Petition — McDonnell Douglas Corp. v. Northrop Corp.

PC a

—"

Oftice sme Court, U.S. |

FILED

oe ae JUL 18 1983

IN THE CLERK

ALEXANDER L. STEVAS,

Supreme Court of the Anited States

OCTOBER TERM, 1983

McDONNELL DOUGLAS CORPORATION,

Fetitioner,

Vv.

NORTHROP CORPORATION,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES

COURT OF APPEALS

FOR THE NINTH CIRCUIT

GEORGE S. HECKER

(Counsel of Record)

CHARLES A. WEISS

E. PERRY JOHNSO?!

DANIEL C. SCHWARTZ

BRYAN, CAVE, MCPHEETERS & MCROBERTS

500 North Broadway

St. Louis, Missouri 63102

(314) 231-8600

Attorneys for Petitioner

July 18, 1983

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eo]

PRESS OF BYRON S. ADAMS PRINTING, INC., WASHINGTON, D.C.

QUESTIONS PRESENTED

1. In light of United States v. Topco Associates, Inc., 405

U.S. 596 (1972), Catalano, Inc. v. Target Sales, Inc., 446 U.S.

643 (1980), and Arizona v. Maricopa County Medical Society,

457 U.S. 332, 102 S. Ct. 2466 (1982), did the Ninth Circuit

properly determine that a market division, historically held to

be per se illegal, should nonetheless be subjected to a rule-of-

reason analysis because the market division allegedly had

some procompetitive effects, and neither the military aircraft

industry nor teaming agreements effecting such a market divi-

sion had been previously examined by the courts in a Sherman

Act context?

2. Inasmuch as (a) the United States Government owns

“unlimited rights” in the data and technology of the F-18 air-

craft, which was designed and developed at its instance and

expense, and controls who can produce and sell and who can

buy and use the aircraft, and (b) the availability of the aircraft

is vital to the Government’s national defense and foreign policy

interests, is the Government an indispensable party to this suit

in which a contractor seeks determinations as to who can

produce and sell F-18’s to the Government for its own use or

directly or indirectly through the Government for use by its

allies, and in what configurations?

3. Is this suit, which requires judicial inquiry into the

decisions of the Legislative and Executive Branches of the

Government concerning the production, sale, purchase and use

of the F-18 by or for the Government and its allies, and into the

motivations of military procurement decisions of foreign

states, nonjusticiable by reason of the political question and

act-of-state doctrines?

4. Cana prime contractor unlawfully attempt to monopol-

ize a military air weapons system market in which the produc-

tion, sale, purchase, and use of the product are controlled by

the Government?

ii

STATEMENT REQUIRED BY RULE 28.1

This Petition is filed on behalf of McDonnell Douglas

Corporation, which has no parent companies. It has direct or

indirect equity interests in the following companies (in addition

to its wholly owned subsidiaries):

American Monitor Corporation

Arinc, Incorporated

Coaliquid, Inc.

Coaliquid International, B.V.

Coaliquid International, Inc.

Coaliquid International, Ltd., N.V.

Excalibur Technologies Corporation

Muse Air Corporation

Nitron, Inc.

PSA, Inc.

Republic Airlines West, Inc.

iii

TABLE OF CONTENTS

CE TE a ic cans eee shoe esha neney aberdeen

SURMIICTION.| 5. ko vancaceatuvcateceatneseeehen Fees

STATUTORY PROVISIONS INVOLVED ......e0eesceeceses

Sraveaeer OF THE COME. ss sb oxicctascccwaseinesewe

ST Fen ey dia gaa aaa eEe

De or, cited kc bans Cin ke ah ere eae

GO iiccvawes send eravenss ate banennces

The Teaming Agreement .............

The Basle Agreement... .oesscvincccss

Government's Procurement Of Unlimited

“yo In All YF-17 (Including P-530 And

P-630) And F-18 Data And Technology .

5. Government's Control Of Production,

Sale, Purchase And Use Of The F-18

6. District Court Proceedings ............

7. Proceedings On Appeal ...........005

Hoo bo

REASONS WHY THE WRIT SHOULD BE GRANTED .......

I.

Il.

THE NINTH Circuits DETERMINATION THAT AN OB.

vious MARKET DIVISION SHOULD BE SUBJECTED TOA

RuLE-OF-REASON ANALYSIS UNDER THE SHERMAN

Act BECAUSE NEITHER THE MILITARY AIRCRAFT IN-

DUSTRY Nork TEAMING AGREEMENTS HAVE RECEIVED

JUDICIAL SCRUTINY IN A SHERMAN AcT CONTEXT IS

REPUGNANT To THIS Courts DECISIONS IN ARIZONA

v. Maricopa County Mepicat Society, 457 U.S.

332, 102 S.Ct. 2466 (1982), AND UNITED STATES V

Torco AssociaTES, INc., 405 U.S. 596 (1972) .....

THE GOVERNMENT Is AN INDISPENSABLE Party To

Tuts AcTION IN WHICH NORTHROP SEEKS To RE-

STRICT THE GOVERNMENT'S USE OF ITS “UNLIMITED

Ricuts” IN F-18 DATA AS THE GOVERNMENT DETER.

MINES To BE IN THE INTERESTOF NATIONAL DEFENSE

ADE FORT FOIE icc vicvadansetucuscunetass

co |

co © OO

III.

IV.

2

iv

Table of Contents Continued

THE NINTH CIRCUIT'S DECISION THAT THE POLITICAL

QUESTION AND AcT-OF-STATE DOCTRINES ARE NOT

APPLICABLE To THIS DisPpUTE OVER WHO Can PRo.-

pucE AND SELL F-18’s Conriicts WITH THIS

Court's DECISION IN GILLIGAN V. MorGAN, 413 U.S. 1

(1973), AND THE SeconpD Circuit's Decision IN

Huntv. Mosit Oit Corp., 550 F.2d 68 (1977) ....

Political Question Doctrine ............ eee ee eens

NE CHI oie aids cos ses 64 ved ue ee wes

A PRIME CONTRACTOR CANNOT UNLAWFULLY AT-

TEMPT To MonopoLize A MILITARY AIR WEAPONS

SystEM MARKET IN WHICH THE PRODUCTION, SALE,

Purcuase AND Use OF THE Propuct Is Cov.

TROLLED By THE U.S. GOVERNMENT ........008:

i fry os See a aha soiree

Page

18

18

20

Vv

TABLE OF AUTHORITIES

CASES: as Page

Affiliated Capital Corp. v. City of Houston, 700 F.2d 226,

Ve a) ere errr eres tr ll

American Tobacco Co. v. United States, 328 U.S. 781

(RG oving biiceSes snacecastacaneawanesseaenaens 25

Arizonu v. Maricopa County Medical Society, 457 U.S.

$32, 102 S. Ct. 2466 (1982) ........... 1, 9, 10, 11, 12

Baker v. Carr, 369 U.S. 186 (1962) .........ceeeees 19, 20

Bakia v. County of Los Angeles, 687 F.2d 299 (9th Cir.

WORD ving ccccccesacct shinsseenuseasvecwetarwens 13

Blake Construction Co. v. American Vocational Ass'n,

419 F.2d 308 (D.C. Cir. BUBB) 2. cccessccccccee’ 17

Board of Regents v. NCAA, 1983-1 CCH Trade Cas.

¢ 65,366 at 70,192 (10th Cir.) ......ccccccceeeees 12

Bokkelen v. Grumman Aerospace Corp., 432 F. Supp.

S0D, SEB (E.D.N. YT. TTT) o ovccc sc anevenescssin 21

Broadcast Music, Inc. v. Columbia Broadcasting Sys-

tem, Inc., 441 U.S. 1 (1GTB) .nccusvesceccccecess 12

Carlson v. Tulalip Tribes of Washington, 510 F.2d 1338

COR Ce TT) onc ccc cnacesssvaeunpeeeveeceas 17

Catalano, Inc. v. Target Sales, Inc., 446 U.S. 648 (1980) 1, 9

Cornwell Quality Tools Co. v. C.T.S. Co., 446 F.2d 825

(9th Cir. 1971), cert. denied, 404 U.S. 1049 (1972) 25

Franz v. East Columbia Basin Irrigation District, 383

F.2d 891 (9th Cir. 1967) ......ccccccccceccceces 17

General Aircraft Corp. v. Air America, Inc., 482 F.

Supp. 3, 6-7 (D.D.C. 1979) 2.0... cc cece e eee eenees 21

Gilligan v. Morgan, 413 U.S. 1 (1978) .......-. 18, 19, 20

Greyhound Computer Corp. v. IBM, 559 F.2d 488 (9th

Cir. 1977), cert. denied, 434 U.S. 1040 (1978) .... 26

Hunt v. Mobil Oil Corp., 550 F.2d 68 (2d Cir.

DONT a alc cis ccih vopeas Coenen etana enue 18, 20, 22

Janich Bros. v. American Distilling Co., 570 F.2d 848

(9th Cir. 1977), cert. denied, 439 U.S. 829 (1978) . 26

Knutson v. The Daily Review, Inc., 548 F.2d 795 (9th Cir.

1976), cert. denied, 433 U.S. 910 (1977) .......... 26

vi

Table of Authorities Continued

Page

a" v. Tidewater Oil Co., 327 F.2d 459 (9th Cir. ), cert.

ee are ee ee CN cs oe cae eke Cameos 25

Lorain Journal Co. v. United States, 342 U.S. 143(1951) — 25

Ogden River Water Users’ Assn. v. Weber Basin Water

Conservancy, 238 F.2d 936, 941 (10th Cir. 1956) . 15

Radiant Burners Inc. v. Peoples Gas Light and Coke

Company, 364 U.S. 656, 660 (1961) ............. 21

Salerno v. American League of American Baseball

Clubs, 429 F.2d 1002, 1004 (2d Cir. 1970) ........ 21

Swift & Co. v. United States, 196 U.S. 375 (1905) .... 25

Timberlane Lumber Co. v. Bank of America, N.T.&

S.A., 549 F.2d 597 (9th Cir. 1976) ..........000 22

Twin city Sportservice, Inc. v. Charles O. Finley & Co.,

676 F.2d 1291 (9th Cir.), cert. denied, 103 S.Ct. 364

GRE fo eicahirestasctcseewacckedesuanaterss 26

United States v. Consolidated Laundries Corporation,

291 F.2d 568, 574 (2d Cir. 1961) ..............5. il

United States v. E.IJ. Du Pont De Nemours & Co., 351

Sic EE A CRO eh dae nothin when has cue Van sine 24

United States v. Grinnell Corp., 384 U.S. 563 (1966) . 25

United States v. Topco Associates, Inc., 405 U.S. 596

SE eke veer veouws ce snakes abun ade 1, 9, 10, 11, 12

Walsh v. Centeio, 692 F.2d 1239 (9th Cir. 1982) ...... 13

Wisdom Rubber Indus., Inc. v. Johns-Manville Sales

Corp., 415 F. Supp. 363 (D. Hawaii 1976) ....... 25

STATUTES:

Art. I, § 8, Cls. 12, 13, 14 and 16 and Art. II, § 2, of the

Sr dona, cake de see cueh eu one 18

Sherman Act, §§ 1 and 2, 15 U.S.C. §$ land2....... l

te rs ob chub aced ake ok tapes omens 16

ae uaa iS a ee mca 16

ie |) ee rrr eee re rrr re Sree ee car | 16

Vil

Table of Authorities Continued

Page

REGULATIONS:

cae Ne I RE es wg koKa von weap eset cwwsiaks 16

SA ee A UT vas bocce ss pes be RSs 1, 2; 6 36

DAR, 32 C.F.R. § 7-103, 7-103.2, 7-203 and 7-203.2 .. 17

DAFA, Ge Ce ee 0 UG) vvi car vsnaessnceced 1, 14, 16

SR ay Oe Ae sac NAD occ cu acecnsiaccvescns 14

a geek ee” 8 errr 14

SO es Ce EE os vs As wk od tno epee eae es 1, 16

a ED icc yc uss a cade eveeseuees 16

DAR, 32 C.F.R. §§ 1-2403 and 6-1306 ............... 16

ee NG Ee kc cb bu cccewewe deus L313. 4

MISCELLANEOUS:

Arms Tra pe te in the Modern World 207 (S. Newman &

es; SEEN, GO. SOOD ce tic tu eccinnavonsacsases 24

Handler, Reforming the Antitrust Laws, 82 Col. L. Rev.

a RR ccs aud pnawnecun sand bake ewar 27

Handler & Steuer, Attempts to Monopolize and No Fault

Monopolization, 129 U. Pa. L. Rev. 125, 157-58

Ree kis cy eine titre aa Cheese reals 25, 26, 27

Hibner, Attempts to Monopolize: A Concept in Search of

Analysis, 34 Antitrust L.J. 165, 175. (1967) ..... 26

I. Dorfer, Arms Deal, The Selling of the F-16 xv (1983) 24

II P. Areeda & D. Turner, Antitrust Law © 501 (1978) 24

J.R. Fox, Arming America: How the U.S. Buys Weapons

SON RENE. evra Gb Rise va Wace oo ee eek eae 24

J. Gansler, The Defense Industry 69 (1980) .......... 24

M. Peck & F. Scherer, The Wea Y ons Acquisition Process:

An Economic Analysis 57-60 (1962) ..........0.. 24

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1983

McDOoNNELL DOUGLAS CORPORATION,

Petitioner,

Vv.

NORTHROP CORPORATION,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES

COURT OF APPEALS

FOR THE NINTH CIRCUIT

l

OPINION BELOW

The opinions of the Court of Appeals are published at 700

F.2d 506 and, as modified, at 705 F.2d 1030; the modified

opinion is reproduced at p. 3a of the Appendis ("“App.") hereto.

The District Court's opinion published at 498 F. Supp. 1112,

orders, and findings of facts and conclusions of law, which the

Ninth Circuit reversed, appear at App. pp. 53a, 76a, 79a, 121a,

123a.

JURISDICTION

The Ninth Circuit’s judgment and opinion was filed on Feb-

ruary 28, 1983 (App. pp. 2a, 3a). A timely petition for rehearing

and suggestions for rehearing ev banc were denied by a June

10, 1983 order, a copy of which appears at App. p. la. This

petition for certiorari is filed within 90 days thereafter.

Jurisdiction of this Court is founded upon 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

The following statutory provisions, regulations and rules are

involved, all of which are set out at App. pp. 127a-132a: (1)

Sherman Act, §§ 1 and 2, 15 U.S.C. §$ 1 and 2; (2) Defense

Acquisition Regulation (“DAR”) 4-117, 32 C.F.R. § 4-117; (3)

DAR 9-201(d), 32 C.F.R. § 9-201(d); (4) DAR 9-301,2, 32

C.F.R. § 9-301.2; and (5) Rule 19, Fed. R. Civ. P.

STATEMENT OF THE CASE

A. Introduction

The subject of this precedent-setting action is this Nation's

newest and most advariced aircraft weapons system, the F-15.

McDonneli Douglas Corporation (“McDonnel]”) is the prime

contractor for the United States (“Government”), and North-

rop Corporation (“Northrop”) is MeDonnell's principal sub-

contractor for the F/A-18A. The F/A-18A is the only F-18

which has been developed and is being produced. It is being

procured from McDonnell by the Government for the U.S.

Navy and the Air Forces of Australia and Spain and, with the

2

permission of the Government, by Canada for its Air Force.

With the Government's preliminary approvals, Greece and

Turkey, among others, are also considering procuring the F/A-

18A.

Northrop initiated this suit to enforce its claim of exclusive

rights to produce and sell (a) F-18's of any configuration for the

U.S. Air Force, and (b) F-18’s of any configuration for the

Navy and foreign governments, other than the carrier suitable

configuration being procured from McDonnell by the Navy for

its own use—all in derogation of the Government’s rights to

make such determinations. Northrop admits that the Govern-

ment has bought and obtained from Northrop and McDonnell

“unlimited rights” in its data and technology.

Under any yardstick, the case involves questions of ex-

ceptional importance affecting the defense and foreign policy of

the United States. The Ninth Circuit opinion, reversing the

District Court decision, has, inter alia, the following con-

sequences:

(1) it sanctions agreements of private contractors

which divide between themselves U.S. Air Force and

Navy customers and, on product specific bases, all cus-

tomers, in contravention of this Court's holdings in United

States v. Topco Associates, Inc., 405 U.S. 596 (1972),

Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980),

and Anzona vy, roger County Medical Society, 457

U.S, 332, 102 S. Ct. 2466 (1982);

(2) it emasculates the “unlimited rights” purchased by

the Government to freely disclose in any manner and for

any purpose whatsoever, and to freely use or have or

permit others to use, F’-18 data and technology, by effec-

tively precluding the Government from exercising those

“unlimited rights” to purchase or permit —— toi

ments to purchase F’-18’s from McDonnell as the Govern-

ment determines to be in the interest of national defense

and foveign policy;

(3) it annuls DAR 4-117 (App. p. 130a), which pros-

cribes “teaming arrangements” which (a) are in violation

of the antitrust statutes, or (b) limit the Government’s

rights to “provide the selected prime contractor with data

3

rights, owned or controlled by the Government” or to

“pursue its policies on competitive procurement, sub-

contracting, and component breakout’;

(4) it thrusts the judiciary into political questions and

motivations behind acts of states which are inextricably

entangled in this case; and

(5) it decides for the first time that a prime contractor

could attempt to monopolize an advanced military air

weapons system market which the Government controls.

B. Facts

1. Northrop’s Commencement Of This Action

Northrop initiated this suit on October 26, 1979, with a

three-count Complaint for a declaratory judgment and an in-

junction seeking:

(a) to preclude McDonnell from:

(i) producing and selling or offering to sell any

F-18 to or for the U.S. Air Force;

(ii) producing and selling or offering to sell to the

U.S. Navy any F-18 which is not “carrier-suitable”;

(iii) re and selling or offering to sell,

directly or indirectly through the Navy for use by forei

governments, any F-18 which does not conform to the

carrier-suitable I-18 configuration being purchased by

the Navy; and

(b) to require McDonnell to subcontract certain F-18

work to Northrop on Northrop's unilaterally established

terms and conditions, and to preclude McDonnell from

subcontracting the work to others even if Northrop re-

fused to do it.

After the District Court denied Northrop’s motion for a

preliminary injunction on December 3, 1979, Northrop filed an

Amended Complaint (App. p. 147a) adding five counts alleg-

ing, respectively, fraud in the inducement, breach of fiduciary

duty, attempted monopolization, unfair competition and quan-

4

tum meruit theories. In these counts it seeks essentially the

same declaratory and injunctive relief, as well as damages.

Underpinning all eight Counts is Northrop’s construction of

the parties’ October 2, 1974 Teaming Agreement (App. p.

132a) and June 27, 1975 Basic Agreement (App. p. 134a) and its

contention that McDonnell has breached the Basic Agreement

as so construed.’ Under its construction, for which it seeks

judicial sanction, Northrop claims that Northrop and McDon-

nell divided the market for F-18 aircraft such that Northrop

would have the exclusive right to produce and sell all F-18's

other than (a) carrier-suitable F-18’s for the use of the Navy,

and (b) F-18's for foreign customers of the same carrier suit-

able configuration as that being purchased by the Navy for its

own use, which F-18'’s McDonnell would have the exclusive

right to sell.

Northrop contends that this market division and the other

“license” restrictions it seeks to impose on McDonnell (and ipso

facto the Government) are justified by its alleged “proprietary

rights” in YF-17 prototype and F’-17 proposal data and technol-

ogy and its earlier P-530 and P-630 paper designs which North-

rop alleges it incorporated into the YF-17. It contends it

“licens«..” such data and technology to McDonnell under the

Basic Agreement for use in designing the F-18.

2. The Teaming Agreement

In 1972 the Government awarded both Northrop and Gener-

al Dynamics multimillion-dollar prime contracts independently

to develop and build prototype demonstrators for the Air

Force's Lightweight Fighter Technology Demonstration (la-

' Northrop admits that while it alleges different theories in the various

counts, “virtually the same operative facts underlie each of Northrop’s

causes of action.” As the Ninth Circuit itself recognized, “The conduct and

relief at issue in Counts 4-8 overlap and are inextricably intertwined with

that in Counts 1-3," 705 F.2d at 1039. See also District Court's Finding of

Fact 9, App. p. 82a.

3)

ter called the Air Combat Fighter, “ACF”) Program. The

Northrop and General Dynamics prototypes were denomin-

ated, respectively, the YF-17 and YF-16. Northrop and

McDonnell entered into the October 2, 1974, Teaming Agree-

ment after Congress, in September, 1974, directed that the

Navy, in its proposed Naval Air Combat Fighter (“NACF”,

earlier called VFAX) program, make use of the YF-17 and

YF-16 data and technology already bought by the Govern-

ment.

Because neither the YF-17 nor the YF-16 met the Navy’s

VFAX requirements, and because neither Northrop nor

General Dynamics had the experience to satisfy the Navy’s

requirements, the Government requested that both con-

tractors enter into teaming arrangements pursuant to DAR

4-117 with companies which possessed the necessary experi-

ence and capabilities to design and build Navy aircraft.

In the two-page 1974 Teaming Agreement the parties simp-

ly agreed “to team for the purpose of developing, proposing

and producing a USAF derivative of the YF-17 (USAF ACF)

and a carrier-suitable version of the YF-17 (USN ACF) to

satisfy U.S. Navy VFAX requirements.” (App. p. 132a.)

McDonnell was to be prime contractor on the NACF. The roles

were to be reversed for the Air Force’s ACF and for foreign

variants of that aircraft. During the term of the Teaming

Agreement, as requested by the Government and in perform-

ance of Northrop’s F-17 proposal prime contract, Nort’srop

provided the YF-17 and F-17 proposal data and technology to

McDonnell without restriction for its use in designing an

NACF aircraft.

3. The Basic Agreement

The Basic Agreement (App. p. 134a) was entered into by the

parties after the January, 1975 Air Force selection of General

Dynamics’ proposed F-16 over Northrop’s proposed F-17 for

the Air Combat Fighter and after the Navy's May, 1975 selec-

tion of MeDonnell’s proposed F-18 for its Naval Air Combat

Fighter.

6

The Basic Agreement, by its terms, superseded the earlier

teaming agreement. In it, the parties agreed to:

work together (without in any manner intending to create

a joint venture or otherwise incur or employ joint or

several liability) for the purpose of obtaining and perform-

ing contracts for the development and production of

derivatives of YF-17 aircraft that are responsive to the

requirements of the U.S. Navy and foreign customers.

At the heart of the Basic Agreement are paragraphs 3 and 5:

Paragraph 3, “Contract Responsibilities,” provided that

McDonnell would be prime contractor for contracts for devel-

opment and production of F-18 aircraft purchased by the Navy

for its own use and for contracts for sale directly or indirectly

through the Navy to foreign customers of F-18’s of “basically

the same configuration.” It provided that Northrop could elect

to be prime contractor for the development and production of

other aircraft derived from the YF-17. (App. pp. 134a-135a. )

Paragraph 5, “Division of Effort,” described how the work

was to be divided under the contemplated McDonnell prime

contracts, expressly recognizing the right of the

Government—which Northrop now disregards—to direct

otherwise. (App. pp. 135a-136a.)

The Basic Agreement does not purport to override any of the

Government’s rights. DAR 4-117.

4. Government's Procurement Of Unlimited Rights In All

YF-17 (Including P-530 and P-630) and F-18 Data and

Technology

It is an admitted fact that (a) under the Government's F-18

prime contracts with McDonnell, (b) through Northrop’s F-18

subcontracts from McDonnell under those prime contracts,

and (c) under the Government's previous YF-17 prototype and

F-17 proposal prime contracts with Northrop, the Government

has obtained “unlimited rights” in all of the data and technol-

ogy of (a) the YF-17 prototype and F-17 proposal (including the

incorporated P-530 and P-630 designs of Northrop) and (b) the

F-18. The Government therefore has the right and means to

freely disclose this data and technology for any purpose and to

-

freely permit its use by any contractor.’ And, as the District

Court and the Ninth Circuit recognized, the Government au-

thorized McDonnell’s use of all applicable YF-17 data in con-

nection with the F-18 program. (705 F.2d at 1036; Finding of

Fact 40, App. p. 92a.)

5. Government's Control Of Production, Sale, Purchase

And Use Of The F-18

Even if, arguendo, McDonnell’s alleged breaches of the

Basic Agreement as construed by Northrop did occur, the

unalterable, ultimate fact is that the Government controls who

can produce and sell and who can buy and use the F-18.

Neither the Government nor any foreign government has

selected Northrop’s proposed land-based F-18’s, denominated

“F-18L’s”. The record and the Government's plenary control,

by law, over advanced air weapons systems belies Northrop’s

claim that McDonnell’s acts, rather than decisions of the

Government and of foreign governments, have affected North-

rop’s efforts to sell F-18L’s. For example:

—The Government refused to permit Northrop to release

information on a proposed F-18L to any foreign country until

the Navy, McDonnell, and Northrop jointly developed, and the

Department of Defense approved, a detailed Foreign Military

Sales Master Plan which assured that its development would

not adversely impact the Navy’s F/A-18A program.’

*In the District Court, Northrop initially challenged the Government's

unlimited rights. After McDonnell’s motion to dismiss, Northrop told the

court that “Northrop does not allege—for purposes of this action—that the

Government does not have unlimited rights to use YF-17 F-18A technical

data.” See, e.g., 498 F. Supp, at L117 n. 4.

’ As a result of the Government's requirement for Foreign Military Sales

Master Plans, McDonnell and Northrop entered into a third agreement on

August 26, 1976. (App. p. Lila.) In that agreement, Northrop elected to

design, develop, and produce aircraft derived from the YF-17 “designed on/y

for land-based operations.” The agreement specifically stated that “the

foregoing election by | Northrop] is not in derogation of MeDonnell’s rights

under the Basic Agreement.” (Emphasis added. )

8

—President Carter's administration refused to permit the

sale of the F-18L to Iran.

—President Carter’s Directive No. 13 (“PD-13") declared

that arms transfers would be viewed “as an exceptional foreign

policy implement, to be used only in instances where it can be

clearly demonstrated that the transfer contributes to our na-

tional security interest,” and precluded export to non-exempt

countries of advanced weapons not operationally deployed

with U.S. forces or which were significantly modified solely for

export. The then proposed F-18L fell within both these cate-

gories.

—Canada, exempted from PD-13, eliminated a Northrop

proposed F-18L in its selection of a new fighter aircraft, stat-

ing that it was unwilling to assume the risks of (a) buying an

aircraft not in the service of any other country, (b) involvement

in the development and initial production of the plane, and (c) a

delivery schedule later than it required.

—Additionally, Belgium, the Netherlands, Denmark, Nor-

way, Australia, Spain, Turkey and Greece have eliminated

F-17/F-18L’s in selecting their next generation advanced air

weapons systems from among those competing in the world

market.

6. District Court Proceedings

After nearly a year of extensive discovery, affidavits, briefs

and numerous hearings, the District Court dismissed North-

rop’s First Amended Complaint and McDonnell's Counter-

claim, which it viewed as a mirror image of the Amended

Complaint, on the grounds, among others, that the Govern-

ment was an indispensable party, that the political question

and act-of-state doctrines rendered the matter nonjusticiable,

that the Basic Agreement as Northrop sought to have it con-

strued was a per se illegal division of markets under the Sher-

man Act, and that McDonnell could not have the power to

monopolize the market which the Government controls.

9

7. Proceedings On Appeal

The Ninth Circuit disagreed and reversed each of the Dis-

trict Court’s holdings.

REASONS WHY THE WRIT SHOULD BE GRANTED

I. The Ninth Circuit's Determination That An Obvious Mar-

ket Division Should Be Subjected To A Rule-Of-Reason

Analysis Under The Sherman Act Because Neither The

Military Aircraft Industry Nor Teaming Agreements Have

Received Judicial Scrutiny In A Sherman Act Context Is

Repugnant To This Court's Decisions In Arizona v. Mari-

copa County Medical Society, 457 U.S. 332, 102 S.Ct. 2466

(1982), And United States v. Topco Associates, Inc., 405

U.S. 596 (1972).

Within the past three years, this Court twice has admon-

ished the Ninth Circuit that a rule-of-reason analysis is not to

be applied to a per se violation of the antitrust laws. Catalano,

Inc. v. Target Sales, Inc., supra; and Arizona v. Maricopa

County Medical Society, supra.

Despite this clear and controlling precedent, the Ninth Cir-

cuit in this case persisted in attempting to apply a rule ofreason

toa practice which has uniformly been held to be per se illegal—

a division of markets between competitors. The District Court

had found that:

The Basic Agreement and the August 26, 1976, Agree-

ment, as Northrop would have this court construe and

enforce them, constitute an allocation of markets between

horizontal competitors, per se violative of Section 1 of the

Sherman Act. Under Northrop’s interpretation of those

agreements, McDonnell is limited to selling F-18's only to

the United States Navy for its own use, and then only if

fully equipped for use from carriers and to selling to or for

the use off iecien countries, either directly or through the

United States Government, F-18 aire that are both

carrier-suitable and conform to the configuration and

structure of F-18 aircraft being purchased by the Navy for

its own use, while Northrop is allocated the exclusive

right to all other F-18 marketing opportunities, including

the exclusive right to all Air Force sales, even in the exact

Navy configuration.

Conclusion of Law 45, App. pp. 112a-113a.

10

Despite this naked allocation of customers, the Ninth Circuit

reversed the District Court and held that a rule of reason

rather than a per se test must be applied to the agreements

because (a) “(w]e find no significant judicial rule-of-reason

experience with either the particular practice or industry at

issue here. . . .,” 705 F.2d at 1051-1052, App. p. 37a; and (b)

“(wJhere the effect on competition is equivocal, it is appropri-

ate to examine the purpose of the restraint in deciding whether

to apply the per se rule,” 705 F.2d at 1053, App. p. 39a.

Accordingly, the Ninth Circuit would remand the case for

exactly the kind of “elaborate inquiry into the reasonableness”

of the agreement which in the end “may provide little certainty

or guidance about the legality of a practice in another con-

text... .”, and even though both juries and “[jjudges often

lack the expert understanding of industrial market structures

and behavior to determine with any confidence a practice's

effect on competition.” Arizona v. Maricopa County Medical

Society, 102 S. Ct. at 2472-73 (1982) (citations omitted); United

States v. Topco Associates, Inc., 405 U.S. at 609-10.

The Ninth Circuit’s unsupported industry rationale simply

cannot be squared with Maricopa County Medical Society

where this Court stated:

We are equally unpersuaded by the argument that we

should not apply the per se rule in this case because the

judiciary has little antitrust experience in the [particular]

industry. . ., (T]he argument that the per se rule must be

rejustified for every industry that has not been subject to

signficant antitrust litigation ignores the rationale tor per

se rules, which in part is to avoid “the necessity for an

incredibly complicated and prolonged economic investiga-

tion into the entire history of the industry involved. . . .”

102 S.Ct at 2476. Equally contrary to Maricopa County Medi-

cal Society is the Ninth Circuit’s view that the judiciary has

had no antitrust experience with teaming agreements and that

to condemn teaming agreement market divisions would create

a new per se rule. No new rule is at issue.

11

Horizontal market division, like price fixing, has been held

by this Court to be a practice “unlawful in and of [itself],”

Maricopa County, 102 S. Ct. at 2473 n.15; United States v.

Topco Associates, Inc., supra. As the Fifth Circuit recently

observed in Affiliated Capital Corp. v. City of Houston, 700

F.2d 226, 236 (5th Cir. 1983): “Such agreements have been

classified as naked restraints of trade. A long line of cases

stretching back to the nineteenth century has so condemned

market division. {citations omitted]."* There is no reason why

agreements which allocate customers should be any less con-

demned simply because they may take the form of teaming

arrangements or occur in the military aircraft industry. This is

particularly true when the purpose of Northrop’s desired mar-

ket division is to limit competition so that Northrop can sell an

F-18L at prices substantially higher than McDonnell’s F A-

18A.”

Despite the Ninth Circuit’s effort to distinguish the horizon-

tal market division sought by Northrop from the “run-of-the-

mill . . . market allocation between customers,” 705 F.2d at

1051, it cannot conceal the fact that Northrop is seeking to

prevent McDonnell from selling any F-18 to the U.S. Air Force

and from selling certain versions of the F-18 even to the U.S.

Navy and toit for, or with the Government's permission direct-

ly to, foreign customers.” The anticompetitive effects are self-

evident.

4 It makes no difference whether the agreement between McDonnell and

Northrop is characterized as a division of markets or of customers. United

States v. Topco Associates, Inc., 405 U.S. at 612 (striking down “restrictions

(that] amount to regulation of customers to whom members of Topco may sell

Topco goods”); United States v. Consolidated Laundries Corporation, 291

F.2d 563, 574 (2d Cir. 1961) (“We fail to see any significant differences

between an allocation of customers and an allocation of termtury.”)

> As Northrop argued before the District Court:

“(T]he only way that the [F-18)L can ever compete . . . is for it to have

some unique advantage that will allow it to compensate for the fact that

it’s going to cost more for awhile.”

* Northrop argues that the market division is a reasonable ancillary re-

straint to its alleged retroactive Basic Agreement “license” of “proprietary”

data provided to McDonnell under the Teaming Agreement. Neither the

12

The Ninth Circuit's acceptance of Northrop’s unfounded

allegation that the Basic Agreement could be justified as

procompetitive was rejected by this Court in Maricopa Coun-

ty Medical Society, where it held:

The respondents’ principal argument was that the per se

rule was inapplicable because their agreements are

alleged to have procompetitive justifications. The argu-

ment indicates a misunderstanding of the per se concept.

The anticompetitive potential inherent in all price fixing

agreements justifies their facial invalidation even if

procompetitive justifications are offered for some.

102 S. Ct. at 2477.” See also L’nited States v. Topco Associates,

Inc., 405 U.S. at 610 (“[T]he Court has consistently rejected

the notion that naked restraints of trade are to be tolerated

because they are well intended or because they are allegedly

developed to increase competition.”).

If the Supreme Court fails to accept certiorari in this case,

and fails to summarily reverse the Ninth Circuit’s decision and

reinstate the District Court’s Order, this Court’s holdings in

District Court nor the Ninth Circuit gave much weight to Northrop’s conten-

tion. The District Court found that the agreements were not “licenses” (498

F. Supp. at 1122, Findings of Fact 27 (App. p. 88a) and 35 (App. pp. 90a-91a)

and Conclusions of Law 51 and 52 (App. pp. 1l4a-115a)), but even if they

were, they could not justify the restrictions imposed by Northrop under its

interpretation of the agreements. (Conclusions of Law 55 and 56, App. pp.

115a-116a.) The Ninth Circuit recognized that “Northrop’s licensing theory

alone is probably an insufficient reason to require rule-of-reason analysis

. .” 705 F.2d at 1054, App. p. 4la.

*The Ninth Circuit also incorrectly relies on Broadcast Music, Inc. v.

Columbia Broadcasting System, Inc., 441 U.S. 1(1979). There, as the Court

in Maricopa County pointed out, the blanket license considered “did not

place any restraint on the right of any individual copyright owner to sell his

own compositions separately to any buyer at any price.” 102 S. Ct. at 2479

(Citation omitted). In contrast, Northrop seeks to strictly limit McDonnell

both as to the customers to which McDonnell may sell and the products (in

terms of configuration) McDonnell may sell. See Board of Regents v. NCAA,

1983-1 CCH Trade Cas. © 65,366 at 70,192 (10th Cir.) (restrictions imposed in

Broadcast Music substantially less restrictive than television broadcasting

restrictions imposed by NCAA because copyright holders could sell outside

the blanket licensing arrangement imposed in Broadcast Music).

13

Maricopa County Medical Society and Topco will have been

transgressed, and exhaustive, wasteful, and further ultimate-

ly pointless litigation will be required.

II. The Government Is An Indispensable Party To This Ac-

tion In Which Northrop Seeks To Restrict The Govern-

ment’s Use Of Its “Unlimited Rights” In F-18 Data As The

Government Determines To Be In The Interest Of Nation-

al Defense And Foreign Policy

If it could be held that the District Court abused its discre-

tion in determining that the Government is an indispensable

party to this action involving its rights and vital national de-

fense and foreign policy interests in the F-18, Rule 19 would be

reduced to a nullity.”

As the District Court correctly found:

Procurement of the design, development and production

of weapons systems for the defense of the nation is a

governmental function peculiarly left to an a.nalgam of

executive and legislative powers. In the exercise of those

plenary pede the Government—subject only to self-

aosonet P imitations—has the right to designate the who,

what, when and where of weapons systems production.

When that right can be called into question by a Court in

what cosmetically is a dispute between private parties,

the United States Government comes within tne con-

siderations of indispensability delineated by Rule 19,

F.R.Civ. P. (Emphasis added.)

498 F.Supp. at 1117, App. pp. 60a-61a.

* The Ninth Circuit panel's decision violated the Ninth Circuit's own teach-

ings in Bakia v. County of Los Angeles, 687 F.2d 299 (9th Cir. 1982) and

Walsh v. Centeio, 692 F.2d 1239 (9th Cir. 1982). Completely disregarding the

District Court's detailed findings of fact and conclusions of law, it

impermissibly substituted its own discretion for that of the District Court.

Indeed, the decision as initially filed made no mention of Bakia and Walsh.

After the decision, petitioner pointed to this flaw, and the pane! amended its

opinion in a transparent aitempt to correct the error which remains apparent

on the face of the decision. (App. p. 52a.) Compare 700 F.2d at 518-19 with

705 F.2d at 1043.

14

The Ninth Circuit's opinion, in the absence of the Govern-

ment, has circumscribed the admitted “unlimited rights” of the

Government not only in YF-17 and F-18 data, but also in all

“unlimited rights” data which the Government has acquired or

may in the future acquire in any weapons system. This is

precisely what Rule 19 was designed to prevent.

The Ninth Circuit states that, if McDonnell used “YF-17

derivative data” (i.e., F-18 data under Northrop’s construc-

tion), and if such use “violated [McDonnell’s] antecedent prom-

ises to Northrop”, McDonnell would be liable to Northrop,

notwithstanding McDonnell’s reliance on the Government's

unlimited rights in that data. 705 F.2d at 1045. Without consid-

eration of the injunctive relief Northrop actually seeks, this

holding, qualifying McDonnell’s use of the Government's unli-

mited rights data, is no less a restraint on the Government's

rights to “use... ordisclose... in any manner and for any

purpose whatsoever... and to have or permit others to” use

the data (DAR 9-201(d)) than an order directly against the

Government prohibiting such disclosure to or use by McDon-

nell. The effect is the same.*

The Ninth Circuit’s opinion, brushing aside the Govern-

ment’s indispensability in finding neither of the alternative

requisites of Rule 19(a) were present here, is grossly errone-

ous. The Ninth Circuit in dealing with the first factor of Rule

19(a) confused “complete relief,” which cannot be accorded

absent the Government, with “meaningful” relief. It simply

ignored the District Court’s specific finding that any judgment

granting Northrop’s requested relief cannot be complete or

adequate because it would not bind the Government. (Con-

clusion of Law 15, App. pp. 103a-104a.)

In sweeping aside the second factor of Rule 19a), the Ninth

Circuit incredibly and impermissibly assumed from the

* See also DAR 9-202(b\(1), Government shall acquire “unlimited rights in

data resulting from performance of “experimental, developmental or re-

search work”; and 9-202.2(e) which implicitly confirms a prime contractor's

right to use subcontract “unlimited rights” data, as any other perso, to

whom data is disclosed.

15

Government's absence—from a suit in which it could not be

joined—that the Government has no protectable interest.

First, Rule 19 does not require the indispensable party to

assert a legally protected interest. The absence ofa party is the

reason for the existence of Rule 19. It is fundamental that:

The test, therefore, in the determination of whether an

action is one against the United States, is not determined

by the named parties but is determined by the relief sought

and the results of any judgment or decree which might be

entered pursuant thereto, (Emphasis added. )

Ogden River Water Users’ Assn. v. Weber Basin Water Con-

servancy, 238 F.2d 936, 941 (10th Cir. 1956).

Second, it is plainly wrong to hold that the Government,

which has spent billions of dollars to develop and acquire the

design data and technology of the F-18 and to bring it into

production, with McDonnell as prime contractor, for use as an

implement of national defense and foreign policy (see pp. 1-2,

7-8, supra) has no claimed interest in the F-18.

Not only does the Government have an interest in the F-18

within the meaning of Rule 19(a)(2), but the relief requested by

Northrop “may (i) as a practical matter impair or impede [the

Government's] ability to protect that interest or (ii) leave

[McDennell] subject to a substantial risk of incurring double,

multiple, or otherwise inconsistent obligations by reason of

[the Government’s] claimed interest.”

Despite Northrop’s ambivalent representations concerning

the injunctive and damage relief it seeks, the determination of

any of Northrop’s claims or the grant of any of Northrop’s

requested relief will inescapably impact the Government's

rights in the F-18. While such relief would not be against the

Government, it would immediately and severely constrain the

scope and affect the exercise and value of the Government's

rights, notwithstanding the fact that the Government has paid

Northrop more than two billion dollars as YF-17 prime con-

tractor and F-18 subcontractor to McDonnell. Declaratory and

damage relief would have no less impact on the Government's

rights and interests than the injunctions, in fact, requested

16

(See p. 3, supra). As Northrop argued to the District Court,

“The Government. . . could not override a simple declaration

of rights under the parties’ contracts, or an award of damages

[or] fair market value.”

The Ninth Circuit’s conclusion makes a mockery out of the

Government's rights. If McDonnell were required to pay

Northrop for use of the Government’s “unlimited rights” data,

McDonnell would be deterred from using the data. This would

impact the Government’s costs either (a) due to loss of the

Government's paid-for McDonnell production efficiencies,

which Northrop acknowledges in seeking to justify restraints

to overcome its resulting price disadvantage,'’ or (b) because

McDonnell could afford to use the data only if the Government

paid the costs incurred by McDonnell for its use.'!

Such results would inevitably prejudice the Government’s

rights and violate the policies stated in (a) DAR 9-201(d), which

defines the Government’s “unlimited rights” in data, (b) DAR

9-301.2 which, reflecting such rights, states that the Govern-

ment should not pay for the use of data in which the Govern-

ment has acquired “unlimited rights,” and (c) DAR 4-117 which

precludes teaming arrangements that “limit the Government's

The Government also would be exposed to multiple tooling, facilities,

and similar costs. Further, to the extent of lost sales to foreign customers

due to such a price disadvantage, the Government would lose not only the

benefit to it of higher production rate efficiencies, but also the research and

development recoupment charges which such foreign customers would pay

(DAR 1-2403 and 6-1306),

'! Such costs would be allowable costs under DAR Section XV, and the

Government would be required, depending on the contract type, either to

reimburse McDonnell for the costs or, at least prospectively, to include the

costs in its contract price. In any event, if the Government elected to require

McDonnell's production of an F-18 contrary to Northrop’s claims, it would be

obligated to indemnify McDonnell. 50 U.S.C, App, § 2071; 15 C.F_R. Part

350, § 24. The Government could also face liability to Northrop under 10

U.S.C, § 2273 and under 22 U.S.C. § 2856, as the District Court and Ninth

Circuit respectively concluded, 498 F.Supp at 1115-1119 705 F.2d at 1040,

17

rights” to “provide the selected prime contractor with data

rights owned or controlled by the Government.”

Furthermore, if a judgment was rendered as requested by

Northrop, McDonnell would be subjected to the risk of incurr-

ing double or otherwise inconsistent obligations by reason of

the Government's “unlimited rights” in the F-18. Under the

“Changes” clauses mandated by DAR" in existing and future

contracts, the Government has the right to direct changes in

the configuration of F-18's being produced by McDonnell.

Thus, McDonnell would be subject to an order precluding it

from making changes inevitable in the evolution of an air

weapons system over its useful life,’ and obligated to the

Government to make such changes.

Having avoided an analysis of Rule 19(b) by finding that the

tests of 19(a) were not met, the Ninth Circuit did not discuss

the tests of Rule 19(b). The District Court analyzed these

tests, found that the factors of Rule 19(b) were met, and

'? Unquestionably, the Government's rights and interests are more direct-

ly and seriously threatened in this case than they were in Franz v. East

Columbia Basin Irrigation District, 383 F.2d 391 (9th Cir, 1967) (United

States indispensable to a suit by a private owner of land in Irrigation District

complaining he was not allowed to withdraw land from District, the court

stating “if [plaintiff is} allowed to withdraw [his land] from the Lrrigation

District, the financial solvency of the project will be threatened and the

chances of repayment to the United States of money invested in the project

will be damaged"); Carlson v. Tulalip Tribes of Washington, 510 F.2d 1337

(9th Cir. 1975) (Government indispensable to a private couple’s suit to quiet

title in their land against claims by an Indian tribe); or Blake Construction

Co, ¥. American Vocational Ass'n, 419 F.2d 308 (D.C, Cir, 1969) (Govern-

ment indispensable to a suit by a construction company seeking to impress a

trust on funds received by another contractor from the GSA).

'S See, e.g., 7-103, 7-103,2, 7-203 and 7-203.2.

E.g., the F-4 Phantom originated as a Navy fleet defense fighter, but

became a tactical fighter/bomber, with mission oriented changes. Here, for

example, for cost or weight-saving mission purposes, the Government could

well direct McDonnell to delete from some U.S. Navy F-18's any number of

features, such as the bolt-on bolt-off launch bar used for carrier take-offs, not

required for U.S. Marine Corps shore-based uses.

18

correctly determined that the Government was an in-

dispensable party. (See Conclusions of Law 9-26, App. pp.

101a-108a. )

To correct the misapplication of Rule 19 and the prejudice to

the Government's rights created by the Ninth Circuit's opin-

ion, this Court should review it and reinstate the District

Court's decision.

III. The Ninth Circuit's Decision That The Political Ques-

tion And Act-Of-State Doctrines Are Not Applicable To

This Dispute Over Who Can Produce And Sell F-18’s

Conflicts With This Court's Decision In Gilligan v. Mor-

gan, 413 U.S. 1(1973), And The Second Circuit's Decision

In Hunt v. Mobil Oil Corp., 550 F.2d 68 (1977).

Judicial determination of Northrop’s contract, tort, attempt

to monopolize and unfair competition claims over who can

produce and sell which configurations of the F-18, to which

military services of the Government and to which of its allies,

and whether McDonnell attempted to monopolize will neces-

sarily entangle the Judicial Branch in national defense and

foreign policy matters, including the motivations for military

procurement decisions of the Government and of foreign

states, matters committed to the Legislative and Executive

Branches of the United States Government under Art. I § 8,

Cls. 12, 18, 14 and 16 and Art. II, § 2, of the Constitution.

The Political Question

As this Court in Gilligan v. Morgan, 413 U.S. 1, 10-11 (1973)

stated:

(I}t is difficult to conceive of an area of governmental

activity in which the courts have less competence. The

complex, subtle, and professional decisions as to the

composition, training, equipping, and control of a military

force are essentially professional military judgments, sub-

ject always to civilian control of the Legislative and Ex-

ecutive Branches. .. . It is this power of oversight and

control of military force by elected representatives and

officials which underlies our entire constitutional system;

19

the majority opinion of the Court of Appeals failed to give

appropriate weight to this separation of powers.

The all pervasive direct and ultimate control by the Govern-

ment as the sole domestic buyer and the sole arbiter of foreign

sales and seller of all Foreign Military Sales (“FMS sales”)”

distinguishes this dispute, only “cosmetically ... a dispute

between private parties” as found by the District Court (498

F.Supp at 1117), from the mere “private commercial activity

which the judiciary is uniquely equipped to resolve” seen by

the Ninth Circuit (705 F.2d at 1047).

Contrary to the Ninth Circuit's statement, the District

Court identified al! of the factors in Baker v. Carr, 369 U.S.

186 (1962) as applicable to Northrop’s claims and McDonnell’s

defenses. With no recognition or discussion of the voluminous

uncontroverted record of Government control and decisions

affecting Northrop’s sales efforts, the Ninth Circuit

simplistically concluded that it discerned “no support for

characterizing Northrop’s claims as political questions. . . .”

705 F.2d at 1047, App. p. 27a. The Ninth Circuit’s error pro-

ceeded from its failure to recognize the scope and significance

of the Government’s “unlimited rights” and the record of the

extent to which the Government has and in the future may

exercise these rights through military procurement decisions.

In attempting to distinguish Gilligan, the Ninth Circuit

focused solely on alleged activity by McDonnell as private

commercial conduct “neither authorized nor directed by . . .

the Government.” 705 F.2d at 1047. It failed, however, to

comprehend that, as pleaded by Northrop (see note 18, infra),

it could not have been McDonnell’s alleged misconduct which

may have caused Northrop’s alleged injury. Any injury was

caused by the decisions of our Government, including the Con-

gressional NACF technology directive, the DOD and Navy's

teaming request, the Air Force's selection of the F-16 over the

F-17, the Navy’s selection of the F-18 and of McDonnell as its

15 See, e.g., Conclusions of Law 1, 9, 34-37, 63, App. pp. 99a, 101a, 110a-

llla, 117a.

20

prime contractor, the Government's decision not to procure

either the F-17 or an F-18L for its use, the Government's

determination of the allies to which F-18L’s could and could not

be offered or sold—together with the decisions of allies not to

procure an F-18L.

These and other military procurement decisions of the

Legislative and Executive Branches must of necessity be ex-

amined by the judiciary if Northrop is to establish the fact and

amount of injury and if McDonnell is to defend itself against

Northrop’s claims.

By concluding that Northrop’s “claims” are not “political

questions,” thus failing to recognize that it is the u/timate

issues to be resolved that are “political questions,” the Ninth

Circuit has entered the thicket of Baker v. Carr and

impermissibly catapulted the judiciary into the arming and

equipping of our armed forces and those of our allies, in conflict

with the dictates of Gilligan v. Morgan, 413 U.S. 1, at 10-13

(1973), that such matters are non-justiciable political ques-

tions.

Act-of-State Doctrine

Given the uncontroverted record before it, the Ninth Cir-

cuit’s ruling that the act-of-state doctrine is not applicable to

this suit cannot be reconciled with the Second Circuit's ruling

in Hunt v. Mobil Oil Corp., 550 F.2d 68 (1977), which held that

even though a party does not challenge the foreign act itself, if

inquiry into the motivations or reasons for the act is necesary,

then the suit is barred. Significantly, the Ninth Circuit opinion

fails to even mention Hunt.

Like plaintiff in Hunt, Northrop contended below that it

does not challenge the foreign state’s procurement decisions,

but only that such decisions were, and will be, induced by

alleged conduct of McDonnell. The Ninth Circuit's view that it

will not be necessary to inquire into foreign decisions to deter-

mine the causal effect of the alleged activity was pointedly

rejected by Hunt:

21

It is well established that a private plaintiff who seeks

damages in an antitrust action must allege and establish

that his business or property was injured as a direct result

of the Sherman Act violation. 550 F.2d at 76."

Faced with allegations strikingly similar to Northrop’s here,

the court in General Aircraft Corp. v. Air America, Inc., 482

F. Supp. 3, 6-7 (D.D.C. 1979), following Hunt, held:

(Where the injury complained of results directly from the

acts or decisions of a foreign sovereign and only indirectly

from defendants’ allegedly unlawful anti-competitive acti-

vities, the Court must dismiss the claims. ... The

motivation underlying purchasing decisions made by for-

eign governments is an essential issue raised by the plead-

ings....

See also Bokkelen v. Grumman Aerospace Corp., 432 F. Supp.

329, 333 (E.D.N.Y. 1977), which also followed Hunt.

Northrop admits, and the District Court and Ninth Circuit

found, that military procurement decisions of foreign

sovereigns are acts of state. The Nintu Circuit, but not the

District Court, chose to ignore that, as pleaded, Northrop

must demonstrate that its business was damaged as a result of

these decisions of foreign states not to purchase an F-18L and

that it was the alleged misconduct of McDonnell which directly

or indirectly wrongfully caused these decisions. Radiant Bur-

ners, Inc. v. Peoples Gas Light and Coke Company, 364 U.S.

656, 660 (1961); Salerno v. American League of American

Baseball Clubs, 429 F.2d 1003, 1004 (2d Cir. 1970). McDonnell,

in defense, has the right to demonstrate that its conduct,

Hunt also rejected the Ninth Circuit's approach here, that since North-

rop seemingly has stated a claim, whether or not it can ultimately prove a

causal connection, dismissal prior to trial is inappropriate. Hunt noted that

there could be no antitrust liability attributed to defendants unless plaintiff

could prove that, but for the challenged activity, Libya would not have

moved against it, and, thus, the act-of-state doctrine was inescapably raised

by the pleadings and would be considered on a motion to dismiss. 550 F.2d at

76.

whether or not wrongful, did not influence and cause these

decisions. "*

The Ninth Circuit further chose to ignore that, in requiring a

rule-of-reason analysis under Section 1 of the Sherman Act and

in disregarding the Government's control of the market, the

judiciary will be required to examine the military aircraft

industry of the free world, and in that context to define the

relevant product and geographic markets and measure the

reasonableness of Northrop’s alleged restraints and McDon-

nell’s power to monopolize. Such an examination in turn will

require analysis of the air weapons acquisition process of the

United States and its allies, their defense requirements (in-

cluding present inventory mix, mission requirements, and

projected inventory requirements), internal political forces,

foreign policies, industrial base, technical and financial capabi-

lities, and their coproduction and offset requirements and de-

mands. It will also require examination of the negotiations and

deliberations of the United States with those foreign allies

respecting these highly sensitive matters relating to the sale of

the F-18 as an instrument of U.S. foreign policy.

Examination of these issues raises insurmountable problems

of discovery and proof, including securing this highly sensitive

evidence and testimony.

If the Ninth Circuit’s decision is permitted to stand in con-

flict with Hunt v. Mobil Oil Corp., supra, judicial examination

into these motivations and acts and policies of our allies in

eliminating F-18L’s from their consideration must necessarily

commence upon remand.

The Ninth Circuit dealt too simplistically with its own decision in Tim-

berlane Lumber Co. v. Bank of America, N.T. & S.A., 549 F.2d 597 (9th Cir.

1976). It based its opinion on superficial distinctions, such as whether North-

rop sought relief against any sovereign state (705 F.2d at 1049) instead of

whether, as here, a decision in the case will have “the potential for in-

terference with our foreign relations” (549 F.2d at 607), in which circum-

stance the judiciary must abstain from further inquiry.

23

IV. A Prime Contractor Cannot Unlawfully Attempt To

Monopolize A Military Air Weapons System Market In

Which The Production, Sale, Purchase And Use Of The

Product Is Controlled By The U.S. Government.

Northrop sought below to elevate contract, tort and unfair

competition allegations against McDonnell to the level of an

attempted monopolization claim sufficient to withstand a sum-

mary judgment motion." Accepting, arguendo, that the acts

alleged to be predatory actually occurred, given the Govern-

ment’s pervasive control, no market encompassing the F A-

18A and its variants'’ could be “monopolized” as that term has

been defined by this Court.

The District Court correctly addressed this issue when it

stated:

The United States Government has the absolute and over-

riding control of both the production and sales potential of

the product that brings these parties into vitriolic con-

flict... . The United States Government is the market

concerned with production and distribution of weapons

systems for governmental military establishments. .. .

The United States Government also makes the world mar-

ket. No single group of producers has any power to expand

a market share beyond that pido rene F by the United

States Government in the implementation of domestic

defense and foreign policy which is in the best interest of

its citizens.

498 F. Supp. at 1123, App. pp. 72a-73a.°

'* In its attempt to cast McDonnell in the role of a predator, Northrop in its

Brief before the Ninth Circuit raised additional allegations of conduct (@.g.,

boycott, withholding of data) which neither appear in its Amended Com-

plaint nor arise from it by fair implication.

‘* Northrop has alleged that the “F A-18A and F-18L constitute a relevant

submarket for the purposes of Section 2 of the Sherman Act... .” Amended

Complaint € 81, App. p. 166a. McDonnell has accepted this market definition

for purposes of disposition of its motions to dismiss and for summary judg-

ment only.

* See also Findings of Fact 50-58, App. pp. 96a-99a; Conclusions of Law

63-67, App. pp. 117a-119a.

24

The effect of this Governmental control in the market for

advanced weapons systems is widely acknowledged: “In order

to understand the economic operations of the U.S. defense

industry, it is first absolutely essential to recognize that there

is no free market at work in this area and that there likely

cannot be one because of the dominant role played by the

federal government.” J. Gansler, The Defense Industry 69

(1980). As noted in the recent book describing the ACF

competition and the selection of the F-16 over Northrop’s

proposed F-17 by the U.S. Air Force and the European Con-

sortium nations: “No free markets exist in this milieu, there is

usually only one customer, price competition is often

irrelevant, the government bureaucracy is stifling.” I. Dérfer,

Arms Deal, The Selling of the F-16 xv (1983). As put in Arms

Transfers in the Modern World 207 (S. Newman & R. Har-

kavy, eds. 1979): “Fighter planes are not made in heaven, but

in Congress.”

Because of the overarching control exercised by the Govern-

ment, no seller of an advanced air weapons system can attain

monopoly power, a necessary element of the offense of

* For similar views, See M. Peck & F. Scherer, The Weapons Acquisition

Process; An Economic Analysis 57-60 (1962); J.R. Fox, Arming America:

How the U.S. Buys Weapons 37-39, 385 (1974).

= “Monopoly power” has been defined by this Court as ‘the power to raise

prices or exclude competition” in the relevant market. U'wited States v. E.1.

Du Pont De Nemours & Co., 351 U.S. 377, 391 (1956). The term is frequently

used interchangeably with “market power,” which is defined as “the ability

to raise price by restricting output.” II P. Areeda & D. Turner, Antitrust

Law © 501 (1978).

McDonnell does not possess the actual or threatened ability to raise prices

for the F-18 by limiting the quantity produced. Northrop and the Ninth

Circuit recognized that, McDonnell could not exclude competition by

preventing the Government from purchasing the F-18 (for itself or for

foreign purchasers) from any source the Government designated. 705 F.2d at

1045. Northrop’s claims of threatened unlawful exclusion from the market by

McDonnell are particularly incredible in light of the fact that Northrop is

performing more than a 40% workshare in F-18's built by McDonnell as

prime contractor.

25

monopolization.”’ Andina market where the completed offense

of monopolization could not occur, it is axiomatic that unlawful

attempted monopolization cannot be established either.*

Under this Court’s prior holdings, proof of three factors is

necessary to establish attempted monopolization: (1) a specific

intent to monopolize; (2) predatory or anticompetitive conduct

or acts engaged in to further that intent; and (3) a dangerous

probability that the defendant would, if its acts were success-

ful, achieve monopoly power.” Logically, establishing this fin-

al “dangerous probability” element requires a showing that the

defendant presently possesses, in a relevant market, a power

proximate to monopoly power—a showing which has not and

cannot be made here.

The dangerous probability requirement first articulated in

Swift, has been followed consistently by this Court and by all

circuits,” save one—the Ninth. Application of the requirement

has been exceptionally controversial within that circuit. 705

F2d at 1058. Although some Ninth Circuit decisions have

employed the classic formulation,” others have drastically de-

parted from its standards. In a widely-criticized line of cases

commencing with Lessig v. Tidewater Oil Co., 327 F.2d 459

(9th Cir. 1964), cert. denied, 377 U.S. 993 (1964), some Ninth

Circuit decisions have completely dispensed with the danger-

“E.g., United States v. Grinnell Corp., 384 U.S. 563, 570 (1966).

“+McDonnell does not argue that the defense industry is immune from

antitrust scrutiny. It simply asserts that the elements of a Section 2 violation

have not and cannot be established in this particular instance.

> Swift & Co. v. United States, 196 U.S. 375 (1905), See also, Lorain

Journal Co. v. United States, 342 U.S. 143 (1951); American Tobacco Co. v.

United States, 328 U.S. 781 (1946).

*> See Handler & Steuer, Attempts to Monopolize and No Fault

Monopolization, 129 U.Pa.L. Rev. 125, 128-29 (1980).

7 See, e.g., Cornwell Quality Tools Co. v. C.T.S. Co., 446 F.2d 825 (9th

Cir. 1971), cert. denied, 404 U.S. 1049 (1972); Wisdom Rubber Indus., Inc. v.

Johns-Manville Sales Corp., 415 F. Supp. 363 (D. Hawaii 1976).

26

ous probability requirement.* A third line of authority within

the circuit, while purporting to impose the traditional stand-

ard, permits a dangerous probability to be inferred from speci-

fic intent, which in turn can be inferred from conduct.”

The Ninth Circuit below attempted to sidestep this con-

ceptual morass by finding that “there was sufficient evidence

of McDonnell’s probability of success to avoid summary judg-

ment.” 705 F.2d at 1058. But since it failed to explain how

McDonnell could possess the power to monopolize the

Government-controlled market, its holding that Northrop has

established a prima facie attempted monopolization claim can

only be supported by either dispensing with the dangerous

probability requirement completely or by inferring its ex-

istence. The flaw in such an approach in this instance is evi-

dent. The Ninth Circuit’s decision is thus in conflict with the

teachings of this Court and with sound antitrust policy.”

* E.9., Greyhound Computer Corp. v. 1BM, 559 F.2d 488 (9th Cir. 1977),

cert. denied, 434 U.S. 1040 (1978); Knutson v. The Daily Review, Inc., 548

F.2d 795 (9th Cir. 1976). cert. denied, 433 U.S. 910 (1977).

* EB .g., Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d

1291 (9th Cir.), cert. denied, 103 S.Ct. 364 (1982); Janich Bros. v. American

Distilling Co., 570 F.2d 848 (9th Cir. 1977), cert. denied, 439 U.S. 829 (1978).

When so inferred, “dangerous probability in effect is conclusively

presumed—in other words, dispensed with.” Handler & Steuer, Affe pts to

Monopolize and No Fault Monopolization, 129 U. Pa. L. Rev. 125, 157-58

(1980).

® As Don T. Hibner, Jr., co-counsel below for Northrop, warned in a 1967

article:

When a court [in an attempted monopolization case) either allows a

very narrow market definition, or dispenses with market analysis

altogether, the advantages to a treble damage plaintiff are almost

without dimension:

...(e) Any business tort, whether unfair competition or trade libel,

can be pleaded as an attempt to monopolize case, and treble damages

sought.

Hibner, Attempts to Monopolize: A Concept In Search of Analysis, 34

Antitrust L.J. 165, 168-69 (1967). This approach “should be disturbing not

only to defense oriented antitrust lawyers, but to antitrust scholars as well.”

Id. at 171.

oe

Moreover, the decision is particularly distressing in that it

would unnecessarily require a trial of meritless claims. In the

words of one recent commentary:

Almost without exception, when courts have ruled in

favor of plaintiffs in the Ninth Circuit, it has been only to

deny or reverse a summary determination and to require

further proceedings. It is the ten other circuits that have

expedited litigation, by refusing to entertain attempted

monopolization claims when it is clear that no dangerous

probability exists. Handler & Steuer, supra note 26 at

163.

This case, then, presents the Court with the opportunity to

correct a serious and potentially costly error and to provide

much-needed guidance to the lower courts and the business

community on the law of attempted monopolization and the

dangerous probability requirement, which the Court has not

substantively analyzed in over thirty years.” The public in-

terest would be well-served by the Court's consideration of

this important issue in the context of a dispute affecting the

availability of an advanced air weapons system vital to our

national defense and foreign policy.

*! “What is needed today is clarification, to assure that (the dangerous

probability] requirement is preserved and to correct the disarray caused by

the Ninth Circuit rulings. . . . [T]he resulting uncertainty should be allayed

as soon as possible.” Handler, Reforming the Antitrust Laws, 82 Col. L.

Rev. 1287, 1353 (1982).

V. Conclusion

For the reasons stated herein, this Court should grant the

Petition for Certiorari, reverse the opinion of the Ninth Circuit

and reinstate the District Court’s decision.

Respectfully submitted,

GEORGE S. HECKER

(Counsel of Record)

CHARLES A. WEISS

E. PERRY JOHNSON

DANIEL C, SCHWARTZ

Bryan, CAVE, MCPHEETERS & MCROBERTS

500 North Broadway

St. Louis, Missouri 63102

(314) 231-8600

Attorneys for Petitioner

July 18, 1983