Appendix — Ethicon, Inc. v. Handgards, Inc.
Supreme Court brief1985
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No. 84-___ | : £0 i964
IN THE
Supreme Court of the United States
OCTOBER TERM, 1984
>_>
ETHICON, INC.,
Petitioner,
—_—Vo—
HANDGARDS, INC.,
Respondent.
APPENDIX TO PETITION FOR A WRIT OF
CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
DAVID F. DOBBINS
PATTERSON, BELKNAP, WEBB & TYLER
30 Rockefeller Plaza
New York, New York 10112
(212) 541-4000
Counsel for Petitioner
Of Counsel:
GEORGE S. FRAZZA
ROGER S. FINE
ROBERT P. LOBUE
Index to Appendices
PAGE
Appendix A—Handgards, Inc. v. Ethicon Inc., Nos.
83-1575, 83-1646 (9th Cir., Aug. 2, 1984)
(unamended) and judgment thereon .... la
Appendix B—Handgards, Inc. vy. Ethicon Inc., Nos.
83-1575, 83-1646 (9th Cir., Sept. 26,
1984) (amending August 2 opinion) .... 34a
Appendix C—Handgards, Inc. v. Ethicon, Inc., 601
F.2d 986 (9th Cir. 1979), cert. denied, 444
Ss CEE “5 S's oes none e nen eben ae 37a
Appendix D—Handgards, Inc. v. Ethicon, Inc., 552
F.Supp. 820 (N.D. Cal. 1982) ......... 62a
Appendix E—Handgards, Inc. v. Johnson & Johnson,
1976-2 Trade Cas. (CCH) § 61,138 (N.D.
ET Wisc eek cake vate dade tks es 70a
Appendix F—Handgards, Inc. v. Johnson & Johnson,
413 F.Supp. 921 (N.D. Cal. 1975) ...... 80a
Appendix G—Cases Deciding Noerr-Pennington/Sham
EE cp becpdcbacecuaetu ds 88a
EE cuba elueutosvertesiews esas Kes 104a
Appendix A
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 83-1575
No. 83-1646
DC# CV-49491-SAW
nos
HANDGARDS, INC., A CORPORATION,
Plaintiff-Appellee,
VS.
ETHICON, INC., A CORPORATION,
Defendant-Appellant.
— ++
Appeal from the United States District Court for the
Northern District of California
Stanley A. Weigel, District Judge, Presiding
Argued and Submitted December 20, 1983
— —+ >
Before:
SNEED, KENNEDY, and BOOCHEVER,
Circuit Judges.
2a
OPINION
SNEED, Circuit Judge:
Handgards, Inc. (Handgards) filed this suit against Ethicon,
Inc. (Ethicon) for initiating and pursuing a veries of bad faith
patent infringement suits in an attempt to monopolize the
market for heat-sealed plastic gloves sold to manufacturers of
home hair coloring kits. A jury returned a verdict in favor of
Handgards, and Ethicon appealed. In Handgards, Inc. v.
Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979) (Handgards !), cert.
denied, 444 U.S. 1025 (1980), we established a clear and
convincing standard for section 2 antitrust liability resulting
from the prosecution of a patent suit in bad faith. We then
reversed and remanded this case for a new trial.
After a new trial, the jury found Ethicon liable under section
2 of the Sherman Act. The district court denied Ethicon’s
motion for a judgment notwithstanding the verdict. See
Handgards, Inc. v. Ethicon, Inc., 552 F. Supp. 820 (N.D. Cal.
1982) (Handgards II). Ethicon appeals this judgment in all
respects. We affirm.
Ethicon’s appeal raises the following issues:
1. Does this court have jurisdiction over this appeal?
2. Does substantial evidence support the jury’s finding
that Handgards had proven by clear and convincing
evidence that Ethicon prosecuted its patent infringement
action in bad faith in violation of section 2 of the
Sherman Act?
3. Did the trial court err in refusing to instruct the jury
that liability under the Sherman Act required a finding by
the jury that Ethicon’s patent infringement suit was a
“sham” proceeding within the meaning of the Noerr-Pen-
nington doctrine?
4. Were the injuries suffered by Handgards such as to
afford it standing to seek treble damages under the
Sherman Act as required by Associated General Contrac-
tors of California, Inc. v. California State Council of
Carpenters, 103 S. Ct. 897 (1983)?
3a
5. Was the damage award by the jury properly supported
by the evidence?
6. Did the trial court err in awarding post-judgment
interest from the date of the entry of the first judgment in
1976?
After concluding that this court has jurisdiction to hear and
determine this appeal, we resolve each of these issues in a
manner favorable to Handgards.
L.
FACTS AND PROCEEDINGS BELOW
A complete statement of the facts is set forth in Handgards
I, 601 F.2d at 988-92; therefore, here we shall outline the
history of the prior litigation only briefly.
In 1962 Ethicon filed a patent suit against Plasticsmith, Inc.
and Mercury Manufacturing Company, two corporations that
subsequently combined to form Handgards. Ethicon alleged
that these corporations had infringed its Gerard and Orsini
patents involving the production of plastic gloves. In 1968 the
trial court entered judgment for Handgards because it found
Ethicon’s Gerard patent invalid on the basis of “prior public
use” by Lyle Shabram. Ethicon had dropped its enforcement
of the Orsini patent earlier in the case. This court affirmed the
district court’s decision, and the Supreme Court denied review.
Ethicon, Inc. v. Handgards, Inc., 432 F.2d 438 (9th Cir. 1970),
cert. denied, 402 U.S. 929 (1971).
Meanwhile, in 1968 Handgards filed this civil antitrust
action alleging that Ethicon and its parent, Johnson & John-
son, “had either unilaterally or in concert, monopolized, at-
tempted to monopolize, and conspired to monopolize trade
and commerce for the purpose of eliminating plaintiff as a
competitor in the sale of disposable plastic gloves to the health
care and medical markets.” Handgards I, 601 F.2d at 989.
Handgards also sought a declaration of invalidity of the Orsini
patent. Jd. at 991. The jury found the Orsini patent valid under
a preponderance of the evidence proof standard; yet, it found
9
4a
Ethicon liable for bad faith prosecution of the invalid Gerard
patent. The jury also found that no conspiracy to monopolize
had existed between Johnson & Johnson and Ethicon.
Handgards was awarded $2,073,000 before trebling, See id. at
991-92. On appeal, we reversed the jury’s antitrust verdict and
imposed a clear and convincing standard of proof for bad faith
prosecution of a patent infringement action. Jd. at 996-98.'
After a new jury trial, the district court entered a verdict of
$3,587,331 before trebling, attorneys’ fees of $1,064,943, and
about $3,000,000 in post-judgment interest, Handgards II, 552
F. Supp. at 824. Ethicon’s motion for a judgment notwith-
standing the verdict, or, in the alternative, a new trial was
denied. /d. at 821.
II.
JURISDICTION
In 1982 Congress passed the Federal Courts Improvement
Act of 1982 in part to promote predictability, uniformity, and
the efficient administration of patent law. Pub. L. No. 97-164,
96 Stat. 25. See S. Rep. No. 275, 97th Cong, Ist Sess. 1,
reprinted in 1982 U.S. Code Cong. & Ad. News 11. To achieve
these goals, Congress created the United States Court of
Appeals for the Federal Circuit (Federal Circuit). See generally
Note, An Appraisal of the Court of Appeals for the Federal
Circuit, 57 S. Cal. L. Rev. 301 (1984). The Federal Circuit was
given exclusive jurisdiction “of an appeal from a final decision
of a district court of the United States . . . if the jurisdiction
of that court was based, in whole or in part, on section 1338.”
28 U.S.C. § 1295(a)(1)(1982)(emphasis added). Section 1338 (a)
gives district courts exclusive jurisdiction over “any civil action
arising under any Act of Congress relating to patents.” 28
U.S.C. § 1338 (1982). Because section 1295 is in effect for all
l We also found “that no evidence of any overall scheme to monopo-
lize exist{ed] apart from allegations that directly relate[d] to the bad faith
prosecution charges.” 601 F.2d at 994 (emphasis in original). Thus,
Handgards’ second claim of an “overall scheme” to monopolize was re-
jected.
Sa
appeals filed after October 1, 1982, see Pub. L. 97-164, § 402,
96 Stat. 57, it is applicable to this appeal. Both parties suggest
that we have jurisdiction, and we agree.”
The phrase “based, in whole or in part, on section 1338,” is
new and, as far as we know, has not been interpreted in the
context of a mixed patent/antitrust appeal by any court.
Commentators have argued that this language could support
several types of jurisdiction.» See Newman, Tails and Dogs:
2 Our ability to determine whether this appeal lies within section 1291
or section 1295 is inherent in a court’s ability to determine its own jurisdic-
tion. See United States v. United Mine Workers of America, 330 U.S. 258
(1947); C. Wright, The Law of Federal Courts § 16 (4th ed. 1983).
3 Judge Jon O. Newman has summarized three basic approaches to the
Federal Circuit’s jurisdiction as follows:
First, the CAFC [{(Federal Circuit)] could have what might be called
traditional “arising under” jurisdiction. Under this approach an entire
case would be appealable to the CAFC if a claim in the district court
arose under the patent laws. That approach would clearly send the
whole case to the CAFC when the plaintiff asserted a patent claim
(either of infringement or patent invalidity), but might not have this
effect if the patent claim was asserted only as a defense. Second, the
CAFC could have what might be called “case” jurisdiction. Under this
approach, the entire case would be appealable to the CAFC, so long as
there was a patent issue in the case, whether or not that issue was
raised solely as a defense. Third, the CAFC could have what might be
called “issue” jurisdiction. Under this approach, only the patent issues
would be appealable to the CAFC, leaving the remaining issues for
appeal to the court of appeals for the pertinent geographic area.
Newman, supra, at 238-39. A student note advances a fourth approach that
combines both case and issue jurisdiction. See Note, supra, at 332-33. We
believe that only one approach is possible under the language of the statute
and its legislative history. Congress expressly adopted “arising under” juris-
diction and rejected case and issue jurisdiction. See injru text (quoting House
and Senate Reports adopting “arising under” approach); S. Rep. No. 275,
supra, at 19, reprinted in 1982 U.S. Code & Ad. News at 29 (rejecting case
jurisdiction approach); Hearings on Court of Appeals for the Federal Circuit
Act of 1981, H.R. Rep. No. 312, 97th Cong., Ist Sess. 41 (1981) (rejecting
the issue jurisdiction approach adopted for the Temporary Emergency Court
of Appeals in Coastal States Marketing Inc. v. New England Petroleum
Corp., 604 F.2d 179 (2d Cir. 1979)).
(footnote continued)
6a
Patent and Antitrust Appeals in the Court of Appeals for the
Federal Circuit, 10 Am. Pat. L.A.Q. J. 237, 238-39 (1982);
Note, supra, at 326-33. The House Report states that “[c]ases
will be within the jurisdiction of the Court of Appeals for the
Federa] Circuit in the same sense that cases are said to ‘arise
under’ federal law for purposes of federal question jurisdic-
tion.” H.R. Rep. No. 312, 97th Cong., Ist Sess. 41 (1981). See
also id. at 23-24. The Senate Report explicitly adopts the same
position:
It has been argued that a jurisdictional grant to the new
court to consider appeals from a district court when
jurisdiction was based, “in whole or in part,” on section
1338 of title 23 [sicj(which confers on the district courts
original jurisdiction of a ivil action arising under an
act of Congress relating ae tents, plant variety protec-
tion, copyright and trademarks) is too broad and that
specious patent claims will be tied, for example, to sub-
stantial antitrust claims in order to create jurisdiction in
the Court of Appeals for the Federal Circuit. However,
the statutory language in question requires that the dis-
trict court have jurisdiction under 28 U.S.C. § 1338. This
is a substantial requirement.
S. Rep. No. 275, 97th Cong., supra, at 19, reprinted in 1982
U.S. Code Cong. & Ad. News at 29.
Whether the district court’s jurisdiction here arose “under
any Act of Congress relating to patents” presents a difficult
issue.’ We do have the benefit of hindsight, however, to
We recognize that traditional “arising under” jurisdiction poses certain
rroblems for patent appeals. See Lever, The New Court of Appeals for the
Federal Circuit (Part II Conclusion), 64 J. Pat. Off. Soc’y 243, 254-58
(1982); Note, supra, at 328-30 (pointing out that many cases with substantial
patent issues evade “arising under” jurisdiction because of the well-pleaded
complaint rule and existing intercircuit conflicts on the issue of patent
jurisdiction). However, Congress was aware of these problems and nonethe-
less chose to adopt the existing “arising under” framework. We are not free
to disregard this express congressional intent.
4 For a discussion of “arising under” jurisdiction in the patent
context, see C. Wright, A. Miller & E. Cooper, Federal Practice and
Procedure: Jurisdiction § 3582 (1975 & 1980 Supp.).
7a
determine what issues were adjudicated in the district court.°
This hindsight facilitates the determination of the substantial-
ity of the district court’s jurisdiction under 28 U.S.C. § 1338
(1982) in both trials. In the district court proceedings from
which this appeal is taken (Handgards IJ) the jurisdiction of
that court was neither based in whole or in part on section
1338. The entire proceeding was based on the antitrust laws.
See 15 U.S.C. § 4 (1982). Jurisdiction under section 1338 was
irrelevant.° The situation with respect to Handgards I is more
complicated. True, the major thrust of the district court pro-
ceedings in Handgards | was toward the antitrust laws, but it is
also true that in those proceedings the validity of the Orsini
patent was litigated. The determination that the Orsini patent
was valid, however, in no way a'tered Ethicon’s liability under
the antitrust laws. It, of course, had no effect on our jurisdic-
tion to hear and determine the Wendeards / appeal because at
that time 28 U.S.C. § 1295(a)(1 1982) had not been enacted.
See 28 U.S.C. § 1291 (1976). Whether it would have deprived
5 An appellate court must look beyond the stated jurisdictional basis
to determine the nature of the claims actually litigated. See C. Wright & A.
Miller, Federal Practice and Procedure: Civil § 1206, at 77 (1969)
6 Of course, the fact that this suit required an interpretation of the
patent laws to determine antitrust liability does not make it “arise under”
section 1338. See Koratron Co. v. Deering Milliken, Inc., 418 F.2d 1314,
1316-18 (9th Cir. 1969), cert. denied, 398 U.S. 909 (1970)
7 In 1968 Handgards filed this antitrust suit against Ethicon under (1)
an “overall scheme” theory and (2) a “bad faith” prosecution theory to
monopolize the disposable glove market. See Handgards, Inc. v. Johnson &
Johnson, 413 F.Supp. 921, 923-25 (N.D.Cal. 1975). The bad faith prosecu-
tion theory was based on Ethicon’s Gerard patent infringement suit. Before
trial, however, the district judge required that Handgards amend its com-
plaint to include a request to declare the Orsini patent invalid. After the
jury’s finding that the Orsini patent was not invalid, Judge Orrick found that
the Orsini patent was irrelevant to tite antitrust injury caused by Ethicon’s
bad faith prosecution of the invalid Gerard patent. Thus, the question of the
Orsini patent’s validity completely dropped out of the antitrust suit.
Handgards did not appeal the jury’s Orsini patent verdict in Handgards 1,
and it was not raised during the second trial in Handgards 11.
us of jurisdiction had it been in effect is an issue we need not
address. The important fact is that both we and the district
court had jurisdiction beyond question in Handgards /. \t
would be both wasteful and foolish for us now to hold that we
lack jurisdiction to hear and determine the appeal in
Handgards II because had section 1295(aX(1) been effective in
1979 our appellate jurisdiction in Handgards I would have
becn subject to question. We, therefore, hold that we have
jurisdiction to hear and determine this Handgards I/ appeal.
Under these circumstances, the district court’s jurisdiction in
Handgards 11 was not based, in whole or in part, on section
1338 jurisdiction.
Our holding obviously foreswears any attempt to establish
definitively the precise scope of 28 U.S.C. § 1295(a(1) (1982).”
It is a perplexing statute the meaning of which we suspect will
become fixed only by means of case-by-case analysis. To
observe judicial restraint and decide no more than we must is
the appropriate course here.
Ly) District courts should take special measures to ensure that litigants
do not manipulate the jurisdiction of the Federal Circuit:
Federal District judges are encouraged to use their authority under the
Federal Rules of Civil Procedure, see Rules 14i), 16, 20(b), 42(b),
$4(b), to ensure the integrity of the jurisdiction of the federal court of
appeals by separating final decisions on claims involving substantial
antitrust issues from trivial patent claims, counterclaims, cross-claims,
or third party claims raised to manipulate appellate jurisdiction
S. Rep. No. 1275, supra, at 20, reprinted in 1982 U.S. Code Cong. & Ad
News at 30. The district court may also sever the unrelated nonpatent claims
from the patent claims under Fed. R. Civ. P 21. See Committee on Patents.
The New Court of Appeals for the Federal Circuit 749-50 (1983). Such
severance practices along with explicit findings on whether “arising under”
section 1338 jurisdiction exists will ensure “that the tail of a patent issue does
nol wag the dog of an antitrust issue.” Newman, supra, at 242. See also
Lever, supra note 3, at 258-65
9a
ARE THE JURY FINDINGS PROPERLY
SUPPOKTED BY THE EVIDENCE
In Handgards 1, 601 F.2d at 994-96, we held that to establish
section 2 liability Handgards had to prove (1) by clear and
convincing evidence that Ethicon prosecuted the Gerard patent
suit in bad faith;’ (2) that Ethicon had a specific intent to
monopolize the relevant market; and (3) that a dangerous
probability of success existed. On appeal, Ethicon argues that
it is entitled to judgment as a matter of law and that no
substantial evidence supports the jury’s finding on each of the
section 2 elements.
We cannot reverse the jury’s finding unless “if, without
accounting for the credibility of the witnesses, we find that the
evidence and its inferences, considered as a whole and viewed
in the light most favorable to the nonmoving party can support
one reasonable conclusion—that the moving party is entitled to
judgment notwithstanding the adverse verdict.” William Inglis
& Sons Baking Co. v. ITT Continental Baking Co., Inc. 668
F.2d 1014, 1026 (9h Cir. 1981), cert. denied, 459 U.S. 825
(1982). We shall review the evidence under headings corre-
sponding to the issues in which Handgards had the burden of
persuasion.
A. Clear and Convincing Evidence of Bad Faith Prosecution
of the Patent Suit
Handgards presented evidence that Ethicon actually knew
that the Gerard patent was invalid on one or more of three
separate grounds. First, it alleged that Ethicon knew that Lyle
Shabram, not Gerard (an Ethicon employee), was the first
inventor of the plastic glove process. See 35 U.S.C. § 102(g)
(1982). (The Prior Invention Issue.) Thus, Ethicon fabricated
Gerard’s invention dates during the patent infringement litiga-
9 In these cases the anticompetitive conduct directed to accomplishing
the unlawful purpose is the bad faith prosecution of the patent infringement
suit.
10a
tion interrogatories to appear earlier than Shabram’s dates of
invention. Second, Handgards alleged that even if its dates
were correct, Ethicon knew that the patent was invalid under
the “on sale” or “in public use” defense because Gerard had
sold gloves to A.S. Aloe in 1957, more than one year before he
filed a patent application. See 35 U.S.C. § 102(b) (1982). (The
“On Sale” or “In Public Use” Issue.) Finally, Handgards
contends that Ethicon definitely knew of Shabram’s prior
public use in 1963, and yet it continued to litigate the patent
suit through trial and appeal to the Supreme Court. (The Prior
Public Use by Shabram Issue.) These theories were asserted to
prove that Ethicon prosecuted the patent infringement suit in
bad faith in an effort to monopolize the relevant market. We
shall evaluate the evidence with respect to each of these
theories.
Before doing that, however, we must address some funda-
mental challenges with respect to the trial court proceedings.
Ethicon challenges the district judge’s submission of these
issues to the jury and his alleged prejudicial conduct toward
Ethicon throughout the trial.
Ethicon argues that the district judge must make a threshold
legal determination whether Handgards had established, by
clear and convincing evidence, that the ‘Gerard patent was
invalid on the basis of any grounds not previously litigated in
the patent suit before submitting such grounds to the jury in
the instant case. This is not so. In Handgards I, 601 F.2d at
996, we established a clear and convincing evidence standard
for a jury’s factual finding of bad faith. We did not establish
such a standard for a “threshold legal determination” by a
district judge.
Ethicon’s argument also challenges the district court’s sub-
mission to the jury of the unlitigated defenses of patent
invalidity. Only Shabram’s prior public use defense was liti-
gated in the earlier patent infringement suit. We agree that
district courts must be especially careful when submitting to a
jury unlitigated patent defenses. Here, however, we find that
the district judge acted properly. The factual inconsistencies
relating to Ethicon’s Gerard patent required that Handgards
present all of the defenses. Under the alleged facts. ine Gerard
patent could have been invalid under any one or all of the
submitted defenses. It was up to the jury to decide whether a
defense existed and whether Ethicon actually knew that the
patent was invalid on the basis of the defense.'°
Ethicon also argues that the trial judge’s conduct constituted
prejudicial error. It contends that the trial judge applied a
different set of rules to Ethicon, made hostile comments to
Ethicon’s counsel, and interrupted Ethicon’s direct and cross
examination. Thus, Ethicon claims that the judge’s actions
tainted the jury’s impression of Ethicon in a case in which the
primary issue was bad faith. Our review of the record leads us
to reject this conclusion.
Very few cases outside of the criminal law area support an
appellate finding of general judicial misconduct during trial.
See C. Wright & A. Miller, supra note 5, § 2809, at 66 (1973 &
1982 Supp.). The standard for reversal is whether the trial was
unfair. See Goldman v. Fenn, 252 F.2d 47, 48 (ist Cir. 1958). A
trial is not unfair unless the trial judge expresses his opinion as
to an ultimate issue of fact in front of a jury or argues for one
of the parties in the suit. See Maheu v. Hughes Tool Co., 569
F.2d 459, 471-72 (9h Cir. 1978); Nordmann v. National Hotel
Co., 425 F.2d 1103, 1109 (9th Cir. 1970). Ethicon does not
allege such conduct, and no evidence exists to support an
inference that the trial judge affected the jury’s inquiry into
bad faith.
Complex antitrust cases tried before a jury present difficult
problems for a trial judge. See generally W. Schwarzer, Manag-
ing Antitrust and Other Complex Litigation (1982). In this case
the trial judge limited the trial presentations to four days for
each side. Because Handgards completed its case in one half
the allotted time, the judge appropriately gave more latitude to
its presentation. Ethicon’s presentation posed more problems
10 = The district judge did instruct the jury that first it had to determine
the invalidity of the patent on the basis of a particular defense and then only
could it determine whether Ethicon knew the patent was invalid on the basis
of that defense.
Ee
12a
for the court. We find no objection to the judge’s conduct
during trial. No error exists. We now turn to Handgards’ three
theories.
1. The Prior Invention Issue
During the second trial, Handgards focused its presentation
on the facts showing that by 1964 Ethicon had acquired
sufficient information to indicate with certainty that the
Gerard patent was invalid on the basis of Shabram’s prior
invention. Handgards asserted that instead of abandoning the
suit, Ethicon in 1967 fabricated a date earlier than that of
Shabram’s invention in response to Handgards interrogatories.
To support its allegations, Handgards introduced evidence that
Gerard discovered the use of paper as a backing and carrier on
May 24, 1957, and did not solve the sticking problem until
November 1957. This evidence, which consisted of Gerard’s
communications to his patent attorney in 1958 and Gerard’s
sworn depositions taken in 1959, directly conflicted with Ethi-
con’s interrogatory answer in 1967 that Gerard had developed
the process in 1956.
Ethicon attempts to counter this proof in several ways. First,
it argues that because Handgards did not attempt to prove that
Shabram was a prior inventor, it cannot+claim that Ethicon
should have known that the Gerard patent was invalid on the
basis of section 102(g).'' This is incorrect. Handgards did offer
proof of both Shabram and Gerard’s dates of conception and
reduction to practice. It is Ethicon that failed to present
evidence that would have questioned Shabram’s dates of inven-
tion or conception. In fact, Handgards presented a former
employee of Ethicon, Mr. Baab, who testified that Gerard, an
11 Ethicon also contends that when Shabram abandoned his interfer-
ence proceeding, under established patent law he conceded priority of
invention. See 35 U.S.C. § 135 (1982); 37 C.F.R. § 1.262(b)(1982). We
disagree. Although it is true that an abandonment of an interference
proceeding operates as an adverse award of priority, we do not believe this
patent rule was intended to determine whether a party knew that its patent
was invalid because of prior invention. To determine this actual knowledge,
we must allow Handgards to present evidence of Shabram’s priority.
l3a
employee of Ethicon, had told him that the Gerard patent was
invalid on the basis of Shabram’s prior art. Ethicon vigorously
objects to the introduction of this evidence. It contends that
the relevant inquiry is whether Ethicon’s attorney knew of the
prior invention, not Gerard. We disagree. It is true that
Handgards had to prove that the agents, officers, and directors
of Ethicon responsible for prosecuting and maintaining the suit
were in possession of facts that prevented them from holding a
good faith belief that the Gerard patent was valid. However,
evidence that the inventor/patentee/employee knew the patent
was invalid is very probative of Ethicon’s knowledge. C/. WR.
Grace & Co., Inc. v. Western U.S. Industries, Inc., 608 F.2d
1214, 1218-19 (9th Cir. 1979), cert. denied, 446 U.S. 953
(1980). We refuse to establish a requirement that Handgards
had to prove that the patent attorney knew the Gerard patent
was invalid.
Second, Ethicon argues that the district court erred by
allowing Handgards’ expert to testify on Gerard’s reduction to
practice date. We disagree. “The trial court is vested with
broad discretion concerning the admissibility or exclusion of
expert testimony and the court’s action is to be sustained unless
shown to be manifestly erroneous.” Reno-West Coast Distribu-
tion Co., Inc. v. The Mead Corp., 613 F.2d 722, 726 (9th Cir.),
cert. denied, 444 U.S. 927 (1979). The presentation of an
expert’s testimony was entirely appropriate to show the facts
necessary for a reduction to practice.
Third, Ethicon argues that Gerard’s invention was reduced
to practice in September 1956. It contends that the fact that the
paper backing had not been discovered until May 1957 did not
prevent a reduction to practice in 1956. Handgards, however,
argues that the paper carrier distinguished Gerard’s invention
from the prior art. Handgards also introduced evidence that
Gerard’s patent counsel and Johnson & Johnson’s in-house
patent counsel accepted a November 1957 reduction to practice
date on the basis that the paper sticking problem (an essential
element of the invention) had been solved. We believe that
under these circumstances the district judge properly left the
evidence for the jury to determine the date on which Ethicon
believed that Gerard had reduced his invention to practice.
I
l4a
Finally, Ethicon argues that Handgards cannot attack
Gerard’s reduction to practice date because during the patent
trial Handgards accepted the date by stipulation and during the
second antitrust trial Handgards conceded that Ethicon’s inter-
rogatory answer had not prejudiced its patent trial. We dis-
agree. A stipulation of a fact in a patent trial in which the fact
was not necessary to prove the defense that was going to be
litigated cannot bind Handgards in a susbsequent antitrust trial
in which Handgards attempts to prove that Ethicon’s answer
to the interrogatory was knowingly falsified. After all, it is
Ethicon’s bad faith in the patent trial that is at issue; thus,
Handgards must be allowed to challenge the interrogatory
answer. Our review of the record convinces us that the Gerard
reduction to practice issue was properly submitted to the jury.
2. The “On Sale” or “In Public Use” Issue
Under 35 U.S.C. § 102(b) (1982), if Gerard placed his
invention “on sale” or “in public use,” he had one year to file
for a patent. Because Gerard filed for a patent on June 2,
1958, the invention could not have been “on sale” or “in public
use” prior to June 2, 1957, for his patent to be valid.
Handgards introduced evidence that on May 28, 1957, Gerard
had sold one gross of gloves and had*taken an order for
seventy-two gross from A.S. Aloe. This could be viewed as
having invalidated the patent.
To avoid this result, Ethicon in the patent case argued that
the first sale did not occur until November 24, 1957. However,
if this was the crucial date with respect to the patent’s validity,
Ethicon is confronted with two damaging consequences. Sha-
bram’s prior invention would invalidate Ethicon’s patent, see
infra pp. 17-18, and the November 24, 1957 date is inconsistent
with Ethicon’s assertion in 1967 that the Gerard process was
developed in 1956. See supra p. 12.
On the other hars!. were 1956 the crucial date the issue
whether Gerard placed his invention “on sale” or “in public
use” prior to June 2, 1957 becomes critically important. For
this reason the A. S. Aloe transaction must be considered. It
was quite proper for the jury to have been given the opportu-
lSa
nity to consider these alternatives although this involved sub-
mission to the jury of defenses not previously litigated in the
patent suit.
Ethicon also argues that the Gerard patent covered the
process of making the gloves, not the product (gloves), thus the
Aloe transaction could not invalidate the patent. We disagree.
The district judge’s jury instruction combined the “on sale”
and “in public use” defenses because the Aloe transaction
raised a possibility that the patent was invalid under either.
Although it is clear that the “on sale” and “in public use”
defenses are separate, many courts have evaluated them to-
gether. See, e.g., Dart Industries, Inc. v. E.I. Du Pont De
Nemours and Co., 489 F.2d 1359, 1364-65 (7th Cir. 1973), cert.
denied, 417 U.S. 933 (1974). This is entirely appropriate in
cases in which the product of the process is sold. See Powell
Manufacturing Co. v. Long Manufacturing Co., 319 F. Supp.
24, 44 (E.D. N.Car. 1970), aff'd, 171 U.S.P.Q. 328 (4th Cir.
1971); Kalvar Corp. v. Xidex Corp., 556 F.2d 966 (9th Cir.
1977). In such cases the saie of a product before the critical
date will invalidate the process patent under the “in public use”
defense. See Metallizing Engineering Co. v. Kenyon Bearing &
Auto Parts Co., 153 F.2d 516 (2d Cir.), cert. denied, 328 U.S.
840 (1946). Courts also have found that a sales solicitation that
involved the display of operable samples of the invention
constituted placing the invention “on sale” even when produc-
tion models were not available for delivery. See, e.g., Am-
phenol Corp. v. General Time Corp., 397 F.2d 431, 436-37 (7th
Cir. 1968); J.L. Clark Manufacturing Co. v. American Can
Co., 256 F. Supp. 719, 730-35 (D. N.J. 1966). Thus, the Aloe
transaction could have invalidated the patent even if the
process, not the product, was the object of the patent.
Ethicon also argues that the Aloe transaction falls within the
experimental use exception to section 102(b) as a matter of law.
We disagree. Hendgards presented evidence that Gerard had
stated that the Aloe transaction was a commercial sale and fo:
purposes of generating orders. Although Ethicon contested this
evidence, it did not introduce such evidence that would require
l6a
us to grant an experimental use exception as a matter of law.
The issue was properly before the jury.
Finally, Ethicon contends that its reliance on patent counsel
precludes a finding of bad faith based on the “on sale” or “in
public use” defenses. However, Handgards presented evidence
that showed Gerard had knowledge of the prior delivery and
order to Aloe, and that Ethicon also was aware of this
transaction. Thus, if the jury found the patent invalid by
reason of the transaction, this knowledge could support a
finding of bad faith.
3. The Prior Public Use by Shabram Issue
The prior public use by Shabram defense was litigated in the
patent trial.'* Using a “beyond a reasonable doubt” standard,
Judge Burke found the Gerard patent invalid because of
Shabram’s prior use. Handgards presented the testimony of
Mr. Baab, who said that Gerard had told him that he had
purchased a glove prior to his invention. To support its
allegation of Ethicon’s bad faith prosecution, Handgards
showed that during the patent trial, Shabram’s testimony was
corroborated by five witnesses. Ethicon, on the other hand,
produced no evidence in the patent trial directly contradicting
this testimony. Yet, it continued to litigate the patent through
the Supreme Court’s denial of certiorari.
Ethicon primarily argues that its patent counsel disbelieved
Shabram and his witnesses. It points to prior inconsistent
statements by Shabram and his self-interest as the alleged prior
inventor to support its right to contest his testimony. Ethicon
also quotes from this court’s decision affirming Judge Burke
with the caveat that the decision “could have been decided
either way.” Ethicon, Inc. v. Handgards, Inc., 432 F.2d 438,
438 (9th Cir. 1970), cert. denied, 402 U.S. 929 (1971). Ethicon
therefore argues that this evidence should bar Handgards from
12 Ethicon argues that Handgards conceded the use of Shabram’s prior
public use as a basis for bad faith prosecution. This is not supported by the
record. The district judge clearly instructed the jury as to the law on this
defense.
17a
relitigating the issue in this antitrust case. We disagree. Our
review of the record indicates that Handgards’ evidence of
Gerard’s knowledge of prior use requires that this issue go to
the jury.'? This evidence was not available in the patent suit;
thus, both the district court and the circuit court’s opinions
should not bar litigation of this issue for the first time. The
district court properly instructed the jury that the fact that
Ethicon lost the prior suit did not establish that it was brought
in bad faith. The jury had to determine whether Ethicon
initiated or pursued the infringement suit against Handgards
knowing that the patent was invalid.
4. Conclusion as to the Clear and Convincing Evidence
of Bad Faith
Our examination of the record convinces us that the district
court properly instructed the jury in accordance with our
opinion in Handgards I. The jury was instructed that a patent
is presumptively valid and that presumption can only be
rebutted with clear and convincing evidence. See 601 F.2d at
996. Substantial evidence exists to support a finding by the jury
that Handgards established such a rebuttal and that Ethicon
prosecuted its patent suit in bad faith.
B. Specific Intent to Monopolize the Relevant Market
Ethicon argues that its repeated attempts to license both the
Gerard and the Orsini patents preclude a finding of a specific
intent to monopolize as a matter of law. It contends that
Handgards refusal to negotiate prevents it from now challeng-
ing the terms of the license offers as unreasonable. We dis-
agree. Handgards presented substantial evidence to support the
jury’s finding of specific intent.
Courts have used the requirement of specific intent “to
confine the reach of an attempt claim to conduct threatening
13 Ethicon also argues that Gerard’s alleged expressions of opinion
should not be imputed to the corporation. As stated before, Gerard’s
involvement in both the invention and subsequent production of plastic
gloves requires that this testimony go to the jury.
18a
monopolization.” William Inglis, 668 F.2d at 1027 (citations
omitted). An antitrust plaintiff can establish the existence of
specific intent not only by direct evidence of unlawful design,
but by circumstantial evidence of illegal conduct. Id. Thus, as
we said in Handgards I, 601 F.2d at 993 n.13, “[t]he requisite
intent to monopolize in this case could be inferred from the
finding of bad faith.” Substantial evidence exists to support
such an inference.
Handgards, presented evidence that once it had become a
viable competitor with twenty-five percent of the market in
1964, Ethicon took steps to eliminate competition from the
relevant market. The most damaging evidence introduced was
a letter written by Gerard, an Ethicon employee, to Sam
Porter, a major distributor and potential joint venturer of hair
care gloves. This letter asserted the validity of Ethicon’s
Gerard patent and the company’s intent to enforce the pat-
ent.'* After the letter was received, Porter stopped purchasing
gloves from Handgards and refused to negotiate any joint
venture with Handgards. Ethicon also sent a similar letter to
several other purchasers of hair care gloves. This evidence
along with the prosecution of a bad faith patent suit provides a
sufficient basis for a jury’s finding of specific intent to monop-
olize. Ethicon’s argument that its repeated license offers ne-
gated this intent was presented to and rejected by the jury. The
mere existence of license offers does not require that we ignore
the strong evidence presented by Handgards which supports
the jury’s finding.’
14 Gerard wrote:
If you will read this patent, you will find that anyone manufacturing
plastic gloves on paper are in violation. At this time, we have a patent
infringement trial upon the Federal Court calendar in the Northern
Jurisdiction of California.
I can assure you that this patent is enforceable or Ethicon would
never have purchased it from me at the cost they paid without first
investigating it very thoroughly. I can also assure you that our legal
department intends on enforcing this patent.
15 Ethicon’s argument that Handgards should have accepted its license
offer on both patents, and subsequently sued for an antitrust violation is not
19a
C. Dangerous Probability of Success Within the
Relevant Market
Ethicon argues that Handgards’ failure to prove actual
exclusion of competition from any market prevents a finding
of a dangerous probability of success. We have never es-
tablished an actual exclusion requirement.'® A jury may infer a
dangerous probability of success “either (1) {rom direct evi-
dence of specific intent plus proof of conduct directed to
accomplishing the unlawful design, or (2) from evidence of
conduct alone, provided the conduct is also the sort from
which specific intent can be inferred.” William Inglis, 668 F.2d
at 1029 (footnotes omitted). Of course, proof of direct market
power on the part of the defendant tends to support a finding
of a dangerous probability of success.
In this case Handgards presented evidence showing that
Ethicon controlled ninety percent of the relevant market of
hair care gloves and that no competition emerged until the
district court declared the Gerard patent invalid. Although
Ethicon disputes this evidence, no facts have been presented
that would require a reversal of the jury’s finding.'’
convincing. At the time Ethicon offered the patent licenses, te law of
“license estoppel” was unclear. See Lear, Inc. v. Adkins, 395 U.S. 653,
661-68 (1969). Thus, the existence of the license may have prevented a
subsequent challenge of the patent’s validity. This uncertainty also was
aggravated by the fact that Handgards had not fully developed its theory to
challenge Ethicon’s conduct. Handgards acceptance of the licenses may have
precluded certain avenues of relief. See, e.g., Automatic Radio Manufac-
turing Co., Inc. v. Hazeltine Research, Inc., 339 U.S. 827 (1959). Given this
situation, a license offer should not preclude as a matter of law a finding of
intent to monopolize. It was proper for the jury to consider Ethicon’s offers
and Handgards refusal to negotiate. The jury also properly evaluated
Handgards’ evidence that the license offers were unreasonable.
16 Ethicon’s citation to Carpet Seaming Tape Licensing Corp. v. Best
Seam, Inc., 694 F.2d 570, 580 (9th Cir. 1982), cert. denied, 104 S. Ct. 78
(1983), does not support its actual exclusion argument.
17 Ethicon also argues that the relevant market of heat sealed gloves
sold to hair care kit manufacturers is improper as a matter of law. We
disagree. We have said repeatedly that the definition of a relevant market is
20a
Handgards’ evidence has met our requirement of proof “that
the defendant patentee possessed or threatened to possess an
ability to lessen competition in the relevant market.”
Handgards I, 601 F.2d at 993 n.13.
IV.
THE NOERR-PENNINGTON ISSUE
The Noerr-Pennington doctrine recognizes an immunity
from antitrust liability rooted in the recognition of fundamen-
tal civil rights. See Eastern Railroad Presidents Conference v.
Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine
Workers of America v. Pennington, 381 U.S. 657 (1965).
“Under the Noerr-Pennington doctrine, bona fide efforts to
obtain or influence legislative, executive, judicial or adminis-
trative actions are immune from antitrust liability [on the basis
of the first amendment’s guaranteed right to petition].” Clip-
per Exxpress v. Rocky Mountain Motor Tarriff Bureau, Inc.,
690 F.2d 1240, 1251 (9th Cir. 1982), cert. denied, 103 S.Ct.
1234 (1983). However, the immunity does not extend to so-
called “sham proceedings,” which were instituted without
probable cause and in complete disregard of the law to inter-
fere with the business relationships of* a competitor. /d. at
1251-54; California Motor Transport Co. vy. Trucking Unlim-
ited, 404 U.S. 508 (1972). The justification for the doctrine
does not exist under such circumstances. Ethicon argues that
the district court’s refusal to instruct the jury on Noerr Pen-
nington immunity and to require a finding of a sham proceed-
ing deprived it of access to the antitrust immunity and thus
constituted reversible error. We disagree.
an issue of fact for the jury. See, e.g., Grevhound Computer Corp., Inc. v.
International Business Machines Corp., 559 F.2d 488, 493-96 (9th Cir. 1977),
cert. denied, 434 U.S. 1040 (1978). See also Telex Corp. v. International
Business Machines Corp., 510 F.2d 894, 914-19 (10th Cir.), cert. dismissed,
423 U.S. 802 (1975). Thus, the jury’s finding will not be disturbed unless it is
ciearly erroneous. In this case substantial evidence exists to support a jury’s
finding that excluded other gloves (e.g., industrial, household) from a
definition of the relevant market.
a
2la
In Clipper Express we held that to invoke the sham excep-
tion to Noerr-Pennington immunity the plaintiff must prove
that the defendant’s litigation of baseless claims constituted
some abuse of process. 690 F.2d at 1259. We believe that
Handgards I established a standard that embodies both the
Noerr-Pennington immunity and the sham exception. There we
held that “the jury should be instructed that a patentee’s
infringement suit is presumptively in good faith and that this
Nresumption can be rebutted only by clear and convincing
evidence [of bad faith].” 601 F.2d 996. The good faith pre-
sumption affords the equivalent of the Noerr-Pennington im-
munity while the requirement of bad faith litigation easily
affords the equivalent of the sham exception. See R. Bork, The
Antitrust Paradox 354 (1978) (“Certainly, in a proper case, a
proved intent not to bar competitors from the courtroom but,
by litigation of baseless claims, to bar them from a market or
to delay their entry should suffice for a violation of the
Sherman Act.”). Thus, to require a jury instruction as to
Noerr-Pennington immunity and the sham exception would be
duplicative.'* See Handgards I, 601 F.2d at 995 n.16.
V.
THE ANTITRUST STANDING OF HANDGARDS
In order to receive treble damages under 15 U.S.C. § 15
(1982), Handgards must prove that it has been injured by
reason of a violation of the antitrust laws. The Supreme Court
recently observed that the question of antitrust standing “re-
quires us to evaluate the plaintiff’s harm, the alleged wrongdo-
ing by the defendants, and the relationship between them.”
Associated General Contractors of California, Inc. v. Califor-
18 Ethicon argues that the existence of nonlitigated defenses cannot
render a patent suit a sham under this circuit's Noerr-Pennington precedent.
We disagree. If Ethicon knew that the Gerard patent was invalid under ‘a
defense, it is irrelevant that the defense was not litigated in the patent
infrincement suit. All that is required for a finding of bad faith is the fact
that the suit should have never been brought at all.
ee
22a
nia State Council of Carpenters, 103 8. Ct. 897, 907 (1983).
The Supreme Court articulated six factors that should be
considered in determining whether a plaintiff has antitrust
standing:
(1) The causal connection between the alleged antitrust
violation and the harm to the plaintiff; (2) Improper
motive; (3) Whether the injury was of a type that Con-
gress sought to redress with the antitrust laws; (4) The
directness between the injury and the market restraint; (5)
The speculative nature of the damages; (6) The risk of
duplicate recoveries or complex damage apportionment.
McDonald v. Johnson & Johnson, 722 F.2d 1370, 1374 (8th
Cir. 1983) (citing Associated General Contractors, 103 S. Ct. at
908-12), cert. pending, $2 U.S.L.W. 3792 (1984). Because these
factors focus upon the relationship between the type of injury
for which damages are sought and the harmful conduct, we
shall examine the relationship between each of Handgards’
damage elements and the harmful conduct.
A. Handgards’ Lost Profits as a Result of the Pendency of the
Bad Faith Litigation
The jury awarded Handgards lost profits as a result of the
pendency of the bad faith litigation from 1964 to 1973. To
justify such an award, Handgards had presented evidence to
support all six factors of “antitrust standing” required by
Associated General Contractors."” Ethicon directly attacks the
jury's finding that the lost profits injury was of a type that
Congress sought to redress with the antitrust laws. It presents
three arguments to support its contention that no antii: ust
injury exists.
19 «Handgards introduced evidence of (1) Ethicon’s prosecution of the
Gerard patent suit and its effect of excluding Handgards from the relevant
market; (2) Ethicon’s bad faith; (3) the anticompetitive effect of Ethicon’s
conduct and its “antitrust injury”; (4) the direct impact of the bad faith
patent infringement suit; (5) damages supported by schedules and expert
tesuumony, and (6) an appropriate damages apportionment to exclude the
effect of the valid Orsini patent when necessary.
a ee
23a
First, Ethicon argues that its license offers to Handgards on
both the Gerard and Orsini patents preclude a finding of
antitrust injury. See La Salle Street Press, Inc. v. McCormick
and Henderson, Inc., 445 F.2d 84, 95-96 (7th Cir. 1971). In
LaSalle, however, the trial court had made an explicit finding
that the patent infringement action was brought in good faith.
Id. at %. Thus, efforts to settle through the sale of a license
precluded a counterclaim for antitrust injury. Here, Ethicon
brought a bad faith infringement suit. Any offer to license a
patent that it knew was invalid cannot preclude a finding of
antitrust injury as a matter of law. As noted before, the license
offers were admissible to prove good faith on Ethicon’s part
for the purpose of determining intent to monopolize. See supra
note 15. Apparently, the jury chose either not to believe the
evidence as to the specilic terms of the license offer or to give it
the weight sought by Ethicon. Ethicon’s attempt to argue the
so-called doctrine of avoidable consequences” should have
been directed toward reducing the amount of damages not the
existence of an antitrust injury.”’
Second, Ethicon argues that Handgards’ alleged lost profits
are attributable to the entry of additional competition, not an
antitrust injury. See Brunswick Corp. v. Pueblo Bowl-0-Mat,
Inc., 429 U.S. 477 (1977). To have earned the alleged profits, it
contends that Handgards would have had to exclude two
subsequent competitors, Poly-Version and Clairol, from the
relevant market. We disagree. The district judge explicitly
instructed the jury that Handgards could not rec for losses
resulting from an increase in competition. Also, a@ Handgards
points out, Poly-Version did not become a viable competitor
until 1971 when it entered into a joint venture with Clairol.
Handgards does not seek Poly-Version’s profits from the joint
20 = Under that doctrine, Ethicon argues that had Handgards accepted its
licenses, it would have prevented the antitrust injury. See supra note 15.
21 Ethicon also argues that Handgards abandoned its sales to the hair
care market as a business decision after the Gerard pallint was invalidated.
Handgards vigorously countered this argument. We believe that the jury's
resolution of this factual dispute is supported by the evidence.
24a
venture. It only looks to these profits as a rational method of
calculating profits Handgards would have received had Ethi-
con not stopped its efforts to form a joint venture in 1965 and
1968. Aside from the lost joint venture business, Handgards
presented evidence that the Gerard patent suit impaired signifi-
cantly its ability to raise capital to remain “technologically
competitive” and Ethicon’s letter to Handgards’ potential
customers frightened many of them away.
Ethicon’s conduct not only damaged Handgards but it also
had an anticompetitive effect. See California Computer Prod-
ucts, Inc. v. International Business Machines Corp., 613 F.2d
727, 732 (Mh Cir. 1979). The bad faith suit not only excluded
Ethicon’s only significant competitor, Handgards, it also
checked possible future competitors until the Gerard patent
had been declared invalid. Although subsequent to that date
several competitors entered the market, that did not alleviate
the harm to competition that resulted from the prosecution of
a suit for a patent that was known to be invalid. We conclude,
therefore, that Handgards’ lost profits injury meets the
Brunswick test: “Plaintiffs must prove antitrust injury, which
is to say injury of the type the antitrust laws were intended to
prevent and that flows from that which makes the defendants’
acts unlawful.” 429 U.S. at 489 (emphasis in original).”
Finally, Ethicon argues that the injury caused by the Orsini
patent is not antitrust injury. We agree. However, this does not
help Ethicon. There is no showing that Handgards’ lost profits
are attributable to the Orsini patent. Ethicon did not attempt
to prove that the Orsini patent caused any of the damages.”
22 in Handgards 1, G1 ¥.2d at 997, we questioned the trial court's
charge concerning the damages available to the plaintiff for lost profits. Our
review of the jury instructions in the second trial leads us to conclude that the
district court properly interpreted Brunswick in the context of lost profits.
23 Ethicon argues that Handgards’ resubmission of the identical dam-
age schedule proves that the damages caused by the Orsini and Gerard
patents are identical. This argument is based on the fact that in the first
antitrust trial Handgards claimed that the Orsini patent was also invalid. We
disagree. In the first trial Judge Orrick required that Handgards request a
declaration of invalidity of the Orsini patent. After the jury's /inding that the
25a
oe
The evidence was to the contrary. Ethicon based its patent
infringement suit against Handgards solely on the Gerard
patent. The Ethicon letters to Handgards’ potential customers
also explicitly mentioned only the Gerard patent. Furthermore,
Handgards introduced evidence that customers refused to deal
with it because of Ethicon’s Gerard patent suit. The jury’s
verdict must be sustained.
B. The Legal Expenses, Attorneys’ Fees, and Costs Incurred
in Defending the Gerard Patent Infringement Litigation
Ethicon does not challenge the jury’s award of damages for
the costs incurred to defend its Gerard patent suit. This is
because in Handgards I, 601 F.2d at 997, we found that “[iJn a
suit alleging antitrust injury based upon a bad faith prosecu-
tion theory it is obvious that the costs incurred in defense cf
the prior patent infringement suit are an injury which ‘flows’
from the antitrust wrong.” We do not believe this conclusion is
affected by the antitrust standing principles enunciated in
Associated General Contractors, 103 S. Ct. at 908-12.
Vi.
. DAMAGE AWARD PROPERLY SUPPORTED
BY EVIDENCE
Ethicon argues that Handgards’ damage schedules are insuf-
ficient as a matter of law. We disagree. Once the fact of
antitrust injury is proven, we have traditionally required a
lesser quantum of proof to support the amount of damages.
See Blanton v. Mobil Oil Corp., 721 F.2d 1207, 1215-16 (9th
Cir. 1983), cert. pending, 53 U.S.L.W. 3022 (1984). An anti-
trust plaintiff must simply provide evidence to support a “ ‘just
and reasonable estimate of the damage.’ ” Pacific Coast Agri-
cultural Export Assoc. v. Sunkist Growers, Inc., 526 F.2d
1196, 1207 (%h Cir. 1975) (quoting Bigelow v. RKO Radio
Orsini patent was not invalid, he found that the Orsini paten. was irrelevant
to the injury caused by the Gerard patent litigation. We agree. Thus,
Handgards’ use of the same damages schedule was proper.
—EEEEE> ll]
26a
Pictures, Inc., 327 U.S. 251, 264 (1946)), cert. denied, 425 U.S.
959 (1976). A jury’s finding of the amount of damages must be
upheld unless the amount is “grossly excessive or monstrous,”
clearly not supported by the evidence, or “only based on
speculation or guesswork.” Blanton, 721 F.2d at 1216 (citations
omitted). In this case Ethicon has failed to demonstrate such
error in the jury’s damage verdict.
A. Damages for Lost Profits
At trial, Handgards presented evidence to support its claim
that it lost $3,297,122 in profits between 1964 and 1973 as a
result of Ethicon’s conduct. The jury awarded the entire
amount to Handgards. On appeal, Ethicon advances four
contentions challenging the proof of damages as insufficient as
a matter of law. First, Handgards failed to allocate lost profit
damages attributable to the valid Orsini patent. Second, the
damage schedules assumed an unsupported fifty percent
market share for Handgards. Third, Handgards used an un-
supported thirty-five to forty percent profit margin to compute
its lost profits. Finally, the 1964 to 1973 period chosen for lost
profits was arbitrary. .
Each of these contentions was presented to and rejected by
the jury. In light of the liberal proof of damages standard in
antitrust cases, Ethicon does not demonstrate an error that
would take the jury’s verdict out of the range of a “just and
reasonable estimate of the damages.” Ethicon’s strategic deci-
sion not to provide an alternative and tangible basis for
calculating damages undoubtedly weakened its position. On
appeal, we cannot speculate whether such an alternative sched-
ule might have been more reasonable under the circumstances.
Cf. D & S Redi-Mix v. Sierra Redi-Mix and Contracting Co..,
692 F.2d 1245, 1249 (9th Cir. 1982); Moore v. Jas. H. Mat-
thews & Co., 682 F. 2d 830, 836-37 (9th Cir. 1982).
B. Damages for Costs Incurred in Defending the Gerard
Patent Suit
Handgards presented evidence that it expended $225,000 in
attorneys’ fees and $85,000 in executive time to defend against
oe
<
tT A em
sc tt A
27a
the Gerard patent infringement suit from 1962 to 1971. The
attorneys’ fees amount, however, included money spent to
defend against both the Gerard and the Orsini patents. Because
Ethicon eventually prevailed on the Orsini patent, the district
court properly instructed the jury to award only the amount
related to the Gerard patent defense. Handgards revised its
attorneys’ fees damage claim to $205,000 and the entire
amount was awarded by the jury. On appeal, Ethicon argues
that the amount allocated to the Gerard patent was unsup-
ported by the evidence. We disagree.
It is true that Handgards only presented recently prepared
schedules of the attorneys’ fees to show that it had expended
$20,000 of $225,000 on the Orsini patent issue. It did so
because the actual time sheets were accidently destroyed by the
patent counsel’s widow. Ethicon argues that the destruction of
the best evidence along with Handgards counsel’s prior state-
ments charging $180,000 to the Orsini »atent require the
district court to dismiss the damages claim. Handgards re-
sponded by alleging that its current estimates were based on
previously prepared monthly statements. It was only the daily
time sheets that were destroyed. And, it acknowledged that its
new antitrust counsel, who was unfamiliar with the case, made
prior estimates that were unfounded. To support its figures,
Handgards argued that the Orsini patent issue was dropped
before it got to the discovery stage during the patent litigation.
The district court viewed Ethicon’s objection at trial as an
attack only on the reliability of Handgards’ evidence, not its
admissibility. Therefore, the jury was instructed to weigh both
Ethicon and Handgards’ estimates to arrive at the proper
figure. We believe that this approach was proper. Courts faced
with similar issues have normally left the effect of the destruc-
tion up to the jury. McCormick’s Handbook on the Law of
Evidence § 273, at 661 (E. Cleary 2d ed. 1972). See generally
Oesterle, A Private Litigant’s Remedies for an Opponent’s
Inappropriate Destruction of Relevant Documents, 61 Texas L.
Rev. 1185, 1221-39 (1983) (discussing sanctions imposed during
affected litigation). Thus, we affirm the jury’s verdict of
damages awarded for defense of the Gerard patent suit.
28a
Vil.
POST-JUDGEMENT INTEREST
Relying on 28 U.S.C. § 1961 (1982), the district court
awarded interest to Handgards on the amount of the first
judgment from its date of entry in 1976. See Handgards II, 552
F. Supp. at 821-22. On appeal, Ethicon argues that post-judge-
ment interest should apply only from the date of the second
judgement whenever the first judgement is reversed and re-
manded. We disagree. Under a de novo standard of review,”
we affirm the district court’s award of post-judgement interest.
The district court relied on Mt. Hood Stages, Inc. v. The
Greyhound Corp., 616 F.2d 394, 406 (9th Cir.), cert. denied,
449 U.S. 831 (1980), and Twin City Sportservice, Inc. v.
Charles O. Finley & Co., 676 F.2d 1291, 1310 (9th Cir.), cert.
denied, 459 U.S. 1009 (1982), to support its post-judgement
interest award. See Handgards II, 552 F. Supp. at 821.”° Under
Mt. Hood Stages and Twin City Sportservice, a district court
must award interest for the original vacated judgement even
when “the issue of antitrust liability was not firmly settled until
the post-remand judgements, both of which were entered after
additional factual inquiry. In both cases [Mt. Hood Stages and
24 Our standard of review is de novo because this issue requires an
interpretation of the “date of the entry of the judgment” under 28 U.S.C.
§ 1961 (1982). See Twin City Sportservice, Inc. v. Charles O. Finley & Co.,
676 F.2d 1291, 1310 (9th Cir.), cert. denied, 459 U.S. 1009 (1982).
25 The district court’s policy analysis appears to adopt a mandatory
award of interest frbm the first judgment in all cases:
A plaintiff’s right to post-judgment interest should not hinge on the
fortuity that on remand the finder of fact will award the exact amount
of damages awarded at the first trial. Furthermore, if interest is not
allowed on the first judgment from the date of its entry simply because
the first and second judgments are not for the same amount, then a
successful plaintiff could be penalized for receiving a second judgment
larger than the first judgment.
Handgards II, 552 F. Supp. at 822 (emphasis in original). We do not believe
this analysis properly articulates the test for post-judgment interest when the
second judgment is larger than the first.
a oe Mt altace NO ad ante erie Saini a tna bei bplita erento ies
Re Le a oe
pte od ee th ee
29a
Twin City Sportservice], it can be said that the second judg-
ment ‘remains the same—in the same amount, for the same
damages incurred during the same period.’ ” Twin City Sport-
service, 676 F.2d at 1311 (citing Mt. Hood Stages, 616 F.2d at
407). Accordingly, we reject the assertion that under the cir-
cumstances of this case the first judgment cannot establish the
date f liability.”
Ethicon is on somewhat more solid ground when it contends
that no post-judgment interest is available because upon re-
mand, the jury returned a larger verdict that that awarded in
the first trial.7” Dicta in a recent Ninth Circuit decision sup-
ports Ethicon’s argument:
26 To support its argument, Ethicon relies on Ashland Oil, Inc., v.
Phillips Petroleum Co., 607 F.2d 335, 336 (10th Cir. 1979) (holding that
interest allowed only from date of second judgment when new award of
damages based on “additional facts” determined on remand), cert. denied,
446 U.S. 936 (1980), and Hyseli v. lowa Public Service Co., 559 F.2d 468,
476-77 (8th Cir. 1977) (holding that interest allowed only from date of second
judgment when first judgment vacated on appeal). Although these cases were
cited in dicta by this court in Turner v. Japan Lines, Ltd., 702 F.2d 752, 754
(9th Cir. 1983), an earlier Ninth Circuit case had expressly disapproved of
their reasoning to the extent it varied with this circuit’s precedent. See Mr.
Hood Stages, Inc. v. The Greyhound Corp., 616 F.2d 394, 407 (9th Cir.),
cert. denied, 449 U.S. 831 (1980). To hold Ashland Oil and Hysell applicable
here would overrule Mt. Hood Stages and Lew Wenzel & Co. v. London
Litho Supply Co., Inc., 563 F.2d 1367 (9th Cir. 1977).,Japan Lines’ attempt
to reconcile post-judgment interest law in all of the circuits cannot be viewed
as overruling this circuit’s prior precedent.
27 Ethicon cites United States v. Hougham, 301 F.2d 133, 134-35 (9th
Cir. 1962) to support its argument. In Hougham the plaintiff sought post-
judgment interest on the additional damages awarded in the second judgment
from the date of entry of the first judgment. We held that “post-judgment
interest should be calculated from the date of the entry of the judgment in
which the money damages, upon which interest is to be computed, were in
fact awarded.” Jd. at 135. Because the additional damages were actually
awarded in the second judgment, interest could not be calculated from the
date of entry of the first judgment. However, Hougham did not address the
question whether interest from the entry of the first judgment is available to
the extent of the original amount when the second judgment is higher. C/.
Turner v. Japan Lines, Lid., 702 F.2d 752, 755 n.3 (9th Cir. 1983).
(footnote continued)
30a
Of course, in those cases where an earlier judgment in
favor of plaintiff is vacated on appeal and a new verdict
or decision for plaintiff is rendered in the district court on
remand, interest under section 1961 should properly run
only from the date of entry of the new judgment and not
from that of the old judgment since the new verdict or
decision presumably will include the value of loss of use
of the money judgment from the date of loss up to the
date of the new verdict on remand.
Turner v. Japan Lines, Ltd., 702 F.2d 752, 757 n.7 (9th Cir.
1983). We decline to interpret Japan Lines’ dicta as an attempt
to formulate a general rule for all cases. Such an interpretation
would be inconsistent with the reasoning supporting Japan
Lines’ holding and result.
Interest compensates an injured party “for the deprivation
of the monetary value of his loss from the time of the loss to
the payment of a money judgment.” Comment, /nterest on
Judgments in the Federal Courts, 64 Yale L.J. 1019, 1019
(1955). Normally, there are two components of the total in-
terest amount. The first component is the interest from the
date of the loss to the date of the judgment. This element can
be viewed as either interest or damages. It is generally awarded
as prejudgment interest or a portion of the continuing damages
up to the time of the judgment.” The second component is the
Ethicon also relies on cases that have narrowly interpreted section 1961’s
“entry of the judgment” language. See, e.g., Harris v. Chicago Great
Western Railway Co., 197 F.2d 829, 836 (7th Cir. 1952); Powers v. New York
Central Railroad Co., 251 F.2d 813, 818 (2d Cir. 1958). This court in Japan
Lines expressly rejected these cases and instead adopted the Fifth Circuit’s
“equitable” construction, of section 1961. See 702 F.2d at 754-55.
28 Prejudgment interest is usually provided by statute for liquidated
claims from the date the claim becomes due until the entry of judgment. For
example, if a contract provides for liquidated damages, in most states the
injured party can collect the liquidated sum and an amount for interest from
the date of breach to the date of judgment. In direct contrast unliquidated
claims typically reflect prejudgment interest only by way of damages that
continue to accrue until the date of judgment. For example, the amount of
tort damages for emotional distress is fixed at the time of judgment. Any
3la
interest from the date of judgment to the date that the damages
are actually paid. This amount is awarded as post-judgimert
interest under 28 U.S.C. § 1961 (1982). When there are two
judgments for a plaintiff, interest from the date of, and on the
amount of, the first judgment also can be viewed as either
interest or damages. If the second judgment includes as dam-
ages such an amount, post-judgment interest on the amount of
the first judgment is not recoverable. It has already been
accounted for as damages. Where, however, it has not been
included in damages, it can be recovered as post-judgment
interest. Thus, we must carefully examine the damages sought
in the second trial.
During the second trial, Handgards alleged two sources of
damages: the legal expenses, attorneys’ fees, and costs incurred
for the defense of the bad faith patent suit and lost profits
resulting from Ethicon’s conduct. The time period during
which these damages were incurred ended prior to the start of
the first trial; therefore, the second jury verdict could not
include any element of damages for any conduct between the
first and the second judgment. Also, our review of the record
has not uncovered evidence or a jury instruction that would
support the jury’s consideration of the time value of money
between the first and second judgments. We can only assume
that no part of the additional award included in the second
judgment is attributable to post-judgment interest. Thus,
Handgards is entitled to “post-first-judgment” interest on the
amount of the first judgment from the date of its entry to the
date of its payment.
award for the loss of the use of money is presumably reflected in the
judgment. Because the amount of damages is not fixed until judgment, it is
usually not possible to calculate formally prejudgment interest.
In this case Handgards had an unliquidated antitrust claim that was not
fixed in amount until the first judgment. Once it was fixed, Handgards was
entitled to interest on the amount originally determined from the first
judgment to the extent it was affirmed by the second judgment.
:
,
4
i
32a
Vill.
CONCLUSION
Our review of the record leads us to conclude that the
district court properly adhered to our decision in Handgards I.
Ethicon’s arguments on appeal primarily are an attack on the
verdict of the jury. As we have noted many times, “Neither the
district court nor this court is free to weigh the evidence or
reach a result that it finds more reasonable as long as the jury’s
verdict is supported by substantial evidence.” William Inglis &
Sons Baking Co. v. ITT Continental Baking Co., Inc., 668
F.2d 1014, 1026 (9th Cir. 1981), cert. denied, 459 U.S. 825
(1982). The verdict is supported by substantial evidence. Thus,
we aifirm the entirety of the antitrust verdict against Ethicon.
In addition to the district court’s award, Handgards is entitled
to its costs and reasonable attorneys’ fees for this appeal.
AFFIRMED.
Pe te ee
epee MY ee ee ee
33a
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
Nos. 83-1575, 83-1646
DC CV 49491 SAW
{ —
HANDGARDS, INC., a.corporation,
Plaintiff-A ppellee,
VS.
ETHICON, INC., a corporation,
Defendant-Appellant.
+
JUDGMENT
APPEAL from the United States District Court for the
Northern District of California.
THIS CAUSE came on to be heard on the Transcript of the
Record from the United States District Court for the Northern
District of California and was duly submitted.
ON CONSIDERATION WHEREOF, it is now here ordered and
adjudged by this Court, that the judgment of the said District
‘ Court in this Cause be, and hereby is affirmed.
A TRUE COPY
ATTEST SEP 6, 1984
PHILLIP B. WINBERRY
Clerk of Court
by: Eliza Lau
Deputy Clerk
Filed and entered: August 02, 1984
FILED
SEP 10 1984
WILLIAM L. WHITTAKER
CLERK, U.S. DISTRICT
NORTHERN DISTRICT OF CALIFORNIA
34a
Appendix B
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 83-1575
No. 83-1646
.
HANDGARDS, INC., A CORPORATION,
Plaintiff-Appellee,
v,
ETHICON, INC., A CORPORATION,
Defendant-Appellant.
Before:
SNEED, KENNEDY, and BOOCHEVER,
Circuit Judges.
+
ORDER
We amend our opinion in this case as fol' 's. The amend-
ments correspond to the [pagination of Appendix A].
+
1. The third paragraph beginning with “Ethicon’s argument
also challenges” on page [10a] is replaced with the following:
Ethicon argues that the jury should not have considered
the defenses that were not litigated in the original patent
suit.'° We disagree. Ethicon’s antitrust liability is pre-
mised pon its prosecution of a patent infringement suit
with the knowledge that its patent was invalid. Handgards
35a
J, 601 F.2d at 994. If Ethicon kmew that the Gerard patent
was invalid under any defense, it is irrelevant that the
‘defense was not litigated in the patent infringement pro-
; ceeding. All that is required for a finding of bad faith in
the context of an infringement suit is that the patent
holder, Ethicon, knew that its patent was invalid. The bad
faith involved-—attempting to enforce a government
/ granted monopoly to which the patent holder knows he
has no right—is as much extrinsic to the suit as it is
inherent in filing a legal cause of action devoid of merit.
As Ethicon argues, liability cannot be based solely upon
the fact that a valid, unlitigated defense existed to its
patent infringement claim. Ethicon must also have known
that its patent was invalid by reason of that defense. The
district court must instruct the jury first on the law
governing the various patent defenses. The court must
then be careful to instruct the jury that it must find not
only the existence of facts which created a valid defense to
the patent claim but also that the antitrust defendant
knew, during the course of the patent prosecution, that
the patent was invalid by reason of that defense. Here, the
district court did just this. The district court instructed the
jury that first it had to determine the invalidity of the
patent on the basis of a particular defense and only then
could it determine whether Ethicon knew the patent was
invalid on the basis of that defense. Under the facts
presented by Ethicon, the Gerard patent could have been .
invalid under any one of or all of the defenses raised by
Handgards in the antitrust trial. It was up to the jury to
decide whether the factual predicates of a defense were
present and whether Ethicon actually knew that the patent
was invalid on the basis of the defense.
: 10. We refer to these defenses as “unlitigated defenses”
or “unlitigated patent defenses.”
2. The remainder of the . . . paragraph . . . on page [lla]
after the Goldman vy. Fenn citation is replaced with the foliow-
ing:
36a
The conduct alleged by Ethicon does not rise to the
level of “unfairness” required by our prior cases. See,
e.g., Maheu v. Hughes Tool Co., 5€9 F.2d 459, 471-72
(9th Cir. 1978) (a trial is unfair when the judge expresses
his Opinion as to an ultimate issue of fact in front of a
jury or argues for one of the parties in the suit). And, no
evidence exists to support an inference that the trial judge
affected the jury’s inquiry into bad faith.
3. The Telex citation is removed from page [20a], footnote 17;
the words “clearly erroneous” in the next sentence are deleted
and replaced with the words “unsupported by substantial
evidence.”
4. The McCormick citation on page [27a] is updated as fol-
lows:
McCormick on Evidence § 273, at 809-10 (E. Cleary 3d
ed. 1984).*
° The balance of the order, consisting of typographical corrections, is
omitted.
Rite
37a
Appendix C
UNITED STATES COURT OF APPEALS
NINTH CIRCUIT
No. 76-3150
May 3, 1979.
As Modified on Denial of Rehearing and
Rehearing En Banc July 27, 1979.
a
HANDGARDS, INC., a corporation,
Plaintiff-Appellee,
va
ETHICON, INC., a corporation,
Defendant-Appellant.
Sefore
SNEED and KENNEDY, Circuit Judges,
and VON DER Heypt.* District Judee.
+
SNEED, Circuit Judge.
Ethicon appeals from a judgment rendered after a civil jury
trial in which it was found guilty of violating Section 2 of the
Sherman Act by monopolizing or attempting to monopolize
the market for heat-sealed plastic gloves sold to manufacturers
Hon. James A. Von Der Heydt, Chief United States District Judge
for the District of Alaska, sitting by designation.
38a
of home hair care coloring kits. Plaintiff-appellee Handgards
bases its private antitrust action upon its contention that
Ethicon earlier had initiated and pursued a series of patent
infringement suits against it in bad faith, or as an integral part
of an overall scheme to monopolize. On appeal, Ethicon
argues, inter alia, that the district court erred in instructing the
jury that Ethicon could be found guilty of an antitrust viola-
tion upon proof by a mere preponderance of the evidence that
it had prosecuted-one or more ill-founded patent infringement
actions in bad faith and with an intent to monopolize. This
court has jurisdiction pursuant to 28 U.S.C. § 1291. Because
we conclude that the district court erred in so instructing the
jury and because of certain deficiencies with respect to the
court’s charge regarding damages, we reverse the judgment
entered below and remand the case for a new trial.
I.
Factual Background
It is helpful to set forth a brief description of the patent
enforcement conduct which forms the basis for Handgards’
antitrust complaint before reviewing the history of the instant
action.
A. The Prior Patent Enforcement Conduct.
The plaintiff-appellee Handgards, Inc. is a Nebraska corpo-
ration engaged in the business of manufacturing, distributing,
and selling disposable plastic gloves adhered to paper.
Handgards was formed from the 1966 merger of two constitu-
ent disposable plastic glove manufacturers: Plasticsmith, Inc.
(Plasticsmith) and Mercury Manufacturing Company (Mer-
cury). The defendant-appellant Ethicon, Inc. is a wholly-
owned subsidiary of Johnson & Johnson and is engaged in the
business of manufacturing, selling, and distributing surgical
supplies. Prior to 1969, Ethicon manufactured, distributed,
and sold disposable plastic gloves adhered to paper through its
Arbrook division. Ethicon ended its participation in the dis-
yer
eh eit Al te lie
'
:
.
:
|
:
-
j
7
3
39a
posable plastic glove business in 1969, when the assets of its
Arbrook division were transferred to another Johnson & John-
son subsidiary named Arbrook, Inc.
In 1961 Ethicon acquired the assets of the Scott Company,
which, for several years, had marketed disposable plastic
gloves produced in accordance with a process developed by one
of its founders, Joe Gerard. In so doing, Ethicon acquired
both Gerard’s pending application for a patent on his glove-
making process, as well as his glovemaking equipment.’ In
1961 Ethicon also acquired the pending patent application of
one Rene Orsini.” On April 3, 1962, the Gerard patent covering
a glovemaking process issued to Ethicon. On October 20, 1964,
the Orsini product patent covering a heat-sealed glove issued to
Ethicon. 3
Both Plasticsmith and Mercury were engaged in the manu-
facture of heat-sealed disposable plastic gloves at the time the
Gerard patent issued in 1962. After several months of unpro-
ductive negotiations concerning a licensing agreement for the
Gerard patent between Ethicon and T. Hamil Reidy, the chief
executive officer and controlling shareholder of Plasticsmith
and Mercury, Ethicon filed patent infringement suits in Octo-
ber 1962 against both Plasticsmith and Mercury, alleging in-
fringement of the Gerard patent.’ In December 1964, after the
Orsini patent issued, Ethicon supplemented its patent infringe-
ment complaints against Plasticsmith and Mercury by adding a
claim that the Orsini patent also was being infringed.
I Gerard filed the patent application covering his glovemaking process
on January 2, 1958.
2 Orsini filed an application for a French patent on September 17,
1956; he filed for a United States patent on September 17, 1957.
3 Ethicon filed suit against Plasticsmith, a Delaware corporation, on
October 30, 1962, in Delaware. Ethicon filed suit against Mercury, a
Nebraska corporation, on October 31, 1962, in Nebraska. After attorneys
for Plasticsmith prevailed on a motion to transfer the Delaware action to the
Northern District of California, Ethicon’s attorneys consented to the transfer
and consolidation of the Mercury action with the Plasticsmith action.
40a
In 1966 Plasticsmith and Mercury were merged into a succes-
sor corporation, Handgards, Inc., the plaintiff in this case.
Reidy continued as the chief executive officer and controlling
shareholder in Handgards. In 1967, after learning that some of
the allegedly infringing machines operated by Handgards re-
portedly were owned by Reidy rather than by Handgards or
either of its predecessor corporations, Ethicon filed an in-
fringement action against Reidy individually at his Chicago,
Illinois residence. Reidy thereafter voluntarily intervened in the
consolidated action then pending in California.
The consolidated patent infringement suit was tried to the
court in 1968. Ethicon’s trial counsel dropped he claims
concerning the Orsini patent from the action, reportedly be-
cause he thought Orsini to be the weaker of the two patents
and because he believed that narrowing the issues before the
court would enhance the chance of successfully prosecuting the
Gerard patent. On April 25, 1968, the trial judge entered
judgment for Handgards, concluding that the Gerard patent
was invalid because of the existence of a “prior public use” of
the process by Lyle Shabram, one of the founders of Plastic-
smith.* On appeal, this court affirmed the district court in a
brief per curiam decision.°
4 The “prior public use” defense arises under 35 U.S.C. § 102(b),
which provides that:
A person shall be entitled to a patent unless—
+ ” - ” ”
(b) the ir.vention was patented or described in a printed publication in
this or a foreign country or in public use or on sale in this country,
more than one year prior to the date of the application for patent in
the United States.
5 Ethicon, Inc. vy. Handgards, Inc., 432 F.2d 438 (9th Cir. 1970), cert.
denied, 402 U.S. 929, 91S. Ct. 1525, 28 L.Ed.2d 863, rehearing denied, 403
U.S. 912, 91 S.Ct. 2204, 29 L.Ed.2d 690 (1971). The complete text of the
court’s decision reads as follows:
Ethicon’s Gerard patent No. 3,028,576 was held invalid because the
trial court found that under 35 U.S.C. § 102(b) there was prior public
use for more than one year of the concept of the ‘nachine, the subject
of the patent. (footnote continued)
|
|
4la
B. History of the Present Action
Plaintiff-appellee Handgards filed this civil antitrust action
in 1968 seeking to recover treble damages and other equitable
relief for the injuries it claimed to its business and property by
virtue of the alleged antitrust violations committed by defen-
dant-appellant Ethicon and defendant Johnson & Johnson.
The gist of the plaintiff’s complaint was that the parent-subsid-
iary defendants had either unilaterally or in concert, monopo-
lized, attempted to monopolize, and conspired to monopolize
trade and commerce for the purpose of eliminating plaintiff as
a competitor in the sale of disposable plastic gloves to the hair
care and medical markets.
Plaintiff altered its primary theory of recovery dramatically
during the eight year period between the time it commenced
this action and the time of trial in 1976. Handgards’ suit began
primarily as a Walker Process case, i.e., a suit alleging antitrust
liability for the enforcement of a fraudulently obtained patent
(Orsini).° See Walker Process Equipment, Inc. v. Food Ma-
There is little ot no direct contradiction in the oral evidence. In our
view, ve have a cuse that could have been decided either way. Ethicon
contends the testimony of Handgards’ principal was too weak and
impaired by certain circumstances. But the trial court was entitled to
give more weight to other circumstances which point to Handgards’
—. version being correct.
The decree is affirmed because the findings are not clearly erro-
neous.
6 Walker Process stands for the proposition that “the enforcement of
a patent procured by fraud on the Patent Office may be violative of § 2 of
the Sherman Act provided the other elements necessary to a § 2 case are
present.” 382 U.S. at 174, 86 S.Ct. at 349. Mr. Justice Harlan, concurring,
stressed that “deliberate fraud” was required and that the Court did not hold
that private antitrust suits might also reach monopolies practiced under
patents that for one reason or another may turn out to be voidable
under one or more of the numerous technicalities attending the
issuance of a patent [for such a result] might well chill the disclosure of
inventions through the obtaining of a patent because of fear of the
vexations or punitive consequences of treble-damage suits.
382 U.S. at 180, 86 S.Ct. at 351-352 (Harlan, J., concurring).
(footnote continued)
42a
chinery & Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15
L.Ed.2d 247 (1965). This theory ultimately proved not viable.’
In 1975 Handgards expressly abandoned the Walker Process
theory at a hearing on a motion for summary judgment and
instead asserted the two theories on which this case ultimately
was tried: the first was referred to at trial as the “overall
scheme” theory; the second was referred to as the “bad faith”
theory. The district court’s published opinion on the motion
Handgards’ original complaint charged the defendants with (i) a violation
of section 7 of the Clayton Act, allegedly occurring when Ethicon acquired
the assets of the Scott Company in 1961 and (ii) violations of the Sherman
Act, allegedly occurring as the result of a fraudulent procurement of the
Orsini patent. A supplemental complaint was filed in 1974 which also
charged that the defendants had continued to violate the antitrust laws since
the date of the original complaint by committing certain illegal acts such as
the instigation of baseless lawsuits and pricecutting. Neither complaint
charged Ethicon with fraudulent procurement of the Gerard patent. Al-
though plaintiff sought to add such a contention in 1974, the district court
had denied leave to amend the complaint. The only allegations in either
complaint pertaining to the invalidity of the Gerard patent were that the
Gerard patent had been found invalid on the basis of a prior public use and
that “[djuring the pendency of such action, defendants obtained additional
information showing and confirming the invalidity of the Gerard patent.”
7 In 1971 Ethicon filed a motion for summary judgment, arguing that
the undisputed facts precluded a finding that the Orsini product patent had
been fraudulently procured under the criteria set out in Walker Process,
supra. See note 6 supra. The district court denied defendant’s motion in 1972
pending completion of discovery in the case, but noted that “[a] ruling that
no triable issue of fraud in the procurement of the Orsini divisional patent
exists would be within . . . [its] sound discreticn.” Ethicon renewed its
motion for summary judgment in 1975, at which time the district court
granted the motion in part and denied it in part. Handgards, Inc. v. Johnson
& Johnson, 413 F.Supp. 921 (N.D. Cal. 1975). The district court’s opinion
on the motion for summary judgment noted the death of any Walker Process
allegations, stating that “Handgards represented at oral argument on the
motion and in its post-hearing reply memorandum that it was not proceeding
as though this case were governed by Walker Process Equipment, Inc. vy.
Food Machinery & Chemical Corp.,” that the “abandonment by plaintiff of
its primary theory of recovery based on the Orsini patent is no surprise,” that
the “Orsini patent infringement suit was not prosecuted in violation of
Walker Process,” and that plaintiff's complaint had never contained a
Walker Process allegation regarding the Gerard patent. 413 F.Supp. at 923.
43a
for summary judgment reflected the new orientation of plain-
tiff’s case. Handgards, Inc. v. Johnson & Johnson, 413
F.Supp. 921 (N.D. Cal. 1975).
[1] Handgards now largely bases its monopolization
charge on the various patent infringement and other
lawsuits brought on behalf of Ethicon by J & J house
patent counsel. The claim is rooted in Kobe, Inc. v.
Dempsey Pump Co., 198 F.2d 416 (10th Cir. 1952), cert.
denied, 344 U.S. 837, 73 S.Ct. 46, 97 L.Ed. 651 (1952),
and its progeny—particularly Mach-Tronics, Incorpo-
rated v. Zirpoli, 316 F.2d 820 (9th Cir. 1963), Rex Chain-
belt, Inc. v. Harco Products, Inc., 512 F.2d 993 (9th Cir.
1975), and Prelin Industries, Inc. v. G & G Crafts, Inc.,
357 F.Supp. 52 (W.D. Okl. 1972). The Ethicon suits were
purportedly brought as integral ingredients of a scheme to
monopolize the disposable glove market. . . .
* * * * *
[2] Plaintiff charges that defendants attempted to
create a monopoly in the disposable glove industry by
accumulating a number of the relevant patents—no mat-
ter how weak or narrow—and then instigating a series of
lawsuits in order to slowly litigate the competition out of
business.
* * * * *
The bringing of a series of ill-founded patent infringe-
ment actions, in bad faith, can constitute an antitrust
violation in and of itself if such suits are initiated or
pursued with an intent to monopolize a particular in-
dustry (and, of course, the other elements of a Section 2
violation are present). Otter Tail Power Co. v. United
States, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359
(1973); California Motor Transport Co. v. Trucking Un-
limited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642
(1972); Kellogg Co. v. National Biscuit Co., 71 F.2d 662,
666 (2d Cir. 1934); Bolt Associates, Inc. v. Rix Industries,
supra, {1973-1 Trade Cases 4 74,474 (N.D. Cal. 1973)].
413 F.Supp. at 923-25 (emphasis in original).
44a
The court defined the term “bad faith” in this context as
knowing that the particular patent was invalid because (i)
Ethicon allegedly knew (through its agent Gerard) of relevant
prior art existing more than a year before the filing of the
Gerard patent application; (ii) Ethicon allegedly knew (through
its agent Gerard) that the invention had been on sale more than
a year prior to the filing of the Gerard patent application; or
(iii) Ethicon allegedly knew that the Orsini patent was invalid
because material information had been withheld from the
patent examiner.* /d. at 925.
At the trial the parties presented dramatically different
versions of the facts to the jury. Plaintiff contended that
Ethicon had accumulated the Orsini and Gerard patents, two
key patents in the field, intending to monopolize the industry;
that Ethicon had initiated and pursued its patent infringement
suits against Handgards and its predecessors in bad faith, i.e.,
with knowledge that the patents were invalid, for the purpose
of monopolizing the market;’ that even if brought in good
8 In its 1972 decision on defendant’s motion for summary judgment,
see note 7 supra, the district court noted that the failure to supply the Patent
Office with the information pertaining to the Orsini patent, which already
allegedly was part of its files, did not constitute fraud on the Patent Office in
the Walker Process sense. In its 1975 decision on defendant’s motion for
summary judgment, the district court formally held that Ethicon’s “failure to
inform the Patent Office of information in its own files does not amount to
the extremely circumscribed ‘intentional fraud’ necessary to prove an action
under Walker Process.” 413 F.Supp. at 923.
Y Plaintiffs argued that the Gerard and Orsini patents were known by
Ethicon to be invalid because they claimed: (1) a Mr. Babb had testified that
Gerard had told him that he knew the Gerard patent was invalid; (2) evidence
had been introduced suggesting that Ethicon knew of Shabram’s invalidating
prior public use; (3) evidence had been introduced suggesting (a) that Ethicon
knew that Gerard’s invention had been “on sale” more than one year prior to
the date of the filing of the patent application within the meaning of 35
U.S.C. § 102(b) and (b) that Ethicon’s patent attorneys knowingly falsified
an answer to an interrogatory in the prior patent action regarding the “on
sale” issue; (4) evidence had been introduced suggesting that Ethicon’s patent
attorneys knowingly falsified an answer to an interrogatory in the prior
patent action concerning the date on which Gerard’s invention had been
45a
faith, Ethicon’s infringement suits constituted individuai pred-
atory acts in an overall scheme to monopolize; and that
Ethicon had generated adverse publicity regarding its infringe-
ment actions, threatening potential customers of the plaintiff,
with the result that vital corporate resources were committed to
defense of the infringement actions, Handgards’ relations with
potential customers were impaired, a proposed joint venture
was aborted, and the company found itself unable to obtain
outside financing necessary for it to remain competitive in the
industry. Defendant Ethicon countered by arguing that it
lacked any improper monopolistic motive in its acquisition of
the Gerard and Orsini patents; that it had initiated the various
infringement actions in complete good faith, after careful
investigation, and with the reasonable expectation of success;
that it did not publicize its infringement actions within the
industry; and that Handgards’ competitive problems resulted
from its having marketed a lower quality product, provided
poorer service, and been unwilling to respond to the competi-
tive demands of the industry.
The jury returned a general verdict in favor of Handgards in
the amount of $2,073,000 prior to trebling and gave the
following responses to the special interrogatories submitted in
the case: (1) the Orsini patent was not invalid on the basis of
prior disclosures of another patent; (2) the relevant market in
the case consisted of the market of heat-sealed plastic gloves
sold to manufacturers of home hair care coloring kits; (3)
Ethicon was guilty of monopolizing or attempting to monopo-
lize the relevant market by prosecuting the patent lawsuits
against Handgards and its predecessors in bad faith, that is,
with actual knowledge that cither the Gerard or the Orsini
patent was invalid; (4) Ethicon was guilty of monopolizing or
attempting to monopolize the relevant market by prosecuting
reduced to a practice, in an attempt to mislead Handgards’ counsel into
defending the suit on a more difficult ground; and (5) evidence had been
introduced suggesting that Ethicon knew the Orsini patent to have been
invalid because of its having been anticipated or made obvious by a prior
patent.
46a
the prior patent action as a predatory act in an overall scheme
designed to exclude Handgards from the market; and (5) & (6)
Ethicon and Johnson & Johnson were not guilty of entering
into an agreement, combination, or conspiracy to restrain
trade or to monopolize the relevant market.
Ethicon advances six basic arguments on appeal: (1) the trial
court erred in instructing the jury that the bad faith enforce-
ment of a patent can, without more, constitute an exclusionary
act for which antitrust liability may result; (2) the finding that
Ethicon prosecuted its infringement actions in bad faith is
based upon pure speculation; (3) the jury’s finding that Ethi-
con possessed a valid patent (Orsini) which covered the market
found to have been monopolized precludes entry of a verdict
of illegal monopolization of that market; (4) the trial court
erred in permitting the jury to determine the relevant market
and instead should have found that the relevant market was
broader than the one chosen by the jury; (5) Handgards failed
to show any injury resulting from the alleged section 2 viola-
tions by Ethicon; and (6) the trial court erred in dire~‘ing a
verdict against Ethicon on its antitrust counterclaim against
Handgards. Because we conclude that resolution of appellant’s
contentions concerning the bad faith theory and the damages
recoverable in a case of this sort necessitate reversal and
remand for a new trial, we need not, at this time, reach the
other issues urged by appellant. All such issues may be pre-
sented to the trial court for such reconsiderations as it deems
proper in the light of this opinion.
II.
Antitrust Liability for Patent
Enforcement Conduct
A. The Problem
We are confronted in this case with the complex interaction
between two conflicting bodies of law: One, the patent law, is
concerned with the creation and commercial exploitation of a
statutory grant of monopoly power; the other, the antitrust
47a
law, is concerned with proscribing various kinds of monopoly
power.'” Reconciling the interrelationship between the patent
and antitrust laws has long been a topic of concern to court as
well as to commentators. See, e.g. Walker Process Equipment,
Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86
S.Ct. 347, 15 L.Ed.2d 247 (1965); Rex Chainbelt, Inc. v.
Harco Products, Inc., 512 F.2d 993 (9th Cir.), cert. denied, 423
U.S. 831, 96 S.Ct. $2, 46 L.Ed.2d 49 (1975); Kobe, Inc.
Dempsey Pump Co., 198 F.2d 416 (10th Cir.), cert. denied, 344
U.S. 837, 73 S.Ct. 46, 97 L.Ed.2d 651 (1952); P. Areeda & D.
Turner, //] Antitrust Law { 704a, at 114-15 (1978); L. Sullivan,
Handbook of the Law of Antitrust § 181 (1977); and Stedman,
Patents and Antitrust—The Impact of Varying Legal Doc-
10 The power to exclude, which is the essence of every patent, is
monopoly power. Hence, “[aJny action to enforce a patent is in a very
explicit sense ‘exclusionary,’ both in purpose and, if successful, in effect.” L.
Sullivan, Handbook of the Law of Antitrust § 181, at 522 (1977). See P.
Areeda & D. Turner, /// Antitrust Law ¢ 704a, at 114-15 (1978). The patent
laws contemplate “broad criteria of patentability while lodging in the federal
courts final authority to [determine patent validity],” R/ »der-Tongue Labo-
ratories, Inc. v. University Foundation, 402 U.S. 313, 332 91 S.Ct. 1434,
1444, 28 L.Ed. 2d 788 (1971); patentees invoke that authority by initiating
infringement suits to enforce their patents. The antitrust laws on the other
hand, proscribe certain types of exclusionary conduct that threaten or create
monopoly power, including, in at least some situations, the use of vexatious
litigation. See, e.g. Otter Tail Power Co. v. United States, 410 U.S. 366, 93
S.Ct. 1022, 35 L.Ed.2d 359, oa remand, 360 F.Supp 451 (D. Minn. 1973),
aff'd mem., 417 U.S. 901, 94. S.Ct. 2594, 41 L.Ed.2d 207 (1974). It therefore
is necessary to reach an accommodation between the patent and the antitrust
laws whenever antitrust liability is premised on a finding regarding a
patentee’s intent to monopolize or its exercise of exclusionary power. To
determine the existence of section 2 liability properly requires careful distinc-
tions between lawful patent-related exclusionary conduct or intent and
unlawful patent-related exclusionary conduct or intent; only unlawful patent-
reiated exclusionary conduct or intent is evidence of an intent to monopolize
or the exercise of exclusionary conduct within the meaning attributed to
section 2. See SCM Corp. v. Xerox Corp. 463 F.Supp. 983 (D. Conn. 1978).
The task then, is to “identify the point at which. . . |an attempt to enforce a
patent], always exclusionary in . . . [the literal sense, . . . become|s] so
intractable as to warrant its being called exclusionary in the sense relevant to
the establishment of a Section 2 violation. . .” L. Sullivan, supra, § 181, at
$22.
48a
trines, 1973 Utah L.Rev. 588. This case presents yet another
instance in which the boundaries of the patentantitrust inter-
face must be determined.
Patentees must Be permitted to test the validity of their
patents in court fhrough actions against alleged infringers.
Theii status as alleged possessors of a legal monopoly does not
cause them to be pariahs before the law. Eastern Railroad
Presidents Conference v. Noerr Motor Freight, 365 U.S. 127,
81 S.Ct. 523, 5 L.Ed.2d 464 (1961) and United Mine Workers
v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed. 626
(1965) require no less.'' On the other hand, infringement
actions initiated and conducted in bad faith contribute nothing
to the furtherance of, the policies of either the patent law or the
antitrust law.'* The district court was correct in holding, in
effect, that such actions may constitute an attempt to monopo-
lize violative of Section 2 of the antitrust laws.'? “Bad faith,”
11 It is worth emphasizing that the absence of an immunity does not
create an antitrust offense. The fact that defendant’s conduct is not immune
from antitrust scrutiny does not satisfy the plaintiff's burden of proving the
usual elements of an antitrust offense, including significant harm causally
related to the conduct.
P. Areeda & D. Turner, supra, / Antitrust Law € 204e2.
See California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508,
92 S.Ct. 609, 30 L.Ed.2d 642 (1972); Otter Tail Power Co. v. United States,
410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359, on remand, 360 F.Supp. 451
(D. Minn. 1973), aff’d mem., 417 U.S. 901, 94 S.Ct. 2594, 41 L.Ed.2d 207
(1974); Franchise Realty Interstate Corp. v. San Francisco Local Joint
Executive Board of \Culinary Workers, 542 F.2d 1076 (9th Cir. 1976), cert.
denied, 430 U.S. 940) 97 S.Ct. 1571, 51 L.Ed.2d 787 (1977).
12 Subjecting a potential rival or actual rival to. . . [the burden of
defending an infringement suit] may weaken him or even dissuade him from
beginning or continuing the rivalry with the monopolist-patentee—and
perhaps without regard to the merits of the infringement claim.
P. Areeda & D. Turner, supra, I/l Antitrust Law € 708, at 145. See
generally L. Sullivan, supra, § 181; Stedman, supra, at 593-94.
13 An antitrust plaintiff pursuing a bad faith patent prosecution theory
must still prove the other requisities of a § 2 offense. In Walker Process the
Supreme Court emphasized the need to demonstrate the patentee’s posses-
49a
however, is a subjective state of mind the existence of which,
while not susceptible to certain proof, easily can spring from
suggestive and weakly corroborative circumstances.
The problem, as we see it, is to provide the means whereby
the bad faith infringement action can be identified post hoc
with a sufficiently high degree of certainty to make it highly
improbable that the action in fact was brought in good faith.
The imposition of treble damages, a sanction strongly punitive,
see Walker Process, supra, 382 U.S. at 180, 86 S.Ct. 347
(Harlan, J., concurring) and P. Areeda & D. Turner, supra, //
Antitrust Law 4§ 311, 331, dictates that such means exist. For
reasons which appear below the solution of this problem points
the way to the proper disposition of this case.
sion of exclusionary power with in the relevant market before antitrust
liability would result.
To establish monoy ization or attempt to monopolize a part of trade or
commerce under § ~ of the Sherman Act jon a Walker Process theory], it
would . . . be necessary to appraise the exclusionary power of the illegal
patent claim in terms of the relevant market for the product involved.
Without a definition of that market there is no way to measure. .
[defendant’s] ability to lessen or destroy competition. It may be that the
[patented] device . . . does not comprise a relevant market. There may be
effective substitutes for the device which do not infringe the patent. TI s is a
matter of proof, as is the amount of damages. . .
382 U.S. at 177-78, 86. S.Ct. at 350-51.
We note the existence of a jury finding in this case that the relevant market
consisted of the marke: of heat-sealed plastic golves sold to manufacturers of
home hair care coloring kits, or the home hair care plastic disposable glove
market; a market coterminous with that covered by the Gerard patent. In
view of that finding, Ethicon’s prosecution of a bad faith infringement
action likely would constitute an attempt to monopolize violative of section
2. The requisite intent to monopolize in this case could be inferred from the
finding of bad faith. Not all bad faith infringement actions will necessarily
constitute attempts to monopolize violative of section 2. Nor will a patentee
found guilty of prosecuting an infringement action in bad faith necessarily be
guilty of an offense of monopolization. The imposition of antitrust liability
will depend upon plaintiff's proof that the defendant-patentee possessed or
‘threatened to possess an ability to lessen competition in the relevant market.
50a
B. The Solution
Our search for a solution commences by distinguishing the
facts of this case from those of the cases on which appellee
Handgards primarily relies. First, this is not a Walker Process
case. Walker Process stands for the proposition that “the
enforcement of a patent procured by fraud on the Patent
Office” may give rise to antitrust liability. See notes 6 & 7
supra. Plaintiff Handgard« does not contend that Ethicon
sought to enforce a fraudulently-procured patent. Instead,
Handgards asserts that Ethicon prosecuted infringement ag¢-
tions in bad faith, that is, with knowledge that the patents,
though lawfully-obtained, were invalid.
Second, this is not a Kobe case. Kobe, Inc. v. Dempsey
Pump Co., 198 F.2d 416 (10th Cir.), cert. denied, 344 U.S. 837,
73 S.Ct. 46, 97 L.Ed.2d 651 (1952). In Kobe a patentee had
engaged in a plan of monopolization by acquiring all present
and future patents relevant to an industry, obtaining covenants
not to compete from those from whom it purchased the
patents, publicizing its infringement suits throughout the in-
dustry, and threatening suit against anyone trading with the
alleged infringer. Kobe and its progeny, among which is Rex
Chainbelt, supra, hold that a patentee may incur antitrust
liability for even the good faith prosecution of a valid patent
where it is shown that the infringement suit “was brought in
furtherance and as an integral part of a plan to violate the
antitrust laws.” Rex Chainbelt, supra, 512 F.2d 1005-06.'* Our
14 The issue in Rex Chainbelt was whether Harco could recover
attorneys’ fees incurred in its successful defense of a patent infringement suit
as damages resulting from an antitrust violation by Rex Chainbelt. After
studying the Peport of the Attorney General's National Committee to Study
the Antitrust Laws 247-48 (1955) and a line of cases highlighted by Kobe,
supra and Ansul Co. v. Uniroyal, Inc. 448 F.2d 872 (2d Cir. 1971), cert.
denied, 404 U.S. 1018, 92 S.Ct. 680, 30 L.Ed.2d 666 (1972), we concluded
that “[t}he mere coincidence of an antitrust violation [an illegal tying
arrangement] 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 . . . court can find or infer, that the
patent infringement suit was brought in furtherance and as an integral part
of a plan to violate the antitrust laws.” 512 F.2d at 1005-06 (emphasis added).
|
Sla
careful examination of the record in this case reveals that no
evidence of any overall scheme to monopolize exists apart
from allegations that directly relate to the bad faith prosecu-
tion charges. The old wine in this case consists of evidence
indicating that Ethicon may have brought the infringement
actions in bad faith. It is the same old wine when put in a new
bottle labelled “overall scheme.”"*
15 The district court instructed the jury on both the “bad faith” and
“overall scheme” theories, stating that “[the prosecution] of one or more
ill-founded patent infringement actions in bad faith. . . constitutes an
antitrust violation in and of itself if such suits are initiated or pursued with
an intent to monopolize a particular market or industry,” Reporter's Tran-
script at 2134, and that “if . . . the lawsuits instituted by Ethicon against
plaintiff were brought or maintained in whole or in part to further a plan or
a scheme. . . to monopolize .. . or in furtherance of a conspiracy or
combination to monopolize or restrain trade . . . [then] the institution and
maintenance of these suits violate the antitrust laws, even though the
defendants may actually have believed that the . . . patents were valid, and
even though the defendants may actually have believed that the. . . patents
were valid, and even though the defendants believed that Handgards had
infringed these patents.” /d. at 2151. The court defined “bad faith” in this
context as “knowing cither at the time the lawsuit is filed or during its
pendency that the particular patent s ed upon is invalid.” /d. at 2134. Proof
of bad faith, the court charged, must be shown by a preponderance of the
evidence, which it described as proof that the proposition is “more likely true
than not true.” /d. at 2095.
The district court summarized the evidence pertaining to the overall
scheme for the jury as follows:
. . . {U}nder the overall scheme theory, the plaintiffs contend that the
defendants accumulated numerous patents on plastic gloves to prevent
competition; that they threatened to sue manufacturers, or purchasers,
of allegedly infringing gloves, and misused the Gerard patent.
To support this claim, the plaintiff introduced Gerard's letter to Sam
Porter, claiming that anyone manufacturing gloves on paper was in
violation of his patent, and was subject to suit for patent infringement.
The plaintiff also presented the testimony of Mr. Webbe regarding
the difficulty that Handgards encountered obtaining financing for its
operations.
Mr. Campbell, a past employee of Glore Forgan, also testified that
his company would not become involved in underwriting the sale of
Handgards’ stock, because of the pendency of the infringement suit.
Mr. Webbe also testified as to the reluctance of Sam Porter to enter
into a joint venture because of the pending suit. And Porter, similarly,
testified regarding his concern over the infringement action.
(footnote continued)
52a
Finally, this is not an Otter Tail case. Otter Tail Power Co. v.
United States, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359, on
The defendants presented the following evidence to refute the
plaintiff's claim that the patent suits were brought as part of an overall
scheme to monopolize.
Messrs. Laff and Neuman both testified that the patent actions were
filed against Plasticsmith and Mercury Manufacturing because Ethicon
was unsure of the relationship between the two companies.
Mr. Laff explained that Delaware was chosen as the place to sue,
because it was more convenient for Ethicon; and that after the court
ordered the case transferred to San Francisco, Ethicon did not oppose
the consolidation of the lawsuit against Mercury, so the action could be
tried as one lawsuit.
Messrs. Laff and Neuman testifed that the lawsuit was begun against
Mr. Reidy when it was learned that.Mr. Reidy paid for some of the
accused machines.
The evidence shows Ethicon offered Handgards a license under the
Gerard patent prior to the lawsuit.
Mr. Webbe and Mr. Blatz have testified that in their opinion the
license offered was not reasonable, and would have put Handgards at
a competitive disadvantage.
Mrs. Laff, Neuman, and Schlemmer, testified that the letter from
Mr. Gerard to Mr. Porter, dated March 16th, 1965, in which Mr.
Gerard enclosed a copy of his patent, did not constitute a misuse of the
Gerard patent.
The evidence shows that as of at least the date of that letter, all
disposable plastic gloves purchased by hair care kit companies were
manufactured under the Gerard process.
Mr. Gerard and Mr. Porter testified that the letter was sent at the
specific request of Mr. Porter.
Messrs. Laff, Neuman, and Schlemmer testified that no one except a
manufacturer of gloves could have been sued under the Gerard patent,
which was the sole object of that letter.
Id. at 2114-16.
As we indicated in the text, our review of the record convinces us that only
the bad faith theory of recovery exists in this case. The evidence of an overall
scheme to monopolize the relevant market constitutes substantially the same
evidence relied upon to show Ethicon’s alleged bad faith prosecution con-
duct. If this evidence, under the instructions our opinion requires, should fail
to support the bad faith theory, it should not be sufficient to support the
overall scheme theory. To hold otherwise would undercut the protections we
here seek to afford the ordinary patentee. For this reason we are unable to
affirm the judgment below on the basis of the jury’s finding that an overall
scheme existed. It is unnecessary for us to address explicitly the issue whether
the trial court erred in charging the jury on two theories. It is enough to point
out that if on retrial the evidence remains substantially the same, the charge
53a
remand, 360 F.Supp. 451 (D. Minn. 1973), aff'd mem., 417
U.S. 901, 94 S.Ct. 2594, 41 L.Ed.2d 207 (1974). Handgards
has neither pleaded nor proved that Ethicon engaged in a
pattern of baseless, repetitive litigation designed to prevent
meaningful access to an adjudicatory tribunal. See generally
Franchise Realty Interstate Corp. v. San Francisco Local Joint
Executive Board of Culinary Workers, 542 F.2d 1076, 1081 n.4,
1087 (9th Cir. 1976), cert. denied, 430 U.S. 940, 97 S.Ct. 1571,
51 L.Ed.2d 787 (1977).'°
Rather, this case involves simply the commencement and
maintenance of related infringement actions in what the jury
found to be bad faith.
A clash between the policies of patent and antitrust laws also
was present in Walker Process and Kobe. In the former the
compromise consisted of erecting high barriers to success by
the antitrust plaintiff. As we noted in Cataphote Corp. v.
DeSoto Chemical Coatings, Inc., 450 F.2d 769 (9th Cir. 1971),
cert. denied, 408 U.S. 929, 92 S.Ct. 2497, 33 L.Ed.2d 341
(1972):
The patent fraud proscribed by Walker is extremely
circumscribed. In Walker the Supreme Court excluded
from its definition of fraud “an honest mistake as to the
effect of prior installation upon patentability—so-called
‘technical fraud.’ ” Walker, supra, (382 U.S.] at 177, 86
S.Ct. 347, 350 [15 L.Ed.2d 247]. Wholly inadvertent
to the jury should reflect only the bad faith theory. We express no opinion on
the type of additional evidence that would require an overall! scheme charge.
Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th Cir.), cert. denied, 344
U.S. 837, 73 S.Ct. 46, 97 L.Ed.2d 651 (1952) is the archetype, however.
16 Judge Kennedy’s opinion, concurring in the result and qualifiedly
concurring in the majority’s opinion, suggests that defendant Ethicon may
have available on remand the “immunity” afforded by Franchise Realty. Our
opinion treats “infringement actions initiated and conducted in bad faith,”
established in the manner we require, as violative of Section 2 of the antitrust
law. When so established, it would be strange to then hoid that nonetheless a
Franchise Realty immunity might exist. In any event, this is an issue that the
present record does not require us to address.
54a
errors or honest mistakes which are caused by neither
fraudulent intent or design, nor by the patentee’s gross
negligence, do not constitute fraud under Walker... .
The road to the Patent Office is so tortuous and patent
litigation is usually so complex, that “knowing and willful
fraud” as the term is used in Walker can mean no less
than clear, convincing proof of intentional fraud involv-
ing affirmative dishonesty, “a deliberately planned and
carefully executed scheme to defraud * * * the Patent
Office.” . . . Patent fraud cases prior to Walker required
a rigorous standard of deceit. . . . Walker requires no
less.
450 F.2d at 772 (emphasis added) (footnote and citatiois
omitted). See SSP Agricultural Equipment, Inc. v. Orchard-
Rite Ltd., 592 F.2d 1096 at 1103 (9th Cir. 1979).
In overall scheme cases such as Kobe, courts require proof
of an overall scheme to monopolize independent of the mere
commencement of an infringement suit before permitting the
imposition of antitrust liability based on patent enforcement
conduct. This requirement diminishes the specter of antitrust
iahility encountered by an ordinary patentee who brings an
infringement action. See Hibner, Litigation as an Overt Act—
Development and Prognosis, 46 Antitrust L.J. 718, 720 (1977).
The common thread is that in both Walker Process and Kobe
barriers were erected to prevent frustration of patent law by
the long reach of antitrust law. This suggests our proper
course. It is to erect such barriers to antitrust suits as are
necessary to provide reasonable protection for the honest
patentee who brings an infringement action to protect his legal
monopoly.
A proper barrier is, in our Opinion, suggested by Walker
Process. \t is that the jury should be instructed that a paten-
tee’s infringement suit is presumptively in good faith and that
this presumption can be rebutted only by clear and convincing
evidence. See Cataphote Corp., supra, 450 F.2d at 772; SSP
Agricultural Equipment, supra. Such an instruction accords
5Sa
the patentee a presumption commensurate with the statutory
presumption of patent validity set forth in the patent laws, 35
U.S.C. § 282, which can only be rebutted by a showing of clear
and convincing evidence. See, e.g., Santa Fe-Pomeroy, Inc. v.
P & Z Co., 569 F.2d 1084, 1091 (9th Cir. 1978); Saf-Gard
Products, Inc. v. Service Parts Inc., 532 F.2d 1266, 1271 (9th
Cir.), cert. denied, 429 U.S. 896, 97 S.Ct. 258, 50 L.Ed.2d 179
(1976).
The trial court in this case, however, gave no such instruc-
tion. See note 15 supra. Moreover, it charged that the paten-
tee’s subjective bad faith need only be proved by a mere
preponderance of the evidence. This constitutes reversible
error. The district court charge eliminates a barrier we hold
necessary, and were it accepted as proper, “might well chill”
legitimate patent enforcement efforts “because of fear of the
vexations or punitive consequences of treble-damage suits.”
Walker Process, supra, 382 U.S. at 180, 86 S.Ct. at 352
(Harlan, J., concurring).
The barrier we impose is not one intended to be utilized in
antitrust litigation generally. It is fashioned in response to the
unique characteristics of proceedings in which the alleged
violation of the antitrust law consists solely of one or more
infringement actions initiated in bad faith.
Ill.
Damages Recoverable By Victims of Bad
Faith Infringement Actions
Difficulty also exists with respect to the trial court’s charge
to the jury concerning the nature of the injuries for which
plaintiff properly may recover damages in an antitrust suit
based upon a bad faith prosecution theory. “The Supreme
Court has recently ruled that the only damages recoverable in
an antitrust suit are those which occur by reason of that which
made the defendant’s actions unlawful.” Kapp v. National
Football League, 586 F.2d 644, 648 (9th Cir. 1978) (citing
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. 429 U.S. 477,
S6a
489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). Brunswick states the
applicable rule and is the governing authority:
. . . [For] plaintiffs to recover treble damages . . . they
must prove more than injury causally linked to. . . [the
antitrust violation]. Plaintiffs must prove antitrust injury,
which is to say injury of the type the antitrust laws were
intended to prevent and that flows from that which makes
defendant’s acts unlawful, The injury should reflect the
anticompetitive effect either of the violation or of anti-
competitive acts made possible by the violation. It should,
in short, be “the type of loss that the claimed viola-
tions. . . would be likely to cause.” Zenith Radio Corp.
v. Hazeltine Research, 395 U.S. [100] at 125 [89 S.Ct.
1562 at 1577, 23 L.Ed.2d 129].
429 U.S. at 489, 97 S.Ct. at 697-698 (emphasis in original)
(footnote omitted).
Plaintiff must show that the injury for which it seeks to
recover is “the type the antitrust laws were intended to pre-
vent” and “flows from that which makes defendant’s acts
unlawful.” In a suit alleging antitrust injury based upon a bad
faith prosecution theory it is obvious that the costs incurred in
defense of the prior patent infringement suit are an injury
which “flows” from the antitrust wrong. Damages for the loss
of profits, however, will not necessarily so flow. We have some
doubt, for example, whether plaintiff's damage claim for lost
profits allegedly resulting from the entry of an additional
competitor into the market during the pendency of the in-
fringement suit is the type of injury for which antitrust recov-
ery is appropriate. “The antitrust laws . . . were enacted for
“the protection of competition, not competitors.” Brunswick,
supra, 429 U.S. at 488, 97 S.Ct. at 697 (quoting Brown Shoe
Co. v. United States, 370 U.S. 294, 320, 82 St. Ct. 1502, 8
L.Ed.2d 510 (1962). Moreover, the jury’s finding in this case
that Ethicon possessed a valid patent covering the market it
was accused of monopolizing also raises doubts concerning
57a
whether plaintiff’s lost profits “flowed from” ihe antitrust
wrong claimed in this case.
The court’s charge concerning the damages available to
plaintiff for lost profits is ambiguous. Several times the court
stated that plaintiff could only recover for lost profits that it
would have earned “but for” the antitrust violation by the
defendant. See Reporter’s Transcript at 2160, 2162. The court
also stated however, that plaintiff could recover as damages
profits lost as the “proximate result” of the antitrust violation.
Id. at 2163. The court earlier had defined the term “proximate
cause” to mean “an act. . . [that] played a substantial part in
bringing about” the injury. Jd. at 2161. According to Bruns-
wick, plaintiff must show more than that it suffered injury
causally linked to the antitrust violation; the injury must be
shown to have “flowed” from the wrong. To “flow” from the
wrong, Brunswick suggests, the loss must be “ ‘the type of loss
that the claimed violations. . . would be likely to cause.’ ” 429
U.S. at 489, 97 S.Ct. at 697, quoting from Zenith Radio Corp.
v. Hazeltine Research, 395 U.S. 100, 125, 89 S.Ct. 1562, 23
L.Ed.2d 129 (1969). To be one of several causes is not enough.
The injury must be of the type likely to be caused by the
defendant’s bad faith infringement action. On the record
before us we are left in doubt whether the Brunswick test has
been met with respect to plaintiff’s claim for lost profits. The
failure of the trial court to resolve this doubt specifically
constitutes error.
IV.
The Reasonable Balance
The additional burdens imposed by our holdings on those
who seek an antitrust recovery against one who has brought a
patent infringement action against them achieve what we
believe to be a reasonable accommodation of the policies of
patent and antitrust law. Patent holders must be cautious in
bringing infringement actions and alleged infringers remain
equipped with a strong retaliatory weapon available for use
58a
against those who sue them in bad faith.'’ We think this
represents a reasonable balance.
Accordingly, this case is reversed and remanded to the
district court for a new trial in accordance with the views
expressed herein.
REVERSED and REMANDED.
Each party to this appeal shall bear its own costs and neither
party’s costs shall be taxed against the other. Rule 39, F.R.
App. P.
a
On Petition for Rehearing.
KENNEDY, Circuit Judge, concurring:
I concur in the result of Judge Sneed’s opinion, and think it
inappropriate to address the question whether or not Ethicon
could rely on an immunity granted to antitrust defendants
under the principles set forth in Franchise Realty Interstate
Corp. v. San Francisco Local Joint Executive Board of Culi-
nary Workers, 542 F.2d 1076 (9th Cir. 1976), cert. denied, 430
U.S. 940, 97 S.Ct. 1571, 51 L. Ed. 2d 787 (1977). The matter
was not raised by Ethicon at any stage of these proceedings.
Since a new trial is required in this case, because of the
erroneous jury instructions noted by the majority, the district
court in the first instance should determine whether Ethicon
may raise the question on retrial.
17 We note that substantial disincentives to instigating ill-founded
patent infringement suits that are not actionable under the standard of
antitrust liability announced today already exist. For example, the patent
laws contain a specific remedy for prosecution in bad faith. 35 U.S.C. § 285;
the rule of collateral estoppel announced in Blonder-Tongue Laboratories,
Inc. v. University Foundation, 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed.2d 788
(1972) serves to dissuade ill-founded patent infringement suits; and nothing
appears to preclude a successful defendant in an infringement action from
bringing a common law malicious prosecution claim. Moreover, this opinion
does not limit any antitrust liability that a patentee may incur for conduct
actionable under an overall scheme or Walker Process theory.
59a
In Franchise Realty we held that an antitrust plaintiff must
plead that the litigation or petitions which allegedly caused
competitive injury were sham proceedings, the showing re-
quired by a line of Supreme Court decisions, see Eastern
Railroad Presidents Conference v. Noerr Motor Freight, 365
U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961); United Mine
Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14
L.Ed.2d 626 (1965); California Motor Transport Co. v. Truck-
ing Unlimited, 404 U.S. 508 92 S.Ct. 609, 30 L.Ed.2d 642
(1972); Otter Tail Power Co. v. United States, 410 U.S. 366, 93
S.Ct. 1022, 35 L.Ed.2d 359 (1973); Vendo Co. v. Lektro-Vend
Corp., 433 U.S. 623, 97 S.Ct. 2881, 53 L.Ed.2d 1009 (1977).
Franchise Realty might be interpreted to require dismissal of
antitrust claims unless the plaintiff can show that the defen-
dant’s conduct was designed to cause competitive injury by
exacting such extraordinary costs that meaningful use of an
agency or tribunal was barred, see 542 F.2d at 1080-81 & n.4,
and perhaps to require further that the defendant must have
engaged in conduct other than instigation and maintenance of
the proceedings, see id. See also Wilmorite, Inc. v. Eagan Real
Estate, Inc., 454 F. Supp. 1124 (N.D.N.Y. 1977); Ernest W.
Hahn, Inc. v. Codding, 423 F. Supp. 913 (N.D. Cal. 1976).
Whether this is a correct interpretation of Franchise Realty or
the Sherman Act, cf. P. Areeda & D. Turner, Antitrust Law
§ 201-204, 203c n.9 at 44-45 (1978), and whether Ethicon’s
conduct was actionable under such standards are important
questions, but the issues are not presented for consideration
here:
The majority opinion seems to suggest that a showing of
sham proceedings under Franchise Realty is not required where
the claimed antitrust injury flows from patent litigation, but it
does not indicate the respects in which patent litigation some-
how presents a greater threat to interests protected by the
Sherman Act than other types of suits governed by California
Motor and Franchise Realty. \t is irrelevant that a successful
plaintiff in a patent action is enforcing a lawful monopoly.
Very costly “sham” unfair competition or tort suits, for exam-
60a
ple, may produce more anticompetitive injury than less costly
but successful infringement actions. Moreover, it is difficult to
argue that a successful plaintiff has engaged in sham litigation.
But to the extent that the patent plaintiff is unsuccessful, I see
little reason to distinguish patent litigation from other kinds of
litigation. If attempted enforcement of a patent known to be
invalid is the special circumstance which justifies a special rule,
the court’s opinion states no reason to depart from the require-
ment that a plaintiff prove knowing, intentional fraudulent
procurement as stated in Walker Process. To the extent that
abuse of the judicial process by bad faith prosecution of a
claim known to be without merit is the essence of the antitrust
violation, the court’s opinion states no reason f eparting
from the circuit’s precedents, see Franchise Realty, governing
this type of antitrust violation. Further, a more lenient rule for
patent litigation appears at odds with the principal holding that
a special burden of proof is required before an antitrust
plaintiff may prevail on the claim of injury from a previous
patent litigation, our purpose being to avoid undue discourage-
ment to the adjudication of patent infringement claims. In my
view, however, whether and why the kind of antitrust litigation
permitted in Walker Process is distinguishable in meaningful
ways from that discussed in California Motor, the relationship
between the different standards applied in those cases, and the
applicability of Franchise Realty to this case, are best left for a
later decision when the point has been specifically raised by the
parties. |
l Defendant’s position on this appeal was that antitrust claims based
on the prior bringing of infringement actions differ from other kinds of
antitrust suits based on alleged abuse of the judicial system. It expressly
declined to rely on California Motor, stating in its brief: “The only relevance
of California Motor Transport, which had nothing to do with patents, is its
explicit reaffirmation by the Supreme Court of Walker Process as the
applicable standard of fraud in connection with a § 2 case charging enforce-
ment of invalid patents.” Appellant’s Brief at 27. Instead, defendants argued
that this case was governed by Walker Process. They claimed plaintiff should
have been required to prove common law intentional fraud, not merely bad
faith, and that the standard of proof should have been clear and convincing
instead of a preponderance of the evidence. Their second argument is
adopted in Judge Sneed’s opinion.
—$——
hl LLL aoe
6la
Finally, the majority states that in proving injury “flowing
from” an antitrust violation, “To be one of several causes is
not enough.” To the extent this langugage suggests a change in
the normal standards regarding causation in antitrust cases, the
statement is unexplained. There is no need in this case to
reexamine the rule that “proximate cause” in antitrust cases is
defined in terms of “a substantial cause.” See Mulvey vy.
Samuel Goldwyn Productions, 433 F.2d 1073, 1075 n.2 (9th
Cir. 1970); Hecht v. Pro-Football, Inc., D.C. Cir. 187 U.S.
App. D.C. 73, 570 F.2d 982, 996 (1977); Billy Baxter, Inc. v.
Coca-Cola Co., 431 F.2d 183, 187 (2d Cir. 1970); E. Devitt &
C. Blackmar, Federal Jury Practice and Instructions §§ 90.31,
80.18 (1977) (“proximate cause” in antitrust cases defined in
terms of “substantial factor”). to the extent the language
applies only to antitrust claims based on prior patent infringe-
ment actions, the majority similarly does not explain why a
different causation rule is appropriate in this kind of case.
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,
97 S.Ct. 690, 50 L.Ed.2d 701 (1977), is, squarely in point for
our holding that the injury must result from a competitive
wrong prohibited by the antitrust laws, but in my view it
; Should not be interpreted to introduce a new standard for
' proving causation either in antitrust cases generally or antitrust
/ claims based on prior patent litigation. | am not as sure as
Judge Sneed that part of Handgards’ damages claim was for
lost profits resulting from the entry of an additional competi-
tor, but I agree that the effect of the Orsini patent on plaintiff’s
\claim of injury creates an issue which the district court should
decide.
With the above observations, I concur in the opinion of the
majority.
62a
Appendix D
UNITED STATES DISTRICT COURT
N.D. CALIFORNIA
No. C-49451 SAW.
Dec. 13, 1982.
7
HANDGARDS, INC., a corporation
Plaintiff,
Vv.
ETHICON, INC., a corporation
Defendant.
i
ORDER DENYING MOTION FOR JUDGMENT
NOTWITHSTANDING THE VERDICT, FIXING THE
APPLICABLE RATES AND PERIODS OF INTEREST ON
THE JUDGMENT, AND AWARDING ATTORNEY’S FEES
WEIGEL, District Judge.
The first trial of this antitrust action resulted in a jury award
on March 1, 1976, of $6,219,000 after trebling. On appeal, the
Court of Appeals for the Ninth Circuit reversed the judgment
on the grounds of error in the trial court’s instructions to the
jury and remanded for a new trial. See Handgards, Inc. v.
Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979), cert. denied, 444
U.S. 1025, 100 S.Ct. 688, 62 L.Ed.2d 659 (1980). On August 6,
1982, following a new trial, a jury awarded plaintiff damages
after trebling of $10,76:,993. Defendant moves for judgment
notwithstanding the verdict or, in the alternative, for a new
trial. Plaintiff moves the Court to fix the applicable rates and
63a
periods of interest on the judgment and to award attorney’s
fees.
Defendant’s Motion for Judgment Notwithstanding The
Verdict or, in the Alternative, for a New Trial
A motion for judgment notwithstanding the verdict is prop-
erly granted only “if, without accounting for the credibility of
the witnesses, * * * the evidence and its inferences, considered
as a whole and viewed in the light most favorable to the
nonmoving party, can support only one reasonable conclu-
sion—that the moving party is entitled to judgment notwith-
standing the adverse verdict.” William Inglis & Sons Baking
Co. v. ITT Cont. Baking Co., 668 F.2d 1014, 1026 (9th Cir.
1982). A new trial is appropriate if “the jury’s verdict was
clearly contrary to the weight of the evidence.” /d. at 1027.
The record in this case yeasonably supports the jury’s verdict.
Conseguently, defendant is entitled to neither judgment not-
withstanding the verdict nor a new trial.
Plaintiff's Motion to Fix the Applicable Rates and Periods
of Interest on the Judgment
The parties agree that plaintiff is entitled to post-judgment
interest at the lawful rate from the date of the present judg-
ment, August 6, 1982. 28 U.S.C. § 1961 provides that “interest
Should be allowed on any money judgment in a civil case
recovered in a district court.” For periods prior to October 1,
1982, interest is to be determined “at the rate allowed by state
law.” Jd. (1982). 28 U.S.C. § 1961 was recently amended to
provide, effective October 1, 1982, that “[s]uch interest shall
be calculated from the date of the entry of the judgment, at a
rate equal to the coupon issue yield equivalent (as determined
by the Secretary of the Treasury) of the average accepted
auction price for the last auction of fifty-two week United
States Treasury bills settled immediately prior to the date of the
judgment. * * *” Section 302 of the Federal Court Improve-
ments Act of 1982, P.L. 97-164, 96 Stat. 55.
64a
The parties differ, however, over whether plaintiff should
receive interest on the amount of the first judgment from the
date of its entry on March 1, 1976. It is well settled that interest
on that part of a judgment affirmed on appeal should be
computed from the date of the judgment’s initial entry. See
Kneeland v. American Loan & Trust Co., 138 U.S. 509, 511,
11 S.Ct. 426, 427, 34 L.Ed. 1052 (1891); Lew Wenzel & Co. v.
London Litho Supply Co., 563 F.2d 1367, 1369 (9th Cir. 1977);
Perkins v. Standard Oil, 487 F.2d 672, 676 (%h Cir. 1973);
United States v. Hougham, 301 F.2d 133, i34-35 (9th Cir.
1962).
The Court of Appeals for the Ninth Circuit has recently
expanded this rule in Mt. Hood Stages, Inc. v. Greyhound
Corp., 616 F.2d 394 (9th Cir. 1980), and Twin City Sportservice
v. Charles O. Finley & Co., 676 F.2d 1291 (9th Cir. 1982). In
Mt. Hood, the Supreme Court reversed in part the district
court’s award of damages on the ground that the relevant
statute of limitations had expired, and remanded for deter-
mination of whether tolling of the statute was justified on
equitable principles. See Greyhound Corp. v. Mt. Hood
Stages, Inc., 437 U.S. 322, 98 S.Ct. 2370, 57 L.Ed.2d 239
(1978). The district court on remand found that equitable
tolling was justified, and awarded the same amount of dam-
ages it had originally granted. On appeal, the Court of Appeals
for the Ninth Circuit upheld the district court’s award of
interest on the entire judgment from the date of its original
entry. 616 F.2d at 407. The Court of Appeais expressly declined
to follow those cases holding that interest does not accrue on a
vacated judgment. See id.
In Twin City, the district court found the defendant had
committed four antitrust violations and awarded damages. The
Court of Appeals reversed the district court’s legal conclusions
with respect to all four violations. On remand, and after
receiving new evidence, the district court found the defendant
had committed two of the violations, and awarded the same
amount of damages as after the first trial, but granted interest
only from the date of the second judgment. On appeal, the
‘Court of Appeals reversed in part and awarded interest from
65a
the date of the first judgment, despite the fact that “the issue
of antitrust liability was not firmly settled until the post-re-
mand judgment[ |] * * * *” 676 F.2d at 1311.
In this case the first judgment was reversed by the Court of
Appeals on the grounds of error in the Court’s instructions to
the jury and insufficient evidence to support a jury charge on
one of plaintiff’s two theories of liability. See Handgards, Inc.
v. Ethicon, Inc., 601 F.2d 986, 995 n.15 (9th Cir. 1979), cert.
denied, 444 U.S. 1025, 100 S.Ct. 688, 62 L.Ed.2d 659 (1980).
After a new trial, a jury awarded damages in an amount larger
than the firsi judgment.
Although here, unlike Mt. Hood and Twin City, the second
judgment is larger than the first, that fact should not preclude
an award of interest on the first judgment from the date of its
entry. In this case, as in Twin City, antitrust liability was not
established until the second judgment. In addition, in both
cases the second judgment was entered only after a new trial
was held or new evidence received. Similarly, in both cases the
second judgment was based upon only some of the theories of
liability that supported the first judgment.
A plaintiff’s right to post-judgment interest should not hinge
on the fortuity that on remand the finder of fact will award the
exact amount of damages awarded at the first trial. Further-
more, if interest is not allowed on the first judgment from the
date of its entry simply because the first and second judgments
are not for the same amount, then a successful plaintiff could
be penalized for receiving a second judgment larger than the
first judgment. A second judgment that is larger than the first
could result in a lower total recovery of principal plus interest
by a successful plaintiff than were the two judgments for the
sane amount. Defendant’s contention that calculating interest
on different parts of the judgment from different dates would
“plunge[ ] the Court into an unprecedented exercise in splitting
the current judgment” is meritless. Such calculations are a
familiar task for courts. See e.g., Lew Wenzel & Co., supra;
Perkins, supra. Hence, plaintiff is entitled to interest on the
first judgment from March 1, 1976.
66a
Plaintiff's Motion to Award Alttorney’s Fees
A prevailing plaintiff in an antitrust action is entitled to “a
reasonable attorney’s fee” pursuant to Section 4 of the Clayton
Act, 15 U.S.C. § 15. The appropriate method for determining
a reasonable fee is to multiply the number of hours worked by
the customary hourly rate of compensation for like services.
The resulting “lodestar” figure is then adjusted based on the
novelty and difficulty of the questions raised, the results of the
litigation, the experience and ability of the attorneys, attor-
ney’s fees awards in similar cases, and like factors. See, e.z.,
Kerr v. Screen Extra Guild, 526 F.2d 67, 70 (9th Cir. 1975),
cert. denied, 425 U.S. 951, 96 S.Ct. 1726, 48 L.Ed.2d 195
(1976).
Plaintiff requests an attorney’s fee of $2.5 million. By
contrast, defendant urges that no more than $618,633 be
awarded as a reasonable fee. The Court finds that reasonable
attorney’s fees for the first trial, the subsequent appeal, and
the second trial are $1,064,943.10.
On July 13, 1976, Judge Orrick awarded plaintiffs $498,955
following the first trial as a reasonable attorney’s fee in the
action. Judge Orrick reached this figure by multiplying the
number of hours he found to be compensable, 4,223, by an
average hourly rate of $85, and then increasing the resulting
lodestar figure by $140,000, equivalent to a multiplier of
approximately 1.39.
Defendant urges that the Court not increase the award made
by Judge Orrick for work performed prior to the first judg-
ment. Plaintiff argues that Judge Orrick’s award should be
increased in two respects. First, plaintiff asserts that the 1350
hours that Judge Orrick subtracted as spent in pursuit of
unsuccessful claims should be compensated based upon the
recent decision of the Court of Appeals for the Ninth Circuit in
Twin City Sportservice v. Charles O. Finley & Co., 676 F.2d
i291 (9th Cir. 1982). Plaintiff misconstrues the rule enunciated
in Twin City, and thus is not entitled to compensation for those
hours. See id. at 1316 (work on claims unrelated to the
successful recovering of antitrust damages may be excluded
67a
from award). Second, plaintiff claims that the appropriate
hourly rate at which it should be compensated is that of the
time of the petition and not the historical rate in force at the
time the services were rendered, and that the current average
rate for plaintiff's counsel is $150 per hour. In protracted
antitrust litigation, a successful plaintiff’s attorney should be
compensated for delay in the payment for services rendered. A
court may do so either by adopting a current hourly rate or by
increasing the multiplier used to adjust the lodestar figure. See
Virginia Academy of Clinical Psychologists v. Blue Shield, 543
F.Supp. 126, 144 (E.D.Va. 1982); Chranliwy v. Uniroyal, 509
F.Supp. 442, 457-58 (N.D. Ind. 1981); Weiss v. Drew Nat’!
Corp., 465 F.Supp. 548, 552-53 (S.D.N.Y. 1979). Thus, in this
case the Court may either use a current hourly rate to compen-
sate work done prior to the first judgment or increase Judge
Orrick’s multiplier of 1.39 to adjust for the additional delay
endured by plaintiff’s counsel since the first judgment on
March 1, 1976.
Rather than simply adding delay in receipt of payment to the
already long list of factors to be considered in determining an
appropriate multiplier, see, e.g., Virginia Academy, supra, at
131 & n. 5, a current hourly rate will be used to compute
plaintiff’s attorney’s fees. This method more directly adjusts
the award for the combined effects of delay in payment and
inflation. See Virginia Academy, supra, at 144; Chrapliwy,
supra, at 458.
Plaintiff urges that a current hourly rate of $150 per hour be
used to determine the award. Taking into account the skill and
experience of plaintiff’s counsel, the Court finds that a rate of
$115 per hour is justified. In addition, although plaintiff's
counsel submit that their current billing rates are $190 per hour
for Mr. Blecher, $150 per hour for Mr. Bennett, and $125 per
hour for Ms. Bennett, considerable work over the course of the
litigation has been performed by associates for whom plaintiff
provides no hourly rate. Hence a lower hourly rate of $115 per
hour is warranted.
Applying the $115 per hour rate to the 4,223 hours Judge
Orrick found properly compensable yields a lodestar figure of
$485,645. Multiplying the lodestar by Judge Orrick’s multiplier
68a
of 1.39 results in an attorney’s fee for work done prior to
Judge Orvick’s award of $675,046.55.
Plaintift asserts that a total of 3,005 lawyer hours, plus 265
paralegal hours, have been spent in prosecuting the case since
the first judgment. Defendant urges that various deductions be
made from this figure for hours spent on unsuccessful claims,
for hours spent prior to Judge Orrick’s award, for unproduc-
tive werk, and for excessive trial preparation. First, 300 hours
mt . be deducted for work spent unproductively and on
unsuccessful claims. Because the Blecher firm has failed ade-
quately to support the fees requested with contemporaneously
maintained time records, “the Court must * * * make [these]
reductions in the fee requested.” Jn Re Equity Funding Corp.
of America Securities, 438 F. Supp. 1303, 1328 (C.D.
Cal.1977). Second, based on the time records submitted by
plaintiff’s counsel, 328.75 hours must be subtracted for time
spent prior to Judge Orrick’s award and already compensated
in that award.
Finally, 20 hours must be deducted for time spent on plain-
tiff’s attorney’s fees request, which is not compensable. See,
e.g., Locklin v. Day-Glo Color Corp., 378 F. Supp. 423
(N.D.I11.1974). These deductions result in a total number of
compensable lawyer hours of 2,356.25.
Multiplying the number of compensable hours by the current
average hourly rate of $115 per hour results in a lodestar award
of $270,968.75. When increased by the multiplier of 1.39,
which the Court finds appropriate for work done after the first
judgment as well as for services provided prior to that date,
this figure rises to $376,646.56. Adding $13,250 to this figure
for 265 paralega! hours compensated at $50 per hour results in
a total award for work done after Judge Orrick’s award of
$389,896.56. Hence the total attorney’s fee for work done in
this action, both before and after the first judgment, is
$1,064,943.10.
Accordingly,
IT IS HEREBY ORDERED that defendant’s motion for judg-
ment notwithstanding the verdict or, in the alternative, for a
new trial is denied.
692.
IT IS FURTHER HEREBY ORDERED that the Judgment en-
tered herein on August 6, 1982, be supplemented to provide as
follows:
1. As to Six Million Two Hundred Nineteen Thousand
Dollars ($6,219,000) of the present judgment, interest shall
accrue at the legal rate in California of seven (7) percent from
March 1, 1976, through August 6, 1982.
2. As to the whole of the present judgment plus attorney’s
fees awarded herein, a total of Eleven Million Eight Hundred
Twenty-Six Thousand Nine Hundred Thirty-Six Dollars and
Ten Cents ($11,826,936.10), interest shall accrue at the legal
rate in California of seven (7) percent from August 6, 1982,
through September 30, 1982, and from October 1, 1982,
forward until paid at a rate equal to the coupon issue yield
equivalent (as determined by the Secretary of the Treasury) of
the average accepted auction price for the last auction of
fifty-two week United States Treasury bills settled immediately
prior to the date of the judgment.
IT Is FURTHER HEREBY ORDERED that plaintiff is awarded
attorney’s fees in this action in the sum of One Million Sixty
Four Thousand Nine Hundred Forty-Three Dollars and Ten
Cents ($1,064,943.10).
70a
Appendix E
Handgards, Inc. v. Johnson & Johnson, et al.
ca
Handgards, Inc. v. Johnson & Johnson, et al.
U.S. District Court
Northern District of California
No. C49451 WHO.
Filed July 13, 1976
—$§+-
Reporter’s Transcript
ORRICK, D.J.:
TUESDAY, JULY 13, 1976
THE COURT: On March 1, 1976, the jury returned
verdict in favor of Plaintiff Handgards and awarded damages
which when trebled amount to the sum of $6,219,000. Pres-
ently before the Court are various post-trial motions of the
parties.
J&J’s MOTION FOR ENTRY OF JUDGMENT: The jury
returned a verdict against both the defendants, Johnson &
Johnson and Ethicon, Inc. (a subsidiary to J & J). The only
allegations in the complaint pertaining to J & J alleged that
J&Jj had conspired with Ethicon to restrain and monopolize
trade in violation of Sections 1 and 2 of the Sherman Act. The
jury, in its answers to Special Interrogatories Nos. 5 and 6
found that no such conspiracy existed. These special findings
of fact control over any inconsistent general verdict. See
Golden North Airways v. Tanana Publishing Co., 218 F.2d
612, 618 (9th Circuit 1955). Accordingly, J & J is entitled to
entry of judgment in its favor.
Tla
As a prevailing party, J & J is also entitled to its costs, taxed
according to law. See FRCB 54(d). 6 Moore’s Fed. Pract.,
Paragraph 54.70 (2d Ed. 1975).
ETHICON’S MOTION FOR ENTRY OF JUDGMENT AS
TO THE VALIDITY OF THE ORSINI PATENT: In Special
Interrogatory No. 1, the jury determined that the Orsini patent
claims were not anticipated or made obvious in light of the
Rosenberg and Sharbram 3007 patent. The parties stipulated
that the jury’s findings as to this Special Interrogatory would
be the basis upon which the Court in the judgment would
adjudicate the validity or invalidity of the patent.
The only affirmative defense against the validity of the
Orsini patent pressed at trial by Handgards was the issue of
anticipation or obviousness. Since the jury found against
Handgards on this issue, the stipulation of the parties compels
entry of judgment as to the validity of the Orsini patent. (In
addition, Handgards conceded that it was infringing this pat-
ent. Judgment should be entered accordingly.)
HANDGARDS’ MOTION TO AMEND THE JUDGMENT
TO DELETE AN ADJUDICATION OF THE VALIDITY OF
THE ORSINI PATENT: Handgards has filed a motion en-
titled “Motion to Amend the Judgement Pursuant to FRCP
60(b)” requesting that the Court delete an adjudication as to
the validity of the Orsini patent. Handgards makes this motion
in spite of the fact that it knows that judgment has not yet been
entered. It should be denied as untimely and improper.
Handgards appears to be attempting to evade the consequences
of its failure to seek a directed verdict on the issue of the
invalidity of the Orsini patent during the trial. Such a failure
precludes a motion for a JNOV pursuant to Rule 5S0(b).
Moreover, allowing Handgards to amend the judgment in this
respect would vitiate the stipulation entered into on the record
to the effect that a judgment of validity would automatically
follow in the event that the jury found that 3007 did not
anticipate or render Orsini obvious. Granting reliei from this
stipulation is not appropriate. See Dal International Trading
Company v. Sworn Line, Inc., 286 F.2d 523 (2d Circuit 1961).
72a
Handgards argues that it should not have been required to
litigate the validity of the Orsini patent in the first place.
However, Handgards tried the case, in part, on a theory that
Ethicon prosecuted infringement actions on the Orsini patent
in bad faith, that is, knowing that the patent was invalid.
Having elected to pursue such a theory, Handgards cannot now
claim that it was prejudiced by the Court’s ruling that the
validity of the Orsini patent was at issue.
Nor can Handgards claim that it was surprised by such a
ruling. The necessity of litigating the validity of the Orsini
patent was raised by the defendants as early as September
1975, and, at a pretrial conference held on October 6, 1975, the
Court indicated its tentative agreement with the defendants’
position that the validity of the Orsini patent should be
explicity ruled upon by the jury.
Handgards’ assertion that at most it should have been
required to litigate the validity of Claim 8 of the Orsini patent
must be rejected in light of Handgards’ failure to ask for such
a limitation at any time prior to or during trial. Nor can
Handgards claim that it was trapped by its agreement to limit
the issues of the validity of the Orsini patent to the contention
that the patent was anticipated by prior art disclosed in the
3007 patent. If Handgards wanted to raise further defenses to
the validity of Orsini, it should have done so before trial, not
afterwards. Handgards did have the option of delaying the
trial while the issue of the discoverability of the attorney work
product was litigated in the Ninth Circuit; it chose to go ahead
with its defense of anticipation.
Furthermore, Handgards’ suggestion that Ethicon made a
judicial admission that other claims of the Orsini patent,
particularly Claim 9, were invalid during the preceding patent
infringement action is not supported by the record. Thus, the
Court declines to rule as a matter of law that Claims 3,4, 5 and
9 of the Orsini patent are invalid.
Moreover, Handgards’ present arguments that Claims 8 (and
6 and 7) of the Orsini patent is invalid as a matter of law
because of prior public use and prior inventorship by the 3007
patent are barred for untimeliness. See, 23 U.S.C. Section 282.
73a
The Court further declines to overturn the jury determination
that the 3007 patent did not anticipate Orsini. Accordingly, in
light of the parties’ stipulation, a judgment of validity should
enter, and Handgards’ motion to amend the judgment should
be denied.
ETHICON’S MOTION FOR A JNOV OR A NEW
TRIAL: Ethicon’s primary attack on the jury verdict is based
upon the jury’s determination that the Orsini product patent is
valid. Ethicon asserts that there is a fatal inconsistency be-
tween this finding and Findings Nos. 3 and 4. (In No. 3, the
jury found that Ethicon violated Section 2 of the Sherman At
by prosecuting the patent lawsuits against Handgards and its
predecessors in bad faith, that is with actual knowledge that
either the Gerard patent or the Orsini patent were invalid. In
No. 4, the jury found that Ethicon had prosecuted the prior
patent action as a predatory act in an overall scheme to exclude
Handgards from the relevant market.)
Ethicon first points out that the product at issue—disposable
plastic gloves sold to the hair care market—are indisputedly
within the scope of the Orsini patent.
Ethicon then argues vigorously that the possession of a valid
patent monopoly which includes within its scope the sole
product found to be the relevant market precludes a finding
that Ethicon violated Section 2 of the Sherman Act. Ethicon’s
argument rests on the assertion that antitrust liability may only
be premised upon a showing of an illegal exclusion from the
relevant market. However, Ethicon points out that it’s entirely
proper for the holder of a valid patent to exclude others from
the area covered by the patent. See, 35 U.S.C. Section 154;
U.S. v. Line Material Company, [1948-1949 TRADE CASES
q 62,225], 333 U.S. 287, 308 (1947). Thus Ethicon asserts that
it had every right to prosecute infringement actions against
Handgards in order to protect its patent rights. In essence,
Ethicon argues that one cannot have a valid monopoly on a
product under the patent laws and be guilty of illegally monop-
olizing sales of that product under the antitrust laws.
74a
Ethicon’s position in this regard has obvious appeal. It finds
support in the noted case of U.S. v. duPont & Company, {1953
TRADE CASES 4 67,633], 118 F. Supp. 41, 213-214 (D. Del.
1953) affirmed 351 U.S. 377 (1956), where the trial court stated
that a valid product patent represents a defense to a monopoly
charge on that product.
There the Court, speaking of duPont’s patent on moisture-
proof regenerated cellulose (cellophane) stated (p. 213-14):
There is no proof any moisture-proof cellophane could
have been or in fact ever was made during the life of the
product patent which was not equally covered by its
claims.
* * *
We have here a case involving the grant to duPont on
its own invention of a broad product patent, the validity
of which is conceded by plaintiff, and a patent which
evidence discloses was of such scope that no one without a
grant of a license under it could have manufactured
lawfully the product claimed. No case of this kind has
ever been brought before. To declare, as plaintiff seeks,
the award of this patent, with the rights implicit in its
ownership, is to be ignored in applying the Sherman Act,
is to ask the Court to declare the Sherman Act repealed
statutory provisions under which patents are granted.
This i will not do.
No judge has ever said where an inventor discloses his
invention in return for the grant by the Government of a
17-year exclusive right to practice the same, and, having
been awarded the patent, produces the product, he is
guilty of monopolization. The valid product patent repre-
sents a defense to the monopoly charge.
Ethicon then asserts that since the product at issue is covered
by a valid patent, any other anticompetitive activity or the
acquisition of any other illegal or invalid patents in regard to
the same product must be disregarded.
———
I IIIIIISSSSSSSSES SZ TESS hg OL
75a
I do not believe that this is the law. The inherent tension
between the patent laws and the antitrust laws has already been
recognized by this Court. However, even if the Orsini patent is
determined to be valid, the jury verdict can be sustained under
the overall scheme theory established in Kobe v. Dempsey
Pump and its progeny. See Kobe, Inc. v. Dempsey Pump Co.,
[1952 TRADE CASES 4 67,312], 198 F.2d 416 (Tenth Circuit
1952) cert. denied, 344 U.S. 837; Mach-Tronics v. Zirpoli,
[1963 TRADE CASES 4 70,752], 316 F.2d 820 (Ninth Circuit
1963); Rex Chainbelt, Inc. v. Harco Products, Inc., [1975-1
TRADE CASES 4 60,179], 512 F.2d 993 (Ninth Circuit 1975)
cert. denied _____ U.S. ,
These cases and others in the same line stand for the
proposition that a party violates the antitrust laws by bringing
a patent infringement action or actions as one predatory act in
furtherance of or as an integral part of an overall scheme to
monopolize.
The Ninth Circuit summarized the rule as follows:
Where it is shown that an infringement action has, in
fact, been brought as an integral part of an agreement or
plan to violate the antitrust laws . . . treble damages
should be recoverable, whether or not there was a colora-
ble claim of infringement. Rex Chainbelt, sup.., 512 F.2d
at 1005.
MOTIVE
Even if the Orsini patent is valid, the plaintiff argued and
the jury could have properly found that the Orsini patent was
acquired for an anticompetitive motive and as part of an
overall scheme to exclude Handgards as a competitor.
The most recent case in the Kobe line acknowledged that
infringement enforcement, while lawful in itself, may be part
of an unlawful scheme to monopolize violative of the antitrust
laws. Sulmeyer v. Seven-Up Co., CCH 1976-1 TRADE CASES
q¢ 60,799 (S.D.N.Y. 1976). There the Court stated:
76a
Further, if the institution of patent enforcement pro-
ceedings is part of a purposeful drive to obtain and
preserve a monopoly, the fact that a patent is valid and
infringed will not preclude a finding of an antitrust
violation.
In Rex Chainbelt, the Circuit, referring to trێ report of the
Attorney General’s Committee to Study the\ Antitrust Laws
(1955) recognized that threats of suits under weak and narrow
patents may be a potent weapon in deterring competition. See
also, Prelin Industires, Inc. v. G & G Crafts, Inc., 375 F.Supp.
52, 70 (W.D. Okla. 1972).
Ethicon argued that the overall scheme theory is only appli-
cable where the patent holder attempts to misuse his patent by
illegally extending it beyond its scope. I do not read the Kebe
cases to include such a requirement. Ethicon further asserts
that there is insufficient evidence to support a finding that the
infringement actions were prosecuted as predatory acts in an
overall scheme to monopolize. However, I am satisfied that
there is sufficient evide
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