaintiff's antitrust violation. There

is no credible evidence that defendant has been damaged by

plaintiff's conduct up to this time. There is no credible evidence

that defendant has lost any customer or failed to gain any

(This footnote is continued on next page)

—

Harco was unable in the court below to produce

any credible evidence that it was damaged by Rex’s

antitrust violation (tying). Indeed, Harco concedes this

point on appeal (Harco’s Brief at 4). However, Harco

urges that the bringing of the infringement action by

Rex is per se an action in furtherance of the tying

situation and hence under 15 U.S.C. §15 there would

exist damages (i.e. the costs of defending against the

patent infringement suit) for which Harco should be

allowed to recover three fold the amount. In support

of this proposition Harco cites: Kobe v. Dempsey Pump

Co., 198 F.2d 416, 424-25 (10th Cir. 1952), cert.

denied 344 U.S. 837 (1952); Hazeltine Research, Inc.

v. Zenith Radio Corp., 388 F.2d 25, 35 (7th Cir.

1967), aff'd in part, rev'd in part, 395 U.S. 100

(1969); Clapper v. Original Tractor Cab Co., 270

F.2d 616, 623-24 (7th Cir. 1969), cert. denied 361

other customer that it could have reasonably expected to gain,

because of any act of plaintiff. There is no evidence that

plaintiff has sued or even threatened to sue any customer or

potential customer of defendant.

51. This is neither an extraordinary nor an exceptional case,

and defendant is not entitled to recover its attorney’s fees under

either the antitrust or patent aspects of the case. Plaintiff has

not been guilty of bad faith or inequitable or unconscionable

conduct in the prosecution of the action.

52. Defendant is entitled to recover its costs.

From the foregoing facts the Court concludes:

[Conclusions as numbered]

* + *

7. If the patent is valid, Defendant has actively induced

infringement of the patent by crusher users, Section 271(b),

Title 35, United States Code.

* *

14. Defendant has failed to prove that it has been damaged

by the antitrust violations and no damages are awarded, Rich-

field Oii Company v. Karseal, 271 F.2d 709 (CA9 1959).

15. This is not an exceptional case, and no attorney’s fees

are awarded, Section 285, Title 35, United State Code.”

=— =

U.S. 967 (1960); Switzer Brothers Inc. v. Locklin,

297 F.2d 39 (7th Cir. 1961), cert. denied 369 US.

851 (1962); and to which list we add: Dairy Foods

Inc. v. Dairy Maid Products Coop., 297 F.2d 805

(7th Cir. 1961); which case succinctly declares:

“[2| Where an infringement suit is brought

as part of and in furtherance of a combination

and conspiracy which violates the antitrust laws an

results in injury such as is here alleged the person

injured may recover threefold the damages he

sustains. Clapper v. Original Tractor Cab Com-

pany, 7 Cir., 270 F.2d 616; Kobe Inc. v. Dempsey

Pump Co., 10 Cir., 198 F.2d 416, 424-25, And

each of these cases is authority for the recovery

of threefold the cost and expense of defending

such as infringement suit.” (/d. at 809.)

We agree with the holdings in the above cases,

but feel that Harco’s reliance upon them to create

a per se right to treble attorney’s fees in all combination

patent-infringement-antitrust actions is misfounded, and

based on a misreading of the relevant precedents.

The Report of the Attorney General’s National Com-

mittee to Study the Antitrust Laws (1955) at 247-

48 analyses and balances the policy and issues on

both sides, and properly states the law in this area.

We quote therefrom:

“5. Infringement Suits.

The usual means of enforcing patent rights is

by direct infringement suit. One or numerous in-

fringement suits, by themselves, constitute no anti-

trust violation. Infringement suits may, on the

other hand, play a part in an overall plan to

unduly restrain or monopolize commerce. Threats

of suit under a group of narrow and weak patents

may be potent to harass and deter competition.

In Kobe v. Dempsey the court found a plan

of monopolization of the rodless pump industry by

buying up all the present and future patents in

the field and obtaining covenants from the sellers

not to compete. The infringement suit against

Dempsey, the court noted, was a part of the plan

to eliminate Dempsey as a competitor. Moreover,

the court found a persistent effort to eliminate

Dempsey by a customer boycott in connection

with the suit. Treble damages were awarded to

Dempsey on the ground that the court should

not be a ‘vehicle for maintaining and carrying out

an unlawful monopoly.’ To deny recovery, the

court said, ‘would permit a monopolizer to smother

every potential competitor with litigation’ and

‘leave the competitor without a remedy.’

More recently the same court distinguished the

Kobe case in D. B. Cole v. Hughes Tool Co.,

where it reiterated that a good faith patent in-

fringement suit, though the patent was held invalid,

did not violate the antitrust laws. The court noted,

that in contrast Kobe involved a situation where

monopoly was obtained by patent purchases and

the infringement suit itself was an integral part

of the scheme of monopolization.

We concur with the Kobe decision when so

regarded. For there is obvious merit in holding that

where the evidence clearly established damages

resulting from the infringement suit or it was

brought in bad faith as part of an agreement or

plan violative of the antitrust laws, treble damages

should be awarded. However, we consider it equal-

a ae

ly important not to imperil free access to the

courts for determination and protection of patent

rights.

Accordingly we make the following recom-

mendations:

a. Where it is shown that an infringement

suit has, in fact, been brought as an integral part

of an agreement or plan to violate the antitrust

laws and that the defendant sustained resulting

damages, treble damages for antitrust violation

should be recoverable, whether or not there was

a colorable claim of infringement.” (/d. at 247-

48.)

In those cases which have awarded as part of anti-

trust treble damages, attorney’s fees incurred in defend-

ing patent infringement actions, we see the consistent

thread of the patent infringement suit being used with

ulterior motives as a predatory means—an aggressive

weapon to attain some other anticompetitive end—,

as opposed to its being used as a defensive shield

with which to protect the patent interests.

The language of the Kobe case, supra, is instructive

as to this distinction:

“It is said that to allow recovery of damages

resulting from the infringement action would be

a denial of free access to the courts. We fully

recognize that free and unrestricted access to the

courts should not be denied or imperiled in any

manner. At the same time we must not permit

the courts to be a vehicle for maintaining and

carrying out an unlawful monopoly which has for

its purpose the elimination and prevention of com-

petition. The trial court found that Kobe did not

="

institute the infringement action in bad faith but

believed that some of its patents were infringed,

and that Kobe intended to secure a judgment

which would eliminate defendants as competitofs

and to remain in exclusive possession of the whole

of the interstate markets for deep well hydraulic

pumps for oii wells. The trial court also found

that the infringement action and incidental activ-

ities by Kobe were intended and designed to fur-

ther the existing monopolistic purposes.

We have no doubt that if there was nothing

more than the bringing of the infringement action,

resulting damages could not be recovered, but

that is not the case. The facts as hereinbefore

detailed are sufficient to support a finding that

although Kobe believed some of its patents were

infringed, the real purpose of the infringement

action and the incidental activities of Kobe’s repre-

sentatives was to further the existing monopoly and

to eliminate Dempsey as a competitor. The in-

fringement action and the related activities, of

course, in themselves were not unlawful, and stand-

ing alone would not be sufficient to sustain a

claim for damages which they may have caused,

but when considered with the entire monopolistic

scheme, which preceded them we think, as the

trial court did, that they may be considered as

having been done to give effect to the unlawful

scheme.” (Kobe, supra at 424-25.)

The mere coincidence of an antitrust violation and

a patent infringement suit is not sufficient to entitle

Harco to attorney’s fees expended in defense of the

patent infringement claim absent some showing from

which the trial court can find, or infer, that the patent

a ee ee ee

a

callin

infringement suit was brought in furtherance and as

an integral part of a plan to violate the antitrust

laws. See La Salle Street Press, Inc. v. McCormick

& Henderson, Inc., 445 F.2d 84 at 96 (7th Cir.

1971); American Infra-Red Radiant Co. v. Lambert

Ind. Inc., 360 F.2d 977 at 996-97 (8th Cir. 1966),

cert. denied 385 U.S. 920 (1966).

This distinction was recently applied by the Second

Circuit in an able opinion by Judge Lumbard which

held:

“Plaintiff Ansul argues that it is entitled to

recover treble for its expense incurred in defending

Uniroyal’s patent infringement suits against it and

against the various distributors which it had

agreed to indemnify. Ansul contends that these

suits were part of Uniroyal’s endeavors to perpe-

trate its unlawful market scheme, for, as the trial

court found, ‘these suits, together with Uniroyal’s

other activities * * * had the effect of per-

petuating the price and market stabilization

achieved through its earlier violations of § 1 of

the Sherman Act * * * 306 F. Supp. at 567.

Hence, it argues, its expenses in defending those

suits are properly recoverable under Hazeltine Re-

search, Inc. v. Zenith Radio Corp., 388 F.2d

25, 35 (7th Cir. 1967), aff'd in part, 395 US.

100, 89 S. Ct. 1562, 23 L.Ed.2d 129 (1969),

where the court stated: ‘Zenith’s expenses in de-

fending the infringement suit brought pursuant

to HRI’s antitrust violations are a proper subject

of threefold recovery.’

Judge Mansfield, after making the statement

quoted above as to the effect of these suits, then

rejected Ansul’s contention stating that

init sie

‘even though the suits were one of many activ-

ities which collectively had the effect of in-

hibiting an effective purge of [| Uniroyal’s] earli-

er misconduct, they were instituted by it in

good faith and for the purpose of resolving

the issues of validity and infringement rather

than with the intent or purpose of restraining

trade in violation of the Sherman Act. Thus

Uniroyal’s suits must be distinguished from those

brought in furtherance of an antitrust conspiracy

* * *” 306 F. Supp. at 567.

Ansul argues that intent is not necessary to

a Sherman Act § 1 violation and that whatever

its actual intent may have been, Uniroyal as

a proven antitrust violator is conclusively presumed

to t’ responsible for the direct consequences of

its acts. Hence, according to Ansul, even if the

intent of Uniroyal’s suits was legitimate, the fact

that their effect was to further the unlawful con-

spiracy makes them part of that conspiracy and

thus allows Ansul to recover treble its expenses

in defending them.

[11-13] We agree with the result reached by

the district court. A patentee who has reasonable

grounds for believing that his patent is valid and

that it is being infringed should not lightly be

precluded from availing himself of the courts.”

Ansul Co. v. Uniroyal Inc., 448 F.2d 872, at 882

(2d Cir. 1971), cert. denied, 404 U.S. 1018 (1972).

The institution of a patent infringement suit when

the patent also is the tying product is not necessarily

or always an action brought in furtherance of the

illegal tying situation. Mere coexistence of a tying

situation and the patent infringement suit is not suffi-

6+ A ere ae Pe

a

cient to demonstrate that the suit was brought in further-

ance, or as an integral part of a plan to violate the

antitrust laws. Tying is a per se violation of Section

1 of the Sherman Act. Purely negligent and uninten-

tional acts can and do constitute violations of the

antitrust laws if they have, or are presumed at law

to have, the required anticompetitive economic effect.

The focus of the antitrust laws is not upon the intentions

of the actor, but rather upon the effect of the actions

upon commerce. Hence, we can have the situation

of a patentee who is unintentionally or negligently

in violation of the antitrust laws 1) bringing an infringe-

ment suit to protect his rights under a valid patent

(or a patent he in good faith believes to be valid)

and 2) believing in good faith that he is neither mis-

using his patent nor violating the antitrust laws. In

cases such as the one just illustrated we cannot say

that the patent infringement suit is brought in further-

ance of an antitrust violation. Whether the case sub

judice falls into this classification we cannot determine

from the record on appeal. We therefore remand to

the district court for a determination of whether Rex

brought this infringement suit in furtherance of the

antitrust violation.

The court below held: “plaintiff has not been guilty

of bad faith or inequitable or unconscionable conduct

in the prosecution of this action.” (C.T. 1096.) But,

from this holding we cannot determine whether 1)

Rex merely had a good faith belief in the validity

of its patent, but was intentionally using its patent

in furtherance of a tying scheme (cf. Kobe, supra);

or 2) whether Rex not only in good faith believed

that its patent was valid, but also believed that it

was not misusing tis patent or violating the antitrust

—

laws. On remand, if the district court finds the former

situation existed, damages should be awarded based

on the basis of an antitrust violation. If the court

below finds the latter, then they should not be awarded

under the antitrust laws.

Harco is not entitled to recover reasonable attorney’s

fees under the patent laws (35 U.S.C. § 285). Indeed,

Harco practically admits his point on appeal. Quot-

ing from Harco’s Reply Brief at p. 5:

“{ A]ttorney fees may be awarded to the prevail-

ing party in ‘exceptional’ patent cases under 35

U.S.C. § 285. Decisions by this court in patent

cases have indicated that there must be a showing

of palpable fraud, bad faith, unfair conduct by

a party or its attorney, or some other consideration

of similar force which makes it grossly unjust

for the winning party to bear its attorney fees.

Dow Chemical v. Dart Industries, Inc., 475 F.2d

124 (CA9 1973); Florida Brace Corp. v. Bartels,

332 F.2d 337 (CA9 1964); Park-in-Theatres, Inc.

v. Perkins, 190 F.2d 137 (CA9 1951). Such

an award is primarily a matter for the exercise

of district court discretion. Bates Industries Inc.

v. Daytona Sports Corp., 441 F.2d 1110 (CA9);

Ashcroft v. Papermate Mfg. Co., 434 F.2d 910

(CA9 1970).” (Emphasis added. )

In the instant case the district court explicitly found

that this was not “an extraordinary or exceptional case”

warranting an award of reasonable attorney’s fees under

the patent law. (C.T. 1096, 1098.)

We hold that the district court did not err in constru-

ing the patent laws in denying Harco’s prayer for

attorney’s fees.

= ven

This case is remanded to the district court for a

determinination of whether Harco is entitled to attor-

ney’s fees under the Antitrust Laws, in accordance

with the tests set forth in this opinion. In all other

respects, the decision of the district court is Affirmed.

IN THE UNITED STATES COURT OF APPEALS

For The Ninth Circuit

* * (Civil Action No. 73-2059, 73-2139) * *

Before: Van Oosterhout,* Barnes, and Hufstedler, Cir-

cuit Judges.

The Petition for Rehearing in No. 73-2059, limited

to the issue of damages, filed by Harco Products,

Inc., is denied. The matters urged by Harco can he

raised before the District Court on remand.

The opinion in these combined cases, filed by this

Court on February 6, 1975, is modified by the addition

and insertion of a new footnote, numbered 3a to appear

after the words “that a misuse of the patent has oc-

curred,” on page 13 of the slip opinion, line 24, in

order to clarify the opinion on a point raised in oral

argument before this Court, but which was not dealt

with as explicitly in the opinion as it should have

been.

“Footnote 3a”

In oral argument counsel for Rex argued that

crusher users have an alternative to the can label

license in that users can purchase a new crusher

from Rex. In view of the fact that the backing

material in a crusher will wear out many times

during the life of a crusher, we hardly think that

*The Honorable Martin D. Van Oosterhout, Senior Circuit

Judge of the Eighth Circuit, sitting by designation.

a ee

being required to purchase an expensive new ma-

chine when the backing wears out is a viable

alternative to the can label license. A great eco-

nomic disparity in alternatives will just as effective-

ly create or enforce a tie as the absence of choice.

Rex argues that if it wanted to, under the patent

laws, it could sell the crusher alone, and not

grant can label license. This may well be so,

but Rex has not chosen to follow this course.

A patentee has a privilege to exploit its patent,

but this privilege does not encompass tying. Tying

is disapproved because of its anti-competitive ef-

fects upon the market of the tied product. If

Rex has chosen to sell crushers alone, an effect

on a tied market would be absent; but as it

stands now, the can label licensing program adopt-

ed by Rex, by effectively and practically foreclos-

ing and limiting the sources from which crusher

users may look to purchase staple epoxy resin,

has substantially burdened competition in the mar-

ket of that tied product.”

In No. 73-2139, the Petitioner for Rehearing limited

to the issue of antitrust violation and patent misuse

claim, is denied.